Regulatory Fracture Plugging

Debates about the desirability of widespread shale development have highlighted outstanding uncertainty about its health, safety, and environmental impacts—most prominently, its water-contamination risks—and the ability of current institutions to deal with these impacts. States, the primary regulators of oil and gas extraction, face pressure from the energy industry, local communities, and, in some cases, the federal government to strike the right balance between energy production and the health and safety of individuals and the environment—an elusive balance given the ongoing risk uncertainty. This dynamic is not especially unique to fracking, or even oil and gas extraction; instead, this dynamic, characterized by tradeoffs between environmental protection and economic development under risk uncertainty, is a common theme of environmental risk regulation. Regulators at every level of government weigh and evaluate potential interventions against this background. This Article contributes to a symposium held at Texas A&M School of Law that explores the advantages and disadvantages of various government interventions in the environmental context in an effort to identify ideal risk-management tools under various circumstances. It argues that the most important considerations for identifying risk-management tools in the environmental context are risks, incentives, and cost-benefit analysis. These cornerstone principles provide a useful framework for environmental policy in general, especially in situations that involve heterogeneous and uncertain risks. By paying attention to risk, incentives, and cost-benefit analysis, government regulators are more likely to promote optimal levels of environmental quality and avoid unintended, or even perverse, consequences. To demonstrate the usefulness of these concepts concretely, this Article applies them to the fracking context, focusing on the most prominent risks from widespread shale development, risks to water from shale gas extraction. It identifies risk-management gaps in tort litigation, insurance markets, and regulation schemes and suggests potential solutions.