Fracking. Water is pumped into mines at high pressure to fracture the rock and release natural gas. There is some controversy associated with how the water is disposed of when the fracking is done. In Ohio the water is deposited in deep waste-water wells which happen to be near tectonic fault lines. Probably not coincidentally there have been many earthquakes nearby over the past year. These earthquakes have been small, the largest being about a 4.0 on New Year’s Eve.
The controversy is whether the waste water disposal is causing the earthquakes and whether this externality is properly accounted for in the fracking calculus. Bear in find that it’s not the fracking itself that causes the earthquakes.
An earthquake is a release of pressure. The theory here is that the water in the deep wells lubricates the fault line and allows the release of the pressure built up along fault lines. Fracking, and the associated disposal, adds only negligibly to the total pressure built up over time. That pressure is caused by the geological processes in the Earth. That is, the total quantity of earthquakes over the lifetime of the Earth is a constant, independent of fracking.
What fracking does is re-allocate that supply of earthquakes toward the present, and possibly toward specific locations. If the disutiliy of earthquakes was linear in the timing and quantity of earthquakes, there would be no aggregate welfare effects.
But probably that disutility is convex. Many small earthquakes are preferred to one large one. The disposal of water in deep wells releases pressure sooner and avoids the buildup that would cause a large earthquake. Under this theory the externality from fracking is positive.
They should start fracking in California.
Cheap Talk 
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January 5, 2012 at 11:01 am
CJ
You are neglecting the change from releasing the methane in the first place. The removal of that fossil gas has changed the equilibrium equation down below. An area that otherwise might have had forces in equilibrium contentedly for eons now has a big low pressure gap in the midst of the strata and neighboring strata fall into it.
Mind you, I don’t know this from profession, but at least I have a Physics background.
January 5, 2012 at 2:52 pm
soxsail
The other potential negative externality, is that by decreasing pressure in one local, these small earthquakes could be increasing pressure in another (likely more populated) location. I also have no science background, but I know that often an earthquake at one end of a fault, or along one edge of a plate, will be followed shortly by a similar quake along another edge, or elsewhere on the same fault.
January 6, 2012 at 2:08 am
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January 6, 2012 at 4:40 am
rjsigmund
That is, the total quantity of earthquakes over the lifetime of the Earth is a constant, independent of fracking.
that’s a fairly suspect statement..
January 6, 2012 at 12:19 pm
dilbert dogbert
Mr. Drake and a bunch of others drilled the hell out of Penn back in the day. These were shallow wells, almost hand dug. Did they, via release in pressure, initiate earthquakes? Seems we should have hundreds of years of data on this point.
California has had oil, water and gas extraction wells all along our numerous fault lines. We have lots of earthquakes too. Interesting.
January 7, 2012 at 1:43 pm
teageegeepea
David Friedman made the same point here.
January 11, 2012 at 11:56 am
Aaron
Ok, so this is a intertemporal redistribution of costs. Additional costs today, fewer costs in the future. What discount rate should we use to compare the costs and benefits?