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Federalism, Regulatory Lags, and the Political Economy of Energy Production


David B. Spence


University of Texas at Austin - Department of Business, Government and Society; University of Texas at Austin - School of Law

March 6, 2012

University of Pennsylvania Law Review, 2012
U of Texas Law, Law and Econ Research Paper No. 222

Abstract:     
The production of natural gas from formerly inaccessible shale formations using hydraulic fracturing has expanded domestic energy supplies, lowered prices, and could stimulate the replacement of dirtier fossil fuels (coal and oil) with cleaner natural gas. At the same time, shale gas production has proven controversial, triggering intense opposition in some parts of the United States. State and local regulators have scrambled to adapt to the boom in natural gas production, raising the question of whether federal regulators should step in to supplant or supplement state regulation. This article takes a policy-neutral approach to the federalism questions at the center of that inquiry, asking which level of government ought to resolve these policy questions, rather than which level of government is likely to produce a particular favored policy outcome. Consequently, this analysis begins with four economic and political rationales that we typically use to justify federal regulation: (i) the presence of interstate “spillover” effects, (ii) the so-called “race to the bottom, (iii) the need for uniform standards for manufacturers, and (iv) the presence of an important national interest in developing and regulating an energy resource.

Applying each of these rationales to the regulation of hydraulic fracturing yields several important conclusions. First, while a few of the externalities of shale gas production cross state boundaries, most are experienced locally. Second, existing federal regulatory regimes offer ample authority to address those impacts that have interstate or national scope. Third, the race to the bottom rationale does not justify federal regulation of shale gas production because shale gas states are not competing for quantity- or time-limited capital investment. Fourth, given that the impacts of hydraulic fracturing are still under study and the subject of considerable ongoing debate, there is no overriding national interest supporting the creation of a comprehensive federal licensing/regulatory regime for shale gas production, at least not yet.

Number of Pages in PDF File: 55

Keywords: Regulation, Federalism, Energy, Environment

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Date posted: March 6, 2012  

Suggested Citation

Spence, David B., Federalism, Regulatory Lags, and the Political Economy of Energy Production (March 6, 2012). University of Pennsylvania Law Review, 2012; U of Texas Law, Law and Econ Research Paper No. 222. Available at SSRN: http://ssrn.com/abstract=2017280

Contact Information

David B. Spence (Contact Author)
University of Texas at Austin - Department of Business, Government and Society ( email )
CBA 5.202
Austin, TX 78712
United States
512-471-0778 (Phone)
512-343-0535 (Fax)
University of Texas at Austin - School of Law ( email )
727 East Dean Keeton Street
Austin, TX 78705
United States
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