Two Approaches to Regulation

This past week saw two alternative perspectives on regulation from the US Government.  One was the release of the Department of the Interior’s Draft Rules on Public Disclosure of Chemicals Used in Hydraulic Fracturing.  Just days earlier, we had witnessed public disclosure of what appeared to be regulatory enforcement bias from the EPA.  A video  of senior EPA regional bureau chief, Al Armendariz, reveals his using what he called a “crude analogy.”  In explaining his philosophy of enforcement of EPA regulations, he used the metaphor of the Romans’ picking five random people to crucify as they invaded; the apparent message was that the EPA approach to regulatory enforcement was to choose five random businesses to “crucify.”

Mr. Armendariz explained that he was repeating what he had said to his staff.  That an EPA senior manager would advise his staff of such a random approach to regulatory enforcement is reprehensible.  That he would repeat what he said to his staff in a public forum was just stupid.  The incident brings considerable harm to the EPA’s willingness to abide by the rule of law, and it tends to confirm the very worst that some have believed about the EPA.

The contrast between Mr. Armendariz and the approach taken by Secretary Salazar and the Department of the Interior could not have been starker.  The Draft Rules on Public Disclosure of Chemicals Used in Hydraulic Fracturing appear to represent sound policy.  They would apply only to federal land, and for the most part, they outline practices already used by many reputable drillers in the industry:

  • Public disclosure of chemicals being used in the fracking process would be required.
  • A geological description of the rock layers would be required.
  • A demonstration of well integrity would be required to assure the quality of the cement injected into the well; this demonstration is described as a cement bond log that would detect gaps or voids in the cement casing.
  • Disclosure of the water source and its volume for fracking would be required along with information about the management of recovered fluids.

Regulations distort markets by virtue of their intervention.  The have the potential to limit technological innovation and consequently slow economic growth.  They also may have unintended consequences.  They are, however, not always bad.  But consideration of new regulations and their implementation should be done with great care.  Free markets must continue to function if we are to have reasonably priced energy that is readily available.  Where there is evidence of the violation of regulation, we should expect action by government, but we should also expect application of “the rule of law” and assurance of due process in the enforcement of government regulations. It appeared that Mr. Armendariz had no such intention in his approach to regulatory enforcement.


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