Economic Rights Working Paper Series
The Constitutional Environmental Human Right to Water: An
Economic Model of the Potential Negative Impacts of Hydraulic
Fracturing on Drinking Water Quantity and Quality in Pennsylvania
Christopher Jeffords
University of Connecticut
Working Paper 22
December 2012
The Constitutional Environmental Human Right to Water: An Economic Model of the
Potential Negative Impacts of Hydraulic Fracturing on Drinking Water Quantity and
Quality in Pennsylvania
Christopher Jeffords†
Keywords: Hydraulic Fracturing; Environmental Human Rights; Human Right to Water;
Drinking Water; Drinking Water Contamination; Externalities;
Pigovian Taxation; Negligence; Due Standard of Care
JEL Classifications: K13, K32, Q32, Q53
December 2012
†
Visiting Assistant Professor, Eastern Connecticut State University Department of Economics (2012-2013); Assistant Professor, Indiana University of Pennsylvania Department of
Economics (On Leave 2012-2013). Contact Information: [email protected].
Abstract
The process of hydraulic fracturing (HF) for natural gas leads to two potential
negative externalities: (1) a reduction in the quantity of existing drinking water, and
(2) a reduction in the quality of existing drinking water. These two externalities can
further conspire to lead to a broader problem: an inability to fulfill the human right to
(clean or pure) water. Although the United States (US) Constitution does not grant
individuals a human right to clean water, the Constitution of Pennsylvania does within
Section 27. While US reliance on natural gas and the prevalence of HF as a method for
procuring natural gas both increase, the two externalities may lead to actual human
rights violations, especially in the Marcellus Shale region of Pennsylvania. This paper
develops an economic model of the two externalities to: (1) demonstrate how violations
of both the quantity and quality of available drinking water can occur; and (2) offer
a fiscal policy to address the violations (i.e., a Pigovian Tax) , where a single tax on
natural gas production is capable of addressing both externalities. In keeping with the
current case law interpretation of Section 27 of the Constitution of Pennsylvania, a due
standard of care negligence rule within a unilateral-care accident model is developed
and compared to the Pigovian Tax. Depending on the nature of the market demand
and supply curves for natural gas, the results indicate that the incidence of the Pigovian
Tax is not fully carried by the producers while the due standard of care rule is imposed
entirely on the producers (i.e., injurers). In either case, the number of producers is an
important consideration for fulfillment of the human right to water.
2
1
Introduction
The United States (US) Environmental Protection Agency (EPA) is in the process of completing a detailed research study on the potential impacts of hydraulic fracturing (HF) for
natural gas on available drinking water quantity and quality.1 Occurring throughout parts
of the US including Texas, West Virginia, Wyoming, Utah, Maryland, and Pennsylvania
(PA), to name a few, HF is a stimulation process that relies heavily on the use of ground
and surface water to extract natural gas from deep underground reserves.2 In the Marcellus
Shale region of PA, for example, drilling a horizontal well may use 4-8 million gallons of
water in one week and the well itself may need to be hydrofractured anywhere from 5-20
times over the life of the well (Abdalla and Drohan, 2010).3
To facilitate the extraction of natural gas, proppants (e.g., sand or ceramic pellets) and
chemicals (e.g., oils, gels, acids, alcohols, and man-made organic chemicals) are added to the
water for the purpose of creating new underground fractures and to expand existing ones.
While the proppants hold open the fractures, the internal pressure of the rock formation
forces fluid through the wellbore back to the surface, and once this flow begins, natural
gas and injected water can be collected. Some of the fluid, however, remains underground.
Because HF uses large quantities of ground and surface water, and potentially impacts
the remaining (i.e., post-HF) quantity and quality of available drinking water, the EPA is
specifically concerned with the use of water during the Hydraulic Fracturing Water Cycle
(HFWC).
The HFWC occurs over the following five stages: (1) water acquisition; (2) chemical
1
At the time of writing this paper, a draft of the report – which comes at the request of the US Congress
– was due in late 2012 with a final draft for public comment and peer review scheduled for release in 2014.
As of December 21, 2012, a progress report was issued as well as a press release noting that a draft of the
report is now due out in 2014. See the EPA Press Release and Progress Report for more detail.
2
Since HF produces gas using a stimulation process, it is deemed an “unconventional” gas production
technique (EPA F, 2012).
3
Extending through much of the Appalachian Basin, the Marcellus Shale is a formation of sedimentary
rock that contains about 84 trillion cubic feet of “undiscovered, technically recoverable gas and 3.4 billion
barrels of undiscovered, technically recoverable natural gas liquids (USGS News Release, 8/23/2011).”
3
mixing; (3) well injection; (4) flowback and produced water or HF wastewaters; and (5)
wastewater treatment and waste disposal (EPA C, 2012). Each stage of the HFWC involves
potential impacts on drinking water resources which are summarized as follows: (1) a change
in the quantity of drinking water, and (2) a change in the quality of drinking water.4 Given
the increasingly important role of natural gas in securing a clean energy future in the US, it
is imperative to gain an understanding of the ways in which drinking water resources may
be affected by HF.
Under these circumstances, the basic economic problem is that of negative production
externalities. If, for example, the production of natural gas does negatively impact the
remaining quantity and quality of available drinking water resources, then two potential
negative externalities exist: (1) a reduction in the quantity of drinking water, and (2) a
reduction in the quality of drinking water. But this is not the full extent of the problem
as these two externalities further conspire to lead to a broader problem and the main focus
of this paper: an inability to fulfill the minimum quantity and quality requirements of the
human right to clean water.5 The United Nations (UN) is also concerned about this potential
outcome as noted in a written statement issued in 2011 which discusses how HF poses a threat
to human rights, specifically the human right to water and sanitation.6
The question remains as to whether or not natural gas production via HF comes at
the expense of both a decreased quantity and quality of drinking water? Furthermore, and
especially since the scope of the EPA report includes an assessment of environmental justice
4
Although the EPA specifically describes the potential impacts on drinking water resources within each
stage of the HFWC, the impacts can generally be described as impacting drinking water quantity, quality, or
both. For example, a potential impact within the fifth stage is that contaminants may reach drinking water
as a result of surface water discharge and the inadequate treatment of wastewater. Contaminated drinking
water certainly reduces the quantity and quality of water available for consumption. The EPA notes that
there are over 1,000 HF-related chemicals, some of which are injected in HF fluids while others are detected
in flowback and produced water (EPA Progress Report, page 122).
5
For more on the minimum quantity and quality requirements of the human right to water, see Section
2 and General Comment 15 of the United Nations Committee on Economic, Social, and Cultural Rights.
6
For more on this, see General Assembly document: A/HRC/18/NGO/91. Environment and Human
Rights Advisory (EHRA) has also recently issued a report on the human rights concerns associated with HF.
The report was issued for the New York State Department of Environmental Conservation and Earthwork’s
Oil and Gas Accountability project and is available on the EHRA website.
4
concerns, what are the potential impacts of HF on the human right to water?7 And if
there are human rights violations stemming from water quantity and quality concerns, what
options exist to address said violations? These last two questions are particularly relevant
for a state like PA, both because it has a landscape rich with shale natural gas - a source
primed for HF - and has also granted its people an explicit constitutional right to pure water
(PA Constitution, Article I, Section 27).8
By developing a simple economic model of the relationship between natural gas production, remaining drinking water quantity and quality, and the human right to water, this
paper offers two different “policies” to address potential violations of the human right to
water. The first is the traditional method economists use to address negative production
externalities: a Pigovian Tax (PT) on the production of natural gas. The second is based on
the current case law interpretation of Section 27 of the Constitution of PA: a due standard
of care negligence rule within a unilateral-care accident model.
Under the assumption that the remaining drinking water quantity and quality are
inversely related to the production of natural gas, the results demonstrate that it is possible
to use a single PT to address both externalities. This result is supported by reinterpreting
the traditional treatment of social costs within a negative production externality framework
to include the social costs of failing to meet the minimum quantity and quality requirements
of the human right to clean water. The tax proceeds from the PT can then be used to
address violations of the human right to water.9 Once the appropriate PT is determined,
the due standard of care negligence rule is formed by setting the standard equal to the tax
7
See Shrader-Frechette (2007) for an overview of the relationship between environmental justice and
environmental human rights. Also see the EPA’s Progress Report for more on the explicit concern for
environmental justice with respect to hydraulic fracturing and drinking water supplies.
8
Adding further justification to the EPA’s study are many recent incidents in PA that have led to an
increased concern for PA’s environmental resources, especially water resources. These incidents include but
are not limited to: residential well explosions in Dimock; well blowouts in Clearfield County; and fish kills in
Susquehanna County. See Abdalla and Drohan (2010) for a comprehensive overview of these incidents and
more.
9
For more on rectifying and preventing violations of the human right to water, see Section 2 and General
Comment 15.
5
revenue generated from the PT. The size of the PT and the subsequent due standard of
care each depend on which externality cost is greater, that of quantity depletion beyond a
minimum acceptable quantity of clean water or that of quality depletion beyond a minimum
acceptable quality of water. Furthermore, depending on the nature of the market supply
and demand curves for natural gas, the incidence of the PT can be shared among natural
gas producers and consumers while the due standard of care rule can be imposed entirely on
the producers (i.e., the injurers). In either case, the number of producers is an important
consideration for fulfillment the human right to water.
To answer the questions posed above, this paper proceeds in the following way. The
second section offers a brief overview of constitutional environmental human rights and the
human right to water inclusive of a discussion of Section 27 of the Constitution of PA.
The third section briefly discusses the current institutional structure governing PA’s water
resources and HF in PA. The economic model and subsequent results are developed and
discussed in the fourth section, followed by a concluding fifth section.
2
The Human Right to Water
The human right to water is an example of an environmental human right (Hiskes, 2009, 2010;
Shelton, 1991), and the world has seen an increasing preference toward constitutionalizing
environmental human rights as evidenced by the 125 national constitutions that include such
rights as of 2010 (Jeffords, 2013). Furthermore, of these 125, 10 include an explicit human
right to water. However, if environmental human rights include the human right to water,
then 10 is an underestimate of the number of constitutions that include a human right to
water, albeit indirectly. And although the US constitution does not make this list of 125,
eight state constitutions delineate environmental human rights (Scanlon, Cassar, and Nemes,
2004), including Illinois, Montana, Hawaii, and PA (Mudd, 2011).
PA added an environmental human rights amendment to its constitution in 1971. The
6
amendment, located in Article 1, Section 27, notes that,
The people have a right to clean air, pure water, and to the preservation of the
natural, scenic, historic and esthetic values of the environment. Pennsylvania’s
public natural resources are the common property of all the people, including
generations yet to come. As trustee of these resources, the Commonwealth shall
conserve and maintain them for the benefit of all the people.
The first portion of the statement is particularly relevant for the quantity and quality concerns of the human right to water in light of the prevalence of HF for natural gas in the
Marcellus Shale region of PA.10 Despite providing the scope for private parties to sue the
government for alleged violations without implementing legislation (Duquesne University
Law, Interpretation of Section 27), the Commonwealth Court of PA uses a three-part test
to determine if Section 27 has been satisfied (Mudd, 2011).11 In short, Section 27 is fulfilled
if: (1) there was full compliance with all applicable statutes and regulations for environmental protection; (2) if it can be shown that reasonable effort was undertaken to reduce
environmental damage to a minimum; and (3) if the environmental damage does not clearly
outweigh the benefits.12
The application of the three-part test is similar to the outcome of a due standard of
care negligence rule within a unilateral-care accident model (Miceli, 1997). Provided all three
parts have been met, there is very little scope to sue the government for a rights violation
and, not only this, but the case law addressing Section 27 has been largely focused on land
use decisions and not violations of the human right to water (Mudd, 2011). Regardless, the
government is not the only entity that could violate an individual’s right to clean water.
Governments, however, may be the sole responsible entity for preventing and rectifying
violations of the human right to clean water.
10
For more on the prevalence of HF in PA see Section 3 and Abdalla and Drohan (2010).
For more on environmental human rights in PA, see Dernbach (1999a, 1999b).
12
For more on this see the interpretation of Section 27 offered by Duquesne University Law and Mudd
(2011).
11
7
On an international scale, aspects of the human right to water are outlined in General Comment 15 (GC15) of the UN Committee on Economic, Social, and Cultural Rights
(CESCR). Adding further support to GC15, in 2010 the UN General Assembly declared the
“right to safe and clean drinking water and sanitation as a human right that is essential for
the full enjoyment of life and all human rights.”13 Sections 12(a) and 12(b) of GC15 note
the explicit quantity (i.e., availability) and quality concerns of the human right to water. In
terms of a specific quantity, there must be a continuous supply of water sufficient for personal
and domestic uses including drinking, personal sanitation, washing of clothes, food preparation, personal and household hygiene, and said quantity must comply with World Health
Organization (WHO) guidelines.14 Based on data from the World Bank, WHO, and UN
International Drinking Water Supply, Gleick (1998) estimated the minimum amount to be
13.2 gallons per person per day for drinking (10%), food preparation (20%), bathing (30%),
and sanitation services (40%).15 As for quality, domestic and personal use water must be
”safe” or, in other words, free from micro-organisms, chemical substances, and radiological
hazards that constitute a threat to a person’s health. Water for drinking and personal use
must also be of an acceptable color, odor, and taste.
According to GC15, the government is obligated to respect, protect, and fulfill the human right to water. Outlined extensively in Section III (“State Parties Obligations”), these
obligations or duties assign the government the role of preventing rights violations, adjudicating rights violations, and, wherever and whenever necessary, providing for the substance
13
See General Assembly documents: A/64L.63.Rev.1 and A/HRC/RES/15/9. The declaration was
formed in part using the framework of General Comment 15, but was also derived from Articles 11 (“the right
to an adequate standard of living”) and 12 (“the right of everyone to the enjoyment of the highest attainable
standard of physical and mental health”) of the International Covenant on Economic Social, and Cultural
Rights (ICESCR); the Universal Declaration of Human Rights (UDHR); the International Covenant on
Civil and Political Rights (ICCPR); the Convention on the Rights of the Child; and the Geneva Convention,
among other longstanding pieces of international treaty and law.
14
A final concern within Section 12 is water accessibility as described in terms of physical and economic accessibility, and non-discrimination. For more on accessibility concerns see Section 12(c) of General Comment
15.
15
Including also the amount of water required to meet the daily food needs of a person, the minimum
increases by 713 gallons per person per day – a nontrivial amount.
8
of the right (i.e., a minimally acceptable quantity of water of a safe quality), especially when
individuals experience violations of their rights through no fault of their own.16 In short,
the government must: not interfere with and therefore must respect enjoyment of the right
to water; must protect individuals from third party interference of the right to water; and,
must take steps toward full realization of the right to water for all individuals.
Given these obligations, and if drinking water quantity and quality concerns stemming
from the HFWC lead to perceived violations of the human right to water, what role can
fiscal policy and the legal system play to address these violations?17 Before developing the
economic model, the following section briefly outlines the institutional structure governing
PA’s water resources and also discusses HF in PA.
3
Institutional Structure Governing Pennsylvania’s Water Resource and Hydraulic Fracturing in Pennsylvania
There are approximately 2.5 trillion gallons of surface water and 80 trillion gallons of ground
water distributed throughout PA’s vast landscape.18 PA’s surface water resources are distributed across 83,000 plus miles of streams and over 4,000 lakes and reservoirs, to name a
few sources of water, while ground water is stored in underground aquifers. Furthermore,
the hydrologic cycle distributes roughly 40 inches of rain annualy throughout the state.
These extensive water resources are governed by various inter- and intrastate govern16
Violations, such as acts of commission and acts of omission, as well as violations of the obligations to
respect, protect, and fulfill are outlined within Section IV of General Comment 15.
17
In a similar context, Jeffords and Shah (2013) explore the role of fiscal policy (i.e., a tax and subsidy)
to address potential violations of the human right to water within a nonrenewable resource model inclusive
of a backstop technology (e.g., desalinated water) and two different types of individuals (e.g., poor and
rich). A human rights violation occurs when the poor individual is unable to obtain the minimum quantity
requirement. Depending on the ability of the rich individual to subsidize the water consumption of the
poor individual, the government implements a tax policy directed at fulfilling the human right to water
for the poor individual. By developing a human rights social welfare standard to illustrate cases where
a traditional social welfare measure exceeds, violates, or meets the human rights standard, their model
illustrates the various difficulties of fulfilling the quantity requirement of the human right to water owing
to various resource constraints. Their model also assumes a uniform quality of water for at least drinking
purposes.
18
This section draws heavily on Abdalla and Drohan (2010).
9
ment agencies. For example, the Delaware and Susquehanna River Basins are overseen by
separate entities known as the Delaware River Basin Commission (DRBC) and the Susquehanna River Basin Commission (SRBC). The DRBC unites the state governments of PA,
New York, New Jersey, and Delaware, as well as the federal government in a mission to
apolitically manage the shared water resources of the region. As of June 2010 however, the
DRBC had not approved any natural gas well drilling applications in the Delaware River
Basin.19 The SRBC unites the state governments of PA, New York, and Maryland, as well as
the federal government to protect and manage the water resources of the Susquehanna River
Basin. The SRBC has various guidelines, rules, and regulations that natural gas companies
must follow in order to obtain water use permits for the purpose of natural gas exploration
and extraction. For example, approval from the SRBC is required for any water withdrawals
from the Susquehanna River watershed for developing gas wells in the Marcellus or Utica
Shale regions.
The PA Department of Environmental Protection (DEP) oversees water resources
throughout the state via the Office of Water Management Plans. For each gas well permit issued, the DEP requires a water management plan to cover the sources used for HF
in the Marcellus Shale formation. The DEP’s Bureau of Oil and Gas Management is responsible for regulating the “safe exploration, development, and recovery of Marcellus Shale
natural gas reserviors in a manner that will protect the commonwealth’s natural resources
and the environment (DEP Website).” Other state agencies, such as the PA Department of
Conservation and Natural Resources and the PA Game Commission, as well as municipalities and counties, each play a varying role in the management of PA’s water resources. The
DEP is also in charge of issuing permits for natural gas wells.
From January 2012 to November 2012, the PA DEP issued 1,465 conventional and
19
According to the DRBC website, “the commission does not get involved in the private negotiations
taking place between natural gas drilling companies and private property owners. However, property owners
are advised to seek appropriate technical and legal representation to ensure that they obtain adequate
protection of their property.” See the DRBC website at www.nj.gov/drbc/programs/natural/ for more
information.
10
2,246 unconventional well permits totalling 3,711 permits. The number of wells drilled
was considerably less, at 942 and 1,258 respectively, for a total of 2,200. Although the
various agencies noted above have the ability to approve water withdrawal projects, private
landowners typically control the access to water (Abdalla and Drohan, 2010). To obtain
access to the water resources, natural gas firms can purchase water from users with a surplus
of water or from municipal water systems and other permitted users. Landowners can
also grant access to private water resources, oftentimes in exchange for an access fee. But
landowners are not free from the potential legal ramifications of a diminished quantity and
quality of water resources resulting from granting access to natural gas producers. As Abdalla
and Drohan (2010, page 7) note, landowners “can incur liability if their sale of water adversely
affects a well or spring on another property.”
4
Economic Model
The economic model assumes that the market for natural gas is confined to PA and any
subsequent violations of the human right to clean water exist solely within the boundaries
of PA. The focus is thus entirely on PA, where it is important to note that although water
resources and pollution may flow across state boundaries in practice, these complications are
not considered in this paper. The following subsections outline the remaining assumptions
of the economic model.
4.1
The Market for Natural Gas
Consider the market for natural gas within PA, where the market clearing quantity of natural
gas production, N ∗ , is found where the industry demand for natural gas intersects the
industry private marginal cost curve.20 This intersection also defines the equilibrium price
0
of natural gas, PN∗ . Define the natural gas demand curve as N = D(PN ) for D (PN ) < 0 and
00
0
D (PN ) ≤ 0, and the private marginal cost curve as PN = M CP (N ) for M CP (N ) > 0 and
20
The market structure is assumed to be competitive with j = 1 . . . m firms.
11
00
M CP (N ) ≥ 0.21 Because the model is general enough, N ∗ can be defined as the equilibrium
production of natural gas in some period t or as the long-run equilibrium production level.
Any level of natural gas production, N , requires a quantity, W , and quality, B, of water
(among other production inputs). Let water be measured in gallons and the quality be a
saturation percentage from 100% pure to 0% pure. Natural gas firms acquire water during
Stage 1 of the HFWC, where “large volumes of water are withdrawn from ground water and
surface water resources to be used in the HF process (EPA C, 2012).”22 Once the natural gas
firms produce N ∗ , there remains a quantity, Ŵ , and quality, B̂, of available drinking water
for individual consumption. It is assumed that as N increases, W and B decrease, such that
0
00
0
00
W = f (N ) for f (N ) < 0 and f (N ) ≤ 0, and B = h(N ) for h (N ) < 0 and h (N ) ≤ 0. To
eliminate the complexities associated with ground and surface water recharge, it is assumed
that the initial quantity of water available to natural gas firms is fixed.
4.2
Individuals and the Human Right to Water
Individuals are, to a certain extent, bystanders in this model. They do not directly participate in the market for natural gas, and the model does not develop a market for water
in which individuals comprise part of the demand curve. In effect, once the natural gas
production level is determined, individuals are faced with consuming Ŵ gallons of water of
quality B̂. Furthermore, depending on how many individuals exist in the model, the remaining quantity and quality of drinking water is assumed to be large enough to exactly satisfy
each of their needs. Despite the lack of a clearly delineated market for water, it is assumed
that individuals can afford to purchase whatever remaining quantity and quality of water is
available.
21
For expositional purposes, this section employs simple linear relationships between the relevant variables.
For example, both the private marginal cost curve and the demand curve for natural gas are assumed to be
linear.
22
It is important to note that recycled water from Stage 5 of the HF water cycle can also be used during
Stage 1. In this sense, the ability of natural gas firms to use increasing amounts of recycled water may have a
limiting effect on the drawdown of drinking water resources, at least after the initial use of a certain amount
of ground and surface water.
12
Outlined within GC15 of the UN CESCR, individuals have minimum physiological
water quantity and quality requirements that are assumed to be identical across individuals,
time, and space.23 Within the model, the minimum requirements are respectively defined as
W and B. W includes the categories outlined explicitly by Gleick (1998), while B is assumed
to be of at least drinking quality.24 After the production of some quantity of natural gas,
there exists two possible violations of the human right to water: (1) Ŵ < W ; and/or (2)
B̂ < B. Recalling the discussion within Section 2, if either of these minimums is violated, the
government is obligated to take steps to address the violations. In this case, the government
is assumed to be the state government of PA owing to the nature of the constitutional
human right to clean water outlined in Article I, Section 27 of PA’s constitution.25 This is
further supported by the current institutional framework governing water resources in PA.
The ways in which the government addresses potential violations of the human right to water
are discussed in detail below.
4.3
Linking Natural Gas Production to the Human Right to Water
Corresponding to W and B are natural gas production levels such that each aspect of the
human right to water is at least satisfied on two fronts: quantity and quality. Call NW
the maximum quantity of natural gas production such that the quantity requirement of
the human right to water is not violated, and NB the maximum quantity of natural gas
production such that the quality requirement of the human right to water is not violated.
The basic relationship between natural gas production, drinking water quality and quantity,
23
This is a strong assumption as water requirements differ by various sociodemographic characteristics
including age and gender. Furthermore, access to water resources is almost never uniformly distributed
across individuals.
24
Under extreme circumstances, individuals might be willing to sacrifice on the quality of water they use
for some of the categories noted by Gleick (1998). For example, the quality of water for sanitation need
not be as high as for drinking. The basic model can be easily extended to account for the distribution of
categories of different qualities within W .
25
Within a broader context and with respect to the human right to a clean environment, Burleson (2013)
notes regulation of hydraulic fracturing is best served at the federal level. While this may be true, the present
analysis focuses on state-level human rights obligations because of the environmental human right contained
in PA’s constitution and the lack of any environmental human rights contained within the US constitution.
13
and the human right to water is outlined in Figure 1. For the depicted relationships, both
the quantity and quality requirements of the human right to water are more than satisfied.
[Insert Figure 1 About Here]
4.4
Two Negative Production Externalities
Because it is possible to have a quantity of water remaining that satisfies W but has a quality
below B, or a quality of water remaining that satisfies B but is of a quantity less than W ,
there is no guarantee that NW = NB . Furthermore, the concentration of pollutants in a
given water source can impact the real quantity of water available for consumption (Abdalla
and Drohan, 2010). Either way, having a relatively large amount of low quality water or a
relatively small amount of high quality water can both lead to potential violations of the
human right to water.
The level of natural gas production can thus result in a quantity of available drinking
water that does not satisfy the individual human right to water, where NW < N ∗ yields
Ŵ < W . This outcome engenders the first of two negative externalities. Because the
private marginal cost of producing natural gas fails to take into consideration the costs of
the quantity violation of the human right to water, the output of natural gas is too large
and a negative production externality exists.
Separate from or concurrent with the available drinking water quantity issue, it is
also possible that NB < N ∗ , leading to a quality of available drinking water such that
B̂ < B. This provides the scope for the second externality, one that stems from water
pollution. Because the private marginal cost of producing natural gas fails to consider the
costs of the quality violation of the human right to water, the output of natural gas is too
large and a separate negative production externality exists. Although this is a pollution
externality, it is not exactly the classic negative production externality. While the classic
case does not directly consider overproduction leading to a violation of any human rights,
the interpretation offered here is the logical extension of a negative production externality
14
as it applies to drinking water pollution and the human right to water. Figure 2 displays
the case where both externalities exist and NW < NB < N ∗ .
[Insert Figure 2 About Here]
In addition to the private marginal costs of natural gas production, a human rights
conscious society also considers the external costs of depleting the quantity and quality of
water beyond human rights minimums. Although drinking water quantity and quality are
related through pollution concentration levels, this model considers two separate externality
costs owing primarily to the fact that there is no guarantee that NW = NB . If instead
NW = NB ∀ N , then the negative externality cost would be completely characterized by a
single externality cost.
Denote by M CSW (N ) the social marginal cost associated with depletion of the available
quantity of drinking water, and by M CSB (N ) the social marginal cost associated with a
0
00
declining quality of the available drinking water, where M CSW (N ) > 0 and M CSW (N ) ≥ 0,
0
00
and M CSB (N ) > 0 and M CSB (N ) ≥ 0.26 The relationships are depicted in Figure 3 which
expands on Figure 2 by explicitly including the two social marginal cost curves.
[Insert Figure 3 About Here]
4.5
Relationship to Traditional Negative Externalities
For the traditional negative externality, a polluting firm or industry does not take into
consideration the costs of pollution control and damage. These costs, however, do not
typically include those associated with failure to meet human rights standards, and a reading
of any externalities section within an economics textbook confirms this potential deficiency.
And while addressing the traditional pollution externality indirectly addresses human rights
concerns by mitigating pollution to some socially acceptable level, directly addressing human
26
In fact, by treating the externality costs separately and because there is an underlying relationship
between natural gas production and remaining drinking water quantity and quality, it is easy to show that
one externality cost actually encompasses the other depending on which externality effect is larger: that of
quantity or quality depletion.
15
rights violations may require mitigating pollution even further. This is especially true if the
costs of failing to meet minimum human rights standards are in fact not included in the
current exposition. In other words, it is possible that the traditional treatment of negative
production externalities excludes additional social costs that would likely lead to an even
greater reduction in production levels once firms internalized the externality. Of course it
is possible that the traditional treatment already includes these additional costs but simply
fails to explicitly delineate them.
4.6
Fulfilling the Human Right to Water via Pigovian Taxation
Given the nature of the two externalities and the relationships between drinking water quantity and quality and natural gas production, it is possible to implement one PT on the production of natural gas to address both externalities. Define θW as the PT associated with
addressing the quantity externality and θB as the PT associated with addressing the quality
externality. The size of the tax is governed by the relationship between NW , NB , and N ∗
where one example is outlined in Figure 4.
[Insert Figure 4 About Here]
Once the size of the PT is determined, the government can use the tax proceeds to fulfill
the human right to clean water for those individuals whose rights were violated. By imposing
an excise tax equal to the size of the externality costs, for example, firms would internalize
the externality resulting in a socially optimal level of natural gas production. The new
production level would presumably result in a greater quantity of remaining drinking water
resources, as well as an increased quality of water. The six cases governing the relationships
between NW , NB , and N ∗ are outlined below.
Case 1: NW < NB ≤ N ∗
Outlined in Figure 4, Case 1 describes the instance where the externality costs associated with
drinking water quantity depletion are larger than those for quality depletion. Implementing
a PT of size θW reduces production to NW ; increases the quantity of drinking water to
16
exactly W ; and increases the quality of drinking water to B̂ > B.
Case 2: NB < NW ≤ N ∗
This case describes the instance where the externality costs associated with drinking water
quality depletion are larger than those for quantity depletion. Implementing a PT of size θB
reduces production to NB ; increases the quantity of drinking water to Ŵ > W ; and increases
the quality of drinking water to exactly B.
Case 3: NB = NW < N ∗
This case describes the instance where the externality costs associated with drinking water
quality depletion are identical to those for quantity depletion. Implementing a PT of size
θW = θB reduces production to NW = NB ; increases the quantity of drinking water to
exactly W ; and increases the quality of drinking water to exactly B.
Cases 4, 5, and 6: NW < NB ≥ N ∗ ; NB < NW ≥ N ∗ ; NB = NW ≥ N ∗
Each of these cases results in an outcome where both the human rights quantity and quality
minimums are met or exceeded.27 If this occurs, there is no need for a PT on the production
of natural gas, at least not from the perspective of correcting for human rights externalities.
If additional, perhaps traditional pollution externalities also exist and are unaccounted for,
then there would still be a need for a market correction via private or public avenues.
4.7
A Due Standard of Care within a Unilateral-Care Accident Model
The basic unilateral-care accident model describes how an injurer can be induced to choose
the socially optimal level of care, x∗ , to minimize total accident costs inclusive of the dollar
cost of care and the expected damages imposed on a victim (Miceli, 1997).28 As Miceli notes,
it is the role of the legal system to figure out a rule that will induce the injurer to choose
the optimal level of care. Under a no liability rule, the injurer minimizes total accident costs
27
Case 4 is illustrated in Figure 1.
The basic accident model that Miceli describes includes a single risk-neutral injurer and a single riskneutral victim. The present analysis does not take a stand on the count and risk-type of either the injurer(s)
or victim(s), but rather relies on Miceli’s basic model in an effort to explain the current interpretation of
Section 27 of PA’s Constitution.
28
17
by setting them equal to zero. If the injurer is held strictly liable for the victim’s injuries,
then it is possible to induce the injurer to choose the optimal level of care. Finally, under a
negligence rule, the injurer is held liable only if a minimum level of care (i.e., the due standard
of care) is not met or exceeded. Assuming the court system can set the due standard of
care equal to x∗ , then the injurer avoids all liability and minimizes total accident costs by
choosing at least x∗ .29
For the case of the human right to water and associated human rights violations (i.e.,
injuries) in PA, the current legal system does not seem to be using any one specific rule or
any rule for that matter. Perhaps this is because the current case law addressing Section
27 to date has been focused on land use decisions and not violations of the human right
to clean water. Or perhaps this is because there have yet to be any demonstrable human
rights violations, or because the court system faces excessively high administrative costs to
adjudicate existing human rights violations. Perhaps plaintiffs have very little resources to
take their case to court. Whatever the case may be, it is clear that the current three-part
interpretation of Section 27 (Mudd, 2011) is similar to a due standard of care negligence
rule, although having very little to do with a standard of care directly associated with the
human right to water. Assuming full compliance with existing statutes and regulations, and
proof that a reasonable amount of effort was undertaken to reduce environmental harm to a
minimum, any injurer causing environmental harm would not be liable for a victim’s injuries.
And while this may be true in general, if the current legal interpretation of Section 27 does
not take into consideration violations of the constitutional human right to clean water then
it is possible to consider an alternative due standard of care rule that does.
Under one set of circumstances the due standard of care rule may lead to x∗ , but if
x∗ is not defined to include minimum human rights standards then it is possible that x∗
understates the true level of care required to meet the quantity and quality requirements of
29
Miceli (1997) notes that strict liability may be the preferred rule to negligence because the administrative
costs associated with proving causation and fault under negligence are likely larger than those for proving
only causation under strict liability.
18
the human right to water . The opposite could also be true. The point is that if the Court
wants to ensure at least the minimum human rights quantity and quality standards are met,
it can impose the following general due standard of care rule:
r=









θW NW ,
for NW < NB ≤ N ∗
θB NB ,
for NB < NW ≤ N ∗


θB NB = θW NW ,






0,
∗
for NB = NW ≤ N
(1)
for NB ≥ NW ≥ N ∗
The above due standard of care rule sets the dollar cost of care equal to the total tax
revenue generated from the PT under the scenarios outlined in Subsection 4.6. In other
words, r is the total dollar cost that induces the socially optimal level of care inclusive of the
minimum quantity and quality standards of the human right to water.30 Depending on the
shape of the supply and demand curves for natural gas, the producers and consumers will
typically share some burden of the tax. That is, the total tax revenue can include both the
producers and consumers share of the total tax burden. Under the due standard of care rule,
however, it is assumed that each producer faces some share of r depending on how many
producers are in the market.31 This is an important result that is further discussed in the
following section.
30
It is important to note that the PT policy also requires a redistribution of the tax proceeds while the due
standard of care rule does not engender any tax proceeds but rather induces firms to undertake the socially
optimal level of care. It is presently unclear which “policy” option would yield a smaller administrative
burden on the entire legal system and government in general. This question is left for future research.
31
Firms undertake r amount of care which includes both the producer’s and consumer’s share of the PT
burden. Although not considered here – partly because the due standard of care is set within a unilateralcare accident model – it is possible to that the consumers of natural gas are also injurers. In this sense, the
court could require them to undertake some level of care, perhaps equal to the size of the consumer’s share
of the PT burden. Victims of violations of the human right to water could also be required to undertake
some level care, for example within a bilateral-care accident model, but this scenario does not necessarily
mesh with the respect, protect, and fulfill framework of human right to water and is left for future research.
The primary complication is the degree to which victims can meaningfully undertake some level of care,
especially if they have agreed to allow HF on their property.
19
4.8
Implications from the Structure of the Natural Gas Market
For the competitive case with j = 1 . . . m firms, let N j =
N∗
m
for N j each firm’s share of
j
equilibrium production. Define similar shares for NW
and NBj . Under the PT and depending
j
on the relationship between NB , NW , and N ∗ , each firm pays θW NW
, θB NBj , or 0. Define
rj =
r
m
as each firm’s share of the due standard of care rule, where each firm is responsible
for rj amount of care. Because the industry is competitive, if the total production of natural
gas leads to a violation of the human right to water, than each firm undertakes
r
m
level of
care. It is also important to take into consideration how many individuals have had their
rights violated. If it is only one, for example, then the due standard of care will address
the minimum requirements of this one individual. Firms will otherwise have to undertake
a due standard of care such that the minimum quantity and quality requirements for all
individuals are at least satisfied.32
Since the minimum quantity and quality requirements of the human right to water
are physiological imperatives, it is assumed that each remains relatively fixed across time
for some relatively homogenous human population. The supply of natural gas, however, is
free to change over time. If there is a right shift in M CP , for example, the size of the PT
will increase, as will N ∗ , the total tax revenue, and r. If the right shift is a result of an
increase in the number of firms then it is possible that each firm’s share of the total tax
burden and r can increase, decrease, or remain the same. Consider in period t, for example,
j
j
t
for NW
=
rtj = θW
NW
NW
mt
. If the number of firms increases, then in period t + 1, mt+1 > mt
t+1
t
> θW
and θW
. Depending on which grows faster, it is possible that rtj increases, decreases,
or remains the same. If the rate of growth in the number of firms is greater than the rate of
growth in the PT, for example, rtj declines. This result is driven in part by the fact that NW
is fixed, so as m increases, each firms share of NW is declining as θW is increasing. The fact
that rtj can decline under certain circumstances acts to drive each firm’s share of the total
32
In practice, this has various implications for the nature of rj .
20
due standard of care obligation to zero (in the limit), thereby yielding a very complicated
framework for addressing violations of the human right to water at the firm and industry
level.
If, at the other end of the market structure continuum, a monopolist controlled the
production of natural gas, the outcomes are much simpler.33 As shown in Figure 5, a
monopolist that faces the entire demand curve for natural gas and will determine N ∗ by
the intersection of its marginal revenue curve (M R) and M CP . This results in a level of
natural gas production that is less than the competitive case and a price of natural gas
that is higher. Imposing a PT can thus result in output levels that are also less than the
corresponding competitive cases and therefore result in a greater remaining quantity and
quality of drinking water.34 The resulting burden of the PT will be different from the
competitive case as will be the size of r. Regardless, the monopolist would be pay the entire
producer’s share of the PT burden, and under the due standard of care rule, would be fully
responsible for undertaking r level of care as noted in Equation (1).
5
Conclusion
Given the widespread reliance on natural gas as an option for securing a clean energy future
in the US, states rich in shale natural gas will play an important role in this endeavor,
especially as the prevalence of HF increases. PA is one such state. At the same time, the
process of HF makes use of large quantities of ground and surface water thereby potentially
imposing two negative externalities on society: (1) a reduction in the remaining quantity
of available drinking water, and (2) a reduction in the quality of remaining drinking water.
Because each individual has a physiological water quantity and quality requirement, these
two externalities conspire to engender a broader problem: an inability to fulfill the human
33
The outcomes are considerably more complex to describe if the market structure is one of imperfect
competition (e.g., oligopolistic competition) where firms potentially differ in size, cost structure, productive
capacity, etc. These implications are left for future research.
34
In this sense, a monopolist market structure in the natural gas industry leads to a potentially more
favorable human rights outcome with respect to drinking water quantity and quality.
21
right to water. Although, the human right to water is not recognized at the federal level in
the US, the Constitution of PA grants people an explicit human right to pure water. As a
result of using HF to produce natural gas in PA, potential violations of the human right to
clean water may exist. This paper offered two ways to address these potential violations.
By developing a simple yet highly stylized model of the relationships between natural
gas production via HF, the remaining (e.g., post-HF) quantity and quality of available drinking water, and the human right to water, this paper demonstrated how the state government
and legal system can address potential violations of the human right to water. Reinterpreting
the concept of a negative production externality as including the social cost(s) of violations
of the minimum quantity and quality requirements of the human right to clean water provides scope for using a PT to reduce natural gas production to the socially acceptable level.
The tax proceeds can then be used to help fulfill the human right to clean water for those
individuals whose rights were violated. Once the appropriate size of the PT is determined,
the court system can impose a due standard of care negligence rule equal to the size of total
tax burden. This way the government can avoid the redistribution of tax proceeds aspect of
the PT. Although both “policy” options yield a socially optimal production level of natural
gas that satisfies both the basic requirements of the human right to water, the market structure of the natural gas industry was shown to be an important consideration for fulfillment
of the human right to water.
The various assumptions noted above allowed for a detailed exposition of a very complex
problem. Going forward, many of these assumptions need to be revisited and adjusted to
allow for a more robust framework to address potential violations of the human right to
water at the state level in the US. For example, the market for water could be developed in
greater detail inclusive of a pricing structure that depends (in part) on the dynamic aspects of
ground and surface water recharge and discharge. It is also prudent to explicitly consider the
ways in which water recharge affects the natural gas supply curve and filters through to the
remaining quantity and quality of water available for individual consumption. The model
22
could also benefit from incorporating a human rights “policy” framework that explicitly
takes into consideration the concern for future generations, and avoids policy options that
merely satisfy the minimum quantity and/or quality requirements of the human right to clean
water. Another avenue for expansion is to further consider the vast theoretical and practical
implications of the link between the PT and the due standard of care as each relates to
government obligations to fulfill the human right to clean water. The analysis could also be
expanded to a bilateral-care accident model, where victims undertake some care to ensure
their rights are not violated. In keeping with the current institutional structure in PA,
another avenue of research could attempt to answer the following question: is it possible to
violate a landowner’s human right to clean water if said landowner accepted a fee in exchange
for granting a natural gas firm access to his or her water resources? There is no shortage of
future research along these lines and the above suggestions are only scratching the surface.
23
PriceofNaturalGas
∗
∗
QuantityofRemaining
DrinkingWater
QualityofRemaining
DrinkingWater
Figure 1: Basic Relationship Between N, W, and B
24
PriceofNaturalGas
∗
QuantityofRemaining
DrinkingWater
QualityofRemaining
DrinkingWater
Figure 2: Violations of the Minimum Quantity and Quality Requirements
25
PriceofNaturalGas
∗
QuantityofRemaining
DrinkingWater
QualityofRemaining
DrinkingWater
Figure 3: The Human Right to Water and Negative Production Externalities
26
PriceofNaturalGas
∗
QuantityofRemaining
DrinkingWater
QualityofRemaining
DrinkingWater
Figure 4: Pigovian Taxes and the Human Right to Water
27
PriceofNaturalGas
∗
QuantityofRemaining
DrinkingWater
QualityofRemaining
DrinkingWater
Figure 5: Monopoly Production of Natural Gas and the Human Right to Water
28
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31