Using integrated process and microeconomic analyses to enable effective environmental policy for shale gas in the USA

As one of the largest consumers of energy and emitters of greenhouse gases in the world, the USA must balance energy demand and security with environmental responsibility. Recently, shale gas has emerged as a promising element toward a solution to this dilemma. Currently, shale gas production is regulated under the same rules that govern traditional oil and gas operations, without consideration for the unique environmental challenges associated with the unconventional gas extraction process. It involves small independent operators that typically utilize the most cost-effective extraction processes without necessarily prioritizing the environmental impact of their operations. As a result, opposition to shale gas extraction threatens the continuity and sustainability of the shale gas industry. The negative externalities and information asymmetry associated with this market continue to be captured in a price of natural gas which is not inclusive of the environmental costs of the extraction processes. The objective of this work is to determine the environmental policies that will lead to sustainable shale gas production. A hierarchical approach is developed to benchmark current technologies and to generate, assess and select technologies and policies that overcome market hurdles while addressing EHSS objectives. The approach analyzes the technical and microeconomic impacts of environmental remediation techniques and then takes a multipronged policy approach which supports the microeconomic, environmental, health and safety goals. To illustrate the usefulness of the proposed approach, a case study is solved for the Barnett Shale play to assess at the microeconomic and environmental implications of environmental remediation technologies for shale gas operations. Based on the results of the analysis, technology changes create both economic and environmental benefits for operators indicating a market failure resulting in the priceless favorable technologies do not reflect their impact on the environment. The market failures in the process are analyzed and four policy alternatives to the status quo are evaluated against four policy goals. The primary recommendation resulting from the analysis, the Comprehensive policy alternative, uses a phased approach to drive ongoing innovation in the shale gas industry, stimulate demand for natural gas and reduce the information asymmetry. The implementation of this policy is then applied to an economic and environmental model of a cluster of wells in the Barnett Shale to determine how the policy would be implemented.