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Market Instruments and the Protection of Natural Resources

Market Instruments and the Protection of Natural Resources

Critical Issues in Environmental Taxation series

Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor

Only through a concerted global effort can we protect our natural resources, save our precious natural environment, and indeed our future. But pressures on natural resources come from many directions such as overuse, mismanagement and contamination. This much-needed book reviews and evaluates the use of market and fiscal instruments in protecting our natural resources, from rural to marine environments. Market instruments that are designed to protect the global atmosphere are evaluated, along with carbon instruments and environmental tax incentives. Meanwhile, consideration is given to shifting the tax burden to achieve environmentally responsible outcomes, balancing sustainable use and natural resource protection, and protecting water resources.

Chapter 5: The impact of hydraulic fracturing on fresh water resources in the United States

Hans Sprohge, Bill Butcher, Mary Margaret Callison and Larry Kreiser

Subjects: environment, environmental economics, environmental law, environmental politics and policy, law - academic, energy law, environmental law, tax law and fiscal policy, politics and public policy, environmental politics and policy


Hydraulic fracturing in the United States is rewarded for polluting the atmosphere and destroying fresh water with federal tax breaks that equate to billions of dollars in subsidies. Hydraulic fracturing, also known as fracking, is a well drilling method that extracts natural gas from very far below the surface of the Earth. Natural gas is composed of many hydrocarbons that are inimical to the atmosphere. Proponents of fracking argue that natural gas is a plentiful bridge fuel that allows society to continue to rely on fossil fuels while reducing greenhouse gas emissions compared with other fossil fuels until such time as economically viable green energy sources are developed. Empirical studies show that, although the combustion of natural gas emits less carbon dioxide (CO2) into the atmosphere than other fossil fuels, over a 20-year period or so the impact on the atmosphere may be worse than that from using other fossil fuels. The process of hydraulic fracturing depletes the supply of fresh water and pollutes both underground aquifers and above-ground sources of water. The Internal Revenue Code provides many generous tax breaks to the natural gas industry despite the environmental damage caused by fracking. Two of the biggest tax breaks are deductions for intangible drilling costs and a depletion allowance. Natural gas is a hydrocarbon. Hydrocarbons are made up of the elements hydrogen and carbon, plus impurities. Natural gas consists of hydrocarbons that are gaseous at ordinary temperatures (20°C) and pressures. The principal constituents of natural gas are methane, ethane, propane and butane. Methane accounts for 70–90% of the total volume produced. Dry natural gas is gas containing more than 95% methane (Table 5.1). Wet natural gas is gas containing less than 95% methane and more than 5% ethane, propane and butane. Wet natural gas usually produces hydrocarbon liquids during production. Natural gases also can contain small and variable quantities of nonhydrocarbons such as carbon dioxide, carbon monoxide, sulfur dioxide, hydrogen sulfide, nitrogen, hydrogen, oxygen, helium, and argon. These impurities must be removed from the natural gas stream prior to sale. Sour natural gas is gas with high levels of hydrogen sulfide, which is highly undesirable owing to corrosion. It is called ‘sour’ because of the sour smell of sulfur. In the absence of sulfurous compounds, natural gas is colorless and odorless. The smell associated with the gas coming from a stovetop is due to an odorization process that adds mercaptan compounds to the end-use gas. Adding an odorant before gas is sold to the public aids in detection of gas leaks.

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