Barclay Damon
Barclay Damon

Legal Alert

Shale Development Scrapped in New York - A Political Decision Veiled In "Science"

On December 17, 2014, New York State’s environmental review of high-volume hydraulic fracturing – a technology necessary to develop deep shale formations – came to a sudden end. Indeed, in an unexpected turn, Governor Andrew Cuomo held true to his word that a decision would be made before the end of 2014. Six years, five months and 25 days after it began in 2008 with the expectation of being quickly concluded, it was ultimately determined that there were still too many unanswered questions to move forward. With that decision, the potential shale boom, and the hope for an economic stimulus in areas of upstate New York, ended as quickly as it started.

During a rare televised Cabinet Meeting, Cuomo’s Commissioner of Environmental Conservation, Joseph Martens, and Acting Commissioner of Health, Howard Zucker, concluded that the “science” was insufficient to allow hydraulic fracturing to proceed in New York. Acting Commissioner Zucker reported to “have considered all of the data and f[ound] significant questions and risks to public health which as of yet are unanswered.” He further noted that “it would be reckless to proceed in New York until more authoritative research is done, as he would not let his own “family live in a community with fracking[.]” Based on these conclusions, Commissioner Martens promised that he would “issue a legally binding findings statement prohibiting (fracking) in New York State at this time.”

Prior to the announcement, all signs from the New York State Department of Environmental Conservation (“NYSDEC”) pointed to findings that hydraulic fracturing could be done safely in New York so long as identified mitigation measures (e.g., certain prohibitions, setbacks and drilling requirements) were implemented. Indeed, the NYSDEC twice issued its draft Supplemental Generic Environmental Impact Statement (“dSGEIS”) describing the science of hydraulic fracturing, identifying the potential environmental impacts and detailing the requisite mitigation measures. Martens even publicly stated that “[t]he conclusion at the end of the [dSGEIS] was that we could do this safely in New York[.]”1 It was only months after the dSGEIS and associated regulations appeared to be on the verge of finalization, thus clearing the way for hydraulic fracturing, did things come to a halt when Governor Cuomo reported in early 2013 that the NYSDEC’s public health assessment of hydraulic fracturing would be reviewed by the New York State Department of Health (“NYSDOH”) with the assistance of an independent panel of health consultants. This assessment was ultimately leaked and revealed the conclusion that hydraulic fracturing could be done safely.

The NYSDOH’s public health review, which was held in complete secrecy, was originally expected to take a “few weeks.” Yet, 22 months later and under the supervision of a new leader at the NYSDOH, the findings were reported to be the exact opposite. Why the change? Well, perhaps the Governor’s introduction of the issue should have foreshadowed the result. Indeed, as Governor Cuomo prefaced the discussion by Martens and Zucker during the now infamous Cabinet Meeting, hydraulic fracturing was the most emotionally charged issue confronting his Administration – more so that gay marriage or the SAFE Act (gun control). In fact, polling on the issue of hydraulic fracturing has been, and continues to be, consistently split down the middle with neither supporters nor opponents able to claim a clear majority.

Other reasons put forth by Martens included the recent Court of Appeals’ decisions2 upholding the rights of Home Rule and New York municipalities’ right to determine if hydraulic fracturing will occur within their borders as well as industry’s alleged lost interest in New York due to the stringency of the proposed regulatory requirements identified in the dSGEIS and the drop in gas prices.

With respect to his “explanations,” Martens detailed that only a small portion (37%) of the Marcellus Shale in New York would be available for development due to local bans and moratoria as well as the prohibitions and setbacks proposed in the dSGEIS. Perhaps, but that 37% still represents a vast geographic area of potential development, much of which is thought to encompass the prime area for Marcellus Shale development in New York. Moreover, it ignores the reality that New York is also believed to be blessed with Utica Shale deposits as well as other shale plays that could be unlocked with hydraulic fracturing such as the Upper Devonian.

Further to this point, Martens claimed that municipalities across New York were ill equipped to handle the impacts of hydraulic fracturing in their communities. The logic of this, however, is lacking. Not only have a significant number of municipalities come out in support of hydraulic fracturing, in 1981, New York addressed this concern by giving the NYSDEC full authority to regulate drilling across the state and ensure that it is done safely.3 Presumably that is what the 1400+ page dSGEIS, as well as countless statutory and regulatory provisions, were designed to do. Furthermore, the Court of Appeals’ decisions made clear that any community that was not equipped to deal with hydraulic fracturing and decided to ban it within its borders could legally do so. It, therefore, belies logic to use this as a reason for banning hydraulic fracturing across the State, even in those communities that want shale development.

Martens’ reasoning was also purportedly offered to explain why the NYSDEC’s original finding that hydraulic fracturing would bring strong, and badly needed, economic benefit to the Southern Tier of New York was now diminished. The argument appears to be that because operators have allegedly lost interest in New York, fewer wells would be drilled and thus, the economic benefits would not be forthcoming or sufficient to overcome the risks. This is nonsensical. Even assuming that the number of wells which would be drilled in New York was reduced from what was estimated by the NYSDEC in 2009 and 2011, that does not nullify the economic benefits of each of the individual wells that would be drilled. What about Southern Tier landowners that would reap significant royalty payments from being included in a drilling unit? What about ad valorem taxes that would be paid to the municipality where a well pad was sited – taxes that could exceed six figures on an annual basis? Further, isn’t the corollary to Marten’s conclusions true? Namely, if fewer wells are drilled, then the risks would be diminished as well.

So who are the winners and losers following New York’s “science-based” decision? Clearly, the environmental community that waged an unrelenting campaign to ban hydraulic fracturing in New York is the undeniable winner. Their unyielding crusade, which many would argue was based on fear-mongering and junk “science,” targeted Governor Cuomo at every turn and heightened his political stakes. Sadly, few of these activists included the residents of areas where shale development would have occurred in New York, as clearly evidenced by the fact that the bans and moratoria touted by the environmental community as signaling New Yorkers’ opposition to fracking were outside the “sweet spot” for Marcellus Shale development.

The losers are countless, even if one looks past the operators who have lost significant investments and economic opportunities. The landowners of the Southern Tier stand out as the biggest losers. The farmers, retirees, middle class families and other landowners across the Southern Tier, all of whom have been watching their neighbors across the border in Pennsylvania receive cash hefty signing bonuses and royalty payments, have lost their chance at the same. Business owners in the Southern Tier, many of whom were looking forward to reaping the benefits of increased economic activity in the region, are now faced with little or no hope. Local school districts are also on the list of losers as they will no longer see significant ad valorem payments coming in to replace old and aging buses and to help supplement increased revenue needs. Energy customers across New York and throughout the Northeast will not enjoy the price reductions and security that comes with the use of indigenous sources of energy. Sadly, the list goes on.

The implications of New York’s decision to ban hydraulic fracturing are significant. As one would expect, the environmental community has been emboldened by the decision. The consequence will not be for them to rejoice and merely relish in their victory, but rather, to extrapolate this “win” on a number of fronts. For example, within New York, it is expected that the environmental community will turn their focus to natural gas infrastructure such as pipelines and compressor stations. This will only make the permitting process and construction of these much needed infrastructure projects more time consuming and costly – something that runs counter to New York’s energy policy and will cause significant negative consequences within New York’s borders and beyond.

Outside of New York, the environmental community will try to capitalize on New York’s decision and use it as ammunition in its continuing war on hydraulic fracturing in other states. Although other states have banned or put in place moratoria on hydraulic fracturing before now (e.g., Vermont, New Jersey), New York is the first state with significant shale resources to do so. New York will likely become the new poster child for bans on hydraulic fracturing. To date, Pennsylvania Governor-Elect Wolf’s response to New York’s announcement is a pledge to create a health registry in Pennsylvania to monitor health issues.4

Legally, the implications are still unfolding. Will a landowner or company challenge NYSDEC’s promised findings to ban hydraulic fracturing once they are issued? Such challenges are certainly possible under state law if the right party decides to devote the necessary resources needed to do so. The entire 2,359-day process culminating in this recent decision to ban hydraulic fracturing in New York is replete with potential arguments challenging the propriety of final decision to issue a ban. A challenge based on this record could ultimately clarify whether the decision was in fact properly based on the science or, as most New Yorkers believe, was based on politics.

Another legal possibility, which has been tried to some extent during the state’s de facto moratorium, is a takings challenge. Takings cases, which could be brought in either state or federal court, could prove difficult but not impossible. The right plaintiff, perhaps a mineral rights owner, could prevail given the now definitive stance on hydraulic fracturing in New York, particularly if it is ultimately shown that the decision was motivated by politics and not justified by the science.

In conclusion, the recent pronouncement that New York will ban hydraulic fracturing is teeming with implications, whether they are economic, environmental or legal. And while the economic impacts are fairly clear, particularly for those in the Southern Tier of New York, only time will tell how the environmental and legal implications will play out. Perhaps one day the biggest question in everyone’s minds will be answered, namely, did science dictate the decision to ban drilling in New York or was it just good old politics at work?

If you require further information regarding the issues presented in this alert, please contact the Co-Chair of our Environmental Practice Area, Yvonne Hennessey, at yhennessey@hblaw.com.


1 http://www.bloomberg.com/news/2012-05-23/fracking-boom-seen-slow-to-develop-in-new-york-regulator-says.html.
2 Matter of Wallach v. Town of Dryden, 23 N.Y.3d 728 (2014), aff’g Matter of Norse Energy Corp. USA v. Town of Dryden, 964 N.Y.S.2d 714 (3d Dep’t 2013), aff’g Anschutz Exploration Corp. v. Town of Dryden, 940 N.Y.S.2d 458 (N.Y. Sup. Ct. 2012) and Cooperstown Holstein Corp. v. Town of Middlefield, 964 N.Y.S.2d 431 (3d Dep’t 2013), aff’g 943 N.Y.S.2d 722 (N.Y. Sup. Ct. 2012).
3 Laws of 1981, ch. 846.
4 http://stateimpact.npr.org/pennsylvania/2014/12/17/new-york-state-bans-fracking/#more-31199