The Fracking Revolution: Shale Gas as a Case Study in Innovation Policy

Abstract

The early twenty-first century has witnessed a boom in oil and natural gas production that promises to turn the United States into a new form of petrostate. This boom raises various questions that scholars have begun to explore, including questions of risk governance, federalism, and export policy. Relatively neglected, however, have been questions of why the technological revolution behind the boom occurred and what this revolution teaches about innovation theory and policy. The boom in U.S. shale gas production reflected long-gestating infrastructure developments, a convergence of technological advances, government-sponsored research and development, the presence or absence of intellectual property rights, rights in tangible assets such as land and minerals, and tax and regulatory relief. Consequently, the story behind the boom reaches far beyond the risk-taking and persistence of George Mitchell, whose independent production company achieved pioneering success with hydraulic fracturing (“fracking”) in Texas’ Barnett Shale. Indeed, the broader story demonstrates how a blend of distinct policy levers, reasonably adjusted over time, can combine to foster a diverse innovation ecosystem that provides a robust platform for game-changing innovation. As exemplified by this story, the centrality of other policy levers can mean that patents play only a modest role even in spurring technological development by profit-driven private players. Finally, the Article demonstrates how. Such lessons can helpfully inform efforts either to extend the United States’ “fracking revolution” abroad or to develop other potentially revolutionary technologies such as those associated with renewable energy. Lessons drawn from this case study include “negative lessons” about the possibility and even likelihood of downsides of a technological boom or the policies used to promote it — for example, environmental damage that more careful regulation of a developing technology such as fracking might have avoided. Anticipatory and continuing attention to such potential downsides can help prevent innovation-promoting policies from becoming “sticky” in a way that undercuts innovation’s promise and popular appeal.

Keywords: fracking, hydraulic fracturing, directional drilling, horizontal drilling, shale gas, infrastructure, pipelines, deregulation, tax relief, regulatory relief, patent, complementary assets, mineral rights, trade secret, George Mitchell, Gas Research Institute, renewable energy