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.