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Getting the Boom Without the Bust

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Getting the Boom Without the Bust GETTING THE BOOM WITHOUT THE BUST: GUIDING SOUTHWESTERN PENNSYLVANIA THROUGH SHALE GAS DEVELOPMENT ENVIRONMENTAL LAW INSTITUTE & WASHINGTON & JEFFERSON COLLEGE CENTER FOR ENERGY POLICY AND MANAGEMENT 2014 GETTING THE BOOM WITHOUT THE BUST: GUIDING SOUTHWESTERN PENNSYLVANIA THROUGH SHALE GAS DEVELOPMENT Environmental Law Institute Washington & Jefferson College Center for Energy Policy and Management 2014 Acknowledgments The authors gratefully acknowledge the support of the Heinz Endowments for this project. The contents of this Report are solely the responsibility of ELI and W&J and no other endorsement should be inferred. ELI contributors to this project were James McElfish, Elissa Parker, Marion Boulicault, Valerie Pinkerton, David Roche, Shannon Smyth and Carolyn Clarkin. Washington & Jefferson College contributors to this project were Diana Stares, Leslie Dunn, Yongsheng Wang, Maxwell Chomas, Bayleigh McMenamin, and Alexander Mey. Additional contributors include James Barrett, Jill Kriesky, Celia Lewis, Linda Stares, John W. Ubinger, Jr., Beth Weinberger, and Corey Young. The researchers gratefully appreciate the information provided by hundreds of interviewees including state and local officials, nongovernmental organizations, academics, and industry representatives throughout the course of this project. They also thank Jeffrey Norton and John Ubinger for their diligent review of this paper. Getting the Boom Without the Bust: Guiding Southwestern Pennsylvania Through Shale Gas Development. Copyright © 2014 Environmental Law Institute, Washington, D.C., and Washington & Jefferson College, Washington, Pa. All rights reserved. ii TABLE OF CONTENTS Page EXECUTIVE SUMMARY 1 I. INTRODUCTION AND METHODOLOGY 4 II. HISTORICAL BACKGROUND: RESOURCE EXTRACTION ECONOMIES AND THEIR IMPACTS 7 A. General Experience with Resource Extraction Industries 7 B. Pennsylvania’s Historical Experience 9 C. Successful Resource Extraction Experiences 11 III. MARCELLUS SHALE GAS DEVELOPMENT IN PENNSYLVANIA 14 A. Current Shale Gas Development in Pennsylvania 14 Drilling and Production Activities 14 Natural Gas Development and Transmission Infrastructure 17 Natural Gas Prices and Pennsylvania 20 Projections as to Future Development 21 B. Shale Gas Development in Southwestern Pennsylvania 22 Southwestern Pennsylvania Production and Gas Types 22 Southwestern Pennsylvania Gas Infrastructure 25 IV. SOCIO-ECONOMIC IMPACTS OF SOUTHWESTERN PENNSYLVANIA’S SHALE GAS DEVELOPMENT 26 A. Employment Effects 26 Shale Gas Employment 27 Employment Estimates Differ 27 Employment Growth by Sector 29 Southwestern Pennsylvania Regional Employment Effects 32 Workforce Development 33 Improvements in STEM Education 35 B. Housing Values 35 C. Road Impacts and Repair 37 D. Growth of Personal Income of Community Residents 41 V. ENVIRONMENTAL IMPACTS OF SHALE GAS DEVELOPMENT 43 A. Use of Water in Unconventional Gas Development 43 Recovery and Disposal of Injected Fluids and Wastewater 46 B. Air Quality Effects and Concerns 49 Sources of Air Pollution from Shale Gas Development 50 iii Potential Air Pollutants 50 Greenhouse Gas Emissions 51 C. Environmental Laws Governing Natural Gas Development in Pennsylvania 53 Agencies Responsible 53 Water Quality Protection 55 Comparisons with Other States 57 Water Quantity Safeguards 59 Treatment and Disposal of Wastewater and Underground Injection 60 Air Quality Protection 61 Habitat and Ecosystem Protection 63 Enforcement 63 VI. HEALTH IMPACTS OF SHALE GAS DEVELOPMENT 65 A. Completed Research 66 Collecting Baseline Health and Environmental Data 66 Identifying Exposure to Potential Pollutants 68 Workplace/Occupational Risk 68 Non-Occupational Risk: Air and Water Quality 69 Identifying Health Impacts of Exposure 72 Stress and Environmental Health Risk 73 B. Health Related Research in Progress 75 VII. ECONOMIC IMPACTS: SHALE GAS REVENUES AND LOCAL GOVERNMENTS 77 A. Tax Revenues Collected by Local Governments 77 B. Rentals and Royalties for Leases of Publicly Owned Land 78 C. Shale Gas Development Impact Fees 79 How the Impact Fees Work 79 Collecting the Impact Fee from Producers 79 Distributing the Impact Fees to State and Local Governments 81 Authorized Uses of Impact Fees 83 Municipal Use of Impact Fees (2011 Impact Fees Distributed in 2012) 84 Allegheny County Municipalities 87 Greene County Municipalities 88 Washington County Municipalities 89 Fayette County Municipalities 90 County Government Use of Impact Fees (2011 Impact Fees) 91 Overall Comparisons 93 D. Alternative Taxing Mechanisms 96 Severance Taxes and Impact Fees 96 Use of Revenues from Natural Resource Extraction 99 Permanent Funds 99 iv Distributions to Local Governments 100 VIII. RESPONDING TO IMPACTS: ECONOMIC STRATEGIES 102 A. Economic Diversification 102 Labor and Human Capital 105 Clustering and Spillovers 105 Business and Technology Incubators 106 Tourism and Related Resources 108 IX. COMMUNITY RESPONSES TO IMPACTS 113 A. Local Land Use Regulation of Some Aspects of Shale Gas Operations 113 B. Operator-Community Engagement Practices in Southwestern Pennsylvania 118 C. Community Consensus-Building Processes for Planning Shale Resource Development 120 The Case for Community-Scale Consensus-Building Processes 121 Limitations of the Environmental Regulatory Framework 122 Limitations of the Land Use Decision-Making Process 124 The Utility of the Consensus-Based Decision-Making Processes for Shale Development 124 The Corporate Responsibility Perspective 124 The Land Use Conflict Resolution Perspective 125 Community-Scale Consensus-Building 126 The Consensus-Building Spectrum 126 Managing a Consensus-Building Process in the Marcellus Shale of Pennsylvania 127 X. COMMUNITY BEST PRACTICES 130 A. Jobs and Workforce Training 130 B. Housing Values 131 C. Roads 131 D. Environmental Impacts 132 E. Public Health Research 132 F. Planning for Impact Fees 134 G. Community Responses to Impacts 135 APPENDIX A 137 RESEARCH SURVEY ON EFFECTS OF MARCELLUS SHALE DEVELOPMENT ON COMMUNITIES - SURVEY RESULTS: WASHINGTON & GREENE COUNTIES 2013-14 A. Survey Description 137 v B. Overall Reaction to Marcellus Shale Development 138 Jobs Municipal Revenues Changes to the Municipality Most Difficult Impact Relationship with Industry C. Reaction to Act 13 143 Adequacy of Impact Fees Spending Impact Fees Operators Before & After Act 13 D. Other Strategies for Dealing with Impacts 146 Potential for Collaboration Other Funds Need for More Information Innovative Ideas Sample Survey 148 ENDNOTES 150 vi EXECUTIVE SUMMARY Major production of natural gas in Pennsylvania from unconventional wells drilled into the Marcellus Shale began in earnest in 2008, with approximately 200 wells in operation by year’s end.1 Since then, drilling has grown exponentially, with over 6,649 shale gas wells in operation in 2013.2 The rapid growth of shale gas extraction in Pennsylvania has presented both challenges and opportunities. The industry has created jobs, generated wealth for some property owners, and after the passage of a state impact fee, provided local governments with a new source of revenue. At the same time, the rapid development of these resources has raised questions of management and planning for local governments in the Commonwealth, including consideration of socio-economic, health, environmental, and economic impacts. This report is not intended to be a comprehensive examination of all issues concerning natural gas extraction in Pennsylvania. It focuses on one aspect of the phenomenon: avoiding the boom and bust cycle that has characterized other natural resource extraction efforts in our history. The report reviews impacts and opportunities facing communities in southwestern Pennsylvania – recognizing that there are different characteristics of the shale gas development process and highlighting approaches which might be useful in this region to avoid future adverse economic consequences. This study is organized into ten discrete chapters, beginning with the historical background then moving to consideration of socio-economic, environmental, and health impacts. Of special importance to local Pennsylvania communities will be the chapter on economic impacts, including the state shale gas development impact fees. The last three chapters are directed at ameliorating the impact of a boom and bust scenario through economic strategies, community regulatory and planning alternatives, and community best practices. It is wise to study the boom and bust cycle from a historical perspective. While resource extraction has long been regarded as an economic benefit, a body of academic literature suggests that long term growth based chiefly on resource extraction is rare, and may sometimes result in a “bust.” Factors relevant to a bust cycle are summarized in Chapter II and include the ‘crowding out’ effect that resource extraction dominance can have on other economic sectors, the price volatility of commodities being extracted, the transience of an extractive industry workforce, localized inflation, and a tendency for communities to overestimate the need for and overspend on expansion and infrastructure. Pennsylvania has experience in this area in oil, coal, and timber production, where towns that once boomed mightily ultimately waned and where population decreases have left struggling communities. Elsewhere, communities, states, and nations have mitigated impending “busts” by investing their resource-based revenues into structured funds and by providing long-term good governance and stewardship of revenues generated. 1
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