Regulating Stability: Konschnik on Fracking, Earthquakes, and Compensation

Earthquakes increased in number and geographic distribution in the US between 2009 and 2015. In 2009, Oklahoma had 20 earthquakes of 3.0 magnitude or greater. That number jumped to 585 in 2014—triple the rate of similarly sized earthquakes in California—and 907 in 2015. In many cases, the quakes appear to be “induced” by hydraulic fracturing or the disposal of wastewater from oil and gas production. These earthquakes shake the ground, but also the public’s trust in Oklahoma and other oil and natural-gas producing states. A better policy framework must evolve to meet this challenge.

Benedictine Hall at St. Gregory’s University in Shawnee, Oklahoma, following a November 2011 earthquake.

Science has moved relatively quickly to establish a link and explore the drivers of induced seismicity in the central United States. But law and policy have lagged behind. Insurance products, regulatory frameworks, and court systems have not responded quickly or adequately to the spike in human-caused earthquakes. People in the Midwest turned to their homeowners insurance policies to repair and rebuild damaged homes, only to find that the policies did not cover earthquake damage. When they had purchased earthquake endorsements, they learned too late that these riders excluded losses caused by human-caused tremors. Moreover, a small number of actors dominate the earthquake insurance market in some states, resulting in exorbitant rates and few choices for consumers.

Environmental Law Program Executive Director Kate Konschnik addresses these issues in her new article in the Georgetown Environmental Law Review, “Regulating Stability: State Compensation Funds for Induced Seismicity.” In the article, Konschnik advocates for the creation of state induced seismicity compensation funds, to ensure recovery of damages for injury or lost property, and to contain industry’s looming liability and insurance coverage risks. Such a tool would bring predictability and stability to the issue.

These types of funds can lower the burden of proof and expedite claims processing for the person seeking damages. Compensation funds can also serve to discourage risky industry behaviors—by barring payouts to operators who violate rules or permit conditions, or increasing their payments to the fund—while containing liability for responsible businesses. A carefully designed fund could also facilitate research into the drivers of induced seismicity.

Konschnik reviews ten compensation regimes currently in use around the world, including private arrangements and public regimes at the international, national, and state level. She makes recommendations on fundamental design elements, including fund management, sources of revenue, and limits on its use. She plans to meet with Oklahoma stakeholders later this month to discuss the proposal. Konschnik will also tour oil and natural gas production and disposal facilities in Oklahoma and Arkansas.

Previously, Konschnik investigated the challenges and proposed improvements for industry reporting of chemicals used in hydraulic fracturing. Since her report “Legal Fractures in Chemical Disclosure Laws” was released, she has worked alongside state, industry, NGO, and federal stakeholders to improve data quality and accessibility of information in FracFocus, the chemical reporting site. Click here for more on ELP’s shale gas work.

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