Are Fossil Fuels Impoverishing Middle America?
Steven Cherry Hi this is Steven Cherry for Radio Spectrum.
The African nation of Equatorial Guinea is rich in oil and gas reserves, yet poor in most other ways.
It has over a billion barrels of proved crude oil and over a trillion cubic feet of proved natural gas reserves.
On key measures, through-life expectancy, education, per-capita income-it ranks near the bottom of the world-144th out of 189 countries, according to a 2019 United Nations Development report.
I said Equatorial Guinea is rich in oil and gas reserves, and poor in most other ways, but I could have said it's poor in most other ways precisely because it's rich in oil and gas.
Its economy has grown rapidly, but almost entirely on the back of oil revenues that have funded a luxurious lifestyle for the nation's political elite, while diseases like malaria still haunt the land. In fact, much of the country lacks access to clean water and healthcare. Only one of four babies is immunized against polio and life expectancy and infant mortality are not only low by world standards, they're below average for sub-Saharan Africa.
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Equatorial Guinea is, it turns out, a prime example of what's called the Resource Curse. The economy underperforms, in every other way, not just despite, but because of, this one natural resource. The country also has lots of arable land, and an abundance gold, uranium, and diamond deposits. But those have gone largely unexploited. There's no need on the part of the elite to expand the economy beyond the windfall of oil and gas royalties, and no opportunity to do so by everyone else.
I suppose it's elitist and maybe even nationalistic of me, but imagine my surprise to hear the phrase resource curse," which I associate with the developing world, used recently in a webinar in the context of a region of the United States. The region is northern Appalachia, comprising 22 counties in eastern Ohio, western Pennsylvania, and northern West Virginia. And the curse is, as it so often is in the third world, a surfeit of oil and especially natural gas, in this case extractable largely through the relatively new process of fracking.
Here to explain how the resource curse is impoverishing communities in the middle of the U.S. in the middle of the 21st century is Sean O'Leary. He's a senior researcher at the Ohio River Valley Institute and the author of its recent report, Appalachia's Natural Gas Counties: How dreams of jobs and prosperity turned into almost nothing."
Sean O'Leary Thank you for inviting me, Steven.
Steven Cherry Sean, the towns and counties of Appalachia-and those three states themselves-were promised jobs, jobs, and more jobs. Some were for the initial drilling some were for fractionators, which is the process of distilling out different gradients, some of them were for plastics manufacturing-a typical way we make plastic is from petrochemicals-and were for cracker plants. Cracking is the first step in that manufacturing process. A total of nearly half a million jobs were promised for the region. How has it played out?
Sean O'Leary In our analysis, what we have basically found is that for that entire region-which has a population of almost a million people, if you aggregate all of the counties-we can only see evidence for a net jobs increase of about 5600. So a very tiny increase that comes to a total of just 1.6 percent. And to put that in context, the nation as a whole, during the period of time in which fracking took place starting roughly in 2008 and going through 2019, which I might add is before the onset of the coronavirus crisis, the nation as a whole increased its number of jobs by 10 percent as compared to the just 1.6 percent here. And going back to your analogy to Equatorial Guinea, that 1.6 percent increase in jobs came at a time when gross domestic product in this region, total economic output was expanding at three times the rate of the U.S. economy's output as a whole.
Steven Cherry So the economy is expanding and the local jobs are not. Is the local economy expanding?
Sean O'Leary No, and frankly, you can see it if you go visit the area. If you go to downtown Martins Ferry, Ohio. Belaire, Ohio, Wheeling, West Virginia. Waynesburg, Pennsylvania. You see it in the storefronts. You see it in the streets. You know, it's not an encouraging picture. And in fact, it's kind of odd, frankly, that a report such as this one was necessary to drive that point home because it's evident to people who live there in their everyday lives.
Steven Cherry The idea originally was that there would be these jobs in the industry and that would put money in people's pockets, which they would spend locally. And none of that has happened. Even the few jobs that there are often went to people from out of the area.
Sean O'Leary Yeah, that is a major factor in what we're talking about, because when you talk about gross domestic product, there are a couple of components of it. One of the components is all the investment that has been made to produce the natural gas. That production is prodigious. I mean, it went from being negligible a decade ago to representing almost 40 percent of all U.S. natural gas production currently. And so there was a great deal of investment that went into drilling the wells and ramping up production.
The problem, though, is, as you say, on the front end, many of the workers who actually did the drilling-and are doing the drilling even today-and many of the suppliers of support services and equipment and other things were imported into the region from the southwest. And so although ostensibly billions and billions of dollars was being invested in local economies in Appalachia, in fact, much of that investment flowed to out-of-state workers and out-of-state suppliers.
And then similarly, on the back end, there was expected to be a boon of royalty payments coming to property owners in the region. But similarly, there, we have seen a number of leakage points in which, first of all, much of the property on which wells are dug is actually owned by out-of-state entities, both individuals and companies. And then secondarily, many of the people, even those who live in the area who received royalties received far less than they expected because the price of gas has been consistently much lower than was anticipated a decade ago. And they oftentimes don't spend their money in the local economy. They've chosen to save it or spend it elsewhere.
And so when you look at the totality of all of those factors, what we see is that something in the neighborhood of no more than maybe 20 percent of the input that we expected to see into local economies has actually taken place. And that does account for not just the very disappointing jobs figures, but also disappointments in the area of personal income, which has underperformed, and population which has been in absolute decline,
Steven Cherry There is typically an environmental damage due to fossil-fuel extraction and the petrochemical industry. When you drive around this region, do you see not only the economic despair, but any of those environmental consequences?
Sean O'Leary Well, you do, because the fracking pads are so commonplace, as are, by the way, the heavy trucks and the other equipment that move around constantly in order to operate and support the fracking pads. Yes, it has changed the day-to-day lived environment in the greater Ohio Valley and also northeastern Pennsylvania considerably. It's something that residents of the region tend to look at or have at least thought about over the last 10 years as perhaps being necessary evils in order to bring jobs to a region that has, for the last 50 years been in a state of economic decline, largely as a result of greater mechanization of the coal mining industry, which was at one time big in the region, but also the demise of the steel industry, traditionally one of the region's largest employers and certainly one of the best paying.
Steven Cherry Yeah, I mean, southwestern Pennsylvania includes the city of Pittsburgh, for example.
So the financial promises were oversold, the environmental consequences were underplayed. I gather that faced with both of those realities, there was an outflow of people which further diminished business activity and drove the economy further downward.
Sean O'Leary Yeah, in fact, the population of these 22 counties has declined and is continuing to decline by almost 4 percent. And again, that's at a time when in the nation as a whole, we have seen an increase in population of about 10 percent. So these are truly economies that are going in reverse in many respects.
Steven Cherry Sean, there was an article in The New York Times recently about a town in Wyoming that used to have a coal-based economy, but the coal has played itself out and now it has a big wind farm operation there. The town is Rawlins, in the middle of Carbon County-and by the way, that's not a description of the county. That's its actual name. In a fictional story, you would cross that out because it's too on the nose-in fact, Rawlins is the county seat. The Times article even used the term "resource curse" to describe its dependency on that one resource for jobs, that is to say, coal and for royalties and so on. What makes wind different? I mean, what makes us so sure this town won't suffer a resource curse with wind power, just as it did with coal power?
Sean O'Leary The dynamics, the economic dynamics of the renewable energy economy, are different than they are for extractive industries. First of all, wind power, utility scale wind power, which is what you're talking about, does bear one similarity to the fossil fuel industry, and that is that it's very capital intensive, meaning that much of the investment that's required and much of the revenue that's generated goes to capital rather than to labor. So in that respect, it's not the greatest job creator in the world, but it is a significantly better job creator than extractive industries like coal and like natural gas.
The second thing, though, and you referred to this a moment ago in an earlier question, has to do with what economists refer to as the externalities, the negative consequences that don't show up in the transaction between buyers and sellers. And it's in that respect also that wind power in particular has a distinct advantage over fossil fuel resources, because, you know, if you live in a fracking region, you have to get used to the fact that in addition to being a source of a lot of greenhouse gases that affect global climate change, you're also in a region where there are a lot of local emissions of gases that are harmful both into the air but also into groundwater. Beyond that, other factors are equally destructive of quality of life. They have to do with heavy truck traffic, particulate pollution-a variety of things that basically make it a much harder and less pleasant place to live than it would have been previously. And that may, in fact, account for part of the population loss that we're talking about in these places.
And then there is also, I might add, one final component that makes wind power and renewable energy preferable in many ways, at least economically, to fossil fuels, and that is that fossil fuels typically bring with them a boom-bust economic cycle. The rises and falls in the price of oil and the price of natural gas are legendary. And of course, production and employment vary in fairly close proximity to what happens with those prices. That is not the case with renewable energy, which is much more consistent and much more stable in its pricing. And so you don't see that boom-bust cycle.
And that's really important from an overall economic growth standpoint, because even when a place, a region is booming on the basis of fossil fuels and business opportunities might look good for other industries, then you might consider opening a new restaurant or a new hotel or, you know, a new grocery store. You have to-if you're a business person who's trying to decide whether or not that's a good move to make-you have to take into account in a fossil-fuel-driven economy that what looks good now may not look good in two years or three years or five years, whereas when you have more stable forms of economic growth that are more predictable, like renewable resources, you don't have to factor in that added degree of risk. And that makes complementary development of more diversified industries far more likely.
Steven Cherry If you're a physical therapist all you need is a massage table, but a restaurant needs real capital investment. I gather that just one other big difference between these two types of situations, and that is that renewable energy, at least wind, lends itself to a very different business model that leads to, for example, stable tax revenues.
In the case of, for example, Washington State, where there are some big wind farm installations, the tax revenue is the equivalent of the royalties in the fossil fuel case. But it goes to the county as a whole and not to individual landowners who as you pointed out, may not even live locally.
Sean O'Leary It is the case in Washington state and in most places that the royalties that result from power generation do go to local property owners, but they, of course, also generate business tax and property tax revenue as well. And so in the northwest in particular, and also, I might add, in Texas most recently, where we see a number of published reports, we're finding that rural communities are beginning to flock to renewable energy, both wind and also solar, because it does have a stabilizing effect on their economies and does, frankly, create windfalls of tax revenue for local jurisdictions.
And I know one of my favorite people in the whole world is a fellow by the name of Dana Peck, who leads the Chamber of Commerce in a rural county called Klickitat County, Washington. Dana loves to brag about the quality of the schools there, the quality of the local fire departments, even the local cemeteries. He insists that they have the best in the state of Washington, and he attributes that to the way in which that particular county has really embraced wind as a resource.
But what's also, I think for me most telling is that when I was working in that county a couple of years ago, I met a man who really put it succinctly for me-what he thought the benefit was-and that is that the wind farms, by creating a stable economy and infusing money into those communities, has made it possible for families and for young people to consider staying there and building careers there. And, you know, I'm saying this is somebody who's a native West Virginian. I come from a town that has lost, over the last 40 years, more than half of its population, and that's due to people, to young people primarily leaving because they have to in order to seek careers elsewhere. And so when you arrive with a resource that not only promises to inject money into the local economy and to stimulate job growth, but when you do it in such a way that it actually creates a future so that families can consider staying together, so that young people can consider staying in the community, that hits home in a way that frankly can't even be captured in economic statistics.
Steven Cherry I love the term windfall in this context, by the way. Sean, a lot of people are still confused that ideas like the Green New Deal combine combating climate change with jobs programs. Maybe the example of Appalachia and the counterexample of Wyoming and Texas and Washington State wind farms shows that the connection isn't artificial but organic (pun intended) to the process of moving from fossil fuels to renewables. One thing that's always puzzled me, there seems to be a presumption that environmental regulation and sustainability are bad for jobs and the economy. But it's been you've been an observer of this corner of the world for a long time. I mean, in the 50 years since the first Earth Day. Is there a lot of actual evidence of that?
Sean O'Leary There's actually evidence of the opposite. I mean, so often this situation is framed as a case of jobs versus the environment. You know, people hungry for jobs, especially in places that have been depressed for decades, like the greater Ohio Valley, people hungry for jobs versus wild-eyed environmentalists. And one of the most remarkable findings for me, not as a result of this report, but as of lived experience-and I've worked both in Appalachia and also in the Pacific Northwest-is the realization that the clean energy economy is far more stimulative of jobs in particular than is the fossil fuel economy.
And you can look at that both statistically, but also in lived experiences. Statistically, what we know is that the fossil fuel economy-for every dollar of revenue that it generates, only about a quarter to about 20 cents, actually goes to salary and wages, jobs, in other words. But when you look at clean energy industries, which include not just wind and solar, but especially especially the energy-efficiency industry, we're talking about businesses in which instead of 20 cents on the dollar going to salary and wages, a figure more in the neighborhood of 50 to 60 cents each.
And not only that, but when you're talking about particularly energy efficiency, you're talking about local contractors, heating, ventilating, and air conditioning contractors, local insulators, local lighting contractors, the companies that install and replace doors and windows. These are all local businesses. And so when you invest as an economy in increasing energy efficiency and in making the transition to renewable resources, you're also driving a much greater share of your investment into activities that are supported locally rather than by out-of-state workers, as we were talking about a moment ago with the fracking boom in Appalachia.
And so that means you're getting a double benefit. Not only is more of the money that's being invested, being allocated to labor to salary and wages, but more of the workers who are earning those salary and wages are likely to be local to your economy as well. And so that has a much, much more stimulative effect. And that's why, for instance, in the state of Washington, which was one of the earliest states to enact energy efficiency standards, and at the time-and we're going back now to the year 2006-at the time, we heard the same howls that you hear now that, you know, if you enact energy efficiency standards, it's going to drive up the cost of electricity. It's going to then scare businesses away. They're going to move out of the state and jobs will be lost.
In fact, in Washington state, exactly the opposite happened. And that is, first of all, that energy consumption actually went down or remained flat. In the state of Washington people use less electricity today than they did 10 years ago even. Though the population has grown significantly and the economy has grown even more significantly, but at the same time that energy usage has gone down, employment has gone up significantly. And that's especially true in the clean energy economy, heavily associated again, not just with wind and solar power, but with energy efficiency in particular. And so, yeah, energy efficiency, the clean-energy transition is and can be an immense stimulator of jobs and economic growth while also meeting the imperative that we now face for reducing greenhouse gas emissions and also for reducing local pollutants, which also have devastating effects on health and quality of life.
Steven Cherry So there's no contradiction between clean energy and economic growth. There's still the perception of it and it and it's a pretty widespread perception. Joe Biden in his campaign refused to come out against fracking. He, not incidentally, I think, claims Scranton, Pennsylvania, as one of his home towns. In southwestern Pennsylvania a long-time Congressman, Mike Doyle, was challenged by a green New Deal politician, Jerry Dickinson, the incumbent won and he credits his refusal to denounce fracking as part of his victory. In a nearby district, a congressperson by the name of Conor Lamb says he almost lost his race because of all the Democratic talk of the Green New Deal and anti-fracking. So how do we solve the political problem of the perception of a contradiction here?
Sean O'Leary Well, first, I think there is a little bit of misinformation out there that needs to be overcome. And when you refer back to the last election cycle, I think a lot of your listeners will recall that the Trump campaign in particular in its attempt in the last couple of weeks of the campaign to save Pennsylvania, emphasized the fracking issue. They emphasized that Donald Trump is a huge promoter of fracking and of fossil fuel development. And they accused the Biden campaign and Joe Biden of wanting to ban fracking.
Now, what's interesting about that is that when you look at the counties in southwest Pennsylvania that are the major fracking counties and also in northeast Pennsylvania, the margin by which Trump carried those counties-which was considerable and that has to be acknowledged-but nonetheless, the margin by which he carried those counties was actually smaller in 2020 than it had been in 2016. So to whatever degree the fracking debate drove votes, it's quite clear that it actually drove them in a way that did not significantly enhance Trump's ultimate performance in the election.
And the other thing that I would point out, there are prominent politicians in Pennsylvania-the current attorney general, Shapiro, is a public opponent of fracking and has won consecutive statewide races there. So it is true, certainly, that many people do associate fracking with jobs. But on the other hand, it's evident that there's also an equal number or close to it who don't and who also are extremely disturbed by the negative effects that fracking has on quality of life, health, and other issues.
And I think based on the comparison of the 2016 and 2020 presidential election results in which fracking was made a central issue in the campaign, I think if anything, we're actually seeing movement against fracking, particularly as public awareness builds that the economic impacts have not been anywhere near as positive as is often claimed by proponents of the industry. And certainly I've gotten to witness that personally since we published this report, because I can't tell you how many people have reacted to me by saying, gee, what we see in the downtowns, we had a hard time believing it was true and now it's been documented. Now it's been quantified that all of those job claims that are being made about the industry are at best deceptive and at worst just flat out false.
One of the most encouraging reactions to this report is that while, of course, there are people in both corners who either are highly supportive of the report or those who are highly critical of it because they're supportive of the industry, one of the things that's fleshed out for me is that there are people-and policy makers, among them, folks who hold elective office-who are in an interesting in-between position, and that is that they may even be supportive of fracking. They may be supportive of the industry. But what the report has shown them is they're getting a bad deal. That the industry is not injecting into the economy nearly as much money and clearly not as many jobs as they had expected.
And so what I'm beginning to feel in reactions to the report from some people who at this point must go unnamed is the sense that, "hey, you know, as a legislator, I ran interference for this industry. You know, I helped pass favorable tax policies. I helped enact regulatory relief to make it possible for fracking to take place here on the scale that it is achieved. The problem is that we're not getting a good deal out of this. You know, we thought we were going to get more jobs. We thought we were going to get more investment. It's not happening.".
And so what I'm beginning to hear are legislators taking a second look at this, even those who in many cases have traditionally been supportive of the industry. And they're beginning to say we need to get a better deal out of this and a better deal can happen in a couple of ways. One way, of course, is through taxation. Pennsylvania notably does not have a severance tax [severance tax: a state tax imposed on the extraction of non-renewable natural resources that are intended for consumption in other states-Ed.].
That is something that I think some people who may not previously have been willing to consider it might be willing to do so. Now, another way in which the effects can be or the economic benefits could be enhanced would be to pass regulations that reduce the negative impacts that the industry has on quality of life, pollution, noise and other factors that are going on. And from my perspective, the good news associated with those kinds of actions would be not only would it bring added relief, both jobs and income and reductions in negative consequences to these communities that desperately need help. But at the same time, it would frankly increase costs for the industry, which, in an economy that is rapidly shifting away from fossil fuels, would only accelerate, I think, the ultimate demise of natural gas and fracking.
And so I actually take political hope from the fact that even people who are supportive of the industry are capable of recognizing that these counties have been getting a bad deal and that on that basis they're willing, in some cases, I think, to go back to the industry and say we got to get a better deal out of this. And if that happens, then ultimately the demise of the fossil fuel industries and of fracking will be accelerated. And I think that's a good thing.
Steven Cherry Well, Sean, it would be a very hopeful sign indeed if organizations like the Ohio River Valley Institute-and reports such as the one we've been talking about-are already having an effect and successfully combating presumptions with actual facts on the ground. Thank you and the group for the study and thanks for joining us today.
Sean O'Leary Well, thank you.
Steven Cherry We've been speaking with Sean O'Leary, senior researcher at the Ohio River Valley Institute, about energy, petrochemicals, and economic development in Ohio, Pennsylvania, and West Virginia's Appalachian counties.
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This interview was recorded March 4, 2021 using Skype and Adobe Audition. Our theme music is by Chad Crouch.
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