Faulty economic studies misled Pennsylvania lawmakers on petrochemicals: Report

PITTSBURGH — A pair of economic impact studies that were used to justify billions of dollars in tax breaks to bring a massive petrochemical complex to Pennsylvania used flawed methods and misled lawmakers, according to a new report.

Shell Polymers Monaca, the company’s first Appalachian plastics plant that sits about 30 miles northwest of Pittsburgh, began operations in November 2022. In 2012, Pennsylvania lawmakers offered Shell an “unlimited tax credit” to lure the company to the state in what was, at the time, one of the largest public subsidy packages ever awarded to a private company in the U.S.

The Pennsylvania Budget and Policy Center estimated at the time that these subsidies would save Shell $1.65 billion over 25 years. Proponents said the deal would usher in a new wave of economic growth for the state—a promise that hasn’t panned out so far.

A new report from the Ohio River Valley Institute, a nonprofit think tank, examines a 2014 study and a 2021 follow-up study that have been widely cited as justification for Shell’s massive subsidies from taxpayers. Shell commissioned and funded the studies, which were conducted by researchers at Robert Morris University (RMU), a private university in a Pittsburgh suburb with around 5,300 students.

In the 2021 analysis, RMU study authors estimated the Shell plant would bring massive gains, including nearly 12,000 new jobs and more than $70 billion in economic benefits to southwestern Pennsylvania over the lifespan of the project.

However, the Ohio River Valley Institute says these estimates were based on inaccurate economic projection methods, a failure to incorporate external costs, non-standard timelines and a misclassification of the plant’s purpose.

“For a variety of reasons, this report finds that the industry-funded RMU studies present residents of the region with an inadequate evaluation of the true economic prospects of Shell’s plant,” said report co-author Kathy Hipple, a research fellow with the Ohio River Valley Institute, in a statement. “That these studies were then used to justify billions of dollars of public subsidy already granted to the project by the Pennsylvania General Assembly Legislature over two years earlier raises serious academic and ethical concerns.”

When asked to comment on the findings, Shell didn’t address the report but pledged to “be a good neighbor for decades to come.”

“This county is our home, and we are proud of the jobs, economic benefits and social investment dollars and projects we have brought to the region,” Shell spokesperson Curtis Thomas wrote in an emailed response. “Our company, employees and contractors have contributed millions and millions of dollars to businesses and to nonprofit organizations that help benefit the community.”

Robert Morris University and the authors of the RMU Shell studies (Steven Clinton, Stephen Foreman, Patrick Litzinger, Marcel C. Minutolo and Brian O’Roark), did not immediately respond to a request for comment. We will update this story if they do.

“Academic malpractice”

plastic shell pennsylvania

The first RMU study was published in 2014, two years after Pennsylvania lawmakers offered Shell billions of dollars in subsidies. The second was a follow-up study published in 2021. The first RMU study is no longer available online.

The Ohio River Valley Institute’s report says the 2021 RMU study doesn’t adequately explain its methods and instead cites its own 2014 report, which is no longer publicly available. “At best,” the Ohio River Valley Institute authors write, “citing one’s own private and publicly inaccessible work is academic malpractice, asking serious readers to blindly trust the authors. At worst, it is a purposeful omission designed to discourage valid criticism of the study.”

The report also notes that none of the authors’ curriculum vitae mention any previous experience conducting economic analyses related to the petrochemical industry, and questions why they were selected to perform this analysis over more qualified researchers.

“That these studies were then used to justify billions of dollars of public subsidy … raises serious academic and ethical concerns.” – Kathy Hipple, Ohio River Valley Institute

When it comes to the specific methods used for the RMU studies, the Ohio River Valley Institute report makes four main criticisms:

  • They used an economic modeling tool that doesn’t incorporate market-driven price fluctuations and isn’t accurate for long-term forecasting
  • They neglected to include public subsidies or external costs like declining home values, public health costs and environmental damage in their cost-benefit analysis
  • They used an unrealistic and non-standard 40-year timeline, whereas other ethane crackers in the U.S. have used a 15-year timeline for economic projections
  • They misclassified Shell’s petrochemical complex as a “Petrochemical

Refinery” industry instead of a “Plastic Resin Manufacturing” in the software they used for their analysis

These missteps contributed to the studies grossly overestimating the plant’s potential economic benefits to the region, according to the Ohio River Valley Institute report.

“We’re not saying it’s a foregone conclusion that the [costs] will outweigh the [benefits]…we’re saying you have to actually consider both in order to do a thorough, independent economic impact analysis,” said Nick Messenger, a PhD candidate in agricultural, environmental and development economics at The Ohio State University and one of the report’s coathors, during a press briefing.

The economics of petrochemicals 

petrochemicals plastics

The authors of the Ohio River Valley Institute report said they hope the report’s findings will be used as a cautionary tale for other policymakers presented with industry-driven economic projections for similar projects.

“It is not enough to take anyone’s word for it without a deeper understanding of how companies and analysts arrive at their predictions,” the report warns.

In addition to obtaining independent economic impact projections, the report recommends that lawmakers faced with decisions about subsidizing large corporate manufacturing projects also analyze the potential impacts of other uses of the same taxpayer dollars.

“There’s a lot of peer-reviewed research that shows local entrepreneurship is drastically better at creating jobs than large corporations because their supply chains tend to be local,” said Messenger during a press briefing. “They tend to hire local workers, local accountants, and their finance folks and CEOs are all in the region, versus a lot of salary dollars going to some out of state corporate headquarters.”

“It’s very difficult once you give a tax exemption to get that back,” he added. “But we shouldn’t keep spending lots of taxpayer money on projects that aren’t actually creating jobs or positive economic impacts.”