ON-THE-RECORD PRESS CALL
BY CEA ACTING CHAIRMAN TOMAS PHILIPSON
ON THE VALUE OF U.S. ENERGY INNOVATION
AND POLICIES SUPPORTING THE SHALE REVOLUTION
Via Teleconference
11:04 A.M. EDT
MS. SLOBODIEN: Thank you for joining today’s call today to discuss CEA’s latest report before on energy innovation. Before I turn things over to Chairman Philipson, I’d like to remind that this call is on the record. Additionally, you can find CEA’s latest energy report on our website or on our Twitter feed which is @WhiteHouseCEA.
We’ll open with remarks from the Chairman. And if time permits, we will take a few questions. During question and answer, we may have a senior economist joining, but his remarks will be on background. Only the Acting Chairman’s remarks will be on the record. With that, let’s get started.
ACTING CHAIRMAN PHILIPSON: Thanks everyone for calling in. This is Tomas Philipson. As many of you saw yesterday, President Trump spoke at the Shale Insight Conference in Pittsburgh. During the speech, the President explained that a thriving energy industry not only benefits hardworking Americans who live in shale country, it is an enormous benefit to citizens across our land as well.
In conjunction with the President’s speech, the Council of Economic Advisers released a report titled “The Value of U.S. Energy Innovation and Policies Supporting the Shale Revolution.” CEA’s new report confirms that American consumers are benefitting from the shale revolution as they see lower monthly energy bills because of it.
The shale revolution illustrates a typical pattern about how innovation and production techniques translates into gains for consumers. Generally, such innovation raises productivity in terms of output per day, which therefore lowers production costs for a given amount of output. Price competition thereafter, among suppliers, then forces these cost reductions to get passed on to consumers, and prices decline, which in turn leads to a larger amount of output being purchased and increased production.
As CEA’s report shows, this is exactly what happened under the shale revolution. The report focused on three aspects of this revolution: consumer benefits; environmental benefits, relative to the status quo of not having a shale revolution; and results of state energy innovation policies. I’ll discuss each of these in greater detail.
The first component, the shale revolution, has created immense consumer benefits to lower prices. Innovation lowered oil and natural gas production costs, which reduced energy prices. It’s important to note that lower energy prices particularly favor lower-income households, who spend a larger share of their income on energy. At the same time, greater production from shale has expanded employment and made America the world’s leading producer of both oil and natural gas, making us more energy independent.
These price reductions and output expansions result from the enormous productivity gains that the shale revolution enabled. The report finds that from 2007 to 2019, innovation in shale production brought an eightfold increase in an extraction productivity for natural gas and a nineteen-fold increase for oil.
CEA estimates that improvements in productivity reduced the domestic price in natural gas by 63 percent and led to a 45 percent decrease in the wholesale price of electricity. Shale production also reduced the global price of oil by 10 percent.
By lowering energy prices, CEA estimates that the shale revolution saves the U.S. consumers $203 billion annually, which amounts to two and a half -- two and a half thousand dollars for a family of four.
Because low-income households spend a larger share of their income on energy bills, lower energy prices disproportionally benefit them in a progressive manner. Shale-driven savings represent 6.8 percent of income for the poorest fifth of our households, compared to 1.3 [percent] of the income for the richest -- the richest fifth of our households.
A second finding of the report is the substantial environmental benefits from the shale revolution, compared to the status quo of no such innovation. Moreover, we find the benefits were unexpected before the shale extraction became common.
In 2006, the Energy Information Administration projected a 15 percent increase in carbon dioxide emissions from 2005 to 2017. Instead, because of contributions from shale -- from the shale revolution -- they decreased by about 14 percent. These benefits came from less emissions from the electric power sector as it generated less power from coal.
CEA estimates that from 2005 to 2017, the shale revolution lowered energy-related greenhouse gas emissions by 527 million metric tons per year, or 9 percent of 2005 level. This contributed to a greater decline in greenhouse gas emissions, relative to the size of the economy in the United States, than in the European Union over that period, even though the European Union developed and expanded the government-run cap-and-trade system that increased energy costs for consumers.
Importantly, this shale-driven decline in GHG emissions is larger than the EPA projected by 2025 for its 2012 CAFE Standards regulations for cars and trucks, and is more than double what EPA projected for its now-rescinded excessive regulations of power plants.
Additionally, CEA estimates that particulate emissions declined faster in the United States than in the European Union from 2005 to 2017.
In short, private-sector innovation reduced emissions more than government policies did, and this form of U.S. energy innovation has been great news for the environment. This value of private sector innovation, rather than government control, is also found in the paper's third main component.
This component shows that, while most states have allowed shale production to flourish through deregulations, some states like New York have taken a heavy-handed approach and banned fracking.
Comparing Pennsylvania -- a nationwide leader in this, in shale -- to New York demonstrates our policies that allow energy innovation and infrastructure can bring increased employment, a cleaner environment through lower emissions, and cheaper energy prices. Much of southern New York sits on the Marcellus Shale formations, which is the most prolific shale gas formation in the United States. Not tapping this goldmine has deprived New York of economic and environmental benefits. Since New York banned fracking in 2008, energy firms have drilled more than 2,500 wells in Pennsylvania, adjacent to the New York border.
The shale development caused Pennsylvania's natural gas production to increase tenfold from 2010 to 2017. Over the same period, New York’s production fell by nearly 70 percent.
As a result, today, Pennsylvania leads the country in net electricity exports to other states and produces more than twice the energy it consumes. In contrast, New York consumes four times the energy it produces.
Reinforcing the paper's findings about the shale environmental benefits, despite the growth in Pennsylvania's energy production, Pennsylvania state energy-related GHG emissions fell 15 percent from 2010 to 2016 -- twice as much as New York's 7 percent decline during that period.
Energy infrastructure is also critical to the shale revolution's success. In 2017 and 2018, two major pipelines projects to take the Appalachian gas into Michigan and beyond were finished. Over the same time, no new interstate pipelines were built from Pennsylvania into New York, and on to New England. As a consequence, from 2016 to 2018, Michigan’s gas price relative to the national average price fell 14 percent. On the contrary, New York’s prices increased 16 percent.
A 14 percent decline in the New York and New England gas price would have saved consumers in the region an estimated $2 billion annually, or $233 for a family of four. And as CEA's paper shows, this gain would've benefitted lower incomes households the most.
To conclude, the Trump administration is advancing policies to promote energy innovation, such as the shale revolution, which greatly benefits Americans across the country. CEA's report finds that innovations lower the energy bills and improves the environment in ways that no one expected.
The Trump administration is focused on defending American private sector and energy innovation over misguided government policies, and we hope our new findings encourage states to keep welcoming the consumer and environmental benefits this innovation may deliver.
With the time remaining, I’m happy to take a few questions about the report. Thank you.
Q Hey. Thanks for doing the report. So, can you just clarify what actions the Trump administration has taken to boost shale production in the United States? Obviously, shale production has been rising for years now. I'm from Pennsylvania and was covering this in 2008, '09, '10, and '11. So, I just want to better understand -- I see in the report you talk about deregulation, but there isn't a lot of detail on what, really, the Trump administration has done to further this. Thank you.
MS. SLOBODIEN: Our senior economist will speak to that, on background.
SENIOR ADMINISTRATION OFFICIAL: Hi. Yes. Thanks. That's a good question. The report recognizes that the roots of the shale revolution go back a long ways, at least to the early 80s, and the deregulation of natural gas markets and pipelines in that period, which then supported Mitchell Energy’s innovations in Texas and fracking.
So we recognize that, but we also think that the administration certainly has created a policy environment where firms are willing to continue to invest to bring to completion new wells, new pipelines, new export facilities, which are longer-term investments.
And so, with the administration's action supporting pipeline infrastructure, such as Dakota Access or Keystone Pipeline -- or, if we look to LNG exports, the administration has doubled the capacity of LNG exports. And that's a very important thing for current investments in natural gas because domestic production is overwhelming domestic supply. So the ability to export to international markets, especially for that gas, is key to driving current investment.
Q Hi. This is Maya Weber with S&P Global Platts. Could you explain that detail you just gave about the administration doubling the investment in LNG export facilities, what exactly are you referring to there? Are you talking about what's been approved or what's actually come online that might have been approved previously?
SENIOR ADMINISTRATION OFFICIAL: Thanks for the clarifying question. Yeah. The doubling is the amount of capacity approved for export to non-free-trade-agreement countries, which is essential for making the project viable.
So, the administration began with about -- in the beginning of 2017, there was about 17 billion cubic feet of capacity approved, and that's what has doubled. There is much more in the pipeline, so to speak. But that number, that doubling, is what has been approved -- that the DOE has given approved for export of LNG to any country that it wants. That's what I'm referring to, not -- the doubling doesn't refer to a specific investment number; it's to approved export capacity.
Q Okay. Thank you.
MS. SLOBODIEN: Thank you, everyone, for joining the call today. If you have any additional questions, please reach out to me or the White House Press Office. Thank you.
END 11:18 A.M. EDT
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