Last week, France became the first country to ban hydraulic fracturing in gas and oil operations. Known as fracking for short, the practice is associated with serious water contamination issues, and a recent study by Cornell University indicates that it may generate more greenhouse gas emissions than coal mining due to the release of methane gas during the operation. The French parliament didn’t wait around for disaster to strike within its borders before voting on the issue, apparently gathering enough evidence from elsewhere, including the United States. Nathalie Kosciusko-Morizet, France’s environment minister, stated earlier this year that “I’m against hydraulic fracturing. We have seen the results in the U.S. There are risks for the water tables and these are risks we don’t want to take.”
Meanwhile back in the U.S., shareholders are beginning to put more pressure on gas and oil companies to disclose the risks of fracking, and under the Obama administration the Securities and Exchange Commission has affirmed the right of shareholders to be fully informed on key operations. France’s decision will most likely provide concerned investors with additional support for using their shareholder power to bring about change.
Fracking is the practice of injecting a chemical brine underground in order to jar natural gas or oil loose from shale formations. Fracking is not a new practice, and in fact it has been used in western U.S. states for decades without gaining much attention as a significant water pollution issue, perhaps because its effects on drinking water have been difficult to document in sparsely populated areas. The documentation problem has been exacerbated over the years because fracking has been exempted from the Clean Water Act and other federal regulations. Most recently, the Bush Administration widened the fracking loophole considerably, with the result that companies are not required to disclose the chemicals used in fracking brine, making it virtually impossible to prove a solid connection between a contaminated well and a nearby fracking operation.
Under the Obama administration, the Environmental Protection Agency is moving toward tighter fracking regulations, and the minority party in Congress issued its own report listing more than 750 chemicals and other substances used in fracking brine, from the unusual and innocuous like walnut shells and salt, to highly toxic ingredients including lead and benzene. The attempt to improve regulation of the industry can’t come a moment too soon, because just a few years ago a big change occurred in the fracking industry, and that was the discovery of major gas deposits in the Marcellus shale formation which underlies major parts of Appalachia on up through Pennsylvania and New York State. Fracking operations in the Marcellus would affect the New York City water supply as well as many other heavily populated areas.
There is little prospect for U.S. legislators to follow the lead of France, but in the meantime U.S. investors are pushing for greater risk disclosure and risk management. According to information released by the SEC, recent shareholder resolutions on fracking have gained an impressive percentage of “yes” votes, with some topping 40 percent and even Exxon shareholders coming in at 28 percent (scoring more than 10 percent is considered noteworthy).
Image Credit: Natural gas by stevedepolo on flickr.com.