• NC’s New Fracking Rules: Kudos and a Concern

    Since 2012, North Carolina has been on a fast and furious quest to create an entirely new regulatory regime for oil and gas production. The intertwined issues of whether and how to create such a regime to encourage fracking in North Carolina became and remain central enviro/political questions for the state. In 2012, a legislature newly controlled by the Republican Party (for the first time since Reconstruction) directed that regulations be put in place to encourage oil and gas exploration, and quickly. The central institutional actor charged with doing this has been a new State commission, the Mining and Energy Commission. The MEC is made up, as is typical in this and other states, of volunteer political appointees.  Could a new group of volunteers really pull off the creation of an entirely new regulatory scheme in little over a year? Environmental rulemaking in North Carolina in the past fifty years has not been about speed or efficiency, and the issues involved in fracking and its regulation are highly technical and politically controversial. So many of us who watch and advise about state environmental law felt this process might just produce a train wreck.

    Kudos: There was no train wreck

    The fracking rule train pulled into its final administrative station more or less on time. An incredible amount of volunteer work by MEC commissioners and “beyond the norm” work by their staff produced a set of rules in the extremely short time frame dictated by the legislature. Debates about the quality of the rules and, more importantly, their actual implementation and environmental consequences, will  continue as long as there is any interest in the state’s oil and gas resources. But whatever their ultimate genius or deficiencies, the new MEC rules stand as a testament to the ability of engaged citizens and experts to produce complex environmental regulations in politically charged settings, with scarce resources. I believe a major factor in the MEC’s success was its willingness to accept some diversity of opinion both in its membership and from its critics, despite the political desire on all sides of the debate to remain “on message,” meaning, to avoid dissent, complexity and contradiction.

    Why do we not celebrate work on behalf of the public?

    As Americans we celebrate entrepreneurial successes; they fit our narrative of the nation as a place where hard work and risk taking yield rewards. For some reason, though, we cannot seem to appreciate that our governmental and legal systems also produce some extraordinary successes, even when the payoff to the creators involved is, at best, a pat on the back, and more often is public scorn. To me this is a strange form of American myopia: an unwillingness to applaud work done for the public good with little or no hope of private remuneration. The classical writers whose ideas helped shape our democracy would surely have celebrated such work as a high form of virtue.

    Little-known fact: in NC and other states, “government” includes a huge volunteer component

    The success of the MEC in getting a package of rules together should teach us a lesson about other citizen commissions, which are critical to the entire range of environmental and public health governance issues in North Carolina and other states. It’s certainly not enough to count on political connections as a source of talent for these governing bodies. It’s not even enough just to have expertise in the field and willingness to volunteer huge amounts of time and effort, though we do have those things on many of our commissions and they should be celebrated more than they are. We also need to ensure diversity of background and opinion and robust debate among commission members.

    Concerns: why the rush for these rules, really? What does that rush imply about their likelihood of successful implementation?

    This is not to say the new North Carolina oil and gas rules are perfect or that fracking will be done safely in North Carolina. I have some personal and particular complaints about the process and concerns about the rules themselves. It’s amazing to see the apparently willful blindness of fossil fuel proponents to problems that always occur when a regulatory system is directed to encourage production, instead of neutrally regulating it. The only driver for the short time frame in which the MEC worked on its rules was political, and that is rarely a smart or rational way to drive complex environmental regulation. The short time frame for the MEC’s work meant that for most issues faced by the commission, the rules proposed were not really the result of a careful, original, localized thinking through the problems and development of innovative solutions; they were a result of comparing rules already in place elsewhere around the country and then picking a sort of “middle road” through the choices previously made in other states. In some cases, such as the chemical disclosure rule, where outside pressure forced more time and deliberation, the MEC did appear to bring some innovative thinking to bear on the problem. More often, though, our cultural veneration of innovation (in the private sector) was absent without leave.

    Contemporary politics tends to obscure, not to resolve, the important trade-offs involved in environmental regulation. But that’s often the only way things get done, for us as individuals as well as for governments. Sometimes we have to slide over and around the difficulties and setbacks and forge ahead despite our lack of full understanding of whatever issues are at hand.

    This train got special breaks

    North Carolina’s experience creating fracking rules also teaches some lessons about the realities of administrative process. In short, the potential train wreck caused by the short time frame for rulemaking was avoided only because the process was altered to make it easier to promulgate the rules. Most notably, they were exempted from the normal requirement for fiscal analysis. This is ironic given that the administration in place at DENR during the MEC’s initial work came into office pledging to use cost-benefit analysis in all its regulatory work. You would search in vain for any such analysis of the fracking rules.

    Administrative law isn’t really about consistency, despite what they teach in law school

    People who take administrative law in law school are still taught that administrative process—in particular, rulemaking—values consistency across and within agencies. As the fracking rules ably demonstrate, the truth is that we design processes to make politically favored things easier to do, and politically difficult things (like the meaningful regulation of economic production) difficult to do. Environmental rulemaking in North Carolina has been larded up since 1995 with special requirements, designed to slow down regulatory development and refinement. In the worst instances, it’s “paralysis by analysis.” Along comes a desire for oil and gas production, and suddenly the larded processes get special exemptions to make them a lot leaner. Students are taught in law school that administrative law is largely about a goal of consistency across administrative agencies and problem areas. Really, though, there is no political desire for consistency, and administrative law teachers would do well to acknowledge as much. Administrative process is a reflection of political power. Political power creates preferential pathways for its objects of desire.

    The pragmatic question: what difference do these rules and this special process make?

    It’s an open question when and whether there will ever be actual oil and gas production in North Carolina. North Carolina has never been a fossil-fuel producing state, other than a tiny bit of artisanal coal production in the Deep River coal field . The Egypt mine operated from the 1850s to 1928, mostly supplying coal for the Confederate States of America, and two other mines in the same area produced some coal, but sporadically and uneconomically. There have been over a hundred exploratory wells for oil or gas drilled in the state since the 1920s, focused on the outer coastal plain. No one has yet gone to the production phase.

    Executive branch agencies should tell truth to legislators and the public, not slant facts to fit the prevailing political winds

    Another unsettling aspect of the MEC process was that several members of the commission, including its then-chair, James Womack, fueled the political fires that caused the unrealistically-short time frames and that supported the special process exemptions given to these rules. In his November 2013 official report to the legislature, Chairman Womack laid out his projections (presumably shared by the MEC, although he did not cite any sources or clearly state his basis for these predictions) of the pace of oil and gas development in North Carolina. He stated there would be industry seismic studies in 2013, analysis and drill plan development by February 2014, vertical well and core drilling by the summer of 2014, and five wells completed in 2015, ramping up to 140 wells completed in 2018. So far as I’m aware, none of those predictions has come true, and it looks about equally probable that the number of wells completed by 2018 will be zero, given the lack of any real industry interest thus far in further exploration in North Carolina’s small and unproven resource. In a properly functioning executive branch, agency heads would not give wildly optimistic projections to legislators on politically sensitive matters; they would give reasonable best estimates, stated as ranges, along with estimates of uncertainty and the bases for their predictions. This is one way in which our reliance on politically-appointed volunteers to staff executive branch commissions tends to underperform reliance on career officials who have expertise in the field and whose reputation turns, in part, on their honesty and accuracy.

    If horizontal drilling, fracking and production onshore in North Carolina ever happen, though, there is now at least a set of rules that provide a starting point for how that activity will be regulated. When landmen started leasing mineral rights in and around the shale basin associated with the Deep River coal field in the early-mid 2000s, they were in virtually unregulated turf. The state had some World War II-era oil and gas statutes (G.S. 113-278 et seq.) that prohibited drilling other than vertical drilling. This meant that any shale gas production by modern unconventional methods (“fracking”) could only be done after legal changes and the creation of a brand new regulatory regime. The MEC has produced that regime, at least the formal, textual part—which is, of course, far from an actual, working regulatory system. But it’s a good start. So I give a tip of the hat to the Mining and Energy Commission and its staff at DENR.

    Richard Whisnant joined the School of Government (then the Institute of Government) in 1998. Prior to that, he was general counsel with the NC Department of Environment, Health & Natural Resources. He had previously practiced environmental law with Robinson, Bradshaw & Hinson, in Charlotte, North Carolina, and was a clerk for the Hon. Sam J. Ervin III on the US Court of Appeals for the Fourth Circuit. Whisnant earned a BA from the University of North Carolina at Chapel Hill and an MPP and JD from Harvard University.

    3 thoughts on “NC’s New Fracking Rules: Kudos and a Concern”

    • Commissioner Jim Womack says:

      I appreciate the gist of RIchard’s commentary here. However, his concluding remarks infer I misled the public about future oil and gas development in the state. Surely, Mr. Whisnant is aware my report to the legislature contained prominent caveats indicating all such prognosis was based on many uncontrollable factors- including oil and gas pricing (which has since fallen dramatically) and on results of interim testing. The projection of five wells by end of 2015 was not presented as my projection, but rather what the MEC’s Financial Study Group used for baseline impact analysis derived from the natural escalation of activity in the Marcellus and Fayetteville Shale developments in other parts of the country. I was very careful not to place a high level of confidence on these historical trends; rather, I simply identified what was possible should everything progress in an optimal fashion. At no time did I provide the legislature or anyone else a projection of actual drilling activity. I believe Mr. Whisnant’s compensated writing for the SOG should be more careful not to leave out these facts when mentioning me or my volunteer work for the state by name.

      • Richard Whisnant says:

        Thank you for weighing in, Jim. I am glad to hear that you view your estimates on the drilling timetable as iffy. However, I was present for the report you made to the legislature, mentioned in my original post, and I have a copy of your presentation (which is also still available here, the Environmental Review Commission’s website). I didn’t hear then nor do I see now the sort of careful caveats you mention in your comment. In general, my point is that agencies should present any such projections with sources, levels of confidence, major assumptions and ideally a reasonable range of estimates with upper and lower bounds, instead of giving point estimates and saying “but it could vary.” It looks to me (from your slide 7, “Anticipated Milestones”) that you did intend to convey that there was some uncertainty (with your asterisk and footnote). But by presenting the timeline you basically communicated that this was what you, as chairman of the Commission, expected to happen.

        I know that it’s tempting to tell elected officials what they want to hear, particularly with controversial and politicized matters. To me, though, this is exactly when and where executive branch agencies need to resist that temptation, just give the facts, and highlight the uncertainty where, as here, many knowledgeable people would strongly disagree with the projections.

        To reiterate my overall point in the blog post, though, I appreciate and was impressed by the job you and your fellow commission members did in getting a package of rules ready for review and adoption.

    • Anzhela says:

      Cynical? Welcome to my waking state of being every day. Yeah, I was waichtng when that coastal planning fiasco went down. I’ve reached a level of despair over my state and the morons we continue to elect that if I could I’d move away. Literally. In my own state house district this year, once again a Republican is running unopposed. I even gave serious thought to throwing my name in the ring just for there to be some opposition, but we pay our state legislators so little that the only folks who can afford to run are those who don’t need to work. My business is doing pretty decent considering the climate I started it in almost two years ago, but without me here to run it every day it would disappear over night.The fracking thing in this state is supposed to go on in a rural area, as one would expect. The trouble is that the two areas being considered fall on either side of one of the most populous areas of the state and our capital city as well. On top of that, one need only to look at a geologic map of the state to realize that the fractures are going to run right through that area, and it’s going to be an ungodly mess when the piper comes for his paycheck. This is going to make life miserable for a lot more than just a bunch of us rural hillbillies out in the woods. It’s gonna get real ugly before it’s through, I just hope my well here is far enough away and off the fault lines to remain uncontaminated. My county has no public water system. It’s a well or nothing out here.

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