Bond What You Know and Insure What You Don't: A Comment on A Market Approach to Regulating the Energy Revolution

• Date: 01 August 2015

45 ELR 10756 ENVIRONMENTAL LAW REPORTER 8-2015

C O M M E N T

Bond What You Know and

Insure What You Don’t:

A Comment on A Market

Approach to Regulating

the Energy Revolution

by W. Blaine Early III

W. Blaine Early III is a member of the law rm of Stites & Harbison, PLLC, in the rm’s Lexington, Kentucky, oce.

e opinions expressed in this Comment are his alone and do not represent those of the rm or of any client.

It is a privilege to comment on the extensive a nd thought-

provoking work of Professors Dana and Wiseman. I

approach this f rom the perspective of my practice in

the environmental reg ulation of natural resources indus-

tries, including coal and hard rock mining and oil and gas

extraction, and the role that suret y bonds and other forms

of na ncial assurance play in those industries. Professors

Dana and Wiseman describe categories of relatively certain

risks in the short or medium term versus those risks that

are uncerta in and have a long tail.  is comment focuses

on how surety bonds can address the relatively certain risks

of these natural resources industries within the framework

of command-and-control regulation, while insurance is

better suited for the more uncertain risks.

I. The Risks

Both of the primar y papers on this topic in today’s Envi-

ronmental Law and Policy Annual Review detail the risk s

of environmental harm that hydraulic fracturing may pres-

ent. Professors Dana and Wisema n included as “certain

risks” the well drilling process itself, the active process of

hydraulic fracturing, and the handling and disposa l of the

fracturing uids and produced water.1 In a similar treat-

ment, Professors Merrill and Schizer identied risks associ-

ated with cracked well casings and blowouts and releases or

spills of uids and produced water.2 In June 2015 the U.S.

1. David A. Dana & Hannah J. Wiseman, A Market Approach to Regulating the

Energy Revolution: Assurance Bonds, Insurance, and the Certain and Uncertain

Risks of Hydraulic Fracturing, 99 I L. R. 1523, 1545 (2014).

2. omas W. Merrill & David M. Schizer, e Shale Oil and Gas Revolution,

Hydraulic Fracturing, and Water Contamination: A Regulatory Strategy, 98

M. L. R. 145, 182-88 (2013).

Environmental Protection Agency (EPA) released a dra ft

review of the impact of hydraulic fracturing on drinking

water resource s.3 at EPA report focused on ve mech-

anisms in the hydraulic fract uring process that have the

potential to contaminate drinking water: water acquisition,

mixing of the fracturing uids at the well pad, well injec-

tion, the return of the injected uid and produced water,

and the treatment or disposal of the produced wastewater.4

Anecdotal examples can be cited for some environmental

contamination from each of these described risks. ey are

fairly quantiable and predictable, but may not be com-

mon. In fact, EPA concluded that it “did not nd evidence

that these mechan isms have led to widespread, systemic

impacts on drinking water resources in the United States.”5

In contrast, some potential environmental impacts are far

less predictable or quantiable. ese “uncertain risks”

include the potential upward migration of fracturing uids

to contaminate drinking water, the movement of methane

or sediments to contaminate groundwater, a nd the exac-

erbation of seismic activity. e uncertain risks are often

the ones that generate most public comment and concern.

Distin guish ing between these cate gories of cert ain

and uncertain risks is i mportant in designing a nan-

cial supp ort system to help safegua rd environmental

qualit y. For example, the certain risks associated with

storage of fract uring uids, di sposal of waste water,

insta llation and cementing of well casings, and over-

3. U.S. E. P. A, A   P I 

H F  O  G  D W R-

, E R D (2015), available at http://cfpub.epa.

gov/ncea/hfstudy/recordisplay.cfm?deid=244651.

4. Id. at ES-6.

5. Id. at 10-1.

Copyright © 2015 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.