Basing a county's economy on mining coal or drilling for oil and gas can produce high incomes in boom times, but over the long run rural counties were better off without fossil fuels.
There was a bumper sticker popular in the West Texas oilfields in the late 1980s that said, “PLEASE GOD, Just Give Me One More Oil Boom. I Promise Not to Blow It Next Time.”
There was another boom when oil peaked last year and now that oil prices are dropping again, another bust. Did they blow it? Who can tell? The question rural counties need to be asking is whether a local economy built on mining, pumping and drilling for energy is better than the alternatives?
Researchers at Headwaters Economics in Bozeman, Montana, say no. Counties that have a large percentage of workers mining coal or drilling for oil and gas have weaker economies than counties without natural resources, according to a recent Headwater study. Energy-intensive counties have slower growth. They are losing people to migration. They have lower rates of growth in household income.
“In the long run, the economies of energy-focusing counties grow more slowly than the economies of their peers that are not pursuing energy extraction as an economic development strategy,” concludes a recent Headwaters report, Fossil Fuel Extraction as a County Economic Development Strategy. The Headwaters researchers found that energy-intensive counties were like the hare in the race with the tortoise. Counties rich in oil, coal and gas race ahead when energy prices spike, but in the long run, the tortoise counties win the race.
Moreover, energy-intensive counties appear to be experiencing diminishing returns to energy booms. Western counties specializing in coal and oil experienced less of an economic bump during the most recent energy boom than in previous surges in energy prices.
Headwaters conducted a straightforward comparison. It grouped the 26 rural counties in the West that have at least 7% of their workers engaged in the extraction of fossil fuels. The firm compared these counties to the 254 rural western counties of a similar size (fewer than 57,000 people) that don’t have large numbers of workers in the energy industry. (See the map below. Energy intensive counties are in yellow.)
Energy counties certainly benefit when the price for oil, gas and coal jump. Personal income jumped in the 1970s and early 1980s, far surpassing the western counties without fossil fuel reserves. But then the boom ended and the energy intensive counties went into a decade-long decline.
The non-energy counties, meanwhile, played the tortoise. Throughout the 1980s, these communities continued to add people and income while the energy counties slowed.
From 1990 to 2005, the average real personal income growth in non-energy rural counties in the West was 2.9 percent a year. For energy-intensive counties, the growth in personal income during that time was only 2.3 percent. The energy counties also added fewer jobs.
The chart below compares the growth of total personal income in energy counties (the solid line), with non-energy counties (represented by the dotted line).
Over the long run, Headwaters found that energy counties didn’t fare as well as counties without significant employment in the oil, gas or coal industries. Energy counties had a slightly less educated workforce, a greater gap between high and low income households, less ability to attract investment and retirement dollars and they created less economic diversity.
Headwaters also found that energy booms don’t pack the power they once did. “(I)t is no longer the case that an energy surge causes those counties with a higher share of economic activity devoted to energy development to outperform their rural peers,” Headwaters found. In most economic indicators, the energy-intensive counties did worse than the non-energy counties of the West. During the last energy boom, in fact, two-thirds of the energy-intensive counties saw a net loss of population through outmigration. (See chart.)
During the energy boom from 1970 to 1982, ten of the 26 energy-intensive counties were in the top 30 Western counties in terms of job growth. (During the 1982 to 1990 bust, 12 of these counties ranked in the bottom 30 counties in terms of job growth.) But during the current energy surge, only one county (Sublette County, Wyoming) ranked among the top 30 in job growth. Campbell County, Wyoming, is the most energy-focused counties in the West and had the third highest rate of growth during the past energy boom. Campbell ranked 85th in the most recent energy boom.
“The current surge in energy development takes place in this changed economic context,” the report concludes. “In counties that have pursued energy extraction as an economic development strategy…the long-term indicators suggest that relying on fossil fuel extraction is not an effective economic development strategy for competing in today’s growing and more diverse western economy.”