Environmental Engineering Reference
In-Depth Information
In this chapter we have used a modeling framework which assumes per-
fect competition in all markets, including energy. The implemented model
also allows substitution among capital and other primary inputs. In this
modeling framework, when energy prices fall, due to increases in their
supplies, energy intensity and emissions per unit of output go up. In the real
world, however, energy prices may not go down due to imperfect com-
petition in energy markets. For example, OPEC may react to the expansion in
US supply of energy and adjust its oil supply. In this case energy prices may
not fall as much, and hence emissions per unit of output may not go up.
Furthermore, we have not imposed any emissions regulation policy in our
model. In practice, the government probably would impose regulations to
encourage producers to reduce emissions per unit of output.
7 Conclusions
Clearly, the shale oil and gas boom has a major impact on the US economy.
Based on the predictions of our model, from 2008 to 2035 the US GDP on
average would be 2.2% higher than its 2007 level with the expansion in shale
resources. Without that expansion, on average the US GDP would be 1.3%
lower than its 2007 level during the same time period. That means that US
GDP over the entire period of 2008-35 on average is 3.5% higher than it would
have been without the shale boom. The welfare impacts are also quite large.
On average, the welfare difference between the positive shock and the negative
shock is $473 billion per year over the period 2008-35. If we restrict gas ex-
ports, the magnitude of the annual gains increases to $487 billion.
Other impacts are important as well. The shale boom creates substantial
employment growth, with jobs growing on average about 1.8% in the positive
shock and declining about 1.1% in the negative shock for a net of about
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2.9% employment gains. With shale expansion, oil and gas prices drop by
6% and 16%, respectively, in the period 2007-35. This price drop stimulates
expanded economic activity. If gas exports are restricted, natural gas prices
drop 24.1%, providing additional economic stimulus. The overall trade deficit
increases, unlike the improvement in energy trade balance, interestingly,
driven by the increased economic activity stimulated by the shale boom.
Emissions also increase for the same reason in the absence of an emission
reduction policy.
Finally, our analysis shows that restricting gas exports provides a small but
positive benefit for the economy. On average, the annual economic welfare is
$13.3 billion higher with the gas export restriction in place. In the absence of
emissions reduction policies, energy intensity increases which causes higher
emissions per dollar of GDP.
References
1. S. Brown, S. Gabriel and R. Egging, Abundant Shale Gas Resources: Some
Implications of Energy Policy, Resources for the Future, Washington, DC,
2010.
