An institutional theory of hydraulic fracturing policy

• Published in: Ecological economics Vol. 94; pp. 127 - 134
• Main Authors: Holahan, Robert, Arnold, Gwen
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.10.2013; Elsevier
• Subjects: Animal, plant and microbial ecology; Applied ecology; Applied sciences; Biological and medical sciences; Common-pool resources; Contracts; drilling; Energy; Energy policy; Environment; Exact sciences and technology; Externalities; Fundamental and applied biological sciences. Psychology; Hydraulic fracturing; Hydrocarbon resources; Institutional analysis; issues and policy; Natural gas; nonpoint source pollution; oils; Petroleum industry; point source pollution; Pollution; Regulation; shale; Technology; U.S.A; United States; Waste; wastes; USA; United States; Energy policy; Common-pool resources; Hydrocarbon resources; Hydraulic fracturing; Institutional analysis; Environment economy; Hydrocarbon; Theory; Ecology; Institution
• ISSN: 0921-8009
• DOI: 10.1016/j.ecolecon.2013.07.001

The use of high-volume horizontal hydraulic fracturing (fracking) has increased substantially over the past five years in the United States. Use of this drilling technology to extract natural gas from hitherto impermeable shale is expected to increase even more in coming decades. Two institutions, integration contracts and well spacing requirements, evolved to mitigate the common-pool economic wastes associated with conventional oil and gas drilling. U.S. regulators have applied these institutions to fracking. However, shale plays differ geologically from conventional plays and are subject to different extractive technologies. We theorize that the point-source pollution characteristics of conventional drilling allowed integration contracts and well space requirements to minimize local negative environmental externalities as an unintended byproduct of minimizing common-pool economic wastes. The non-point source pollution characteristics of fracking, however, make these institutions insufficient to minimize negative environmental externalities associated with drilling in shale plays, because the economic waste problem is different. If policymakers understand the crucial differences between conventional oil and gas plays and shale plays and the drilling technologies applied to them, they should be better equipped to craft fracking regulatory policies that internalize problematic externalities. •We compare the geology and technology in conventional and shale oil and gas plays.•We explore the evolution of institutions in conventional plays.•We develop a theoretical framework to assess institutional effectiveness in shale.•Institutions designed for conventional plays are inadequate for shale plays.