Could Ohio, New York or Pennsylvania be the next North Dakota and “frack” its way to budget surpluses?

The United States is on track by 2020 to become the world’s largest oil producer and a net exporter of natural gas, a reversal of fortunes with huge consequences for many state budgets. But it depends on what kinds of taxes the states want to impose. States as varied as Pennsylvania and Louisiana have already lost out on hundreds of millions of dollars from the energy boom because of their tax policies, while Texas and North Dakota continue to cash in.

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Nowhere are the stakes higher than in New York, where fracking for gas has been temporarily banned, and California, where fracking of Monterey Shale oil holds huge potential. Environmentalists and the industry are closely watching both states.

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But industry and free-market groups say the benefits outweigh any environmental damage. A study by the Manhattan Institute concluded that a typical Marcellus Shale gas well generates $4 million in economic benefits for every $14,000 in damage from environmental impact. The group estimated that ending the drilling moratorium in New York could mean $1.4 billion in tax revenues for the state and localities from 2011 to 2020.

In California, claims Mark Mills of the Manhattan Institute, developing the Monterey Shale, with an estimated 15 billion barrels of oil, could allow California to “enjoy a gusher of oil revenues.” Mills figures the overall economic benefit of opening up the full extent of the Monterey shale could reach $1 trillion. Last December, California’s Department of Conservation released a “discussion draft” of fracking regulations for the enormous field. The state described the draft as “a starting point for discussion” before formal rulemaking.