STUDY: Proposed Obama Fracking Rules Will Cost $1.5 Billion

June 14, 2012

The proposed rules will lead to extremely high costs and will be unlikely to yield any substantial benefits, according to the study

DENVER–An analysis of proposed federal rules governing hydraulic fracturing on public lands shows that the regulations would cost the energy industry at least $1.5 billion annually to implement.

The study, released Tuesday by the Denver-based Western Energy Alliance, found that the draft Bureau of Land Management rule would result in an annual financial hit of $1.499 billion to $1.615 billion, the result of increased operating, permitting and paperwork expenses involved in complying with the federal regulations.

The analysis was prepared by John Dunham and Associates, a New York-based economic consulting firm, for the Western Energy Alliance.

“Obviously, the potential that these regulations will lead to extremely high costs to operators, investors and even the federal government, and will be unlikely to yield any substantial benefits, suggests that at a minimum the BLM should perform a more detailed benefit/cost analysis and a full economic impact analysis of these proposed rules,” the study concluded.

The report also said that the high cost of complying with the draft rule means the BLM has run afoul of the National Environmental Policy Act, which requires a thorough economic analysis for projects that have an annual impact on the economy of $100 million or more.

“BLM’s proposed fracing rule would impose a huge cost on society by diverting $1.615 billion annually away from investment in job creation into redundant regulation,” said Kathleen Sgamma, WEA vice-president for government and public affairs, in a statement.“The Interior Department is willing to rush forward with regulations that lack a scientific basis and a thorough economic analysis as required for major rules that exceed the $100 million cost threshold.”

The proposed rule, unveiled by the BLM May 4, would require companies to reveal the chemicals used in their fracking operations on public and Indian lands, “with appropriate protections for proprietary information.”

The draft regulations also call for great oversight of the fracking process to guard against the escape of fluids and groundwater contamination, which Salazar described as “common-sense industry best practices.”

The fracking process has revolutionized drilling for natural gas, allowing the industry to reach previously inaccessible supplies, but the procedure has come under fire from environmentalists who worry the fluids may seep into water supplies.

Any costs borne by the industry as a result of increased government regulations are “insigificant compared to the industry’s profits, which are ultimately what they are fighting to protect,” said Emily Wurth, water program director for Food & Water Watch in Washington, D.C.

“It is important to note that these rules, no matter how strict, will not eliminate the risk of groundwater contamination from drilling and fracking on public land,” said Wurth in a statement. “Such an event would reveal the true costs to society and demonstrate why we should not be fracking our public lands.”

Energy advocates argue that fracking is now well regulated by the states, and that the proposed federal rule adds an unnecessary layer of costly regulation.

Earlier this year, Gov. John HIckenlooper helped negotiate fracking rules for Colorado that he described as a model for the nation.

Hickenlooper praised the proposed BLM rule after its release in May, saying that the disclosure requirement was similar to that of Colorado, “which is the most protective and transparent in the country as it requires the disclosure of the chemicals as well as their purpose and concentrations,” he said.

The comment period is scheduled to end July 10, but the alliance last week asked Interior Secretary Ken Salazar to abandon the proposed rule or, failing that, suspend the comment period in order to give the BLM time to rework its economic analysis.

“States in the West predominated by public lands will become less competitive, and will lose jobs and economic activity to other areas of the country unencumbered by excessive federal regulation,” said Sgamma in the letter. “The rules will have a negative impact on the treasury as well, in terms of lost royalties and leasing revenues.”

The governors of North Dakota, Utah and Wyoming have come out against the draft rule, as have two dozen members of Congress and the Southern Ute and Ute tribes.

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