EnergyFactor By ExxonMobil | Pespectives has a new home

Policies matter too

A recent piece on The Atlantic’s website about “the new geography of jobs” caught my eye. The article notes a point that I have made many times before – that much of the nation’s job growth in recent years results from investments by the oil and natural gas industry.

“If you want to understand how to create jobs – not just a few at a time, but hundreds of thousands at once – look to Texas and North Dakota,” writes Derek Thompson.

He points out that the oil and gas revolution under way, thanks to advances in hydraulic fracturing and directional drilling, doesn’t just benefit the companies directly involved in resource extraction.

“The benefits are broadly shared,” Thompson writes. He points out that the Bureau of Labor Statistics has shown that activity in the Bakken Shale in North Dakota and Montana “created more work in construction, transportation, and warehousing. Other industries accounted for another third of all new jobs. An oil boom is a wide and generous thing.”

Location, location, location is only partly right

He’s certainly correct about that. But I do have a quibble with something else Thompson writes.

Thompson argues that perhaps the biggest explanation for the post-recession economic success of states in the middle of the country is that “they did well because many of them shared something in common at the trans-state level: bountiful energy resources under their feet.”

My problem with this analysis is that it’s only half right.

Yes, Texas and North Dakota are blessed with abundant natural resources. But their economies are booming because those states have crafted policies that allow and encourage industry to invest private capital in resource development under a clear set of rules. That’s not necessarily the case in other locales.

A study in contrasts: PA and NY

Policy can matter just as much as geography.

There is no better proof than in Pennsylvania and New York. Both sit above the gigantic Marcellus Shale formation. Over the last decade, Pennsylvania has encouraged development of the natural gas resources in the Marcellus. New York, by contrast, has effectively instituted a moratorium on hydraulic fracturing in its portion of the shale formation.

The results have been astonishing. Pennsylvania’s economy has gotten a huge boost from drilling, while New York’s has been missing the boat.

What policymakers in New York have shown is that it’s not enough to be, in Thompson’s words, “the beneficiaries of considerable topographical fortune.”

Ripples and lessons

Policies supporting safe and responsible energy development can also benefit states that don’t have an abundance of natural resources.

The Minneapolis Federal Reserve Bank has shown that oil and gas production in North Dakota’s Bakken region has produced economic benefits rippling out to Iowa, Minnesota, and Nebraska. Like the comparison between New York and Pennsylvania, that point upends Thompson’s contention.

There’s a lesson here for other states as well as the federal government, which is looking at bringing in new regulations for oil and gas development on federal lands: Predictable, sensible policies can protect the environment and encourage development.

  • Worth a deeper look...