The Double Standard of Oil and Gas Vs. Clean Energy Development in Ohio: Do Lawmakers Really Care About Your Property Rights?
Right now in Ohio there's a debate happening around property rights and energy development, and if lawmakers have anything to do with it, clean energy will lose.
Just last year, the Ohio General Assembly delivered a one-two-punch to the state's growing clean energy industry with dual bills: SB 310 imposed a two-year freeze on energy efficiency and renewable energy requirements, and HB 483 nearly tripled the setback distance for wind turbines from property lines. These bills dealt a devastating blow to renewable energy development in Ohio, but for wind in particular; the setback requirement has effectively halted future commercial-scale wind development in the state.
Lawmakers opposed to wind claim the new setback law protects private property rights. But is this concern real, or merely a justification for a coordinated effort to undermine Ohio's wind industry?
When you look closely, it appears to be the latter.
One key example of the state's double-standard when it comes to energy development and property rights is Ohio's "unitization" program. It allows fossil fuel developers to gain control over a common pool of oil or natural gas, giving them an upper hand over even unwilling landowners to access (and frack) these resources beneath their land. Some form of unitization is allowed in 39 other states.
Unfortunately, it would appear that Ohio's lawmakers are bending over backwards to accommodate this practice for the oil and gas industry. About a year after the state effectively zoned out wind turbines, the House passed new legislation (HB 8) broadening the already-permissive unitization program.
No such favors are being done for wind companies. It's even difficult to move policies forward--HB 190--that would give local counties the power to decide for themselves how far wind turbines should be set back from property lines.
Property Rights and Energy Development in Ohio
But how does unitization work, and why is it shifting the balance in favor of fossil fuel development, at a time when Ohio should be focusing on developing cleaner sources of energy like wind and solar?
Imagine you live on a rural, 1-acre lot in eastern Ohio and get a notice in the mail that a natural gas company wants to drill on your neighbor's property and make your land part of their "unit." But you oppose fracking, and believe it's a polluting practice that threatens public health--and, more to the point, your health if you have to live next door to it. Since it's your land they want to absorb into this unit you think to yourself, "I'll surely get a chance to say 'no way.' After all, I've got rights as a property owner."
Right? Think again.
Under Ohio's unitization program, if you show up and try to put a stop to all this by asserting your property rights, you'll be in for a nasty surprise.
This is how it works: a company identifies a pool of oil or natural gas that it would like to extract that lies beneath, for example, 1,000 acres of land. Under Ohio law, the company only has to obtain 65% (or 650 acres) of the mineral rights upfront via ownership or leasing, at which point the unitization process kicks in to fill in the blanks. The company files an application to "unitize" the multiple drilling units that sit over the common "resource pool" and thus secure the rights to extract the resources that flow under the remaining 350 acres. A notification and hearing process begins. If the company succeeds--which it almost invariably does--it becomes the de facto lessee of the mineral rights beneath that remaining acreage, essentially forcing the landowners in the unit to accept drilling on their land.
This means that landowners who are ideologically opposed to oil and gas development, or who just don't want this on their land, no longer have the power to stop it.
Unitization Wasn't Always a Dirty Word--Until Recently
Historically, oil and gas companies drilled vertical holes into a single parcel and if they struck a reserve, the oil or gas would flow up. Just like Daniel Day Lewis's oilman in the movie There Will be Blood, a company could "drink the milkshake" of neighboring landowners without (technically) encroaching on their rights.
Unitization (and its close cousin - "mandatory pooling") came on the scene in the midst of this practice to protect property rights and promote more effective natural resource development. It ensured that as much of the resource pool would be extracted as possible, without depressurizing the resource and ultimately decreasing the recoverable amount. Unitization also (at least initially) helped protect property values by preventing surface destruction of an owner's land.
But with the advent of hydraulic fracturing and horizontal drilling, all bets are off.
A company can now drill 4 or 5 wells with "legs" that extend like octopus legs far beneath the surface, covering vastly more ground than during the era of vertical drilling. Instead of one parcel, a modern oil or natural gas project is a patchwork of many, sometimes dozens, of separately-owned properties.
Complementing this new technology, unitization has made the oil and gas game iterative. It's now easier for companies to extract more and more natural resources from unwilling landowners. Unitization's legal cudgel is every bit as necessary to Ohio's shale boom as is horizontal technology.
But for landowners, risks abound.
The newfound drilling could affect a homeowner's insurance premiums or even render the property uninsurable. A growing number of banks won't give new mortgage loans on homes with gas leases because they don't meet secondary mortgage market guidelines. Property values could be impacted. If contamination of any groundwater on the property occurs, a landowner's home may not sell.
Lawmakers Care About Your Property Rights--Until They Don't
This should be a bitter pill to swallow for those concerned about preserving private property rights in Ohio. But...somehow...it's not.
Unfortunately lawmakers continue to grease the tracks for the oil and gas industry, but throw roadblocks in the way of clean energy developers.
That unitization bill (HB 8) from last Spring? It's a Trojan Horse for fossil fuel developers. While it does contain a provision that appears to protect "unitized" owners' surface rights, it also appears to undermine a landowner's ability to negotiate for favorable lease terms and it end-runs the Administration's de facto ban on fracking on public lands.
Thankfully, the local control bill for wind--HB 190--is getting a hearing this week in the House Public Utilities Committee. If it progresses, counties will be in a better position to decide for themselves how to zone wind developments.
In the meantime, the state should reconsider the expansion of its unitization program and remove the current barriers to responsible wind farm development. At a time when clean energy development is so critical to Ohio's economic and environmental wellbeing, we can no longer afford to keep this double standard in place.
Thank you to my colleagues Dan Raichel and Ann Alexander for helping inform and shape this piece.