Mismatch in Barriers: Fossil Fuel (low) vs. Clean Energy (high)

Starting in 1989, a group of wildcatters raced across a 12-county stretch of northern Michigan to drill natural gas wells, and build all the roads, pipelines, pumping stations, and processing facilities to develop the region’s Antrim shale, the first shale gas play tapped in the U.S. For most of that time, until Wyoming’s coalbed-methane reserve development really got rolling in the late-1990s, northern Michigan was the most intensively drilled region of the continent. More than $2 billion in infrastructure was installed — including over 9,000 wells — across a heavily forested region that sustained considerable environmental damage. The Antrim shale yields about 130 billion cubic feet of gas a year now, ranking number 13 nationally among shale gas plays.

Although the intensive development prompted vigorous civic opposition and new state laws to reduce damage, the resistance amounted to a mere nuisance to the drilling companies. With two exceptions — drilling was barred in a 22,000-acre protected forest reserve in 1998, and the state Legislature and Congress intervened in 2002 to outlaw wells from being drilled beneath the Great Lakes — the companies went where they wanted and did what they needed to do.

Michigan’s experience with the Antrim play is typical and consistent with what’s going on now to tap oil and gas shale reserves nationally. A boom is occurring not only because prodigious oil and gas reserves exist and new technology enables companies to bring them to the surface, it’s also because law and policy confer to energy producers rights that are superior to almost any other industry.

The most powerful advantage is mineral rights, authorized by state law, to develop oil and gas where it exists. A mineral right, essentially a property right that provides access to reserves that lie deep in the earth, is superior to a landowner’s right to manage land on the surface. In cases where surface owners do not also own their minerals, the owner of the mineral right has the authority to install wells and other infrastructure needed to develop the reserves. It’s a bitch for people who have “severed minerals.” They literally have no legal way to prevent drilling or other development on their land. And once developers secure access to oil and gas through binding leases, all they need to develop them is a state or federally issued permit. The permit provides an absolute property right to develop those reserves. Local zoning provisions are rendered moot for establishing new wells, though they can be applied to compressors and some other oil and gas installations in regions that have effective rules and the will to enforce them.

The oil and gas industry also enjoys other legal and policy privileges. Those include the smorgasbord of exemptions from federal and state air, water, hazardous waste, and siting laws that apply to other industries. In Ohio, regulators recently issued stricter regulations for managing Class II deep injection wells used to dispose wastewater from oil and gas production sites. The state took the action because of earthquakes that occurred around a year-old Class II well in Youngstown.

The energy industry’s toxic wastewater is exempt from many of the stringent disposal requirements of the Resource Conservation and Recovery Act, the federal hazardous waste law. As a result, oil and gas producers can pour their wastes down Class II wells instead of the more rigorously constructed and managed Class I disposal wells. The federal government does not require an assessment of earthquake risks for building and operating Class II wells. It does for the more expensive Class I wells, which typically receive the most hazardous wastes.

The oil and gas industry’s competitive advantage includes favorable tax credits, direct grants, and other public investment. And they include the phalanx of state and federal elected lawmakers, appointed officials, and academics — all dependent to one degree or another on the stream of energy industry investment in the public process — who are sympathetic to the industry’s production goals and terrifically positioned in the legislative and executive branches to assure that those goals are achieved. The result, as we are witnessing with the new American energy boom, is a massing of industrial might marching virtually unchallenged across the country to perpetuate the fossil fuel economy.

Now contrast that with the barriers to entry for the clean energy industry. They are high and often insurmountable. Let’s start with a little story, also from this region of northern Michigan.

Two years ago Duke Energy responded to Michigan’s renewable energy standard for electricity — requiring utilities to produce 10 percent of their power from renewable sources by 2015 — by proposing to build 112 utility-scale wind turbines in Manistee and Benzie counties. Three months ago Duke baled after a fierce push-back from residents who developed a scientifically disputable but effective critique of the project’s consequences for health, land, property values, the economy, the environment, and the quality of life. The short lifespan of the Duke windfarm here reflects more than the nation’s new 21st century DNA — do nothing anywhere — it also illustrates the mismatch in the barriers to entry that exist for clean energy producers and fossil fuel producers.

Developers of wind and solar plants have no established property right to execute their projects, like the oil industry does. Opponents of clean energy installations can turn to local zoning, state wind and solar siting requirements, local and state public health requirements, various environmental review steps, operating requirements of utilities that purchase the power, and an endless number of other measures that require public notice, public review, public comment. In contrast, the oil industry contends with virtually no public comment steps when it develops privately-owned minerals. And it faces scant public comment when developing mineral rights owned by states and the federal government.

The clean energy industry also faces constant doubt and opposition from fossil fuel-supported lawmakers about the value of federal clean energy subsidies, and the cost of state renewable energy standards. Congress has not decided whether to renew the federal production tax credit for wind, which is really hurting markets for manufactured components. In Ohio and Michigan, Republican lawmakers propose to eliminate renewable energy requirements for utilities, though the Republican governors in the two states support the standards. The uncertainty is a challenge to the clean energy industry’s prospects in the Midwest.

— Keith Schneider