Sunday, September 29, 2013

Fighting West Coast Coal Exports

By Nick Cunningham

The following was cross posted with the DC Bureau's Bulldog Blog, which you can find by clicking here

“There’s no way they’re going to run coal trains through the city of Seattle. There aren’t enough police to keep those tracks cleared day after day after day.” As reported by The Seattle Times, environmental activist Bill McKibben headlined a protest in Seattle on September 21, 2013, vowing to block coal export terminals on the West Coast.

Coal mining companies have proposed to build several export terminals in Washington and Oregon to ship coal to energy hungry countries in Asia. However, the projects have run into fierce local opposition. Plans to build six terminals in the Pacific Northwest have been scaled back to only three.
Bill McKibben
Trains would carry coal from the Powder River Basin in Montana and Wyoming to the coast in Washington and Oregon. The trains would consist of 150 uncovered cars full of coal, stretching about 1.5 miles, with as many as nine trains making the trip each day. Two export facilities in Washington would ship a combined 90 million tons of coal each year, with an Oregon port shipping an additional 9 million tons annually. Local communities are concerned about increased traffic, accidents, and pollution blown off from the uncovered cars.

Facing an increasingly unprofitable market within the United States, coal companies are looking overseas, but would need new export terminals on the West Coast. Domestic demand for coal will likely undergo a long period of decline. The Environmental Protection Agency released its proposed greenhouse gas limits on new power plants on September 20. The proposed rules would effectively make building a new coal-fired power plant impossible, without costly carbon capture technology. The EPA is expected to come out with much more significant regulations on existing power plants next year.

Coal companies are trying to reach countries like China, which alone consumes almost as much coal as the rest of the world combined.
Yet, there are signs that even the rapidly growing Chinese market for coal may be plateauing. According to a July 2013 report from Goldman Sachs, coal consumption in China will only grow by one percent a year from 2013-2017. That is a significant decline from the seven percent annual growth rate over the last five years. The recent slowdown in the Chinese economy is partly to blame, however. China is also making large investments in renewable energy and even hopes to kick off a greenhouse gas emissions trading program in 2015. These trends are colluding to close the window on the profitability of coal exports, according to Goldman Sachs.

In Washington State, local opposition is the most immediate threat to the coal export terminals. Washington environmental groups and indigenous tribes have organized against the projects. Political leaders are also hardening against exports – the September 21 rally featured Mayor Mike McGinn, who has made opposition to coal exports a central pillar of his reelection campaign.
Mayor Mike McGinn

Opponents of coal export terminals scored a significant victory in July when the Washington Department of Ecology issued a wide range of requirements for the environmental impact statement (EIS) for the projects. The EIS will include the impact of coal exports on global climate change, a higher level of scrutiny than the coal companies wanted. In June, the U.S. Army Corps of Engineers decided not to include climate change impacts.

The combination of environmental regulations, slowing demand for coal overseas, and strong opposition against coal exports in the Pacific Northwest have already scuttled half of the proposed six projects – and may yet kill off the remaining three.

Monday, September 23, 2013

Is Growth Good for Biodiversity?

by Duncan Gromko

Growth is good for the environment. At least that’s the headline from an Economist special issue on biodiversity.

They argue that, in the long run, economic growth allows countries to invest in governance and technological innovation that improve environmental conservation. This is the idea behind the environmental Kuznets curve (EKC), which says that there is an inverse U-shaped relationship between income and environmental degradation. The argument goes that, early on in a country’s development, it exploits its natural resources to grow. However, at some tipping point, the country stops degrading its resources as growth continues.

Environmental Kuznets Curve. Source:
It’s a popular argument since everyone likes growth. If only it were so easy! We could just focus on growth and the rest would sort itself out. Unfortunately there are a lot of reasons to be skeptical.

The statistical, empirical case for EKC is questionable. Some indicators of environmental degradation have peaked in developed countries, but others have not. After a tipping point, deforestation does tend to decrease as a country grows, but greenhouse gas emissions have not. Given the projected impact of climate change on biodiversity, it’s hard to “leave aside the huge unknown of climate change,” as the Economist suggests.

Any time scientific research gets condensed into a newspaper headline, a lot of important nuance is lost. The nuance here is that growth itself is not the reason that some environmental indicators have improved in rich countries. Political, social, and technological changes – which often accompany growth – tend to be the reason that environmental outcomes improve. The Economist brings up agricultural intensification as one technological change that reduces pressure on biodiversity. In this case it is not growth that results in better environmental outcomes, but changing technology that leads to increased growth and reduced pressure on the environment. This is a mistake of confusing correlation with causation – growth itself is not the mechanism of change.

Another issue is that wealthy countries are able to “export” their environmental production. A good example is Japan, which banned timber harvest, resulting in a dramatic revival of the countries’ forests. However, Japan remains a major consumer and producer of timber goods. It pulls this trick off by importing timber products from Southeast Asia, where deforestation rates are amongst the highest in the world. Wealthier countries tend to have higher per capita environmental footprints. While developed countries have been able to export some of their environmental degradation oversees, clearly this won’t work for every country on earth.

Last, the EKC theory does not account for the importance of the environment in enabling growth. Ecosystem services are a major determinant of a country’s productive capacity. If short-term growth leads to significant environmental degradation, per capita income will stagnate and the tipping point envisioned in the EKC will never be reached. The Economist is saying: growth leads to biodiversity protection, but I think they have it backwards. Managing natural resources responsibly can enable and protect growth.

Friday, September 20, 2013

Response to Swarthmore's Board's Decision Not to Divest from Fossil Fuels

by Duncan Gromko

Swarthmore’s Board of Managers published an open letter on their decision not to divest from fossil fuels on Wednesday this week, which argued that divestment would have no measurable effect on halting climate change and would pose an unacceptable risk to the College's finances. For a little context on the divestment issue, see my earlier post. Students in Swarthmore Mountain Justice and other advocacy groups first raised this issue and I applaud their commitment to social justice. Interacting with them over the past several months has been inspiring.

The decision to divest is a serious one and I’m glad that the Board is not taking it lightly. They are responsible for ensuring the financial health of the school, which directly impacts the quality of education that students receive. However, the Board’s arguments are problematic for a number of reasons.

1. The Board argues that divestment is not an effective means of reducing greenhouse gas emissions: “Symbolic action is not our only option [for reducing greenhouse gas emissions], and we are convinced it is far from our best option for mobilizing public opinion as well as for having real impact on the fossil fuel industry. President Obama's recent initiative on climate is just the latest-though the most dramatic-illustration that government action to control greenhouse gas emissions is on the table. It seems the time is right to pursue legislative change aggressively.”

It is strange that the Board uses Obama’s climate initiative to argue that divestment is not an effective strategy because, when announcing his initiative, Obama himself called for divestment: “Push your own communities to adopt smarter practices. Invest. Divest.”

The potential impact of divestment is much greater than the effect that it would have on fossil fuel companies’ bottom line. The Board’s letter calls divestment “symbolic” in a dismissive way, but symbols matter in policy and politics. Policy is not made in a vacuum – real climate change legislation will only happen if there is some political calculus pushing politicians in that direction. Divestment would provide “social proof” that supporting climate change action is socially acceptable. Obama asked for this help: “What we need in this fight are citizens who will stand up and speak and compel us to do what this moment demands. Understand, this is not just a job for politicians.” I argue that Obama only made such a bold speech and policy initiative because green groups have put pressure on him, organizing in large part around “symbolic” issues like divestment and the Keystone XL Pipeline.

2. The Board dismisses the moral benefits of divestment: “Divestment's potential success as a moral response is limited-if not completely negated-so long as its advocates continue to turn on the lights, drive cars, and purchase manufactured goods, for it is these activities that constitute the true drivers of fossil fuel companies' economic viability-their profits.”

Ideally everyone would eliminate their use of fossil fuels, but it is nearly impossible to do so as an individual. Individuals are so constrained by our economic system that one cannot participate in society without using fossil fuels – I’m using carbon-derived fuel to write this response! Individuals changing their behavior would be a great step, but we need systematic change to address climate change in any real way.

Divestment would not constrain Swarthmore’s endowment in the same fundamental way that forgoing fossil fuels would constrain individuals. Swarthmore’s endowment can fulfill its purpose with or without investments in fossil fuel companies. Swarthmore Mountain Justice expressed the difference between individual consumption and endowment investment eloquently in their response to the Board: “Swarthmore is a relatively small consumer of fossil fuels, but, given its size, holds a disproportionately large amount of moral and financial capital as a prestigious and well-funded institution.”

Moreover, whether or not divestment advocates eliminate their personal carbon footprint has no bearing on the moral calculus of divestment. If the Board believes that profiting from fossil fuel production is immoral, it should divest regardless of what others do. “The moral man looks for injustice first of all in himself” – Bayard Rustin.

3. The decision to invest in managed hedge funds seems to preclude divestment from any company. Is there no company or sector that would induce the Board to consider divestment? Hypothetically, suppose we found that the College was investing in a company that produced chemical weapons? The Board’s investment strategy makes it impossible to affect the social impact of the investment. I’m not advocating that the endowment be transformed into a social impact fund, but surely the Board would like to have some control over its investments.

4. The best argument the Board has is the cost of divestment. Swarthmore invests a significant portion of its endowment in managed funds, which have historically provided the College with excellent returns. The Board is claiming that these funds would not want to manage Swarthmore’s money under the divestment restrictions, so the endowment would have to be invested in poorer performing funds. Reducing Swarthmore’s endowment and by extension, the services it is able to provide to its students, would be a huge loss. It is not lost on me that my education, for which I received substantial financial aid, enabled me to do the work I am today to combat climate change and environmental degradation in my job. However, the Board’s cost analysis does not consider a number of points.

First, the Board’s estimation of future returns from managed funds investments are based on past returns. Past performance is no indication of future results. Bloomberg recently published an article entitled “Hedge Funds Are for Suckers,” in which they wrote: “…hedge fund performance lagged the Standard & Poor’s 500-stock index by approximately 10 percentage points this year, although most fund managers still charged enormous fees in exchange for access to their brilliance.” Although this statistic is cherry-picked and probably exaggerates the recent failures of hedge funds, the increasing popularity of hedge funds has slowly squeezed their competitive advantage, reducing their ability to generate profit.

Second, the Board’s analysis does not fully consider alternative investment options. Articles by Forbes, the Wall Street Journal, and HIP highlight the growing number of responsible investment funds. Swarthmore’s significant financial muscle would strengthen these funds. It is also possible that, by taking the lead on this issue, Swarthmore could bring other like-minded colleges to the table.

Third, the Board fails to consider other costs and benefits of divestment. A divestment announcement would generate good publicity for the College, which would have a real monetary benefit.  How many prospective students writing their “Why Swarthmore” applications would list a decision like divestment as a reason for attending? It would certainly reaffirm my decision. The Board also leaves out the impact that divestment would have on alumni giving. I’m not willing to give my money to a fund that invests in fossil fuels; I would start giving to the College again if it divested. Younger generations of Swarthmore alumni are not the largest donors to the College, but I believe that the divestment issue is alienating many current students and recent alums, diminishing future giving.

In rejecting divestment, the Board offers alternatives. I thank them for doing so as it demonstrates their desire to continue the dialogue on this issue. They have asked for other suggestions; I have a few:

·         If divestment is a step too far, an intermediate option could be assessing the environmental footprint of the existing portfolio. MSCI has developed a portfolio analysis tool that evaluates investments based on their environmental and social impact. I also encourage the Board to review the growing number of responsible investment options I mentioned above and whether these might offer better returns than what the Board assumes in its cost of divestment analysis.
·         Enable students to be effective political actors. The Board argues that now is the time to push for comprehensive climate change legislation; what better way to do so than through the power of students? I witnessed immense passion amongst Swarthmore Mountain Justice and other student groups in May. In its Peace and Conflict Studies and Environmental Studies programs, Swarthmore has a number of capable professors to lead these efforts. I’m sure that other schools in the region would be thrilled to participate in a Swarthmore-hosted conference on political activism.
·         It seems that there is serious mistrust between students and the administration. Although I am focused on divestment, I am concerned by how alienated and hurt students feel regarding a number of other issues. The lack of support for victims of sexual assault and minorities are two issues that stick in my mind from the meeting with Board in May. I encourage the College to pursue greater transparency and student engagement in all of its decision-making – not just with divestment.

While I disagree with the Board’s decision, I respect the importance of protecting the financial health of the College. It is a difficult decision. However, the urgency of the situation demands a reconsideration of the divestment option. A decision to divest would send a powerful signal. The Board is correct that the College should support climate change action in other ways, but these two things are not mutually exclusive. The College can do both. 

This letter was first published at the Daily Gazette; check it out here.

Wednesday, September 18, 2013

Showdown in the Ohio Valley: War Veterans Prepare to Fight Fracking

by Nick Cunningham and Duncan Gromko

Drilling-Rig,-Columbiana-County (Photo: Ted Auch PhD, FracTracker, June 2013)
What could make a former Marine, retired cop, and self-described “ultra-conservative” oppose fracking in his home state of Ohio? At a diner off of Route 22 near Steubenville, OH, Ed Hashberger had the answer. Dressed in a red polo shirt emblazoned with the U.S. Marine Corps logo and carrying a Marine Corps notebook, Hashberger first described his bona fides.
He served three years in Panama. He recited half a dozen close relatives who served in World War II, the Vietnam War, Afghanistan, and Iraq. His son was badly injured from an improvised explosive device (IED) in Afghanistan and remains confined to a wheel chair as a result.

Hashberger is also a lifelong Republican. He campaigned on behalf of numerous Republican politicians, including both Bush presidents and Ohio Governor John Kasich. “You can look me up. There is probably nobody more conservative than me. I could be Sean Hannity’s brother, that’s how conservative I am,” he said. He was initially excited when oil and gas companies approached him about leasing his land for drilling. “I was one of these ‘drill baby drill’ people. Couldn’t wait.”

That all changed when he asked a Chesapeake Energy Corporation official at a public meeting what the company would do if landowners did not want to lease their land to natural gas companies, he remembers the official saying: “Simple. We’ll take it from them anyways.” That remarkably candid and cavalier response from the gas industry opened Hashberger’s eyes and he has spent the last two years investigating landowner rights, the environmental consequences of hydraulic fracturing, and the ways in which every level of government has bent over backwards to appease the oil and gas industry.

Hashberger believes that the values – life, liberty, and the pursuit of happiness – for which he and his family have sacrificed are being trampled on by oil and gas companies. “The state of Ohio has done everything it can possibly do to make it easy for oil and gas companies to do business.”

Unitization: The Seizure of Private Property

The rapid expansion of drilling in southeastern Ohio has been facilitated by favorable laws for the industry.

Drilling Rig, Columbiana County, OH
(Photo: Ted Auch PhD, FracTracker, June 2013)
One law – unitization – encroaches on property rights by allowing oil and gas companies to extract gas from under a landowner’s property, even if he or she refuses to sign a lease.

Land that companies can drill on is divided up into “units,” which may encompass multiple properties and farms. Horizontal drilling requires that the entire unit be available for drilling – a company could not drill a patchwork of properties if only some people signed up to the lease. The unitization law says that if the company lines up 65 percent of the land in a unit for lease, they can compel landowners on the remaining 35 percent who are holding out to lease their land as well. Even if a landowner wants nothing to do with the gas industry, if most of the neighbors support drilling, he or she may not have a choice. The company can drill anyway.

The seizure of property for oil and gas development is not new, but it was recently expanded to take account of the advent of horizontal drilling. Senate Bills 165 (2010) and 315 (2012) became law and legalized unitization in Ohio. Tom Niehaus, State Senator from District 14, sponsored Senate Bill 165. Senator Niehaus has received $117,770 in campaign contributions from the energy industry. State Senator Shannon Jones from District 7 sponsored Senate Bill 315 at the request of Govenor Kasich. Senator Jones has received $72,966 in campaign contributions from the energy industry.

The justification for the law is for “public use,” meaning that private property can be taken for the greater good. In this instance, the “public use” is the development of the resources for the benefit of the landowners who have already leased, as well as the economic benefit for the company. Martin Leehr, a representative from Gulfport Energy, says, “From an industry perspective, we feel that [unitization] is a necessity.” He believes that when it comes to unitization, the majority rules. “If the constituents, lessors and lessees of Ohio are in favor of forming a unit and they make up a majority, under a democracy, we should be afforded the rights that are allowed by law.”

Although a majority of land is controlled by landowners within a unit, the majority of people might not agree to fracking. Yet unitization allows fracking to move forward. Moreover, while majority decision is the political system by which the United States decides its laws, it has not been a tool for deciding what is done with private property.

The Fifth Amendment of the U.S. Constitution allows for the taking of private property for “public use,” for which there must be “just compensation.” This concept is known as “eminent domain.” For many major infrastructure projects – high voltage transmission lines, pipelines, or highways – that traverse multiple properties, or even several county or state lines, eminent domain is commonly invoked.

While taking contiguous properties that lie atop large fossil fuel reserves may seem obvious to gas drillers, Ed Hashberger, the ex-marine and retired police detective, sees something more insidious. He sees the erosion of the basic freedoms for which he and his family fought. “How can you guys come in and take from somebody to give to somebody else? I mean, it’s just un-American,” he says.

Hashberger also argues that the law is illegal. The definition of what constitutes “public use” is often left to the states. A 2006 Ohio Supreme Court decision seems to back up his claim that the unitization law may violate Ohio state law. In Norwood v. Horney, the Ohio Supreme Court ruled against a retail and commercial development project that wished to seize land from a group of homeowners, deciding that “economic benefits” do not meet the criteria of “public use.” In the ruling, Chief Justice Maureen O’Connor wrote:

Chief Justice Maureen O’Connor
“we have never found economic benefits alone to be sufficient public use for a valid taking. We decline to do so now…To justify the exercise of eminent domain solely on the basis of the fact that the use of that property by a private entity seeking its own profit might contribute to the economy’s health is to render impotent our constitutional limitations on the government’s power of eminent domain… any taking based solely on financial gain is void as a matter of law.”

No one has yet challenged unitization’s legality.

But Hashberger is resisting vehemently. He is coordinating a group of veterans to build a case against the industry. “Ultimately, my goal is to get as many veterans together as we can. There are already nine of us. None of us have signed. You mention, or even think about unitizing us…we are going to court. And we are going to blow this thing out of the water.”

He hopes that the spectacle of a billion dollar industry taking away the property rights of war veterans will draw attention to the absurdity of the law. “What was the purpose of me even serving and defending my country to come home and have you tell us, ‘It’s O.K., John. You go off and fight that war. You keep up faith. You come home. You can have this land, but if you don’t want to give it to the gas company, we are going to take it from you anyways.’ They don’t want that fight.”

The Shale Revolution Moves into the Ohio Valley

Steubenville was originally founded in the 18th Century to protect settlers of the Northwest Territory. Today, it is more infamously known for a 2012 incident in which two high school football players were convicted of sexually assaulting a girl at a party while others looked on.
Coal plant on Ohio River

Steubenville’s history is emblematic of the Rust Belt. By the mid-20th Century, the region was at the heart of American industrial might. The hometown of Dean Martin, Steubenville rode the wave of America’s post-World War II industrial rise. Agriculture, coal, steel, and other heavy industries were the biggest sources of employment.

In recent years, globalization and automation have left this rust-belt region a shadow of its former self. Machines have replaced armies of workers, while steel production has moved overseas. Once powered by hulking coal-fired power plants that sit nearby, shuttered steel mills now line the Ohio River.

Steubenville has a population of a little over 18,000, which is about half of what it was during its heyday in the 1940’s and 1950’s. From 1980 to 2000, Steubenville suffered the fastest rate of depopulation of any major urban area in the nation.

Although many factory doors have shuttered, the coal industry remains strong. Even in more rural parts of Ohio, signs of the coal industry abound. Coal washing plants and gob piles – enormous mounds of mining waste – litter the sides of local country roads.
Coal mining site near Barnesville, OH

A reindustrialization is underway in the rural areas surrounding Steubenville. This time, the rush is for oil and natural gas from shale. Two of the biggest natural gas reserves, the Marcellus and Utica formations, lie beneath several Appalachian states, including West Virginia, Pennsylvania, Ohio, New York, and parts of Maryland and Virginia. Most of the drilling action has taken place in Pennsylvania and West Virginia up to this point, but drilling rigs have recently been migrating into the Ohio Valley.

Shale Gas Resources. Source: EIA
Whereas eastern and central Pennsylvania possess dry natural gas – essentially methane – western Pennsylvania and eastern Ohio have crude oil and wet gas. In addition to methane, wet gas holds a variety of other gases, including ethane, butane, and propane. These tend to be more valuable and can be made into plastics and fertilizers.

The recent influx of rigs, pipelines, and trucks to rural areas of southeastern Ohio is leading to a transformation of old rust-belt towns. As the shale gas revolution shifts westward, it is bringing a jolt of activity to an economically depressed region, as well as the concern and unease that come with change.

Economic Boom for a Depressed Region

Carroll County is the epicenter for this expansion, and in just a couple years there are already dozens of wells drilled and producing. In a county that makes up 400 square miles, there are plans to drill 200 to 300 wells – nearly one well per square mile. Other counties are racing to catch up.

For an already poor region that was devastated by the collapse of heavy industry, the shale gas revolution has given a boost to landowners and businesses. Hundreds of farmers have become overnight millionaires.

Dick and Kaye Clay decided to lease their 140 acre farm in Harrison County for drilling much earlier than many of their neighbors. They live on Route 22, about 40 miles southwest of Steubenville. Dressed in a cut off t-shirt and jean shorts, with sunglasses and a trucker hat, Dick has a booming voice and a sturdy build. Having worked for 20 years in surface coal mines, he is positively giddy about the fracking technology on his land. He is fascinated by all the machinery and is often on the drill site where he enjoys talking to the workers, asking questions, and learning about the powerful new technology.
Eastern Ohio and Western Pennsylvania; gray streaks
represent drilled wells. Source: ODNR.
Sitting on their back porch, the Clays begin to explain their decision to lease to Gulfport Energy, an oil and gas drilling company. Then a large dump truck rumbles up the driveway and around their house, heading toward the drill site. In mid-sentence, Dick jumps up and yells to greet the truck driver as he pulls by. “Hey!” Dick waves and the driver waves back. “I know all the guys on the drill rig right now,” he says confidently.

Kaye Clay worked as an agricultural extension agent for the Ohio State University and is now an accountant for a local company. After saving money for decades, the Clays were able to afford the down payment for their farm, where they started raising cattle and hogs and selling hay. As much as they preferred the farming lifestyle to coal mining, the size of the debt was overwhelming. “When we bought the farm, I was scared to death. I thought the farm wouldn’t be paid off by the time I died,” Dick says.

Then the oil and gas companies came in and offered money to lease the mineral rights on their farm, allowing the Clays to pay off their mortgage and other debts. Kaye is more ambivalent than her husband and spoke calmly and deliberately about both the risks that come with leasing as well as what the money means for them. “We’ve lived here for 29 years. Raised two children…We’ve tried to be good stewards of the land…That is important to us – that we leave the place better than we got it,” she says.

Lease offers from gas companies skyrocketed after the Clays signed; recent signing bonuses have topped $6,000 per acre. The Clays could have gotten more if they had held out longer, but they have no regrets: “We didn’t get as much as others, but we’ve never been greedy. We got enough to pay off our mortgage, so we’re happy,” Kaye Clay says.

Dick and Kaye Clay near the drilling site on their property
Not everyone is happy though. Some of the earliest deals were done with speculators who leased land for as little as $5 per acre, only to flip it for huge profits once the larger companies moved in. People lost out on hundreds of thousands of dollars.

Some people did not understand the fine print of the leases. For communities where deals are often made on a handshake, landowners were caught by surprise to learn that specifics of the deal did not make sense – the location of a drill site might be located on a farmer’s most productive acreage, for example. When trucks suddenly showed up and started tearing up farmland, some landowners were taken aback at the lack of control they had over how drilling was conducted on their land. Many felt deceived.

The millions of dollars pouring into the region raised eyebrows and made some landowners cautious.

Safety in Numbers

Looking back on the development of coal, it is clear that much of the wealth from coal mining did not stay in the region. For decades, coal companies have extracted resources across Appalachia, leaving little but marred landscapes in their wake.

Larry Cain, a dairy farmer from Belmont County (just south of Harrison County), hopes things turn out differently this time. “Our forefathers made decisions with coal that we’ve been dealing with. We didn’t want to make the same mistake with gas,” he says.

Site preparation for natural gas processing plant,
Columbiana County, OH (Photo: Ted Auch PhD,
FracTracker, June 2013
Sitting in a diner in Barnesville, OH, Cain and Sue Pubal, the Fiscal Officer for Union Township, reflect on the impact that oil and gas money is having on Belmont County. They went to high school together and Cain’s son is married to Pubal’s daughter. When she was younger, Pubal spent a year working underground in a coal mine, one of the first women in the region to do so.

In 2010, after a meeting with a drilling company, Cain called up a few of his neighbors to get their thoughts on leasing. His farm has been in his family for four generations and he hopes to pass on it on to his son one day. Yet rising feed costs and the industrialization of dairy operations have made it hard for him and his family to get by on farming alone; they often take part-time construction jobs to make ends meet. Despite the immediate opportunity, he did not want to rush into a deal. “There was hesitation about whether to get involved or not. …It comes back to my background as a dairy farmer. Change is what we’re afraid of,” he says.

Cain heard of other landowners in a neighboring county who were also concerned. They started meeting together and researching the natural gas industry and ultimately formed a group known as the Smith-Goshen Land Owners Group that comprised more than 800 landowners. Nine landowners, including Cain, took the lead and formed a committee to educate themselves on the opportunities and pitfalls of drilling on their land.

Forming the group – with more than 30,000 acres under collective ownership – gave Cain and the other landowners leverage in negotiations with the companies. Ultimately, the group made a deal with Rice Energy in which they received a high signing bonus, a generous royalty percentage once wells start producing, and clauses that ensure compensation from companies in case of water contamination or other drilling damages.

In addition to these tangible terms, Cain and the group felt that Rice Energy was responsive and did a good job of listening to concerns of the whole group. Nearly every one of the more than 800 landowners ended up signing a similar agreement with Rice.

The income from the gas and oil leases has been transformative for Cain and others in the community. He says that people are mostly being good stewards of the money and are spending it to retool their farms or make other investments. “The money is more for future generations than for ourselves.”

Public institutions have leased their land, too. With government budget cuts for villages and school districts, natural gas leases provide an opportunity to temporarily replace that spending. The Village of Barnesville has signed two leases with Antero Resources for a combined 1,132 acres at $5,700 per acre. For a village with an annual budget of around $1 million, the $6.5 million signing bonus is a huge windfall. Royalties should provide income for years to come.

Drilling activity is also affecting other businesses. Subcontractors have sprung up to support drilling, and equipment is often bought or rented from local companies. Previously quiet establishments like diners, grocery stores, and restaurants are suddenly packed and are racing to keep up with new demand. A report from Cleveland State University found that in counties with a heavy drilling presence, sales tax receipts have jumped by 21 percent between 2011 and 2012.

The Shale Revolution – Fraying the Social Fabric

Landowners have seen immediate benefits from the influx of investment, but not everyone has profited. Expectations and promises about new job opportunities on drill sites for locals have thus far not materialized. While temporary, lower-skilled positions can be filled locally, companies often bring in seasoned rig workers from as far away as Texas and Louisiana to handle the more technical aspects of drilling.

Such a sudden influx of cash into a poor region is welcome, but can also create new problems. Jealously has arisen between neighbors and there are stories of disputes within families over money. Some people have spent all of the signing bonus money quickly, without realizing that they will have to pay a significant portion of the bonus in taxes. With the money spent, they cannot afford the taxes.

Trees cleared to make way for a pipeline
Despite decades of tough economic times, people choose to stay in the region because they value the social dynamics of a small community. But change is already evident in increasing traffic congestion near small towns. Heavy trucks hauling water, chemicals, and equipment to drill sites clog rural county roads. Wellpads and drilling rigs dot the landscape. Thousands of trees have been felled to make room for pipelines that run up and down hilltops, which will increase soil erosion and sedimentation in local water sources.

The flurry of activity is transforming the countryside. Carroll County has only 73 people per square mile, compared to 282 for Ohio as a whole. Driving through the county, it is clear that an industrialization of rural Ohio is underway. And this is just the start. While much of the drilling activity is located in Carroll County right now, rigs are beginning to spread into other areas.

Perhaps the biggest losers in the shale boom are people who rent their homes; the rush for land and mineral rights has caused rent to double or triple. In a report on the effects on shale development on housing, a Carroll County official discussed the consequences of rising rental costs:

“I think the available supply of housing for low to moderate-income people is shrinking really fast and it is going to continue… Folks have to live somewhere. What happens to the moderate-income person? The person who works at Speedway and they get pushed out of their house and they’ve got to live in Canton; are they going to drive down here to work at Speedway? I think not. They are going to get a job in Canton. So we are going to warp the whole fabric of the community if we’re not careful.”

Homelessness is on the rise, which is a challenge for rural communities that have not had to deal with the problem on a large scale in the past. Another interviewee in the same report said, “There’s no homeless shelter here [in Carroll County]. There is none in Harrison [County], so all of our people go to Tuscarawas County and they are way overloaded in their shelter.”

Because of laws like unitization, many landowners believe oil and gas drilling is inevitable. The mere threat of unitization often coerces landowners into signing a lease. If property is forced into a unitization, the landowner loses the ability to negotiate lease terms, and usually receives worse terms.

Environmental Concerns

The Ohio Valley is a gorgeous place, with lush forests, rolling hills, and bucolic agricultural landscapes. Regardless of political affinity, farmers recognize the importance of natural resources, particularly water and soil quality, in maintaining their farms’ productivity. And there are a number of reasons for people to be concerned.

The threat of water contamination from both the chemicals used in the drilling process, as well as the methane that may leak into aquifers, has made some landowners distrustful of the industry.

Captina Creek
In addition to effects on water quality, there is also concern over fracking’s effect on water quantity. Fracking requires between two and five million gallons of water, which are injected into the well. Water is taken from local streams, rivers, lakes, and reservoirs. Although some landowners and municipalities have sold water rights to companies, in most cases the water is withdrawn from public sources without payments.

Captina Creek, with some 55 species of fish and home to the rare hellbender salamander, is one of the best preserved creeks in Ohio. Nearby fracking sites draw water from Captina Creek, sucking in aquatic life in the process. Worse, the creek’s water flow drops to low levels in the summer and withdrawals for fracking threaten to completely empty the creek. In water-stressed places like Colorado and California, water quantity is a much greater concern.

Regulations for water withdrawals pose little burden for companies. Only if a company withdraws more than 2 million gallons per day does it have to apply for a permit, which is most often summarily approved. Withdrawing any amount of water under that limit does not require any permits.

The Ohio Department of Natural Resources (ODNR) is the agency responsible for regulating water withdrawals and other activities related to fracking. ODNR’s mission statement is: “To ensure a balance between wise use and protection of our natural resources for the benefit of all.” However, financial pressures push ODNR to promote the “wise use” of natural resources at the expense of their protection. The Department receives money for every fracking well permitted. If ODNR slowed down fracking, it would directly impact their bottom line. When he came into office, Govenor Kasich appointed David Mustine, former Senior Vice President for American Electric Power, to head ODNR. Kasich has encouraged ODNR to support fracking, saying: “[ODNR and Ohio EPA] are going to send a message to Ohio that we are open for business.”

Two to five million gallons of water go down the well and after the shale is fractured about a million gallons come back up to the surface. Known as “brine,” the water is contaminated with chemicals and is unusable. Oil and gas companies pay subcontractors to inject the brine into disposal wells. More than two billion gallons of brine are dumped into 144,000 disposal wells throughout the United States each day. Due to its favorable geology, Ohio is a good place to store waste, and trucks from Pennsylvania often bring their brine to Ohio for storage. More than 14 million barrels of fracking fluids were injected in Ohio disposal wells last year.

In some cases, however, companies have illegally dumped brine into creeks, sewers, or private property in order to cut costs. For example, Harch Environmental Resources, contracted by Gulfport Energy Resources, is under investigation for illegal dumping of brine in ponds near St. Clairsville, OH.

There is also evidence that injecting water into disposal wells can increase seismic activity. Recent research has linked earthquakes in Oklahoma and Texas to fracking. Youngstown, OH experienced earthquakes in late 2011 that have been linked to wastewater injection wells.

Ohio Taypayers Benefit Less From Fracking Revenues Than Any Other State

Unlike other states, Ohio does not charge a tax based on percentage of production, but instead the industry pays a flat 20 cents per barrel of oil. Assuming oil cost $85 per barrel, Ohio would be charging the equivalent of only 0.24 percent per barrel of oil.

This is one of the lowest rates in the nation.

For example, North Dakota levies an 11.5 percent severance tax on each barrel of oil and Montana taxes oil at 9.26 percent. The story is similar for natural gas. Ohio’s 3 cent tax per thousand cubic feet works out to about 0.78 percent. Texas and Oklahoma charge 7.5 percent and 7 percent, respectively.

Governor John Kasich has proposed a new severance tax to raise revenues in exchange for a cut in income taxes. His proposal calls for a 4.5 percent severance tax on oil and natural gas liquids, and a one percent tax on dry natural gas – a significant increase, but still low compared to other states. The tax would raise $920 million between now and 2017.

Republicans in the state legislature fiercely oppose raising taxes on the oil and gas industry. According to the Akron Beacon Journal, State Treasurer Josh Mandel spoke at a meeting of the Ohio Oil and Gas Association, in which he spoke out against the governor’s plan. “Now is not the time for government to kill the golden goose and scare away the capital that could lead to a long-term recovery in our state,” he said. House Speaker William Batchelder (R-Medina) called the governor’s proposal “nonsense.”

According to an investigation by The Cincinnati Enquirer, the oil and gas industry has funneled hundreds of thousands of dollars into campaign coffers of the Ohio legislature. Speaker Batchelder received $227,000 from the industry, about $1 out of every $10 that he raised. He steadfastly opposes the severance tax and believes it will fail. In total, the industry has given $660,000 in campaign contributions since 2010, 91.5 percent of which went to Republicans.

The little revenue that is raised goes to the state, not the localities in which drilling actually occurs. That means that the state benefits, but counties and townships are left to pick up the tab. Heavy truck traffic, for instance, tears up country roads. These need to be fixed out of local budgets that do not see any revenue from drilling. Meanwhile, the state is cutting funding to counties and townships. Pubal explained that Union Township, where she is the Fiscal Officer, will have roads to repair, but the state has cut their operating budget by 75 percent.

Conflicted Over Fracking

Although the oil and gas rush in southeastern Ohio has big proponents and fierce critics, many are conflicted.

One of the remaining holdouts is Olney Friends School, a private Quaker boarding school in the region. Olney is deeply committed to environmental issues and its board initially announced that it would not lease its land for oil and gas.

However, like much of the rest of the region, Olney’s budget is stretched thin. It faces the prospect of bankruptcy and closing its doors to students. By leasing its 68 acres, the school would bring in an immediate $476,000 (plus royalties once wells are productive) and allow Olney to regain its financial footing.

People from the school struggle with a number of questions. How does the school compare its responsibility to students and to the environment? What message would changing its decision about leasing send to its students? The school depends on fossil fuels to run its building. Is it being hypocritical to reject fossil fuel extraction in its backyard? How much better is natural gas than coal?

Leonard Guindon is a biology teacher at Olney. He was born and raised in Barnesville, OH and has a deep appreciation for the area. His wedding was held on the banks of Captina Creek. He built his house by hand – from felling the trees, to cutting them into lumber at his sawmill, to nailing the planks. Guindon joined the Smith-Goshen Group that collectively negotiated a deal, and he eventually decided to lease his land. Natural gas burns cleaner than coal and that appealed to him. Plus, the money will allow his wife to retire. But it was a difficult decision for him. “Sometimes I feel like I really sold out,” he says.
Leonard Guindon lives 20 minutes from the town of
Barnesville, OH
Every conversation about fracking eventually leads to a comparison with coal. Coal mining is deeply embedded in Appalachian culture. “When you attack guns and coal, you’re attacking what [Appalachians] consider their birth right. They’ll feel like you’re attacking their culture, “said Jim Cauley, a Democratic strategist.

Despite a rich endowment of natural resources, extractive industry has a mixed legacy in Appalachia. Coal companies have long argued that coal mining is the key to economic development, but coal mining has been on going since the 19th Century and Appalachia remains one of the poorest regions in the country. Appalachia has been stripped of its coal to power a hungry American economy, and the profits have mostly left the region.

Researcher David Cattell-Gordon, wrote that “the people of Appalachia have suffered…long periods of high unemployment, the destruction of their timberlands, the gouging of their mountains, and the stealing of their resources. And, after 200 years, the people of Appalachia have virtually nothing to show for it.” Exploitation by coal companies and the ruin that the industry has left behind have inflicted psychological damage on many communities. He says that the region exhibits some of the same clinical symptoms of “post-traumatic stress syndrome.” In other words, Appalachian culture suffers from a sort of collective PTSD because of the environmental destruction, long bouts of unemployment, and chronic poverty. Cattell-Gordon would argue that coal extraction has stripped people of the “agency” that they feel.

The word “inevitable” is often used by landowners to describe the shale gas revolution. This is due, in part, to laws like unitization that make it difficult or impossible for some landowners to protect their mineral rights. For example, Sue Pubal says that her mother did not want to lease, but decided she had little choice. If she refused, and was “unitized,” she would likely not receive a signing bonus and have her land drilled on anyway. Larry Cain, the dairy farmer, says, “It was coming anyways. We were going to see the negative effects, so we might as well see the benefits.”

What will the legacy of shale oil and gas be? One positive sign is landowner groups like the Smith-Goshen Group that Larry Cain helped to organize. Although Cain feels that more drilling is inevitable, by bargaining as a collective, he and other community leaders were able to get the best deal they could in their leases. Organizing is a clear sign of reaffirming agency and control over the situation. Compared to coal, the signing bonuses and royalty agreements mean that this time, with natural gas, more of the profits will go directly to landowners.

These are still early days and it is impossible to know how fracking will have transformed the Ohio Valley in ten or 20 years. In Carroll County, the center of shale gas drilling in Ohio, rolling hills of family farms are quickly giving way to industrial sites. Rural areas are losing their quiet, peaceful atmosphere. And this is just the start. There will be a lot more fracking in the months and years ahead. Whether or not drilling can be done safely and with environmental safeguards is still up for debate. And as oil and gas development continues apace, people are anxious about losing the small town character in their communities. Larry Cain says, “We’re a quiet, leave-us-alone society – [natural gas] is going to change that.”

Thursday, September 5, 2013

Federal Government is Longtime Supporter of Fracking

The following is cross posted with, which you can read here

By Nick Cunningham, September 5, 2013

Friday August 23 marked the end of the public comment period for the Department of Interior’s draft “fracking rule” on public lands. The rule, originally proposed by Interior’s Bureau of Land Management (BLM) in May 2013, has three main components: it would require drillers to disclose the chemicals used in fracking on public lands; it would setup standards for well integrity to safeguard against groundwater contamination; and it would require drillers to have a plan in place to deal with flow back.
Rep. Bill Flores (R-TX)

The oil and gas industry have put up stiff resistance with cries that regulation will kill off any hopes of “energy independence.” House Republicans oppose the measure, and as Greenwire reported, Rep. Bill Flores (R-TX) put forth legislation that would block BLM’s fracking rule. Flores, the former CEO of Phoenix Exploration, an oil and gas company, argued at a subcommittee hearing in July, “[t]he Bill before us today is about empowering local self-government in placing a check on the growth of an out-of-control, one-size-fits-all federal government.” Congressman Flores seemed to have not realized (or more likely willfully ignored) that BLM’s rule applies to federal lands, not state lands.

Despite vociferous rhetoric from Republicans in Congress and the oil and gas industry to the contrary, the federal government has long-been in bed with the industry.

In 2005 President George W. Bush signed the Energy Policy Act into law (then Senator Obama supported the bill) with a provision that specifically exempted fracking activities from certain provisions in the Safe Drinking Water Act, the Clean Water Act, and the Clean Air Act. The provision is known as the “Halliburton loophole” as it was included at the request of then Vice President Dick Cheney. The loophole has successfully removed the Environmental Protection Agency’s (EPA) authority to regulate fracking.
Rep. Diana DeGette (D-CO)

Some members of Congress have since fought to close the loophole, without success. Rep. Diane DeGette (D-CO) sponsored The Fracturing Responsibility and Awareness of Chemicals Act in 2009 that would have repealed the Halliburton loophole, but it died in committee.

When Barack Obama took office in January 2009, there was new hope that the oil and gas industry would no longer receive such favorable treatment. In 2009 the EPA began sampling wells in Pavillion, WY in response to complaints from local residents near drilling sites that their well water appeared to be dark and dirty, and smelled of petroleum. EPA officials ran tests in areas fracked by Encana Oil & Gas in what would become a closely watched study because of its potential impact on future regulation of the industry.
In 2011 the EPA issued a draft report with results from Wyoming that discovered the presence of synthetic chemicals used in the fracking process. It also found benzene in quantities above what is considered safe, as well as high levels of methane. The report was the first significant and official link between fracking and groundwater contamination. The industry disputed the findings, arguing that the report was flawed, but the study was seemingly a watershed moment in the unfolding fracking narrative.

Yet, on June 20, 2013, EPA dropped its investigation and handed it over to the state of Wyoming.

The decision came only five days before President Obama laid out his plan to fight climate change in a major speech at Georgetown University, which relied heavily on natural gas. Environmental groups are outraged over what they see as a calculated political move by the White House, directing the EPA to stop work on the study.

Because natural gas theoretically emits only half of the greenhouse gases compared to coal, President Obama made increased natural gas production a central pillar of his plan, stating, “Sometimes there are disputes about natural gas, but let me say this: We should strengthen our position as the top natural gas producer because, in the medium term at least, it not only can provide safe, cheap power, but it can also help reduce our carbon emissions.”
Sen. John Barrasso (R-WY)

By favoring natural gas, the President seemed to be providing cover for other parts of his climate plan, which may over time force the shutdown of many of the nation’s existing coal plants. He is using natural gas to kill off coal.

This is why, some think, the EPA was pressured into backing off its fracking study, handing over responsibility to the state of Wyoming. The study will be funded by Encana, the company that owns the wells in the area.

Industry supporters cheered, as did Wyoming’s congressional delegation. In a press release, Senator John Barrasso (R) said, “EPA’s decision to not rely on premature conclusions in its 2011 draft report is a positive and wise step.” Congresswoman Cynthia Lummis (R) added, “Today they finally recognized that the very best place for their report on fracking in Pavillion is in the dust bin of history.”
Rep. Cynthia Lummis (R-WY)

The fact that the administration seems to be fully embracing natural gas does not bode well for rigorous regulatory oversight. And for the first time, industry is looking to lease Eastern national forests. While the oil and gas industry may oppose BLM’s proposed fracking rule for fear of burdensome regulation, if history is any guide, they have little reason to worry.