Internalizing Externalities: Disclosure Regulation for Hydraulic Fracturing, Drilling Activity and Water Quality

109 Pages Posted: 1 Aug 2022 Last revised: 20 Jan 2023

See all articles by Pietro Bonetti

Pietro Bonetti

University of Navarra, IESE Business School

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Leibniz Institute SAFE; European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); CESifo Research Network

Giovanna Michelon

University of Bristol

Multiple version iconThere are 3 versions of this paper

Date Written: December 20, 2022

Abstract

The rise of shale gas and tight oil development has triggered a major debate about hydraulic fracturing (HF). In an effort to mitigate risks from HF, especially with respect to water quality, many U.S. states have introduced disclosure mandates for HF wells and fracturing fluids. We use this setting to study whether targeting corporate activities that have dispersed environmental externalities with disclosure regulation to create public pressure reduces their environmental impact. We find significant improvements in water quality, examining salts that are considered signatures for HF impact, after the disclosure mandates are introduced. We document effects along the extensive and the intensive margin, though most of the improvement comes from the latter. Supporting this interpretation, we find that, after the disclosure mandates, operators pollute less per unit of production, use fewer toxic chemicals, and cause fewer spills and leaks of HF fluids and wastewater. We also show that disclosure enables public pressure and that this pressure facilitates internalization.

Keywords: Environmental regulation, Real effects, Transparency, Water pollution, Sustainability, Corporate Social Responsibility, Externalities, Unconventional oil & gas development, Fracking

JEL Classification: D62, G38, K22, K32, L71, L72, M41, M48, Q53

Suggested Citation

Bonetti, Pietro and Leuz, Christian and Michelon, Giovanna, Internalizing Externalities: Disclosure Regulation for Hydraulic Fracturing, Drilling Activity and Water Quality (December 20, 2022). Available at SSRN: https://ssrn.com/abstract=4171246 or http://dx.doi.org/10.2139/ssrn.4171246

Pietro Bonetti

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Leibniz Institute SAFE ( email )

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Germany

European Corporate Governance Institute (ECGI)

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Belgium

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Center for Financial Studies (CFS) ( email )

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Germany

CESifo Research Network

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Giovanna Michelon

University of Bristol ( email )

University of Bristol,
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Bristol, BS8 ITH
United Kingdom
BS8 1PQ (Fax)

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