Shale gas boom, trade, and environmental
policies: Global economic and environmental
analyses in a multidisciplinary modeling
framework
Farzad Taheripour, Wallace E. Tyner, and Kemal Sarica
Purdue University
July 28-31, 2013
32nd USAEE/IAEE North American Conference
Anchorage, AK
1
Outline
 Background and literature review,
 Expected expansion in shale oil and gas,
 A short review of existing work in this area,
 Objectives of this paper,
 Modeling framework,
 GTAP and MARKAL-Macro models,
 Modifications in the GTAP model and its data base,
 Experiments,
 Main numerical results,
 Conclusions.
2
Background (1)
Expansion in shale oil and gas
Expected oil production
Expected gas production
Source: Annual Energy outlook 2013 (DOE)
3
Background (2)
Literature review
 Shale gas and environmental policies:
 Main conclusion: expansion in supply of natural gas in
combination with appropriate carbon polices will help the US
economy to achieve low-carbon standards in future [Brown et
al. (2010), Paltsev (2011), Jacoby (2011)]
 Shale gas and gas exports:
 Gas export will benefit resource owners, negatively affect
energy intensive industry, and increase domestic gas prices
[NERA 2012, Deloitte 2011, Brooks (2012), Ditzel et al. (2013),
Sarica and Tyner (2013)]
 Shale gas and economic impacts:
 Shale gas will improve welfare, positively affect GDP, and
generates job and investment opportunities [IHS Global
Insight Inc (2011), Citi GPS (2012) and Arora (2013)]
4
Background (3)
Objective of this paper
 Exiting studies are mainly concentered on expansion in
shale gas and have ignored the fact new extraction
technologies will expand supplies of oil and gas jointly,
 They do not provide comprehensive economic and
environmental analyses,
 This paper fills the gap in this area and evaluates
economic and environmental impacts of expansion in
shale oil and gas using a global hybrid modeling
framework through 2035.
5
Modeling framework (1)
A hybrid modeling framework
Soft link
Endowments: Labor,
Land, Capital, and
Resources
Commodities: including
energy
GTAP model
MARKAL-Macro model
6
Modeling framework (2)
CES
Production
function and
demands for
inputs in the
GTAP model
7
Modeling framework (3)
CDE
Expenditure
function and
household
demands for
good and
services
8
Modeling framework (4)
Major modifications in GTAP
 Correcting links between gas and gas distribution
sectors,
 Improving firms’ demand for energy inputs,
 Dividing natural resources between oil-gas and
other types of resource,
 Treatment of unemployment
9
Modeling framework (5)
New CES
Production
function and
demands for
inputs in
GTAP model
10
Experiments
Three main experiments
 Experiment I: Changes in US oil and gas with no
expansion in shale resources,
 Experiment II: Changes in US oil and gas with expansion in
shale resources, while we assume no growth in crude oil
exports,
 Experiment III: Changes in US oil and gas with expansion in
shale resources, with no change in crude oil or natural gas
exports. Petroleum product exports are free to expand,
 For each experiment, we run simulations for the following 5
time segments: 2007-12, 2012-17, 2017-2022, 2022-2027,
and 2027-2035.
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Major numerical results (1)
% Changes in US production by sector 2007-2035
Experiment
Experiment Experiment
(%)
Sectors
I
Crops
Livestock
Forestry
Fishing
Food
Coal
Oil
Gas
Gas Distribution
Oil Products
Electricity
Energy Intensive Industries
Other Industries
Services
II
0.0
-1.1
-0.8
-1.0
-1.2
1.2
-31.6
-16.6
-5.5
-4.8
-1.4
-0.5
-0.9
-1.5
III
0.0
1.7
1.2
1.4
1.9
-2.1
25.8
52.0
11.8
4.8
2.8
0.7
1.4
2.4
0.1
1.9
1.6
1.8
2.2
-5.6
25.8
52.0
25.4
4.9
4.4
2.1
1.9
2.6
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Major numerical results (2)
Changes in US prices by sector 2007-2035 (%)
Sectors
Crops
Livestock
Forestry
Fishing
Food
Coal
Oil
Gas
Gas Distribution
Oil Products
Electricity
Energy Intensive Industries
Other Industries
Services
Experiment Experiment
I
II
-0.4
0.7
-0.5
0.8
-0.5
0.8
-0.1
0.5
-0.4
0.6
-0.3
0.4
9.3
-5.9
8.8
-16.0
4.8
-9.1
3.5
-2.9
0.8
-1.6
0.0
0.1
-0.3
0.5
-0.4
0.7
Experiment
III
0.6
0.9
0.8
0.2
0.5
-0.9
-10.8
-24.1
-14.2
-4.5
-3.3
-0.2
0.5
0.7
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Major numerical results (3)
Changes in US GDP compared with 2007
14
Major numerical results (4)
Changes in US labor & capital demands for 2007-2035
15
Major numerical results (5)
Impacts on US trade balance 2007-2035
(figures are in $ million)
Sectors
Agriculture Products and Food
All energy items
Coal
Oil
Gas and Gas Distribution
Oil Products
Electricity
Industry and services
Total
2007-12
3,680
-43,602
155
-26,195
-14,307
-3,270
14
71,777
31,855
2012-17
-6,021
72,138
-212
14,658
55,812
1,884
-4
-115,831
-49,713
2017-22
-5,505
48,908
-67
14,042
30,294
4,314
325
-98,939
-55,536
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Major numerical results (6)
Changes in US welfare compared to 2007
17
Major numerical results (7)
CO2 emissions per US dollar production at 2007 prices
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Conclusions (1)
 The shale oil and gas boom has a major impact on the US
economy,
 During the time period from 2008 through 2035 the US GDP on
average would be 2.2% higher than its 2007 level with the
expansion in shale resources,
 Without the expansion in shale resources on average the US GDP
will be 1.3% lower than its 2007 level during the same time
period,
 The expansion in shale resources boosts US GDP by 3.5% of its
2007 level during the time period 2008-37.
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Conclusions (2)
 The welfare gains are also quite large,
 On average the welfare difference between the positive shock and
the negative shock is $473 bil. per year over the time period from
2008 through 2035.
 If we restrict gas exports the magnitude of the annual difference
increases to $487 billion,
 The shale boom creates substantial employment opportunities
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.
 All of these figures are compared with 2007.
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Conclusions (3)
 The expansion in shale resources improves the US energy trade balance
by more than $72 billion in 2035 compared to 2007,
 With no expansion in shale resources the US net energy imports goes up
by $44 billion in 2035 compared to 2007,
 Expansion in shale resources causes a worsening in the overall trade
deficit driven by the increased level of economic activity.
 In the absence of emissions reduction policies, the expansion in shale
resources will increase CO2 by 4.1% between 2007-2035,
 Imposing a restriction on gas exports improves economic welfare but
increases CO2 emissions by 6.9%,
 The expansion in shale resources generates huge opportunities for the
US economy to grow.
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Thank you!
Questions and Comments