John Locke Update / Research Brief

Fracking Ban As Corporate Welfare

posted on in Economics & Environment, Energy & Environment
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I was driving through rural North Carolina last week on my way to the beach when I spotted a car ahead of me that was displaying two bumper stickers. One said “ban fracking” and the other said “end corporate welfare.” It immediately struck me that these two bumper stickers are actually contradictory. To ban fracking is in fact to implement a form of corporate welfare.

At its most basic level corporate welfare is a policy induced coercive wealth transfer from the general population to a favored business or industry. This is exactly what a ban on the natural gas extraction technique known as hydraulic fracturing, aka fracking, accomplishes. The coercive wealth transfer that results from such a ban is from energy, primarily electricity, consumers, to certain favored energy producers, primarily those in the solar and wind power industries. It does this by reducing the supply of a low cost and reliable energy source, natural gas, thereby raising its price to above what it would otherwise be. This causes the price of electricity that would be generated from the new sources of gas to also be higher.  And because the electricity demand would have to be met from other, more expensive and less reliable sources, the wealth transfer is completed when the demand for energy from these other sources is increased.

Clearly the industries that will benefit the most from this coercive transfer from consumers to producers will be the wind and solar industries, which of course are already beneficiaries of massive amounts of corporate welfare in the form of large federal and state tax incentives and mandates to purchase the very limited amounts of energy that they are able to generate.

Wind and solar will be the biggest beneficiaries of this corporate welfare, not because they are the lowest cost alternatives, there are several sources like coal and nuclear that are much cheaper, but because regulations have cut off all other avenues. Coal would be a reasonable place to turn but new regulations on carbon dioxide emissions preclude that. In fact, one of the reasons that natural gas has become such an attractive source of energy is that its CO2 emissions are quite low. It is the threat of new coal regulations that have incentivized the fracking revolution. Nuclear power would also be much cheaper and certainly more reliable than solar or wind power but regulations have also stifled the construction of new nuclear power plants. It should be noted that, for those who believe we are in danger of having too much CO2 in the atmosphere (I do not), nuclear power is free of such emissions. (Please note, carbon dioxide, CO2, emissions are often falsely referred to as carbon (C) emissions. The substituting of C, a solid, for CO2, a gas, on the part of many commentators and reporters either stems from ignorance of basic science or is a willful deception.)

I am sure that the person whose car was sporting these bumper stickers would tell me that their support for a fracking ban has noting to do with providing corporate welfare for the solar and wind industry but instead is based on what they believe is a fact, that fracking is dangerous to people living in the community. Putting aside the fact that the recipients and beneficiaries of corporate welfare always say that it is not for themselves that they want the subsidies but to somehow improve the well-being of society, all evidence suggests that fracking, if done properly is not dangerous. This includes evidence provided by the Department of Energy and many independent scholars. Dr. Jay Lehr, editor of the Renewable Energy and Shale Gas Encyclopedia, (Wiley publishers, 2016) states that:

More than one million wells have been hydraulically fractured to date, and there has not been a single water well proven to have been contaminated by either fracking fluids or oil and gas seepage.

If one is really concerned about possible harm to others from fracking while at the same time opposing corporate welfare, the most straight forward thing to do is to advocate for a rule of strict liability with the possibility of injunctive relief for any harm that fracking companies might impose on neighboring communities. In other words, impose a rule that any proven victims of fracking must be fully compensated for their losses by the companies involved and that if the harms continue the the fracking operations must be discontinued.

But if your ultimate goal is corporate welfare for the wind and solar industry rather than protecting the community this is not an acceptable solution. As Lehr points out “environmentalists can’t produce a single person who has been harmed or point to an ecosystem ravaged as a result of fracking.” In other words, under such a system the desired wealth transfers would not materialize because the harms that might otherwise shut down the targeted industry are not occurring.

Roy Cordato is Senior Economist and Resident Scholar at the John Locke Foundation. From January 2001 to March 2017, he held the position of Vice President for Research at the Locke Foundation. He is also an adjunct faculty member in… ...

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