Ida Söderlund
Global Economy – Writing Assignment 3
Fracking – Drill deeper and what do you find?
Introduction
Ask yourself, is the planet, as it looks today sustainable for our future generations? Is
the political economy system, as it looks today, with greediness, over-consumption and
maximize profit something humanity should rely on? Will our resources last forever? Or are
we prematurely going to annihilate ourselves, as we desperately try to find new energy
extraction methods as we drill deeper?
Many of us know, that we, the humanity, are living beyond the planet´s means. We are
giving little attention to understanding and respecting the limits of sustainable natural
resource use. This is what Kate Raworth claims in her article “A Safe and Just Space for
Humanity”. She claims humanity for consuming the Earth´s resources as if we had one and a
half planets to draw upon. Governments have for decades failed to distribute natural resources
in an efficient way. Powerful elites and lobby groups are still dominating over interest of
marginalized communities and humanity as whole. (Raworth Kate 2012, p. 6) This is based
on an economic ideology who have persecuted us since the beginning- neoclassical
economic. This philosophy stands for a rational and market driven society. A capitalistic
world there we all have been brain washed to focus on maximizing our own profits. A society
that always aims for economic growth and not always sees to the common good. (Blaug,
Mark 2013)
A bad example is the United State’s natural resource policy – which is controlled by
special interest and permission to give a way mineral right. (Stiglitz 2006, p. 151) This private
ownership includes control of the surface, the subsurface and the air above the property.
(King, Hobart, 2014) The common outcome, especially in the US, is that the owner sell their
land to profit based cooperation’s to gain money. In many cases to drilling companies that
lurk in shale rock formations deep underground looking for natural gas, as called hydraulic
fracturing. (Arpi, Ivar 2014)
Hydraulic fracturing, also called fracking, is a chemical technic use to lurk for natural
gas. I am not for fracking and in this assignment I will dig into this environmental problem
and explain why. I will discuss different solutions to help this political economy issue into the
right direction. My mainly focus will be to create a new taxation scheme for fracking in the
US. I hope this will regulate fracking to a stabile level. To start I will first establish a shared
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Global Economy – Writing Assignment 3
understanding around fracking, its outcomes and its threat for humanity.
Hydraulic fracturing in the Untied States
The US approached hydraulic fracturing in the 1980s, but has its roots in the US since
the 1860s. (Economic boom.., 2014) Fracking is a technic used to get natural gas out by
drilling and lurk in shale rock formation deep underground. To accomplish the process they
need to detonate small explosives in order to open shale rocks. Water, sand and over 600
different chemicals are used and injected at high pressures to allow gas to flow to the surface.
At the final stage fracturing plugs are removed and the liquid pressure is reduced for disposal
or re-use. (Economic boom.., 2014)
This process causes implications, claim six experts from Queensland government
epidemiologist. One of them Dr. John Sheridan, claims that BTEX (benzene, toluene,
ethylbenzene and xylene) chemicals have been used in fracking both in the United States and
other countries. He also claims that BTEX are cancer-causing chemicals, which escapes into
the surrounding air during fracking processes when the liquid pressure reduces. (Fracking can
release.., 2011) Methane is also a dangerous pollutant that releases from drilling and pollute
the air and the groundwater, according to Nick Cunningham. This pollutant is a powerful
climate changer as it reinforces the greenhouse effect. (Cunningham, Nick 2014) Three of
these six experts - Dr John Sheridan, Peter Doherty, Anthony McMichael, also claims that a
long-term exposure to the chemicals could cause leukaemia, harm unborn children and affect
the reproductive system. A big concern is that the chemicals above easily vaporise, which
means that people can be exposed through drinking water. (Fracking can release.., 2011)
These chemicals are compounds in petroleum and have been claimed before to cause the
affects mentioned. (Bureau of Environmental Health, 2014) Another outcome of fracking is
its disposal wells located thousands of feet underground, which causes earthquakes. The
disposal is encased in layers of concrete but sometimes it gets stuck. Cliff Frohlich, a research
and scientist at the University of Texas claims this and explain it: “You have an air hockey
table, suppose you tilt it, if there’s no air on, the puck will just sit there. Gravity wants it to
move but it doesn’t because there friction.” (Connely, Kelly, 2014) The earthquakes are so far
small and have not caused any harm, but in the future, how knows?
Ida Söderlund
Global Economy – Writing Assignment 3
A taxation scheme
To begin with I have to argue how potential a taxation scheme in the US is, to be able
to actually implement it.
Economic reasoning – Fracking processes continues as a decision based on costs and
benefits. (Colander, Daviv, 2013 p.6) The potential massive economic benefit is in this case
bigger in comparison to the equally sizable environmental and health problem, according to
Barney Jopson’s article, “Fracking: In the path of shale gale”. (Jopson, Barney, 2014) The
increasing fracking industry in the US is a good business as the rising cost of oil and the
scarcity of natural gas. This has improved the value of shale gas in recent years. (Economic
boom.., 2014)
According to me the reality shows something different. Fracking is a pattern of
negative externalities and missing market signals. As Raj Patel mention in his book the Big
Mac meal, this is easy to translate to natural gas. (Patel, Raj, 2009 p.44) - The users of natural
gas do not consider the environmental impact of the greenhouse footprint because they
compare it to oil and think this is a better solution. Wrong! Think of the cheap price of natural
gas and count in the energy cost, water use, soil degradation, chemical pollution and the
hidden health cost of the outcomes. A true price should be more expensive. The appropriate
response to natural gas is unlikely to be prohibited by the US government, considering their
strong market power. We, humanity, all together can make actions - be knowledgeable about
it and start to tax this industry.
Political reasons - Fracking has been cheers by both Democrats and Republicans in the
US government, as it makes them as a country to the largest natural gas producer. The
industry in the US creates jobs, in the same time as reducing its dependence on Middle
Eastern energy and Russian energy. (Jopson, Barney, 2014) This is a big concern, as it is an
evidence of gaining power on the world market for the US. A big capitalistic action without
any considerations on how the environmental effects will be.
Economic forces and political forces that I have mentioned control the economic reality. A
third component of the economic reality is social – and cultural forces. (Colander, Daviv,
2013 p.11) Therefore I think a mixed group of people outside of the political – and economic
sector in the US should set the tax for fracking. Individuals caring for our common future.
They can have different political – and economic views and could be people from NGOs -
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Global Economy – Writing Assignment 3
environmental organizations working against shale gas, e.g. Greenpeace or other
environmental organizations. The importance is that the group will represent the people
within US. They will have regular meetings and collect facts from experts that claim reasons
and evidence of the dangerous outcomes of fracking. To carry out economic policy effectively
the individuals within the group must understand how institutions might change, as a result of
the economic policy through a new taxation scheme. (Colander, Daviv, 2013 p.16)
The new taxation will not underestimate natural gas, as the source itself is relatively
clean compared to oil and coal. It is the method that should be taxed, fracking itself. The
question is how we can target this goal from the best angle?
1. Employers’ expenses
I have resonated to raise employers' costs for this sector. So far it does not seem possible
in practice as the US policy is built on a market-based society. I think it is difficult to raise
taxes to such a degree that it would promote the welfare and the environmental sustainability
as such, since the whole system has to be transformed to an alternative economic. If the
employer's contribution of gross salary would be increased, it could have implications for
employers' willingness to hire, I imagine. Higher taxes lead to new behaviors. If the
opposition is aiming more jobs, they should not increase the taxes in the private sector in the
US, which would include fracking workers.
2. Taxing chemicals
Another way of arguing would be to tax the chemical used during the fracking process.
This is a big challenge as they can use 600 different kinds of chemicals (as mentioned above)
in a fracking process. It would be easier to ban it, if you ask me as they have done in France.
It would be complicated to valuate which chemical that would have which price regarding the
negative externalities it causes – complicated and time consuming.
Some movements have already been taking in the US regarding this solution. Several
states have already passed laws along these lines. For example Colorado has mandated a
fracking-chemical disclosures and Texas are now working on to treads the same ground. It
was in November 2013, the US Department of the Interior said that a consideration to reveal
the chemicals used in fracking fluids would be of importance. (Jones Nicola, 2011) This is a
meaningful step as it races the problem and black painte companies that use chemicals. This
Ida Söderlund
Global Economy – Writing Assignment 3
enables each citizen to take their own responsibility to consider benefiting these companies or
not.
3. A taxation set by each hole drilled through fracking
An innovative solution would be to create a drill fee for each hole drilled by the
fracking industry. Since the sources are small and the companies need to drill frequently it
would be a beneficial tool to decrease the fracking process. This would directly benefit the
third parties as the tax would be used as a compensation to those how has no voice on either
the supply or the demand side of the fracking market - as called negative externalities in
economic jargon. It could be both global - (harming the nature) and local (farmers) that is
considered as the third parties.
To be able to consider a good tax scheme for every hole drilled by the fracking
industry, we must look at the natural gas true price. The proper setting would be to introduce
price signals proportional to the harm they cause. The additional cost is to forecast the future
hidden health – and environmental costs. A tax price would be set out of a mean price from
this two. Doing so would put an end to the free lunch that producers have long enjoyed and
would curb the resulting fracking outcomes.
When the producer can ignore the negative externalities the price of gas from
hydraulic fracturing does not reflect its full opportunity cost. An improvement over the
current situation needs to be a price-based energy policy. According to my knowledge and
research, underprice of shale gas leads to excessive expansion of the market share compared
to other energy sources, as well as excessive energy consumption in general.
As far as I have seen, there is no framework for an energy policy that set prices for
environmental risks. It is difficult to balance the pros and cons of various ways of producing
and conserving energy against one another. We are not able to measure something precisely,
but that is not evidence that its value is zero. We can still adjust the emission scores. This can
happens through various energy fuels according to their GHG emissions. Considering CO2
natural gas starts with an advantage. Burning an energy-equivalent quantity of gas produces
about 40 to 45 percent less CO2 than coal and 25 to 30 percent less than oil. (Dolan. Ed,
2012) This is a part of the emission. To get a better picture I consider that we need to score
the whole lifecycle approach from all energy sources to differ. This involves emissions in
extraction, storage, processing, transportation and final use. Every piece has to be taking into
Ida Söderlund
Global Economy – Writing Assignment 3
account, for example the consideration of methane. Robert W. Howarth claims that leakages
of methane from fracking has a GHG score higher than conventional gas and oil, even higher
than coal in some cases. (Dolan. Ed, 2012) Which raises the emission score for natural gas
produced through fracking.
The use of a tax set by each hole drilled in fracking, need to add in the amount of
money as it harms local externalities’ as well. The deal would be to give farmers a fair royalty
on the gas, compensation of spill, groundwater pollution e.g. The payment has to fall between
the maximum the driller would willingly pay and the minimum the farmer would willingly
accept, or no drilling will take place. This negotiation shows a price signal feature to the
producers, as well as a compensation agreement.
Positive critic to fracking is the increasing economic growth, as shale gas contribution
to GDP was $76.9 billion in 2010 and will increase to $118 billion by 2015 in the US,
according to Kevin A. Hassett. The forecast for 2035 in the shale gas industry, in the US, will
nearly triple to $231 billion to GDP. (Hassett, Kevin A. 2013) Even though, this is not a
proper reason to continue with fracking and neither an evidence of a good outcome. GDP is
an economic growth measurement and help for the short run as it increases job opportunities
(Jackson Tim 2009, p. 32) along with the fracking industry extension. (Hassett, Kevin A.
2013). The shale gas industry does not show any proof for helping us to reach a sustainable
future for our upcoming generations in the long run. Neither does GDP show the real picture
of the human’s well being according to me.
Conclusion
As my assignment claim, there is no good outcome of drilling deeper into something
unwitting. Unwitting within the aspect of how huge the outcomes and costs will be for our
future generations, as we use fracking as a method.
A taxation scheme, set by each hole drilled, to decrease the shale gas extractive method of
natural gas, is necessary. This will help us to reach a lower level of fracking processes
meanwhile a development and research of a replacement for fracking processes can be taking
into action. The financial self-interest business man’s needs to look beyond the greed, overconsumption and maximize profit. US need to come out of the consumption-bubble and
instead look for the common good. As we drill deeper into natural gas as a replacement of oil
Ida Söderlund
Global Economy – Writing Assignment 3
and coal, through fracking, we drill deeper into the worst loophole. We fool ourselves, in an
economic and profit driven society.
We do not know everything we would like to about the frequency and severity of
negative externalities from hydraulic fracturing. Calls for further research are necessary.
Humanity need to explore the extent to which environmental harms can be mitigated through
best practices and how to integrate best practices into state, local, and federal regulations, as
well as into tort law. However, the need for further research is not a justification for delay.
We know enough to begin taking action now, and this through my proposal of the new
taxation scheme - set by each hole drilled through fracking.
Ida Söderlund
Global Economy – Writing Assignment 3
References:
Arpi, Ivar. “Fracking för ett fritt Europa”, 4 aug 2014. Avalible from:
<http://www.svd.se/opinion/ledarsidan/europa-behover-en-fracking-revolution_3782048.svd >[3 December
2014].
Blaug, Mark 2013. “Economics”, Encyclopedia Britannica online. .
Bureau of Environmental Health, 2014. Avalible
from:<http://www.odh.ohio.gov/~/media/ODH/ASSETS/Files/eh/HAS/btex.ashx >[4 December 2014].
Colander, David, 2013. Chapter 1: Economic and Economic Reasoning, in Economics, pp. 4-19. .
Connely, Kelly, KUT News. “How Oil and Gas Disposal Wells Can Cause Earthquakes”, 2014. Avalible from:
< http://stateimpact.npr.org/texas/tag/earthquake/>[4 December 2014].
Cunningham, Nick. “New Study Finds Higher Methane Emissions from Fracking”, 29 Noc 2013. Avalible from:
< http://oilprice.com/Energy/Energy-General/New-Study-Finds-Higher-Methane-Emissions-fromFracking.html>[4 December 2014].
Dolan, Ed. “An Economic Analysis of Fracking”, 8 May 2012. Avalible from:
<http://oilprice.com/Energy/Natural-Gas/An-Economic-Analysis-of-Fracking.html
>[8 December 2014].
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<http://www.smh.com.au/environment/fracking-can-release-cancer-chemicals-experts-warn-201107181hkuk.html>[1 December 2014].
Hassett, Kevin A. “Benefits of hydraulic fracking”, 4 Apr 2013. Oxford Energy Forum Avalible from:
<http://www.aei.org/publication/benefits-of-hydraulic-fracking/>[3 December 2014].
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Magazine Avalible from: <http://www.scientificamerican.com/article/us-investigates-safety-of-natural/>[8
December 2014].
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Global Economy – Writing Assignment 3
Jopson, Barney. “Fracking: In the path of the ´shale gale”´, 28 oct 2014. Avalible from:
<http://www.ft.com/cms/s/0/6d93d494-5dc5-11e4-b7a2-00144feabdc0.html#axzz3KpEcCGna>[3 December
2014].
Patel. Raj, 2009. The Value of Nothing, Portobello Books, p. 44 .
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Stiglitz. Joseph E, 2006. Making Globalization Work, 1st edition, US: Norton Paperback, p. 151 .
Urban, Ian. “Hunt for Gas Hits Fragile Soil, and South Africans Fear Risks”, 30 dec 2014. Avalible from:
<http://www.nytimes.com/2011/12/31/world/south-african-farmers-see-threat-fromfracking.html?_r=3&ref=world&src=me&pagewanted=all&>[4 December 2014].