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Energy, Industry, and the Countryside

by Michael Levi
July 17, 2013


I’ve argued frequently that shale gas and tight oil development can be done safely, given the right practices and the right rules to ensure that those are followed. Over the past month, as I’ve traveled and talked to people about The Power Surge, I’ve heard one powerful countervailing sentiment several times: Even if fracking is done right, aren’t we talking about the industrialization of the countryside? And is that really something we should accept?

That line of thinking makes me wary for a couple of reasons. But there’s a third way in which it’s compelling — and that points to some gaps in our knowledge that are overdue for serious attention.

The first problem with the “industrialization of the countryside” line is that much of the countryside where development is happening is already industrialized. In some cases, we aren’t talking about countryside at all: on the outskirts of Pittsburgh, for example, we are really talking about the industrialization of exurbia. In other cases, the countryside is already industrialized by factory farming and ranching that bears little resemblance to the pastoral ideal that people fear fracking will wipe out. To be clear, not all cases fall in one of these categories, but many do.

My second source of skepticism has to do with who “we” are. There is something unsettling about relatively wealthy city dwellers (who live in the most industrialized former countryside in the country) insisting that “we” preserve the countryside without (in many if not most cases) much regard for the people who actually live there. A lot of the land that’s being developed for shale gas and tight oil is in places that have experienced economic decay for decades. Farms are underwater; towns are blighted by the decline of traditional industry and an accompanying rise in drugs and crime. Many people in these areas want to allow shale gas and tight oil development. It seems offensive for prosperous elites debating policy from afar to insist that they remain in glorious poverty so that we can experience vistas unmarred by rigs and roads unspoiled by trucks when we take our vacations.

But one can sensibly turn that argument around: Shouldn’t people in areas potentially affected by development also be able to say no if they’d rather leave things as-is? Why should my and others’ concerns about climate change or national security or U.S. economic growth trump their worries about the transformation of their communities?

My strong inclination is to say that they shouldn’t – that communities should indeed have a lot of control. What that would mean, in practice, is something along the lines of what Governor Cuomo floated a while back for New York State: communities could opt in or out of development with a certain threshold vote. Many in industry have argued that such a scheme would kill development not only in places that said “no” but more broadly: by creating a messy and unpredictable checkerboard of areas on and off limits to development, it would wreck the industry’s economics, stopping development. Indeed there might be something unjust in allowing one community to effectively deny an economic opportunity to its neighbors through its own parochial decisions.

It seems to me that resolving this requires thinking carefully about scale. At some scale a “checkerboard” is clearly fine: no one is warning that the moratorium in New York has endangered development in Pennsylvania. There may be another extreme at which intensely dotting the map with off-limits areas makes even most technically in-bounds areas uneconomic to develop. This should all be at least somewhat amenable to technical analysis. How would a checkerboard of bans and approvals at the township level actually affect the economics of development? What about at the county level? Is there another geographic scale that would allow people some degree of control over what happens in their communities without giving them effective veto power over development in others?

Some will say, of course, that no bans or moratoria are appropriate, on more fundamental grounds: people who own private mineral rights should be allowed to do with them what they will. But communities restrict peoples’ ability to exercise their private property rights all the time without much objection: it’s called zoning. The typical farmer isn’t allowed to build a multiplex or a casino on his property; it’s not crazy to imagine his community deciding that he can’t drill oil or gas wells either.

In the end, striking the right balance on these sorts of matters is going to be as important to managing shale gas and tight oil production as traditional air and water issues will be. Ultimately, this is for the political process to sort out, not for technocrats (or analysts) to pronounce definitively on. But some more analysis could certainly help.

Post a Comment 4 Comments

  • Posted by Kevin Doran

    In the West, it gets a little more complicated given our recognition of split estates, where the mineral rights are severed from the surface rights. If a community bans or issue a moratorium on drilling, that action effectively deprives the mineral rights owner from an otherwise permissible commercial use of the land. This is in a system wherein the subsurface is considered the dominant estate, meaning you can’t impede access. This kind of public action would, in other words, constitute a taking. That’s not something that should be done lightly. Zoning doesn’t work as an analogy within the split estate context.

  • Posted by David B. Benson

    I want various environmental concerns seriously addressed. I would like for ethicists to weigh in as well.

  • Posted by Jim Frawley

    The drive for fracking is simply another corporate takeover of limited resources. Very little economic benifit will be derived by the local unemployed in contrast with the vast profits extractors will earn. The corporations which benifit from these practices will not ever have to live with or pay for the environmental damage they leave behind. We continue to confont unforeseen consequences. I do not believe for one second that the profit motive will ever be subservient to good engineering, let alone good citizenship.

  • Posted by JH

    Mr Frawley:

    How much profit is “vast” profit? 🙂 Why do you assume that energy companies make “vast profit”? They don’t.

    Profit margin among the tech giants far outweighs that of the energy industry. In the most recent year, Apple returned a net margin of 26%, while Chevron, the most profitable US major oil company, returned a net margin of under 11%. Google came in at 20%, Exxon at 10%. And these are the best of times for energy companies while they’re relatively hard times for tech. In 2009, Google clocked in a whopping 27% net margin vs Exxon’s 6.7%.

    Moreover, the wealth of company officers at tech companies outweighs that held by officers at energy companies by a factor of 100 or more.

    Over the long run, resource exploration and development is a low-margin, cost-intensive business. That’s there are frequent mergers between energy giants: without them, these companies wouldn’t be able to maintain a reasonable level of profitability.

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