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

66 Pages Posted: 16 Jan 2023 Last revised: 30 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); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Giovanna Michelon

University of Bristol

Multiple version iconThere are 3 versions of this paper

Date Written: January 2023

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.

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Suggested Citation

Bonetti, Pietro and Leuz, Christian and Michelon, Giovanna, Internalizing Externalities: Disclosure Regulation for Hydraulic Fracturing, Drilling Activity and Water Quality (January 2023). NBER Working Paper No. w30842, Available at SSRN: https://ssrn.com/abstract=4325035 or http://dx.doi.org/10.2139/ssrn.4325035

Pietro Bonetti (Contact Author)

University of Navarra, IESE Business School ( email )

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Christian Leuz

University of Chicago - Booth School of Business ( email )

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Leibniz Institute SAFE ( email )

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Germany

CESifo Research Network

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Center for Financial Studies (CFS) ( email )

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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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