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Economics commentary 2
Number

Title of Extract Fracking externalities and the coase theore


Source of Extract New York Times

Date of Extract September 5, 2011

Word Count 741

Date commentary 29/09/2011
Was written

Section of the Syllabus Externalities
To which Commentary Relates

Candidate Name Roberta Werthein

Candidate NumberFracking Externalities and the Coase Theorem
On September 5, 2011, in ENV270, by Lori Bennear, Ph.D.
Everywhere you turn these days in the environmental world, people are talking about fracking.  Fracking is short hand for hydraulic fracturing, a high tech method of extracting natural gas from shale located 1000s of feet under the earth’s surface. Basically, they drill a vertical well which thencurves and goes horizontally, sometimes over a mile from the actual well-head.  The entire pipeline is cased in cement and then high pressure fluids—water, sand, and other things—are pushed down the well causing fracturing in the shale.  These fractures release the stored natural gas into the well. The folks at the NY Times have got some great graphics that explain it.
There are many potentialexternalities associated with fracking.  An excellent analysis of potential externalities from methane contamination of groundwater by Osborn, Vengosh, Warner, and Jackson, all from Duke, can be found in this paper.  Today’s blog will focus on a different aspect of the fracking debate—the negative externalities associated with radioactive wastewater.
As it turns out, the rock formation that hastrapped centuries old supplies of natural gas also contains radionuclides like radium.  Some of the hydraulic fluid that is pumped into the well to open the fractures is lost to the rock formation, and some comes back up as wastewater.  That wastewater contains elements from the rock formation including radioactive materials.
What happens to the wastewater?  In most states it is injected underground. In Pennsylvania however, underground injection in not a viable option.  In that state, up to half of it gets trucked to wastewater treatment facilities where it is treated and then discharged into local waterways. But those wastewater treatment facilities were designed to treat the pathogens and contaminants that come from your household wastewater—the water from your toilet, shower, dishwasher,and washing machine.  They are not required to treat for radionuclides and are typically unequipped to do so.  The fracking wastewater is treated and discharged into the waterbody, potentially with significant radioactivity remaining.
Meanwhile downstream there is often a drinking water intake pipe.  That drinking water is further treated and tested for a variety of contaminants and sent tofaucets in homes.  EPA has drinking water standards for radionuclides including a standard of 5 picocuries per liter (pCi/L) for radium.  EPA has standard for radium because exposure to radium in drinking water is associated with increased cancer risk.  If a community water system violates the radium standard they have to notify their customers. Furthermore the utility has to figure out a way to comeinto compliance, which generally involves more expensive treatment.
Time for some economics.  In last week’s post I argued that economists don’t think free markets can solve environmental problems and we needed regulation.  So far, nobody has called me on that one.  Probably because this is an environment school and I’m preaching to the choir.  But, it turns out, that there is a strain ofeconomics dating back to 1960s that argues regulation is not always necessary.  The economist who first articulated this argument was Ronald Coase and he eventually won a nobel prize for this research.  Coase would argue that if property rights are well-defined, the actors in my stylized fracking example could sort the problem out themselves through negotiation.
Let’s imagine that the right to dispose...