An Assessment of the Potential Costs and Benefits to New Jersey from Shale Gas Extraction in Pennsylvania and an Examination of Cost Mitigation Strategies
Abstract
Shale gas extraction in the United States has increased considerably over the last
three years. President Obama and many Republican and Democratic members of Congress
hail this increase as vital to energy security and a substantial step toward energy
independence. Concurrently, numerous environmental organizations have voiced concerns
about the effects shale gas extraction has on water resources and air quality.
The Marcellus Shale, which underlies much of the Northeast, is a rock formation that
has become a major source of shale gas. Pennsylvania, in particular, has seen shale
gas extraction increase from 9,800,000 Mcf (thousand cubic feet) in 2008 to 271,800,000
Mcf in the six month period between July 2010 and December 2010, the latest time period
for which data is available. Production in Pennsylvania is projected to increase
even more in future years. New Jersey has no substantial shale gas plays, but it
abuts the Marcellus Shale deposit, and is downwind (especially during the winter)
and downstream from shale gas development in Pennsylvania. To date, no studies examining
the economic and environmental benefits New Jersey will realize, or the environmental
costs New Jersey will incur as a result of this shale gas extraction, have been published.
Thus, the purpose of this project is to examine both the costs and benefits New Jersey
will likely experience as a result of shale gas extraction in Pennsylvania. Most
of the policy options that are then proposed and assessed are cost mitigation strategies,
but some also touch on ways New Jersey can maximize the benefits it is likely to derive
from Pennsylvania’s shale gas production.
This report focuses specifically on the potential degradation of New Jersey air quality
that would occur if ozone levels in New Jersey increase due to shale gas development.
I concentrated on potential ozone increases because ozone is New Jersey’s most problematic
air pollutant. The United States Environmental Protection Agency (EPA) considers
the entire state of New Jersey to be a moderate 8-hour ozone non-attainment area.
Moderate 8-hour non-attainment areas have a design value between 0.092 parts per million
(ppm) and 0.106 ppm. This range is well above the EPA’s ozone standard of 0.075
ppm, which it instituted in order to protect public health. The design value is
defined as the three year average of “the fourth highest daily maximum 8-hour average
[ozone] concentration recorded each year.”
Ozone levels in New Jersey may increase as a result of shale gas extraction in Pennsylvania.
This is due to the ground-level ozone that is produced when the toxic and volatile
organic compounds, as well as fugitive natural gas, “mix with nitrogen oxides from
the exhaust of diesel-fueled, mobile and stationary equipment.” Ground level ozone
produced in Pennsylvania can affect New Jersey air quality because ozone and its precursor
pollutants can be transported “into an area from sources hundreds of miles away.”
Increased ozone levels are a concern for New Jersey because there are numerous health
effects associated with exposure to ozone including premature lung aging and, with
extended exposure, asthma and chronic obstructive pulmonary diseases. Children and
individuals who spend time outdoors, in addition to the aged, are particularly vulnerable
groups.
In my analysis I found that currently, natural gas production in the Pennsylvania
Marcellus Shale is not increasing ozone levels in New Jersey, but as production increases,
ozone levels in New Jersey are likely to rise, particularly in the winter when the
prevailing winds shift from southwesterly to northwesterly.
All New Jersey sectors that currently rely on natural gas will benefit from the stabilized
and/or reduced natural gas prices that are likely to be the result of increased Pennsylvania
shale gas extraction. The commercial and residential sectors, in particular, are
likely to benefit the most because they comprise 29.14% and 36.50% of New Jersey natural
gas consumption, respectively. Through my analysis of economic data from the New
Jersey Department of Labor and Workforce Development, I found that the commercial
sector comprised 82% of New Jersey’s Gross Domestic Product (GDP) in 2008. Therefore,
a large portion of New Jersey’s economy stands to benefit from reduced natural gas
prices. Natural gas prices are also 9.6% higher than the national average in the
commercial sector and 18.9% higher than the national average in the residential sector.
Thus, if New Jersey natural gas prices fall more than the national average, they may
provide an incentive for businesses and individuals to relocate to New Jersey, especially
given the fact that most New Jersey businesses cite energy costs as the second highest
overhead cost, after labor.
The residential sector is also likely to benefit from reduced natural gas prices because
households will substitute natural gas for home heating oil to take advantage of the
large divergence in oil and gas prices. Currently, 19% of New Jersey households use
home heating oil. In order to facilitate high rates of substitution of natural gas
for home heating oil, New Jersey could encourage the construction of pipelines in
counties that have the highest number of heating oil users per square mile. I used
data from the U.S. Census Bureau to determine which New Jersey counties are most reliant
on home heating oil. Drawing from my analysis, I recommended that new pipeline be
built in Hudson and Essex Counties, which conveniently border each other. It may
also make sense, however, to build pipeline in Morris and Sussex Counties. These
counties have some of the highest total number of households that use home heating
oil and are also likely to experience air quality degradation as Marcellus Shale gas
extraction in northeastern Pennsylvania increases. Thus, reducing home heating costs
could be a way of off-setting increased air pollution. The substitution of natural
gas for home heating will also yield environmental benefits in the form of reduced
nitrogen oxides (NOx) and carbon dioxide emissions
New Jersey would also realize large environmental benefits if the electricity currently
generated from coal in the state were instead generated from state-of-the-art combined
cycle natural gas plants. The chart below summarizes the emissions reductions that
would be realized from this substitution.
Comparison: Tons of Pollutant emitted from generating 10,622,423.579 MWh of electricity
Fuel Pollutant
NOx SO2
CO2
Coal 12,635 62,298
11,523,898
Natural Gas 321 0
4,246,638
Reduction 12,314 62,298
7,277,260
Percentage of total emissions from electricity generation 54% 75% 33%
At 2009 coal and natural gas prices (the last year for which data is available), natural
gas was cheap enough to displace all coal-fired electricity generation in New Jersey,
assuming state-of-the-art natural gas plants are built. For this to remain the case,
natural gas prices in the electricity industry must stay below $5.40/MMBtu, assuming
coal prices and demand remain stable and no other power plants are retired.
The downward pressure that Pennsylvania Marcellus Shale gas production is placing
on New Jersey natural gas prices will yield economic benefits, particularly in New
Jersey’s residential and commercial sectors. Ozone levels in New Jersey are likely
to climb as shale gas extraction increases in northeastern Pennsylvania, particularly
if future extraction activities are concentrated close to the Pennsylvania-New Jersey
border, but the substitution of natural gas for home heating oil in the residential
sector, and natural gas for coal in the electricity sector, will drastically reduce
New Jersey’s NOx emissions. NOx is a precursor to ground level ozone production.
Thus, if NOx emissions in New Jersey are significantly reduced, the increased quantities
of ground level ozone wafting into New Jersey from Pennsylvania are likely to be offset.
The following policy options are ways in which the State of New Jersey can maximize
the benefits it is likely to derive from increased shale gas extraction in Pennsylvania
and also mitigate the increased ozone pollution that is likely to occur in the future.
1) General Policy Options
a) The New Jersey Department of Protection could conduct a baseline study to determine
the extent to which New Jersey air quality will improve or deteriorate due to shale
gas extraction in Pennsylvania.
b) New Jersey could take advantage of new and cheaper sources of Pennsylvanian natural
gas by encouraging residents to heat their homes with natural gas and by encouraging
more gas-based electric power generation.
2) EPA Options
a) New Jersey could take the lead in creating a multistate coalition to lobby the
EPA to exercise its regulatory authority by adopting stronger national regulations
for shale gas extraction
b) New Jersey can petition the EPA to make Pennsylvania revise its State Implementation
Plan (SIP) if ozone produced in Pennsylvania is shown to adversely impact New Jersey
air quality
c) New Jersey can issue a 126 Petition to the EPA, which would ask the EPA to directly
regulate the emissions from shale gas extraction in Pennsylvania.
3) Litigation Options
a) New Jersey can sue shale gas extraction companies if ozone produced from shale
gas production adversely affected NJ air quality.
b) New Jersey can sue Pennsylvania for damages caused by its lax regulation of air
pollution caused by shale gas extraction
c) New Jersey could threaten to do options 2b, 2c or 3b unless Pennsylvania is willing
to compensate New Jersey for the environmental damage extensive expansion of shale
gas production will cause.
d) New Jersey can threaten do option 3a unless Pennsylvania requires the natural gas
industry to provide New Jersey with cheaper natural gas.
The following are a list of criteria by which the options were judged:
Effectiveness
Political Feasibility
Minimize State Expenditures
Legality
I recommend that New Jersey adopt option 1a immediately. The results of a detailed
baseline study must be used to inform any decisions the State will make going forward.
If the results show that the substitution of natural gas for home heating oil in the
residential sector and natural gas for coal in the electricity sector will yield substantial
environmental benefits and more than offset ozone produced by increased shale gas
extraction in northeastern Pennsylvania, then New Jersey should consider implementing
option 1b. Option 1b should definitely not be adopted without detailed air quality
modeling because it may be expensive if natural gas prices increase. If the baseline
study demonstrates that New Jersey’s ozone levels will rise significantly if shale
gas production in northeastern Pennsylvania increases, New Jersey should adopt option
2b.
Type
Master's projectDepartment
The Sanford School of Public PolicyPermalink
https://hdl.handle.net/10161/4814Citation
Melillo, Jacqueline (2011). An Assessment of the Potential Costs and Benefits to New Jersey from Shale Gas Extraction
in Pennsylvania and an Examination of Cost Mitigation Strategies. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/4814.More Info
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