The Shell Polymers Monaca petrochemicals complex shadowing the banks of the Ohio River in Beaver County, Pennsylvania, has become something of a symbol in Appalachia.
To the many families nearby, it represents a constant, draconic threat, belching episodic flames, discharging headache-inducing smells, and triggering air quality warnings for dangerous particulate matter and volatile organic compounds. In its first year of operations, Shell floored past its permitted air emissions limits, racking up 13 notices of violation and a $10 million penalty from the Pennsylvania Department of Environmental Protection. Operators stumbled through more than 26 malfunctions, letting loose a nine-day benzene spigot and warranting emergency flares lasting up to four hours, local watchdogs Eyes on Shell reported. On some nights, Monaca’s once-dark skies burn orange with smog.
To the oil and gas industry, the project represents the last vestige of the petrochemicals renaissance once envisioned for Appalachia. Shell Polymers Monaca is the lone survivor of an economic headwind that flattened the prospects of the four other ethane crackers canceled or forgotten across the tri-state area, as well as the 500 miles of arterial pipelines and underground NGL storage nodes that would have linked them.
And to the state of Pennsylvania, Shell represents a multi-billion dollar bet. Over the course of a decade, the Commonwealth arranged a suite of handouts and fiscal incentives to lure Shell to its eventual Monaca site. Among them: the largest tax break in Pennsylvania history. Decision-makers cited Shell-commissioned economic impact studies to assure residents the gamble would pay off down the line.
But has it? This fiscal year, Shell will receive $60.9 million in ethane credits alone from the state of Pennsylvania and its taxpayers. Where—and to whom—has this landmark investment trickled, if at all?
A pair of recent ORVI reports examines the role of Shell Polymers Monaca in Beaver County’s economy and how the facility came to inherit its perch on the Ohio River. It’s a story of hulking promises and house-of-cards projections. And it starts back in 2011, with a rumor.
On June 7, 2011, the Associated Press broke news that oil giant Shell was maneuvering an ethane cracker project in the hills of Appalachia to capitalize on the upstart “natural” gas boom sweeping across the Marcellus and Utica Shales. New hydraulic fracking technology had unlocked a glut of dirt-cheap ethane that, if “cracked” into ethylene and polyethylene, could be used to make plastic. On Shell’s radar: sites in Ohio, in Pennsylvania, and in West Virginia.
The announcement kicked off what economists sometimes term a ‘race to the bottom.’ Gargantuan investment projects like Shell’s tend to set off competitive frenzies among decision-makers, who lavish developers with increasingly generous offers of subsidies, tax cuts, and other financial incentives, such as purchases of Emissions Reductions Credits (ERCs) from plants that had already closed. Companies like Shell are then able to shop around for the best ‘deal’ for their project. In 2011, Pennsylvania was dead-set on beating out Ohio and West Virginia for Shell’s enormous petrochemicals project, and they were willing to shell out unprecedented amounts of public funds to bring Shell to the Commonwealth.
The state’s first major giveaway was the Pennsylvania Resource Manufacturing Tax Credit, codified in 2012. This new legislation established a $0.05 per gallon credit through 2042 on ethane purchased and used in the manufacturing of ethylene, the primary feedstock for ethane cracker plants. In total, the credit is valued at a whopping $1.65 billion over 25 years in offset raw material costs, the largest corporate subsidy in Pennsylvania’s history and the sixth largest of any US state.
A year later, Pennsylvania enacted the Keystone Opportunity Expansion Zone (KOEZ) program to exempt the Shell facility from state corporate income tax, local real estate property taxes, state and local sales taxes and occupancy tax. The original Keystone Opportunity Zone (KOZ) program, the “unexpanded” version, was founded in 1998 to encourage private investment in blighted areas by waiving nearly all business & property taxes for 12 years. It was meant for small businesses in struggling areas that needed a little boost to get off the ground. Just a month before Shell signed a land option agreement for its Monaca site, then-Governor Corbett’s broadened KOEZs expanded the small-fry KOZ tax exemption program to include larger parcels of land for bigger projects, like Shell’s. The new ‘expanded zones’ require an investment of at least $1 billion & the creation of at least 400 new, permanent, full-time jobs within 7 years.
Then, as icing on the fiscal cake, the state threw in a $10M Pennsylvania First Program grant to assist with site development.
In case there was any doubt of the importance of these tax incentives to the development of the Shell plant, Shell management publicly admitted that the company wouldn’t have pulled the trigger on the Beaver County complex without ethane tax credits or Keystone Opportunity Zone tax exemptions. “I can tell you, hand to my heart, that without the fiscal incentives, we would not have taken this investment decision,” Ate Visser, VP of Shell’s Appalachia Petrochemicals Division, told attendees of the Northeast U.S. and Canada Petrochemical Construction Conference in June 2016.
But again, the state viewed these enormous incentives as an investment. This project that decision-makers were fishing for was enormous, and they were receiving word that its economic impact would be even more enormous. Two economic impact studies published by RMU in 2014 and 2021 painted an especially rosy picture of the Shell facility’s economic impact. They claimed that Pennsylvania’s investment would produce billions of dollars in positive ROI for taxpayers. Governor Tom Wolf, who certainly laid eyes on these studies, told the Post-Gazette the facility would be a game-changer that would more than pay for itself, and by large margins. The second RMU study, which came out a little over a year before Shell launched operations, said the ethane cracker would “add nearly $4 billion each year to the Pennsylvania economy…the complex will produce $260 million to $846 million in annual economic activity…and the commonwealth of Pennsylvania [will] collect an additional $23 million each year in state income tax.”
These are huge and questionable claims. So, last year, our research team took a look under the hood to figure out how RMU researchers arrived at these figures. What they found raised alarms.
To start, though both studies present themselves as independent, impartial analyses, both were funded by Shell. The full text of the first RMU report, published in 2014, is no longer publicly accessible online, even though it was heavily cited in media outlets at the time. The 2021 follow-up report includes extensive circular citations to the vanished 2014 report. When asked for a copy, the authors of the reports said they couldn’t share any information because the research is the property of Shell.
These facts alone are concerning, both from an academic integrity standpoint and for the sake of the spoils they justified for Shell. But even the conclusions of the reports were flawed, borne of faulty methodology and misleading projections. Both studies employ an industry-favored tactic using IMPLAN economic modeling software, notorious for overestimating the projected economic impact of large facilities like Shell’s by inflating economic multiplier effects, which exaggerate downstream job and business growth, and excluding prices. The program also assumes land, labor, and capital are immediately and fully available for Shell’s use and will not impact other businesses in the region. The software also fails to consider the financial toll of the pollution—and requisite healthcare costs—levied on nearby residents. RMU also used an incorrect industry classification code for the facility, a mistake that resulted in outsized potential benefits; omitted the costs of billions in public subsidies and tax credits for raw materials; and employed a non-standard 40-year timeline, assuming—unrealistically—no changes in market conditions, regulatory shifts, or maintenance costs decades into the future.
So, in hindsight, we know Shell received a ton of tax incentives. We know the economic impact analyses used to justify these incentives were flawed. The question remains: over a decade after the Shell plant was announced, and a year and change since the facility launched its operations, what has Beaver County actually gained from Shell?
In June 2023, researchers Eric de Place and Julia Stone set out to paint an updated picture of Shell’s impact on the local economy. Using current federal economic data, they measured the change in key economic metrics from 2012, when the Shell facility was officially sited in Monaca, when state and local leaders, business owners, and policymakers decided to invest in what was being portrayed as a coming wave of economic activity. To help contextualize Beaver County’s economic performance, De Place and Stone included the economic trajectories of both the entire state of Pennsylvania and the United States. These essentially function as state and national averages.
The takeaway? Since the announcement of the Shell project, Beaver County has witnessed a declining population, zero growth in GDP, zero growth in jobs, lackluster progress in reducing poverty, and zero growth in businesses—even when factoring in all the temporary construction workers at the site. In fact, the county has fallen behind both the state and the nation in nearly every measure of economic activity, detailed, in turn, below.
Gross domestic product (GDP) is a measurement of total economic activity. It estimates the sum of goods and services produced in a given area, and it’s often used to compare the size and growth of economies.
As the graph above demonstrates, Beaver County’s GDP has actually declined since Shell’s 2012 announcement, falling steadily for four years, picking up slightly in 2018, then dropping off at the onset of the COVID-19 pandemic. Although the county’s output appeared to rebound in 2021, Beaver saw a total GDP decline of nearly 6% between 2012 and 2021. Meanwhile, apart from COVID-related declines in 2020, Pennsylvania and the nation experienced strong and consistent GDP growth, tacking on 9.7% and 20.6% to their economies, respectively.
The US population has grown steadily since 2012, adding more than 17.9 million people through 2021, a 5.7% increase, per Census Bureau data. Pennsylvania posted a 1.6% increase in the same period. But Beaver County has been losing residents since Shell’s siting, notching a negative growth rate of -2.1%.
Jobs: the entree of Shell’s promise. Data show that employment numbers slid in Beaver County from 2012 through 2015 before jumping slightly as construction of the facility began. The influx of temporary construction workers boosted job numbers relative to 2012, though never enough to make up the gap with the state’s performance. Those jobs dissipated during COVID, leaving Beaver worse off than it was when the project was announced. In fact, the county has not recovered to the same degree as the state and country, according to 2022 data, the most recent year available.
The US government measures local employment in three different ways, but all of them tell the same story. The chart above displays data from the Quarterly Census of Employment and Wages (QCEW), which tracks jobs covered by unemployment insurance. It is based on employer-reported data as part of state unemployment insurance programs. QCEW data shows that Beaver County lost nearly 10% of its jobs from 2012 to 2022, a significant decline relative to the healthy growth of 5% and 14% enjoyed by the state and the nation, respectively.
Other data corroborate job losses in Beaver County’s. The Bureau of Labor Statistics also publishes “Local Area Unemployment” statistics, which track monthly state model-based estimates built primarily on data from the Census Bureau’s Current Population Survey, a survey of households. This data shows a 3.5% decline in employment, again compared to healthy gains in PA and the nation.
The Bureau of Economic Analysis tracks employment in a slightly different way, putting more emphasis on odd jobs, contract work, and part-time gig work. By this measure, Beaver County experienced negligible growth in overall employment between 2012 and 2021 (0.04%), while Pennsylvania and the US grew by 4.6% and 12.4%, respectively, in the same period. Again, the RMU studies would have us believe that Beaver County’s employment growth should have been skyrocketing beyond state and national averages.
In its “Statistics of US Businesses,” the Census Bureau tracks the number of businesses in American geographies. The Census Bureau tracks both “firms,” or businesses consisting of one or more domestic establishments in the same place and industry, as well as “establishments,” a single physical location at which business is conducted.
From 2012 through 2019 the number of business firms grew by more than 6% nationally and almost 1% statewide, yet Beaver County lost almost 94 firms, a 3.2% decline.
The Census Bureau’s count of business establishments tells a similar story. From 2012 to 2019, the number of establishments grew by more than 7% in the US and by more than 2% in Pennsylvania, while Beaver County’s number of establishments decreased slightly (Figure 14). By 2019, the county had fewer establishments than it did when the Shell cracker was announced.
The QCEW report also tracks annual data on the number of businesses at the county, state, and national level. According to the QCEW report, from 2012 through 2022, Beaver County lost 59 businesses, a decline of 1.3%. Over that same period, Pennsylvania added more than 36,000 businesses, an increase of over 10%, while the US added more than 2.4 million, a growth rate of almost 25%.
Jobs, business, population, GDP: by every measure, Beaver County has underperformed both state and national averages in the period when, according to the RMU studies, it should have experienced explosive growth. Still, it’s worth asking if Beaver County might have fared even more poorly if the cracker plant never came to town. Did Shell buoy Beaver County’s economy through a circumstantially difficult stretch? Without an experimental control, it’s difficult, even impossible, to prove or disprove that counterfactual. But in doing so, you’d have to compare the ethane cracker to its true opportunity cost: the billions in state subsidies that could have gone to other sectors, not to mention the externalized costs of pollution, air emissions violations, and even the resultant healthcare expenses residents of Beaver County have seen since Shell’s startup.
In the end, the data are unequivocal. Pennsylvania made a bad bet by investing in the Shell facility. Faulty, Shell-funded economic impact studies suggested investing in the Beaver County petrochemicals complex would pay off. Yet today, by nearly every economic metric, Beaver County is worse off than the day the facility was announced.
Ultimately, the story of Shell’s failed promises should be a cautionary tale for policymakers presented with economic bonanzas by profit-driven private companies, whether they are foreign or domestic. In Beaver County and across the Ohio River Valley region, there are promising alternatives to petrochemical development. “High-multiplier” investments in workforce development, education, energy efficiency, small businesses, and quality of life keep more money in the local economy and create “ripple effects” of job and income growth.
Gambling away taxpayer dollars is a losing strategy. It’s time to invest in people over corporations and seed a better future for Appalachian families.