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Research & Commentary: Misguided Setback Rule Has Potential to End Oil and Gas Development in California

April 25, 2019

Setback Rule Would Essentially Ban New Oil & Gas Development, Threaten Existing Development

Proposed legislation in the California State Assembly would effectively place a ban on new oil and gas development in the Golden State beginning in 2020 by imposing severe and unnecessary restrictions on drilling operations. In essence, the bill would stop hydraulic fracturing (“fracking”) operations.

The bill states “all new oil and gas development…that is not on federal land” must be “located at least 2,500 feet from a residence, school, childcare facility, playground, hospital, or health clinic.” Counties, cities, and towns are also authorized to pursue setback rules further than 2,500 feet if they so choose.

Moreover, the bill contains provisions that could also impact current oil and gas development by considering any “rework operations” on existing wells to be new development. The bill defines rework operations as “operations performed in the well bore of an oil or gas well after the well is completed and equipped for production for the purpose of securing, restoring, or improving hydrocarbon production in a subsurface interval that is then open to production in the well bore. Those operations shall include, but are not limited to, fracturing, refracturing, and other formation stimulation operations and recompletion operations conducted in the subsurface interval, and shall not include routine repairs or well maintenance work.” In Los Angeles County, this provision could eventually cause 66 percent of wells to be shuttered, including 87 percent of the wells in Los Angeles proper. 

An analysis of the bill by California’s Assembly Committee on Natural Resources states “the proximity to oil and gas extraction, including the use of hydraulic fracturing, well acidization, and other nonconventional oil and gas extraction techniques, adversely impacts public health and safety. … Studies link proximity to oil and gas wells to a host of health impacts, including increased risk of asthma and other respiratory illnesses, pre-term births and high-risk pregnancies, and in some cases, cancer.” This statement could not be further from the truth.

Several nationwide studies  reveal air pollution near fracking operations typically poses no danger to human health. Moreover, the Environmental Protection Agency reports the decades-long decline in the nation’s air pollution has continued unabated since fracking became more widespread over the past decade. As fracking operations have increased substantially, the prevalence of asthma, birth defects, and cancer have decreased. Additionally, the incidence of these ailments in states with major fracking operations, such as Pennsylvania and Texas, is lower than in several states that do not contain significant fracking operations. Also, numerous studies demonstrate there is no evidence the miniscule amounts of chemicals present in fracking fluids cause cancer.

Additionally, if passed, the California proposal would trigger a severe self-inflicted wound to the Golden State economy. Almost immediately, electric prices in California would skyrocket, making life more difficult, especially for lower-income Californians.

In 2015, California’s oil and gas industries produced $148 billion in direct economic activity, which accounted for up to 2.7 percent of the state’s gross domestic product, according to a 2017 study by the Los Angeles County Economic Development Corporation (LAEDC). Further, LAEDC estimated these industries supported more than 368,000 jobs and generated $26.4 billion in state and local tax revenues and $28.5 billion in sales and excise taxes. Another 2017 study, prepared by PricewaterhouseCoopers for the American Petroleum Institute, found California’s oil and gas industries supported more than 730,000 jobs in 2015 and produced more than $56 billion in labor income and $119 billion in economic activity.

Energy is a crucial part of the California economy, which is the fourth-largest producer of crude oil in the United States. In light of the immense number of studies showing fracking is safe and provides substantial economic benefits, California lawmakers should certainly not ban the practice or place onerous regulations on drilling activity. It is not meant to suggest there are zero risks associated with fracking or other drilling operations. However, those risks pale in comparison to the enormous economic benefits oil and gas development brings to California.

 

The following documents provide more information about hydraulic fracturing and fossil fuels.

Debunking Four Persistent Myths about Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/debunking-four-persistent-myths-about-hydraulic-fracturing
This Heartland Institute Policy Brief by Policy Analyst Timothy Benson and Linnea Lueken, a former Heartland communications intern, outlines the basic elements of the fracking process and then refutes the four most widespread fracking myths, providing lawmakers and the public with the research and data they need to make informed decisions about hydraulic fracturing.

The Local Economic and Welfare Consequences of Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/the-local-economic-and-welfare-consequences-of-hydraulic-fracturing
This comprehensive study published by the National Bureau of Economic Research says fracking brings, on average, $1,300 to $1,900 in annual benefits to local households, including a 7 percent increase in average income, a 10 percent increase in employment, and a 6 percent increase in housing prices.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
https://www.pacificresearch.org/wp-content/uploads/2018/12/LegislatingEnergy_F_Web.pdf
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report finds that, collectively, these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels---summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels1 by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

The Social Benefits of Fossil Fuels
https://www.heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Impacts of the Natural Gas and Oil Industry on the U.S. Economy in 2015
https://www.heartland.org/publications-resources/publications/impacts-of-the-natural-gas-and-oil-industry-on-the-us-economy-in-2015
This study, conducted by PricewaterhouseCoopers and commissioned by the American Petroleum Institute, shows that the natural gas and oil industry supported 10.3 million U.S. jobs in 2015. According to the Bureau of Labor Statistics, the average wage paid by the natural gas and oil industry, excluding retail station jobs, was $101,181 in 2016, which is nearly 90 percent more than the national average. The study also shows the natural gas and oil industry has had widespread impacts in each of the 50 states.

What If … America’s Energy Renaissance Never Happened?
https://www.heartland.org/publications-resources/publications/what-ifamericas-energy-renaissance-never-actually-happened
This report by the U.S. Chamber of Commerce’s Institute for 21st Century Energy examines the impact the development of shale oil and gas has had on the United States. The report’s authors found that without the fracking-related “energy renaissance,” 4.3 million jobs in the United States may not have ever been created and $548 billion in annual GDP would have been lost since 2009. The report also found electricity prices would be 31 percent higher and gasoline prices 43 percent higher.

What If … Hydraulic Fracturing Was Banned?
https://www.heartland.org/publications-resources/publications/what-if-hydraulic-fracturing-was-banned
This study is the fourth in a series of studies produced by the U.S. Chamber of Commerce’s Institute for 21st Century Energy. It examines what a nationwide ban on hydraulic fracturing would entail. The report’s authors found by 2022, a ban would cause 14.8 million jobs to “evaporate,” almost double gasoline and electricity prices, and increase natural gas prices by 400 percent. Moreover, cost of living expenses would increase by nearly $4,000 per family, household incomes would be reduced by $873 billion, and GDP would be reduced by $1.6 trillion.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 312/377-4000.

Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org @BenceAthwart