Farzad Taheripour, Wallace E. Tyner, and Kemal Sarica Purdue University July 28-31, 2013

1. Farzad Taheripour, Wallace E. Tyner, and Kemal Sarica Purdue University July 28-31, 2013 32nd USAEE/IAEE North American Conference Anchorage, AK Shale gas boom, trade, and environmental policies: Global economic and environmental analyses in a multidisciplinary modeling framework

2. 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.

3. Background (1) Expansion in shale oil and gas Expected oil production Expected gas production Source: Annual Energy outlook 2013 (DOE) 3

4. Literature review Background (2) • Shale gas and environmentalpolicies: • 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)] 4

5. 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. 5

6. Modeling framework (1) A hybrid modeling framework Soft link MARKAL-Macro model GTAP model 6

7. Modeling framework (2) CES Production function and demands for inputs in the GTAP model 7

8. Modeling framework (3) CDE Expenditure function and household demands for good and services 8

9. 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 9

10. Modeling framework (5) New CES Production function and demands for inputs in GTAP model 10

11. Experiments Three main 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.

12. Major numerical results (1) % Changes in US production by sector 2007-2035 (%)

13. Major numerical results (2) Changes in US prices by sector 2007-2035 (%)

14. Major numerical results (3) Changes in US GDP compared with 2007

15. Major numerical results (4) Changes in US labor & capital demands for 2007-2035

16. Major numerical results (5) Impacts on US trade balance 2007-2035(figures are in $ million)

17. Major numerical results (6) Changes in US welfare compared to 2007

18. Major numerical results (7) CO2 emissions per US dollar production at 2007 prices

19. 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. 19

20. Conclusions (2) • The welfaregains 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. 20

21. 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 absenceof 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. 21

22. Thank you!Questions and Comments