Abstract
One way coalbed methane production differs from traditional oil and gas extraction is in the large quantities of produced water. This water must be disposed of for production to occur. Surface discharge has proven to be a low-cost alternative; regulations are in place to protect surface water quality. This paper investigates the effects of alternative ownership regimes on regulatory compliance. A unique dataset linking coalbed methane wells in Wyoming to water disposal permit violations is used to explore differences in environmental performance across severed and unified minerals. Empirical analysis of these data suggest that ownership does impact environmental compliance behavior. Most violations occur on split estate. Federal split estate wells have more severe violations, though not necessarily more of them. Federal unified wells performed best, with fewer and less serious violations. Wells on private land have more, though not necessarily more severe, violations. These results suggest some room for policy proposals accounting for alternative ownership regimes.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Domestic supply as a separate issue from global supply might be interesting to those interested in “energy security.” This study helps understand the environmental cost of supply expansion and how alternative ownership regimes affect that tradeoff.
See: Wyoming Surface Owner Accommodation Act of 2005 (W.S. 30-5-401); New Mexico Surface Owner’s Protection Act of 2007 (N.M.S.A. 70-12); Colorado Surface Owner Protection Act of 2007 (C.S. 34-60-127). Montana, North Dakota, and Utah have debated revising their statutes in recent years as well. In addition, the Bureau of Land Management (BLM), which administers federal onshore energy leasing, conducted a nationwide review of its policies in 2006 in accordance with Section 1835 of the Energy Policy Act of 2005.
Bohi (1998) outlines the technological advances that have allowed unconventional resources to be widely exploited.
A brief overview of the production process is included in “Background and Technology of CBM” and pertinent aspects of water disposal are discussed in “Water Disposal”. This also contrasts with the side effects of hydraulic fracturing, in which water is introduced into the reservoir to increase transmissivity, and the fluid is recovered over the course of production. This technology is widely applied in other types of unconventional deposits such as tight sands and shales.
This is true in other types of unconventional extraction as well. For example, see Gaudet et al. (2006) on the topic of water use for bitumen mining in Canada.
A reviewer rightly points out that this mechanism could be the basis of sample selection by operators. Operators more willing or able to deal with split estate owners may be more likely to develop split estate. This is a possibility that I do not have information to address.
Much of this literature focuses on environmental regulations at point sources such as manufacturing plants. Stafford (2002) and Shimshack and Ward (2005) investigate the effects of punishment and regulator reputation in this context. While not directly pertinent here, they each provide a useful summary of other literature on environmental compliance. In addition, a literature on environmental compliance has developed around the electricity industry, which is typified by generation plants. Fowlie (2010) is a recent contribution to this literature and documents previous work in this vein.
Flores (1998) accounts the historical realizations regarding methane and coal.
Whereas many natural gas wells in Wyoming are deeper than 15,000 feet, the mean depth of CBM wells in northeastern Wyoming is 1,073 feet. There are areas, including portions of the Powder River Basin, where there is less overburden and surface mining of coal occurs.
An extensive additional technical bibliography on the properties of water produced by CBM wells is available at: http://deq.state.wy.us/wqd/WYPDES_Permitting/WYPDES_cbm/Pages/CBM_Watershed_Permitting/Bibliography/CBMBibliography.asp. Last accessed: 18 March, 2011.
The exception to this is Anadarko Petroleum, which built a 48-mile, $50 million pipeline for produced water. The water is transported to Midwest, WY, where a depleted petroleum formation is used to dispose of the water. This project won a 2006 best management practice award from BLM.
An interesting side effect of evaporation pits is the increase in mosquito habitat, which increases mosquito populations and potentially transmission of West Nile virus. The impact on bird populations, notably sage grouse, has been a topic of recent research (Doherty et al. 2008).
As a state with appropriative water law, one necessary precondition for widespread CBM development was for the State Engineer of Wyoming to declare the extraction and disposal of produced water as a “beneficial use” of water. Because it is an essential output of the CBM production process, it does fit the letter of the law. However, in this context “beneficial use” is used in a more traditional sense.
The Agricultural Protection and Monitoring Program was a large-scale pilot project that used produced water to irrigate in Montana over a period of 5 years. More details are available at http://www.tongueriverampp.com.
The extent to which ground and surface water is hydraulically connected throughout the area is not perfectly understood. In some places, the connection appears to be weak, and both the legal and regulatory framework treats the two hydraulic regimes as separate.
States vary in the amount of authority that they have for the NPDES program. Wyoming lacks authority over pretreatment programs, but otherwise is authorized.
During the initial period covered by the data used here, WYDEQ had one field inspector for all CBM wells in the state. That number has since increased to four.
Negotiated surface use agreements are the norm. The accommodation doctrine allows developers who are unable to reach an agreement with the surface owner to post a bond covering damages. On federal minerals, this bond covers only damages to structures or crops. Because contaminated water potentially affects other dimensions of the surface property such as native crops, wildlife, or livestock, it is possible that bonds will not adequately protect the surface user.
However, many surface owners lack the resources to bring legal claims against mineral developers, because conclusive evidence is very expensive to collect.
Because WYDEQ does not record the type of ownership for well locations in permit applications (or sometimes even which wells are covered by a particular permit), in order to determine the ownership of wells, the WYPDES data were merged with well-level data from the WOGCC.
It is possible that optimal use may entail a corner solution in which mineral extraction proceeds and any surface use is foregone; Gaudet et al. (2006) suggest the optimality of just such a use of water in the context of unconventional oil extraction in Alberta.
However, as mentioned above, a surface owner may be uniquely able to perceive changes on their land.
The optimal level of regulation may be simultaneously determined with the level of environmental quality, although we do not make that connection explicitly here. The effect in the model would be to make \(\bar{r}(q)\) and \(q(\bar{r})\).
Operators may also be interested in obscuring the ultimate source of discharges in the event that they are found to be damaging.
Conversations with staff suggested that the set of unviolated permits might be empty.
The data may seem well-suited for use of count data methods. A Shapiro–Wilk test fails to reject the hypothesis of normality for the incidence data. The test for a Poisson variable suggested by Brown and Zhao (2002) is rejected.
The fixed effects included in the regressions are not reported here, but are available on request; they do, in fact, show significant differences across reservoirs and operators. One-way fixed effect specifications yielded consistent results, are also available on request. Including these effects does trim the sample by 69 observations, or about 2 %.
References
Becker GS (1968) Crime and punishment: an economic analysis. J Polit Econ 76(2):169–217
Bohi DR (1998) Changing productivity in U.S. petroleum exploration and development. Tech. Rep. 98-38, Resources for the Future
Boysen DB, Boysen JE, Boysen JA (2002) Strategic produced water management and disposal economics in the rocky mountain region. Tech. rep.. BC Technologies, Ltd., Laramie
Brown LD, Zhao LH (2002) A test for the poisson distribution. Sankhy\(\bar{a}\). Indian J Stat Ser A 64(3):611–625 (in Memory of D. Basu)
Bryner GD (2003) Coalbed methane development: costs and benefits of an emerging resource. Nat Resour J 42(3):519–560
Chouinard H, Steinhoff C (2008) Split estate negotiations: the case of coal-bed methane. Rev Law Econ 4(1):233–258
Darin TF (2002) Waste or wasted?-rethinking the regulation of coalbed methane byproduct water in the rocky mountains: a comparative analysis of approaches to coalbed methane produced water quantity issues in Utah, New Mexico, Colorado, Montana, and Wyoming. J Environ Law Litig 17:281–341
Darin TF, Beatie AW (2001) Debunking the natural gas “clean energy” myth: coalbed methane in wyoming’s powder river basin. Environ Law Report 31(5):10566–10602
Doherty KE, Naugle DE, Walker BL, Graham JM (2008) Greater sage-grouse winter habitat selection and energy development. J Wildl Manage 72(1):187–195
Fisher WL, Bauder JW, Clements WH, Hua I, Maest AS, Ray AW, Riese W, Siegel DI, Thyne G (2010) Management and effects of coalbed methane produced water in the United States. National Academy Press, Washington, D.C
Fitzgerald T (2010) Evaluating split estates in oil and gas leasing. Land Econ 86(2):294–312
Fitzgerald T (2012) Natural resource production under divided ownership: evidence from coalbed methane. Rev Law Econ 8(3):719–757
Flores R (1998) Coalbed methane: from hazard to resource. Int J Coal Geol 35:3–26
Fowlie M (2010) Emissions trading, electricity restructuring, and investment in pollution abatement. Am Econ Rev 100(3):837–869
Gaudet G, Moreaux M, Withagen C (2006) The alberta dilemma: optimal sharing of a water resource by an agricultural and an oil sector. J Environ Econ Manage 52:548–566
Jin D, Grigalunas TA (1993) Environmental compliance and energy exploration and production: application to offshore oil and gas. Land Econ 69(1):82–97
Kaffine D, Worley C (2010) The windy commons? Env Res Econ 47(2):151–172
Maddala G (1983) Limited dependent and qualitative variables in econometrics. Econometric Society monographs, vol 3. Cambridge University Press, Cambridge
Mokyr J (2002) The gifts of Athena: historical origins of the knowledge economy. Princeton University Press, Princeton
Rice CA, Ellis MS, Bullock Jr JH (2000) Water co-produced with coalbed methane in the powder river basin, wyoming: preliminary compositional data. Tech. Rep. 00-372, USGS, Denver, CO
Shimshack JP, Ward MB (2005) Regulator reputation, enforcement, and environmental compliance. J Environ Econ Manage 50(3):519–540
Stafford SL (2002) The effect of punishment on firm compliance with hazardous waste regulations. J Environ Econ Manage 44(2):290–308
USGS (2000) Water produced with coal-bed methane. Denver, CO
Wheaton J, Donato T (2004) Coalbed-methane basics: powder river basin, Montana
Acknowledgments
The author wishes to thank Ted McConnell and Erik Lichtenberg for guidance and useful advice, Matt Buchholz at the WYDEQ for generous assistance in obtaining the data, and Mark Egge for capable research assistance. Participants at the 11th Annual CU Environmental and Natural Resource Economics Workshop and the 11th Occasional California Workshop in Environmental and Resource Economics provided valuable feedback on an earlier version of this paper. All remaining errors are the sole responsibility of the author.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Fitzgerald, T. The Role of Ownership in Environmental Performance: Evidence from Coalbed Methane Development. Environmental Management 52, 1503–1517 (2013). https://doi.org/10.1007/s00267-013-0178-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00267-013-0178-6