Shale gas boom, trade, and environmental policies: Global economic and environmental analyses in a multidisciplinary modeling framework

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• 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
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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.

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Background (1)
Expansion in shale oil and gas
Expected oil production
Expected gas production
Source Annual Energy outlook 2013 (DOE)
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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)

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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.

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Modeling framework (1)
A hybrid modeling framework
Soft link
MARKAL-Macro model
GTAP model
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Modeling framework (2)
CES Production function and demands for inputs in
the GTAP model
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Modeling framework (3)
CDE Expenditure function and household demands
for good and services
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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

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Modeling framework (5)
New CES Production function and demands for
inputs in GTAP model
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Three main experiments
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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Changes in US production by sector 2007-2035
()
Major numerical results (1)
Sectors Experiment I Experiment II Experiment III
Crops 0.0 0.0 0.1
Livestock -1.1 1.7 1.9
Forestry -0.8 1.2 1.6
Fishing -1.0 1.4 1.8
Food -1.2 1.9 2.2
Coal 1.2 -2.1 -5.6
Oil -31.6 25.8 25.8
Gas -16.6 52.0 52.0
Gas Distribution -5.5 11.8 25.4
Oil Products -4.8 4.8 4.9
Electricity -1.4 2.8 4.4
Energy Intensive Industries -0.5 0.7 2.1
Other Industries -0.9 1.4 1.9
Services -1.5 2.4 2.6
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Changes in US prices by sector 2007-2035 ()
Major numerical results (2)
Sectors Experiment I Experiment II Experiment III
Crops -0.4 0.7 0.6
Livestock -0.5 0.8 0.9
Forestry -0.5 0.8 0.8
Fishing -0.1 0.5 0.2
Food -0.4 0.6 0.5
Coal -0.3 0.4 -0.9
Oil 9.3 -5.9 -10.8
Gas 8.8 -16.0 -24.1
Gas Distribution 4.8 -9.1 -14.2
Oil Products 3.5 -2.9 -4.5
Electricity 0.8 -1.6 -3.3
Energy Intensive Industries 0.0 0.1 -0.2
Other Industries -0.3 0.5 0.5
Services -0.4 0.7 0.7
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Changes in US GDP compared with 2007
Major numerical results (3)
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Changes in US labor capital demands for
2007-2035
Major numerical results (4)
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Impacts on US trade balance 2007-2035(figures
are in million)
Major numerical results (5)
Sectors 2007-12 2012-17 2017-22
Agriculture Products and Food 3,680 -6,021 -5,505
All energy items -43,602 72,138 48,908
Coal 155 -212 -67
Oil -26,195 14,658 14,042
Gas and Gas Distribution -14,307 55,812 30,294
Oil Products -3,270 1,884 4,314
Electricity 14 -4 325
Industry and services 71,777 -115,831 -98,939
Total 31,855 -49,713 -55,536
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Changes in US welfare compared to 2007
Major numerical results (6)
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CO2 emissions per US dollar production at 2007
prices
Major numerical results (7)
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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