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Fracking’s Achilles’ heel

Of all of the ways the fracking industry might be brought to an abrupt end, the most innocuous may yet prove to be the most effective.

The fracking industry already struggles to turn a profit in all but the sweetest of sweet spots in geologically favourable US shale plays.  But even these are only really profitable as a result of what economists mistakenly refer to as “externalities” – things like pollution, damage to property and the broader impact of the climate that fracking companies leave for someone else to clear up.

This may be about to change if campaigners in Nebraska are successful in securing new legislation to force fracking companies to take out $5 million insurance cover against any potential damage that fracking can cause.  The Daily Nebraskan reports Sen. Tony Vargas’ reasons for introducing the proposed legislation:

“Taxpayers cannot be on the hook because drilling and fracking have caused environmental disruptions, including water pollution. The state must take preventative steps to rid itself of burdens that could be left with taxpayers.”

The proposed legislation is considered controversial because once so-called “externalities” are factored into the operating costs of fracking, the industry becomes unprofitable.

The example will not go unnoticed elsewhere.  For example, UK taxpayers already face additional costs simply to facilitate fracking in remote rural locations where suitable transport infrastructure is absent.  In future, the cost of damage to water sources and seismic damage to property might also be loaded onto local authorities and households.

Clearly, it would not be unreasonable for governments to insist that companies proposing to carry out fracking be required to carry insurance against potential damage in the same way that a driver is required to have insurance against possible damage resulting from an accident.  But then again, to an industry already struggling with profitability issues, the extra cost of insurance might just prove to be its Achilles Heel.

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