EnergyFactor By ExxonMobil | Pespectives has a new home

The price of prohibiting energy production

We know that energy development is good for the economy – both at the national and local level.

So it stands to reason that policies that actively discourage energy development might prove economically harmful.

Colorado_Ban_3-2014That proposition appears to be confirmed this week by a new study out of Colorado. A team of economists at the University of Colorado-Boulder business school have looked into what might happen if Mile High State voters ban the practice of hydraulic fracturing.

The results of their analysis are eye-opening and suggest that a ban on shale energy development in Colorado – one of the nation’s top energy producers – would come at a very high price to the state’s economy and citizens.

Jobs, GDP, and tax revenue lost

In just the first five years after a ban on fracking, they estimate the state would lose $8 billion of gross domestic product (GDP) and the state employment rolls would drop by 68,000.

It gets worse over time. Looking out over a 25-year period, they estimate job losses of 93,000 and $12 billion in lost GDP.

And as the Denver Business Journal notes, “The implications for local and state governments are huge, too.” The CU-Boulder study figures that state and local governments would lose nearly a billion dollars during the period in question if Colorado were to institute a ban.

“While industry taxes have the greatest impact on local government spending, the industry also pays taxes that flow to the Colorado general fund, which is then spent on everything from education to infrastructure,” write the study’s authors.

That flow of money would dry up.

Lessons from the Marcellus

This shouldn’t come as much of a surprise. We are seeing this scenario play out in the Marcellus Shale, where Pennsylvania has embraced responsible shale energy development while New York has effectively banned it.

Last year I highlighted a report written by Dianna Furchtgott-Roth, the former chief economist at the U.S. Department of Labor, which compared the economic performance of the two states.

Pennsylvania’s economy receives a big boost from drilling in the Marcellus Shale. New York, on the other hand, has been missing out on a golden opportunity to boost residents’ incomes and increase the flow of tax revenues into state and local treasuries.

“There are immediate and concrete benefits in hydrofracturing wells,” wrote Furchtgott-Roth. “More money in the pockets of the people, more tax revenue for the state.” A lot more jobs, too, I might add.

Like the Marcellus Shale economic analysis, the new study from Colorado provides a good understanding of the immense lost opportunities that would result from restricting energy development.

  • Worth a deeper look...