InvestMacro

By Vivian R. Underhill, Northeastern University and Lourdes Vera, University at Buffalo 

From rural Pennsylvania to Los Angeles, more than 17 million Americans live within a mile of at least one oil or gas well. Since 2014, most new oil and gas wells have been fracked.

Fracking, short for hydraulic fracturing, is a process in which workers inject fluids underground under high pressure. The fluids fracture coal beds and shale rock, allowing the gas and oil trapped within the rock to rise to the surface. Advances in fracking launched a huge expansion of U.S. oil and gas production starting in the early 2000s but also triggered intense debate over its health and environmental impacts.

Fracking fluids are up to 97% water, but they also contain a host of chemicals that perform functions such as dissolving minerals and killing bacteria. The U.S. Environmental Protection Agency classifies a number of these chemicals as toxic or potentially toxic.

The Safe Drinking Water Act, enacted in 1974, regulates underground injection of chemicals that can threaten drinking water supplies. However, Congress has exempted fracking from most federal regulation under the law. As a result, fracking is regulated at the state level, and requirements vary from state to state.

We study the oil and gas industry in California and Texas and are members of the Wylie Environmental Data Justice Lab, which studies fracking chemicals in aggregate. In a recent study, we worked with colleagues to provide the first systematic analysis of chemicals found in fracking fluids that would be regulated under the Safe Drinking Water Act if they were injected underground for other purposes. Our findings show that excluding fracking from federal regulation under the Safe Drinking Water Act is exposing the public to an array of chemicals that are widely recognized as threats to public health.

Averting federal regulation

Fracking technologies were originally developed in the 1940s but only entered widespread use for fossil fuel extraction in the U.S. in the early 2000s. Since the process involves injecting chemicals underground and then disposing of contaminated water that flows back to the surface, it faced potential regulation under multiple U.S. environmental laws.

In 1997, the 11th Circuit Court of Appeals ruled that fracking should be regulated under the Safe Drinking Water Act. This would have required oil and gas producers to develop underground injection control plans, disclose the contents of their fracking fluids and monitor local water sources for contamination.

In response, the oil and gas industry lobbied Congress to exempt fracking from regulation under the Safe Drinking Water Act. Congress did so as part of the Energy Policy Act of 2005.

This provision is widely known as the Halliburton Loophole because it was championed by former U.S. Vice President Dick Cheney, who previously served as CEO of oil services company Halliburton. The company patented fracking technologies in the 1940s and remains one of the world’s largest suppliers of fracking fluid.

Fracking fluids and health

Over the past two decades, studies have linked exposure to chemicals in fracking fluid with a wide range of health risks. These risks include giving birth prematurely and having babies with low birth weights or congenital heart defects, as well as heart failure, asthma and other respiratory illnesses among patients of all ages.

Though researchers have produced numerous studies on the health effects of these chemicals, federal exemptions and sparse data still make it hard to monitor the impacts of their use. Further, much existing research focuses on individual compounds, not on the cumulative effects of exposure to combinations of them.

Chemical use in fracking

For our review we consulted the FracFocus Chemical Disclosure Registry, which is managed by the Ground Water Protection Council, an organization of state government officials. Currently, 23 states – including major producers like Pennsylvania and Texas – require oil and gas companies to report to FracFocus information such as well locations, operators and the masses of each chemical used in fracking fluids.

We used a tool called Open-FracFocus, which uses open-source coding to make FracFocus data more transparent, easily accessible and ready to analyze.

We found that from 2014 through 2021, 62% to 73% of reported fracks each year used at least one chemical that the Safe Drinking Water Act recognizes as detrimental to human health and the environment. If not for the Halliburton Loophole, these projects would have been subject to permitting and monitoring requirements, providing information for local communities about potential risks.

In total, fracking companies reported using 282 million pounds of chemicals that would otherwise regulated under the Safe Drinking Water Act from 2014 through 2021. This likely is an underestimate, since this information is self-reported, covers only 23 states and doesn’t always include sufficient information to calculate mass.

Chemicals used in large quantities included ethylene glycol, an industrial compound found in substances such as antifreeze and hydraulic brake fluid; acrylamide, a widely used industrial chemical that is also present in some foods, food packaging and cigarette smoke; naphthalene, a pesticide made from crude oil or tar; and formaldehyde, a common industrial chemical used in glues, coatings and wood products and also present in tobacco smoke. Naphthalene and acrylamide are possible human carcinogens, and formaldehyde is a known human carcinogen.

The data also show a large spike in the use of benzene in Texas in 2019. Benzene is such a potent human carcinogen that the Safe Drinking Water Act limits exposure to 0.001 milligrams per liter – equivalent to half a teaspoon of liquid in an Olympic-size swimming pool.

Many states – including states that require disclosure – allow oil and gas producers to withhold information about chemicals they use in fracking that the companies declare to be proprietary information or trade secrets. This loophole greatly reduces transparency about what chemicals are in fracking fluids.

We found that the share of fracking events reporting at least one proprietary chemical increased from 77% in 2015 to 88% in 2021. Companies reported using about 7.2 billion pounds of proprietary chemicals – more than 25 times the total mass of chemicals listed under the Safe Drinking Water Act that they reported.

Closing the Halliburton loophole

Overall, our review found that fracking companies have reported using 28 chemicals that would otherwise be regulated under the Safe Drinking Water Act. Ethylene glycol was used in the largest quantities, but acrylamide, formaldehyde and naphthalene were also common.

Given that each of these chemicals has serious health effects, and that hundreds of spills are reported annually at fracking wells, we believe action is needed to protect public and environmental health, and to enable scientists to rigorously monitor and research fracking chemical use.

Based on our findings, we believe Congress should pass a law requiring full disclosure of all chemicals used in fracking, including proprietary chemicals. We also recommend disclosing fracking data in a centralized and federally mandated database, managed by an agency such as the EPA or the National Institute of Environmental Health Sciences. Finally, we recommend that Congress repeal the Halliburton Loophole and once again regulate fracking under the Safe Drinking Water Act.

As the U.S. ramps up liquefied natural gas exports in response to the war in Ukraine, fracking could continue for the foreseeable future. In our view, it’s urgent to ensure that it is carried out as safely as possible.

About the Author:

Vivian R. Underhill, Postdoctoral Researcher in social Science and Environmental Health, Northeastern University and Lourdes Vera, Assistant Professor of Sociology and Environment and Sustainability, University at Buffalo

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Nehal El-Hadi, The Conversation and Daniel Merino, The Conversation 

Our dependence on fossil fuels is one of the biggest challenges to overcome in the fight against climate change. But production and consumption of fossil fuels is on the rise, and expected to peak within the next decade.

In this episode of The Conversation Weekly, we speak to two researchers who examine the political challenges of transitioning to a world after oil, and what it means for those states who rely on oil for resources.

Oil is not only used as a fuel, but is integral to everyday life through its applications in plastics, manufacturing processes, fabrics, paints and chemicals. In order to consider alternatives to oil, we need to be aware of the scale of its integration into our lives.

Caleb Wellum is an assistant professor of U.S. history at the University of Toronto Mississauga, Canada.

“I almost hesitate to say this, because this kind of depiction of deep dependence on oil has actually been a strategy of oil companies themselves to say, look, you can’t have a modern world, a modern way of life without oil,” Wellum points out. “So this is not to say it’s inescapable, but it’s to say that the challenges are significant to transitioning to some kind of after-oil.”

Defining that transition can be tricky, because it carries different stakes depending on how it is interpreted: does it mean continuing to extract oil “until the last drop,” or finding alternatives right now?

Wellum notes that the 1970s oil crisis was a significant moment in human history that helped shape our current consumption patterns. There was a debate between environmentalists and economists that signalled a moment at the crossroads for our current relationship with oil.

“I noticed there was a need to transition away from oil. And there was also a free market argument that argued the energy crisis was a sign of bad government policy of governments intervening in markets and making it inefficient,” he said. “Eventually, this market argument won out and there was no energy transition.”

There was a growing awareness of the environmental impact of the extraction and consumption of fossil fuels, and the urgent need to combat climate change to reduce global warming. And recently, governments around the world — including in countries dependent on oil revenues — are committing to finding energy alternatives.

Natalie Koch is a professor of human geography at the Geography Institute at the University of Heidelberg, Germany. Her research looks at how petrostates have presented spectacular alternative energy projects to distract from the need to move away from oil.

“There’s a focus on spectacular sustainability projects, and by that you see the scale and the size is just enormous. And that’s what spectacle does — it’s supposed to attract a lot of attention because the size range of the project is really quite impressive,” Koch said.

But these ambitious alternative energy projects aren’t all as they seem, she cautions. Koch describes how a solar farm in the desert in Morocco — one of the largest such projects in the world — is facing challenges because of the amount of water required.

To transition to a world post-oil, whatever that may look like, requires more than successful and sustainable alternative technologies.

“There are a lot of factors that go into why it is that we’re dependent on oil, but they’re not just about the convenience of the source of energy,” Wellum points out. “It’s about political decisions.”

Listen to the full episode of The Conversation Weekly to find out more.

This episode of The Conversation Weekly was produced and written by Mend Mariwany, who is also the show’s executive producer. Sound design is by Eloise Stevens, and our theme music is by Neeta Sarl.

You can find us on Twitter @TC_Audio, on Instagram at @theconversationdotcom or via email. You can also sign up to The Conversation’s free emails here. A transcript of this episode will be available soon.

Listen to The Conversation Weekly via any of the apps listed above, download it directly via our RSS feed, or find out how else to listen here.

About the Author:

Nehal El-Hadi, Science + Technology Editor & Co-Host of The Conversation Weekly Podcast, The Conversation and Daniel Merino, Associate Science Editor & Co-Host of The Conversation Weekly Podcast, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Michael Jacobs, University of Sheffield 

Climate change policy has entered a new era. The growing row between the United States and the European Union over the impacts of the new American green subsidy regime makes that all too clear. Yet in many ways, this story is ultimately about China.

For the last 20 years, developed countries have used three main types of policy to cut their greenhouse gas emissions. Renewable energy mandates have required electricity generators to invest in solar, wind, hydro and geothermal power. Emissions trading schemes for energy and industrial businesses put a price on carbon. And energy efficiency standards have been progressively improved on a whole range of products from vehicles and white goods to homes.

Applied across Europe and North America, this policy toolkit brought notable success. Developed countries’ emissions fell sharply, even with economic growth. Green technologies – from wind and solar to electric vehicles – fell in cost and improved in performance as demand for them rose.

A virtuous circle followed: climate policy increased demand for green technologies, which reduced costs, which allowed policy to be tightened, which stimulated demand and innovation further.

The rub

There were two problems, however. First, much of the economic benefit went to China. From 2010 onwards China rapidly became the world’s primary supplier of wind and solar technology, along with underpinning minerals like lithium, cobalt and rare earths.

China’s dominance reduced everyone’s costs. But it also meant that, as industrial jobs were lost in developed countries, they were not replaced by equivalents in the new energy sectors.

Second, climate policy began to create political opposition. As emissions targets tightened, countries started to see the costs reflected in consumer prices.

The most dramatic response emerged in France in 2018, when a relatively small increase in fuel duty led the so-called gilets jaunes (yellow jacket) protestors to block roads across the country for over a year, even after President Emmanuel Macron withdrew the tax. In the US, congressional opposition stymied President Barack Obama’s plans for a climate bill – including a modest carbon pricing scheme – for the whole of his presidency.

Joe Biden has learned the lesson. His Inflation Reduction Act (IRA), passed in 2022, offers climate carrots instead of sticks – and lots of them.

The act – which despite its name is almost entirely about climate change – offers a mammoth US$369 billion (£306 billion) of tax credits and other subsidies to companies making low-carbon investments and to consumers buying green products. Critically, to take advantage of subsidies, a significant proportion of materials and equipment used must be produced in North America.

The EU position

Orthodox economists deplore the IRA. Subsidies are much less efficient than taxes (not to say more expensive), and protectionism raises costs to consumers.

Yet to any politician, Biden’s approach looks like a no-brainer. Don’t penalise businesses with carbon levies: reward them with tax credits. Don’t allow the employment benefits of climate policy to leak overseas to China: ensure they stay at home. Nearly three-quarters of Americans backed the act, including over half of Republicans.

The EU is alarmed at the likely effects. There are al ready reports of European cleantech companies planning to transfer production to the US, while others may be kept out of US markets. The European Commission has threatened the US with legal action at the World Trade Organization for breaking free trade rules, and has already secured US concessions, including extending tax credits to foreign-made electric vehicles.

Even more significantly, the commission president Ursula von der Leyen has announced a “green deal industrial plan” for the EU. The core will be a Net Zero Industry Act relaxing rules on state aid and providing subsidies for cleantech investment. Meanwhile, a Critical Raw Materials Act will build partnerships with like-minded suppliers to reduce dependence on Chinese imports, mirroring what the recent EU and US chips acts do with semiconductors.

The broader context

Both the EU and US are therefore turning climate policy into industrial and trade strategy. One might ask what took them so long. China’s twelfth five year plan in 2010 first identified seven environmental “strategic industries” on which to focus economic development. It is not a coincidence that China rapidly came to dominate the new low carbon sectors: it was literally the plan.

The EU and US moves are a desperate attempt to catch up, with Japan and South Korea not far behind. And the strategy extends beyond their own continents. The new kids on this block are multi-billion dollar just energy transition partnerships which the EU, US and other western powers have recently negotiated with South Africa, Indonesia and Vietnam.

These “JET-Ps” aim to stimulate investment, not just in the renewables transition but also in domestic industrial capacity. Loans and guarantees provided by western governments aim to leverage much larger flows of private finance. The goal is for these countries to manufacture and export their own green technologies, charting a new path for economic development.

More such partnerships will likely be announced over the coming year. This is not altruism on western countries’ part, but an attempt to offer an alternative to China’s huge investments in the developing world.

What about the UK? These developments leave the British economy in a badly weakened position. The EU was the obvious partner in green industrial policy. On its own the UK is not nearly large enough to compete.

It creates a compelling case for a future UK government to do a green trade deal with the EU. In return for a financial contribution to the EU’s green innovation funds, the UK could rejoin the single market for environment goods and services.

Just a few years ago, climate change was a subset of environmental policy. Today it is a key dimension of both economic strategy and geopolitics. Given the extent of the economic transformation it demands, no-one should be surprised.

About the Author:

Michael Jacobs, Professor of Political Economy, University of Sheffield

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Jun Du, Aston University and Holger Görg, Kiel Institute for the World Economy 

The EU is preparing to abandon its longstanding restrictions on state aid to take on US and Chinese subsidies over green technologies. European Commission president Ursula von der Leyen is spearheading a new commitment from EU leaders to “act decisively to ensure its long-term competitiveness, prosperity and role on the global stage”.

She has talked about the need to counter hidden subsidies from the Chinese, both in green tech and in other sectors, though the trigger for the EU’s new approach is really President Joe Biden’s Inflation Reduction Act (IRA). This has committed the US to a record US$369 billion (£305 billion) to green its economy, including using tax breaks and subsidies.

It effectively tears up the international consensus around not using state aid, embracing what the US has railed against for years. The Economist has said that globalisation is no longer about racing, but racing and tripping others.

The EU is now proposing to introduce its own tax credits and subsidies for cleantech companies, as well as fast-tracking regulation in this area.

Meanwhile, the UK has been coming under pressure from the likes of car manufacturers to respond. So far, it has been trying to find exemptions to the US’s general approach of only offering incentives to products made in America, while also claiming the UK has no need to subsidise these kinds of areas because it is already ahead.

The economics of this drift to protectionism are worrying. Our recent research on the effects of state subsidies in China suggest that such policies could do the US and EU economies more harm than good overall.

There’s a reason why the west has long avoided state aid.
Shaun Dakin/Unsplash

What the research says

Since the dawn of the industrial revolution, states have played a significant role in developing their economies. China is the recent prime example, where the use of subsidies to develop particular industries such as electric cars or solar panels has been highly visible.

India seems to be moving in the same direction. The government is paying half of the cost of making computer chips, among a variety of incentives to encourage investment in different sectors.

Equally, in the developed world, government procurement has driven many world-changing innovations. Whole sectors such as biotech and information technology relied on government procurement to get started. America’s Silicon Valley originally grew on the back of military contracts, for instance.

Research in this area does acknowledge a case for subsidising infant industries in which a country wants to specialise. China’s state subsidies in the steel and solar panel industries would be a good example.

Yet there is a price to be paid: the money a government spends means that less will be available for helping its citizens in other ways. For example Brazil’s wheat-industry subsidies in the 1980s were estimated to have produced a net loss of 15% to welfare spending.

Around the same time, it was estimated that if the EU removed the common agricultural policy, the extra money available for government spending could increase real incomes by between 0.3% and 3.5% as a proportion of GDP. Findings like these probably explain why the World Trade Organization has discouraged state aid for decades.

Consequences

The new green subsidies will create winners and losers at different levels. Within the EU, for example, it will un-level the playing field between member states. Those that can afford to spend more on their green tech industries will potentially crowd out those with less.

Even within a country, there’s unlikely to be a win-win. Our research team has recently published a paper about China’s subsidies, using a new approach that makes it possible to estimate the direct and indirect effects on subsidised and non-subsidised firms at the same time.

This is the first time anyone has looked at subsidies in this way. Our project looked at 1998-2007, since those were the years where the necessary data was available.

We found that subsidised firms become relatively more productive, thus making them more competitive. Yet firms that are not subsidised can see their productivity growth reduced.

The determining factor is whether they operate in a geographical cluster alongside subsidised firms. When more than a quarter of firms in a cluster in China were being subsidised, the remainder suffered.

Those losing out were typically foreign-owned firms and those owned by the Chinese state, while private Chinese firms were the beneficiaries.

When we aggregated all the data, it showed that this negative indirect effect tends to dominate. In other words, subsidies produce unintended losers and make the market less competitive and more inefficient as a whole.

The bottom line is, subsidies are not without problems, even for China. In the last decade we have seen what “losers” can do to an economy, or a society – think of movements towards populism and autocracy in many places.

Therefore, there needs to be a more thorough debate about the benefits and costs of subsidies before states apply them, and some carefully designed policies to prepare for the potential losers.

About the Authors:

Jun Du, Professor of Economics, Centre Director of Centre for Business Prosperity (CBP), Aston University and Holger Görg, Acting President, Kiel Institute for the World Economy

This article is republished from The Conversation under a Creative Commons license. Read the original article.