Following local health and environmental concerns in communities surrounding hydraulic fracturing sites, many states began requiring that hydraulic fracturing firms disclose their drilling activities and the chemical composition of their fracking fluids. University of Chicago Booth School of Business Professor EPIC Scholar Christian Leuz, the Charles F. Pohl Distinguished Service Professor of Accounting and Finance at the University of Chicago’s Booth School of Business, and his co-authors set out to determine what impact those mandatory disclosures had on the firms’ behaviors, on the public’s actions, and on the local water quality itself. They discovered that the increase in transparency led to more public pressure on firms to make changes, resulting in higher water quality.
The researchers found that the water quality in watersheds with hydraulic fracturing activity consistently improved after the state mandated the disclosure of information. They studied salt concentrations because they are considered signatures for impact by hydraulic fracturing. In high amounts, they can stunt bone development, increase blood pressure, harm aquatic life, and more. The researchers found that salt concentrations declined by as much as 15 percent following disclosure mandates. Other water pollutants not specific to hydraulic fracturing showed no significant decline.
Consistent with the decline in salt concentrations, the researchers found that the hydraulic fracturing operators made several changes after the mandatory disclosure rules went into effect. For example, firms used fewer hazardous and chloride-related chemicals in hydraulic fracturing fluids, and there were fewer spills, leaks and other accidents. The researchers also found that firms were drilling about 5 percent fewer new wells, contributing to about 14 percent of the decrease in water pollution.
Highlighting the mechanism by which transparency operates, the improvements in water quality were greatest in places where there was more public pressure for change. For example, salt concentrations decreased the most in areas with a greater presence of local environmental NGOs and in counties with more local newspapers. Counties with more news articles discussing hydraulic fracturing and water pollution and in states with more Google searches for hydraulic fracturing after the disclosure mandate also saw a decrease in salt concentrations. Water quality also improved in areas where publicly traded firms owned a larger fraction of wells, consistent with the idea that listed firms likely face more public scrutiny than private operators. Consistent with the idea that the disclosure mandates are responsible for the observed changes, the improvements in water quality were larger when the mandates required timelier disclosure and offered fewer trade-secret exemptions. Overall, the mechanism results suggest that transparency regulation can be a successful tool by enabling public pressure, for example from NGOs or social movements, and that this pressure can reign in negative pollution effects.