Review of Dutzik, Ridlington, and Rumpler’s “The Costs of Fracking: The Price Tag of Dirty Drilling’s Environmental Damage.”  By Matthew Rousu

The authors’ goal isn’t an economic impact analysis – it is simply to present a list of all the areas where drilling could create financial (and other) costs.  With this list, the authors don’t attempt to quantify the total costs of fracking, although at times they do give specific figures quoted by other sources.   The tone of the paper makes it quite clear that the authors are opposed to the fracking process, at least as it’s currently handled.  That being said, the authors do attempt to be scholarly with this paper. 

I think it is important that all the external costs get documented.  (The gas firms have done a good job of documenting the internal costs – see Hefley et al., for example.)  For that, the authors’ goal of determining all the costs of drilling is to be commended.  An objective study of the external costs from drilling is extremely important and necessary.  However, I don’t believe this was an objective attempt to accurately document costs, but an attempt to make the costs appear as large and important as possible.  I view this paper as half scholarship, half advocacy. 

Given this paper isn’t attempting to quantify an economic impact; we don’t go through the “best practices list.  We do provide specific comments, however.

Specific Comments and Concerns:

·       The authors mix together internal and external costs.  This is a flaw, in my opinion.  The internal costs, or costs paid by the firm, are already accounted for by the firm’s payments.  The authors discuss payments the gas companies have paid for cleanup, for example.  The authors also discuss the potential risks workers face.  However, workers are paid very well for this work – much more than typical “safer jobs”.  These are what economists call compensating wage differentials – increased pay for increased risk – and shouldn’t be considered external costs. 

 

I am not sure whether the authors attempted this or not.  They clearly don’t document the costs of the well in terms of worker wages, machinery, etc., indicating they likely didn’t want internal costs to be included.  They should be clearer and more precise in this regard.

 

·       I am concerned over the selection of studies that are cited.  The paper cites many other studies and they document figures extensively.  However, the authors had plenty of leeway in choosing which studies to include and exclude.  For example, when considering how housing values could decrease (page 3), the authors don’t mention how housing prices could actually rise with increased drilling.  Given an increased flow of workers into an area, many realtors are noting huge increases in demand.  Further, a different academic study by researchers at Ohio State University (Gopalakrishnan and Klaiber (2012)) found a decrease in home prices near wells (relative to houses a mile or two away) in the short-term, but that this decrease dissipated quickly.  That study wasn’t cited in this paper, which decreases the authors’ credibility on this issue.  

·       The authors seem to try to link all potential cost to fracking that they can possibly get away with, but many of them seem farfetched and decrease the authors’ credibility, in my opinion.  For example, the authors on page 29 seem to imply that fracking results in “the documented number of homeless jumped from zero to 40 in a single year.”  Are they blaming fracking for this?  How?  If they’re saying its increased rent (housing prices), doesn’t that contradict their earlier claims that housing prices could drop?  There are also other areas where there could be causation issues.  (Something happened at the same time as gas drilling – does that mean gas drilling caused it.)

·       The authors often mix annual and lifetime costs.  They’ll talk about annual costs of some action in some circumstances, while talking about the costs over many years in other cases.  This isn’t necessarily a “flaw”, but it certainly could be confusing to some readers.

·       There are many times they list costs where tax revenue would likely cover the costs.  Of course, this isn’t a “flaw” in documenting the costs.  But for many items (road damage, for example), the increase in tax revenue from drilling activity is likely to cover some (or many, or all) of the costs mentioned.

·       A fair number of the papers the authors cite are papers published in scholarly journals, but many aren’t.  Many of the papers they cite are unpublished papers.  With an unpublished paper, of course, you are more likely to have flaws (intentional or unintentional) that lead to incorrect dollar estimates.  This point is especially relevant given our concern over the choice of citations. 

 

Concluding Thoughts:

            I think the topic is important, and the authors do a good job trying to list any cost that could possibly be linked to fracking.  They don’t attempt to estimate an “external cost per drilling well” or an overall cost of fracking for society, however, which would be extremely useful. That being said, the authors seem too much like anti-drilling advocates often associating costs that are far-fetched, counting costs already paid by the drilling companies, and seemingly reporting only the studies that help advance their cause. 

Further study on the external costs of fracking are certainly warranted.