The Negative Economic Impact of Environmental Regulations

| by Heritage Foundation

Politicians and consumers learned valuable lessons this summer when national gasoline prices peaked at over four dollars per gallon. Simply put, energy supply must be expanded in the United States. Last October Congress took the right first steps by allowing the restrictions on energy leasing in 85 percent of America’s territorial waters to lapse. An estimated 30 years of imports from Saudi Arabia and enough natural gas to power American homes for 17 years could be found in these waters.

With a new president and a new Congress, we could be facing new regulations when it comes to energy production. There’s the possibility of a massive cap and trade regulation to drastically reduce carbon dioxide that would be devastating to the economy, but that’s just the beginning. In a somewhat clandestinely released report prepared for The Department of Energy, Advanced Resources International measures the economic effects of the regulations recommended by environmental groups. (Clandestine insofar as it’s extremely difficult to find on DOE’s page.) The regulations include:

-- Requiring oil and gas exploration and production (E&P) operations to report to the Toxic Release Inventory (TRI).
-- Subjecting hydraulic fracturing of oil and gas wells by the E&P industry to Underground Injection Control (UIC) program requirements, despite language excluding this in the Energy Policy Act of 2005.
-- Requiring that all wastes associated with oil and gas exploration and production be addressed under Resource Conservation and Recovery Act (RCRA) cradle-to-grave hazardous waste provisions. This includes requiring that the underground injection of produced water and other materials associated with enhancing oil and gas production meet the standards of Class I injection.
-- Requiring storm water permits for all oil and gas E&P operations, rescinding Section 323 of the Energy Policy Act of 2005.
-- Requiring aggregation of the emissions of oil and gas E&P activities under the National Emission Standards for Hazardous Air Pollutants (NESHAP) program, and requiring the U.S. Environmental Protection Agency (EPA) to review and update clean air regulations related to oil and gas E&P.
-- The implementation of new Spill Prevention, Control, and Countermeasure (SPCC) requirements issued by EPA to “provide increased clarity,” as well as to better “tailor” requirements to oil and gas industry operations.

And the effects of these regulations?

-- 183,000 barrels per day lost, or 7 percent of U.S. lower-48 onshore oil production in the first year alone.
-- 245 billion cubic feet of natural gas shut in the first year.
-- 57 percent of producing onshore oil wells in the United States could be shut in, as could 35% of producing onshore gas wells.
-- Overall well drilling for unconventional gas could be reduced by half.
-- Compliance costs: $10 billion first year, up to $75 billion over 25 years.

The full 59-page report is available here. Also worth noting is the amount of forgone royalties and tax revenues that would result from these regulations. Page thirteen of the report has these numbers broken down by state. Texas, Pennsylvania, Oklahoma, Louisiana, New Mexico, Kansas and West Virginia are some of the biggest losers.

Many restrictions and regulations are a relic of the past. Drilling for oil has strict safeguards and state-of-the-art technology with a proven track record for limiting the risk of spills. After all, oil companies have every incentive not to be careless because doing so could severely cripple their industry and subject the industry to more stringent regulations.