Dividing Fracking Regulation Efficiently

February 25, 2013

Hydraulic fracturing ("fracking") of shale gas has increased domestic onshore U.S. gas exploration and production substantially. It also serves to boost the nation's economy for decades to come as estimates of recoverable reserves and exports have increased. Recent bills like the Safe Drinking Water Act, dubbed the FRAC Act, seek enhanced federal regulatory control in response to widespread public concerns about the environmental impact of fracking. When considering the how to regulate fracking, it is important to consider which level of government is best suited to maximize society's welfare, says Lee Lane, a visiting fellow at the Hudson Institute.

Lane seeks to answer whether fracking problems extend beyond borders, if uniform standards would protect the gas industry, which level of government possesses the best information, and which government -- federal or state -- is the most attentive to public welfare.

  • Despite claims that fracking produces significant increases in pollutants found in ground and drinking water adjacent to fracking sights, Lane cites a four Government Accountability Office studies that determine that there is no evidence that fracking operations cause serious or widespread contamination of drinking water within or across political boundaries.
  • Discussion surrounding the FRAC Act contends that uniform regulation is beneficial to the industry but in the case of the FRAC Act, it fails to create any specific standards that would minimize the impact of diverse regulatory regimes.

Lane concludes that developing U.S. natural gas resources will be beneficial for the economy, national security and the environment. The current regulatory regime has many flaws but by dividing the labor between the federal and state government effectively, each form of government could address the problems it is most suited to handle. For the federal government, it means concentrating on regulatory issues when transborder effects are strong. For state governments, it means becoming better regulators and encouraging innovations aimed at reducing the environmental impact of fracking.

Source: Lee Lane, "Institutional Choices for Regulating Oil and Gas Wells," Hudson Institute, February 2013.

 

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