By Pablo Eguiguren

via Chicago Policy Review

 

Just recently, New York State officially banned the use of hydraulic fracturing. The official statement stated that prohibition “is the only reasonable alternative.” Other cities and counties have also embarked upon the same path. The main concerns are the potential risks of fracking, including methane leaks to groundwater and even a possible association with earthquakes. However, some people argue that there are some environmental benefits of fracking. For instance, natural gas is a less carbon intensive source of energy (compared to coal and oil), so it is helping to reduce greenhouse emissions.

Even though there is no consensus on the overall environmental effect of these processes, a recent study shows their economic impact by estimating the net benefits of the natural gas industry between 2007 and 2013. The paper points out that, in this period, shale gas extraction resulted in an increase in US natural gas production of more than 25 percent. This significant growth led to a sharp fall in prices—prices were cut almost in half when comparing the average of the past decade to that if the supply had not increased so abruptly. These supply and price changes had relevant distributional impacts. While estimating the benefits, the authors also note that environmental consequences must be taken into account for a comprehensive social welfare analysis in the US.

Consumers have seen the most benefits from shale gas extraction. Residential and industrial users’ natural gas and electricity bills have decreased. Among the states benefitting the most are those with intensive electric power consumption and a larger industrial sector, such as Texas and Oklahoma, and also those with colder weather, such as Illinois and Wisconsin. All industrial sectors benefit, as they are consumers of natural gas, at least indirectly through electric energy. Most industries transfer the lower cost of gas to final consumers…

Areas of Focus: Energy Markets
Definition
Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...
Hydraulic Fracturing
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Hydraulic Fracturing
Hydraulic fracturing is perhaps the most important innovation in the energy system in the last half century, but nearby communities are concerned about its potential effects on water quality, public...
Definition
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.