Research & Commentary by Tim Benson, The Heartland Institute
A report released in October 2019 by the White House Council of Economic Advisors (CEA) estimates increased oil and natural gas production from hydraulic fracturing (“fracking”) saves American families $203 billion annually on gasoline and electricity bills. This breaks down to $2,500 in savings per family per year.
“From 2007 to 2019, innovation in shale production brought an eight-fold increase in extraction productivity for natural gas and a nineteen-fold increase for oil,” the report states. “These productivity gains have reduced costs and spurred production to record-breaking levels. As a result, the United States has become the world’s largest producer of both commodities, surpassing Russia in 2011 (for natural gas) and Saudi Arabia and Russia in 2018 (for oil). CEA estimates that greater productivity has reduced the domestic price of natural gas by 63 percent as of 2018 and led to a 45 percent decrease in the wholesale price of electricity. Shale production has also reduced the global price of oil by 10 percent as of 2019.”
Eighty percent of the $2,500 annual household savings comes from the reduction in price of natural gas, which has helped lower electricity costs by 45 percent since 2007. The other 20 percent of savings comes from lower costs for gasoline and heating fuels.
For low-income families, who spend the largest share of their income on energy costs, these savings are very significant. For those families in the lowest income quintile, it represents a savings of 6.8 percent of their total income. For the highest income quintile, it still represents a 1.3 percent savings.
“In other words,” the report notes, “lower energy prices are like a progressive tax cut that helps the poorest households the most. The variation in savings stems heavily from differences in spending on electricity: according to the 2018 Consumer Expenditure Survey, the bottom 20 percent of households account for 8.6 percent of expenditures in general but 14.1 percent of electricity expenditures.”
However, these benefits aren’t spread out evenly among the states. The report notes states with anti-fracking and anti-fossil fuel agendas have actually increased costs for their residents. CEA specifically cites New York, which banned fracking and “stymied new pipeline construction.” According to CEA, “these policies have led to falling natural gas production in the State, greater reliance on energy produced elsewhere, and higher energy prices. New York’s failure to approve new pipelines causes consumers in New York and New England to pay an estimated $2 billion more in energy costs each year, or $233 for a family of four.”
The report also notes the positive effects the fracking revolution has had on the environment, estimating it lowered energy-related greenhouse gas (GHG) emissions by 527 million metric tons per year from 2005 to 2017. The represents 9 percent of 2005 GHG emission levels. “This contributed to a greater decline in GHG emissions (relative to the size of the economy) in the United States than in the European Union over the same period,” the report says. “The same is also true of particulate emissions, which have declined much more in the United States (57 percent) than in the European Union (41 percent) … If policy makers had averted the shale revolution through a ban on hydraulic fracturing or other integral components to shale development, energy sector GHG emissions would most likely be higher today. Absent low natural gas prices, renewable electricity sources are unlikely to have enabled similar emissions reductions.”
“The shale revolution provides a striking example of the potential of private sector energy innovation and the resulting implications for consumers and the environment,” the report concludes. “In less than a decade, productivity in oil and gas extraction has increased several fold. As a result, production costs have fallen, making energy goods and services more affordable for consumers, especially lower-income households. By several measures, the shale revolution has led to greater environmental progress in the United States than in the European Union, which exercises more government control and has more stringent emissions policies.”
Fracking can ensure the United States remains the world’s largest energy producer. Policymakers should not put unnecessary and detrimental regulations on the natural gas and oil industries, which are safe, responsible, and have had an enormously positive impact on the economy.
The following documents provide more information about fracking and fossil fuels.
The Value of U.S. Energy Innovation and Policies Supporting the Shale Revolution
This report from the White House Council of Economic Advisors estimates that increased oil and natural gas production due to the fracking revolution is saving American families a combined $203 billion annually, or around $2,500 per family. On top of this, the fracking revolution is benefitting the environment, lowering energy-related greenhouse gas emissions by 527 million metric tons between 2005 and 2017.
Debunking Four Persistent Myths about Hydraulic Fracturing
This Heartland Institute Policy Brief by Policy Analyst Timothy Benson and former Heartland communications intern Linnea Lueken outlines the basic elements of the fracking process and then refutes the four most widespread fracking myths, providing lawmakers and the public with the research and data they need to make informed decisions about hydraulic fracturing.
The Local Economic and Welfare Consequences of Hydraulic Fracturing
This comprehensive study published by the National Bureau of Economic Research says fracking brings, on average, $1,300 to $1,900 in annual benefits to local households, including a 7 percent increase in average income, a 10 percent increase in employment, and a 6 percent increase in housing prices.
Local Fiscal Effects of a Drilling Downturn: Local Government Impacts of Decreased Oil and Gas Activity
in Five U.S. Shale Regions
This study from Resources for the Future finds 82 percent of communities in the five largest shale regions in the United States experienced a net fiscal benefit from hydraulic fracturing despite a large drop in oil and natural gas commodity prices starting in 2014.
Impacts of the Natural Gas and Oil Industry on the U.S. Economy in 2015
This study, conducted by PricewaterhouseCoopers and commissioned by the American Petroleum Institute, shows that the natural gas and oil industry supported 10.3 million U.S. jobs in 2015. According to the Bureau of Labor Statistics, the average wage paid by the natural gas and oil industry, excluding retail station jobs, was $101,181 in 2016, which is nearly 90 percent more than the national average. The study also shows the natural gas and oil industry has had widespread impacts in each of the 50 states.
The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. Instead, the paper urges for the data to be considered and applied to the narrative.
What If … Hydraulic Fracturing Was Banned?
This is the fourth in a series of studies produced by the U.S. Chamber of Commerce’s Institute for 21st Century Energy. It examines what a nationwide ban on hydraulic fracturing would entail. The report’s authors found by 2022, a ban would cause 14.8 million jobs to “evaporate,” almost double gasoline and electricity prices, and increase natural gas prices by 400 percent. Moreover, cost of living expenses would increase by nearly $4,000 per family, household incomes would be reduced by $873 billion, and GDP would be reduced by $1.6 trillion.
What If … America’s Energy Renaissance Never Happened?
This report by the U.S. Chamber of Commerce’s Institute for 21st Century Energy examines the impact the development of shale oil and gas has had on the United States. The report’s authors found that without the fracking-related “energy renaissance,” 4.3 million jobs in the United States may not have ever been created and $548 billion in annual GDP would have been lost since 2009. The report also found electricity prices would be 31 percent higher and gasoline prices 43 percent higher.
Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).
The Social Benefits of Fossil Fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.