Anti-Fracking Laws vs. Property Rights
Banning drilling also stops landowners from selling their mineral rights. Cue the lawyers.
July 31, 2014 7:16 p.m. ET
The growing efforts by state and local
governments to stop hydraulic fracturing, or "fracking," to extract
natural gas could end up in the Supreme Court. These efforts may
unconstitutionally limit property owners' ability to profit from their
mineral rights.
More than 170 New York
towns and cities have used zoning laws to restrict or prohibit fracking,
and in June New York's Supreme Court turned back a challenge to this
practice. Pennsylvania allows local municipalities to restrict fracking.
Colorado and California are struggling with the issue.
Even
in pro-energy Texas, the relatively small town of Denton, about 30
miles north of Dallas, has a fracking moratorium while the city
considers whether to impose a permanent ban. At a recent contentious
Denton city council meeting in which 500 people attended, the council
moved to let voters decide in November.
Nevertheless, landowners and drillers are threatening to
sue Denton
if a ban is implemented. They may have a case.
Anti-fracking protesters in Albany in January
Getty Images
The Fifth Amendment to the U.S.
Constitution says, in part, that private property cannot be taken for
public use "without just compensation." Historically, that provision
comes into play when a city or county government wants private land to
build, say, a public road. If a landowner won't sell voluntarily, the
government can "take" it through eminent domain but still has to pay.
Sometimes a government may let the owner keep most of the property but
pay the individual the difference between its current value and the
estimated reduced value after the road is built.
Government
regulations that substantially reduce the value of an owner's property
may also constitute a taking, according to the Supreme Court. For
example, suppose a family buys expensive, beachfront property, and the
government later prohibits its development. This would reduce the value
of the land. The owners may be entitled to compensation.
With
respect to oil and gas drilling, there is also a precedent for a
regulatory taking. In 1983, Miller Brothers Oil Corporation, based in
Traverse City, Mich., leased privately owned mineral rights below the
Nordhouse Dunes Wilderness, also in Michigan. The state's Department of
Natural Resources rejected the company's drilling plan, saying state law
prohibited "any and all" energy development on the land.
Miller
and the mineral owners sued. In 1989 state Circuit Court Judge
Peter Houk
ruled that the state's action was a taking of private property,
and awarded the plaintiffs $71.5 million, upping that figure to $120.8
million in 1995. The court tried to accommodate the state's
environmental concerns by encouraging it to allow directional drilling
under the ground, but the state refused. The government's unwillingness
to find a reasonable compromise triggered the award.
State
and local governments have a compelling interest in protecting the
health and safety of their citizens, and regulations that do that may
override a takings claim. Although there are no clear, documented
cases—as opposed to anecdotes—of fracking harming the public, the courts
are likely to approve reasonable restrictions, such as prohibiting
drilling less than a prescribed distance from a housing development or
school.
But absent such circumstances,
courts may rule that an outright ban on fracking or drilling would
constitute a taking—and that would likely mean that the municipality
(i.e., taxpayers) would have to financially compensate mineral-rights
holders for their loses.
How would that
work? There is a process for estimating the net present value of
untapped minerals, and drillers often use that process when contracting
to drill on someone's property, paying the mineral rights' holder a flat
amount, plus some royalties. Municipalities that refuse to let property
owners drill might be required to use that or a similar process to
assess the lost value.
Not every
citizen with mineral rights would necessarily seek an immediate remedy
in case of a ban on fracking. Many might prefer to hold onto their
mineral rights, hoping the next election would lead to elected officials
with a more favorable attitude toward drilling. But the citizens of
communities that want to be "green" could end up paying a lot for the
privilege.
Mr. Matthews
is a resident scholar with the Institute for Policy Innovation in Dallas.
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