1 Mar 2018

Fracking Mexico, dumping the precautionary principle

Daniel writes:*

Major discussions have taken place concerning Mexico's 2013 changes to its energy framework. These discussions are mostly related to corruption, the state's  capacity to add value in the oil and gas sector, energy security and sovereignty, transnational companies and to some extent environmental issues (Padierna 2014; Morales Aragón and Dávalos López 2015; Ackerman et al. 2017). Within this massive change, private companies have been allowed to fully involve in oil, gas, and electricity supply chains, under the argument that markets are to be developed for prices to decrease to benefit consumers.

From the 2014 plan for exploring and extracting fossil fuels, I found that 34,830 km2 were to be auctioned for fracking (SENER 2015), however SENER increased the area to 52,604 km2 in 2018.  Dear reader, please note that the Netherlands is only 41,543 km2! This auction has been strongly promoted in the recent months; the government has even paid for a forum with academic centers, think-tanks and businessman. From the outside, it seems like our institutions are trying to get rid of these fossil fuel reserves at any price! Fortunately (for us), they have only been able to assign in the first auction to PEMEX around 478 km2.

The precautionary principle was included in Art. 15 and Art. 3.3 of the Rio Declaration and the UNFCCC convention Mexico signed in 1992. This postulate implies that adverse effects should be prevented from dangerous activities that pose uncertainties or scientific uncertainty of what could happen in the future (Toth and Mwansdosya 2001; Gollier et al. 2000). Thus, by applying this principle we acknowledge a social preference to avoid risk in face of unknown results.

Knight (1921) said that risk is something that we can estimate based on previous experiences (thus allowing forecasts of possible future outcomes) but that uncertainty cannot be forecast as it includes  multiple events with variable outcomes.

Fracking has been linked to increased risk to human health and the environment (Concerned Health Professionals of New York 2016), but fracking results are also uncertain depending on the specifics of where and how the technology is used. The technology, in other words, may be the same but the local conditions (topography, water basins, ecosystems and geological conditions) introduce uncertainty regarding the technology's impact.

When future uncertainty is relevant, Gollier et al. (2000) advise stronger actions today. Therefore, the precautionary principle is a safeguard against opportunistic politicians whenever asymmetric information or a weak monitoring by society takes place. Based on this principle and thorough studies, countries like France or Germany -- contrary to the United States or Mexico -- have banned fracking for some major reasons:
  1. Social resistance and active opinion against  pro-fracking politicians and companies 
  2. The United States' experiences with high water demand and pollution
  3. Strong uncertainties regarding methane leakage or increased seismicity
But… what about Mexico? Well, Transparency International (2017) recently published the Corruption Index in which Mexico ranks 135 out of 180 (the Netherlands ranks 8/180). Mexico's ranking implies that even a “strong” regulatory framework may be ineffective in the presence of weak institutions and corruption. Thus, we can speculate that the institutions in charge of regulating fracking are prone to fail and that it is highly possible that these same institutions won’t coordinate with society to monitor the sector. Even if the law states the contrary by means of environmental studies or public consultations -- last ones are quite rare -- previous experiences show this precise behavior (Tajamar, DragoMart, BP Horizon, Grupo Mexico 1, Grupo Mexico 2).

In a nutshell, (we) Mexicans should be worried about fracking for these reasons:
  1. The proven risks associated to the activity
  2. Uncertainties attached to this practice in regard to methane leakage, water spills, and induced seismicity, etc. 
  3. Mexico's culture of chronic corruption favoring profit over care
Bottom line: In a corrupt country like Mexico, it should be mandatory to follow -- above all -- the precautionary principle. Particularly when it comes to activities like fracking, whose implementation incorporates more uncertainty than profit.

* Please help my environmental economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)


Mike Fagan said...

Hi Daniel: two points. First, how the precautionary principle is applied depends on prior values, not the principle itself. For example, there are adverse effects to not developing natural resources like gas and instead relying on renewable tech. Why are these ignored whilst the adverse effects of fracking not? Hence the precautionary principle is simply a political weapon. The reality is that decision makers have to make trade offs between values which are often, to some degree, incompatible in the short term.

Second point. Mexico's weak institutions and chronic corruption are at least one order of magnitude broader and deeper in consequence than the risks of poorly conducted fracking. Were I a Mexican political activist, I would not focus on the consequences of badly done fracking per se, but highlight them rather as the results of weak institutions and chronic corruption. That's your real problem, not fracking.

Ann said...

Hi Daniel! Interesting piece on fracking in Mexico, I was shocked by the amount of land to be auctioned for exploring and extracting fossil fuels.. However, it seems that in a corrupt country such as Mexico, making it mandatory to follow the precautionary principle – or making anything mandatory – wouldn’t really do anything. The whole problem with corruption, or having "extractive institutions" (where a small group exploits the rest of the population, and the state often cannot play its role as enforcer of law and order), is that rules and regulation do not have the usual effect. (You actually already say this yourself) I wonder what kind of market mechanisms could be useful for this (so we don’t have to try to solve the corruption problem now, although, that is the dream of course). The other day we talked about buying all the endangered land so nobody can touch it, this seems far out of reach for 50.000 km2. Any idea what PEMEX is paying for their 478 km2?

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