Last year Bill McKibben published a fine essay at the New York Review of Books summarizing his opposition to fracking. He noted three environmental problems with fracking that aren't being addressed by current industry practice:

(1) damage to wells in the vicinity of fracked wells
(2) damage to the water supply downstream from fracked wells and wastewater (and from massive water consumption)
(3) greenhouse effect of methane leaks

To summarize - he stated that his thinking about fracking had evolved.  So that while a few years ago he (and other environmentalists) had sort of favored fracking because of lowered carbon dioxide emissions (when compared to other fossil fuels), he was now worried enough about the greenhouse effects of methane leaks (as well damage to water supplies) to now oppose the practice.

The New York State legislature is now debating allowing fracking in some parts of our state.  Having watched "Gasland" I'm really not so sure that it is a wise idea.

But I also sense tremendous economic pressure on Albany to allow some fracking here. So if it must be done then I'd like to suggest an alternative regulatory scheme that might motivate better (from an environmental vantage) practice and so minimize watershed damage.

Would it make sense to require fracked well operators to purchase "Watershed Insurance"?

How might Watershed Insurance work?

a. Water samples would be needed from nearby wells and other water sources before drilling begins.  (The number of samples needed isn't clear.)

Water samples should also be taken downstream from fracking wastewater sites.  Policies would cover those as well.

b. Drilling companies would purchase an insurance policy for the benefit of well owners and downstream water consumers.  This is not like standard corporate  liability policies. The beneficiaries of the insurance would not be the operator.  Instead the policy would pay directly to neighbors who are harmed by this risky activity. These beneficiaries might be landowners, or local water boards and water utilities.

c. The policy would pay to provide perpetual uncontaminated water in the quantity lost.  

d. I'm not aware of long term studies of the reversibility of poisoned watersheds. If a water well is damaged, perhaps the damage would correct itself in some period of time after the drilling has ended. Or perhaps the driller can correct the leak.

e. The policies should provide for partial rebates to drillers if no proximate leaks are found after the end of drilling operations. The rebates could be paid over time.

f. The driller would be required to provide samples and chemical analysis of their fracking mixture to policy writers and state regulators.

Advantages of Requiring Watershed Insurance

a. The main advantage of requiring Watershed Insurance is that the "Burden of Proof" is shifted.  As things now stand, a landowner (and state and Federal regulators) can bring a civil suit against a well operator.

The "Energy Policy Act of 2005" largely exempted frackers from the Clean Water Act.  Federal regulation is minimal. Each state is left to its own devices.

It is hard for (underfunded) state regulators and/or injured neighbors to "prove" that increased contamination is a result of any  particular well.  The drilling occurs thousands of feet below the surface and perhaps miles away; drilling companies avoid disclosure of the mixture of chemicals they use. (They claim the formulas are "proprietary" but that just seems to be a legal defense against giving evidence). Landowners may not have analyses or samples predating proximate fracking.  And legal representatives of the drillers always want any settlement to be confidential.

So - even if some potable source near a well (or wastewater treatment site) is suddenly poisoned - it is difficult and expensive to show that a well is the source of the contamination.

But if the injured landowners (not the drillers) were instead protected by an insurance policy, they would only need to show that damage has occurred.  They would no longer be forced to re-litigate the difficult question of "proving" that fracking caused the damage.

Insurers would price the policies appropriately.  They would know that new contamination likely came from fracking - though they would have the resources to pursue some other polluter.  All the nonsensical arguments drillers and their shills make would be irrelevant.  All that would matter to the drillers would be  the price of insurance.

Drillers now carry insurance; but they are the beneficiaries.  Their legal teams (and the insurers' legal teams) are paid to sow doubt and confusion.  If, instead, the insurance benefited landowners, we'd be leveling the litigation playing field.

b. This is sort of a neo-liberal appeal to "market forces".  Some conservatives (and insurance companies) might welcome a market approach to the problem of 'social costs'.  (Of course maybe this is just wishful thinking.  Some elected Republicans were once for allowing companies to trade their carbon tax liabilities.  Very few currently elected Republicans voice support for carbon taxes these days. )

c. Drillers will then have stronger incentives for improving the quality of their work. They will want to keep their insurance rates low; they will want to earn rebates for policies written against wells that don't leak.

d. Drillers may need to have a larger amount of capital; larger companies could more swiftly implement sound practices.  Smaller, and perhaps less scrupulous operators would be discouraged from drilling.

e. Insurance companies would actively police the drillers.

f. We'd double the protection for New York City's watershed.  New York State Legislature already seems intent on prohibiting drilling in New York City's watershed.  Requiring watershed insurance simply adds a clearer example of why this prohibition is sound policy: it seems unlikely that any insurance company would ever want to write a policy that might require them to build desalination plants for 20 million people.

g. Managers of businesses in extracting industries prefer to externalize costs.  In other words they don't want their businesses to pay for environmental damage done.  If this works, the model could be adapted to other industries and other states...


This all meant as a suggestion for discussion.  To be clear I'm no expert.  I'm sure I've left something out.

a. This proposal does not directly address methane leaking into the atmosphere.  McKibben notes that atmospheric methane have greenhouse effects 100 times more powerful than CO2 and that this is perhaps the greatest danger from fracking.  But perhaps methane leaks from wells are caused by the same leaks and errors that cause watershed contamination, and forcing increased vigilance would reduce that risk as well.

b. Custody and number of samples.

c. What sorts of capital and reserve requirements should be placed on the insurance companies.

d. Would this insurance be too expensive? I suspect not; drillers must now expect some variable clean-up and litigation costs. This would make that cost more predictable. And some insurers would recognize this as an opportunity to learn about those risks and fashion them into actuarial tables.

Originally posted to rexxnyc on Thu Aug 22, 2013 at 03:21 PM PDT.

Also republished by Community Spotlight.

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