A recent article in The Wall Street Journal noted that there is a lobbying fight brewing over a congressional effort to regulate the oil-and-gas industry practice of hydraulic fracturing, or “fracking,” in which water and chemicals, including various toxic substances, are pumped into drilled wells to create fissures in rock formations, freeing up trapped energy resources for extraction. Both sides have rolled out their traditional appeals: the oil-and-gas folks argue that additional regulations equal added costs that cut into consumer surplus, while environmental groups present warnings about potential externalities that result in an efficiency cost to society when not taken into account.
Those mantras are well-known. What are not completely understood are the risks associated with fracking because, as the article mentions, “… no large-scale studies have been done, leaving [the groups] to battle over anecdotal cases.” Anecdotes are not exactly the best foundation for economic analysis. The problem here is that if the federal government does not acquire the detailed scientific information necessary to evaluate the risk—as opposed to individuals or state governments that may not have the capacity or funds for adequate studies—there is a real chance that over-regulation could occur, and society will find itself expending too many resources to alleviate a minor risk or to diminish a risk beyond a point that is economically feasible in light of diminishing returns. Conversely, the research may reveal elevated risks that bolster the claim that the states are under-regulating, thus making the case for upped standards or more direct federal intervention. Either way, good information is crucial to crafting sound economic and government policy. (And it sure would be nice to have a more complete picture of what exactly is in “fracking fluids,” too. You know, just in case they, well, turn you yellow.)
Then again, it costs money to do scientifically-based risk assessments. And why not spend those resources on something like a multi-million-dollar lobbying and public-relations effort? The American oil-and-gas industry might want to take some cues from its counterpart in Australia if it’s looking for an idea for a soothing, tranquil advertisement:
Those mantras are well-known. What are not completely understood are the risks associated with fracking because, as the article mentions, “… no large-scale studies have been done, leaving [the groups] to battle over anecdotal cases.” Anecdotes are not exactly the best foundation for economic analysis. The problem here is that if the federal government does not acquire the detailed scientific information necessary to evaluate the risk—as opposed to individuals or state governments that may not have the capacity or funds for adequate studies—there is a real chance that over-regulation could occur, and society will find itself expending too many resources to alleviate a minor risk or to diminish a risk beyond a point that is economically feasible in light of diminishing returns. Conversely, the research may reveal elevated risks that bolster the claim that the states are under-regulating, thus making the case for upped standards or more direct federal intervention. Either way, good information is crucial to crafting sound economic and government policy. (And it sure would be nice to have a more complete picture of what exactly is in “fracking fluids,” too. You know, just in case they, well, turn you yellow.)
Then again, it costs money to do scientifically-based risk assessments. And why not spend those resources on something like a multi-million-dollar lobbying and public-relations effort? The American oil-and-gas industry might want to take some cues from its counterpart in Australia if it’s looking for an idea for a soothing, tranquil advertisement:
See, don’t you feel better already? It got your mind off of the risks that may or may not exist with regard to the chances of sipping, say, some benzene in your water as a consequence of fracking, right? Although, now one probably can’t help but wonder about the risk of unmanned hot air balloons sweeping across the landscape and invading city centers and neighborhoods.
Post by Matthew Zawadski with support from Paola Durango.
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