Is Fracking the Next Financial Crisis? A Development Lens for Understanding Systemic Risk and Governance

Abstract

Natural gas sits in deposits across vast regions of the United States, and hydraulic fracturing (“fracking”) is the current method used to extract it. Fracking for natural gas has been billed as the next economic boon to poor communities and the key to mitigating the negative effects of climate change. But fracking also involves risks: Risks to our environment, to our communities, and to our markets. To date, the debate about fracking — and efforts to address concerns about the risks of fracking — has largely been a debate about who should regulate, the federal government, the states, or some combination of the two. Framing the current fracking debate as a federalism question is a mistake.

This Article argues that the narrow frame of the current fracking debate misses important features of the problem. It argues that fracking is best understood within the much broader context of development in the United States, and more specifically as an example of an approach to development called “hybridity.” The Article maps hybridity as comprised of the following three key features: (1) private actors engaged in difficult-to-regulate activities, (2) involvement of public goods, and (3) creation of systemic risk. Drawing together the financial crisis of 2008, the BP oil spill of 2010, and fracking shows that all three share the common features of hybridity, and give rise to a similar suite of concerns. Regulation alone is not sufficient to address these concerns. Instead, the Article proposes several ways in which the hybridity of fracking might be disrupted, thereby easing the overall risks of fracking while realizing its potential benefits.

Keywords: fracking, shale gas, hydraulic fracturing, hydrofracturing, natural gas, environmental law, development, hybridity, systemic risk