Externalities of Shales: Health Impact Costs

By Deborah Rogers

Assessing shale production honestly and accurately requires that all externalities, or created peripheral costs, be examined in a circumspect manner. It is imprudent, indeed stupid, to consider oil and gas projects without also considering the externalities which inevitably arise due to its heavy industrial nature. A careful look at costs such as road damages are certainly warranted but road damages are not the only externality with shales. Regions heavily engaged in shale production are now experiencing skyrocketing costs directly attributable to oil and gas production which are significantly outstripping revenues provided by extraction. These costs not only include road damages but also health impact costs and loss of crops. Very little has been said about such costs in the giddy statements made about shales. In fact, it would seem that the states which embraced shales early clearly did not conduct proper due diligence on the activities that they were green lighting. All of them, including the state of Texas which has a long history of dealing with oil and gas, have been caught completely unaware by these skyrocketing costs. Road repairs alone are now estimated, in some cases, to be multiples of what states are taking in from severance tax revenue. And road repairs are only one externality of shales.

The American Lung Association (ALA) quantified the health costs of air pollution from nitrogen oxides (NOx) and volatile organic compounds (VOC). These are two primary constituents of ozone. ALA estimates that the impact of such pollutants on the health of the people who live in regions where ozone is prolific comes to about $1648 per ton of NOx and VOC’s (2010 dollars).

The shale industry emits significant amounts of NOx and VOC’s in their day to day operations. In fact, when shale comes to town, it becomes one of the primary polluters. In Texas, the Texas Commission on Environmental Quality (TCEQ) studied air emissions from gas drilling operations in the Barnett shale region. In December 2011, TCEQ quietly submitted a report to the US EPA which confirmed that gas drilling operations in the region were producing significantly more VOC’s than all the on road mobile sources in this large metropolitan area (DFW). TCEQ estimated that gas drilling accounts for approximately 121 tons per day of NOx and VOC’s. That equates to about $202,000 per day or $73,000,000 per annum. Just for the Barnett region.

In Arkansas, emissions from shale gas production in 2008 were estimated by the Arkansas Department of Environmental Quality to be approximately 5979 tons per annum. In a mere four years (2012), emissions had grown to approximately 20,347 tons per year based on current extrapolations. This means that health costs soared from $450,000 to $33,500,000. And this annual expense is not covered by the industry that caused it.

In the Marcellus shale in Pennsylvania, the Department of Environmental Protection (DEP) estimated NOx and VOC emissions from shale production in 2011 at 19,300 tons per year. That translates into health costs of nearly $32,000,000 per annum. Again, none of the costs are covered by the industry that perpetrated it.

Further, much of these calculations from the various state regulatory agencies are based on self reported emissions inventories provided by industry. Unfortunately, states simply do not have the man power or resources to adequately check and verify such estimates. Because self reporting is suspect by its very nature, particularly when done by an industry that stands to gain monetarily through underestimation, it stands to reason that these costs could conceivably be much higher. For instance, industry self reported their methane emissions in Colorado and claimed in inventories that they never exceeded 2%. But the University of Colorado, Boulder and NOAA conducted a three year study on gas fields north of Denver and found that emissions were running about 6%. They then found emissions from a gas field in Utah running about 9%. So self reporting, for obvious reasons, has its issues.

Add these health impact costs to the estimates of road damages and the taxpayers burden continues to grow exponentially. Moreover, ozone also affects crop production. Cumulatively for the Barnett, Fayetteville and Marcellus, based on very conservative estimates, we can add another $26,000,000 on to the businesses of the region for crop losses and damages.

And, yes, that would be businesses other than the one that created the problem.

Does industry think that it has a responsibility to cover the costs or take responsibility?

When a paper issued by the Houston Advanced Research Center (HARC) was released last October it caused quite a stir. HARC scientists concluded that significant levels of formaldehyde, a known human carcinogen and precursor for ozone, were being emitted from gas operations. This is one of the primary reasons that the remote Jonah-Pinedale gas field found itself with ozone spikes that were higher than the worst day recorded in the City of Los Angeles.

The Texas Pipeline Association (TPA) made the following statement upon perusal of HARC’s paper:

“TPA and its members desire to be good stewards of our environment and are not opposed to regulation grounded in good and supportable scientific bases. The technical paper does not provide that type of support.”


This is an interesting interpretation by TPA if only for the following reason. The Chairman Emeritus and Founder of HARC, the entity that conducted and released the paper, is none other than George Mitchell. It was Mitchell Energy that perfected the technology of horizontal drilling and hydraulic fracture stimulation more popularly known as “fracking”. The current Chair of HARC is John Butler who also serves on the Board of Anadarko Petroleum. Other industry executives serve as well. It becomes a bit tricky to dispute findings from an entity whose board reads like a “who’s who” of energy academia and oil and gas.

Nevertheless, TPA stuck to its guns and stated:

“…the four significant problems identified…effectively render the conclusions meaningless”.

Billions of dollars in road repairs, tens of millions of dollars every year in health costs and agricultural damage is anything but meaningless. Unless of course, you consider privatizing profits and socializing damages an ethical way to do business.