Shale Play Politics: The Intergovernmental Odyssey of American

Feb 10, 2014 - This technology was first developed in the American Southwest via a .... In recent decades, a wide range of political science and publi...
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Shale Play Politics: The Intergovernmental Odyssey of American Shale Governance Barry G. Rabe* Gerald R. Ford School of Public Policy, University of Michigan, 735 S. State Street, Ann Arbor, Michigan 48109-3091, United States ABSTRACT: Intergovernmental responsibility for policy development for shale gas is concentrated primarily at the state level, given multiple statutory and political constraints on potential federal engagement. This opens the question of how a large subset of American states might craft shale policies, amid competing scholarly views on the commitment of states to environmental protection when energy development opportunities arise in the absence of applicable federal authority. The article examines recent trends in state political economy that may shape policy development and capacity, considers the heterogeneous pattern of policy emerging thus far, and draws preliminary lessons from the very small set of states that have enacted farreaching new state legislation. It also offers early discussion of cross-border issues that may trigger multistate, regional, or ultimately federal engagement as well as growing signs of volatility in policy development in some states.

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Pennsylvania and Texas) and others that are relative newcomers to this area (such as Maryland and New Jersey). Additional states without such deposits have also become involved in the shift toward a more shale-focused energy sector, such as the expanding mining operations for a distinctive type of sand needed to provide an essential proppant for the fracking process that is heavily concentrated in Minnesota and Wisconsin. Proliferating issues related to transportation infrastructure via cross-state highways and trains further increase the diverse ways that states without shale resources may nonetheless consider shale-related policy development, especially in the aftermath of a series of major accidents in 2013. The sudden surge of gas and oil from shale deposits has already had a transformational impact on energy development and use in the United States, with continental and international effects. On the one hand, this substantial supply has already begun to markedly reduce American dependence on imported energy, particularly oil, which has been a central foreign policy goal of every American President from Richard Nixon to Barack Obama. Indeed, the United States has begun to weigh the possibility of becoming a significant exporter of gas and oil, something unthinkable a half-decade or so ago amid a common lamentation that the moment of “peak oil” had arrived and that American dependence on other nations would only continue to mount. In turn, the arrival of shale has fostered substantial economic development, reflected in expanding investment and employment opportunities. The rapid expansion of natural gas

hale plays do not adhere to established jurisdictional boundaries. Most, in fact, cross multiple American state borders. In some cases, these deposits of gas and oil also extend far beyond North American boundaries into the federations of Canada and Mexico. The overlapping Marcellus and Utica plays, for example, cover portions of eight American states and two Canadian provinces. This was not much of a governance issue during the decades in which these deposits were generally known to exist, but they were not seen as serious candidates for energy retrieval due to their remote location and the technical complexity of extraction. But this has changed dramatically in recent years, with the so-called “shale rush” being one of the most significant energy developments in decades. This impact has thus far been greater in the United States than in any other nation. This paper will focus primarily on the questions of governance in an emerging American regime that is thus far highly decentralized and forces state and local governments sitting atop shale deposits to weigh potential trade-offs between resource extraction and environmental protection in the absence of preemptive federal statutes. As we shall see, states have moved in very different directions thus far in response to this new resource. Shale deposits have been transformed into major sources of accessible gas and oil through the evolution of extraction practices. Most notably, this involves refinement of the practice of hydraulic fracturing (more commonly known as “fracking”) and the related maturation of horizontal drilling techniques. This technology was first developed in the American Southwest via a combination of experimentation by privately held energy firms and applied research support from the federal government.1 But it has now proliferated and is increasingly deployed in virtually every region of the United States thought to have some significant shale deposits. At present, at least 31 states possess some reserves, representing a mixture of states that either have substantial prior histories with gas and oil (such as © 2014 American Chemical Society

Special Issue: Understanding the Risks of Unconventional Shale Gas Development Received: Revised: Accepted: Published: 8369

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federal system diffuse policies that share many common design elements.

supply at fairly low cost has also contributed to substantial replacement of coal in the generation of electricity, increasingly reflected in state energy planning and rate-setting practices via appointed public utility commissions. Both are fossil fuels but natural gas combustion produces far fewer environmental side effects than coal, leading to a significant drop in conventional air pollutants and carbon dioxide emissions in the American electricity sector, and a possible bridging role toward evencleaner electricity sources. Despite these benefits, shale development presents potentially significant social costs. Indeed, the shale revolution has triggered enormous political and social controversy surrounding the environmental risks posed by fracking, reflected in commercial and documentary films, expanding protest movements, and a proliferating number of legislative proposals and ballot propositions to delay or prohibit the practice within certain jurisdictions. The fracking process not only uses considerable amounts of water but also triggers questions about water quality impact. Much of the water injected into the ground returns to the surface, intermingled with chemical additives as well as natural radioactive contaminants picked up while underground. This raises issues of “flowback” disposal, along with the question of whether this drilling practice contaminates wells, aquifers, and surface water bodies. The extensive use of diverse chemicals, many of which are not disclosed to the public due to “confidential business information” or trade secret protections further raises issues of chemical spills and contamination. But the concern over potential negative externalities is not confined to water. Shale exploration can produce significant quantities of methane emissions, which has greater global warming capacity per-unit than carbon dioxide. Shale drilling operations have been found to expand seismic activity, even in areas with little history of earthquakes. Fracking also tends to be a fairly decentralized process with large numbers of drilling operations that tend to spill across multiple local jurisdictions such as counties, municipalities, and townships, generating questions of transportation route capacity and land-use controls that are traditionally lodged with local rather than state or federal authorities. Finally, the advent of shale gas and oil may begin to marginalize renewable energy alternatives at the very point that some of them appeared poised for significant expansion, particularly in the 29 states that have enacted some form of a statutory mandate to steadily increase the percentage of electricity derived from renewable sources. While it presents substantial benefits, the shale revolution thus also poses a number of challenges for effective governance in the American context, particularly for subfederal governments. Existing federal authority is highly limited in this case, as we will explore, leaving much of the responsibility for developing regulations, rules and procedures for striking an effective balance between energy development and environmental protection in the hands of individual states and localities. These same governments will also play a lead role in any policy implementation and oversight, including coordination with neighboring jurisdictions where cross-border issues emerge. Shale thus presents both opportunities and risks for state and local governments sitting atop shale deposits, and a primary focus of this paper will be to highlight the larger context in which this unfolds and consider early trends and patterns that have emerged thus far. In particular, we will note that there appears to be substantial state-to-state divergence to date, rather than any pattern whereby multiple jurisdictions in a



A STATE-CENTERED SYSTEM The governance of oil and gas has long been decentralized in the American system, beginning with state-based oversight of production and transportation in the late 19th and early 20th centuries.2 Many federal energy and environmental statutes enacted in more recent times, however, might theoretically be applicable to shale. These include laws focused on water and air quality, chemical contamination and disclosure, and waste management. But a series of federal legislative exemptions over several decades have served to largely marginalize their potential application to shale, except in distinct instances such as proposals to drill on federal lands. In some cases, this involves blanket statutory exemptions to the oil and gas industry, such as those inserted decades ago into the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act.3 There is also statutory constraint on possible extension of established chemical disclosure programs, such as the Toxics Release Inventory, to shale-drilling chemicals.4 In other instances, very specific provisions have been added to formally constrain federal application of a statute to shale regulation, such as a brief but potent amendment to the 2005 Energy Policy Act that prohibits federal application of the Safe Drinking Water Act to all chemicals used in fracking procedures except for diesel fuel. As a team of political scientists have noted in their examination of the formal constraints facing federal action in the area of shale, “the federal government has largely and deliberately cut itself out of the regulatory picture.5” Recent congresses have witnessed an increase in legislative hearings and formal proposals related to fracking. In the 113th Congress alone, members have introduced such bills as the “Fracturing Responsibility and Awareness of Chemicals Act,” the “Fracturing Regulations are Effective in State Hands (FRESH) Act,” the “Bringing Regulations of Effluence and Stormwater Runoff through Hydraulic Environmental Regulation (FRESHER) Act,” and the “Bringing Reductions to Energy’s Airborne Toxic Health Effect (BREATHE) Act.” But none of these are thought to have any serious chance of enactment, barring some unanticipated and cataclysmic shifts in the standing of shale regulation on the American federal agenda. Indeed, congressional capacity to produce either new legislation in energy and environmental protection or revise existing statutes has declined dramatically over the past two decades.6 This leaves the possibility of some future federal engagement driven either by executive branch reinterpretation of existing statutes or major court decision. However, no such steps appeared plausible as of early 2014. This leaves the distinct likelihood that state governments will maintain the dominant role that they have played thus far in virtually all aspects of shale governance, including most areas of industry regulation and oversight, taxation, and information disclosure to the general public. Local governments may also play significant roles but their authority is generally determined through state constitutions and political decisions and so will vary from state to state,7 with state roles traditionally dominant in many areas of energy development. Far-reaching devolution of authority in a federal system invariably raises questions about the kind of governance that emerges. This takes on a special meaning in a case like shale, where states must weigh fundamental trade-offs between aggressive pursuit of resource 8370

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attempt to out-perform their neighbors with rigorous and innovative policies. In turn, much of this literature focuses on specific policy tools that individual states or clusters of them have begun to develop in recent decades, including reduced pollutant transfer across the environmental media of air, land, and water; pollution prevention; chemical use and risk reduction; transparency and public engagement; cross-border and intergovernmental collaboration, and emphasis on performance management that provides empirical measures of policy impact on environmental protection.11−13 This analysis has even extended to areas at the intersection of energy development and environmental protection where states were initially thought to face substantial disincentives to attempt unilateral reduction of greenhouse gas emissions but many have instead proven particularly active and innovative, deploying a wide range of regulatory, market-based, and informationoriented policy tools.14 The American Petroleum Association has embraced this view and heralded state adoption of “best practices” and an ability to tailor governance approaches to their unique local geology and hydrology contexts. This view has been joined by other national and regional industry associations, such as the Marcellus Shale Coalition, which clearly embraces a highly variable pattern of subfederal policies as opposed to anything more uniform that might be imposed by the federal government. Indeed, the most detailed effort todate to chronicle existing state regulatory provisions for shale, undertaken by a team of scholars at the think-tank Resources for the Future, has noted that “advocates of state-led regulation further argue that current regulatory differences are indeed a reflection of important underlying differences among states.15”

development and aggressive pursuit of environmental protections. This links directly to the political ambition incentives of holders of or aspirants to state elected office.8 Such a case also serves as a reminder that governance questions about the trade-offs inherent in resource development have long been debated, with very different scholarly views having emerged on the subject. Applied to shale gas, these competing perspectives would anticipate very different governance results. On the one hand, many political economists have emphasized state government prioritization of economic development above all other considerations.9 Election cycles and interstate economic competition may be expected to drive state policy design and implementation, quite possibly downplaying longer-term considerations such as environmental quality. Some scholars have characterized this as a “race-to-the-bottom,” whereby states may literally attempt to erect governance systems that maximize industry satisfaction in exchange for maximum short-term development.10 Applied to shale, this would mean minimizing governmental interference with industry preference in the hope that it would produce substantial investment, even in the face of some public and organized interest group opposition. States might adopt a range of policies, such as accelerated permit procedures, low severance tax rates blended with drilling tax incentives, and restrictive public disclosure programs to accelerate the flow of gas and oil from shale deposits, particularly in comparison to neighbors. There is considerable precedent for this type of downward bidding war whereby states make themselves particularly attractive venues for rapid investment and development. This raises the spectre of state “capture” by regulated parties; some scholars have begun to suggest this may be emerging in state shale policy development. Warner and Shapiro note signs of industry venue-shopping in “choosing what they perceive to be the best arena for regulation,” noting further that “this closeness to the people has primarily meant state closeness to industry interests (ref 5, p 475).” Other early accounts of state governance have emphasized “revolving doors” between industry and state agency posts, perhaps most visibly in the case of Pennsylvania, suggesting a mutual dependence common in capture situations. Still others highlight state agencies or regulatory commissions with a dual charge of industry regulation and promotion, such as oil and gas commissions commonly established decades ago in states with drilling activity. These entities frequently receive little fiscal support from general state revenues and are instead dependent upon specialized fees linked to drilling, creating incentives for them to actively promote development because of the fiscal rewards that they will receive and related opportunities to sustain or expand staffing. In some cases, these organizations were seen as essentially winding down operations amid anticipated decline in traditional drilling until the advent of fracking offered them a potential new lease on administrative life. On the other hand, states might move in very different directions, reflected in a competing body of scholarship. In recent decades, a wide range of political science and public management scholars have argued that states as well as localities have begun to embrace environmental protection with rigor and innovation. This may reflect a growing public demand for conservation efforts and disdain for development that carries many environmental side-effects. Many scholars have come to characterize this as a “race-to-the-top,” whereby states emphasize environmental protection and may actually



THE EMERGENCE OF STATE SHALE GOVERNANCE It is far too early in the shale revolution to offer anything approaching a definitive analysis of the governance response of states, much less assess whether their actions are more likely to approximate a race-to-the-bottom or a race-to-the top. In many cases, states are just beginning to consider their governance role as the recognition of shale potential moves beyond regulatory agencies and into the chambers of elected state officeholders. In others, there are already established oil and gas drilling regulations from prior decades (or generations) that are potentially applicable to any new technological developments such as horizontal drilling, thereby delaying or deterring creation of new policy. Indeed, incremental tinkering with existing provisions has been the single most common form of policy adoption to-date, often involving state rule-making reforms or very limited tinkering with existing statutes rather than far-reaching new legislation and executive orders. That said, some significant trends and patterns have emerged in recent years.



SEVERANCE TAXATION Shale emerges as a potentially major factor in a large number of states at the very point where many of them are contending with their worst fiscal crisis in decades. The Great Recession has taken a major toll on the fiscal health and professional staff of many states, along with looming threats such as long-term viability of public employee pension funds. Consequently, states may understandably view expanded shale gas development as a path toward greater fiscal solvency, whether or not any emerging revenues are applied to the governance process. Quite aside from potential job creation and 8371

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15 controlled by Democrats, and only eight divided between parties. Even when adding partisan affiliation of the state governor, 24 states remained solely under Republican control, 15 were exclusively Democratic, and only 11 were divided in some fashion between parties. Among the top 10 shale gas producing states, six were led by Republican legislatures and governors, two by Democratic legislatures and governors, and two featured split partisan control. This increasing partisan cleavage coalesces with expanding variability in state policy development in a number of policy areas, leading increasingly to laws that take markedly different approaches to various policies in different states.18 Whereas we might have expected some level of convergence in an era of common partisan divide in state government, a growing divide between strong-Republican and strong-Democratic states appears to be producing substantial variation in state policy development on the issue of shale governance. Indeed, public opinion polling on shale gas, though in early stages, continues to identify partisanship as the best predictor among various demographic categories of significantly different positions on shale gas risks and policy options, with Republicans generally more favorably inclined to shale development than Democrats.19 Alongside this partisan divide, incremental modification of existing drilling policies by state agencies is yielding increasingly to new statutes that are focused exclusively on shale gas. The rate of introduction of new shale-based statutes has continued to climb in recent years as has the number of new statutes being enacted. During 2013, 41 new statutes in 24 states were approved from 225 bills that were introduced in 37 states, all reflecting significant increases from previous years. These bills tended to have a single-issue focus, including severance taxation, chemical disclosure provisions, wastewater management, and water quality protection. In turn, five statutes called for some form of an extended study of shale gas, in some cases linked to a moratorium until further review was completed. In a very small set of cases, which we shall explore in greater detail below, states enacted lengthy and far-reaching statutes that addressed multiple issues and quite fundamentally altered most elements of their shale governance in a single step. In these instances, unified partisan control of both state government branches led to very different policy outcomes in states governed by Republicans and Democrats.

economic expansion that could be linked to shale, 35 states have established some form of a severance tax that is applied at the point of mineral extraction from beneath the surface of the ground to the purchase value of shale gas.16 Twenty-four states considered legislation in 2013 to either amend an existing tax or create a new one, with significant changes approved in Illinois, North Dakota, and Mississippi and more modest adjustments approved elsewhere. These taxes have generally proven fairly popular politically, both because they tend to ultimately be passed along to consumers who likely reside outside the boundaries of production states, and because they produce significant amounts of revenue that can be used for popular programs like education, or placed into the general fund to reduce need for other forms of taxation. Indeed, many states thought to be ideologically most hostile toward high taxation rates and expansive government (such as Texas, Alaska, Wyoming, and Montana) tend to be the very states that establish the highest severance tax rates, suggesting a unique political attractiveness to them as opposed to virtually all other forms of energy-related taxation.17 Four states (Alaska, North Dakota, Texas, and Wyoming) derived more than one billion dollars apiece from energy severance taxes in 2012 alone, and seven states (Alaska, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, and West Virginia) secured between 9.6% and 82.1% of their total state tax revenue from this source during that year. Overall, these state taxes generated nearly $19 billion in 2012, as they have become one of the few growth sources for state revenues over the last half-decade. This raises the question of whether states should use these funds to expand general-purpose revenue or instead use at least some portion of those proceeds to develop and sustain a robust environmental governance system or address local impacts. Thus far, there is very little evidence to suggest any state policy effort to connect tax rates and revenue uses to the negative externalities of shale gas development, whether through fund utilization to enhance state governance capacity, compensatory support for related infrastructure enhancement, or social service expansion. Instead, much-needed general-purpose allocation remains the prevailing expenditure approach.



PARTISAN POLARIZATION AND LEGISLATIVE PROLIFERATION Shale also emerges in a significant way at a time when states appear to be undergoing a major shift in the partisan allocation of political power. For much of the last quarter-century, a majority of states, including many of the most populous ones, divided control of the executive branch and legislative chambers between the two major political parties. This reflected an increasingly dynamic process of interparty competition and leadership transition that broke from historic patterns where single parties frequently dominated all branches of government in a state for a generation or more in the absence of serious cross-party competition. In some interpretations, this fostered greater commitment to environmental protection and some policy innovation, as competitive political parties engaged in political bidding to demonstrate environmental credentials amid an increasingly environmentally conscious electorate. In the last half-decade, however, a growing number of states have reverted to earlier norms that give one party complete control of elected state government units. As of 2014, divided partisan control of state government was far less common than at any time in previous decades. Twenty-seven states had legislative chambers controlled exclusively by Republicans, with



HETEROGENEITY TRUMPS DIFFUSION State-dominated governance regimes tend to follow one of two patterns as they emerge and expand. First, many tend to coalesce around somewhat common standards and approaches that are often shaped by a process of horizontal diffusion. Under such diffusion, a few states initially adopt policies and these ideas spread to neighboring states where they are essentially borrowed and adopted with some modification. This often leads to broader regional and even national diffusion patterns.20 Horizontal diffusion does not necessarily mean identical policies from state-to-state, but can produce considerable commonality across key design features. In many instances, the intergovernmental diffusion of innovation can foster either formal or informal agreements among neighboring states to pursue common governance approaches, setting comparable standards, sharing relevant data, and working pro-actively to minimize any cross-border problems or conflicts.21 And, at times, it can lead to vertical diffusion, whereby the federal government enters the arena through new 8372

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(HB2615) along with a related piece of tax legislation (S2155). Both statutes cover a large number of similar topics, unlike the predominant pattern of new state legislation that addresses one issue, such as disclosure and taxation. They also emerged under diametrically different partisan political control, perhaps providing an indicator of differences in cross-party approaches. It is impossible to read these statutes and related public documents and conclude that they represent anything other than continued heterogeneity at this stage of major new statutory adoption. Most key provisions move in markedly different directions from one another rather than converging on any common ground. Furthermore, they emerged through very different policy development processes. In the Pennsylvania case, passage rested almost exclusively on Republican Party support and its unified control of the respective branches of state government. Republicans supported Act 13 99 to 10 in the House and 26 to 3 in the Senate. In contrast, Democrats opposed it 80 to 2 in the House and 16 to 5 in the Senate, indicating a lack of bipartisan engagement. The new Pennsylvania legislation adhered closely to recommendations made by a gubernatorially appointed advisory commission that was headed by the lieutenant governor, reflected significant industry representation, and excluded many of the stakeholder groups in the state who had expressed concerns about the environmental risks of expanded shale development. Passage of the bill featured heated debate, formal protests, and triggered an immediate set of court challenges. In turn, possible reversal of the legislation surfaced as a highly partisan issue from the outset of the 2014 election campaign, with leading Democratic Party challengers to incumbent Republican Governor Tom Corbett proposing major modifications of Act 13 as central campaign planks and proposals for a statewide moratorium on fracking introduced into the Pennsylvania legislature by Democratic members. Two former state environmental agency heads from prior Democratic administrations are campaigning for the governorship on an Act 13 reform campaign, perhaps the first time in American state political history that multiple environmental agency officials have sought such high elected office at the same time. All of this suggested a contentious and uncertain future for this landmark legislation, even before a 4 to 2 ruling in December 2013 by the Pennsylvania Supreme Court overturned key elements of the law that constrained local authority in drilling siting and oversight. The road to the enactment of HB 2615 in Springfield, Illinois was profoundly different. One key legislator, Democrat John Bradley, devoted more than two years to building a diverse coalition to review elements of a model bill that could achieve broad support. This led to extended negotiations with leaders from industry, environmental groups, and state and local governments. Democrats retained majorities in both legislative chambers and control of the governorship but the ultimate decision on the legislation appeared to transcend party divides, even in a state riddled with other major governance controversies and a growing national reputation for corruption and inability to address pressing issues. HB 2615 ultimately received overwhelming approval from representatives in both political parties, including a 108 to 9 vote in favor in the House and a 52 to 3 to 4 vote in favor in the Senate. The legislation was quite widely heralded as a “model for the nation” and the “strongest in the nation” not only by media but also diverse stakeholders that would not necessarily be expected to agree on much of anything, much less a comprehensive law on shale gas

legislation, possibly borrowing ideas or best practices from the states while also determining the remaining state role once a federal presence has been established.22 There are many precedents for vertical diffusion in the arenas of energy and environmental policy. But shale gas has not seen this kind of horizontal or vertical diffusion. States have produced a highly varied set of policies and governance systems. Many of these reflect the very design of oil and gas drilling policies set in previous periods with little sign of convergence around a particular set of best-practices or model-standards. This may simply reflect the relative newness of the shale gas issue in many states or perhaps substantial geological diversity, leading states to carefully tailor policies that most appropriately fit their unique geological and hydrological conditions. But it may also indicate differences driven by partisan control of state government and the competing influence of interest-group coalitions. The most comprehensive scholarly attempt to take a snapshot of virtually every imaginable state shale governance practice emphasizes “heterogeneity” as a core finding as opposed to any type of horizontal diffusion or convergence around particular approaches or standards. This research by scholars at Resources for the Future examines innumerable elements of shale governance, from wastewater storage and disposal to fracturing fluid disclosure processes. It acknowledges that state variation exists in other policy areas but indicates that the range of state approaches to shale appears unusually divergent in numerous areas of governance. This analysis also raises fundamental doubts about whether this diversity was in any way linked to the attempt to maximize applicability to local geophysical conditions. It finds very little evidence to suggest that “regulatory heterogeneity” is in any way related to “geological and hydrological differences among states (ref 15, p 87).” This type of interpretation generally squares with other emerging scholarly accounts. In a 2013 review essay of shale gas governance, a pair of analysts note “a hodgepodge of policies” at the state level as well as very diverse roles for various state agencies in implementation. They conclude that key regulatory provisions “range from minimal to strict” and also find no evidence to indicate that variation in policy closely adheres to geophysical differences.5 These detailed reviews of current practice do not pass judgment on the merits of a highly diverse set of state policies. But their inability to find evidence linking that diversity to distinct local contexts does suggest state policy processes that tilt toward placating local developers rather than race-to-the-top in pursuit of exemplary practices. It should be noted, however, that this emerging work only represents initial investigation into a complex and changing policy arena, reflecting limited policy science engagement on this issue to-date, and the possibility that a number of states may either be making major policy shifts or be on the verge of doing so, something not factored into existing scholarly accounts.



TALE OF TWO STATES: HETEROGENEITY IN NEW AND EXPANSIVE LEGISLATION Among the dozens of new shale statutes passed by individual states in 2012−2013, only two stand out as being unusually broad in scope, either defining or redefining most key dimensions of future shale governance in a sweeping piece of state legislation. In 2012, Pennsylvania enacted the Unconventional Gas Well Impact Fee Act (Act 13) and, one year later, Illinois followed with the Hydraulic Fracturing Regulatory Act 8373

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after the completion of fracking operations, and testing results are to be posted on the state shale gas Web site within seven days of their receipt. This provides a substantial body of standardized evidence to examine any contamination concerns, unlike that available in Pennsylvania or any other state. Similar differences emerge on the issue of seismic events linked to expanded drilling. Pennsylvania says nothing on the issue in its legislation whereas Illinois adopts a “traffic light” system whereby added monitoring and mitigation requirements go into effect “when seismic events are of sufficient intensity to result in a concern for public health and safety (ref 24, p 83).” Still further differences emerge between the states in such areas as waste and flowback management practices both on and off the drilling site, inspection processes, citizen and state government standing to sue for alleged statutory violations, and permit application requirements and processes. Collectively, these provisions suggest that comprehensive new legislation can take respective states in markedly different directions in nearly every aspect of the governance process. In Pennsylvania, a review of Act 13 gives every indication that its primary goal is maximum extraction of shale gas. In Illinois, a very different approach emerges, one with a far more extensive set of environmental protection provisions to guide that extraction process. It remains unclear whether either of these approaches will be a model triggering possible diffusion to other states or whether such heterogeneity will continue as additional states adopt far-reaching new shale legislation.

governance. Passage is far too recent to assess legislative durability and implementation, but Illinois has clearly moved in a divergent direction from Pennsylvania. Unlike Pennsylvania, Illinois has avoided litigation challenges and rule-making has proceeded fairly rapidly. These statutes take highly divergent paths in a number of central governance areas for shale. In Pennsylvania, Act 13 decided not to adopt the type of severance tax in operation in nearly all other drilling states, instead substituting an impact fee that sets a comparatively low overall rate and is focused heavily on the first years of operation. Local governments must make the decision to establish such a fee and, if so, revenues are collected by the state, which holds approximately 45% of the funds and then allocates the rest to local governments if certain state conditions are met. The fee thus serves as a unique fiscal lever for state control over local actions. Not only does Act 13 remove a wide range of possible regulatory and land-use development steps from local control, but also allows the state to withdraw impact fee revenues if localities are seen as failing in just about any way to “provide for reasonable development” of the shale resource. Indeed, these features prompted seven Pennsylvania municipalities to file the case that ultimately resulted in the overturning of these provisions, leaving next steps highly uncertain. In contrast, Illinois’ HB 2615 established a state severance tax with a six-percent rate on gas production and a graduated scale on oil depending on the size of individual drilling operations. Illinois allocates most of its funding to general revenues but dedicates a small portion of the funding and monies from a related drilling fee to state agency budgets. It does not use revenue allocation to restrict local action and is far less exact in outlining state restrictions on local authority. Additional differences emerge in issues of disclosure and water quality testing. Pennsylvania opted for a restrictive system of disclosure of chemicals protected as trade secrets through a very narrow mechanism whereby only selected medical personnel can potentially gain access to chemical use under designated circumstances. It also links its public disclosure process to a controversial system known as FracFocus, which provides some information to the public on a well-by-well basis but does not allow for larger comparisons common in other established chemical disclosure programs.23 Illinois also retained trade secret protections, as do other states, but has a much more flexible, user-friendly disclosure system to allow public health authorities, patients, and family members access to chemical information. Moreover, Illinois’ legislation goes much farther than Pennsylvania in specifying provisions for its own state government disclosure system and Web site to provide public access to numerous aspects of the shale gas drilling process. This includes details of any violations and diverse methods for categorizing data and making it publicly accessible and discernible. The two states also vary considerably in the area of water quality testing, an issue that has been particularly controversial in Pennsylvania given substantial public debate over alleged water contamination. Act 13 does not require water testing prior to drilling, though it does allow legal challenges that allege contamination within one year of drilling that can likely best be rebutted through advance testing. In contrast, HB 2615 requires all drilling to take place only after the completion of tests for water surrounding the proposed drilling site that is conducted by an independent third party. The legislation specifies the number of samples that must be taken for each water source and also requires testing 6, 18, and 30 months



VOLATILITY The Pennsylvania Supreme Court case concerning Act 13 illustrated another emerging trend in state shale policy development, namely volatility and uncertainty even when new legislation has been enacted. The Supreme Court decision represented a sweeping rejection of key planks of this hallmark legislation through use of the so-called “Environmental Rights Amendment” of the Pennsylvania Constitution to reverse a “blanket accommodation of industry and development,” according to the majority opinion. This leaves many aspects of the legislation uncertain, as localities reclaim land-use powers in a state with more than 6000 active wells. At the same time, other states and localities began to advance ballot propositions that would overturn existing legislation and either ban or delay further shale development. Such state activity was evident in California and Michigan, and local activity was particularly strong in Colorado, New York, and Texas. All of this cast considerable uncertainty over the future direction of state policy, even in cases where major state statutes had been approved, further indicating the possibility of major swings in state policy in coming years.



THE CROSS-BORDER QUESTION There is also growing indication that individual state shale drilling practices have begun to create environmental problems that spill over into neighboring jurisdictions. The very issue of environmental problems that migrate across subfederal boundaries has long served as a central consideration in determining whether state-based or more nationalized policies are more desirable.25 This raises an important consideration for examination, as expansive evidence of cross-border contention would bolster the case for either regional or national policy instead of allowing for continued state dominance. 8374

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Environmental Science & Technology

Policy Analysis

(6) Rejeski, D. Any big ideas left? Clearly, we are not running out of problems but are we running out of solutions? At this point, it is not clear what paradigm, or more broadly, what vision, drives thinking about our environmental future. Environ. Forum 2011, 28 (5), 36−43. (7) Davis, C. The politics of ‘fracking’: Regulating natural gas drilling practices in Colorado and Texas. Rev. Policy Res. 2012, 29 (2), 177− 191. (8) Arnold, R. D. The Logic of Congressional Action; Yale University Press: New Haven, 1990. (9) Peterson, P. E. The Price of Federalism; Brookings Institution Press: Washington, D.C., 1995. (10) Harrison, K., Ed. Racing to the Bottom? Provincial Interdependence in the Canadian Federation; University of British Columbia Press: Vancouver, 2006. (11) Mazmanian, D. A., Kraft, M. E., Eds. Toward Sustainable Communities: Transition and Transformations in Environmental Policy, 2nd, ed; MIT Press: Cambridge, 2013. (12) Kettl. D. F., Ed. Environmental Governance: A Report on the Next Generation of Environmental Policy; Brookings Institution Press: Washington, D.C., 2002. (13) Fiorino, D. J. The New Environmental Regulation; MIT Press: Cambridge, 2006. (14) Selin, H.; VanDeveer, S. D., Eds. The Changing Climates in North American Politics: Institutions, Policymaking, and Multilevel Governance; MIT Press: Cambridge, 2009. (15) Richardson, N.; Gottlieb, M.; Krupnick, A. J.; Wiseman, H. The State of State Shale Gas Regulations; Resources for the Future: Washington, D.C., 2013, 76. (16) Brown, C. State Revenues and the Natural Gas Boom: An Assessment of State Oil and Gas Production Taxes; National Conference of State Legislatures: Denver, 2013; http://www.ncsl.org/documents/ energy/pdf_version_final.pdf. (17) Rabe, B. G.; Borick, C. P. Carbon taxation and policy labeling: Experience from American states and Canadian provinces. Rev. Policy Res. 2012, 29 (3), 358−382. (18) Rabe, B. G. Racing to the top, the bottom, or the middle of the pack? The evolving state government role in environmental protection. In Environmental Policy: New Directions for the 21st Century; Vig, N. J., Kraft, M. E., Eds.; CQ Press: Washington, D.C., 2013; pp 30−53. (19) Brown, E.; Hartman, K.; Borick, C.; Rabe, B. G.; Ivacko, T. Public opinion on fracking: Perspectives from Michigan and Pennsylvania; Center for Local, State and Urban Policy: Ann Arbor, 2013; http:// closup.umich.edu/files/nsee-fracking-fall-2012.pdf. (20) Karch, A. Democratic Laboratories: Policy Diffusion among the American States; University of Michigan Press: Ann Arbor, 2007. (21) Climate Change Policy in North America: Designing Integration in a Regional System; Craik, N.; Studer, I.; VanNijnatten, D., Eds.; University of Toronto Press: Toronto, 2013. (22) Posner, P. L. The politics of vertical diffusion: The states and climate change. In Greenhouse Governance: Addressing Climate Change in America; Rabe, B. G., Ed.; Brookings Institution Press, Washington, D.C., 2010; pp 73−101. (23) Konschnik, K.; Holden, M.; Shasteen, A. Legal Fractures in Chemical Disclosure Laws: Why the Voluntary Chemical Disclosure Registry FracFocus Fails as a Regulatory Compliance Tool; Harvard Law School Environmental Law Initiative: Cambridge, 2013. (24) State of Illinois. Hydraulic fracturing regulatory act of 2013, Public Law 098-0022, 2013. http://ilga.gov/legislation/98/HB/PDF/ 09800HB2615lv.pdf. (25) Lowry, W. R. The Dimensions of Federalism: State Governments and Pollution Control Policies; Duke University Press: Durham, 1997.

One increasingly salient illustration of the potential crossstate dynamic involves the management of flowback wastes that increasingly migrate from Pennsylvania across the Ohio border. The enormous expansion of shale gas drilling in Pennsylvania, spurred further by enactment of Act 13 in 2012, has created serious concerns over waste management. Pennsylvania’s geological conditions preclude the use of all but a handful of existing wells for waste reinjection below the surface, which is a common approach used in a number of other jurisdictions. In turn, initial reliance on wastewater treatment plants in Pennsylvania raised considerable statewide concern over safety and public health, particularly given the paucity of public information about the mixture of chemicals present in the wastes being sent for treatment. This led the state to request a voluntary halt in the use of wastewater treatment plants for this type of waste management in 2011, but no long-term strategy has emerged either through Act 13 or other state policies on this issue. Eastern Ohio has emerged as an increasingly common venue for waste transfer from Pennsylvania, in large part through use of existing deep-well injection options in that state. However, this has triggered considerable controversy in Ohio, especially at the very point that the state was fashioning its own policies designed to govern fracking and promote expanded shale gas development. In addition, a significant increase in the frequency and intensity of earthquakes in the Youngstown areain close proximity to areas of expanded injection of Pennsylvaniagenerated waste materialsmarkedly expanded the scale of concern. Ohio officials reported that the volume of Pennsylvania’s controversial exports increased during 2012 and that increasing waste volumes were also evident from such states as West Virginia and Kentucky. No federal, regional, or state policy exists to govern such cross-border issues, and questions of “waste exportation” and energy-source transfer have long produced conflicts between neighboring jurisdictions. The emergence of this issue serves as a reminder that shale plays do not adhere to state jurisdictional boundaries and there may be some significant limitations on state capacity to contain negative externalities from shale development within their boundaries, raising many questions for future interstate conflict management and even federal policy.



AUTHOR INFORMATION

Corresponding Author

*Phone: 734-615-9596; e-mail: [email protected]. Notes

The authors declare no competing financial interest.



REFERENCES

(1) Yergin, D. The Quest: Energy, Security, and the Remaking of the Modern World; Penguin: New York, 2012. (2) Oil and Gas in Federal Systems; Anderson, G., Ed.; Oxford University Press: Oxford, U.K., 2012. (3) Nolon, J. R.; Gavin, S. E. Hydrofracking: State preemption, local power, and cooperative governance. Case Western Reserve Law Review 2013, 63 (4), 995−1039. (4) Kraft, M. E.; Stephan, M.; Abel, T. D. Coming Clean: Information Disclosure and Environmental Performance; MIT Press: Cambridge, 2011. (5) Warner, B.; Shapiro, J. Fractured, fragmented federalism: A study in fracking regulatory policy. Publius: J. Federalism 2013, 43 (3), 474− 496. 8375

dx.doi.org/10.1021/es4051132 | Environ. Sci. Technol. 2014, 48, 8369−8375