Lessons from New Mexico Show How Fracking Moratorium Could Harm California’s Economy

Lessons from New Mexico Show How Fracking Moratorium Could Harm California’s Economy

During the heated Vice-Presidential Debate, Vice President Mike Pence charged that a Biden-Harris Administration planned to ban the practice of fracking altogether. Then-Senator Kamala Harris said in response that no such plans existed. At stake were thousands of key votes of gas and oil workers from the heartland and key battleground states like Pennsylvania.

It is true, as candidate Harris stated, that President Biden has not banned fracking outright. In fact, he cannot ban the practice completely without an act of Congress. However, on January 27th, 2021, now President Biden imposed a 60-day moratorium on all new oil and gas permits to drill on federal lands. Fracking companies can continue to drill on state and private lands if states allow.

Fracking, or hydraulic fracturing, is a process where water, sand, and chemicals are pumped into oil-rich shale rock to bring up oil or natural gas. Proponents say the profitable practice boons the economy and allows America to increase energy independence, decreasing our reliance on barrels from the Middle East, Venezuela, and other global hotspots. Others contend that the practice should be limited or banned altogether due to potential environmental risks such as discarding toxic water and an increase in earthquakes due to changes in underground pressure.

The Biden moratorium does not affect all states equitably. Take the profitable shale rich Permian Basin region that spans from New Mexico to Texas, for example. In New Mexico, the federal government owns 34.7% of the state’s land, and a whopping 65% of all fracking done in New Mexico is on federal land.  In Texas, on the other hand, the federal government only owns 2.8% of their land and the effects of the moratorium are relatively minimal in comparison.

The halt on new drilling contracts harms a state like New Mexico in ways that cannot be overstated. The 60-day moratorium will cause many oil and gas companies to move operations solely to Texas or elsewhere due to the uncertain future of fracking in New Mexico. Many workers fear for their jobs and may have to relocate.

Notably, 18%, or 1.6 billion, of New Mexico’s state operating budget comes from taxes levied on oil and gas drilled in the state. Comparably, the state’s personal income tax brings in 21% of New Mexico’s operating budget. If the moratorium continues, New Mexico may be forced to raise taxes on an already suffering state to compensate for the loss in tax revenue.

California is also no stranger to suffering from the devastating economic effects of overregulation. California’s rich soil contains huge reserves of fossil fuels, which, if drilled, could result in tens of billions of dollars of economic output for the state. According to a study by University of Wyoming Professor Tim Considine, if the moratoriums continue from 2021-2024, California could lose out on another $1.4 billion of economic output. And as Wayne Winegarden showed in a 2016 PRI study, California’s share of national oil production has steadily declined in half since 2008: California’s overall regulatory environment does not attract oil companies despite the abundance of oil.

In September 2020, Governor Newsom signed an executive order to ban fracking in the state by 2024, which will likely cause the remaining companies to leave the state and thousands of well-paying jobs to disappear.

Yet, even if Governor Newsom changed his mind, a reversal would not make much difference. With the future of fracking on federal lands looking bleak, companies would likely avoid California anyway, as the federal government owns nearly half, 45.8%, of the land in California, much of which resides on shale rich regions.

As goes California, so goes the nation. In the case of moratoriums on fracking on federal lands, it spells bad news for the rest of the nation. The ban’s outsized effect on New Mexico and its probable effect on tax policy points down a bad economic road we in California are all too familiar with.

McKenzie Richards is development associate at the Pacific Research Institute.

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