VoxEU: The housing-market impacts of shale-gas development
Compared to coal and oil, shale gas offers the prospect of greater energy independence and lower emissions of carbon dioxide and other pollutants. However, fracking is controversial due to the local externalities it creates – particularly because of the potential for groundwater contamination. This column presents evidence on the size of these externalities from a recent study of house prices. The effect attributable to groundwater contamination risk varies from 10% to 22% of the value of the house, depending on its distance from the shale gas well.
Technological improvements in the extraction of natural gas from shale rock have transformed the industry.
- Shale gas under the populated northeast US were thought to be uneconomical less than ten years ago, but now contribute a major share of US gas supply.
- In 2000, shale gas accounted for 1.6% of total US natural gas production. This rose to 4.1% in 2005, and by 2010 it had reached 23.1% (Wang and Krupnick 2013).
Natural gas has been hailed as a bridge to energy independence and a clean future because of its domestic sourcing and, compared with coal and petroleum derivatives, a smaller carbon footprint and lower emissions of other pollutants (e.g. particulates, sulphur dioxide, carbon monoxide, and nitrous oxides). Furthermore, proponents note that jobs associated with shale gas development will boost local economic growth (Weber 2012).
Yet opposition to unconventional methods of natural gas extraction has emerged. Opponents cite:
- The potential for damages from methane leakage (Howarth et al. 2011, Hultman et al. 2011, Burnham et al. 2011);
- Water contamination (Osborn et al. 2011, Olmstead et al. 2013);
- Local air pollution (Kargbo et al. 2010, Schmidt 2011, Howarth et al. 2011); and
- Increased congestion from truck traffic (Bailey 2010, Considine et al. 2011).