Fracking Externalities and the Coase Theorem

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 then curves 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.[i] The folks at the NY Times have got some great graphics that explain it.

There are many potential externalities 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 has trapped 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.[ii] 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.[iii]

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 to faucets 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 come into 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 of economics 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 of the wastewater is granted to the drilling company. The burden of treating the radionuclides, should they exceed regulated levels, is on the drinking water utility.  Coase would argue that the water utility could negotiate with the drilling company (or the wastewater treatment plant) to reduce the radium that is discharged, maybe by offering to pay for a program to recycle some of the wastewater or paying for additional treatment at the wastewater facility.  The drinking water utility would choose to do that if those options were less expensive than treatment options at the drinking water plant.  Alternatively, if the property rights to radionuclide free water were assigned to the drinking water utility, the drilling company or the wastewater plant could negotiate with the water utility to accept higher levels of radium in exchange for compensation to cover the additional treatment costs.  The drilling company and/or wastewater plant would do this if those options were less expensive.  Coase’s insight was that as long as property rights are well-defined and transactions costs are low, the parties can sort this out amongst themselves and the government need not get involved.

Notice that the Coasian solution to this problem existed only in the shadow of regulation–the radioactive wastewater imposed higher costs on the drinking water utility because they had to meet the EPA standard.  However,  in PA the radium standard for drinking water has essentially been nullified. PA water systems are only required to test for radium every 6-9 years and many drinking water facilities downstream of wasterwater plants accepting fracking waste have not been tested since 2005.[iv] We really don’t know how much of the radioactivity from the fracking waste might be making its way into drinking water supplies.  Maybe dilution in the river is sufficient to lower radioactivity to levels acceptable by regulation.  Maybe not.  But perhaps it is time to enforce our existing environmental laws so that we can at least find out.

Discussion questions:

  1. In the absence of a binding EPA standard for radium, how well do you think the Coase Theorem will work?
  2. What would be involved in a non-governmental solution to the radioactive waste problem in the absence of direct drinking water regulation?
  3. Are there any positive externalities associated with fracking?  If so, what are they?

[i] Kerr RA (2010) Natural gas from shale bursts onto the scene. Science 328:1624–1626.

[ii] Urbina, Ian “Regulation Lax as Gas Wells’ Tainted Water Hits Rivers,” New York Times.  February 26, 2011.  Available at: http://www.nytimes.com/2011/02/27/us/27gas.html?ref=drillingdown.  Last accessed, September 1, 2011.

[iii] ibid

[iv] ibid.

24 Comments

  1. Cooper Rosin

    Without a regulation standard on fracking byproducts such as radium in wastewater, it would take substantial and vocal disapproval from stakeholders to minimize the threats. The bottom line in these cases would not be the health and safety of the community or the perceived danger of radium, but simply the cost efficiency of extracting natural gas. Because radium and other byproducts don’t affect this bottom line, they would not be addressed at the expense of profits, save for a public outcry. The problem, then, is the paucity of informed consumers with the wherewithal to demand safe practices. I’m an environmental master’s student and I had barely even heard of fracking before reading up. What’s to stop bad practices, then, if there are no regulations in place? I’m afraid that following Coase would leave us with a bad taste of radium in our mouths.

  2. Jessica Lam

    Given some basic assumptions, the Coase Theorem has the potential to be an efficacious solution to this issue. Keohane and Olmstead identify underlying assumptions regarding the Coase Theorem, so if these issues are addressed, along with a few additional ones, then this situation could be remedied by the Coase Theorem. The identified underlying assumptions are that bargaining must be easy and inexpensive and that deals need to be easily enforceable. It is evident to see how these conditions are not always met in real world situations. Bargaining is time consuming and companies must pay consultants and employees to draft contracts/deals. In addition, upholding contracts can be lucrative and companies may be dishonest. So, under the condition that these basic assumptions, as identified by Keohane and Olmstead, are appropriately addressed then the Coase Theorem can have an influential role despite the absence of an EPA standard.

    The next logical step is to consider the steps required to address the radioactive waste under a non-governmental solution. As an environmentalist by training, a slew of issues come to mind. First, a safe human level of radium would need to be declared, both acute and chronic exposure. After this, the finger pointing needs to be agreed upon: who will be responsible to make sure the water quality is safe for human health? Among these issues, there needs to be complete transparency and information sharing among ALL involved parties.

  3. Daniel Church

    Without the EPA regulating the amount of picocuries per liter of radium in drinking water (which would occur under a President Bachman), it seems very unlikely that the fracking companies, wastewater plants, and water utilities would negotiate terms, as would be done under Coase Theorem. And even if they did negotiate, it seems far more unlikely that they would do so and set an amount of radium at or below current EPA standards. Even with the social marginal cost associated with radium in drinking water, the effects of radium in drinking water would not affect the average consumer of the water utility for many years, probably decades.

    A non-governmental solution would seemingly have to involve negotiations between the wastewater treatment plant, the natural gas companies, the water utility, and the citizens in the area to come to a compromise as to what the adequate amount of pollutant would be.

    The positive externalities with fracking include increased average income and the number of jobs in the areas being drilled. Many of the areas currently being fracked (Pennsylvania, West Virginia, Texas, Arkansas) have very low standards of living. The introduction of jobs for natural gas will both provide more, higher paying jobs. This will, in turn, help improve the education systems, thus producing more kids going to college, thus producing more people in the area with higher paying jobs.

  4. Elspeth Wilman

    I don’t think I have ever heard of a real life example of the Coase Theorem working without some sort of governmental regulation. The fracking companies are only concerned with their bottom line and without some sort of incentive they are not going to put the time and resources into negotiating a reduction of radium levels. Radium is purely an externality for them and they are operating in more or less a free market. The government needs to impose some sort of fines and sanctions on them or they will have no reason to limit their contamination.

    In fact, I don’t think that regulations on the levels of radium in drinking water are enough. Fracking releases all sorts of toxic chemicals, including arsenic, which go not only into the water table but into the air and soil as well. But what makes regulation particularly difficult is that fracking companies are not required to release the composition of the fluids they inject into the wells because they are considered trade secrets. How can you regulate for contamination when you don’t know what the contaminating substance is?

  5. Aimee Jia

    I don’t think the Coase Theorem will work very well in this case. Based on this article, exposure to radium in drinking water is associated with increased cancer risk. However, nobody could define this risk. Even if a few years later, more people develop cancer, still, it would be hard to tell whether cancer is caused by radium in drinking water. Therefore, the deal between the drilling company and the drinking water company will most likely benefit themselves instead of the residents, because they would accept the highest levels of radium they could to avoid additional costs. And the residents could do nothing about it because there is no relative regulation.
    The positive externalities of frackling would most likely be environmental benefits since frackling is a high-tech method of extracting natural gas that was not accessible. And natural gas, compared to coal, petroleum and diesel, is a cleaner energy source. Therefore, indirectly, frackling could be beneficial for the energy and environment issues.

  6. Yifei Qian

    Without a binding EPA standard in this case, Coase Theorem definitely cannot work. Supposing the right to dispose water belongs to the drilling company, and it release wastewater that exceeds normal level, the water utility will never take the trouble to negotiate with it; If the right belongs to the utility, then the utility won’t invest in extra facilities to remove the redioactive elements simply due to lack of legal standards.

    Non-government involvement could be effective in the following ways: 1) NGO can expose the radioactive release of certain company to the public. This would damage the public image of the company, and thus influence its stakeholders, maybe causing some fluctuation in the stock price of the company. I believe any big company will be aware of such public image and thus adopt some feasible measures to mitigate the negative impacts of radioactive contaminants. 2) NGO can organize local residents together protest against the drilling company, and also provide legal services for local residents if they are physically impacted by the radioactive contaminants.

    As for the positive externalities, I agree with Daniel’s comments on providing job opportunities, increasing income and thus improving education. Another externality I have thought about is the potential energy cost reduction for a wide range of industries. As stated at the beginning of the blog, people in environmental world everywhere is talking about fracking. Why this issue has been so heated? In my opinion, this increasing interest in fracking should result from the lower price of shale natural gas than other energy alternatives. Recently I just learned from the EIF lectures that shale gas production has increased 14-fold and now comprises 22% of U.S production. To some extent, fracking does have positive externality of assuaging the energy intense and lower national import needs, which also increase the national security level.

  7. Sugandha Chauhan

    From the example given in the blog it can be seen that Coase Theorem is fairly dependent on the enforcement of EPA standards to be effective in controlling discharge of radium with wastewater. In the absence of such standards, Coase theorem might still work if presence of radium in water affects the efficient working of the drinking water treatment system in the long run. Also, prolonged exposure of customers to radium contaminated water may lead to dissatisfaction with the drinking water facility which will eventually cause losses to the facility. Thus, drinking water facility will be forced to control the concentration of radium in treated water which may lead to negotiation with the fracking company.

  8. Morgan Fleming

    So as a brief point of clarification, PA’s DEP put monitoring stations in place in November and December of last year to monitor radium levels downstream of plants receiving flowback fluid. The first report of levels, in March of this year, by the DEP showed water quality was in compliance at those stations. I don’t have time to do more follow up research on this, but it appears the issue as been monitored for nearing a year now and no problem has been reported. (http://www.pennlive.com/midstate/index.ssf/2011/03/radium_tests_contradict_new_yo.html)

    I don’t have anything more to add on the point of the Coase Theorem being applied in this case except that both parties could still reach an agreement over levels of reduction without an EPA standard. They may not have any idea what the “safe” level is for acute and chronic exposure, but they could still get to “efficient” given the information that would be available to them. Namely, that info would be what current levels are and what the abatement cost curve is for each additional unit of abatement.

    By the way, anybody can view the blog, but only we can see and post comments.

  9. Terrence Molinari

    Before diving into some of the discussion questions I think it is important to just highlight the amount of water actually being pumped through pipes to fracture the rocks (up to 10’000 feet deep). The usage varies with depth, but if we looked at the Marcellus Shale deposits in the North East, United States estimates vary from 2,00,000 – 9,000,000 gallons of water. Of this amount it is estimated that nearly 2,000,000 to 4,000,000 gallons of water comes out of the wellhead (http://marcellusearthfirst.rocus.org/?q=node/3). As Doctor Bennear pointed out, this fluid contains hazardous chemicals and dangerous radioactive material known as radium. This means that millions of gallons of water must be treated and cannot just be dumped into the watershed. Currently this water is being trucked to water facility sites (protocol in P.A) where current equipment is not outfitted for treating radium. Given that fracking has picked up drastically in the past couple of years, water facilities have yet to conduct the mandated inspections every several years or so.
    The Coase Theorem can be applied to this issue of radium going through water treatment facilities but I would have to add to it. Coase believes that the ability to define property rights would lead to increased compliance. In my opinion this is accurate but why would these water facilities want to take ownership of this contaminated water? If the oil companies bought the water from the local municipality, used it and corroded it than wanted sold it back to a facility that cannot process it, is simply illogical. Coase would point out that the oil companies should be responsible for cleaning the water, whether they pay the treatment facility more to clean it or do it themselves would be up to them. I think regulation is needed for oil and gas companies; specifically gigantic fines and loss of drilling permits for lack of responsibility in water usage management.
    Here is a non-market intervention that could possibly work. If these water treatment facilities are being burdened by contaminated water they should band together and come to an agreement that they will no longer accept the ownership of cleaning it, especially if the radium turns out to be to high in their mandated tests several years out. This would force the oil and gas companies to be more aware of their operations because the cost of cleaning the water is now in their hands. Maybe a new system would be developed to process the water on site so it can be continually reused or cleansed.
    The standardization of the oil and gas fracking industry would provide positive externalities though increasing environmental safety for the local communities. Furthermore, there would be a large boom in employment. This is key because the United States desperately needs to get their citizens back to work to pick up our slugging economy.

    • Morgan Fleming

      Terrence, property rights in this case would not be expressed as ownership of the water, per se. Rather, it would be expressed as a “right to pollute” the water. If municipalities or waste water treatment plants owned the right to pollute the water, then drilling companies would be forced to come to them and purchase pollution rights. If companies owned the right to pollute, then the municipalities would have to go to the companies and pay them not to pollute.

      The price that is paid, in the absence of an EPA regulation, would be determined by the municipality’s degree of risk aversion and how steep the marginal cost curve for abatement is. The more risk averse the municipality is and the steeper the cost curve is, the higher the price will be, regardless of who is paying it.

      If the notion of the municipality selling the right to pollute doesn’t make sense, think of it like this: They will set the price to produce x units of pollution based on how much it costs them to clean up x units (plus some, if they are good negotiators and it doesn’t break the driller’s bank).

      Some more numbers, for those who are interested in that sort of thing: 99.5% of the fracking fluid is water and sand, leaving only a fraction of a percent for all the nasty chemicals (which still can be pretty nasty at that concentration, especially to aquatic life). For the Marcellus Shale, water usage for fracturing is between 3 and 5 million gallons per well. Already, in the past 4 or 5 months since I was last heavily working on this issue, recycling of frack fluid has improved from near none to most places recycling 60-100% of the water they use (a win for innovation and tech advancements). (http://marcelluscoalition.org/marcellus-shale/production-processes/fracture-stimulation/)

      Lastly, for those who aren’t aware, NC has a shale deposit in it that is known to contain gas. There was recently a strong push in the state legislature (in the form of attempted veto overrides) to legalize fracking in the state (old turn of the century laws currently prohibit it). At present, DENR has been allocated funds and ordered by the legislature to study the potential impacts of fracking in the state. That study is due to be completed…. early next year?

      At any rate, the spirit of that bill was to see *should* NC legalize fracking (in other words, can we do it safely? I’ll dare say most environmental groups in the state can live with fracking in NC, if not support it, if we are fully satisfied it can be done safely). Another bill that almost passed this summer would have taken a worse approach: “we are going to do it, so best should it be done.” Fortunately, it was vetoed and the veto-override attempt failed.

  10. Jianming Qin

    I think the Coase Theorem is too ideal to solve this problem without the EPA drinking water standard for radium because the negotiation among the drilling company, the wastewater plant and the drinking water plant seems impossible to happen. If they are rational enough and not compelled to maintain the quality of drinking water, they probably would not do anything to increase their costs. Only if residents in this region are also among the negotiation and they are powerful enough to defend their benefits may a solution be approved in the negotiation. However, since the residents are always not informed with the exact amount of radium in their drinking water, the Coase Theorem seems useless in this situation.

    Therefore, resident representatives or NGOs working for protecting residents’ health and rights should be involved in a non-governmental solution to this problem and they should be strong enough to affect the process and result of the negotiation as an important role. But without corresponding governmental policy to regulate other parties’ behavior, it might be difficult to work out.

    As for positive externalities associated with fracking, I think extracting natural gas by this high tech method can avoid pollution caused by using original technologies, which actually increases the environmental benefits to a certain extent.

  11. Emily Gilbert

    It is necessary to have access to safe drinking water. To fulfill this necessity, the people of a country will enter into a ‘social contract’ with a governing agency (such as the EPA), allowing that agency to regulate the quality and access to safe water. This agency is responsible for setting standards and requiring compliance with those standards. The failure to fulfill these responsibilities puts thousands at risk, and betrays the authority originally granted (such is the case in Pennsylvania now). The failure to regulate is not intentional negligence, but rather a discrepancy between the regulating policies (i.e. radionuclide treatment) and the practice being regulated (i.e. fracking).

    If Coase’s Theorem were in effect, the free market could more promptly and correctly solve the discrepancy. According to EPA regulation, it is the drinking water facility that would typically incur the costs of disposing of excessive radionuclides during treatment, but this is not necessarily the equilibrium where social welfare is maximized. Since regulation is, by definition, an interference with the mechanisms of the free market, maximization of social welfare may not be met, (as it otherwise would be). According to Coase’s Theorem, the firms concerned with the radionuclide externality (i.e. the wastewater treatment facilities, drinking water facilities, and drilling companies), would be compelled to clearly define property rights, liability, responsibility of compliance, etc. by means of negotiation. The EPA’s only job would be to set the radionuclide safety standard. Between the firms, several negotiations are possible, but all would have the bottom line of doing the least cost option (not the bottom line that regulatory agencies are usually concerned with), hence attaining the social welfare maximization by producing at the point where marginal costs equal marginal benefits. Negotiations may even result in availability of safe drinking water decreasing while price increases, but this would be the true maximization of social welfare, so it should be permitted. Theoretically, if fracking firms performed in a free market, maximal social welfare would be met with better success than with third party interference; they would have greater efficiency because their bottom line it to always equate marginal benefit with marginal cost.

  12. Jiaxi Wang

    Coase Theorem will not work or at least not work well in the absence of EPA standard for radium. In Coase Theorem the property rights are well defined, but in this case even if we define the right to treat wastewater I don’t expect a compromise between water utility and the drilling company. To reach a compromise they need enough information about the radioactive radium and the health of residence. It is related to cancer risk. It demands years of time to figure out the excact relationship. So there will be no clear quantitive buttom for the negotiation. Here I think EPA is not playing a role of regulating. Actually it provides some key information to two parties by which they can easily come to a compromise. Indeed we can regard the standard as regulations or rules, but we should also know the rules can be negotiated either though rules are hard to compromise.
    So I think EPA in this case, when we apply Coase Theorem, reduces the transactions costs. Then the answer for the second problem is some entities who will be able to reduce the transactions costs. The may not using a mandatory way (this way is always effective so we need goverment). I think they should be at least some authority in this area.
    The externality I think is attracting other related industries and raising income, employment and so on.

  13. Vanessa Ramirez De Arellano

    In the absence of a binding EPA standard for radium the Coase Theorem would not work because there is a lack of initial incentive for both the fracking and utility companies. With no stringent enforcement on radionuclides, the utility companies would have no incentive to notify their customers of certain levels and furthermore have no incentive to lower the levels of radionuclides in their water supply. With this lack of incentive the utility has no reason to negotiate with the fracking company and they can both keep their costs at the baseline without doing any radionuclide clean-up.

    The non-governmental solution to this problem would need to involve a sense of awareness and negotiation between both the utility and fracking companies as well as the citizens. The public must first be informed of what the levels of radionuclides in the water are as well as what some of the consequences of those levels are predicted to be. Then, the citizens could negotiate with both companies to establish acceptable levels of radionuclides. However it is important to consider that a compromise of this nature is generally more logistically complex than a government regulation.

    Some of the positive externalities that result from fracking are a decreased dependence on foreign oil as well as the creation of jobs. Like any new industry, especially in the energy sector, the area of fracking will create many jobs. A lot of fracking occurs in rural places and thus it could create jobs outside of the typical urban job markets. But perhaps the most crucial positive externality to consider when talking about fracking is our relationship with foreign oil. The amount of natural gas available in the United States could significantly decrease our dependence on foreign oil. Given our current relations with many oil-rich nations this could have implications for our war effort and our national defense.

  14. Junghwa Kim

    For the question on this blog “Without government intervention, two sectors of the market, suppliers and customers are willing to pay for external costs through negotiation?”, I think the Coase theorem is too idealistic to answer the question. Because it neglects the problems of the real life that nobody wants to pay negative externalities volunteerly and they want to take an advantage as a free-rider. Even though he assumed there are some benefits through bargaining, there should be mutual marginal benefits among relevant sectors and no losers. And I think there might be positive externalities related to fracking. I recently joined energy workshop and heard that a company initiated to invent high technology to trap fracking when they drill to extract natural gas with supports of government funding. The company has a positive externalities such as obtaining government funding, benefits from patent of innovative technology for trapping fracking.,

  15. Tony Shirk

    Addressing environmental problems through markets occurs through the exchange of property rights and reliance on common-law courts, as maintained by the Coase Theorem. Unfortunately, as in this particular case, those whom increased radium levels in water directly affect are unfit to adequately exert legal suasion. Due to practically unmeasurable adverse health effects in the short term and more visible long-term consequences of high radium levels in drinking water, it is unlikely that the public can provide evidentiary support to summon court backing in an organized manner. Therefore, in the absence of a consistent, indisputable and enforceable benchmark set by the EPA, the Coase Theorem proves defective.

    In the absence of drinking water regulation and government intervention, a market solution would likely ensue. For a market to function properly, property rights must satisfy two conditions. They must be well defined and defendable in order to properly calibrate for increased radium levels in water. Property rights must be defined. Before purchase, land (whether it is owned by a private individual, treatment facility or corporation) should be surveyed and boundaries recorded in a local government office so that any dispute with respect to property infringement can be easily resolved. Rights must also be defendable by the court system. Without court backing, the owner’s property (and potential health) will be at risk if boundaries are crossed (i.e. if there is a spillover effect of pollution).

    Positive externalities of fracking include the following: reduced reliance on foreign energy supplies with increased domestic energy production (national security), jobs created and maintained at fracking sites, and technological advancement and enhanced understanding of fracking processes to improve overall efficiency (and cleanliness) of natural gas extraction.

  16. Jeremiah Jolley

    Even with EPA regulation on radium standards, there seems to be severe loopholes, at least in PA, in the enforcement aspect of abating pollution from natural gas extraction. Why would water utilities and gas companies actively cooperate in lowering radium content in water supplies on their own volition and bill when they can get away with higher concentrations of radium even when there is regulation? Without government oversight, the incentive to increase marginal costs would simply not be there…at least in the short term. Perhaps, if unchecked and simply ignored, radium concentrations could increase so much as to produce significant human health issues in watersheds surrounding fracking wells. Dramatic rises in cancer rates could lead to strong public outcry, lawsuits, or possibly more stringent regulation than currently exists. This could in turn stronghand the players involved to cooperate in a Coase Theorem manner.

    Positive externalities from fracking could be seen from outside the current threat on those locals affected by increased drinking water contaminants. A surge in supply from natural gas as an energy source could lead to more independence from traditional and foreign fossil fuel. Natural gases burn more efficiently and produce less carbon emissions than petroleum. More jobs could be created and private landowners could profit from allowing gas extraction leases on their property.

  17. Sarah Dallas

    Without binding EPA regulations regarding safe levels of chemicals in drinking water, there would be no incentive for the water utility, wastewater treatment plant, or the drilling company to invest money and effort in reducing the radioactive radium found in water. As in many similar situations in the past, the mining company would essentially turn a blind-eye to what it was emitting into the waterways, and the wastewater treatment plant and the water utility, which would have no reason to test the water, would not know what, if any, chemicals were in the water, or at what levels. Consequently, although Coase would argue that the three actors involved in this situation would be able to negotiate amongst themselves the costs associated with reducing the radioactive radium in drinking water without any government regulation surrounding the issue in place, the Coasian solution to this problem would not work. This is because, in the absence of government regulations regarding safe-drinking-water standards, none of the three have any serious incentive to address the issue. It is governmental regulation that forces the three actors to address the issue of who should bear the burden of paying to remove the radioactive radium from the waterways. Apart from governmental regulation, I believe the only way the three actors would ever address the issue of radioactive radium in drinking water, would be if they were confronted with a strong enough public outcry to force the water utility to take a closer look at what chemicals were present in the water, and at what levels. That outcry also would have to be backed by the threat of a lawsuit or other action, and be ongoing, and would require enormous effort on the part of the public in order to be taken seriously and addressed.

    A non-governmental solution to the radioactive waste problem would likely begin with citizen outcry and a group of citizens banding together to publicize the issue of the pollutants in the water. In order to make any real headway on the issue, the citizen group would likely need the help of NGOs and lawyers to force the mining company, wastewater treatment plant, and water utility to take notice of the problem and take steps towards reducing the radioactive radium in the drinking water. Certainly the threat of a lawsuit, or other political actions, such as broadcasting information about the situation might help. However, without an entity that will monitor the situation over the long term, it would be difficult to sustain pressure on these companies. Assuming it was possible to maintain pressure, or to monitor compliance with an agreement for removal of radioactive radium, or with a court order directing such removal, the mining company, wastewater treatment plant, and water utility would then have to negotiate among themselves to determine the stage at which the water should be treated to remove the radium, which entity is responsible for removing the radium, and which is responsible for testing to ensure that it has been reduced. They then should determine who will bear the financial burden of purchasing, installing, and operating the process to remove the radioactive waste.

    Although I personally dislike the idea of fracking, there are some positive externalities involved with it. As more mining companies begin fracking there will be an increased number of jobs available in the industry. Additionally, since the United States has laws concerning safe-drinking-water, as more people become concerned with the possibility of having radioactive waste in their drinking water, water utilities will likely have to test more often for radium and establish a process for reducing the radium that is found in water. This too will lead to the creation of more jobs. Moreover, as certain fossil fuels, such as oil, run out, the ability to switch to natural gas, which is plentiful, could help to avoid an energy crisis. Furthermore, natural gas is a cleaner to burn than either oil or coal. Thus, it use could help to reduce some of the current negative environmental impacts associated with energy use.

  18. Angela Vasconcellos

    Not only do people not know about fracking but it is still amazing to me how uninformed people are about their own drinking water and how information about what is actually in it is not readily available. Most people in this country take safe drinking water for granted and never question that what is coming out of the faucet is actually harmful. Even when people use filters for drinking water it is mostly about taste, not safety. I think that a lot of people are counting on regulations to take care of it for them and make the water safe, it is scary to think that the regulations are not working and people are just assuming they are.

    I think that this is an example of a type of freerider problem, even when we pay for water (which a lot of renters don’t actually do). I think that too often people don’t actually think about the value of safe drinking water and that it is actually worth significantly more than what we pay for it.

  19. June Reyes

    Without a binding and enforceable standard for radium levels from the EPA it is too difficult to define the externality of the wastewater– both negotiating parties do not have enough information to come up with an optimal solution.

    Coase’s theorem suggests that externalities can be negotiated to a socially optimal amount if property rights are well defined. In the context of fracking, it is difficult to negotiate to achieve a Coasian solution because the negative externality of higher levels of radium is not clearly defined– basically, without testing the water, there is no way to understand the negative externalities associated with fracking wastewater. However, if the water were tested by the EPA and this increased the cost of water treatment to the water utility– I believe that is likely that the water utility could negotiate with the fracking company to lower radioactivity levels in water so long as the cost to not follow the law is higher than the cost is to negotiate.

    A Coasian solution to this problem, however, emphasizes that regulation isn’t necessary to solve this problem. I believe regulation wouldn’t be necessary only if we had clearer understandings of the effects of the levels of radioactive wastewater had on human health. However, that is not the world we live in, and the truth is that there are so many varying factors that will contribute to how the radioactive wastewater would affect a person that regulation is necessary.

  20. Kealy Devoy

    There are several positive externalities associated with fracking. Widespread adoption of fracking will increase the supply of natural gas, which would drive down the price. Depending on the level of market penetration, fracking could help natural gas-fired power plants achieve grid parity with coal-fired power plants. This would facilitate a switch from coal to natural gas, a much cleaner-burning fuel. Burning more natural gas and less coal would decrease greenhouse gas emissions and reduce air pollution. As mentioned above, there are also economic benefits like job creation and increased tax revenues.

  21. Nora Stabert

    As a Pennsylvania resident, the issue of hydraulic fracturing is of particular interest to me. I have concerns about the quality of my drinking water, as well as a strong belief in the potential of this new technology. Natural gas burns cleaner than fossil fuels and is an abundant domestic energy source (http://www.naturalgas.org/environment/ng_industry_environment.asp) not to mention would provide jobs for the residents of the Keystone state. Not only will we benefit from the positive externalities of natural gas (ie pollution abatement, less smog, etc), but the United States also gains a political advantage from a switch to natural gas in the global energy market.

    The real debate comes from the issue of factory wastewater. Based on Coase theorem in the absence of regulation and as long as there are clearly defined property rights, the hydraulic fracturing factories and water treatment facilities can strike a deal. Let’s say the property rights were properly defined. For example, the hydraulic fracturing factory had the right to pollute and public water had the right to be polluted. The bargaining process would start off favoring the factory. The hydraulic fracturing factory does not have the transaction costs or the issues associated with public collective action – the government is our solution. The government will impose regulations/provide representation for the public to ensure that the water quality is up to standard. With regulation, problems with public goods such as “free-riding” are dealt with. Coase theorem works only under the assumption that bargaining is easy and inexpensive, which is not the case for PA water treatment.

  22. Yunzhong Chen

    Since Coase Theorem only works when there’s no transaction fee, by well distributing the property right we can eliminate the externalities. Once the EPA standard is nullified, no one except us consumers would care the quality of drinking water. The drilling companies will keep transporting wastewater to wastewater plants, then to drinking water utilities, the property rights to radionuclide free water make no sense by then. Even if there’s no transaction fee, Coase Theorem will not work at all.

    A non-govermental solution to this problem might do something with the property right. Non-government organizations should help the drilling company, the wastewater plant and the drinking water utility figure out who actually own the property right to radionuclides free water. Plus if there will be some negotiations between them,non-government organization also should help them reduce their transaction fee.

    Admittedly we don’t know much about the consequence fracking might bring us, it does have some positive externalities. More jobs related to fracking will be available, a cleaner form of energy source will be used more frequently, etc.

  23. Liz Bloomhardt

    Recent news on the regulation of Fracking by EPA: http://www.businessweek.com/ap/financialnews/D9QG86OO0.htm

    Sometimes the Coase Thm is not enough, and a regulatory role for gov’t becomes clear.

Leave a Reply