Thursday, February 19, 2015

Spence and Fershee on Local Control of Fracking

For those interested in the local control of fracking, there is a nice article by David Spence in the Texas Law Review and a response by Joshua Fershee in the Texas Law Review See Also.  Details and abstracts below.

The abstract for David B. Spence's (Texas Law) The Political Economy of Local Vetoes:

The law is frequently called upon to resolve regulatory conflicts that arise when a majority mildly prefers policy X, and minority strongly prefers policy not X. Two emerging bodies of case law present this problem, both associated with the growing number of challenges to local restrictions on the use of hydraulic fracturing ("fracking") to produce oil and gas. One set of cases involves claims that these local restrictions are preempted by state oil and gas law; the other involves claims that, where a local ordinance survives preemption, it amounts to a regulatory taking. This article explores how the distribution of the costs and benefits of fracking drive the politics that provoke preemption and takings conflicts in the first place, and how the decision rules courts use to resolve preemption and takings claims try to address those distributional concerns. A close examination of the distribution of the impacts of fracking reveals that while most of the costs (especially the least speculative costs) and many of the benefits fall on locals, other, significant costs and benefits of production extend beyond local government boundaries. This suggests that since the state subsumes more of the impacts within its borders than does the local jurisdiction, the state is better situated to produce regulation that balances the costs and benefits of fracking. However, this line of reasoning does not account for the fact that locals and nonlocals have different preference intensities over this issue. If we want a decision process that accounts for preference intensities (rather than merely preference aggregation), then local government decision-making might do a better job of maximizing welfare, particularly if local governments can capture more of the benefits of production through taxation or other transfer programs. Finally, with respect to takings claims, it seems unlikely that the Supreme Court will adjust takings doctrine to permit the use of compensation schemes that produce efficient outcomes. Rather, it seems more likely that states or the private sector will allow local governments to capture more of the benefits of fracking directly, which offers another path to efficiency.

The abstract for Joshua P. Fershee's (WVU Law) response, How Local is Local?:  A Response to Professor David B. Spence's the Political Economy of Local Vetoes:

Professor Fershee responds to Professor David B. Spence’s article about local hydraulic fracturing bans: The Political Economy of Local Vetoes, 93 Texas L. Rev. 351 (2015). Professor Spence notes that the shale oil and gas debate provides an example of “an age-old political problem that the law is called upon to solve: the conflict between an intensely held minority viewpoint and a less intense, contrary view held by the majority.” In resolving such conflicts, Spence suggests that courts should resolve such “conflicts in ways that encourage states and local governments to regulate in ways that weigh both the costs and the benefits of shale oil and gas production fairly and fully.” 

This Response suggests the Professor Spence’s test for local control is a sound, but adds another factor contributing to local control. As noted above, another way of considering local control over oil and gas operations is to view local control as state-level control. This Response proceeds under the premise that each state should decide whether it wishes to allow its municipalities to exercise oil and gas related vetoes. In analyzing whether local vetoes are efficient under Professor Spence’s test, this article analyzes recent decisions in New York, Pennsylvania, and Colorado. 

This Response concludes that as long as state-level regulation is the primary basis for oil and gas regulation, Professor Spence’s overarching rule that state and local governments pursue regulations seeking to balance the costs and the benefits of shale oil and gas production “fairly and fully” is a foundation for good regulation. In this sense, local (meaning state or smaller subdivisions) vetoes are critical, but how “local” the vetoes are is less important. The key, then, is ensuring that courts and regulators are actually balancing costs and benefits.

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