The State of State Shale Gas Regulation

1 The State of State Shale Gas Regulation Nathan Richardson, Madeline Gottlieb, Alan Krupnick, and Hannah Wiseman JUNE 2013 2013 Resources for the Future. Resources for the Future is an independent, nonpartisan think tank that, through its social science research, enables policymakers and stakeholders to make better, more informed decisions about energy, environmental, and natural resource issues. Located in Washington, DC, its research scope comprises programs in nations around the world. Table of Contents 1. Introduction .. 1 2. Shale Gas Development and Regulatory Context.

2 3 The Shale Gas Boom .. 3 Distribution of Production Activity .. 3 Environmental 4 Regulatory Background .. 5 3. Surveying US State Shale Gas Regulation .. 6 Scope .. 6 Methodology .. 10 4. General Findings .. 10 What We Know and What We Don t .. 10 High-Level Comparisons .. 12 How Many Elements Does Each State Regulate? .. 12 What Regulatory Tools Do states Use? .. 13 How Stringently Does Each State Regulate? .. 16 Heterogeneity .. 21 5. State Shale Gas regulations .. 22 Site Selection and Preparation .. 23 Well Spacing Rules.

3 24 Setback Requirements .. 24 Predrilling Water Testing .. 29 Drilling the Well .. 31 Casing and Cementing Depth .. 32 FAGAN A1 Cement Type .. 33 Cement Circulation .. 35 Hydraulic Fracturing .. 40 Water Withdrawal .. 40 Fracturing Fluid Disclosure .. 43 Wastewater Storage and Disposal .. 46 Fluid Storage Options .. 46 Freeboard .. 48 Pit Liners .. 50 Underground Injection .. 52 Other Disposal 54 Wastewater Transportation Tracking .. 57 Excess Gas Disposal .. 59 Venting .. 59 Flaring .. 61 Production .. 63 Taxes.

4 63 Plugging and 67 Well Idle Time .. 67 Temporary Abandonment .. 70 Other regulations .. 71 Accident Reporting .. 71 State and Local Bans and Moratoria .. 73 Regulatory Agencies .. 74 6. Understanding Heterogeneity .. 75 Limitations .. 76 FAGAN A2 Variables and Hypotheses .. 76 Methodology .. 80 Results .. 81 Regional Variables .. 81 Regression 1. Number of Elements Regulated .. 82 Regression 2. Choice of Regulatory Tool .. 83 Regression 3. Stringency of Quantitatively Regulated Elements .. 84 Observations .. 86 7.

5 Conclusions .. 87 Heterogeneity .. 87 Other Findings .. 89 8. Bibliography .. 90 1 RICHARDSON ET AL. THE State OF State Shale GAS Regulation Nathan Richardson, Madeline Gottlieb, Alan Krupnick, and Hannah Wiseman1 1. Introduction Production of natural gas from deep Shale deposits in the United states by way of horizontal drilling and hydraulic fracturing (fracking) has rapidly increased in recent years. This boom, along with estimates of large untapped reserves and predictions of future production increases, has led to great optimism. But many are also deeply concerned about the environmental consequences of Shale gas production, including possible damage to ground and surface water, habitat destruction, and air pollution.

6 Balancing these risks and opportunities through Regulation has been primarily the responsibility of states . The result of this balancing, as documented here, is great heterogeneity in Shale gas Regulation across the country. In certain respects, this should not be surprising. After all, states vary in how they regulate all sorts of markets and behaviors states have different income tax rates, speed limits, insurance regulations , and so on. Heterogeneity in and of itself is not good or bad. A main part of government s job is to internalize externalities, such as pollution.

7 If the heterogeneity we observed reflects different conditions across states that lead to different levels of environmental risks, then that heterogeneity is a good thing. On the other hand, if the heterogeneity does not depend on environmental risks but is, perhaps, more dependent on politics, regulatory capture, economic concerns about jobs, or simply historical evolution or unexamined assumptions, we might question whether this heterogeneity is justified. Indeed, even if a State s regulations perfectly internalized in- State externalities, these regulations may affect the environment in neighboring or downstream states .

8 Unless the states coordinate or a river basin commission (RBC) has the necessary authority a problem could still exist. The core of this report is a catalog of a range of State regulations 25 regulatory elements in all relevant to Shale gas, across 31 states with actual or potential Shale gas production. These data are an important new resource for understanding how states are managing the risks of Shale gas development. This review is broad but necessarily incomplete fully describing even one State s Shale gas-related regulations would probably take multiple volumes and would need to be updated frequently.

9 Our primary aim is to give a broad overview of the similarities and differences among states as of March 2013 their choices about what parts of the development process to regulate, how stringently to do so, and what regulatory tools to use. In at least the first two of these respects, we found that the heterogeneity among states is great, though not necessarily unexpected. We also found a lack of 1 Nathan Richardson is a resident scholar at Resources for the Future (RFF). Madeline Gottlieb is a research assistant at RFF.

10 Alan Krupnick is a senior fellow and director of RFF s Center for Energy Economics and Policy. Hannah Wiseman is an assistant professor of law at Florida State University. This work is funded by a grant from the Alfred P. Sloan Foundation, and this report was developed by RFF s Center for Energy Economics and Policy (CEEP) as part of a larger initiative, Managing the Risks of Shale Gas: Identifying a Pathway toward Responsible Development. Updated findings are published at Read the executive summary and appendices at 2 RICHARDSON ET AL. transparency in some aspects of Regulation in some states , particularly those that use a permitting process to regulate case by case, rather than published administrative rules.