NOTE: This column was originally published by The Daily Caller.
“You can’t professionalize if you don’t federalize,” said former Senate Majority Leader Tom Daschle 10 years ago at the creation of the Transportation Security Administration.
He may as well have been talking about the Obama Administration’s new executive order and rules to expand federal oversight to what is now, arguably, the most economic valuable activity in the country. The activity is hydraulic fracturing, also known as fracking, responsible for the historic boom in production of domestic oil and gas.
In mid-April, President Obama issued an Executive Order to create an “Interagency Working Group to Support Safe and Responsible Development of Unconventional Domestic Natural Gas Resources.” The language of the Executive Order about “balancing” production with environmental protection may sound innocuous. “Coordinated federal oversight,” however, naturally morphs into de facto federal control without the legal, and at least justiciable, apparatus of formal regulation.
And note that the President’s Order lifts up natural gas as “a cleaner source of energy than other fossil fuels.” In other words, the war to kill coal and oil will continue, but natural gas will be temporarily tolerable as a bridge to the fuels of the future like algae and spinach.
Perhaps the President did not get the memos from the Sierra Club and the U.S. Environmental Protection Agency (EPA) explaining that natural gas is no longer viewed as a kinder and gentler fuel. Methane, which makes up 70 to 90 percent of natural gas, is a greenhouse gas with more heat-trapping force than CO2. The EPA is even challenging the export of natural gas and coal from U.S. ports because of carbon concerns.
Natural gas producers would be well advised to monitor the plans of this federal task force lest the natural gas bridge becomes a draw bridge.
The natural gas industry doesn’t need federal oversight to “support” production. Soaring production over the last few years has led to a glut of natural gas approaching the limit of existing storage capacity.
The surge of activities may warrant increased regulatory oversight but regulation of upstream production of oil and gas on private and state lands has long been the provenance of state authority. Texas has effectively regulated production since 1919. The Executive Order, indeed, recognizes that the States are the primary regulators except on federal and Indian trust lands, but stresses the federal role in “encouraging greater use of natural gas” and “augmenting State safeguards.”
Would the federal oversight of upstream oil and gas production be more “professional” than existing state regulation? Recently proposed new EPA regulations for fracking suggests the answer is no.
Known in argot of the Clean Air Act as New Source Pollution Standards, these regulations are a historic departure from previous regulation of what were considered de minimis fugitive emissions from upstream oil and gas production. The regulatory architecture of the federal Clean Air Act was designed to address large industrial sources with discrete, relatively steady-state emission points.
To subject the diverse, temporary, variable, relatively small emission sources at a fracking site to the hard-edged limits and record-keeping designed for a refinery, EPA developed a strained rubric to aggregate the multiple but small streams of air emissions in a worst-case scenario.
Professionalism assumes at least some familiarity, if not expertise, with the activity to be regulated. The new fracking regulations, however, reveal EPA’s abject ignorance of oil and gas production and the evolving use of hydraulic fracturing and directional drilling.
For starters, EPA has no idea of the size and diversity of the regulatory universe created by the new federal rules. EPA apparently thinks that fracking is focused on natural gas extraction and always involves horizontal drilling. In Texas alone, 85 percent of all new oil wells use fracturing treatments, and in certain formations the process is applied vertically. According to the Texas authorities, the number of wells fracked in 2010, and thus subject to EPA’s new rules, was a colossal 11,000 geographically dispersed wells – often in remote locations. New wells in Texas since 2010 have been annually increasing by almost four-fold.
EPA apparently thinks the upstream industry consists of a few huge multinational oil corporations and thus that the new rules will not have a significant impact on small business. In fact, small, independent oil companies predominate.
Over 87 percent of the oil wells in Texas produce no more than 15 barrels per day. More than 31 percent of Texas oil wells produce no more than one barrel per day. These so-called stripper wells are typically “mom and pop” businesses. The cost of compliance with EPA’s complex rules would likely end these small operations.
And for the third federalizing measure within three weeks, consider the Department of Interior’s new rules for fracking on federally owned lands. Far broader than EPA’s new regulations, Interior’s rules may well be a blueprint for EPA’s next move on private land.
State authorities are far better situated to get the regulatory job done efficiently. At the state level, regulators can have hands-on familiarity with the diverse upstream industry. Most importantly, most states want oil and gas production to thrive. And this doesn’t mean slack regulations but creative regulatory design that minimizes cost but still achieves the desired result.
Don’t expect the effectiveness associated with professionalism from EPA regulation and a task force of a dozen federal agencies. Expect endless delays, high costs, one-size-fits-all mandates and thus decreased production from the tens of thousands of drilling sites now active across the country.
North America’s energy renaissance should not be left to the same crew of federal professionals that brought us Solyndra.
Kathleen Hartnett White is director of the Armstrong Center for Energy and Environment at the Texas Public Policy Foundation. She was commissioner and chairman of the Texas Commission on Environmental Quality from 2001 to 2007.