Incentivizing Waterless Fracking via Tax Credits: A Win-Win Proposal

Per an April 3, 2015 article on the Houston Business Journal website (available here), several bills have been put forward in the Texas House of Representatives that would reward those oil and gas producers that use alternative fracking fluids, otherwise referred to as waterless fracking. The author of the first bill, Representative Tracy King of Batesville, suggested that the tax credit would be beneficial to Texans, especially where drought conditions are most severe. As she put it, “[citizens are] grateful for the production that is there, but 40 percent of the water that is used in Dimmitt County, Texas [in the Eagle Ford Shale] is used for hydraulic fracturing…it’s believed that increased production is available through the use of alternative-based fluids.” Representatives Drew Darby of San Angelo and Abel Herrero of Corpus Christi have also proffered similar bills, that differ slightly in scope and the amount of a potential tax credit.

Oil and gas companies are apt to point out that conventional fracking does not use more water than traditional drilling, but that argument is a bit of a red herring – one need only look to recent statewide impositions on water usage in California in the wake of a generational drought to appreciate that any actions that can be taken to reduce water usage should be taken. It does not appear that the industry is being targeted in retributive fashion for their water usage by these bills; rather, it would merely be provided an incentive to consider an alternative means of oil and gas production that also has the added benefit of water conservation. Though there would obviously be a cost associated assuming the bill were to become law – and that companies chose to pursue waterless fracking – the costs could be offset through the state’s gargantuan “rainy day” fund, the coffers in which lie the billions of dollars Texas has collected from oil and gas production.

Ultimately, this could be an example of potential innovation through legislation of incentivization. Oil and gas companies would have an option to pursue measures that will benefit them through lower taxes by innovating and improving the waterless fracking process, which would benefit citizens through the conservation of water. Rather than cramming heavy-handed legislation down its citizens’ throats, Texas would be putting forth a trial balloon of sorts in an effort to assuage both oil and gas companies as well as citizens on the same issue. This preemptive effort to recognize and address the fact that water conservation will likely be a point of contention in later years should be applauded.

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