Quantifying the Impact of Regulatory Stringency in the Hydraulic Fracturing Industry

Abstract

Hydraulic fracturing (aka “fracking”) has become an increasingly large part of the U.S. energy landscape over the past decade, providing increased domestic gas resources alongside rising concern over how the industry operates. Given the numerous exemptions the industry has from existing federal regulation, individual states are left to design and implement their own regulations governing the industry. While each state has its own regulatory environment, scarce research exists examining the effectiveness of fracking regulations. Given the varied regulations in each state, it is important to establish a means of quantifying and comparing these different regulatory approaches. Ranking the stringency of each state’s fracking regulations and evaluating the relationship between stringency and environmental and safety outcomes provides a framework for making these important comparisons and determining regulatory effectiveness. To explore the relationship between stringency and outcomes there were two primary hypotheses tested. First, that increased overall regulatory stringency has reduced environmental incidents and safety violations over time from fracking. Second, that increased regulatory stringency for quantitatively measurable regulations has also reduced environmental incidents and safety violations over time from fracking. These quantitative regulations are four categories of regulation covering the entire end to end process of fracking (site selection & preparation, well drilling, wastewater storage & disposal, and accident reporting) and I created a one to five Likert-style scale to rank the stringency of each state within these categories, as well as in the aggregate. I collected data on accidents and citations from OSHA and well production and enforcement data from the EIA for twenty-seven states and combined them into a singular data set alongside my Likert rankings to test the hypotheses. The statistical analysis of this data and the Likert scales (both linear regression and rank order correlation) provided some evidence in support of the primary hypotheses, both in the aggregate and within specific categories, as well as other interesting findings about the role of regulators in driving improved outcomes. These results demonstrate that increased stringency is relevant to improving outcomes, as accidents per 1000 wells has a strong inverse relationship with aggregate stringency Likert rankings and that relationship strengthened over time. Citations per 1000 wells exhibited a strong inverse relationship with accident reporting Likert rankings as well. However, these were the only significant results pertaining to aggregate stringency or quantifiable stringency within the categories, which is why the hypotheses are only somewhat supported. Additionally, the results illuminated a strong relationship between improved outcomes and the number of regulators in a state, as well as the number of active wells, indicating that regulatory enforcement and appropriate regulator workloads are strong indicators of improved environmental and safety outcomes in the fracking industry. Both citations and accidents per 1000 wells demonstrated a significant positive relationship with the number of regulators over all three years. Any state or policy maker looking to improve environmental and safety outcomes in the fracking industry should consider hiring more regulators, increasing the stringency of the regulations, or both based on these results.