States Peering Over the Fence on Fracking Rules

Pennsylvania eyes its neighbors, and vice versa, for guidance.

The drilling rig of Cuadrilla Resources explores the Bowland shale for gas, four miles from Blackpool on January 17, 2011 in Blackpool, England. The rig is the first in the UK boring exploration holes 4000 feet deep to see if it is economically viable to extract the reported substantial natural gas from the shale deposits beneath the Lancashire coast line. In the United States, up to 45% of its gas market comes from shale gas. (Photo by Christopher Furlong/Getty Images)
National Journal
Jason Plautz
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Jason Plautz
April 16, 2014, 1:53 p.m.

The nat­ur­al-gas boom that has taken the coun­try by storm has also taken states by sur­prise.

Gov­ern­ment with little ex­per­i­ence in the re­l­at­ively new hy­draul­ic frac­tur­ing pro­ced­ures are scram­bling to fig­ure out how to reg­u­late the air and wa­ter pol­lu­tion that comes from frack­ing. So, like all good neigh­bors, that’s left them peer­ing over the fence to see what policies are com­ing from oth­er state­houses.

It’s even got some push­ing for the state gov­ern­ments to work to­geth­er on reg­u­la­tions, taxes, and de­vel­op­ment.

“To some de­gree, states kind of end up com­pet­ing rather than co­oper­at­ing,” said Shar­on Ward, ex­ec­ut­ive dir­ect­or of the Pennsylvania Budget and Policy Cen­ter. “We think it really in­creases the lever­age and bar­gain­ing power of the gov­ernors if they’re work­ing to­geth­er. They can set stand­ards that will bring in ad­equate rev­en­ue and pro­tect the en­vir­on­ment.”

Ward’s group is one of six pro­gress­ive or­gan­iz­a­tions in­volved in the Multi-State Shale Re­search Col­lab­or­at­ive, which in­cludes groups in New York, Ohio, Vir­gin­ia, and West Vir­gin­ia. Those states share the rich Mar­cel­lus and Utica shale re­sources, al­though their reg­u­lat­ory ap­proaches are wildly dif­fer­ent. Ohio, for ex­ample, re­cently ad­op­ted rules to lim­it emis­sions from oil and gas wells, ones that neigh­bor­ing states don’t share. Pennsylvania boasts of hav­ing no sev­er­ance tax on drillers, giv­ing it a lower bur­den than some of its neigh­bors.

And New York has a tem­por­ary hold on frack­ing en­tirely un­til the state com­pletes a study of its health ef­fects.

It’s due in part to com­pet­i­tion to bring in the most busi­ness, but it’s also be­cause the fed­er­al gov­ern­ment doesn’t have na­tion­wide rules in place. That’s left states to deal with it on their own and to con­tend with the unique is­sues each one’s re­sources bring.

The re­search col­lab­or­at­ive for now has been study­ing is­sues and case stud­ies across the six states, com­par­ing statewide ap­proaches and ex­plor­ing how gov­ern­ments could work to­geth­er. That’s be­com­ing in­creas­ingly im­port­ant as more stud­ies are done in­to the air and wa­ter im­pacts of frack­ing.

“Our states bor­der each oth­er, our rivers feed each oth­ers’ reser­voirs. We share the shale plays and share a lot else in terms of geo­logy,” said Wendy Pat­ton of Policy Mat­ters Ohio, one of the groups in the col­lab­or­at­ive. “Our polit­ic­al bound­ar­ies don’t define where the im­pacts end.”

The dif­fer­ences between them are of­ten most vis­ible when it comes to the way they tax drillers. Pennsylvania, for ex­ample, leans on an im­pact fee, while West Vir­gin­ia has a 5 per­cent sev­er­ance tax on­line. Ohio has pro­posed a 2 per­cent ex­trac­tion tax on every 1,000 cu­bic feet of gas.

That’s led to a pro­pos­al to put those three states un­der the same tax scheme, with a re­gion­al 5 per­cent sev­er­ance tax to re­duce com­pet­i­tion and bring some reg­u­lat­ory cer­tainty. Three of the groups in the re­search col­lab­or­at­ive pitched the idea in a let­ter to the states’ gov­ernors last month.

“All the states are hav­ing con­ver­sa­tions about a sev­er­ance tax, so it really would make sense to have a com­mon policy across all three states,” said Ward, whose group is one of the three in­volved in the let­ter.

“The de­bate ends up be­ing kind of a race to the bot­tom, where they say if you have a high rate the drillers won’t come. So let’s just take that ar­gu­ment away and have a com­mon tax rate and struc­ture,” she ad­ded.

It’s un­likely such a pro­pos­al would have a real­ist­ic polit­ic­al fu­ture — states see a lower tax rate as a way to at­tract drillers and Pennsylvania Gov. Tom Corbett has been hes­it­ant to even con­sider a sev­er­ance fee des­pite ap­peals for the state to draw more from the gas boom.

But when it comes to the en­vir­on­ment­al reg­u­la­tions, there is more room for over­lap as states look to mit­ig­ate the air and wa­ter con­cerns as­so­ci­ated with frack­ing. Reg­u­lat­ors say that they’ll of­ten look at what their neigh­bors are do­ing both for guid­ance and to make sure it’s keep­ing the state on pace with its peers.

Un­der Pennsylvania’s Ex­ec­ut­ive Or­der 1996-1, all state agen­cies must identi­fy “any re­quire­ments that would place Pennsylvania at a com­pet­it­ive dis­ad­vant­age com­pared to oth­er states.” That has par­tic­u­larly in­formed the state’s pro­posed rule-mak­ing on oil and gas wells, a spokes­man for the state De­part­ment of En­vir­on­ment­al Pro­tec­tion said, adding that the primary fo­cus has been on rules in West Vir­gin­ia and Ohio that cov­er sim­il­ar geo­lo­gic­al and geo­graph­ic con­cerns.

“Over­all, DEP’s reg­u­lat­ory pro­cess and the state’s oil and gas pro­gram reg­u­larly in­ter­acts with oth­er states for the pur­pose of en­sur­ing we are for­ging the best reg­u­la­tions pos­sible,” said DEP’s Lisa Kasi­anow­itz.

James Mar­tin, chief of the oil and gas of­fice for the West Vir­gin­ia De­part­ment of En­vir­on­ment­al Pro­tec­tion, like­wise said that he’s of­ten in touch with rep­res­ent­at­ives from oth­er states for tech­nic­al ad­vice on rules.

“You’re al­ways in a po­s­i­tion to bounce ideas off each oth­er and learn what’s go­ing on in oth­er states,” Mar­tin said. “The oil- and gas-pro­du­cing states, we all know each oth­er and see each oth­er at meet­ings or on con­fer­ence calls and what­not.”

So, for in­stance, when Ohio ad­vances air emis­sions rules on gas drilling, its neigh­bors are no doubt watch­ing. The state’s rules this month made it the third state to go ahead with air rules re­lated to frack­ing, after Col­or­ado and Wyom­ing. Matt Wat­son, who dir­ects state pro­grams on nat­ur­al gas for the En­vir­on­ment­al De­fense Fund, said that typ­ic­ally cer­tain gas-rich states will take the lead on rules with oth­ers fall­ing in line soon after.

“Pennsylvania tends to be a state that people keep an eye on be­cause their de­vel­op­ment star­ted earli­er and really went gang­busters,” Wat­son said. “They had to play catch-up the first two or three years, but now they tend to have a lot of know­ledge. When I look at Pennsylvania and Ohio, there’s a lot of eye­balling that goes on back and forth across the Ohio River.”

Pennsylvania, he said, was out ahead of some com­par­able states on is­sues like wastewa­ter re­cyc­ling and trans­port­a­tion and well blo­wouts. The ex­per­i­ence ne­ces­sit­ated that it be­come a na­tion­al lead­er on the tech­no­logy and policy for deal­ing with the is­sues.

But re­l­at­ive to oth­er states, Pennsylvania has lagged on air rules, though the state’s Bur­eau of Air Qual­ity has been work­ing to tight­en its guid­ance for drillers and has dis­cussed leak de­tec­tion policies. With Ohio mov­ing ahead, Wat­son said he’d ex­pect to see Pennsylvania watch­ing the rules play out with a healthy dose of com­pet­it­ive spir­it.

“Every state wants to claim that its got the strongest rules or among the strongest in the na­tion,” Wat­son said. “When you’ve got Ohio next door and you’ve got Col­or­ado and Wyom­ing over there do­ing something else that you’re clearly not do­ing in Pennsylvania, it’s tough to make those claims. That can cause reg­u­lat­ors to move.”

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