Corporate Social Responsibility in the Age of Hydraulic Fracturing in the United States and the United Kingdom

• Publication year: 2022

51 Creighton L. Rev. 577. CORPORATE SOCIAL RESPONSIBILITY IN THE AGE OF HYDRAULIC FRACTURING IN THE UNITED STATES AND THE UNITED KINGDOM

CORPORATE SOCIAL RESPONSIBILITY IN THE AGE OF HYDRAULIC FRACTURING IN THE UNITED STATES AND THE UNITED KINGDOM

MARK K. Brewer(fn*)

I. INTRODUCTION

An ever-increasing body of literature seeks to define, justify, and influence the purpose of a corporation, fueling a battle between proponents of shareholder value theory(fn1) on the one hand and those arguing for a broader view of the corporation and its stakeholders ("stake-holder theory") on the other hand. The manner in which law defines, depicts, and measures a corporation is of acute importance where laws and regulations struggle to keep pace with technology and innovation. Over the past few years, the production of unconventional gas(fn2) trapped in deep underground rock layers has become an increasingly important source of energy in the United States(fn3) and may have a similar potential in the United Kingdom.(fn4) Hydraulic fracturing commonlyy called "fracking") is a process by which large quantities of water, sand, or other propping agent and chemicals are pumped underground to break apart rock layers to release shale gas.(fn5) Environmental hazards include gas leaking into the atmosphere,(fn6) gas or contaminants from wells or fractures seeping into aquifers, and sur-face spills of contaminated water.(fn7) While the practice has been used for decades,(fn8) discovery of significant reserves, coupled with improved technology, has propelled the hydraulic fracturing industry in the United States into an unparalleled source of energy.(fn9) Although avail-able data suggests the United Kingdom only possesses moderate shale gas reserves, hydraulic fracturing could potentially contribute tsignificanto a significant number of jobs in areas of high unemployment, provide a source of tax revenue, and reduce the cost of energy in the country.(fn10) In both U.S. corporate law and U.K. company law (together, "Anglo-American corporate law"(fn11), shareholder value theory-the dominant view in the judiciary and the academy-has inhibited higher levels of corporate sustainability, often termed Corporate Social Responsibility ("CSR"). The risks associated with hydraulic fracturing illustrate the importance of reorienting legal scholarship away from the dominance of shareholder value theory to models that prioritize sustainability.

This Article argues the dominance of the shareholder value theory exposes local communities to environmental and social risks by encouraging energy companies to seek short-term gain without addressing detrimental externalities for the local community, the environment, and other stakeholders. Although stricter and more streamlined regulation is desirable, this Article argues that Anglo-American corporate law itself must be more responsive to CSR as well as support other initiatives to improve corporate behavior. This Article initially presents the legal background relevant to hydraulic fracturing in the United States, the United Kingdom, and the European Union. Then, the Article outlines the risks that the hydraulic fracturing industry presents, including water contamination, greenhouse gas emissions, stress on local communities, and other issues. Next, the Article explains the debate between the shareholder value theory and the stakeholder theory and its impact on the hydraulic fracturing industry. Finally, the Article presents recommendations for addressing problems facing the industry with respect to deficiencies in the law.

II. BACKGROUND AND REGULATORY ENVIRONMENT IN

THE UNITED STATES, THE UNITED KINGDOM, AND THE EUROPEAN UNION

Conventional oil and gas are found in permeable rocks, including sandstone.(fn12) Shale gas, however, is contained in impermeable shale, which requires fracturing in order to release the trapped gas.(fn13) The product of hydraulic fracturing is natural gas, which, while cleaner than other fossil fuels, still contributes to carbon emissions.(fn14) Oil companies in the United States and elsewhere have aggressively employed hydraulic fracturing over the past few years as more accessible carbon fuels have been depleted and extraction technology has improved. (fn15) In July 2014, the British Department of Energy and Climate Change ("DECC") began receiving applications for licenses to engage in hydraulic fracturing in the United Kingdom and announced the successful bids in 2015.(fn16)

A. REGULATORY STRUCTURE IN THE UNITED STATES

As the purpose of this Article is to examine the possible influence of corporate law on hydraulic fracturing activities, an extended discus-sion of environmental regulation is outside the scope of this research; however, an overview of the regulatory landscape provides the background for this Article's main discussion. Over the past few years, the hydraulic fracturing industry has grown exponentially in the United States.(fn17) Although a patchwork of federal and state regulations addresses hydraulic fracturing in the United States, there is no comprehensive regulatory regime at the federal level.(fn18) While Congress may claim authority to regulate the industry under the Commerce Clause, individual states have generally governed the most important issues,(fn19) including drilling process integrity, well location, and fracturing chemical disclosure.(fn20)

The hydraulic fracturing industry enjoys exemptions from a number of federal regulatory regimes, including, inter alia, the Resource Conservation and Recovery Act(fn21) ("RCRA"), the Safe Drinking Water Act(fn22) ("SDWA"), the Clean Water Act(fn23) ("CWA"), and the Emergency Planning and Community Right-To-Know Act(fn24) ("EPCRA"). First, RCRA requires parties treating, storing, or disposing of toxic waste to comply with strict technical and financial guidelines. Although freckling fluids typically contain trace elements subject to RCRA regulation, Congress exempted oil and gas waste through the Solid Waste Disposal Act Amendments of 1980,(fn25) which resulted in less stringent storage requirements.(fn26) Second, Congress enacted the Solid Waste Disposal Act(fn27) ("SDWA") in 1965 to safeguard surface and under-ground water sources that are actually or potentially available for human consumption. Through the Energy Policy Act of 2005,(fn28) Con-gress exempted the hydraulic fracturing industry from regulatory requirements under the SDWA, which safeguards drinking water aquifers through its technical and reporting requirements to prevent contamination.(fn29) Third, the CWA regulates the disposal of waste-water as well as the adoption of measures to prevent pollution in storm water discharges.(fn30) Fourth, the EPCRA is designed to help protect communities from chemical hazards that could threaten public health, the environment, and safety.(fn31) However, firms that engage in fracking currently are not required to comply with the EPCRA's requirement to submit annual reports (i.e., "Toxic Chemical Release Form") relating to toxic chemicals to the Environmental Protection Agency ("EPA").(fn32)

Congressional attempts to regulate the industry on a federal level have largely failed. On June 9, 2009, Dianna DeGette, Maurice Hinchey, and Jared Polis introduced the Fracturing Responsibility and Awareness of Chemicals Act(fn33) ("FRAC Act") in the House of Rep-resentatives while Bob Casey and Chuck Schumer concurrently introduced the FRAC Act in the Senate. The FRAC Act would recognize hydraulic fracturing as a federally regulated activity under the SDWA, which would require hydraulic fracturing firms to disclose the chemicals in hydraulic fracturing fluid. After the 111th Congress adjourned without passing the FRAC Act in January 2011, Bob Casey and Diana DeGette reintroduced it in March 2011 in the Senate and the House of Representatives, respectively, although it did not pass. Currently not passed, the FRAC Act was reintroduced on June 11, 2013.(fn34) From March 2010, the EPA engaged in a multiyear study of a number of well sites throughout the United States and published an interim re-port in 2012 that detailed the extent of the study.(fn35) In 2016, the EPA released its final report examining the impact of hydraulic fracturing on the quality and volume of drinking water resources.(fn36)

Beyond meeting any relevant federal thresholds, states(fn37) enjoy discretion to regulate hydraulic fracturing as they see fit, which has resulted in a lack of uniformity nationally with some states granting their respective environmental agency independent authority while others allow regulation through their respective processes of granting well permits.(fn38) Currently, Vermont,(fn39) New York,(fn40) and Maryland(fn41) have all banned hydraulic fracturing. Other states, such as Texas and Louisiana, have assigned regulatory authority to a particular state agency. For example, in Texas, the Oil and Gas Division of the Texas Railroad Commission has the authority to grant permits for hydraulic fracturing(fn42) while the Louisiana Department of Natural Resources Office of Conservation has authority in Louisiana.(fn43)

B. U.K. REGULATORY ENVIRONMENT

As in the United States, a number of different bodies exert influence on the fracking industry in the United Kingdom. The Department of Business, Energy and Industrial Strategy ("BEIS"), previously the DECC, has the authority to grant permission for...