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California: Energy Rich, Decision Poor

The Wall Street Journal has an incisive editorial this week that compares the diverging trajectories of two big, energy-rich states: Texas and California.

Texas is flush with well-paying oil and natural gas jobs, supported by shale development spurred by advances in hydraulic fracturing and horizontal drilling. The Journal notes that more than 400,000 Texans work in the oil and natural gas industry – nearly 10 times as many as in California – and the state has doubled its oil output since 2005. California? It used to be mentioned in the same breath as oil giants Texas and Alaska, but oil production is down 21 percent since 2001 and it has slipped out of the top-three tier of oil-producing states. The editorial:

This is not because California is running out of oil. To the contrary, California has huge reservoirs offshore and even more in the Monterey shale, which stretches 200 miles south and southeast from San Francisco. The Department of Energy estimates that the Monterey shale contains about 15 billion barrels of oil, which is about double the estimated supply in the Bakken (in North Dakota and Montana).

The contrast between these two states – not unlike the differing paths (and fortunes) of pro-fracking, pro-energy Pennsylvania and no-fracking, no-energy New York – points to the national discussion of expanding domestic oil and natural gas production, which President Obama has backed in calls for an “all-of-the-above” energy strategy.

The question is whether we’ll embrace America’s oil and natural gas wealth with comprehensive pro-development policies. Texas and Pennsylvania have, New York and California haven’t. The Journal:

Texas loves being an oil-producing state while California is embarrassed by it. … So the oil remains locked in the ground, as one million Californians look for work, as its schools and roads deteriorate, and as it keeps raising taxes to balance the budget. What a tragedy. Imagine how fast the U.S. economy would grow if California were more like Texas.

Again, we’re seeing a similar contrast between Pennsylvania and New York: Pennsylvania supports safe and responsible shale development; New York has spent five years studying fracking while its residents watch farms, business opportunities and their futures slip away. A new report by the Manhattan Institute describes what New Yorkers are missing:

  • Pennsylvania counties with fracking have performed better economically than those with no wells. Between 2007 and 2011, per-capita income in counties with more than 200 wells rose 19 percent, by 14 percent in counties with between 20 and 200 wells and by 12 percent in counties with less than 20 wells. In countries with no fracked wells, income went up just 8 percent.
  • Pennsylvania counties with more than 200 wells added jobs at a 7 percent rate over the same period, while in counties where there was no drilling or only a few wells, the number of county jobs shrank 3 percent.

The report:

Using the Pennsylvania data to project hydrofracking’s effect on New York counties, we find that the income of residents in the 28 New York counties above the Marcellus Shale has the potential to expand by 15 percent or more over the next four years—if the state’s moratorium is lifted. Our data also suggest that had New York allowed its counties to fully exploit the Marcellus Shale, those counties would have seen income-growth rates of up to 15 percent for a given four-year period, or as much as 6 percent more than they are experiencing.

The question is, if the relationship between oil and natural gas development and economic growth is so strong, why do California and New York remain on the outside looking in? An important factor, as the Journal editorialized, is that California’s predominant political culture doesn’t like oil and natural gas, the wealth right under Californians’ feet. So, though Democratic Gov. Jerry Brown backed drilling on some level during a press conference last month:

“[When people in California] can get around without using any gasoline, that’s the time for no more oil drilling. Maybe. Because they’ll be many other people still driving. … Now, do you want to get the oil from Venezuela [or from] 100 miles away? … So we want to get the greenhouse gas emissions down, but we also want to keep our economy going. And that’s that balance that’s required … Whether it’s fracking, or whether it’s a low-carbon fuel standard, or anything else, we keep our eyes open and we’re not jumping on any ideological bandwagons.”

… His party remains obliged to powerful environmental interests that have blocked development, largely through scare tactics designed to generate public doubt and fear. The same influences are at work in New York.

The fact is our industry is subject to federal environmental standards, contrary to suggestions otherwise (debunked in detail here). At the same time energy-producing states have strong, efficient regulatory regimes in place, tailored for each state’s geology, hydrology and other characteristics. And they’re doing a good job, which federal officials acknowledge.

It’s time for California, New York and perhaps other states to make energy policy decisions based on fact. Both states have vast oil and natural gas reserves that could put residents to work in good jobs and stimulate their economies. The energy-jobs-economy model that’s working in Texas, Pennsylvania, North Dakota and other states can work elsewhere, too.

Mark Green's picture

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Discussions

Bob Meinetz's picture
Bob Meinetz on May 9, 2013

Mark, it’s comical to hear someone from a state with a $600 million budget shortfall making economic suggestions to a state with a balanced budget. In fact, Californians have been making decisions based on fact for a long time. But the real issue is your assumption that residents of the two states have similar priorities.

California is addressing global warming while Texas and other oil-producing states are going for the quick buck, leaving their toxic enviornmental record as a legacy to their children and grandchildren. Speaking as a Californian, we consider our priorities vastly more progressive than the free-market-solves-all nonsense that Rick Perry espouses. Texas’s environmental record is dismal: it has the highest CO2 output in the country, and ranks 36th on a per capita basis; California, with 12 million more people, ranks 3rd best.

Of course this is due to Texas’s reliance on fossil fuels, and they should be embarrassed. Fossil fuels are regressive, dirty sources with a minor role in our energy future.

Mark Tracy's picture
Mark Tracy on May 9, 2013

Californians have a different mentality than Texans. Texas is a regressive, neo-Confederate state, with an ignorant citizenry (creationism is schools, etc.) — a citizenry that is beholden to its right-wing corporate elite. The Texas power elite has a long history of subordinating social and enviornmental concerns to corporate profits. The consequences of allowing corporations and the rich to run the State of Texas recently manifested itself in a huge explosion at one of the State’s fertilizer plants which resulted in the deaths of many.

James Thurer's picture
James Thurer on May 9, 2013

Have you forgotten the natural gas explosion in San Bruno in 2010? 

Randy Voges's picture
Randy Voges on May 9, 2013

Anybody check the latest U-haul Index between California and Texas?

Bob Meinetz's picture
Bob Meinetz on May 9, 2013

A common right-wing rallying cry. Problem is, it’s not true.

The California business exodus myth

 

Bob Meinetz's picture
Bob Meinetz on May 10, 2013

In today’s news: you’re twice as likely to die on the job in Texas as California.

http://www.ocregister.com/articles/texas-353624-california-percent.html

No, thanks.

Randy Voges's picture
Randy Voges on May 10, 2013

The U-Haul Index (merely contrasting prices between cities) is a symptom of the disease.  An interactive review of available data regarding migration patterns is here.  For instance, it’s interesting to compare Los Angeles with Harris County in Texas.

In the larger context, it is relevant that California did not add congressional seats in the last census (only the second time in its history) whereas Texas gained four.  When you compare unemployment rates and taxes, it’s not hard to wonder why.

 

Bob Meinetz's picture
Bob Meinetz on May 10, 2013

I’m not wondering. From the Chronicle:

“Illegal immigrants help Texas gain 4 house seats

“…Much of it is due to more births than deaths. One expert estimates that 55 percent of the state’s growth comes from the newly born.

 Another chunk comes from in-state migration. Those are people fleeing states with rough economies — like Michigan — for better job opportunities in Texas.

 The rest, roughly 20 percent, is from migration — both legal and illegal. (The Census counted everyone, regardless of immigration status.)”

http://blog.chron.com/immigration/2010/12/illegal-immigrants-help-texas-gain-4-house-seats/

A dubious distinction. I wonder if immigrants (both legal and illegal) are aware they’re twice as likely to die in Texas jobs?

My earlier link addresses the purported U-Haul phenomenon:

“But consider this: A truck also costs more to rent from San Jose to Yuma than from Yuma to San Jose. Are we to conclude that Yuma — with the nation’s highest metropolitan unemployment level, at 27 percent — is doing better than Silicon Valley?

The U-Haul theory also assumes that truck renters are representative of workers in general. In fact, those who move themselves naturally have few possessions or lack resources to hire a moving van. Putting aside other issues, would it be reasonable to draw sweeping conclusions from this sample?

 Christopher Thornburg of Beacon Economics, one of the economists cited in the Business Journal story last week, dismisses the U-Haul theory as little more than folklore.

 “Why are we even having this debate? We know that net migration is about zero,” he told me. Stories like this gain traction because “you have an opinion and you’re looking for some kind of data to support your position.”

 Thornburg is no fan of California’s regulatory climate. But in the end, he says, the notion that California is bleeding “is just not true. California has been and will continue to be a success story.”

Mark Tracy's picture
Mark Tracy on May 10, 2013

The high unemployment in California is a temporay condition brought about by irresponsible, unregulated banks making subprime mortgage loans. Nevada and Arizona experienced a similar bubble and resulting high rates of unemployment after the crash. People do pay a premium for living in California, but they are compensated by not having to live in a Texas desert or swamp.

Randy Voges's picture
Randy Voges on May 10, 2013

How about the high taxes?  Are those temporary too?

Bob Meinetz's picture
Bob Meinetz on May 10, 2013

Randy, like anything else “high” is a relative judgement based on what those taxes get you.

I’m more than happy to pay California’s higher taxes, because living here is worth every penny.

Tom Moriarty's picture
Tom Moriarty on May 15, 2013

Mark   400 PPM.  You should be ashamed of yourself for writing this article. 

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