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Philip Daniel, Alan Krupnick, Ms. Thornton Matheson, Mr. Peter J. Mullins, Ian W.H. Parry, and Artur Swistak
This paper suggests 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 may have 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 suggest, moreover, that special fiscal regimes are generally less important than other factors in determining shale gas investments (hence there appears little need for them), yet they forego significant revenues.
Philip Daniel, Alan Krupnick, Ms. Thornton Matheson, Mr. Peter J. Mullins, Ian W.H. Parry, and Artur Swistak

Front Matter Page Fiscal Affairs Department Contents Abstract I. Introduction II. Brief Overview of Shale Gas Industry III. Environmental Risks and Policy Responses A. Risks B. The Role of Fiscal Policy C. Alternatives to Taxes D. Summary IV. Fiscal Regimes A. Fiscal Regimes B. Modeling Strategy C. Results V. Conclusions Tables 1. Summary of Instruments to Address Environmental Risks of Shale Gas 2. Parameters for Simulated Projects Figures 1. Growth of the US Shale Gas Industry 2. Top Ten Countries

Philip Daniel, Alan Krupnick, Ms. Thornton Matheson, Mr. Peter J. Mullins, Ian W.H. Parry, and Artur Swistak

. Parameters for Simulated Projects Noth America Europe Parameters Unit Shale Conventional Shale Conventional Project Level Project life Years 44 40 44 40 Production Years 37 32 37 32 Gas production Tcf 1.0 1.0 1.0 1.0 Oil production MMBbl 50 50 50 50 Total production a MMBOE 222 222 222 222 Wells drilled Wells 286 8 403 8 Success Rate % 95 95 70 95 Gas price $/MMBtu 2.86 2

International Monetary Fund

investor demonstrated by one fiscal regime when compared with another, using the same simulated project and price scenarios. As discussed earlier, prospectivity here means a combination of geological risk, physical location, and political risk. If this advantage or disadvantage is significant, then the first hypothesis to investigate is whether the fiscal regime differs as a direct consequence of differing perceptions of prospectivity. If it does not, then there is a case for revision of the fiscal regime (or for discovery of new parameters by offering prospects at