Dr. Terry Iverson has been awarded a CSU Energy Institute Hydraulic Fracking project.

An Economic Analysis of Local Opposition to Hydraulic Fracturing

Colorado State University Energy Institute

Project Description:

Unconventionally extracted oil and gas have changed the energy future of the United States.  Lower gas prices have facilitated a move away from coal and created a cost advantage for manufacturers.  Despite these benefits, the increased use of hydraulic fracturing (HF) has raised many concerns about the environmental and health costs associated with drilling.  As a result of public trepidation, several local governments in the US have implemented or considered bans on the use of HF.  In this project, we model the distribution of HF costs and benefits for local communities and discuss the circumstances under which these differ from broader costs and benefits.  Specifically, we consider the distribution of resource ownership, uncertain external costs associated with oil and gas extraction, and the potential for learning about the true costs of the technology.  The ability to learn over time creates an additional ‘option value’ of waiting until more is known about potential local costs.  Our modeling approach contributes to the economics literature by linking an economy-wide Computable General Equilibrium model with a dynamic model that explicitly includes learning about the costs of HF.  Study results can help understand and correct discrepancies in energy policy incentives at the local and national scales.