Hydraulic fracturing has enabled energy producers to access vast quantities of previously inaccessible oil and natural gas within tight shale formations, transforming the North American energy industry. Citing environmental and quality-of-life concerns, however, numerous municipalities have moved to ban the practice, provoking legal battles nationwide.1 Denton became the first Texas municipality to do so by passing a ballot initiative on November 4, 2014, banning hydraulic fracturing.2 In response, on May 4, 2015, the Texas Legislature passed House Bill 403 (H.B. 40), which “expressly preempt[s] the regulation of oil and gas operations by municipalities and other political subdivisions.”4 Since it seems doubtful that a legal challenge to H.B. 40 would succeed under the Texas Constitution, regulation will likely occur at the state, rather than municipal, level in Texas for the foreseeable future. A closer examination of the Texan experience with hydraulic fracturing demonstrates that state governments may in fact be the most suitable arbiters from a policy perspective, due to the scope of the relevant environmental and economic impacts and the scale and expertise required to facilitate a meaningful debate on the issue.
The rise of unconventional oil and gas extraction techniques has been particularly impactful in Texas. While hydraulic fracturing itself is a decades-old practice,5 what is popularly and often pejoratively called “fracking” actually consists of a synthesis of multiple newer technologies: horizontal drilling, fluid technology, and multi-stage hydraulic fracturing.6 By opening vast shale reserves to production, the combination of these techniques has more than doubled Texas’s oil production and gas reserves since 2005.7 This energy transformation has also stimulated the state’s economy, driving remarkable increases in employment8 and providing a bonanza of tax revenues.9
But despite these economic merits, the practice has sparked controversy. Opposition has mounted, driven primarily by a combination of environmental concerns, including contamination of groundwater, low-intensity earthquakes, and air pollution.10 Further, local residents have often resented short-term quality-of-life disruptions, such as noise pollution and truck traffic.11
Motivated by these concerns, residents of Denton, Texas — a city on the outskirts of the Dallas–Fort Worth metroplex with a population of approximately 125,00012 — formed the Denton Drilling Awareness Group in 2014 and collected the 571 signatures needed to place a proposed ban on hydraulic fracturing before the City Council.13 The Council commissioned a number of studies, and on May 6, 2014, adopted a gas-well moratorium in order to “preserve the status quo while a review and update to the Gas Well Ordinance could be developed and implemented.”14 Two months later, in “one of the largest public hearings the city ha[d] ever seen,” the City Council ultimately declined to ban hydraulic fracturing.15 Instead, it developed a set of regulations that would permit the practice but “mitigate [its] impacts upon neighborhoods.”16 Incensed, the citizens overrode their city council later that year, passing a ban by referendum on November 4.17
Texas responded by passing H.B. 40, joining the ranks of states that have seized the prerogative to make this regulatory decision,18 and asserting that “[a]n oil and gas operation is subject to the exclusive jurisdiction of this state” and that “a municipality . . . may not enact or enforce an ordinance . . . that bans, limits, or otherwise regulates an oil and gas operation.”19 The bill does, however, carve out an exception for regulation of “aboveground activity,” so long as such regulation is “commercially reasonable” and does not “effectively prohibit” the work of a “reasonably prudent operator.”20 In describing the background and purpose of the bill, the House Energy Resources Committee noted that H.B. 40 “seeks to ensure consistent statewide regulation” of an industry that “grow[s] jobs and anchor[s] the Texas economy.”21 Outraged by this measure, ban supporters in Denton responded by planning demonstrations and “kicking off civil disobedience training.”22
When mediating such state–local regulatory conflicts, courts have split as to which jurisdiction should prevail; some courts have sided with the state government23 and some with the locality.24 But under the Texas Constitution, challenges to H.B. 40 seem unlikely to succeed. Denton cited strategic concerns in choosing not to challenge the constitutionality of H.B. 40 in court,25 admitting on its website that “the City’s home rule authority and/or police powers” do not trump state law.26 Instead, the city repealed its ban on June 16.27 This seems prudent from a legal perspective. Unlike at least one state constitution, the Texas Constitution does not contain a provision granting special environmental rights, which may have supported a challenge to H.B. 40.28 Nor does any constitutional language or common law precedent exist in Texas to support a “public trust doctrine” attack on H.B. 40.29 The Texas Constitution does, however, contain language implying its plenary power to preempt local ordinances.30
State-level regulation of hydraulic fracturing is therefore the status quo in Texas. Close examination of the state’s economy, environment, and regulatory institutions illustrates two strong scholarly arguments for this approach: the matching principle and economies of scale. First, because both the economic benefits and environmental costs of energy production accrue on a predominantly statewide basis, the state’s legislature and regulatory institutions are better positioned to comprehensively weigh the full benefits of the activity against its full costs.31 Second, meaningful debate on both the economic and the environmental impacts requires treatment by a body of sufficient scale and expertise to collect, appreciate, and evaluate highly complex evidence.32 Texas’s experience on both fronts lends support to the proposition that hydraulic fracturing is best regulated at the state level.
Under the principle of “matching” or “subsidiarity,” “regulatory jurisdiction[s] generally should correspond to the geographic scope of the externality.”33 The job-creation and economic-development effects of production in municipalities like Denton have reverberated statewide, but localities may fail to fully consider these benefits. “Midstream” and “downstream” activity, such as transport infrastructure, refining, and petrochemical production, have thrived in recent years; one study predicted the pipeline industry alone would sustain 171,000 jobs annually in Texas from 2014 to 2024.34 Tax revenues have skyrocketed, providing billions of dollars annually for infrastructure development.35 Furthermore, royalties from production contributed over $700 million during fiscal year 2014 alone to the endowment of the University of Texas System.36 Moreover, localities fail to internalize the benefits of uniformity of regulation — the avoidance of a patchwork of regulatory regimes for businesses that hope to operate statewide or across several local jurisdictions.37 And since these statewide implications, public and private, are usually not internalized in local decisionmaking,38 their existence can distort the regulatory outcome.
But while the benefits accrue mostly to the state, some have argued that the environmental costs are disproportionately borne by municipalities, thereby justifying local regulation.39 In Texas’s case, however, this argument fails to account for the many salient environmental issues whose impacts also better “match” at the state level. Many of Texas’s aquifers, which provide the majority of the state’s fresh water, serve multiple counties.40 Drinking-water contamination is therefore not merely a local concern, but also in fact a regional concern.41 The same logic applies to water scarcity, an increasingly urgent challenge for Texas.42 Air quality, another cost usually cited as affecting localities through trucking and production emissions, can also receive more holistic consideration by factoring in regional impact: the pivot in Texas from coal to natural gas43 made possible by abundant supply has reduced the air pollution from electric power production.44 Further, increased seismicity, commonly believed to result from hydraulic fracturing, is actually driven largely by wastewater disposal — which does not necessarily occur on site, is necessary to dispose of water produced from both traditional and unconventional wells, and can cause seismic effects that extend beyond the local area.45 Finally, climate impact, another concern of those seeking to restrict hydraulic fracturing, can hardly be considered a local concern.
The Texan experience, therefore, shows that the relevant environmental externalities are borne statewide and match better at the state level. Further, those effects that do not affect the broader region, including such concerns as truck traffic, noise pollution, and certain aspects of wastewater disposal, are left open to reasonable regulation by localities under H.B. 4046 — thereby adhering to the matching principle in a targeted fashion, and ameliorating some of the concerns of advocates for local regulation.47 This layered approach seems worthy of emulation by other states facing similar challenges.
Beyond indicating the importance of matching both economic and environmental impacts to the appropriate jurisdictions, scholars have advocated for considering each level of government’s capacity to fully understand the costs and benefits in either sphere, noting that higher levels of government enjoy certain economies of scale.48 A comparison of Denton’s process with the regulatory procedures of the Texas Railroad Commission (TRC) and the Texas Commission on Environmental Quality (TCEQ)49 demonstrates the marked advantages that scale can provide in terms of resources, expertise, and process. First, the city’s best efforts to evaluate the detailed scientific and economic data involved an eight-hour public hearing and ongoing input from its panel of citizen experts.50 Meaningful contrast exists between the capabilities Denton could muster and the rigorous standards of the TRC and TCEQ, which follow standardized rulemaking processes, solicit public comments, and rely on decades of accumulated technical expertise.51
Second, supporters of the ban were able to take advantage of another aspect of small scale — the availability at the local level of direct referenda — to render such evidentiary considerations less relevant. Limited by a shoestring budget, supporters of the ban reached out directly to the public with a campaign of “knocking on doors, staging puppet shows and performing song-and-dance numbers.”52 These tactics may not have done much to further the public understanding of the relevant evidence, but they did persuade voters to override their City Council. However, Texas does not allow direct referenda at the state level, and amendments to its Constitution must first be proposed by the legislature,53 thereby avoiding a regulation-by-referendum approach to this complex issue and ensuring an informed decision.
It is unclear whether, as the Denton group The Frackettes satirically sang in advocating for its town’s ballot initiative, “fracking is your town’s best friend.”54 However, their warning that “[i]f you try to ban fracking, you’ll need a lawyer”55 has proven prescient in light of the passage of H.B. 40 and Denton’s subsequent decision to replace its ban with surface activity regulations instead of mounting a legal challenge. An application of the regulatory principles of matching and economies of scale to the facts on the ground seems, at least in Texas, to illustrate that this outcome may lead to a regulatory response that best balances the interests at stake. Indeed, given the fact that the diversity of state-level outcomes spans from New York’s statewide hydraulic-fracturing ban to H.B. 40, it appears that what has been called “Brandeisian experimentalism”56 is alive and well. This leaves space for alternative approaches to this controversial regulatory problem to flourish — and to do so at a scale that enables both holistic evaluation and technical appreciation of the costs and benefits of hydraulic fracturing.