The purpose of this workshop, conducted August 15-16, 2013, was to identify the range of concerns that have been expressed about the management or governance of the risks unconventional shale gas development may pose and to consider the ability of a range of institutions and actors, both public and private, to manage those risks to the satisfaction of the various interested and potentially affected parties in society.1 The first day’s presentations and discussion focused mainly on governance by government agencies at various levels; the second day expanded the discussion to include industry self-governance, public participation processes, public-private partnerships, and other governance approaches.
Meredith Lane, director of the National Research Council (NRC) Board on Environmental Change and Society, opened the workshop by describing the work of the board, which oversees the project that includes this workshop, thanking the sponsors of the workshop, and mentioning some recent and ongoing projects related to shale gas development at the National Academies. She acknowledged the many positive economic and other implications of increased abundance of natural gas but pointed out that the focus of the current project is on the risks of this technology. She introduced the members of the steering committee that organized
1The agenda for this workshop, the speakers’ abstracts and slide presentations (in PDF format), and video archives of the presentations and discussions are available at: http://sites.nationalacademies.org/DBASSE/BECS/CurrentProjects/DBASSE_069201 [July 2014].
the workshop and emphasized that the summary report will not contain any conclusions or recommendations of NRC-sanctioned entities, including the steering committee or the workshop as a body. Any judgments, conclusions, or recommendations are strictly those of the individual participants who offer them.
Workshop chair Mitchell Small provided an overview of the agenda and the workshop procedures. He briefly summarized the range of risks examined at the first workshop and explained the purposes of this workshop: (1) to assess current and evolving approaches to shale gas governance in the United States, also seeking insights from other countries; (2) to identify the state of knowledge on the performance of various governance approaches, considering the possible roles of, and coordination among, federal, state, and local governments, industry self-governance, and involvement of communities and nongovernmental organizations; and (3) to consider specific initiatives proposed to improve the scientific and social basis for the governance of shale gas risks.
Small emphasized that the tone of the workshop is investigative. He encouraged participants to recognize that knowledge in this domain is rapidly evolving and that final answers are not in hand and to maintain a tone of searching for improved understanding. He said that the workshop would be deemed successful if it clarifies the current mechanisms and state of knowledge related to risk governance of shale gas development, if it identifies potential enhancements to risk governance mechanisms and the information needed to evaluate them, and if workshop attendees come away with new insights and contacts to help them better understand and consider risk governance options. He also noted that the intended products of the workshop would include a published workshop summary and a collection of papers for a peer-reviewed journal.
The workshop’s opening session considered governance concerns from three perspectives: (1) responses to a broadly based elicitation of concerns from a cross-section of interested individuals, (2) an analysis of the current governance system in the United States, and (3) an examination of the kinds of industry operations that might require management or governance.
Wong-Parodi is a research scientist at the Center for Climate and Energy Decision Making in the Department of Engineering and Pub-
lic Policy at Carnegie Mellon University. Her research interests include applying behavioral decision research methods to issues of environmental sustainability. She reported on the governance concerns identified in the general elicitation described by Thomas Webler at the start of the first workshop. The open-ended elicitation produced 531 responses (21% of all responses) that dealt with issues related to governance. These responses fell into six broad categories:
Corporate culture and practice. Some respondents saw the industry as cutting corners out of greed and a search for speed. One said that “new animal farms and wind farms are required to conform to standards that are not being applied to oil and gas companies…. How did money become more important than people?” Some saw the industry’s growth as leading to rapid and even dangerous development. Some respondents voiced fears of illegal activity, corruption, and bribery, including payoffs to landowners and politicians. Some were concerned with activities that are legal but morally objectionable, such as intimidation of landowners and communities through “legal bullying.” Some were troubled by the ability of the industry to leverage power—for example, through political lobbying.
Regulatory shortcomings. Some respondents questioned the adequacy of existing regulations and industry exemptions from federal regulations and laws, with many citing the so-called “Halliburton loophole,” which leaves regulatory responsibilities that are federal for other industrial activities to the states in the case of hydraulic fracturing for shale gas extraction. Some people questioned the enforcement capacity of regulatory authorities, citing lack of time, expertise, and financial resources as constraints.
Inadequate information. Some concerns related to a lack of data or of relevant data; some to flawed, biased, or limited science. Some respondents were concerned about dissemination of false information, and some questioned whether industry is sharing only information that favors its objectives or said that industry is willfully making it hard to understand information. One respondent said there were “too many obstructions to collecting and/or publicizing hard data about most impacts…. Many of these obstructions are a result of nondisclosure requirements imposed by the oil and gas industry. Even doctors are forbidden from reporting health impacts that they have been involved in treating.”
Unfairness of legal systems and regimes. Some respondents were concerned with a lack of accountability for industry and with the legal liabil-
ity of landowners, should something go wrong during gas development. A representative concern in this category was with “compulsory integration, which takes gas from under my property without my permission and then holds me liable for damages that may occur to my neighbors.”
Distributive and environmental justice. These concerns focused on the distribution of risks and benefits from shale gas development at spatial scales from local to global. There were, for example, concerns about wastes being transported across state lines to states and communities that do not want them.
Inadequate public participation. Some respondents complained about decisions being made without adequate public consultation. Some noted that decision making was hampered by polarized views, which some respondents blamed on the industry.
These concerns raise three broad themes, Wong-Parodi said. One concerns science: the perception that there is an insufficient level of scientific understanding to make well-informed decisions and a lack of transparency in formulating and disseminating new knowledge. A second is trust: some respondents do not trust existing institutions to protect people and the environment from shale gas development risks. The third is justice in the distribution of risks and benefits and in decision-making processes that affect individuals, communities, nations, and future generations. Wong-Parodi concluded by saying that her research group is not claiming that all these concerns and claims are demonstrably true, only that these three underlying themes all deserve consideration in shale gas development.
Rabe is J. Ira and Nicki Harris family professor of public policy, Arthur F. Thurnau professor of environmental policy, and director of the Center for Local, State, and Urban Policy at the Gerald R. Ford School of Public Policy, University of Michigan, Ann Arbor. His research interests include intergovernmental environmental policy development and implementation. Rabe offered some overview comments on governance issues. He began with the classical governance questions posed by Aristotle: Who governs? How do they govern? And what are the results? In respect to these questions, he said, shale gas development is quite unlike established governance arenas such as education or management of the national parks. With shale gas, there has been very limited scholarship on gover-
nance and few congressional hearings to consider the governance issues. According to Rabe, the governance system for shale gas is decentralized, with a federal role but with most of the power held by states and local governments, partly because of statutory exemptions from some of the federal laws. Although the federal government could take strong control, he does not see this as likely at present.
Rabe suggested that a constrained federal role may create interesting opportunities for states, localities, and industry organizations to develop new roles in governance. States are largely on their own, he said, although many have legacy statutes for dealing with oil and gas that provide bases for governance, and new statutes are being proposed. Shale gas raises long-standing questions about the implications of moving from federalized to more decentralized governance, he continued, and there are two competing views on this decentralization. One view posits a race to the bottom: states in a competitive political economy aggressively go after the resource, trumping environmental protection and creating regulatory capture. The other view suggests that states will race to the top through innovative approaches to governance, integrating regulation of media such as air and water, developing improved mechanisms for transparency and public engagement, developing performance metrics and new policy tools, collaborating across boundaries and across agencies, sharing information and staff, and engaging local governments. The outcome of competition between these two views is not settled, Rabe said.
He then commented on several generic issues as they apply to the case of shale gas: state and local capacity, trends in partisan control of state government, the expanding role of state legislatures in fashioning statues, and diffusion versus heterogeneity in policy development.
State and local capacity. A number of states get severance taxes from shale development, but many put none of that revenue into shale gas governance, Rabe said. The last 4 years have seen the steepest drop in state and local government employment in the past 50 years, he noted, with 1.1 million jobs lost. Yet a shale gas governance system will require outstanding, sophisticated individuals to implement it. Thus, Rabe concluded, capacity is a challenge, though no two states are the same.
Trends in partisan control of state government. During the past 35-40 years, Rabe said, innovation in state-level governance has mostly come when there has been cross-party competitiveness at the state level. More recently, states are shifting back to a pattern of single-party control of state government, he continued, adding that it is too soon to tell, but this shift may create difficulties for state-level governance.
The expanding role of state legislatures in fashioning statutes. There has been rapid growth recently in the number of state legislatures considering bills on shale gas and in the number of laws passed. Rabe said that this creates a moving target for policy analysis and increases the possibility of legislative, rather than administrative, decision making.
Diffusion versus heterogeneity in policy development. Governance strategies could diffuse slowly from state to state or could show a pattern of heterogeneity, with a very wide range of state responses, Rabe suggested. Some states are starting to develop mega-statutes, which create radically different governance approaches in different states for dealing with the same issues, over a short period of time. This heterogeneity could reflect different geological realities or other drivers. Terms like “best practice,” “excellence,” and “world-class” are being used frequently as adjectives to describe policies, he said, but in fact we do not have a good way of evaluating governance regimes.
Zoback, who addressed the workshop via telephone, said that he has been working with the industry on the problems of extracting shale gas resources, which are geologically challenging to extract, in an economically viable and environmentally responsible way. He noted that shale gas development is a large-scale industrial process that presents a diversity of challenges in terms of environmental impacts, impacts on communities, and so on. He referred to a new paper (Zoback and Arent, 2013), which discusses the technical challenges associated with shale gas development under the categories of community, land, water, and atmospheric issues. He described his knowledge as mainly about issues below the earth and said that people need to be concerned about the adequacy and enforcement of regulations in these areas. In Colorado, there are 50,000 active wells of all types and 15 regulators. This creates concern about the adequacy of regulation and enforcement. The new paper makes a number of points regarding the potential benefits of switching from coal to natural gas, including benefits to public health (for instance, there are said to be 1.25 million annual deaths in China attributable to burning coal). But to realize the benefits, effective environmental safeguards are needed.
Zoback’s comments drew heavily on the 2011 report of the Secretary of Energy Advisory Board on shale gas development, on which he served (Secretary of Energy Advisory Board, Shale Gas Production Subcommittee, 2011). The report concluded that shale gas can be developed in an environmentally responsible manner and offered 20 recommendations on
how to do this. Zoback focused on four of the recommendations, which bear on governance issues.
Two recommendations were for full disclosure of the composition of drilling, hydraulic fracturing, and flowback fluids and full manifesting of drilling and fracturing fluids and what happens to them. Disclosure requirements vary greatly across states, Zoback noted, both in whether and what kinds of disclosure are required. He endorsed the industry’s FracFocus Website as a good thing, but said it is only the beginning of what is needed.
The third recommendation was for the creation of regional centers to address issues such as finding optimal ways to minimize the cumulative impacts of shale gas development. Very little of this has been done, Zoback said, but the new Center for Sustainable Shale Development (CSSD) in the Marcellus shale region is a step forward. It is also seeking to establish company-level certification. Zoback said that well-site activities should be certified, as well as the companies that carry them out, with certification based on actual inspection at the well site.
The fourth recommendation was for sustained research support for continual improvement of resource recovery and environmental protection. There has not yet been much progress on this, he said.
Zoback also commented on well construction, aquifer contamination, and methane leakage. He sees governance of well construction as a major issue and cited the Resources for the Future (RFF) research on experts’ risk judgments (presented by Alan Krupnick at the first workshop) as indicating a high level of experts’ concerns, regardless of who employs them, with cement, casing, and impoundment failures. The first two are intrinsic elements of well construction, as are several of the less-frequently named concerns. These concerns led to a recommendation in the Secretary of Energy Advisory Board report for adopting best practices in casing, cementing, and pressure management and for pressure testing to confirm that well construction has followed best practices and is adapted to local geological conditions, with multiple barriers to contamination or leakage from the well casing (Secretary of Energy Advisory Board, Shale Gas Production Subcommittee, 2011). Zoback said that requirements for cementing vary greatly across states, but do not generally include requirements for multiple barriers. In addition to prescriptive regulations, Zoback advocated performance-based regulations to ensure the needed protection. He believes that many companies are taking these issues seriously and doing the right thing, but he said it is necessary for all companies to do so.
On the issue of leakage, Zoback said that, to his knowledge, the best study was done at the Joint Institute for Strategic Energy Analysis at the National Renewable Energy Laboratory. It asked whether unconventional
gas extraction is intrinsically more prone to leakage than conventional gas extraction and found that life-cycle greenhouse gas emissions from natural gas, whether conventional or not, when used for power generation, were about half those from coal. This study made measurements only in the Barnett shale, Zoback noted, so may not apply to all gas basins. Although that study’s message was that shale gas wells are being developed in ways that have greenhouse gas benefits, Zoback said that more studies need to be done. He added that attention to the leakage issue is a good thing because those leaks need to be addressed. He concluded by saying that the governance issues from a technical perspective are multifaceted and challenging.
Two participants asked about the elicitation process on which Wong-Parodi reported. One asked about selection bias in the process. Wong-Parodi replied that the goal was not to get a representative sample of the public but to identify concerns of interested and affected parties. Her team reached out to a variety of organizations that hold different positions on shale gas development, including industry groups, in a process that probably selects for people who want to voice concerns. Another participant asked if the elicitation provided any insights from the industry respondents or from regulators about what was wrong in governance and how it can be improved. Wong-Parodi replied that the elicitation did not request recommendations for governance.
A Webcast participant asked whether, given that shale oil and gas are nonrenewable resources on human time scales, the phrase “sustainable shale development” in an organization’s name is disingenuous and a reason for some people’s distrust of the fracking industry. Zoback said this is a legitimate point, but in his view, shale gas is a transition fuel to a sustainable energy system—a very good first step in getting away from coal and decarbonizing the energy system, though only a step.
A series of presentations and discussions during the first day of the workshop focused on the ability of governments at various levels, in the United States and other federal systems, to develop and implement regulations and other control systems to address the risks of expanding unconventional oil and gas development and to coordinate their efforts. This focus included ways to improve this ability.
Wiseman is an assistant professor in the Florida State University College of Law. Her research examines the role of regulation in environmental protection from sublocal to national levels. She began by noting that her presentation was mainly descriptive and did not attempt to discuss broad issues such as whether there is a race to either the top or the bottom among states in their regulatory activities. Description is much needed, she said, because this domain is so complex, with multiple kinds of technologies and risks, and therefore multiple regulatory codes in any single state.
She said that any analysis of risk governance must identify the risks, who is involved in governing them (including industry), what the substantive controls are (including gaps in them), and how well governance is doing. Her comments focused mainly on the upstream side of the industry, but she noted the increasing importance of other stages of its life cycle, including distribution and export, and the connections among the stages. States have been important in identifying the risks, Wiseman said, because state inspectors visit sites and document a range of problems, particularly including spills from equipment onsite. However, she added, it is possible that state inspectors are mainly identifying the kinds of risks they are used to looking for, while missing others.
Data needs. Better understanding of the risks requires better production of data. Industry collects some data, but much more is needed, Wiseman said. States’ data requirements lack uniformity. As examples, she cited Ohio, which requires well operators to sample all water wells within 1,500 feet of proposed horizontal wellheads, and Colorado, which requires initial baseline samples and subsequent monitoring of a maximum of four water sources within a half mile of a proposed well site. Different states also require testing of different water constituents. Wiseman suggested that governance may benefit from more uniform agreement on what to test for.
Substantive controls. The key governance questions, according to Wiseman, are the substantive controls and which institutions are responsible for them. Regarding federal regulations, industry spokespeople think there are a lot, but others point to some key exemptions. States’ roles include developing their own regulations and implementing federal ones; there are also local regulations. Within states, there may be multiple agencies with regulatory authority, with different distributions of authority in
different states. The key, Wiseman continued, is whether all the agencies in a state, taken together, have the authority to do the needed governance. She noted that regional governance involving several states may also be needed for some purposes and that there may be issues of communication not only between states but also among agencies within a state—for example, between the agencies that notice a problem and the ones with the authority to regulate it. She added that private governance is also important; for example, the financers of shale gas operations and the leasers of mineral rights sometimes put environmental provisions into their agreements with operators. Overall, Wiseman said in summary, although federal and state agencies both have areas of control, states have much of the control in shale gas regulation. They vary greatly in the kinds of regulations they impose (e.g., prescriptive vs. performance-based) and in their content.
States’ capacity. Wiseman noted that because state regulations vary greatly and change often, entrants into states may not fully understand the regulatory environment. States may need to make educational efforts to train entrants on what the rules are. But because companies do not always follow the rules, regulatory capacity is important. Many states have very few regulators per well (Wiseman presented data indicating that several states have on the order of one regulator per thousand wells). This may not be a telling statistic, she added, because regulators are needed mainly at certain points in a well’s life cycle, and some states report a very large number of inspections per inspector. In fact, only a few states have tried to determine the number of inspectors they need to regulate the industry, said Wiseman, and states vary greatly in how often inspectors are required to visit a site, whether or not they allow random inspections, and other regulatory practices. Data on violations and enforcement indicate very great differences among states, both in the number of violations found per inspection and in the number of enforcement actions taken per violation. (To illustrate these differences, Wiseman pointed out that Texas reported a much higher proportion of violations per inspection than Pennsylvania but a much lower number of enforcement actions per violation.)
States also vary greatly in what inspectors’ reports cover and in inspectors’ qualification and training levels, Wiseman said. They also vary in what penalties they require for violations, how much discretion they allow in setting penalties, and which violations are prioritized for enforcement. This situation can make things difficult for industry, she noted, which wants predictability and fairness in inspections. It also raises questions about whether there is enough enforcement to deter violations and ensure remediation.
Wiseman concluded by suggesting that the federal government can help by providing databases on regulatory and enforcement policies and that increased state fees for permits could solve a lot of staffing problems at the state level.
Brown, who was executive director of the Environmental Council of the States (ECOS) at the time of his presentation, reported on a very diverse meeting that ECOS held in July 2013. The meeting included representatives from many states, from insurance companies (which have an interest in limiting damage), and from environmental groups and engineering firms. The meeting identified several issues states are experiencing. One is the diversity of contexts for gas development, which is urban in Texas but completely rural in North Dakota. Impacts are also diverse. For example, states that have had drilling for a long time report that impacts at well sites are hardly noticeable because agencies are already well prepared to deal with these issues.
Not all the impacts are environmental, Brown said. The ECOS member in North Dakota, for instance, was most worried about social impacts caused by in-migrants who do not have the same relationship with the land as native North Dakotans and have different attitudes because they will be there only temporarily. For Minnesota, where there is no fracking, Brown said the concerns expressed at the meeting were with fracking sands transported across the state, which causes traffic and other disruptions. Rapid change was also an issue raised at the ECOS meeting; in Colorado, rules had to be promulgated in less than a year.
States seek information from their peers, and Brown expects that convergence is likely to occur over time. Multiagency relations were also an issue: environmental, natural resource management, and oil and gas agencies all tend to be involved. The ECOS members, which are the environmental agencies in their states, are not necessarily the lead agencies in the state on shale gas. In closing, Brown said that support from the federal government is really key for the states, especially for support of science research.
Richenderfer, senior scientist and acting chief of the Water Resources Management Division at the Susquehanna River Basin Commission (SRBC), described the SRBC, whose members represent Pennsylvania,
New York, Maryland, and the federal government, as having authority to regulate water allocation in the basin. He emphasized the need to manage a system like a river basin on a holistic scale, recognizing that its hydrological boundaries are more important than political boundaries. He noted that the Delaware River Basin Commission, which was formed before the U.S. Environmental Protection Agency (EPA) was created, has jurisdiction over water quality issues, which SRBC does not. However, SRBC is interested in water quality, and half its staff is involved in water quality monitoring.
He noted that since 2008, about 4,000 unconventional gas wells have been drilled in the Susquehanna basin, of which about 2,400 have been hydraulically fractured to date. For SRBC, the amount of water consumed is less important than the locations from which it is drawn. Shale gas development has so far used about 11 billion gallons of water, Richenderfer continued, which is less than half the water the river delivers daily to the Chesapeake Bay. However, most of these withdrawals are in the upper reaches of the basin, where the majority of the basin’s exceptional-value and high-quality streams—the valuable recreational waters—are located. The commission’s objectives, according to Richenderfer, are to stay out of the way of the shale gas play while also protecting the resource.
Richenderfer said that the amount of flowback water has been far less than originally anticipated: an average of 4.4 million gallons of water is used per frack, and 10 percent or less of this returns as flowback. From a basin perspective, the resource can be managed as a hydrological unit with basin-wide monitoring programs, as is done with the nuclear power plants, which consume so much water that the commission has to consider flow augmentation during low-flow periods to protect aquatic ecosystems. A basin-wide approach allows the storage of water to release during drought to serve consumptive uses. Richenderfer noted that governance approaches need to include interstate approaches that reflect the natural systems to be protected. SRBC has changed regulations four times in the past 5 years, he said, adding that the commission believes its approach is more flexible than that of most states.
The various questions and comments by participants and presenters during this discussion period are summarized here under the topics of heterogeneity among states, interstate issues, capabilities of state officials, basin-level issues, federal roles, multimedia issues, and trust issues.
Heterogeneity among states. Alan Krupnick noted that the RFF database is publicly available in RFF’s State of the States report, which examined
several alternative explanations for the differences in the number of regulations of oil and gas, the types of regulation (e.g., command and control versus performance standards versus permitting), and the stringency of the regulations where regulations are quantitative. The report indicates that the heterogeneity was not well explained by any of these variables, said Krupnick; for example, factors such as the political party holding the governorship do not explain much. Rabe added that such research could address other issues, such as whether there are severance taxes and the kinds of incentives these taxes and their use create for actors in the industry.
Brown noted the rapid change in funding: 80 percent of the funding of state agency work on shale gas comes from fees, compared with 40 percent 10 years ago and only about 5 percent a few years before that. He said that many states have been able to continue regulation only because of fees, adding that this mechanism makes it necessary to go back to the legislature repeatedly to ask for new fees when expenses increase, which is hard to do effectively. Other comments indicated that in some states, fees have been “raided” for use in the general fund and that there is great variation among states in income from fees. Wiseman said that the highest fees may be in West Virginia, which charges $10,000 per horizontal well, while some states’ fees are only $500. She added that Texas hasn’t updated its fees for about 10 years.
Interstate issues. In response to a question about how states that do not have active shale gas drilling are handling impacts that cross state boundaries, Wiseman cited flowback water from Pennsylvania flowing into Ohio as an interesting case. She said the U.S. EPA has been involved in this, trying to make sure that Pennsylvania wastewater is not sent to treatment plants in Ohio. She added that interstate compacts do not always work, mentioning nuclear waste disposal as an example of a failed compact. She concluded that regional governance agreements need ongoing attention to be effective, and they may require involvement of local governments, too. Brown added that interstate relationships are sometimes informal. Susan Tierney asked why more states are not asking for a review by STRONGER (State Review of Oil and Natural Gas Environmental Regulations, a public-private partnership organization). Wiseman said that more needs to be known about the extent to which states are implementing the guidelines developed from STRONGER. She suggested that some states may be hesitant to invite a national partnership group to assess their regulations against a national consensus standard.
Capabilities of state officials. A question was raised about the training status and educational levels of state staff doing the monitoring. Wiseman
responded that she has not researched the training issue and is only aware of the West Virginia requirement that staff have at least 2 years of experience in the industry, but she agreed that this seems to be a significant issue. Brown agreed and added that state staff members sometimes move to take positions in the industry, but when this happens, he said, they at least know the state’s rules.
Basin-level issues. A participant said that not all basin commissions work well and asked how the SRBC members are appointed in ways that get them to cooperate. Richenderfer said that the governors and the President appoint the commissioners, who are usually the state environment secretaries and the appropriate official from the Army Corps of Engineers. The staff reviews applications and makes recommendations to the commissioners, who take action quarterly. He noted that SRBC has a challenge with funding, which comes from the four jurisdictions represented in the Susquehanna River Basin Compact. To meet the challenge, SRBC charges fees for water withdrawals, resource surveys, and other things it does.
In response to a question about basin-level water storage facilities, Richenderfer said that some already exist in the Susquehanna Basin, developed by the Army Corps of Engineers, and that SRBC gets input into how those reservoirs are managed. He said that SRBC is also looking at underground mine pools, some of which may have good water quality and can be released in low-flow periods.
Federal roles. A participant from U.S. EPA asked for more suggestions on helpful federal roles. Wiseman responded by saying that a top priority should be to provide a database into which states could put data and to monitor and organize the database to make the data useful. The federal government might also collect the emerging science into an accessible form, possibly organized by risks and state of development, she suggested, and it could also continually assess areas where there appear to be large or interstate impacts and consider the need for changes in regulations.
Multimedia issues. Workshop chair Mitchell Small asked if there are examples, perhaps from SRBC, of efforts to deal with the fact that shale gas is a multimedia problem, affecting not only watersheds but also air-sheds, “traffic-sheds,” biomes, etc. Richenderfer replied that SRBC has been careful to stay within its own responsibility. Brown said that at the state level, agencies with different responsibilities do commonly work together, often informally.
Trust issues. A participant noted that with some energy facilities, there are governance vehicles that look at multiple effects of development and are quite transparent, but that with shale gas development, there is a tension between a business model that encourages being very quiet (some call this “speed and greed”) and the experience of communities that have been surprised by events and did not know where to turn among government agencies. She asked if there is a governance model that addresses the need for mechanisms that better address issues of trust. Brown said that trust was a major topic at the ECOS meeting on fracking. He thought several models might work, but not enough is known yet to propose one. Wiseman said that New York had probably gone the farthest in bringing together many stakeholders as part of its environmental review process because it has a general regulation that requires broad environmental review for certain activities before approval by the state. She said that Colorado now requires more consultation among agencies in its regulatory process and allows companies to opt for a process with stronger environmental review, which may create more trust. She added that entirely preempting municipal zoning authority, as has occurred in some states, creates a problem for ensuring trust. Rabe commented on a stark difference between Pennsylvania, where legislation has followed party-line votes, and Illinois, where an effort to bring together a variety of stakeholders in advance of legislation led to overwhelming interparty agreement on the legislation that was introduced. No one on the panel knew of any efforts to evaluate stakeholder satisfaction with the decision process in any state.
Davis is a professor of political science at Colorado State University with interests in energy and public lands policy making. He began by saying that many factors political scientists normally look at in considering state-level policies, such as diffusion of innovation and policy leadership, do not seem important with fracking, which seems to show idiosyncratic policy development. He said legal relationships between states and local governments are also not the whole story: to understand state-local relationships, one also needs to consider what has been called the policy stream, including changes in public mood, as reflected in public opinion and election cycles. Such changes can be shaped by focusing events and urban-rural differences. He emphasized a point made by other presenters: the paucity of data on these relationships.
Davis used documents, media, and secondary sources to compare Colorado, Pennsylvania, and Texas. These states are among the top six natural gas producers: Texas accounts for nearly 30 percent of all U.S. natural gas production and has been important for a long time.
State versus local control. On the key question of whether state officials should retain regulatory control at the expense of local land use authority, Davis said that most state agencies and most parties in the industry sector say yes. They argue that uniform state regulations allow companies to develop natural gas resources without running into a patchwork of differing policies set by cities and counties. On the countervailing question of whether city and county governments should be allowed to regulate fracking operations under traditional land use authority, Davis said that local governments argue that a “one-size-fits-all” approach across a state is inappropriate for the regulation of natural gas development because of great differences in local social and geological conditions.
Looking at many states, Davis described several strategies that have been used by the industry and other proponents to frame the issue in favor of state control: emphasizing the economic benefits of drilling (jobs, landowner royalties, and severance tax rebates to affected communities); making assurances that fracking is safe (including an industry agreement to emphasize that there have been “no recorded cases of ground water contamination” in over half a century); offering industry and state agency testimony at local government hearings where regulatory actions are being considered by local officials who are relatively uninformed; and encouraging greater collaboration among the state agency, industry, and local officials, including local representation in monitoring and enforcement of environmental regulations (but without independent authority for regulatory action). If a cordial relationship does not materialize, Davis said, proponents then emphasize that the state agency has statutory authority to regulate on a statewide basis. In Colorado, messages from the state attorney general’s office have been quite effective, he said, by notifying local officials that legal action will be taken against cities that adopt stricter rules than the state.
Davis explained that key strategies that have been used to preserve local land use authority include emphasizing the importance of home rule and local autonomy; lobbying state agencies for better enforcement of existing rules and increased setback requirements for drilling operators; pointing out the disparity between the number of inspectors and the number of wells (in Colorado, 16 inspectors and over 50,000 wells); adoption of temporary moratoria on fracking operations by local governments while they consider regulatory options; adoption of local policies that exceed or trump state regulatory standards; and at the extreme,
advocating a local or state ballot initiative to ban or establish stronger regulatory policies on fracking.
Davis sees political mood as driven by risk perceptions. National data from the University of Texas indicate that most people want regulation, although there is greater acceptance of fracking among rural than urban residents and greater suspicion of fracking among people who trust EPA compared with people who trust local and state authorities.
State-specific issues. Davis reported that state governors’ leadership styles and state government history matter. In Colorado, Governor Hickenlooper believes in task forces and in allowing local governments to appoint inspectors, and he was able to build on the action in the previous state administration to expand representation in the state regulatory commission to include local governmental, public health, and environmental interests. A fracking ban in Longmont was heavily contested because of a concern that other communities might follow suit. In Pennsylvania, Governor Corbett was elected on a strong pro-energy platform that encouraged removal of legal barriers to fracking operations. Davis described Corbett as having “rammed through” legislation, which passed on a party-line vote, that denies drilling impact funds to any local government that adopts policies at odds with state regulations. The law has been challenged in court by the state’s Association of Municipalities and environmental groups, and a judicial decision in favor of the plaintiffs has been appealed.
In Texas, Davis continued, the Texas Railroad Commission produces statewide regulations on oil and gas drilling and water quality issues, the Texas Commission on Environmental Quality deals with air quality issues, and local governments have discretion over “conditions of use” such as setbacks. There have not been any Texas state court decisions dealing with the preemption of local authority, said Davis, and there is a lesser degree of organized opposition to shale gas development than in Pennsylvania or Colorado. Some municipalities have used their authority to require “closed loop” systems that store drilling wastes, to adopt major setback requirements, or to ban the sale of city water to oil and gas companies for use in fracking operations during a drought. In New York, which Davis characterized as being on the other end of the spectrum from Texas on state-local relations, local governments are invited to comment on state policies.
Fullenwider, the city attorney for Fort Worth, described the experience of Fort Worth with shale gas development and suggested some
lessons for other local governments. Shale gas development started in Fort Worth in 2000, when there was only one relevant state law (which limited drilling within 200 feet of a residence in a populated area). There are now 2,300 wells in the city, 1,000 miles of pipelines, and 41 compressor sites. Because the Texas Railroad Commission does not allow building on plugged or abandoned wells, this growth has implications for future urban development, she said.
The city began by looking at local ordinances across the country to arrive at a regulatory scheme, focusing mainly on setbacks, which can have major effects on the city (a 1,000-foot setback affects 72 acres). Fullenwider said that revisions in city ordinances resulted mainly from industry moving ahead without listening to local residents. She added that municipalities are not in a strong position to influence the industry: they can levy a $2,000-per-day fine for violations, but this is not a large constraint on industry actions. So, she said, municipalities have to convince the industry to cooperate.
She said that when development began, the city didn’t look into pipelines and compressor stations. It found that although fracking does not go on for long, compressor stations stay for a long time; are big, ugly, and noisy; lower property values; and have become a large problem. Fort Worth has a permitting system and does not regulate drilling by land use type, except for compressor stations. The city’s view on regulation was that it could not ban drilling in the city because it could be sued for “taking” mineral rights which, in Texas, are separate from the property rights of the surface land owners. The argument has also been made, Fullenwider continued, that the city cannot regulate compressor stations because they are part of the pipeline system.
One of the frustrations the city has faced, she said, is that the county has no authority to regulate land uses, including just outside the city limits. Fullenwider identified several regulatory needs, including giving counties enforcement authority; establishing state and federal controls over environmental issues because municipalities are not equipped to do it; improving regulation over the placement of pipelines, which cities in Texas cannot regulate; and considering adopting stringent state rules for the location and use of salt water disposal wells and for the transportation of drilling mud. Drawing on Fort Worth’s experience, she identified several lessons for local governments (listed in her slide presentation), most of which relate to educating the local population, particularly in low-income and Hispanic neighborhoods, and educating the industry about urban drilling.
Lowry, a professor of political science at Washington University with interests in U.S. environmental and energy policy issues, began by noting that policy variation across states is as old as the U.S. government. He said that Davis’s presentation is within an old tradition in political science, but addresses two issues that have not been studied much: policy about natural gas, and state-local relations in that context. He sees Davis’s paper as a strong early effort to address these issues. However, because the issue is so current, Davis cannot yet offer answers and the theoretical issues are not yet clear. Davis’s paper identifies a number of factors that cause variations in states’ control of local authorities with respect to the natural gas industry: geological differences, degree of reverence for home rule, the presence of entrepreneurial governors, the involvement of the courts, the level of organized opposition, the economic condition of the state, and the extent of potential problems facing the states. The result, said Lowry, is an idiosyncratic situation, and more explicit theoretical arguments are needed to explain the variations.
Lowry identified several specific arguments implicit in Davis’s paper that deserve elaboration. First, his cases do not include states that are not high producers of natural gas: more states need to be studied. Another important issue is partisanship. In the three cases discussed by Davis, Republicans preferred centralized state control and Democrats resisted it, Lowry continued, contrary to the conventional wisdom that says Republicans prefer decentralization. There may, however, be states where Democrats want more state control and Republicans more local control; California might be an example, he suggested. Texas leaves a lot of discretion to localities, but to Lowry it is not clear what the state government would do if a locality wanted to be very restrictive.
Lowry sees another issue raised by Davis’s study in the different styles of task forces and collaborative decision making, including which styles promote consensus and which tend toward litigation. The larger literature has not resolved this, he said, and the study of natural gas extraction could help provide answers. A third important issue is the level of opposition in different states. Lowry suggested it might be interesting to differentiate between states on two dimensions: how well organized the opposition to shale gas development is, and the degree of sympathy in the mass media for the technology. Yet another issue he sees is cross-border issues across localities and states. It may be that the more cross-border externalities there are, the greater the pressure for centralized decision making.
A few dimensions may differentiate the states in useful ways, Lowry continued. One is the degree of efficacy of the local opposition, which can be set against the degree of economic dependence of the state on natural
gas production. Lowry’s 2 × 2 table of these dimensions suggests to him the following expectations: gas development may most likely be contested where there is strong opposition combined with high economic dependence on gas, strong dependence with weak opposition is likely conducive to state dominance in governance, and weak dependence with strong opposition is probably conducive to the development of local restrictions.
If pressed to make predictions about the future of state-level governance, Lowry suggested another 2 × 2 table representing the state government’s attitude to gas development on one dimension and the condition of opposition on the other. He suggested that a “captured” or supportive state government would be risk-acceptant, except when there is an entrenched opposition, in which case, he would expect litigation. A wary state government would be cautious where there is strong opposition and would develop an evolving policy regime when opposition is not entrenched. For him, the most interesting cell in this table is the one in which the state and the opposition are both willing to talk, which is where collaborative policy may develop.
The various participant questions and comments during the subsequent discussion are summarized here under the topics of urban rural differences, implications of mistrust, and communication issues.
Urban-rural differences. A participant suggested that the urban-rural distinction differs by state. For instance, in many Eastern states, rural areas are populated by people who work in urban centers. There may also be differences in the extent to which people in the area are accustomed to oil and gas production. She suggested that much of the opposition comes from people whose livelihoods depend on activities that may be seen as incompatible with oil and gas development. Fullenwider said that the idea of drilling is fairly acceptable in Texas generally, but issues arose with drilling in urban areas. Davis said that comfort levels are affected by the density of wells. In Colorado, the increasing density has been a spur to local opposition, so comfort levels do change. Lowry added that dense development may create more cross-border externalities in urban areas.
Implications of mistrust. A Webcast participant from New York expressed distrust in the industry and in state-level regulations and asked whether, given the industry influence at higher levels, local regulation was preferable to give affected people a chance to control whether fracking happens near them. Fullenwider pointed out that because air and water quality do not stay in a community, a locality that has no regulations imposes risks
on others. Davis added that in Texas, cities have home rule but counties have very little authority.
Another participant asked about collaborative governance and specifically whether panelists saw Colorado Governor Hickenlooper’s ideas about collaboration as sincere. Lowry replied he did not know of a good example of a state-level collaborative process, but thought Illinois might qualify. Davis said that events, including local referenda, overtook collaborative efforts in Colorado.
Communication issues. In response to a question about companies and communication, Fullenwider said that companies differ in how they approach drilling in neighborhoods. She thought that those that are successful are very open about what will be happening: They tell people to expect noise and other aspects of the process and ask the community what the company can do to make the process better. The companies that just say they have a right to drill are less successful with the community. She also said that some companies took advantage of less educated populations by getting leases that were highly advantageous to the industry.
Olmstead, an associate professor of public affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas, presented her work in collaboration with Nathan Richardson at RFF, examining what they call “innovative regulatory approaches.” She referred to the RFF survey of experts discussed at the first workshop,2 and noted that although it found significant consensus about which risks deserve high priority, there was little agreement on whether industry or regulators should take the lead in mitigating risks. Putting aside this question, Olmstead and Richardson’s work focused on two approaches to regulation, liability rules and market-based approaches, and their applicability in the shale gas domain. Their work recognizes but does not discuss voluntary approaches engaging both industry and government.
Liability rules. A key question is whether a liability approach has advantages over traditional regulation. According to the classic work of Shavell (1984), liability approaches are advantageous to the extent that four conditions are met: private parties have much higher quality information
2See section above titled “Interactions among Risks,” which begins with the presentation by Alan Krupnick of RFF.
than regulators, industry actors have sufficient resources to pay liability claims, those who suffer harms have a reasonable chance of bringing and winning lawsuits, and the total costs of the liability approach are lower than those of regulation. In the case of shale gas risks, widespread harms (such as air and water pollution) are hard to address through the liability system, although with other harms, such as from truck accidents or damage to private property or private water wells, liability can fill gaps left by ordinary regulation.
To deal with the significant information gaps confronting some private parties, Olmstead said, a liability regime could include disclosure rules (e.g., for fracking fluid chemicals), establish strict liability rules to remove the need to prove negligence (which increases the need for information), and shift burdens of proof (e.g., in Pennsylvania, a predrill testing law provides that if drillers do not test water before they drill, any ground water contamination is presumed to be a result of nearby drilling). To deal with ability to pay, bonding requirements could be used, though current bonding requirements in many states are insufficient to cover significant damage. Olmstead noted that only eight states have bonding requirements above $50,000 per well. Liability limits, which are being considered in some states, make operators effectively judgment-proof, she said. The largest problem with threats of suits as a risk management approach, Olmstead said, concerns widespread harms. Reducing barriers to class actions strengthens the liability approach, as do information disclosure requirements and providing specialized courts or sufficient numbers of judges and other resources to manage liability suits.
Olmstead briefly discussed administrative regulations, which include prescriptive approaches (“command and control”) standards for technologies (e.g., cement requirements for well casings) and for performance (e.g., limits on the pressure level in well casings). The great majority of administrative regulations affecting shale gas development at the federal and state levels are technology standards, even though both theory and presidential executive orders favor performance standards. This suggests that there may be very significant potential for cost-effective changes in regulations, even within the class of prescriptive approaches.
Market-based approaches. These are governance approaches that target aggregate or market-level outcomes, such as the total emissions from shale gas development in a region, and that use flexible mechanisms to achieve the desired outcomes. The approaches include taxes, environmental markets (e.g., cap-and-trade programs), reduction of subsidies, and mandatory information disclosure polices. Olmstead said that these are more cost-effective than command-and-control regulations both in theory and in practice, but there are significant challenges in employing them.
The pollution tax is the classic example, but it is not used in shale gas development regulations. Severance taxes, however, are widely imposed by states. They are used primarily to raise revenue, she continued, but can be used to smooth boom-bust cycles and negative community-level impacts and could, in theory, be used to incorporate some of the negative externalities of gas production. However, the evidence available to Olmstead indicates that severance taxes do not change producers’ behavior at current levels or, according to some simulation studies, even at much higher levels. Also, even if they did change behavior, Olmstead said that they might not target some of the most important risks, which do not vary with production levels (e.g., habitat fragmentation from well siting, surface water impacts from impoundments). Impact fees, such as have been established in Pennsylvania, might address some of these “fixed external costs” of well development, and they could be set higher for wells near sensitive habitats. Environmental markets, such as cap-and-trade programs, have not been established for shale gas operations, but some existing programs (e.g., for NOx and water quality trading) could be adapted for influencing shale gas extraction. Trades within markets for water quantity could also be used where water is scarce. A final type of market-based approach that Olmstead discussed uses information disclosure requirements, such as the requirement for disclosure of fracking fluid contents for operations on federal lands.
In concluding her presentation, Olmstead noted that although there is a lot of thinking ongoing about whether new government regulation is needed and about how stringent it should be, there has been much less thinking about which policy instruments are best for reducing particular risks. Given the large differences in effectiveness, she sees this kind of thinking as especially timely.
Konschnik, who is policy director of the Environmental Law Program at Harvard Law School, commented from the perspective of her research on states’ responses to risks and her past practical experience as an enforcement litigator and an environmental counsel in the U.S. Senate. She summarized Olmstead’s presentation as emphasizing two ideas: that regulatory policies need to be matched to the risks, and that incremental changes to existing frameworks should be tried before starting something new. In her experience, legislative bodies are not good at either of those things. To galvanize support, she said, legislators need to identify huge new problems, and when they do, they want to propose large solutions and new programs—usually not well integrated with existing programs.
She said that even though there are many interesting and innovative approaches being discussed, the place to begin is with what is already on the books that may not be enforced, and then identify the remaining gaps, match the innovative strategies to the needs, and make sure there is an off-ramp back to traditional enforcement. She emphasized that having enforcement in the toolkit helps build integrity in the sense that compliant organizations “look silly” if enforcement is weak.
Konschnik proposed four points to keep in mind: (1) It is easier to determine and enforce compliance when there are fewer and larger sources. (2) Agencies are reluctant to enforce against big industries and big companies, even if not “captured” by the industry, because they have limited resources and do not want to use them all in one action—this is not fair, she said, but it is an institutional reality. (3) Environmental rules are historically slow to adapt to circumstances, and therefore often lag behind innovations in industries. (4) Resources are tight and dwindling, in both federal and state agencies. This last point, she added, does open up possibilities for agencies to find volunteer partners.
Konschnik argued that the unconventional oil and gas landscape poses several challenges in relation to these four points. This is a big industry with many large companies, but the pollution sources are small and spread out, she said. There has been much attention to the fracturing phase of the industry, which is new and different, and less to other stages of the process where there sometimes are pre-existing laws that apply but do not work well with an expanded and changing activity. Data on emissions from shale gas operations are very limited, compared, for example, with an energy industry activity like coal-fired power plants. Finally, Konschnik said that regulators’ leverage on the industry is weak. The federal government does not have as much leverage to bring parties to the table as in other parts of the energy industry because of exemptions from federal laws.
Nor do consumers have much leverage. To illustrate this last point Konschnik considered chemical disclosure laws, which have been passed in some 20 states for shale gas development, based on the assumption that good information will allow consumers to make rational choices. She said that the assumption fails in this case because gas consumers have no information on which wells their gas comes from. In devising disclosure requirements, governments need to consider which end users could use the information being required: for shale gas, what information would be useful to insurance companies, institutional investors, and so forth? In closing, she reemphasized that any disclosure requirements need to lead back to enforcement.
Monitoring emissions. A participant asked about the feasibility of electronic emission monitoring at well sites, as is done at power plants to help with cap-and-trade schemes and with traditional enforcement. Olmstead replied that this approach may not be realistic with the many thousands of wells that would have to be monitored continuously. Simply permitting all those facilities would be a challenge. Konschnik said electronic monitoring is an alluring prospect, given that the states will never have enough inspectors for all these wells, but she also noted challenges. For example, the Pennsylvania presumption rule about liability from well emissions ends after 12 months, even though emissions from a well may continue for many years. Given the time scale and the number of wells, it will be hard to keep track of emissions patterns within the period of legal liability. It might be possible, she suggested, to lower penalties for wells that install monitors, or to pool liability for surface water contamination, with exemptions for companies that have monitors and can show that they were not responsible for the pollution. Olmstead added that although the technology itself is attractive, many other things would be needed to incorporate it into a governance regime.
Another participant asked if third-party monitoring and verification of compliance could play a role in the shale gas industry. Olmstead mentioned an example of something like this: The Marcellus Shale Coalition in Pennsylvania has brokered an agreement between operators and the state department of environmental protection that the operators would not ship wastewater to a specific set of treatment facilities. This agreement, however, only involved a small group of operators. Konschnik expressed some concerns about the enforceability of that agreement, but did mention other potentially instructive examples. She cited an agreement among U.S. auto manufacturers to create a bounty for mercury switches in scrapped automobiles that auto body shops and scrap metal companies could collect by sending the removed switches to a designated auto manufacturer. U.S. EPA monitored mercury emissions from steel mills, which gave the steel industry an incentive to educate the auto body shops about the program, and auto manufacturers had an interest because they could potentially be held liable for mercury emissions in the air.
Warner North wondered about ways to engage people on a local scale who are not government employees in monitoring dispersed small, local operations. He told a story of monitoring in response to concerns in the Southwest about air exposure to radioactivity, in which Desert Research Institute scientists installed monitoring equipment on weather stations in many small towns and asked local science teachers to collect the measurements and report to the community on the test results. This provided good local information to the community from a trusted source. He won-
dered if this approach could be adapted for monitoring emissions from shale gas operations from many thousands of wells where fracking occurs over short periods of time but local concerns extend over longer periods. Olmstead said that the same spirit is behind entities like FracFocus, which was modeled on the Toxics Release Inventory. The distribution channel for FracFocus is scorecard.org, which has a grassroots feel even though it is a national organization. She expressed skepticism about effectiveness, though, because there is little that local people can do after they have the information. She added that monitoring will be difficult for wells that are on private land.
Konschnik was more hopeful about the prospects for third-party monitoring, despite the access issues. She noted that there are community members who are documenting spills, truck traffic, and other activities of concern, but don’t know what to do with the information. She added that U.S. EPA has a small, poorly funded innovation team tasked with building citizen science. To make this approach work, citizens would need to have access to accurate measuring instruments (and she said there is some availability of air monitors to borrow), but there would also have to be actions to take with the information, such as reporting it to a spill-reporting hotline. Konschnik said that this is a nascent area that agencies are trying to develop because of their resource constraints; she sees it as having possibilities. Another participant suggested that a third-party monitoring approach could be applicable after a well is decommissioned by having a local person “adopt” a decommissioned well and continue monitoring it.
Liability as leverage for better practices. A participant wondered whether industry best-practice standards, such as those promulgated by the American Petroleum Institute (API) for shale gas operations, which are not enforceable by any entity, could be combined with the liability system to produce improved governance. Olmstead replied that, even if operators adopt best practices, that may not give other parties legal standing to hold the operators to them. Konschnik said that she thought it will be very difficult to lower barriers to liability action, given that recent political trends are making it difficult to achieve legal standing on a non-economic basis. She thought information about adherence to best practices might be used in some ways, such as to rebut a presumption that the responsible actor is the one nearest to the damage. But to do that, the standards reflecting best practices would have to be harmonized. A potentially important role for the federal government is to harmonize standards and measurement practices, but she thought this is off some distance in the future.
Use of severance tax funds. A participant asked if any states are linking severance taxes to actual environmental costs, rather than setting them as high as possible without losing the industry to other states and then using them for general revenue. Olmstead did not know of any states explicitly using that approach, but she said that some states use the revenues in creative ways. New Mexico is using them to create an endowment that could be used to pay costs after the resource is used. Also, impact fees are assessed over 15 years and could potentially affect behavior. Konschnik said that impact fees are used in many contexts and there may be creative models for using them to affect land management choices. Christopherson commented that impact fees are not based on costs, which have not been calculated, and that they are normally allocated to the municipality where drilling occurs, even if the impacts are elsewhere.
Bomberg, a senior lecturer in politics and international relations at the School of Social and Political Science of the University of Edinburgh with research interests in comparative environmental politics, began by noting that although Europe is far behind the United States in shale gas development and is different in many ways, it faces many of the same challenges of risk assessment and governance in a fragmented, multilevel system. The European Union (EU), like the United States, she said, varies among jurisdictions both in availability of shale gas deposits and in enthusiasm about developing them. It has an overall constitutional responsibility to ensure a secure energy supply and the smooth functioning of energy markets. It also imposes regulations on chemicals, water quality, etc. Because shale development has been slow, it is putting considerable efforts into developing its regulatory framework. Specifically, the European Union has addressed shale gas development by applying four principles, which Bomberg discussed in detail.
First is the precautionary principle, which says that in conditions of uncertainty, decision makers should act to prevent serious or irreversible environmental harm: Uncertainty cannot be an excuse for inaction. This principle, Bomberg noted, is embedded in many EU environmental regulations. The principle, which compels policy makers to gather data and analyze it, has been seized upon by opponents of fracking, who say it implies not proceeding because the risks are too great. It is also used by shale gas proponents, who say that because they are applying this principle, they are proceeding with adequate caution. The proponents’ argument has been effective in some reluctant EU states, Bomberg said.
One of the limits of the precautionary principle, she continued, is that it costs time and money. Another is that risks are in part socially constructed, so that scientific assessments may not be conclusive. The principle is applied inconsistently across member states, which slows down development, said Bomberg, because the industry sees an uneven playing field. The key insight, she emphasized, is that this principle needs to be applied with caution, and is not a panacea.
Transparency is the second principle Bomberg discussed. It makes procedures open to the public by requiring registration of lobbyists and a complaint procedure; it also requires substantive transparency (e.g., chemical disclosure). The rationale for this principle, she explained, is partly as a trust-building mechanism but also because it is believed to lead to better policies and stronger accountability. Lack of transparency, Bomberg added, has been a major citizen concern in EU energy policy. She said that the principle’s limitations include inconsistent application across countries, the fact that more information is not always better information, and the conflict between transparency and other aims (e.g., closed negotiations may be necessary to achieve some bargains).
Consultation is a principle that calls for interaction with stakeholders. This has been a key priority in the EU, said Bomberg, adding that there has been intensive consultation on shale gas development, including focus groups, stakeholder events, etc., at levels from the continental to the local. The principle’s rationale emphasizes information gathering and stakeholder buy-in (called “inclusive governance”). Opponents are engaged from the start in framing the problem, she noted, and there has been much attention to engaging local stakeholders. The limitations of consultation are that it needs to be widespread and balanced (including the range of stakeholders), and that buying in may be perceived as being bought off. Consultation has to happen as policies are being developed, not afterwards, and resources are needed not only for consultation but also for implementing its outcomes. It is tricky to get this right, Bomberg commented, but it is critical.
The fourth principle Bomberg discussed is environmental sustainability: The idea that all decision making should consider the transition to a low-carbon economy. This is a much stronger principle in the European Union than in the United States, she said: the main problems with shale gas development are seen to be that it takes resources away from other energy sources and locks in dependence on fossil fuels. Although the European Union has its political reasons for pushing this principle, Bomberg thought that it is also relevant for the United States. She hoped that bringing sustainability into the discussion might help address opposition in states with a strong environmental movement and in highly populated areas. It also opens discussions of ways to use greener technologies
in shale gas development. A limitation that Bomberg finds in sustainability as a principle is that it may be used in contrasting arguments: shale gas proponents employ it to define shale gas as a “bridge” fuel, whereas opponents claim that “sustainable shale development” is an oxymoron. Bomberg suggested that this principle needs to be modified for use in the United States, but embedding the shale gas debate in this frame would lead to a longer-term focus in assessments.
Bomberg concluded by saying that these principles all have strengths and limitations, so should not be applied indiscriminately, but they can be useful in the United States if carefully applied. She emphasized that all the principles are invoked by different actors to advance their interests; that governance requires not only principles, but also their implementation, monitoring, acceptance, and coordination; and that more needs to be learned about best practice in governance from multiple polities.
LaPierre, at the time of the workshop, was professor emeritus at the University of Moncton and head of the New Brunswick Energy Institute. He began by noting that in Canada, each province manages its own energy resources and has its own rules. He indicated, though, that the Canadian provinces will soon be meeting to develop a harmonized approach to shale gas development nationally.
He noted that shale gas is relatively new in New Brunswick, which held a public forum to identify the key concerns in shale gas development. The top concerns expressed at the forum were with government integrity (i.e., widespread mistrust), water contamination, well integrity, and what happens to the fracking chemicals.
Given these concerns and the province’s policy decision to move forward with shale gas development, the issue became highly contentious, to the extent that discussions were not leading to progress. LaPierre wrote a report that called for an independent group to develop science-based information to support policy decisions and provide information to both the Minister of Energy and Mines and the public. The provincial government adopted that recommendation and within 12 months established and funded the New Brunswick Energy Institute, with LaPierre as director. He presented information on the structure of the institute.
The institute began working on stakeholder issues that had been raised in several public consultations. A key issue was compensation to people who lost the value of their water wells or who had other losses, by a process managed by an independent ombudsman—a retired chief
justice. Companies were required to put up a bond of CAD$100,000 per well, to be put into a fund administered by the ombudsman, who would make final decisions about compensation. LaPierre said that of the people who opposed shale gas development, 35 percent agreed that if they were assured of compensation, they might agree to development.
Another issue was regulations. LaPierre explained that the government promulgated operation rules, including the registration of fracking chemicals with the government health boards, which allow access to the information by doctors who may need to treat an exposed person.
The institute has a group of scientists, which LaPierre said has brought together 20 fellows from across Canada and the United States to manage research at the institute, and a public roundtable to share information from research. There is also an energy roundtable group, including representatives from a wide spectrum of stakeholders, that shares information, debates issues, and requests additional information from the scientific group. These activities are intended, he said, to enhance understanding, integrate science, and move science into the policy realm by reports to the minister.
LaPierre said that the institute also plans to hold annual conferences focused on various issues. Among those that may be considered are the concerns of many people that shale gas development would lead small villages to “lose their souls” and concerns about the disruptive effects of large numbers of trucks moving through small, quiet villages. In response to concerns about seismic activities, the institute has recently installed a series of near-surface monitors in collaboration with the Canadian geological service. The data from the monitors will be placed on a publicly available website.
A participant asked Bomberg how discussions about fossil fuel lock-in and the relation of shale gas to sustainability are playing out in the European Union. She replied that shale gas might be acceptable to many current opponents if used as a transition fuel, but there are doubts about whether this will be the case. Support for renewable energy, which has been very strong in the European Union, has recently begun to diminish. She said that the bridge-fuel argument has not yet depolarized the debate, but she expected that if sustainability becomes central to the discussion, shale gas will be more likely to be developed if it is viewed as a transition fuel than if it is not accepted as such.
Another participant asked if there is common ground among the EU countries that have banned fracking. Bomberg replied that there is no obvious common factor. The member state most strongly opposed is France, which sits on the second largest shale gas deposits in the European Union and has had no difficulty accepting the risks of nuclear power. She sees the economic interests of the nuclear industry at play here. Aesthetic issues also matter in France: French respondents think shale development defaces the landscape. Poland is the most enthusiastic shale gas supporter, she suggested, because of its need to lessen dependence on Russian gas. She said that a factor in some countries may be the pre-existing level of environmental opposition.
A participant asked if the idea has come up in Europe for communities to demand revenue sharing in exchange for allowing shale gas development and to allocate some of that revenue to renewable energy development. This has been proposed in Pennsylvania, noted the participant. Bomberg replied that in Europe, mineral rights belong to states, not to communities, but that some of the many policy innovations in Europe have provided that for each well exploration, money be put into a fund for low-carbon energy initiatives.
LaPierre was asked whether the New Brunswick approach might scale to more highly populated places. He said Quebec is planning to use a process like New Brunswick’s and that it will be interesting to see what develops. Warner North commented favorably about the compensation system in New Brunswick, which he thought provided for quick and credible compensation to people who might be harmed. He also asked for elaboration about the role of the New Brunswick Institute in shale gas development in the province. LaPierre replied that shale gas development is seen as an important component of economic development in the province, with the possibility of export to outside markets. He said that some of the profits from shale gas would go into a heritage pool to support other industrial development in the province and possibly to convert the transport fleet to natural gas. The province is assessing the gas resource and will conduct a business case study to determine what portions of the gas proceeds will go to the heritage pool, to export, and to the industry. The plan, over a 10-year horizon, is for pilot wells to be drilled under the new regulations and assessed by the institute with regard to production and adherence to the regulations, after which decisions will be made about whether and how to proceed with further development.
A Webcast participant from New Brunswick asked why the institute is going outside the province for expertise, who picked the scientific advi-
sory board, and why there was no public input into who was invited to the roundtables. LaPierre replied that the scientific advisory committee came from New Brunswick, except for one member who had expertise that could not be found in New Brunswick.
Four of the day’s speakers, Sarah Fullenwider, Hannah Wiseman, Elizabeth Bomberg, and Kate Konschnik, were asked to offer their conclusions from the discussions during the first day of Workshop 2.
Fullenwider focused on enforcement. She said that whoever develops regulations has to think about who will enforce them and about their capacity to do so. Without sufficient enforcement personnel, operators will push the envelope. She said that citizens can be valuable in enforcement and pointed to the practice of providing a 24-hour call-in number citizens can use to report spills and other problems. She noted that because of the profit motive, the industry will comply even with strong regulations if the regulations still allow it to profit. In Fullenwider’s view, community pressure is even more effective than regulation in influencing operators.
Wiseman said that citizens can assist governments in many ways. She said that disclosing inspection records can be very helpful in getting citizens involved, but that only a few states so far have strong databases with this information. She pointed to the need for better coordination between states and between them and U.S. EPA, but she also noted the difficulty that many agencies prefer to restrict information to protect their reputations. She cited mandatory environmental liability insurance as a promising policy approach, noting that this is different from bonding. When contamination occurs, bonds and support from federal agencies will likely not cover the costs. Mandatory insurance would provide an incentive for insurers to monitor operators and thus improve their performance. In response to a question from a workshop participant, Wiseman noted that willingness to provide insurance is a challenge when there is so little information on the costs. She suggested two complementary approaches to this challenge: provide better scientific information about the risks before requiring insurance and pool the insurance risks, as has been done in the nuclear power industry. Finally, Wiseman cited revenue sharing to reinvest in low-carbon energy options as a way to address the climate implications of shale gas consumption.
Bomberg emphasized the need for coordination across levels of governance, the need for strategies that allow for flexibility (e.g., performance standards), the importance of regional solutions, and the importance of institutionalizing policy learning. She stressed that implementation and
monitoring are critical for the integrity of the governance system and favorably noted some proposals in Europe that would require firms to pay fees to support independent monitoring.
Konschnik spoke about ways the U.S. federal government could help in governance. She identified a role in data collection and data sharing, noting that federal agencies already combine geological and chemical data from multiple sources. They could also harmonize measurement approaches and collect data on best practices in regulation and best practices by companies. She noted that many environmental laws engage the federal government in activities such as setting minimum standards and providing resources, while leaving the implementation and enforcement to the states, and she advocated more cooperation of these kinds between federal and state agencies. An example could be having federal agencies train state environmental employees, she suggested, in contrast to a trend toward industry providing the training, which she found troubling. In response to a question from a participant, she acknowledged that cooperation between federal and state agencies is difficult to achieve, but she said such interaction, especially if it occurs in public, can help build integrity into the governance process.
Prakash is a professor of political science, the Walker Family professor for the College of Arts and Sciences, and director of the Center for Environmental Politics at the University of Washington, with research interests in voluntary environmental programs. His comments summarized general knowledge from several social science disciplines about industry self-governance, drawing heavily on his work with Matthew Potoski (Potoski and Prakash, 2013) on voluntary environmental programs (VEPs). This literature, which includes large numbers of careful case studies but very few field experiments, Prakesh said, addresses three core questions: (1) How can VEPs get started, and who would sponsor them? (2) How can they attract enough companies to join? (3) How can VEPs improve environmental performance at the levels of facilities, companies, and industries?
He defined VEPs as efforts to get companies to go beyond compliance with environmental regulations. VEPs may prescribe systems, standards, or outputs for industrial processes, and they may result from unilateral commitments, bilateral negotiated compacts, or multistakeholder pro-
cesses sponsored by industry associations, nongovernmental organizations (NGOs), governments, or combinations of these.
Prakash sees VEPs as important because firms need economic justifications for environmental stewardship and can no longer find such justification in actions they can take alone, such as by reducing the costs of waste disposal. Firms engage in VEPs because they have the potential to create what Prakash called a market for environmental virtue: They allow firms that are good environmental stewards to identify themselves as such to stakeholders who want to reward them for this. They “brand” firms as good stewards, and this could bring financial benefits. An advantage of VEPs, he continued, is that as collective endeavors, members make a public commitment and face costs for backing out. Also, as more firms join these agreements, there are economies of scale.
There are several valid criticisms of VEPs, noted Prakesh: because they are easy to join, less virtuous firms can easily join and create “greenwashes”; VEPs may preempt stronger regulation; they may “capture” regulators; and they bypass democratic processes. Prakash said that like government regulations, VEPs are only as good as the programs’ design: it is important to distinguish good VEPs from bad ones. Two critical design issues are the obligations VEPs impose on members and the monitoring and enforcement of the obligations. The dilemma is that the stricter the regulations, the higher the cost of compliance and the fewer firms that are likely to join. But for VEPs to be effective, they must attract more than just the few best environmental stewards.
Prakash gave several reasons why VEPs emerge. Trade associations sometimes create them to protect the reputation of the industry, NGOs may sponsor them in response to perceived failure of standard regulations, and governments may sponsor them in response to regulatory gridlock. These situations create an interesting politics, said Prakash: firms would like to join programs but don’t want to be compelled to do so, with the result that in some industries, such as forestry, there are competing VEPs with different sponsorship.
The decisions of firms to join are, according to Prakash, affected by various external factors, including: pressure from trade associations, some of which require participation as a condition of joining; supply chain pressures (for example, from consumers in one country on suppliers in other countries); community pressures, as when richer neighborhoods place demands on firms that are located there that are not placed on firms locating in poorer neighborhoods; pressure from NGOs; and promises from governments of regulatory and enforcement concessions. Prakash added that the research also indicates that internal factors, such as firms’ sizes, environmental compliance history, multinationality, and corporate culture, also affect willingness to join.
Prakash said the question of whether VEPs work is difficult to answer because it requires comparison with what might have been and because it needs to be analyzed at various levels. The research finds that most of the environmental improvements at the facility level are modest and that monitoring and enforcement are critical to efficacy. The research is also identifying new questions, Prakash continued, such as whether programs have spillover effects beyond their members, whether they have a greater impact when public regulation is strong or when it is weak, and whether multiple VEPs in a given sector undermine efficacy.
Prakash concluded with these thoughts: All regulatory systems, voluntary or governmental, share common design characteristics, and all can fail. People should have realistic expectations about VEPs, he said. Replacing public regulation with voluntary regulation is a straw man: the issue is how to add voluntary to governmental regulation, and the major challenge is to improve environmental performance of the small and medium size firms. Prakash noted that regulatory capture has been an issue from the beginning of industrial regulation and will continue to be an issue with both governmental and voluntary regulation.
Nash, executive director of the Mossavar-Rahmani Center for Business and Government at the John F. Kennedy School at Harvard University, has research interests focused on innovation in environmental policy. She considered the potential for effective industry self-regulation in the shale gas and oil sector in particular. She focused on Pennsylvania because there is much activity there, as well as abundant information about the operators in the state and their regulatory compliance. Her premise was that self-regulation should engage the businesses whose activities pose the greatest health and environmental risk: the operators, service companies, gas processors, pipeline companies, purchasers, gas utility companies, and others. Her talk focused only on operators and service companies, even though, as she noted, other actors are also important sources of risk.
In Pennsylvania, Nash continued, the operators are the main point of contact for regulators. There are 75 companies operating more than 9,000 wells, although a few large companies conduct most of the operations. Five companies operate nearly half the wells in the state; 21 companies operate only one or two wells. The five largest operators are quite diverse. Chesapeake, the largest, is the second largest gas exploration company in the United States and focuses mainly on exploration and production. Talisman, the third largest operator, is an international company headquar-
tered in Canada. SWEPI is a subsidiary of Royal Dutch Shell, and EQT is an integrated company that also has pipeline and marketing operations.
Nash said the most common types of regulatory violations involve waste management, pollution prevention, endangering water supplies with waste, erosion control, construction of pits and tanks, and management of cement casings. Environmental performance is uneven, she added: The number of violations and the amount of fines per company is generally related to the size of their operations, but there are some companies with a much poorer environmental record than others by these measures. Nash noted that although operators are legally responsible for the wells, contracted service companies operate behind the scenes and do much of the work that causes the violations. In addition, many new firms are entering the service business. The percentage of this work done by the three largest firms has shrunk from 80 percent to 62 percent in the past decade.
Nash proposed that any effective self-regulatory system would need to address the characteristics of the firms in the sector. Many elements of a self-regulatory system are already in place. There are many trade associations in this space: drillers, small operators, independents, and large operators each have trade associations, and API claims to represent the entire industry. API offers a menu of self-regulatory approaches to its members: product certifications, management system standards, and other purely voluntary approaches. API has some best-practice standards for many phases of industry operations, including forthcoming standards for community engagement and for quality management for service companies.
Nash mentioned two innovations that may be of interest in relation to self-governance in the gas shale sector. One is the Center for Offshore Safety, which was created by API after the Deepwater Horizon accident to promote a “pervasive culture of safety” in the offshore drilling industry, in response to federal requirements that offshore drillers implement safety and environmental management systems and that there be third-party auditing and certification. Another interesting example comes from the American Chemical Council’s Responsible Care program, which requires that members adopt a Responsible Care management system that must be independently audited and verified. The American Chemical Council is now rolling out this program to its supply chain.
Nash concluded by identifying several factors that either inhibit or enable self-regulation. Inhibiting factors include the diverse set of players, ranging from small “mom and pop” companies to large, global businesses; the difficulty of identifying best-practice leaders; the importance of service companies in undertaking environmentally risky activities, mostly behind the scenes; the fact that existing self-regulatory programs are purely voluntary; and the absence of a collective identity among firms
or a galvanizing event to shape such an identity. Enabling factors include the increasing attention to the risks among the public, lawmakers, and firms; the concern by some companies that their reputations might be tarnished by bad actors; the fact that the industry has taken some first steps; and new emerging models that emphasize third-party auditing and certification. These new models, Nash said, are worth a closer look.
The discussion raised various issues about the potential effectiveness of industry self-governance approaches. Participants’ questions and comments are summarized here under the headings of relationships of self-governance to government regulation, governance of service companies, issues with multiple VEPs, variations among states, interactions with communities, and the “greening” of fracturing fluids.
Relationships of self-governance to government regulation. In response to a participant’s question, Nash said that industry has at times gotten in front of regulation and then had its standards incorporated into regulation. She noted that many API best-practice standards have been incorporated into regulation in the past, and this might happen again with the shale gas industry, with API standards being incorporated into state codes. Prakash added that this happens in many countries that have weak regulatory capacity and take cues from multinational corporations. He said that with shale gas, the United States could be viewed as a failed state, with a patchwork of governance for a very important industry. One school of thought, he said, is that the real added value of voluntary programs appears when the state is weak. But for effective voluntary regulation, there must be demand for it, in the form of stakeholders that hold firms accountable and demand evidence of environmental stewardship. He sensed a lot of public mistrust and unease, which has not yet been channeled into concrete demands for specific activities.
Jan Mares of RFF identified a limitation to self-governance and an implication for the government role. He cited a report from RFF, Prudent Development, which concluded that because the oil and gas industry is highly sensitive to antitrust actions claiming that companies in the industry have conspired to restrict competition, it resists self-enforcement against bad actors. As a consequence, the National Petroleum Council, which is mainly an industry body, has recommended that federal and state regulators be given adequate funding and personnel for effective oversight, possibly using a fee-based funding mechanism dedicated to the purpose.
Governance of service companies. One participant reported from personal experience in Pennsylvania that many operators subcontract risky operations to service providers who simply go bankrupt when costly damages appear. He suggested that this environment creates obvious challenges for effective industry self-governance. Another participant also questioned the ability of voluntary approaches among operators to influence service companies, citing an example of an operator who wanted to be responsible but claimed it cannot impose its standards on service companies because they move quickly from one operating company to another, and each operator has different standards. Nash responded that the bankruptcy issue poses a worrisome challenge and that the issue of the relations between operators and service providers is critical. She was encouraged by efforts of the Center for Offshore Safety to provide model contracts with service companies that include provisions such as third-party monitoring. Prakash added that it is possible for operators to band together and establish standards for their subcontractors. He said this approach has been taken successfully by clothing companies in establishing labor standards for the suppliers of their products in multiple countries. A participant from the industry distinguished between companies that look at environmental protection from a liability standpoint and those that see it as a responsibility. He said his company falls in the latter group and has established programs in which it requires its service companies to participate. He advocated that states establish criteria for approving service companies and that companies only hire approved service providers.
A participant asked whether, to address the problem of poorly capitalized companies doing the dangerous work, there are models in which voluntary actors draft and use codes, for example, to determine insurance rates or to decide whether to offer loans. Prakash replied that in essence, this question is asking whether enforcement is possible by parties other than the government. He said that this is an exciting area for development, given the highly decentralized nature of shale gas operations. A key to this approach is auditing, with third-party auditing being the gold standard. Prakash proposed that community-based monitoring is needed, that it is in the interest of the responsible firms, and that it deserves to be pursued.
Issues with multiple VEPs. A participant asked if there are any signs of competition among would-be certifiers in the shale gas industry, as there has been in the forest products industry. Nash said the shale gas industry is ripe for that kind of competition, which could ratchet up performance. For example, the new CSSD standards may compete with API’s purely voluntary approach. Prakash noted that it is unclear whether a multiplic-
ity of standards tends to promote a race to the top or to the bottom. In his view, without a galvanizing event in this sector, the premium attached to a stringent standard is not yet visible. He also noted the problem of information overload, which makes it hard for stakeholders to tell which labels are credible. Eventually, he suggested, there may be a shake-up in which firms with different needs for social license will gravitate to different sources of labeling.
Variations among states. A participant asked if variation exists among states in relation to self-regulation; for example, is there more self-regulation when state government is weak or when public opposition is strong? Nash replied that an active and engaged community will be the impetus for both governmental regulation and self-regulation and that the threat of government regulation is an impetus for self-regulation. These pressures seem to be arising in some states, she said, and when it happens in enough states, national trade associations may take on the challenge. Prakash suggested that if the Marcellus compact gets acceptance, it will be copied and modified elsewhere.
Interactions with communities. In response to a question, Nash said that communication with local communities is a major problem and that the petroleum industry does not yet have a code of practice for this. Prakash reiterated that although there is widespread concern about risks, there are not yet clear community demands. He said that although public acceptance is a long-term issue for the viability of the industry both in the United States and globally, at this stage, the industry lacks the incentive to communicate well. He thinks that eventually, the industry will realize that its viability depends on better communication.
The “greening” of fracturing fluids. A participant asked if there has been any voluntary emphasis on greening of fracturing fluids. Nash said that at this point, attention is mainly on disclosure of the fluids; the hope presumably is that disclosure would lead to interest in greening the fluids. She noted that the FracFocus database has some serious deficiencies and needs strengthening—for example, the service companies are not even mentioned, and they are the largest users of fracking fluids.
Leveson is a professor of aeronautics and astronautics at the Massachusetts Institute of Technology who studies accidents from a system theory perspective. She introduced herself as a safety engineering professional with management expertise who has worked with the oil and gas industry for decades. She said that safety cultures exist in whole industries and in individual firms, that they involve underlying value systems, and that they do not change easily with organizational changes. She noted three industries with strong safety cultures: commercial aircraft, nuclear power, and the nuclear Navy, saying that these safety cultures developed for different reasons. In commercial air travel, William Boeing recognized in the 1950s that there would be no airline industry if people did not trust its safety, so he began promoting safety culture within the industry. The nuclear power industry was stymied by its inability to get private insurance against catastrophic losses. In response, the federal government, under the Price-Anderson Act, agreed to provide this insurance but only if the industry agreed to be regulated. The nuclear Navy established its outstanding safety program, Subsafe, after the 1963 U.S.S. Thresher accident. Before then, there had been submarine accidents every 2-3 years; since that time, no U.S. submarine has been lost.3
Leveson said that one cannot count on industries to learn from accidents. The usual pattern is that if an accident happens to another company, it is blamed on that company’s failings; if it happens within a leader’s own company, it is typically blamed on a very low-ranking person and then forgotten. Sometimes, though, there is learning from accidents. After the Three Mile Island accident, said Leveson, the nuclear power industry created the Institute for Nuclear Power Operations (INPO), an excellent organization that puts a lot of peer pressure and oversight on operating companies. Her second example of change in safety culture was the Colonial Pipeline company, which had had so many accidents that the U.S. Justice Department was threatening to jail the chief executive officer (CEO). The company then replaced the CEO. Although it took a long time to change, Leveson continued, the company eventually developed, and got all employees to buy into, a philosophy that held that all injuries and accidents are preventable; safety will not be compromised for any other business objective; leaders are accountable for the safety of employees,
3The Subsafe Program is discussed in Leveson’s book, Engineering a Safer World, which can be downloaded at no cost from the MIT Press Website at http://mitpress.mit.edu/books/engineering-safer-world [July 2014].
contractors, and the public; and preventing accidents is good business. Leveson emphasized that these principles need to be backed up by action to be trusted and to become effective.
Next, Leveson identified three types of flawed safety culture. The most common, and the one that she sees as most prevalent in the oil and gas industry, is a culture of denial. In this culture, leaders only want to hear good news; leaders dismiss credible risk assessments and warnings without appropriate investigation; and accidents are treated as inevitable and the price of productivity. In a compliance culture, companies focus on compliance with government regulations and produce strong arguments about how safe a company’s operations are. A paperwork culture issues a lot of analyses that have no effect on operations.
Leveson has found it incredible that many companies in the oil and gas industry claim that they have outstanding safety records. Examples of the culture of denial in this industry include claims that “our accident rates are going down,” apparently based on whatever statistics give the best answer; the idea that “this is just a dangerous business”; and the idea that “everyone has safety violations.” Leveson noted that a plane flying at 30,000 feet and a submarine in the deep ocean with a nuclear reactor on board present more dangerous environments than those in the oil industry, and yet they have better safety records.
In response to a request by the workshop organizers for ideas on ways to develop a strong safety culture in this industry, Leveson pointed first to strong leadership as key to safety culture, saying that an organization’s tone and values are set at the top. She cited as a blatant, negative example the response of NASA’s leadership to the 2003 space shuttle Columbia disaster: The head of the shuttle program made strong, immediate public statements about the importance of safety but then, the next day, sent an e-mail to staff making it clear that the priority on safety was second to the priority of reaching the program’s goals. Leveson said that an organization’s staff understands its true priorities by seeing how decisions are made, how resources are distributed, and whether high-ranking officials are made responsible for safety.
As a positive example, Leveson cited Alcoa, where, when Paul O’Neill took over as CEO, he told his investors that “I intend to go for zero injuries.” The initial response, in the words of one stockbroker who heard the message, was to say that “the board put a crazy hippie in charge and he’s going to kill the company.” He advised his clients to sell quickly, Leveson continued. But the company’s profits hit a record high in the first year after O’Neill’s speech and continued to increase throughout his tenure, while Alcoa became one of the safest companies in the world. Leveson said that O’Neill understood that increasing safety increases productivity, rather than the objectives being in conflict. She described safety as a
“keystone habit” that ripples through an organization. To illustrate, she pointed out that O’Neill gave his subordinates his home phone number and invited them to call him at home if they saw a safety problem. After a while, she said, O’Neill began also getting calls at home with other suggestions for improving the company.
Another critical point, Leveson said, is that blame is the enemy of safety: when you start blaming people, they stop talking and hide small problems. She said that blame is all over the oil and gas industry, but noted that on the other hand, peer pressure from safe companies on others can be very effective. The drilling moratorium after the Deepwater Horizon disaster resulted in the good players in the industry putting pressure on BP and supporting a new center for offshore oil safety. Leveson argued that an industry’s customers often have more power than government. As an example, she said that although the U.S. Food and Drug Administration will not do anything about radiation overdoses from medical devices, the physicians who buy the machines and who care about their patients have been starting to write standards and impose them on producers. Leveson described API’s standards as ineffective and suggested that if there is a way to involve the customers safety could be improved by changing the incentive structure for the industry.
As a final example of customer power, Leveson described the efforts of Costco to create an alliance of retailers, food growers, and farm workers to reduce food contamination. Previously, farm workers, who are paid piecemeal, could expect to lose pay if they reported contamination, so they rarely did so. The alliance teaches workers how to spot signs of food contamination and trains them in good practices, while offering better pay and working conditions. The program effectively places auditors (the trained workers) all along the production chain. Leveson added that unexpected benefits have been better worker retention and improved worker morale, effects that have been seen in other industries as well. Although Costco is paying more for its produce, she said, it is betting that consumers will pay a bit more to protect their children from illness.
Howard-Grenville is an associate professor in the Department of Management and the Center for Sustainable Business Practices at the University of Oregon. She has studied the integration of a design-for-environment approach in the semiconductor industry and is examining “sustainability culture” in the oil sands industry in Canada. Commenting from the perspective of organizational theory, she said that there is very limited research on how organizational culture responds to environmental issues, but much more is known about safety culture. The two
are different in that safety issues can be put in personal terms, whereas sustainability issues are harder to express that way. Still, work on safety culture can offer insights. That research emphasizes that communication is important, but has to be reinforced by modeling, incentives, and training, as well as by efforts to ensure that individuals and groups feel able to act on company commitments.
She noted that the organizational culture literature emphasizes shared values, which can either advance or impede achieving environmental goals. In the oil sands industry, one company was known for being innovative and taking risks, so introducing routines there was very difficult. Howard-Grenville also identified day-to-day patterns and practices as “cultural resources,” which may reside at group, organizational, and industry levels, somewhat independently of values. She said they can move from one company to another, but they need to become part of the organizational culture to be effective.
Winter, whose career has included service as president of TRW Systems and as secretary of the Navy, offered comments based on his experience in the defense and aerospace industries, where he had responsibility for dealing with safety issues, and on his experience reviewing the causes of the Deepwater Horizon oil spill. Like Leveson, he cited the Navy’s Subsafe Program as a good example of a properly designed safety management system and distinguished it from what is employed in the oil and gas industry. He noted that Subsafe is not a general-purpose safety program. It focuses only on whether submarines can submerge and surface safely—the two events of greatest concern. It does not address other occupational safety issues on naval bases or in submarines. However, from a focus on those two specific concerns arise a number of important standards for equipment and for personnel. Individuals are told regularly of their responsibilities and of what happens when mistakes are made, with vivid representations of the lost lives. The Navy has a very strong concept of responsibility and accountability, holding commanding officers accountable for whatever happens on the ship as soon as they accept command, and it can remove commanders after serious incidents occur, even if this happens soon after they accept command. Knowing that they are accountable in this way leads commanders to focus on safety from the moment they take charge. Winter believes that the focus on personnel is key to success and more important than any focus on technology.
Winter contrasted practices in the Navy with what he sees in the oil and gas industry. Despite budgetary pressures, the Navy has so far been able to make the case that it should not build submarines the way China
or Russia does, at lower cost but with less attention to safety. The oil and gas industry, by contrast, organizes itself for efficient use of capital and for management of liability. These priorities appear to Winter to inhibit appropriate accountability among employees. For example, if a company were to hold managers accountable when accidents happened, it would amount to an admission of error and could expose the company to liability.
Winter said that the industry has to recognize that developing a strong safety culture is critical. Safety always involves tradeoffs, particularly between safety and productivity, but in the oil and gas industry, CEOs often put strong priority on reducing costs over other objectives. Winter emphasized that written rules are never adequate for making these tradeoffs because technology is changing too fast. What is needed is a culture that supports making the proper tradeoffs. He also said that the industry needs to fix the personnel accountability issue and that regulators need a mechanism for rewarding contractors who employ a proper safety culture. He drew a contrast with the U.S. Department of Defense, where he said decisions are based on best value, which is not the same as lowest cost.
Possibilities for improving safety culture. Hannah Wiseman suggested some possibilities and asked the panelists to comment. One would be to establish an oil and gas industry equivalent of INPO, which engages industry, government, and nonprofit groups. Leveson responded that an INPO-like entity would be a good idea, but that government could not be involved because companies would not reveal information. Winter added that INPO is populated by Navy veterans who have long experience in nuclear power operations.
Another possibility suggested by Wiseman was to establish safety departments that were separate from operations and that would be responsible for giving bad news when appropriate. The presenters were not enthusiastic about this approach. Winter does not favor separate departments because the safety issues cannot be divided that way. He noted that BP has a separate safety department, but that department has no authority over operations. He said that to improve safety, the safety culture has to be embedded in every unit. He suggested as a model the Navy’s concept of independent technical authority, which establishes that an individual responsible for operations cannot deviate from set standards without approval by someone outside the group who has been given the authority to attend to the safety issues and is not subject to cost pressures.
A third suggestion from Wiseman, to have government agencies or nonprofits publicly reward good performance, did not receive further comment from the speakers.
During this discussion, Winter suggested that competition is a barrier to cooperation in reducing risks at the industry level. He pointed out that unlike the oil and gas industry, the nuclear power industry is not competitive. With competition, he said, proprietary considerations are very strong and there is a tendency not to share information. Leveson said that competitiveness is not an insurmountable barrier, noting that even though the commercial aviation industry is highly competitive, it has figured out ways to share anonymized information and has experienced great gain from doing so in the promotion of safety.
Measuring safety culture. In response to a question about how safety culture can be measured, Leveson said that the industry confuses occupational safety, personal safety, and system safety, treating personal safety as a matter of individual responsibility, but treating system safety very differently. She said that most measurements of safety culture look only at occupational safety. Winter added that occupational safety is easy to measure, but statistics for major events like the Deepwater Horizon accident are few, and such events are not directly comparable. He said that culture is what people do when no one tells them what to do: to assess safety culture, one needs to understand how decisions are made and tradeoffs are adjudicated between productivity and safety. Howard-Grenville agreed that safety outcomes can be measured, but the field is less good at measuring aspects of safety culture that produce those outcomes.
Relationships between safety culture and sustainability culture. In response to a participant question, Leveson said that safety and sustainability involve different value systems and do not intrinsically go hand in hand; however, her concept of system safety includes environmental considerations. Winter said that to promote safety, one needs great attention to detail, and that sensitivity to detail can help achieve all kinds of safety objectives because people learn to think through their decisions.
North, the president and principal scientist at the consulting firm, NorthWorks, Inc., applies decision analysis to issues facing private companies and government agencies in the areas of energy and environmen-
tal protection. He began by summarizing material from previous NRC reports (National Research Council, 1983, 1996, 2008) regarding how to ensure good use of science in areas of uncertainty and controversy and particularly how to involve interested and affected parties, for whom he used the shorthand term “stakeholders.” The 1983 NRC report, Risk Assessment in the Federal Government, known as the “Red Book,” said that risk assessment needed to be tailored to the needs of risk managers and that this requires a two-way dialogue. He said that the leadership of EPA misunderstood the need for conceptual separation between risk assessment and risk management as a call for organizational separation. EPA thus decided it was appropriate to begin with risk assessment and then pass the risk characterization over to risk managers for action, as opposed to having a dialogue about the nature of the problem and how best to characterize the risks.
North said that stakeholder involvement has been interpreted by many as having stakeholders speak, write comments, etc., but that the key is two-way communication, including respectful listening. The standard environmental impact statement and notice-and-comment rulemaking procedures use linear processes in which documents are prepared and comments are then solicited. It is not surprising, he continued, that with controversial issues, the notice-and-comment process is widely perceived as breaking down. The 1996 NRC report, Understanding Risk: Informing Decisions in a Democratic Society, described a process of two-way communication that moves back and forth many times between analysis (information gathering, interpretation, etc.) and deliberation in order to improve both analytic activities and decisions. That report emphasized five key needs: (1) get the science right (which was a major concern in the 1983 report as well); (2) get the right science (which means framing the problem in a way that speaks to the concerns of the interested and affected parties; (3) get the right participation; (4) get the participation right; and (5) develop an accurate, balanced, and informative synthesis.
Public Participation in Environmental Assessment and Decision Making (National Research Council, 2008) examined available knowledge about getting the right participation and getting the participation right in the hope initially of agreeing on specifics of what is and is not good practice. The committee ultimately concluded that this is more of an art form. Its report defined quality, legitimacy, and capacity as three objectives of public participation. It concluded that when done well, public participation can advance all these objectives, but the report also noted that participatory practices have sometimes made matters worse. To summarize a very detailed report, said North, what is needed is leadership and respectful listening, including listening to the outliers and dissenters, and ensuring that what they contribute is effectively evaluated. Analysis and delibera-
tion are both critically needed, he emphasized, and the people who are expert in one may not be expert in the other.
North then turned to the issue of combining analysis and deliberation in the area of shale gas development, which he saw as particularly important for problem formulation. He noted that analysis can occur at many levels. At the global level, shale gas is abundant in many places. Considering concerns with greenhouse gas emissions, North said it should be recognized that in China, shale gas could replace the one coal-fired power plant being opened each week, but methane releases remain a concern. At the national level, concerns about sustainability, energy policy, and the economic benefits of lower-priced energy all favor shale gas development, but when gas is cheaper, renewable energy systems are less competitive. Deciding whether shale gas can be a short-term “bridge” raises complex national policy questions.
The regional level, North continued, was the main focus of this workshop. In his view, the presentations and discussions suggest several areas where an analytic-deliberative process has substantial potential: (1) planning and managing community impacts; (2) making decisions about disclosure of the chemicals in fracking fluids and the possible replacement of toxic chemicals with saline water; (3) addressing the disposition of produced water, regional water allocation, and related regional planning issues such as land use; (4) seeking improved safety culture for reducing air and water emissions and developing monitoring processes and sanctions for poor performance; (5) developing ways to listen to workers and other people who might report deviations from best practices; (6) developing best practices for checking well integrity, probably including independent inspections by local authorities; and (7) agreeing on methods to determine whether there have been leaks of contaminants or methane and on ways to assess damages.
North concluded that shale gas development is a complex policy issue akin to nuclear power and waste management, nanotechnology, and others. For such issues, the analytic-deliberative process shows a lot of promise, he said, adding that getting it right will be tricky, but worth trying.
Field is managing director of the Consensus Building Institute and associate director of the MIT-Harvard Public Disputes Program. His work as a facilitator seeks to help stakeholders reach agreement on natural resource, land use, water, and air issues. He began by noting several conclusions that came from a recent forum he facilitated for the Union of Concerned Scientists, which paralleled the conclusions of the 2008 NRC
report. The forum concluded that there are important questions both about whether shale gas should be developed and if so, about how it should happen. It found that community engagement is essential for both information sharing and decision making, but doing this is hard. Among the forum’s insights were that there are difficult questions about how much control should be local; property rights regimes are fundamental, and these are subsurface rights; the audiences are numerous and complex; declining trust in institutions is a challenge; and information, power, and control are asymmetric.
Field identified four areas of opportunity: information disclosure, joint fact finding, improving the industry’s capacity for stakeholder engagement, and community engagement.
Information disclosure. He said that “secrets” promote fear and suspicion and that disclosure is trusted more if information is produced jointly. Still, disclosure is not a panacea. In the case of fracturing fluids, according to Field, disclosure will be trusted either if done by a government or if it can be audited by a third party. He said that FracFocus does not yet have all the characteristics it needs to be trusted and noted that some academic institutions have gotten in trouble about the sources of financial support for their research.
Joint fact finding. To date, Field said, institutions do not meet the three-pronged test that good information must be salient to decisions, credible, and legitimate. He said that there are some good examples in other energy sectors: in wind development, the Health Effects Institute (for air quality information), and several research foundations that inform water utilities. He suggested that some of these might provide models to adapt.
Improving the industry’s capacity for stakeholder engagement. Field considers this important because governments lack the needed resources. He added that engagement needs to be linked to companies’ operational decision making and that effective companies need to be rewarded for their work.
Community engagement. Field said that although this is important, it is also difficult, partly because of value differences and lack of trust. Field cited the 2008 NRC report as suggesting some ways forward. He said that community advisory groups and liaisons have lessons on which to draw, as well as complaint and grievance mechanisms, charters that identify shared principles, and some international initiatives that provide third-party verification and that companies may want to join.
Field said that assessing the quality of community engagement is difficult, but there have been some efforts to jointly build things like community scorecards for participation. He concluded that stakeholder engagement is necessary but can only be sufficient when it has a path to action. He added that thought needs to be given to ways that local winners from shale gas development can compensate losers, to improve the societal balance.
Engagement of opponents of development. In response to a participant’s question about this, North said that decision making is often difficult in a democratic society. Although he was pessimistic that everyone will come to an agreement on shale gas development, he expressed hope that the communities represented at this workshop can inform the decision makers of all the viewpoints, including those of people who are in vigorous disagreement. Other participants agreed that polarization of views is a major challenge. Field suggested that the goal of getting everyone to agree sets a very high bar, but the goal can be defined as engaging everybody and building as much agreement as possible, recognizing that some people may cause problems later. Reaching this limited goal can be very constructive. Small added that there are issues on which agreement can be sought other than whether to develop, such as about where and when to develop, and what background data should be collected before proceeding.
Public participation at the local level. A participant asked what can be done to engage local government proactively with local citizens in considering the risks of shale gas. North hoped that this workshop might enable participants to carry lessons back to their communities. Field said that local governments present major opportunities but are challenged by a shortage of resources: they regularly set aside money for litigation but not for collaboration. In addition, it is not always clear who the convener should be within local government, and there can be problems when local officials are labeled as being for or against development.
Simona Perry, Case Consulting Services, offered several comments from her experience working with communities in Pennsylvania. She proposed that procedural transparency—including making discussions among decision-making organizations public—is a more fundamental need than disclosure of chemicals. She said that problem formulation needs to happen at the local level, with experts in facilitation engaged, as well as experts on shale gas issues. She also argued for a culture of collaboration and listening, including transparency about discussions
and decisions by government agencies, landowners, and the industry and finding spaces for people to listen to each other. North commented that the frustration of people in Perry’s position is in getting the backing of decision makers and the resources to organize the participation at the level and for the length of time required. He said that greater recognition is needed of the need for these community-level discussions.
Representing the concerns of future generations. In response to a question about how these concerns can be incorporated in a public participation process, North said that the present generation needs to take seriously its responsibility to future generations, including in formal risk analyses. He cited a recent paper by Kenneth Arrow and colleagues (2013), which argued that discount rates should be set lower because of uncertainty about effects a century or more in the future. North sees this as great progress in economics beyond analyses of 20 years ago, which seemed to cut off consideration about any consequences beyond 2100. Field added that some people in public participation processes act as proxies for future generations. He also noted that there are generational tradeoffs in energy choices—both developing gas and not developing it have consequences for future generations—and participatory processes need to get people to consider those tradeoffs.
Compensating losers. A Webcast participant from New York State asked if there are good examples of compensating the losers in shale gas development. Field said that there have been efforts to develop community benefit packages in wind energy development and to find better ways to manage the benefit flows. He added that there are unavoidable value questions as well, such as about the effects of industrial development on rural landscapes, which cannot be addressed by financial compensation. LaPierre said that in New Brunswick, a new structure has been proposed to divide royalties from shale gas development between the provincial government, the local government (for example, for road construction and repairs), and the landowners.
Disclosure issues. A participant suggested that the need for disclosure extends much farther than fracking fluids: people who sign leases and live in communities need to know a lot more about the consequences of their choices than they hear from landsmen who sometimes suggest that the industry will be in and out of an area very quickly. North agreed that disclosure should include all the materials that might spill or leak, as well as the other effects of industrial development, which can be very visible and audible.
Measuring success. A participant noted the difficulty of measuring the success of public participation. North said that when public participation is successful, it is rarely well documented because the problem is no longer salient and because the people responsible have moved on to other activities.
Promising approaches. North expressed hope that the Internet may enable new mechanisms for public participation, suggesting that its use might decrease the resource requirements, such as travel funds. He also strongly advocated the need to institutionalize independent, outside analyses by highly qualified people who can comment on the complex issues that shale gas development will continue to entail. This was done with the establishment of the Nuclear Waste Technical Review Board in 1989, he said, and it is needed for other emerging technologies, including shale gas. He noted that decision makers will need to be convinced to charter such an organization and to commit the significant resources that will be needed to support it.
Andrew Place, the interim director of CSSD, described it as an experimental collaboration of industry, philanthropy, and environmental NGOs seeking what he called a social license to operate. The project seeks to develop high standards for operation that go well above the minimum standards set by regulations. The people who created CSSD wanted to do something about the polarization around shale gas development and agreed that development needs to be done responsibly. He identified the organizations involved and noted for transparency purposes that he is employed by one of them, EQT Corporation, a natural gas producer in the region. The center is hiring a permanent executive director. Place said that to seek balance, the Board of Directors has four seats designated for industry, four for environmental NGOs, and four for other members he describes as “nonaligned.” Balance is also kept by the implicit threat that one side or the other could withdraw from the organization.
As the conceptual foundations for CSSD, Place cited documents by the Secretary of Energy Advisory Board, Shale Gas Production Subcommittee (2011), the National Petroleum Council (2011), and the International Energy Agency (2012), all of which call for engagement, collaboration, transparency, and measurement. He said that CSSD has looked
to many past efforts for insights on best practices, rather than trying to invent ideas from whole cloth.
The center focuses geographically on the Appalachian Basin, reflecting the uniqueness of shale gas regions. Place went on to say that standards need to address unique issues down to the level of well sites. CSSD did not try to engage all the operators at first but rather to engage those who might agree on some useful standards. Over time, trust has increased among members of the initial small group.
The center has been developing standards initially in two areas: emissions into air (including greenhouse gases) and risks to ground and surface water. It is developing standards in these areas before moving to other issues, in order to make some progress quickly, although the other areas are also important. CSSD focuses on certification and verification. Place said that certification will require audits both in offices and on sites by an independent third-party auditor. He briefly described the center’s ground water protection standards, which include standards for casing and cement; a minimum of 90 percent recycling of wastewater; and a number of other standards for well pad design, operations, monitoring, disclosure of fluids used, and spill response and public notification plans. Standards for air emissions include removal of hydrocarbons from flowback and produced water before storage; at least 98 percent destruction efficiency of flaring; and emission standards for engines for drilling rigs, pumps, compressors, trucks, and condensate tanks.
Place concluded that the essential attributes of CSSD are its collaborative nature, the obligation it imposes on members, and its adaptive nature, including the intention to expand over time to cover the whole life cycle of risks. More details on CSSD’s activities can be found at its Website: www.sustainableshale.org.
Christine Conn and Brigid Kenney, respectively of the Maryland Department of Natural Resources and Maryland Department of the Environment, described that state’s proposed Comprehensive Gas Development Plan (CGDP). Conn described the CGDP as focusing on issues of the location of wells and the cumulative impact at landscape scale of placing multiple wells, with the aim of addressing these issues before permits for wells are issued. Maryland has only about one percent of the Marcellus shale play within its borders, all of which is in very rural areas of western Maryland where outdoor recreation and tourism are the main industries. The governor issued an executive order in 2011 that established an advisory commission with representation from a broad range of interested groups and required a series of studies of short- and long-term effects of
gas extraction, to provide information to policy makers who will decide whether to proceed with development.
One study commissioned for the CGDP has produced a best practices report with recommendations for all aspects of exploration and production. The report evaluated the scientific literature and practices in other states; in response to that report and to consultation with the advisory commission, the Maryland agencies drafted a report that contains the CGDP, which is currently out for public review and comment. The study said that the CGDP, which is modeled on efforts in Colorado and by the U.S. Bureau of Land Management, was the most important best practice. The goal of the CGDP is to allow efficient exploitation of the resource while minimizing impact on local communities, ecosystems, and natural resources.
A second commissioned study reviewed comprehensive development plans in other places and explained the need for comprehensive, landscape-level planning and the potential for win-win outcomes. To illustrate the need for landscape-level planning, Conn showed a map from Pennsylvania that indicated what a landscape could look like if permitting proceeded well by well. The first report to the CGDP group called for pads with multiple wells as a way to limit impacts on the surface.
Conn said that the Maryland plan calls for the CGDP to be approved before any wells are allowed; for the plan to cover development over at least 5 years; for it to address locations of pads, pipelines, and roads; and for drilling to meet location restrictions and setbacks prescribed in the plan and to avoid sensitive areas and minimize cumulative effects. Under the CGDP, an application to drill a well can be processed if the location is consistent with the approved CGDP and if plans for the well demonstrate that proposed activities will meet or exceed regulatory standards. The CGDP is also addressing colocation of wells to leverage existing land uses and minimize overall impact and is considering open disturbed lands as the first choice for well location. The state is developing the CGDP as a “toolbox” with geographical data that companies can use to develop plans and that the public can also use.
It is the job of Kenney’s agency is to implement the CGDP. She said that developers would have to submit plans, which would be reviewed by the Department of the Environment to ensure compliance with state and local requirements and to consider opportunities for coordinated regulatory review and alternatives to the proposal. Applicants are then required to initiate a public participation process, she said. They must identify stakeholders, including the company, NGOs, land owners, and citizens, to participate in a process that is open, is ideally professionally facilitated, and considers alternatives to the submitted plan. This process is intended to happen within a 60-day period, after which applicants can
change their plans. The Department of Natural Resources evaluates the process and the plan, and the Department of the Environment decides on approval. Applications must still be processed for individual operations within the plan. The plans are approved for 10 years but are subject to change under a streamlined approval process.
Kenney identified some concerns that have been raised about the Maryland approach. One is whether it should apply to both exploratory and production wells. The Department of the Environment believes it should apply to both because exploratory wells often become production wells. Another issue is whether the approval criteria (e.g., avoiding adverse impacts to the environment) can be adequately defined. Other concerns described by Kenney include whether the plan adequately controls cumulative impacts and whether it is both strict enough to be effective and flexible enough to be practical without forced pooling, which Maryland does not allow. Companies have expressed concern about additional costs they may bear in acquiring lease and right-of-way agreements. Kenney said that the report that contains the CGDP, when finalized, will have a roadmap for implementing the CGDP if shale gas development is approved. She said that more information on the activities in Maryland can be found at the Department of the Environment Website, available at http://www.mde.state.md.us [July 2014].
Sinding is a senior attorney and deputy director of the Natural Resources Defense Council’s New York Urban Program, working on issues including efforts to ensure strong environmental regulation of natural gas drilling. She began by emphasizing that efforts like CSSD can only be a supplement to government regulation. She believes the first priority is to identify and fill gaps in government regulation before putting substantial resources into voluntary processes. Although many states are making advances in regulating this industry, she stressed that there are still many gaps to fill and resources may still be inadequate. She said it would be refreshing to see more of the kind of coming together of different groups that has occurred with CSSD, but her organization has found that almost all the shale gas companies have been unwilling to make commitments to uniform and tougher regulations. All of the best practices identified by CSSD could in fact be put into regulations that would apply to all companies, and Sinding proposed that doing this would benefit the better actors by leveling the playing field. She emphasized that the success of voluntary efforts depends on recruiting more of the industry actors to adopt these best practices.
Sinding said that the long-term success of voluntary efforts depends on there being a downside to not playing by the rules. Ultimate consumers cannot bring consequences to bear on production companies because the purchasers are mainly utility companies and large industries; unless these proximate customers make a commitment to purchase only from certified companies, there is no downside. She was also skeptical about the possibility that a “galvanizing event” would produce significant change in industry operations. She believes that most of the recommendations of the commission after the Deepwater Horizon oil spill have not been implemented. She also pointed out that catastrophic events in this industry are much smaller than in oil drilling or the airline industry, so may not have much of a galvanizing effect.
Sinding endorsed the specific best practices CSSD has recommended and commented favorably on the emphasis in the Maryland CGDP process on cumulative impact and on planning for ancillary uses and infrastructure, neither of which has been taken up by New York. She spoke against forced pooling, saying that respecting property rights should be treated as a cost of doing business, that such costs are the price of doing business in a democratic society, and that to limit the impacts, perhaps developers should not be allowed to develop as much shale. Whether the Maryland plan is strict enough will have to be assessed as the plan moves forward. Her final comment stressed the need to consider the largest-scale cumulative impacts: the effects on climate of being locked into fossil fuels. She said this conversation is not happening at all, and it may need to happen at the federal level.
Boling is an attorney and president of V+ Development Solutions at Southwestern Energy. He commented that although the gas industry has been highly innovative below the ground, that is, in extracting gas, it has not been very innovative above the ground. He said that regional plans have been a long time coming. Few oil and gas companies have land use planning as part of their organizations, but he believes that adding this innovation can help optimize locations of infrastructure, truck traffic, and road damage. He also noted the need to address social issues, such as those that have arisen in communities in the Bakken shale play, and he said that this kind of planning should precede development. He added that plans need to be seen as tools and not as redundant regulation, both to reduce strain on governments’ budgets and to reduce resistance from industry.
Boling was skeptical about plans that lock in too many decisions, noting the need for enough flexibility to make some changes without
restarting approval processes, in order to reflect legitimate reasons industry does not want to be committed to a fixed development process years in advance. Some of these reasons have to do with what is learned about a location from initial drilling experiences; others relate to costs to industry if, for example, a plan commits a company to siting a compressor station at a particular spot before it has negotiated with the landowner. Boling noted that coordinating development plans among operators is unconventional, though worthwhile; it will require innovations in the ways industry operates and does contracting, which currently happens one well at a time.
Boling thought that the plans that were presented do not pay enough attention to water supply, transport, and disposal, all of which relate to truck traffic and other issues and which require planning on a regional or watershed basis. He agreed with Sinding that CSSD has to be considered as a supplement to government regulation, not a substitute, though he offered a different reason: the public views the industry as already under-regulated. Finally, he supported the idea of regular meetings between industry and local officials so the latter understand what is happening. In his view, local moratoriums arise from distrust of governments at higher levels. He concluded by saying that going beyond what is required makes the difference between the industry being tolerated and being accepted.
The potential for national-level standards. A participant asked Place which standards or best practices might transfer well across regions and suggested that closed-loop systems, flaring regulations, and practices for impounding reused flowback are probably appropriate nationally. Place said that a lot of CSSD’s standards probably do make sense nationally, but that was not the focus. He thought a flaring standard would look different in less-populated areas or in areas where air quality is already in nonattainment of regulatory standards. CSSD sought to tackle issues only at a local level, even if they are also national or global issues.
Relationships between voluntary agreements and regulations. The presentations stimulated much further discussion of this issue. Conn said that although her agency supports voluntary programs like CSSD that set a high bar, it would still like to see standards codified in regulations. Kenney added that if voluntary standards were evaluated by state regulators and found to meet or exceed state requirements, companies that complied with them could automatically be qualified as meeting state regulations. Place supported this kind of approach. He said voluntary and regulatory practices could inform and cross-pollinate each other and
added that one value of voluntary approaches is that they can lead regulation by drawing on the technical skills possessed by the industry. He said CSSD is not arguing against regulatory approaches. Sinding agreed with the other comments and said that she did not mean to downplay the value of voluntary approaches. She recognized that voluntary approaches might be more nimble than regulations but wanted to emphasize the significant gaps that remain in the regulatory regime and that need to be fixed. Mitchell Small commented that voluntary standards might eventually be turned into regulations, perhaps through negotiated rulemaking, following paths that have been followed in other areas of environmental regulation.
Discussion of the CSSD effort. In response to a question about who will be doing audits for CSSD and about their accessibility, Place said CSSD is putting together an accreditation protocol for auditors and will make that information public. He said that accessibility of audits is a work in progress, but CSSD is committed to public accessibility. Unresolved issues relate to disclosure of sensitive business information. He added that in his experience, fuller disclosure can greatly reduce some disputes between industry and NGOs about air and water quality issues.
Another participant asked how CSSD was able to get buy-in from industry groups, given the possibility that companies might refuse to participate in voluntary programs if the standards are too high. Place said that this was tackled in part by focusing narrowly and by being clear that the center was developing standards, not regulations. Concerns remain, he said, about whether these standards will lead to tighter regulation—which raises the question of “threading the needle” between the priorities of different groups and finding some middle ground. Place was gratified that there were some shared values and that compromises could be made on technical details within those values.
Place was also asked about whether certification was to be done for wells or operators, the willingness of major companies to become certified, and whether he sees other performance standards in the future, such as perhaps for community engagement. Place said that certification was for operators and applied to all their unconventional operations in the Appalachian Basin. All four firms in the program are committed and want to go forward with the first round of certification. He sees terrestrial impacts, safety, and community impacts as among the top priority areas for future action.
Discussion of the Maryland Plan. A participant asked the Maryland presenters if they thought total-harm standards could be established for potentially affected systems, such as water levels in streams, on a land-
scape basis. Kenney replied that the Maryland standards try to incorporate total harm where possible, but noted that that there are unresolved issues about whether certain issues will be settled in the CGDP or later. Conn added that information related to total harm, such as about areas that are sensitive to water withdrawals, is being included in the Maryland toolbox.
Five workshop participants—Mark Boling, Bernard Goldstein, Kate Sinding, Susan Christopherson, and Barry Rabe—were invited to offer their thoughts at the end of the workshop.
Boling framed his comments in terms of what should be regulated, by whom, and how. He said we have a good idea of what needs to be regulated: water and air emissions, water use and reuse, surface impacts, and so forth. Who should regulate is a more difficult question. Decisions about this ought to be driven by what is most effective and efficient for regulating the risks, he said, and that depends on five things: the scale of impacts, whether the risks are the same from state to state, whether the proposed solutions are the same, whether the regulatory authority needs special knowledge about local conditions in order to regulate effectively, and whether there are legal preemption issues. An additional consideration is who is in the best position to keep pace with changes in technology and the need for continuous improvement in regulation. For fracking fluid disclosure, Boling favors a national standard, although he noted that some in the industry would disagree. He expects that this issue will follow the history of chemical regulation, in which diverse state standards eventually gave way to federal ones.
On the “how” question, Boling said that the public will insist on traditional types of regulation, and he agreed that those are needed. He noted that social impacts need closer attention but seem to be the last issues getting it. Following his idea that industry needs to innovate above ground as well as underground, he called for a fresh look at the risk mitigation strategies the industry has in place. He said that “smart regulation” is needed, which he defined as risk management that strikes the proper balance among economic, social, and environmental impacts. Smart regulation requires collaboration to identify the risks, assess them, propose mitigation strategies, test the strategies, and translate the results into regulatory language to establish a level playing field for all in the
industry. He said this is normal practice in private contracting. What makes it so difficult when the public is the other contracting party is that both actual risk and perceived risk are important, and the latter drives public opinion and public policy. If there is a tremendous information gap between actual and perceived risk, he cautioned, we cannot get to smart regulation. To close that gap requires collaboration and risk communication. Boling concluded by saying that only with smart regulation can public trust be won.
Goldstein commented first on issues of trust and transparency. In a recent study he did of people who believe shale gas development is harming their health, he found that many complain about noise, smells, and the like, but most of them also raise trust issues: “they lie to us,” “no one answers the phone,” etc.
Goldstein focused most of his comments on the difficulty of governance in this particular industry. One challenge is that failures are not recognized immediately, as they are with an oil spill or a disaster in the nuclear power industry. Many public concerns about shale gas are with more insidious effects such as cancer. Moreover, the effects may be mediated by so many different media that monitoring of the causes is very difficult.
Another challenge is the diversity of the actors, along with the problem of subcontracting, which make it hard to determine who is responsible for any effects. The RFF study listed 264 risk items, and these need to be considered in relation to the very large number of actors who might be responsible. Goldstein said that FracTracker data on 36 companies showed great differences among companies in the rate of infractions, suggesting a safety culture issue. If safety culture is a major problem, it would also show up in differences in worker health, but the structure of the industry, with contractors, subcontractors, and temporary workers, makes it hard to track worker health in this way. He said more transparency is needed on these data and on the chemicals themselves. Even though Colorado and Pennsylvania require disclosure of fracking chemicals, there is an exemption in Pennsylvania for flowback fluids that come up from underground but that the companies did not put there. Goldstein saw this as a reversion to the “bad old early days” of environmental regulation. Not telling people what is in the flowback fluids makes the industry look as if it is not transparent, he said.
Finally, Goldstein made the point that the companies with strong safety cultures are the ones that allow monitoring. He suggested that
because of this, available data likely give an unrepresentative and probably overly favorable view of the whole industry. This possibility, said Goldstein, implies that an effective monitoring approach will have to include a fair amount of government oversight.
Sinding focused on two themes in her comments. One was the avoidance of fossil fuel lock-in, which she sees as a major governance issue that requires serious critical thinking that is not happening at either federal or state levels. In her view, the prospect that shale gas will displace or delay the transition to a lower-carbon economy implies that more should be done than just strengthen policies on energy efficiency and renewables; governmental intervention will be required at the federal and international levels. She found the idea of putting severance dollars into energy efficiency and renewable energy exciting but said it probably will not be enough. The bottom line, as she saw it, is that if all the shale gas is developed and all the money for infrastructure is sunk into this development, the risk is being locked into a medium- or long-term energy future dominated by fossil fuels, which is not an acceptable outcome. Even though natural gas is a relatively clean-burning fuel, and even if the methane emissions are captured, Sinding argued, the worst predicted climate impacts will not be avoided. Thus, she disagreed with the view that natural gas is a panacea for our climate problems, as some in the federal government propose. She urged the workshop participants to take this up as one of the major governance issues that must be addressed.
Sinding’s second theme was that respect toward American democratic principles should be a cost of doing business for this industry as it is for other industries, including the clean energy industry. She emphasized that this industry is not regulated like other industries: it has special exemptions from some federal environmental laws; it uses eminent domain; and it benefits from legal primacy of minerals estate over surface estate, forced pooling, lack of public access to information, and lack of procedural transparency. All these special treatments put oil and gas development on a different playing field from other industries. Many of them are of long standing and unlikely to change soon, she continued, but the degree of local governmental authority is still in flux. There are takings issues that will make it impossible for local governments in some places to “just say no.” But in New York, where development has not started yet, Sinding said that local government has been able to get ahead before takings issues arise. She argued that municipalities should have broad authority to regulate where and, within reason, how shale gas development should take place. The desire to get it out of the ground should not
trump deeply held democratic principles, she emphasized, adding that, as Charles Davis’s presentation had suggested, these principles can coexist with the desire for development. Sinding concluded by saying that many of the comments responding to the elicitation presented at the start of the workshop reflect a lot of chafing by stakeholders about these issues.
Christopherson said that these two workshops represent what, in her view, the National Academy of Sciences was created for: to address complex public policy issues in order to improve the quality and legitimacy of decision making. She sees them as providing a very important national service. She added that the workshops have changed her perspective somewhat. They demonstrated the necessity of looking systematically at the entire development cycle, from sourcing of sand to transport of products across the country and for export. These considerations imply that impacts occur distant from where extraction is occurring and that this is a national issue, involving up to 33 states directly and other states indirectly through transport of materials, water extraction and disposal, and migration of human populations.
She said that a systematic perspective also requires analyzing the development process over time, including attention to boom-bust cycles and long-term and cumulative impacts on everything from long-term land use patterns in Fort Worth to long-term public health impacts. She said that the workshop led her to recognize that shale gas requires concern at the federal as well as at the state and local levels and to accept a need for federal regulation: “We need a policy that is more systematic than ‘all of the above’.”
Rabe offered three observations. The first concerns the distribution of costs and benefits. He found it interesting that some of the most promising ideas about using revenues from shale gas development to compensate affected communities have come from New Brunswick in Canada and from Europe but not from U.S. states. He said that four U.S. states will get at least a billion dollars in shale gas revenues this year, but in all cases, the money will be used for general state purposes. Transfer of funds for compensation deserves much more attention, and in Rabe’s view, has been a missed opportunity both for improving the human condition and for building political consensus.
Rabe also raised questions about the federal government role, especially because of cross-border concerns among states. He asked rhetori-
cally if we are prepared to take off the table the issue of whether the current roles of states and the federal government are adequate to the need, just because it has been almost impossible to approve any federal environmental legislation over the past 25 years. He suggested that more thinking is needed about what serious regional governance would look like.
Finally, Rabe expressed gratitude to the organizers of the workshop for the great rigor and integrity of this process. He said that all the social sciences are needed to address the issues of shale gas development, and that they need to “bring their A game.” By contrast, many of the available publications are not peer-reviewed, he said, and some authors have failed to reveal conflicts of interest, thereby tarnishing the reputations of social science research fields that are much needed going forward. He concluded by saying that the National Academy of Sciences needs to do more along these lines and that doing so will help the nation move forward in constructive ways.
The workshop chair, Mitchell Small, opened the floor to brief final comments, summarized below, from any of the participants present.
Standards and liability. A participant asked Boling to comment on the possibility that setting standards and best practices in the industry creates a standard for liability litigation and therefore acts as a kind of governance. Boling said that it would be little solace to a landowner to have the right to sue if a company trashes his property. In his view, if these standards raise the bar, so be it. He would rather have damages be prevented than resolved by lawsuits.
Research ethics. Konschnik commented on the need for standards of research ethics in an area like this, in which the industry supports much of the research. She called for ways to quantify the quality of the research. She mentioned a practice at the University of California, San Diego, of pooling research funds from various sources so that investigators do not know where their particular funds came from. Rabe said there are lessons from public health and medical sciences, where there are extensive provisions for disclosure and data archiving that can be adapted in this field. He also suggested an explicit effort to develop a code of ethics. He said that severance taxes and other such sources could fund pools for research funding and establish rules for funding the research. Christopherson pointed out that foundations and other nonindustry funders often have policy agendas today, so they should be included in discussions about research ethics. She said that nonindustry funders may not realize that
they may get better policies by asking neutral research questions, rather than those driven by their policy agendas.
Next steps. Goldstein strongly expressed his opinion that, notwithstanding the value of these two workshops and a previous one organized by the Institute of Medicine, a broadly framed consensus study should have been undertaken to make recommendations on shale gas development. The chair concluded the workshop by noting that the workshops’ proceedings will remain publicly available, there will be a published workshop summary, and the organizing committee will be preparing a special issue of the journal Environmental Science & Technology that will include papers developed from these workshops. In his view, the workshop has succeeded in meeting its goals of clarifying the mechanisms and state of knowledge about risk governance for shale gas, identifying potential enhancements to risk governance, and providing workshop participants with new insights and contacts to help them better understand and consider risk governance options. He expressed the hope that the participants and the workshop products being developed will help disseminate what had been learned and also that an appropriate sponsoring entity will support a consensus study that will allow this progress to be further advanced and disseminated.
In this section, the rapporteur organizes the presentations and discussions at this workshop under several broad themes. One recurring theme was that shale gas development is proceeding faster than systems to manage the associated risks. Several participants at the workshop identified challenges for risk management that they believed were important. Several also suggested what they saw as potentially valuable opportunities to explore and consider in future discussions about the development of shale gas resources.
Issues of trust. Distrust of both industry and government appears to be a major challenge for risk management. Many public concerns (for example, in responses to the elicitation prior to Workshop 1, as well as in multiple comments from presenters and participants) relate to what are seen as greedy corporations, inadequate regulations, inadequate information, unfair legal regimes and distribution of risks, and inadequate public participation. A number of workshop presenters and participants identified strategies for addressing the trust issue. Many involve imple-
menting principles of precaution, transparency, and consultation, such as have been promulgated in the European Union (see the presentation in Workshop 2 by Elizabeth Bomberg). Opportunities that were mentioned include enhanced information disclosure, monitoring, and risk analysis via independent third-party institutions; joint fact-finding activities; implementing credible methods for compensating losers in the development process; and organizing public consultations in advance of legislative and executive decisions that provide for meaningful two-way communication, as advocated in previous National Research Council (1996, 2008) studies.
Risk management by governments. Several presenters and participants identified fragmentation of authority as a major challenge for risk management by governments. In the United States, the shale gas industry is exempted from several federal laws that govern other industries, a situation that delegates risk management responsibilities largely to state and local governments. Finding an appropriate and effective balance and distribution of governance responsibilities thus becomes a major challenge. Some workshop participants suggested that the best opportunities for negotiating an effective balance are in states where shale gas development has not yet begun. Others noted that the regional nature of many of the risks (e.g., water and air quality) presents a major challenge for both local and state governments, whose jurisdictions are determined by political boundaries. As several presentations and discussions illustrate, some emerging regional planning and governance units and regional centers are attempting to address these challenges and may provide useful models and lessons.
Another major challenge that was repeatedly noted is that many of the state and local agencies with risk management responsibilities are viewed as lacking capacity in the form of adequate staffing, funds, and expertise to anticipate, monitor, and regulate the risks. This challenge, several participants said, is compounded by increasing pressures on governmental budgets, the widely dispersed nature of shale gas extraction, and limited data on emissions and risks. A number of workshop participants identified several possibilities for addressing the capacity issue at the state and local levels, including using permitting fees or severance taxes to fund and train state and local risk management staff and finding volunteer partners (e.g., local citizens who could monitor emissions if provided with reliable equipment). It was also suggested several times that the federal government could help by collecting available scientific knowledge in an easily accessible form; training state environmental employees; harmonizing measurement approaches; and providing databases to enable uniform data collection across states about gas development activities, emissions,
impacts, policies, and lessons learned. Another point expressed by multiple participants is that heterogeneity among states in both resources and governmental structures nevertheless presents serious challenges for risk management.
Many of the participants suggested ways governments might act to support nonregulatory risk governance. Governments might, for example, require insurance for operators in the industry or support a liability regime for risk management by such methods as establishing disclosure rules, strict liability rules, higher bonding requirements, and shifted burdens of proof. Another suggestion was that market-based risk management approaches involving severance taxes and impact fees and markets based on air and water quality measurements are worthy of more careful consideration.
Risk management by nongovernmental entities. Particularly during the second workshop, several participants discussed the potential to improve risk management through voluntary self-regulation by the industry and stronger cultures of environmental protection in individual companies, both of which, according to several presenters, could in principle supplement governmental action or even proceed in advance of it. A number of participants believed such voluntary approaches have been effective in some industries. In the shale gas industry, according to several participants familiar with the industry, increasing public attention to the risks has raised concern in some companies that their reputations might be tarnished by bad actors, providing an incentive for action by groups of companies independent of government regulation. However, a number of participants noted that effective voluntary action may be difficult because of the prevalence in the industry of very small companies and the roles of service companies that are not highly visible but undertake many of the risky activities. Also, these efforts may face problems of trust. Developing strong organizational environmental protection cultures remains a challenge: several participants with relevant expertise offered reasons they thought it unlikely that these would become widespread in shale gas development firms in the near term.
Other challenges and opportunities. Integrating the management efforts of public, private, and nonprofit entities emerged in numerous comments as both a practical necessity and a major challenge. One view expressed at the workshops is that global risks of shale gas development, primarily related to locked-in dependence on fossil fuels and consequent climate change, pose management challenges that rise above national governments and require serious attention. Several participants identified a major opportunity for addressing many of the above challenges by using
impact fees, severance taxes, or other taxes on shale gas development to manage the risks by funding monitoring and regulation, compensating affected parties for harm, and investing in low-carbon energy options. Until now, these taxes have been mainly used for general revenue and, according to some workshop participants, have not been set at the appropriate levels or distributed in the appropriate ways to address the risk management challenges.
Research needs. Many of the participants identified research needs that they believe could make important contributions to public understanding, risk management policies, and public trust. Some of the efforts suggested would build on expanded third-party monitoring and uniform data collection to improve understanding of the effects of shale gas development and the various kinds of risk it poses. Other efforts would examine the effectiveness of various data and information systems, risk management policies, and methods of collaborative decision making on managing the risks and earning trust.