The University of Texas at Austin
  • Resolving the State vs. Local Fracking Conflict

    By David Spence, Professor of Business, Government and Society; Professor of Law
    Published: May 7
    Resolving

    Whatever you may think about the science behind environmental concerns about hydraulic fracturing, there are now indisputable rumblings caused by the natural gas drilling procedure in local communities across Texas.

    I’m speaking of community voices being raised in protest as local residents find themselves at odds with both natural gas developers and state laws, policies and economic interests. These disagreements are now finding their way into courts in Dallas, Denton and elsewhere in what promises to be an impending wave of litigation challenging local ordinances limiting the use of “fracking” to produce oil or gas from shale formations.

    These local vetoes of a state-regulated activity are beginning to trigger two types of litigation: claims that the local ordinance is preempted by state oil and gas regulation, and claims that the ordinances amount to uncompensated taking of the producers’ property rights. (The suit against the City of Dallas falls into the latter category.)

    It’s reported that during the past few years more than 400 local governments have enacted ordinances restricting or banning fracking within their borders. More than 200 of these ordinances are in New York, but they are not limited to the Northeast. There is a Dallas ordinance, and the City of Los Angeles is drafting an anti-fracking ordinance as of this writing.

    In a forthcoming Texas Law Review article, I argue that even if local anti-fracking ordinances are based upon irrational fears, the best way to promote efficient regulation of shale gas and oil production in the long run may be to uphold local ordinances against preemption and taking challenges, as long as we also give local governments the power to capture more of the benefits of fracking.

    Local opposition to fracking stems mostly from concerns about the effects — on water, seismicity, air quality and local quality of life (e.g., noise, truck traffic, sudden “boomtown” effects) — which are borne mostly (but not exclusively) by locals in producing areas. Many state oil and gas statutes contain language addressing the preemption of local law; at the same time, many states grant local governments varying degrees of home rule, raising the prospect that local governments may be able to preempt language in the state’s oil and gas statute.

    How should state vs. local oversight disputes be resolved? One way to think about this question is to ask, “What decision provides the greatest good for the greatest number?” But even that simple rule is not as simple as it seems.

    Is it better to make N people happy by permitting fracking within their state, or to make some subset of N people deliriously happy by banning it from their neighborhood? There is no logically correct answer to this question. It depends upon how we conceive of the task of maximizing happiness.

    If we want to devise a policy that best reflects the preferences of the totality of voters who collectively bear all (or almost all) of the costs and benefits of production, then let the state control policy outcomes, preempting local bans.

    If, on the other hand, we conceive of efficient regulation as that which takes the intensity of voters’ preferences into account and seeks to maximize collective utility, there is a case for allowing local governments to retain their power to veto or regulate shale oil and gas production. Let the voices be heard of those who experience the effects of fracking most intensely and profoundly.

    To be sure, local communities may overestimate the environmental, health and safety risks of fracking. Movies such as “Gasland” exaggerate these risks. But in the long run, voters should eventually develop a clearer understanding of the risks of fracking. So if we could spread the costs and benefits of fracking more evenly, local regulation ought to reflect a fairer balance of the costs and benefits.

    Authorizing local governments to tax mineral interests or share in state royalty or tax revenues is one form of compensation. Direct compensation from producers to local communities is another. By upholding local bans against preemption and takings challenges, courts may produce the kind of bargaining that leads to landowners and producers sharing the gains of production with locals.

    Without local participation in the financial benefits of fracking, local anti-fracking rumblings may build and continue to spread. Indeed, anti-fracking ordinances are springing up like weeds all over the country. But if we can find ways for locals to capture more of the economic benefits of fracking, we will get more efficient levels of regulation in the first place, and fewer fear-inspired local bans.

    David Spence is a professor in the Business, Government and Society department in McCombs School of Business at The University of Texas at Austin. His research and teaching focus on business-government relations, particularly energy and environmental regulation.

    A version of this op-ed appeared in the Houston Chronicle.

     


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