Spatial Economics Seminar Amsterdam

Steve Gibbons (London School of Economics, United Kingdom)
Thursday, 12 May 2016

Shale gas has grown to become a major new source of energy in countries around the globe. While its importance for energy supply is well recognized, there has also been public concern over potential risks – such as damage to buildings and contamination of water supplies – caused by geological disturbance from the hydraulic fracturing (‘fracking’) extraction process. Although commercial development has not yet taken place in the UK, licenses for drilling were issued in 2008 implying potential future development. This paper examines whether public fears about the geological impacts of fracking are evident in changes in house prices in areas that have been licensed for shale gas exploration. Our estimates suggest differentiated effects. Licensing did not affect house prices but areas where shale gas development was mentioned in the license application experienced an average house price decrease between 1 and 1.5 percent for the period 2008-2014. This was a response to geological events related to fracking. Specifically, two very minor earthquakes caused by the process in 2011 were strong drivers of this price drop. We find a 2.7- 4.1 percent house price decrease in the area where the earthquakes occurred. Robustness checks confirm our findings.

Joint work with Stephan Heblich (University of Bristol, CESifo, IZA, SERC), Esther Lho (Duke University), Christopher Timmins (Duke University, National Bureau of Economic Research)