Top 5 Reasons Fracking Regulations Are Whack

Published: January 20, 2016

The current approach to mitigating hydraulic fracturing’s risks is top-down, command-and-control government regulation. But this system is highly inefficient and ineffective at balancing the risks and rewards of fracturing. Why? Regulation imposes costs on consumers, typically benefits special interests, limits competition, and shields bad actors from liability. Meanwhile, property rights and water markets can better mitigate the risks, while also promoting the benefits.

Discussion Questions

1. Prices are important signals to both consumers and producers. Through prices of goods and services, key information is transmitted back and forth alerting producers what consumers are willing to pay and telling consumers how much producers are willing to sell their good or service. Without a marketplace to generate prices, it is very difficult (if not, impossible) to determine the level of importance consumers and producers place on the good or service or a good or service’s level of scarcity. With this information, how could implementing water markets aid in addressing hydraulic fracturing’s major risks.
2. Competition is the only force that has consistently both lowered consumer prices, while also improving the quality of the good or service for sale. By increasing the cost of compliance, command-and-control regulations create a barrier of entry to newcomers into the hydraulic fracturing industry, which protects the current drilling companies allowing them to increase their prices without any pressure to innovate. Name some other industries where we’ve witnessed regulations limiting entry into the industry and whether competitors have been successful in breaking through the barriers (if so, how did they accomplish that)?
3. Good environmental risk analysis asks several questions. What (if any) is the environmental problem? How does it compare to the problems arising from alternative means of energy production? And how can the risks be mitigated? All forms of energy resource extraction and production, even green energy, have its risks. For instance, a giant solar power plant in California uses 350,000 mirrors to focus the sun’s heat on boilers atop a tower to create air temperatures of 1,000 degrees Fahrenheit. During the testing phase, workers found dozens of dead birds, from peregrine falcons to sparrows, scattered around the site. The current approach to mitigating hydraulic fracturing’s risks is the same technique used for other oil and gas drilling techniques: bans, moratoria, or top-down command-and-control regulations overseen by a bureaucratic state government agency. What are some potential advantages and disadvantages of this type of regulatory regime?