Risks and Risk Governance in Shale Gas Development Summary of Two Workshops (2014) / Chapter Skim
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Workshop 2 Governance of Risks of Shale Gas Development T he 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)
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74 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 75 lic Policy at Carnegie Mellon University. Her research interests include applying behavioral decision research methods to issues of environmental sustainability.
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76 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 77 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.
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78 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 79 how to do this. Zoback focused on four of the recommendations, which bear on governance issues.
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80 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 81 Evaluating and Enhancing the Capacity of the States to Govern Unconventional Oil and Gas Development Risks Presentation by Hannah Wiseman, Florida State University 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.
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82 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT different states. The key, Wiseman continued, is whether all the agencies in a state, taken together, have the authority to do the needed governance.
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WORKSHOP 2 83 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. Discussant Comments, R
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84 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 85 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.
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86 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 87 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")
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88 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 89 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.
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90 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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)
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WORKSHOP 2 91 Discussant Comments, William Lowry, Washington University 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.
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92 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 93 on others. Davis added that in Texas, cities have home rule but counties have very little authority.
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94 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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)
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WORKSHOP 2 95 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.
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96 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 97 Questions and Discussion 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.
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98 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 99 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.
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100 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 101 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.
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102 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 103 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.
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104 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 105 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.
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106 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT cesses sponsored by industry associations, nongovernmental organizations (NGOs) , governments, or combinations of these.
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WORKSHOP 2 107 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.
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108 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT tered in Canada. SWEPI is a subsidiary of Royal Dutch Shell, and EQT is an integrated company that also has pipeline and marketing operations.
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WORKSHOP 2 109 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.
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110 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 111 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.
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112 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT THE POTENTIAL FOR RISK GOVERNANCE THROUGH ORGANIZATIONAL SAFETY CULTURE Presentation by Nancy Leveson, Massachusetts Institute of Technology 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.
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WORKSHOP 2 113 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.
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114 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT "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.
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WORKSHOP 2 115 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.
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116 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 117 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.
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118 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT tal protection. He began by summarizing material from previous NRC reports (National Research Council, 1983, 1996, 2008)
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WORKSHOP 2 119 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.
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120 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 121 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.
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122 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 123 Measuring success. A participant noted the difficulty of measuring the success of public participation.
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124 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 125 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.
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126 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT change their plans. The Department of Natural Resources evaluates the process and the plan, and the Department of the Environment decides on approval.
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WORKSHOP 2 127 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.
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128 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 129 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.
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130 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 131 industry. He said this is normal practice in private contracting.
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132 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 133 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.
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134 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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WORKSHOP 2 135 they may get better policies by asking neutral research questions, rather than those driven by their policy agendas. Next steps.
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136 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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)
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WORKSHOP 2 137 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.
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138 RISKS AND RISK GOVERNANCE IN SHALE GAS DEVELOPMENT 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.
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