CHAPTER 2. Shale Gas Boom, Trade and Environmental Policies: Global Economic and Environmental Analyses in a Multidisciplinary Modeling Framework

Abstract

While shale oil and gas are controversial in some quarters due to perceived environmental risks, there is little doubt that the shale oil and gas boom is having a major positive impact on the US economy. But how large is it? We use a global general equilibrium economic model to estimate the economic impacts of the shale oil and gas technology on the US economy. We have made simulations with and without expansion in shale resources (positive and negative shocks). From 2008 through 2035 the US GDP on average would be 2.2% higher than its 2007 level with the expansion in shale resources (positive shock). Without the expansion in shale resources (negative shock) 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 projected to be 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 gas exports are restricted, 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 +2.9% employment gains. With the shale expansion, oil and gas prices drop by 6% and 16%, respectively, in the period 2007–35. This price drop stimulates an expanded economic activity. If gas exports are restricted, natural gas prices drop 24.1%, providing additional economic stimulus.