Capital Commentary is the weekly current-affairs publication of CPJ, written to encourage the pursuit of public justice.


Is Fracking the Great American Success Story? (2)


Rusty Pritchard

02-21-2014


By Rusty Pritchard

February 21, 2014

This is the second installment in a two-part series.

The first article in the series explored the phenomenal growth in shale gas extraction through hydraulic fracturing, more commonly called “fracking,” and the environmental impact of this growth. But while shale gas and oil constitute a boom industry, will there be a bust? It’s not yet clear whether fracking will generate decades of energy production in the United States or if it is simply facilitating a last hurrah for American fossil fuels, postponing the inevitable decline that we started on in the 1980s. What is clear is that individual wells peter out much more rapidly than conventional oil and gas wells do. According to one financial analyst, conventional wells may remain productive for decades, but shale wells decline by sixty percent in the first year and by ninety percent over five years, creating a drilling treadmill that requires new wells and new land for drilling pads simply to keep pace with previous production.

The dynamics of boom industries raise some significant economic and social concerns that we, as engaged citizens, should understand. When a boom happens in any particular sector of the economy, several responses occur. Boosters press for governments to subsidize the booming industry, with the easy argument that that is where money is to be made, and relaxing tax pressures can still result in increased revenue because the base is expanding so rapidly. Pressure also grows to relax environmental and social regulations to facilitate the expansion. The high returns to the booming industry can support an army of lawyers and lobbyists whose task is to keep the favored industry favored.

With a rapid influx of investment in a single sector and competition among firms to get a piece of the pie, governments are prone to honor claims that chemicals used in new ways are “trade secrets.” Similarly, when third party injuries and impacts are compensated through lawsuits that reach settlements before going to trial, the court almost always seals the details of those cases. This prevents the public from knowing what is going on and mitigates public pressure for regulating the booming industries.

Although living in a boom town may have some short-term benefits, overall economic development becomes asymmetric and distorted. With the rapid influx of outside workers, competition for labor may not benefit local job seekers, and high wages paid to outsiders can raise the prices of local goods and services, pinching local consumers. Government investment in social services like public education can become crowded out by investment in infrastructure that greases the wheels of the booming industry instead. None of these phenomena are unique to fracking; rather, they are properties of any economic boom.

While the battles over fracking often seem to be only about the merits of the technology, two underlying struggles are also part of the equation. First, fracking provides a new arena for the gladiatorial battles between the national pitched camps of environmentalists and corporatists. Each side sends its champions into the fray, each tries to marshal local residents to their banner, and each is willing to pump outlandish sums of outside money into local regions to try to win the day. Such fuel guarantees much smoke and little light. Second, the local fight crystallizes into skirmishes between frightened residents impacted by change and boosterish advocates who benefit from change. There is often little incentive to learn from the other side, because economic interests dictate against such learning.

The big picture can tend to be lost in the details of the controversy. Fracking as a technology releases resources that can be used to benefit society, but no one can claim to have created that wealth. Neither owners nor well operators did anything to store up gas and oil. It is a limited resource that can benefit many or few, but the value of the resource is unearned income. Such money for nothing always creates social disruption (just as the lottery does), as exhibited most clearly in the resource curse of oil rich countries. The way to avoid it is to make sure that everyone has a stake in the resource.

The big picture also requires that we acknowledge the short-term nature of the resource, whether it lasts for a few years or a few decades. What will society have to show for its use of the resource? Will we be further addicted to fossil fuel or will we use the returns to build sustainable power resources for the future?  Will shale gas and oil be a bridge to a cleaner world, or a temporary binge as we muddle ever further away from sustainability?

The best non-biased technical explanation of fracking can be found at the website of the Geological Society of America.

— Rusty Pritchard is a natural resource economist and a consultant based in Decatur, GA. He is the co-founder of Flourish (www.flourishonline.org), a nonprofit dedicated to reviving lives and landscapes.



“To respond to the author of this Commentary please email: capcomm@cpjustice.org
Capital Commentary is a weekly current-affairs publication of the Center for Public Justice. Published since 1996, it is written to encourage the pursuit of justice. Commentaries do not necessarily represent an official position of the Center for Public Justice but are intended to help advance discussion. Articles, with attribution, may be republished according to our publishing guidelines.”