Shale Development and Oil and Gas Money in State Legislatures

• In Event: Leveraging the States: Improving Inferences with US State Data

Abstract

Beginning in the mid-2000s, shale oil and gas resources that were previously thought inaccessible became highly productive due to innovations in unconventional drilling, a technology combining horizontal drilling with hydraulic fracturing (hydrofracking). Since oil and gas policy is primarily determined at the state level, this context provides a unique opportunity to study how corporate interests adjust their political strategies to shocks in the relative importance of different subnational geographies. Thus, we focus on state campaign finance donations from organized oil and gas interests, and study how these donations respond to shocks that affect the expected oil and gas revenue streams from states and legislative districts within states.

Our study explores two research questions. First, when a state or locality becomes exogenously more important for the oil and gas industry due to the shale gas innovation, to what extent does campaign money from oil and gas organizations increase, and, if it does increase, to where does it go? Theoretically, oil and gas interests may adopt strategies that broadly donate to state legislatures with rising oil and gas production, or they may align their campaign finance payments to the particular state legislative districts where they are newly drilling, perhaps for reasons presented in Bombardini and Trebbi (2011). Second, we ask, when a state adopts a policy that eliminates future production from shale gas, do oil and gas interests substantially change their donation behavior? To investigate this question, we study the New York State moratorium (later, ban) on hydraulic fracturing, which began with the 2010 election cycle.

To bring empirical evidence to these questions, we combine data on donations to state legislatures' lower chambers from the National Institute of Money in State Politics (NIMSP), legislative district geography from the US Census, the geographic locations of unconventional wells drilled from DrillingInfo, and shale plays from the Energy Information Administration (EIA).

For our first research question, our identification strategy exploits a commonly used instrument in the shale gas literature (e.g. Weber, 2012; Feyrer, Mansur, & Sacerdote, 2017). Specifically, we use the percent of a legislative district that is on shale, times time, as an instrument for the presence of unconventional drilling. With this instrumental variable (IV) design, we find significant flows of oil and gas money into districts that have a strong presence of unconventional drilling after the resource became accessible. Moreover, our IV results also show that districts that do not themselves contain drilling, but which are in a state with drilling elsewhere, also receive more oil and gas money. However, these effects appear about five times smaller than those for districts with drilling directly. In other words, the new oil and gas campaign money due to shale gas largely aligns with the places that were drilled; these flows cannot be explained by statewide effects. These results indicate a strong complementarity between constituent interests (in this case, having unconventional drilling) and interest group donation behavior, consistent with findings in Bombardini and Trebbi (2011) and Stratmann (1992).

To study our second research question, we apply synthetic control methods to the case study of New York's moratorium (later, ban) on unconventional drilling. Among the states in our sample, the overall oil and gas campaign finance revenue for the New York State assembly experienced a relatively large, though not statistically significant (according to a state-level permutation test), reduction in campaign finance from oil and gas between the years 2010 and 2012. However, these effects become statistically significant when we restrict the sample to legislative districts that are on shale. Thus, while oil and gas industries may not have appreciably reduced overall campaign finance donations to the assembly following the ban, they appear to have reduced these donations to assembly members representing legislative districts on the shale; the critical importance of district location in this case is consistent with our earlier findings.

To summarize, understanding the political strategies of moneyed interests is an important topic in research on state policymaking, and we study a particularly interesting recent development with a strong geographic component. The geographic concentration of corporate political donations appears to be a consistent pattern more generally (e.g. Li, 2018), and from our analysis it appears that this may be more due to the concentration of firm operations rather than the concentration of their policy interests, since the effects on oil and gas donations for legislative districts with new drilling appear much larger than the overall effect on states with new drilling.

Authors

• Richard W DiSalvo, University of Rochester

• Zhao Li, Princeton University

• Andrew Boslett, University of Rochester

• Elaine Hill, University of Rochester