Regulatory Non-Enforcement by Design: Earthworks Shows How the Game is Played

Thu, 2012-09-27 13:58Steve Horn
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Regulatory Non-Enforcement by Design: Earthworks Shows How the Game is Played

Earthworks Oil and Gas Accountability Project published a scathing 124-page report this week, “Breaking All the Rules: the Crisis in Oil & Gas Regulatory Enforcement.”

The content of the report is exactly as it sounds.

That is, state-level regulatory agencies and officials often aren't doing the jobs taxpayers currently pay them to do and aren't enforcing regulations on active oil and gas wells even when required to under the law.

This is both out of neglect and also because they're vastly understaffed and underfunded, meaning they literally don't have the time and/or resources to do proper inspections.

And on those rare instances when regulatory agencies and the regulators that work for them do enforce regulations on active oil and gas wells, Earthworks demonstrated that the penalties for breaking the rules are currently so weak that it's merely been deemed a tiny “cost of doing business” by the oil and gas industry.

It's certainly not a report to read for the optimists of the world. The Executive Summary sums things up nicely:

The U.S. faces a crisis in the enforcement of rules governing the oil and gas industry. The shale gas and shale oil boom has brought an expansion of oil and gas activity unseen in many parts the country since the 19th century. Unfortunately, as this report shows, states are dangerously unprepared to oversee current levels of extraction, let alone increased drilling activity from the shale boom.

(Snip)

Based on their own data, every state we studied fails to adequately enforce regulations on the books.

Miniscule Enforcement Levels

One of the most shocking findings of the study is the fact that 51-91% of the active wells studied in the six states (Colorado, New Mexico, New York, Ohio, Pennsylvania, Texas) have operated with zero inspections to date since the beginning of the ongoing shale oil and gas boom in about 2008. 

Translation: over half of all wells go uninspected each year in these six states and hundreds of thousands of active oil and gas wells across the country are never inspected.

2010 in Pennsylvania and Ohio - home of the Marcellus Shale and Utica Shale basins respectively - featured some 91% of wells going uninspected. This amounts to more than 82,000 wells in PA and over 58,000 in OH. Texas' 2010 stats aren't much better. Home of the Barnett and Eagle Ford Shale basins, the state saw 53% of wells go uninspected, a total of 139,000 wells. 

While the shale oil and gas boom is here to stay in the U.S. for the forseeable future, enforcement of regulatory mechanisms has gone out the door, explains Earthworks:

Despite the shale oil and gas boom, enforcement actions have not kept pace. The numbers of enforcement actions and total dollar amount in penalties have either remained fairly constant or have dropped in all six states over the past few years.

These figures are but the tip of the iceberg. There were 84 oil and gas well inspectors in all of Pennsylvania, 15 in Colorado and 97 in Texas at the end of 2011. This equtes to 885 wells per inspector (258 inspections per inspector), 3,122 wells per inspector (816 inspections per inspector) and 2,696 wells per inspector (1,184 inspections per inspector) respectively on an annual basis. 

All the while, the report explains, funding continues to be slashed from the PA Department of Environmental Protection's coffers, to the tune of 36% budget cuts between 2008-2011 and more than 60% over the past decade.

“I was surprised at how uniformly inadequate things were,” Bruce Baizel, a staff attorney with Earthworks told the Huffington Post. “If you compare this to building a house – you have to have multiple inspections during the home-building process. Why is that not the case here, with oil and gas drilling? It should be.”

“The Cost of Doing Business”

As we explained in analyzing Bloomberg Markets Magazine's November 2011 cover story about the Koch Brothers Secret Sins,” the “haves” almost always come out ahead in the U.S. legal system. That's not our analysis, but the age-old analysis of one of the founders of the study of sociology of law, University of Wisconsin Law School professor Marc Galanter, author of the seminal paper ”Why the 'Haves' Come Out Ahead: Speculations on the Limits of Legal Change.”

As we wrote, the Bloomberg “article is highly applicable not only to the Koch Brothers, but to all corporate criminals of their ilk.” We proceeded to write

Galanter's thesis, which he presented in his meticulously researched 60-page essay, is now common knowledge – in the American legal system, the “haves,” or the “Repeat Players,” as he puts it, nearly always come out ahead. The converse, the “one-shotters,” as he calls them, nearly always lose.

(Snip)

Why do the “Repeat Players” never really lose? Because they have attorneys who are constantly working the legal system, fighting big-money lawsuits, and developing the techniques necessary to “come out ahead,” including the ability to gain rapport with judges and juries.

The same rules apply to Chesapeake Energy, a shale gas industry behemoth. In 2009, Chesapeake Energy had 123 violations in Texas and Pennsylvania, according to the Earthworks study. The following year, it received the largest oil and gas-related fine in Pennsylvania history.

Common sense would say this fine served as a deterrent for Chesapeake. Not so fast: “the next year the company’’s compliance record actually got worse –– in 2011 Chesapeake had 161 violations,” wrote Earthworks.

In CO, TX and PA, the oil and gas industry paid civil penalties of $13.1 million between 2009-2011. Enforcement violations run at $500-$1,000/day, $1,000-$10,000/day and $75,000 and $5,000/day in these states, respectively. That's all a drop in the bucket for the oil and gas industry, given that BP, Chevron, ConocoPhillips, ExxonMobil, and Royal Dutch Shell scored profits of $137 billion in 2011. The same companies made more than $1 trillion in profits from 2001-2011.

When push comes to shove, Earthworks says fines are simply too low when oil and gas companies break the rules and “do not deter companies from violating rules, but instead are viewed as the cost of doing business.”

Baizel told Huffington Post, “You'll only get the industry's attention if you hurt their pocketbook, and that anything less is really just the cost of doing business to them.”

The American Legislative Exchange Council and How the Game is Played

Looking at things from the commanding heights perspective of the oil and gas industry, it's hard not to get cynical about how the game is played. 

As we have covered on DeSmog, the American Legislative Exchange Council (ALEC) and one of the “Other ALECs,” the Council of State Governments (CSG), have moved to gut EPA greenhouse gas emissions regulations for a two-year time window, calling them a “regulatory trainwreck.” The model resolution has been introduced in an astounding 34 states, passing in 13, as of June 2011.

ALEC has also proposed and passed a model bill that erodes local democracy in the sphere of zoning rights, which passed in Pennsylvania, almost passed in Texas and failed to pass in Colorado. 

Passage of this resolution and model bill in statehouses means the very statehouses covered in the Earthworks report are left on their own to regulate at the well-head level and at the greenhouse gas emissions level.

The cherry on top here is the piece of legislation mandating fracking chemical fluid disclosure at the state level, which also came into existence via an ALEC and CSG model bill written by and for ExxonMobil. It's laden with the very loopholes one would expect from a bill written by Exxon, rendering “disclosure” meaningless. That bill has passed in Texas, Colorado and Pennsylvania, as well, all states covered in the Earthworks study.

Despite overwhelming evidence completely to the contrary, the Obama Administration - whose Department of Energy created the chemical fluid disclosure standards that are found within this model bill - told Platts “Energy Week TV” on Sept. 16 that “the states are doing a good job” with overseeing natural gas drilling.

This claim doesn't pass the “laugh test,” given that “two out of every three times oil and gas companies have publicly disclosed the chemicals in their hydraulic fracturing fluid, they've left something out,” as recently reported by EnergyWire.

This set of circumstances can best be described as a trifurcated approach for the oil and gas industry: strip federal regulations, attack local democracy, and underfund, understaff, and underenforce state regulatory agencies and their respective regulations, so as to make them toothless. 

“I left my home in Dish, TX because gas development threatened my family's health,” said Calvin Tillman, former mayor of Dish and featured interviewee in the documentary film “Gasland” in a press release on the Earthworks report. “This report shows that rules and regs aren't worth the paper they're written on if they're not enforced.”

But perhaps it's more sinister than that: the rules and regs written by and for the oil and gas industry are worth the paper written on precisely because they're not enforced. Just ask the oil and gas companies that fund ALEC and friends.

Sharon Wilson, author of the well-read blog Texas Sharon and Earthworks' Gulf Regional Organizer told DeSmogBlog that she chocks it up to not only a crisis in regulatory enforcement, but something far more grave: a crisis in democracy as we know it. 

“There should be no new drilling until our government fixes the problem and the public can trust the well-being of families and communities in America will come before industry's bottom line,” she said.

Image Credit: ShutterstockBruce Rolff

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