Debt Accumulation in Fossil Fuel-Reliant Localities During the Shale Boom and Implications for the Energy Transition

The energy transition away from fossil fuels poses long-term economic risks for communities reliant on oil and natural gas production and some may face exceptionally difficult challenges in adapting to the change. Bonds issued by these localities during the shale boom may undermine their financial resilience as shale activity dwindles. Declining tax revenue may undermine their ability to service the debt and maintain the associated physical assets. This study addresses the extent to which local governments in oil- and natural gas-producing communities accumulated significantly more municipal debt during the shale boom than other communities. The analysis uses bond issuance data from the Mergent BondViewer database, a triple differences design, and county groups constructed using U.S. Bureau of Economic Analysis and Energy Information Administration data. The results show that counties exposed to the shale boom in 2008 through 2011 accumulated 26 percent more population-normalized outstanding debt compared with the 2004 mean. This is a statistically and economically significant increase that potentially warrants policy intervention. Moreover, the results suggest that policy interventions must address local governments beyond cities, towns, and counties, such as school districts and water utilities, and must accommodate significant heterogeneity among communities.