Common Sense Policy Roundtable, Denver South Economic Development Partnership, and Metro Denver Economic Development Corporation

2,000-foot oil and gas setbacks could cost Colorado up to $11 billion in GDP a year and 62,000 jobs

January 26, 2016

 

DENVER— A 2,000-foot statewide setback for oil and gas wells could result in slower economic growth for Colorado’s economy and state revenue, according to a study commissioned by the Metro Denver Economic Development Corporation, the Denver South Economic Development Partnership and the Common Sense Policy Roundtable.

The study, based on commodity prices and production rates available through July 2015, estimates that the setback could lower Colorado’s gross domestic product by an average of $6 billion to $11 billion each year and result in 33,000 to 62,000 fewer jobs between 2015 and 2030. As a consequence, the setback could also reduce tax revenues paid by the oil and gas industry by $214 million to $428 million annually.

Researchers reviewed estimates from the industry on the impact of setbacks and further evaluated impacts estimated by energy analysts. Those estimates suggest a 2,000-foot setback could cause a reduction in production from 25 to 50 percent.

“The modeled forecast scenarios are based on the best information we could gather through mid-year 2015 including price outlooks, production potential in Colorado and the estimated depletion rates for Colorado wells,” said Brian Lewandowski, associate director of the Business Research Division at the University of Colorado Boulder’s Leeds School of Business, which conducted the study. “The scenarios point to slower growth, though the impact should not be recessionary.”

A 25-percent reduction in oil and gas production could result in slower state GDP growth of $3 billion in the next five years with a $6 billion reduction in GDP between 2015 and 2030, finds the study. The foregone job growth under a 25 percent reduction scenario could result in 17,000 fewer jobs in the next five years and 33,000 jobs between 2015 and 2030.

A 50-percent reduction in oil and gas production could result in Colorado’s GDP taking a $5 billion hit in the next five years with an $11 billion reduction in GDP between 2015 and 2030, finds the study. The foregone job growth under a 50 percent reduction scenario could result in 33,000 fewer jobs in the next five years and 62,000 jobs between 2015 and 2030.

With the public revenue stream from the oil and gas industry totaling $1.2 billion in 2014, the impact on state revenue from a 2,000-foot setback could have significant impacts on state funding. The majority of that public revenue stream comes in the form of property taxes, personal income taxes, severance taxes, public land leases and royalties. “These setbacks could cost Colorado $214 million to $428 million in tax revenues every year,” said Tom Clark, CEO of the Metro Denver Economic Development Corporation.

Recently a number of ballot initiatives have been introduced that propose even larger setbacks, ranging from 2,500 to 4,000 feet. “If a 2,000-foot setback costs the state 62,000 jobs, then the effect of a 4,000 foot setback on our state’s economy would be significantly larger,” said Mike Fitzgerald, President and CEO of the Denver South Economic Development Partnership.

“A setback of 2,000 feet would move Colorado’s economy in the wrong direction. It would have significant impact on reducing growth of jobs, and it is absolutely the wrong time to have a negative impact on our ability to fund schools and roads,” said Earl Wright, Chairman of the Board at Common Sense Policy Roundtable.

The Leeds School’s Business Research Division—which conducts economic impact studies for a range of industries and organizations from science and technology transfer to public transportation, health care, nonprofits, natural foods and craft brewing—conducted the study using the REMI Tax-PI dynamic economic modeling system developed by Regional Economic Models Inc.

The REMI Tax-PI model was built for Colorado and calibrated with Colorado revenues, expenditures, employment and population. Researchers examined the known, quantifiable industry metrics, ranging from production and prices to employment, wages and taxes.

The full study can be reviewed and downloaded HERE >>.