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David B. Spence

The shale boom has brought both transformational costs and transformational benefits to the major American shale plays. The costs include disruption of quiet communities (with truck traffic, noise, and social and economic disruption), and increased risks of water contamination, disruption of ecosystems, seismic activity, and air pollution. The benefits have been primarily economic, taking the form of lower energy prices, jobs in shale gas production areas and elsewhere, increased investment in industries for which natural gas is an important input, and revenue flows to state (and a few local) governments.  Second-order environmental benefits include the environmental benefits associated with substituting natural gas for coal in the American electricity mix. The debate over how to produce shale gas sustainably has invokes not only disagreement on the merits question – how to allocate the risks and benefits of fracking – but also the federalism question -- which level of government ought to make that allocation decision. Because well-known behavioral biases influence our perceptions of the risks of fracking, these two sets of questions are interrelated. Should policymakers rely primarily on scientific risk analyses in devising a sustainable shale gas production regime, or should they be responsive to sincerely-held (local) concerns about the dangers of fracking?  Where should the locus of policymaking lie -- with the federal government, or with state and local governments? This chapter addresses those both sets, and concludes that: (1) there is no persuasive case for a comprehensive federal licensing regime for shale gas production based on traditional federalism concerns; but (2) because the popular debate over fracking is fraught with biases that inhibit the development of a clear picture of fracking’s risks, policymakers should work to insulate the policy decision process from those biases.