Commentary

Looking for jobs in all the wrong places: Ohio policymakers’ misguided belief in natural gas

August 24, 2022 3:20 am

Jefferson County, Ohio/USA-March 7, 2019: Oil and gas well on a ridgetop in Eastern Ohio. These wells engage in the controversial practice called fracking to extract oil and natural gas. Getty Images.

If you’re looking for economic development that will deliver job growth, increase local commerce, and improve quality of life, you can’t do much worse than natural gas extraction, gas-fired power plants, and infrastructure. They don’t provide many jobs and they impose serious costs that discourage other kinds of job-creating economic activity. 

Apart from contributing to local and state tax revenues — contributions which are often undercut by tax subsidies and regulatory favors — about the only benefit of natural gas power generation is low-cost electricity, and if you check your electric bill, you’ll see that even that benefit is now being wiped out.

This all seems hard to believe, what with governors and legislators lavishing incentives on these industries in the belief that by doing so they would create jobs and stimulate economic development. That was certainly true of an Ohio economic development officer I met with recently who talked excitedly about the new billion-dollar gas-fired power plant in Guernsey County. 

“Do you know what that means in jobs and commerce to a county with just 39,000 people?” she asked. Sadly, I did know and wondered if she was so dazzled by the amount of money being invested and the plant’s impressive size that she assumed it would have a commensurate economic impact. That’s how many politicians seem to evaluate projects before lavishing taxpayer money on them. 

For instance, state Reps. Jon Cross, R-Kenton, and Jay Edwards, R-Nelsonville, recently introduced House Bill 685, the ENERGIZEOhio bill, “…to promote the use of Ohio’s abundant natural gas energy resource” because, say the authors, “…too many communities across the state have been locked out of future job growth and economic development opportunities due to limited energy infrastructure to deliver Ohio’s natural gas to them.”

“Future job growth and economic development?” Really? Let’s look at what natural gas economic development really looks like starting with that billion-dollar power plant in Guernsey County. 

RELATED: House Republicans propose free loans, tax breaks for new gas pipelines

The plant will employ 30 people, about as many as an average supermarket. While it’s true that the plant’s employees will be among the best-paid in the county, there will still be only thirty of them, so their personal spending will barely make an economic ripple. 

Meanwhile, nearly all of the hundreds of millions dollars the plant will spend yearly to purchase natural gas from nearby wells will go to out-of-state investors. That’s because natural gas production, like the construction and operation of gas-fired power plants, is capital-intensive, leaving little money for jobs and wages. Even property owner royalties generally go to just a few local families who mostly save or invest the money rather than spend it locally. In other words, the billion-dollar power plant will do shockingly little to deliver jobs and commerce. 

In that respect, the power plant is similar to the Appalachian natural gas industry as a whole. Five years ago, a Bureau of Labor Statistics report found that, of the U.S. economy’s major sectors, the utility sector was the second least labor-intensive and the resource extraction sector — “mining,” which includes natural gas production — was dead last, a conclusion that is reinforced by an analysis which found that in Belmont County, Ohio’s biggest gas-producing county, just 9 cents of every dollar in natural gas output was allocated to wages and jobs. In the economy as a whole, the labor share is closer to 60 cents on the dollar. 

The finding is also reflected in the economic performance between 2001 and 2020, of seven eastern Ohio counties — Belmont, Carroll, Guernsey, Harrison, Jefferson, Monroe, and Noble — which produce 95% of Ohio natural gas.

Following a decade of little or no growth in gross domestic product (GDP), population, and jobs, in 2013 the natural gas boom hit and GDP skyrocketed until, by 2015, the seven counties had nearly doubled their economic output. And output has stayed at that level since.

However, even as output boomed, population plunged by nearly 11,000 people (4.4%) and jobs by nearly 10,000 (9.4%). The disconnect between gas-driven growth and the rest of the economy was nearly complete. And what happened in eastern Ohio isn’t an outlier. A new ORVI analysis of economic performance in Pennsylvania’s rural natural gas counties finds an almost identical outcome. Plus, the Pennsylvania analysis revealed something else.

A year ago, after ORVI published a report on the disappointing jobs, income, and population performance that accompanied the Appalachian natural gas boom, some people suggested that maybe the boom hadn’t failed. Isn’t it possible, they asked, that job and population loss would have been even worse were it not for the boom?

Pennsylvania offers a natural experiment with which we tested that proposition. Prior to the gas boom, Pennsylvania had thirty rural counties that were on similar economic trajectories. Ten of the counties went on to participate heavily in the gas boom and twenty did not, providing the basis for an apples-to-apples comparison of outcomes. As would be expected from the evidence cited above, Pennsylvania’s rural natural gas counties experienced the same outcomes as the gas counties in Ohio — skyrocketing GDP accompanied by declines in population and jobs. Meanwhile, Pennsylvania’s rural non-gas counties had nearly identical job and population outcomes even though they had no gas-driven spike in GDP. 

In short, the natural gas boom’s economic benefits weren’t offset by failings in the rest of the local economy. The boom simply failed to deliver. So, what are Ohio’s non-gas counties being “locked out” of? Higher utility prices and not much else.

That’s why, as fevered talk of expanded natural gas development, including the proposed hydrogen hub, ricochets between the region’s political and business leaders, we and they should pause and come to terms with the economic realities of natural gas and related industries. By doing so, they and we can avoid squandering tens or even hundreds of millions of taxpayer dollars on proposals like House Bill 685, which simply represents another favor to industry and false promise for Ohioans.

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Sean O’Leary
Sean O’Leary

Sean O’Leary is a senior researcher at the Ohio River Valley Institute where he studies energy, petrochemicals, and economic development. He is the author of three reports on the economic impacts of natural gas development in Appalachia as well as a report on how a declining coal town in Washington state reversed its fortunes by embracing clean energy transition. Sean is a native of Wheeling, West Virginia.

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