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GMU Oil and Gas Conference Poses Interesting Questions

A day-long conference at George Mason University titled “Old Fuels, New Technology, and Market Dynamics” was held at the Arlington, Virginia campus last week. It was put on by the Law and Economics Center, which is part of the law school.

Rapid growth in the U.S. oil and gas industry, particularly due to hydraulic fracturing and other unconventional oil and gas production, has intensified the discussion on government regulation at all levels. Some speakers noted that states, rather than either federal or local governments, are the best qualified to regulate hydraulic fracturing. One speaker in a panel, Michael L. Krancer, from the Philadelphia law firm Blank Rome LLP and former head of Pennsylvania’s Department of Environmental Protection, said that “(t)here’s no convincing basis for the federal government coming in and trying to regulate fracing. But it’s not a Republican or Democratic issue. Folks of all political stripes are getting involved.”

Mr. Krancer noted that the U.S. Environmental Protection Agency spent millions of dollars investigated drinking water in Dimock, Pennsylvania, Pavillion, Wyoming, and Parker County, Texas, and found no contamination that could be traced to nearby fracing wells. He also noted that state regulation of the oil and gas industry is working well so far, particularly with the State Review of Oil and Natural Gas Environmental Regulations (Stronger) where various stakeholders, including representatives from industry and environmental groups, review waste management programs.

Another panelist, Thomas W. Merrill, the Charles Evans Hughes Professor at Columbia University’s Law School, also asserted that regulation at the state level is most effective, except with cases of potential interstate environment impacts. Mr. Merrill also noted that tort law, which is the body of civil law that usually applies to personal or property damage, is a creature of state, not federal, law. Professor Merrill said, “I think most of these problems should be left to the states, with the exception of methane leaks and other potential environmental impacts.”

A third panelist opined that state regulation is more hit or miss. Sharon Buccino from the Land and Wildlife Program at the Natural Resources Defense Council, said that Colorado is diligent about notifying landowners about drilling applications, but other states are not. She said that “(s)tates are on the front lines of ensuring enforcement people can count on. But many don’t have the necessary resources. There were 500 spills last year in Wyoming, and no fines. One solution is to incorporate environmental monitoring costs into drilling permit charges.” She said that states can do some regulations well, but also said “(w)hen we’ve done enough, we won’t have the fear and outrage that’s out there. I’ve sat across the kitchen tables of people who have a drilling rig on the property of a neighbor who’s getting the royalties while they get all the noise and pollution.”

Despite the rather emotional pronouncements of Ms. Buccino, the state level is still the best place for enforcement of oil and gas and environmental protection laws. What this speaker does not realize is that if the federal government oversees oil and gas exploration and production, you may still have spills and no fines, you will just pay a lot more through your taxes for the privilege. Or, on the other hand, you may have fines that are exorbitant in relation to the harm done (so as to pay the salaries of all the federal enforcement bureaucrats), smaller companies being driven out of business, and the price of oil and gas going up for everybody.

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