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An institutional theory of hydraulic fracturing policy

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  • Holahan, Robert
  • Arnold, Gwen

Abstract

The use of high-volume horizontal hydraulic fracturing (fracking) has increased substantially over the past five years in the United States. Use of this drilling technology to extract natural gas from hitherto impermeable shale is expected to increase even more in coming decades. Two institutions, integration contracts and well spacing requirements, evolved to mitigate the common-pool economic wastes associated with conventional oil and gas drilling. U.S. regulators have applied these institutions to fracking. However, shale plays differ geologically from conventional plays and are subject to different extractive technologies. We theorize that the point-source pollution characteristics of conventional drilling allowed integration contracts and well space requirements to minimize local negative environmental externalities as an unintended byproduct of minimizing common-pool economic wastes. The non-point source pollution characteristics of fracking, however, make these institutions insufficient to minimize negative environmental externalities associated with drilling in shale plays, because the economic waste problem is different. If policymakers understand the crucial differences between conventional oil and gas plays and shale plays and the drilling technologies applied to them, they should be better equipped to craft fracking regulatory policies that internalize problematic externalities.

Suggested Citation

  • Holahan, Robert & Arnold, Gwen, 2013. "An institutional theory of hydraulic fracturing policy," Ecological Economics, Elsevier, vol. 94(C), pages 127-134.
  • Handle: RePEc:eee:ecolec:v:94:y:2013:i:c:p:127-134
    DOI: 10.1016/j.ecolecon.2013.07.001
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    References listed on IDEAS

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    Cited by:

    1. Philipp M. Richter, 2015. "From Boom to Bust? A Critical Look at US Shale Gas Projections," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    2. Farrer, Benjamin & Holahan, Robert & Shvetsova, Olga, 2017. "Accounting for heterogeneous private risks in the provision of collective goods: Controversial compulsory contracting institutions in horizontal hydrofracturing," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 138-150.
    3. Wheeler, David & MacGregor, Margo & Atherton, Frank & Christmas, Kevin & Dalton, Shawn & Dusseault, Maurice & Gagnon, Graham & Hayes, Brad & MacIntosh, Constance & Mauro, Ian & Ritcey, Ray, 2015. "Hydraulic fracturing – Integrating public participation with an independent review of the risks and benefits," Energy Policy, Elsevier, vol. 85(C), pages 299-308.
    4. repec:eee:enepol:v:114:y:2018:i:c:p:455-464 is not listed on IDEAS

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