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Energy Blog

US Chamber of Commerce Blog

Sean Hackbarth An oil drilling rig outside Williston, N.D.An oil drilling rig outside Williston, N.D. Photo credit: Daniel Acker/Bloomberg.

On the value of the Interior Department’s redundant hydraulic fracturing regulations, National Review writes that it boils down to this: Who should regulate hydraulic fracturing? State regulators who understand the unique geographies of their states and have shown they can effectively do it; or bureaucrats tucked away in offices in Washington, DC?

For the Left, regulation that does not come from Washington is substandard. Politico cites environmentalists who dismiss the current arrangement as a “patchwork.” Vox calls current regulation “patchy and inconsistent” and frets that rules “vary from state to state.” Vox, which boasts that it is guided by evidence and empiricism, never even bothers to ask whether it might in fact be preferable to have rules that vary from locality to locality since — this also apparently is beneath consideration — the underlying geology varies from locality to locality, too. West Texas is not very much like Pennsylvania or the southern tier of New York, a petroleum-rich and economically depressed area in which modern techniques of gas extraction are categorically banned by edict of Governor Andrew Cuomo, another Democrat willing to hamstring the economy in the service of courting ill-informed environmentalists.

Experience has shown — in Texas, in Pennsylvania, in South Dakota, and beyond — that state regulators are very much up to the task, and that they are much better positioned to take account of local conditions than are bureaucrats at the BLM or the EPA, who are mainly interested in local conditions in the District of Columbia.

This same trust in states is shared by former EPA Administrator Lisa Jackson:

States are stepping up and doing a good job. It doesn’t have to be EPA that regulates the 10,000 wells that might go in.

It’s also the opinion of the White House Council of Economic Advisers:

The regulatory structure for addressing local environmental concerns, especially around land and water use, exists primarily at the state and local level.

(They should chat with the Interior Department.)

And as this Congressional report shows, states have successfully regulated hydraulic fracturing for decades.

While National Review's editors make good points, they miss a major one. It's not state OR federal regulations; it's state AND federal regulations. The Interior Department spells this out [emphasis mine]:

Operators with leases on Federal lands must comply with both the BLM’s regulations and with state operating requirements, including state permitting and notice requirements to the extent they do not conflict with BLM regulations.

The new regulations do not alleviate an energy developer's ‎existing responsibility to the state, but it will duplicate its efforts for federal regulators. 

Americans are saving billions of dollars each year because of shale energy boom. What they don’t need are duplicative federal regulations that will squelch these gains.

Sean Hackbarth Dollar billsPhoto credit: Scott Eells/Bloomberg.

The New Republic is no fan of hydraulic fracturing. However, they published a piece by staff writer Danny Vinik making the case that the energy production technology is “good for American consumers.”

Vinick writes about a Brookings Institution paper by economists Catherine Hausman and Ryan Kellogg that found the shale boom drove natural gas prices down 47%. This had led to significant increases in consumer welfare:

They found that “the shale gas revolution led to an increase in welfare for natural gas consumers and producers of $48 billion per year.” That’s equal to about one-third of 1 percent of GDP, or $150 per capita. “If that doesn’t convince you [that it’s a lot],” said one participant made anonymous under Chatham House rules, “use Washington accounting and call it half a trillion dollars over 10 years.”

For instance, Hausman and Kellogg found that “residential consumer gas bills have dropped $13 billion per year” because of hydraulic fracturing.

brookings_shalegas_prices.jpg Brookings Institutions chart shows that as hydraulic fracturing grows, natural gas prices fall.Brookings Institutions chart shows that as hydraulic fracturing grows, natural gas prices fall.

The Hausman and Kellogg determined what parts of the country have benefited the most:

Looking specifically at regional effects, one would expect colder states that use natural gas for space heating to be the area to benefit most from shale gas. Yet the authors find that the area to reap the most gain is West South Central (Arkansas, Louisiana, Oklahoma and Texas) at $432 per person in consumer benefits, followed by East North Central (Illinois, Indiana, Michigan, Ohio, and Wisconsin) with $259 per person in benefits. The area to gain the least is the Pacific (California, Oregon and Washington), but consumers there still benefited to the tune of $181 per year.

They also find that American manufacturing has been helped:

[T]hey find that gas-intensive manufacturing has indeed experienced an expansion of activity as a result of the shale boom, with the most pronounced effect in fertilizer manufacturing – the most gas-intensive sector of all.

Investors Business Daily takes its analysis of the Brookings paper a step further by linking it to other related research:

Another study by John Harpole of Mercator Energy in Colorado finds that because the poor spend far more on utility bills than do the rich as a share of their incomes, "the poor benefit far more than the rich from the shale oil and gas boom."

Harpole finds in his study that the fall in natural gas prices from 2007-12 translated to gains to poor households multiple times larger than the value of the $1 billion a year the feds throw at the Low Income Home Energy Assistance Program. In other words, the best way to keep the less fortunate warm in the winter is by allowing shale oil and gas drilling.

Both these analyses put the Interior Department’s newly proposed hydraulic fracturing regulations on federal lands into context. As Mark Green from Energy Tomorrow writes:

The reality is that state regulatory regimes and the officials who oversee energy development in the respective states are doing a good job – as was noted by former EPA Administrator Lisa Jackson when she was still in the administration. These regimes are tailored for each state’s geology, hydrology and other physical characteristics. Overlaying them with a federal rule could mean duplicative regulatory hoops for operators to hop through, unnecessarily delaying operations and driving up costs.  

The result of these redundant rules will be an unnecessary slowdown of the shale boom which Americans will notice with their emptier wallets.

Sean Hackbarth Senate Majority Leader Mitch McConnell (R-Ky.)Senate Majority Leader Mitch McConnell (R-Ky.). Photo credit: Andrew Harrer/Bloomberg.

Here’s a link to the letter from Senate Majority Leader Mitch McConnell (R-Ky.) to every state governor urging them to not submit state plans that adhere to EPA’s carbon regulations—its “Clean Power Plan” (CPP). This letter has gotten leaders like Gov. Jerry Brown (D-Ca.) into a tizzy.

Here are some excerpts:

1. The CPP doesn’t conform to the law

Some have recently suggested that failing to comply with the EPA’s requirements would be to disregard the law. But the fact is, it is the EPA that is failing to comply with the law here. By requiring states to submit a plan aimed at achieving a lower emissions target based upon four so-called “building blocks” — (1) improved power plant efficiencies, (2) switching electricity generation sources, (3) building new generation and transmission, and (4) reducing demand — the EPA is overreaching, as its authority under the Clean Air Act extends only to the first building block related to source specific energy efficiency upgrades.

2. EPA’s plan runs into a legal wall

As Professor [Lawrence] Tribe has noted, the Clean Air Act not only fails to authorize the EPA’s plan, it forbids it. Professor Tribe recently called the EPA’s plan “constitutionally reckless”, saying it “usurp[s] the prerogatives of the States, Congress and the Federal Courts — all at once.”

3. The CPP would be especially costly to those who can least afford it

The CPP would impose the greatest hardship on low-income families, including those with a fixed income and those dependent on Social Security. A recent study by National Economic Research Associates (NERA) found that under the EPA’s proposed plan, double-digit electricity rate increases are projected for 43 states, and the costs could total nearly $479 billion over 15 years nationwide.

4. EPA's massive regulation will have no effect on the problem it claims to solve

The EPA’s stated rationale for attempting to shut down America’s coal-fired power plants is to combat global climate change. Yet, this costly effort is largely symbolic unless and until other major nations impose similar requirements on their own economies. Even then, the EPA admits that the “climate” benefits of the CPP cannot be quantified and has refused to estimate the impact it would have on global temperature or sea levels.

5. EPA wants to rush the CPP through

As others have suggested, the EPA’s deadlines were very likely designed to force states to develop and submit implementation plans before the courts can decide on the legality of the CPP. Their hope is that states will commit to these plans before serious legal questions are resolved. This in itself should be a sufficiently compelling reason to deny the EPA’s request. Given the dubious legal rationale behind the EPA’s demands, rather than submitting plans now, states should allow the courts to rule on the merits of the CPP.

6. Submitting a plan will expand EPA’s authority over state resources and leave them vulnerable to lawsuits and “sue and settle” agreements

[S]ubmitting a plan exposes states to the real danger— allowing the EPA to wrest control of a state’s energy policy if they or any other federal agency becomes dissatisfied with a state’s progress in reaching federal emissions goals. As both the EPA and other environmental groups have noted, a state plan must be “federally enforceable.” The meaning of this language is clear: as the EPA sees it, a state-issued plan would give the agency broad new authority to control that state’s energy future — not to mention the ability to place the blame for future consequences squarely on the state itself.

EPA's carbon regulations are a bad idea. It will mean higher electricity rates, fewer jobs, and a less-reliable power grid.