Managing and Monitoring the Environmental Impacts of Oil and Gas Development around
Communities - Roger Coupal, University of Wyoming –
Communities impacted from energy development can incur substantial benefits and problems
that require more intensive management by local leaders. Communities develop the resources
they have available and those with large energy resources perceive themselves as having few
other choices. Analysis suggest a strong regional advantage to oil and gas development relative
to national trends. If a county had worked toward building a local structure more akin to the
national economy they would have trailed the national economy and would have seen a decline
in employment. Instead, communities saw rising wages and employment opportunities and
increasing tax revenues. Economic volatility itself though can create increased uncertainties in
the ability of local businesses to re-invest in or expand in their operations.
Environmental spillovers include air quality, subsurface effects, and surface impacts. Research
identified sources and types of air pollutants in fields that produce gas or oil. These included
NOx, VOC’s, and “fugitive” methane. Sources include machinery operations (pumps,
pressurization systems, the actual rigs), loading/unloading processes, fugitive emissions, and
venting or flaring.
Subsurface effects are another category of environmental problems from water quality or
quantity decline. Water is a vitally important component for land use and the market value
thereof. Without usable water, either through de-watering or water contamination can effect
property values. Land without water availability is worth a fraction of what it was before
development.
Two difficulties arise with communities in managing subsurface contamination or loss of water
quantity. Establishing liability can be very difficult and courts require a standard of evidence that
can be challenging if landowners or communities are not prepared. Moreover, the State while
providing a regulatory role for communities also receive significant tax revenues from
development. As a result there can be a potential conflict of interest. States can condemn land
for perceived economic benefits to the broader State’s residents.
Surface damages are the most developed in terms of regulation and prescriptions. There are
two regulatory mechanisms for oil and gas that encourage reclamation: reclamation bonding
and a working reclamation plan. Other instruments that are either not used as much or not used
with sufficient intensity are the orphan well tax and disturbance caps.
The environmental bond is a standard instrument in providing an incentive for a firm to reclaim.
The current federal environmental bonding system suffers from two design flaws: a sunk cost
and a blanket-bond problem. The first flaw is the failure to properly account for time value of
money, given that bonds are posted in the beginning of the production process, but reclamation
is completed after the well is capped. Since the bond level is not tied to production, significant
differences can occur between the posted amount of the bond and realized reclamation costs
(Andersen and Coupal, 2009). Analysis suggests that bonds reflect on average 20 percent of
the actual cost.
Economic booms and busts are highly disruptive events that have both positive and negative
aspects. Communities need to be proactive and engaging as much as possible in working with
those in the community that are do not see the short run benefits of the boom and with industry
to limit negative spillovers.