Employment, Input-Output Linkages, and the Energy Transition in California's Top Oil-Producing Region

Abstract

The US economy is transitioning away from fossil fuels toward sources of green energy. California policymakers have adopted the goal of carbon neutrality by 2045 or earlier. Within California, Kern County accounts for over 70 percent of oil produced within the state. To understand how the transition may affect opportunities in Kern, we propose a structural vector autoregressive model that jointly explains the global crude-oil market and the evolution of employment within Kern. We use monthly data from the Quarterly Census of Employment and Wages. While industries directly involved in the extraction of fossil fuels employ less than 2 percent of workers, the oil market is responsible for 11 percent of the variation in employment growth. Employment would be 6.4 percent lower currently absent the influence of the global oil market. We explain these large effects using a theoretical framework of production that relies on a network of input--output linkages. The findings may be useful to policymakers designing place-based policy aimed at helping vulnerable oil-dependent regions.