How Should Shale Gas Extraction Be Taxed?

IMF Working Papers, November 16, 2017

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Bibliographic details

• Authors: Philip Daniel, Alan Krupnick, Thornton Matheson, Peter J. Mullins, Ian W.H. Parry, Artur Swistak
• Published: November 16, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484328491.001

Summary

• The paper concludes that the environmental and commercial features of shale gas extraction do not warrant a significantly different fiscal regime than recommended for conventional gas.
• Fiscal policies can play a role in addressing some environmental risks (e.g., greenhouse gases, scarce water, local air pollution), though in some cases their net benefits may be modest.
• Simulation analyses indicate special fiscal regimes are generally less important than other factors in determining shale gas investments, yet such regimes forego significant revenues.

Major findings

• Environmental and commercial features of shale gas extraction do not justify a substantially different fiscal regime compared with conventional gas.
• Fiscal instruments may address environmental externalities:
  • greenhouse gases
  • scarce water
  • local air pollution
• In some cases, the net benefits of fiscal interventions to address environmental risks may be modest.
• Special fiscal regimes for shale gas tend to forego significant government revenues while having limited impact on investment decisions relative to other factors.

Simulation analysis

• Simulation analyses suggest:
  • Special fiscal regimes are generally less important than other factors in determining shale gas investments.
  • There appears little need for special fiscal regimes given their limited influence on investment decisions.
  • Special fiscal regimes forego significant revenues.

Policy recommendations

• Do not adopt substantially different fiscal regimes for shale gas solely because it is shale gas; align fiscal treatment with regimes recommended for conventional gas.
• Use fiscal policies selectively to address measurable environmental externalities (greenhouse gases, scarce water, local air pollution), recognizing that net benefits may be modest in some cases.
• Consider the revenue implications of special fiscal regimes, given simulations showing they can forgo significant revenues without materially altering investment incentives.

Content in this bundle

• How Should Shale Gas Extraction Be Taxed?, WP/17/254, November 2017
  • How Should Shale Gas Extraction Be Taxed?, WP/17/254, November 2017 (Markdown version)
  • How Should Shale Gas Extraction Be Taxed?, WP/17/254, November 2017 (PDF)