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When Externalities Are Taxed: The Effects and Incidence of Pennsylvania’s Impact Fee on Shale Gas Wells

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  • Katie Jo Black
  • Shawn J. McCoy
  • Jeremy G. Weber

Abstract

To pay for environmental and public infrastructure costs associated with shale gas wells, Pennsylvania introduced a per-well impact fee despite concerns that it would discourage industry investment. Using a quasi-experimental design and data that nearly cover the universe of leases and wells in Pennsylvania, Ohio, and West Virginia, we find that leasing by energy firms declined dramatically after the fee’s enactment, but little to no declines in well permitting or drilling occurred in the most geologically similar subsample. We estimate that at least 60% of the decline in leasing reflects a liquidity crunch linked to retroactive application of the fee in a time of low natural gas prices. We also observe limited pass-through of the fee to resource owners. Firms could not change the terms of leases signed before the fee, and only half of the fee was passed through in new leases, primarily through a lower royalty rate.

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  • Katie Jo Black & Shawn J. McCoy & Jeremy G. Weber, 2018. "When Externalities Are Taxed: The Effects and Incidence of Pennsylvania’s Impact Fee on Shale Gas Wells," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(1), pages 107-153.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/694034
    DOI: 10.1086/694034
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    6. Zuo, Na & Schieffer, Jack & Buck, Steven, 2019. "The effect of the oil and gas boom on schooling decisions in the U.S," Resource and Energy Economics, Elsevier, vol. 55(C), pages 1-23.
    7. Blundell, Wesley & Kokoza, Anatolii, 2022. "Natural gas flaring, respiratory health, and distributional effects," Journal of Public Economics, Elsevier, vol. 208(C).
    8. Weber, Jeremy, 2021. "Bonding Requirements for Oil and Gas Wells in Pennsylvania: Cost-Based Recommendations," MPRA Paper 110035, University Library of Munich, Germany.
    9. Zwickl, Klara, 2019. "The demographics of fracking: A spatial analysis for four U.S. states," Ecological Economics, Elsevier, vol. 161(C), pages 202-215.
    10. Thomas, Pinky & Collins, Alan & Etienne, Xiaoli & Mugabe, Douglas, 2024. "Impacts of state tax and resource ownership policies on extraction: Evidence from U.S. natural gas production," Energy Economics, Elsevier, vol. 138(C).
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