On energy, environment, and regulatory independence
- Ivo Vegter
- 02 Jun 2014 11:11 (South Africa)
The risks of regulatory capture are well known. It has its roots in a 1971 essay by George Stigler, a Chicago School free market advocate, 1982 Nobel laureate, teacher of Milton Friedman, and Nobel laureate in his own right.
It refers to the ability of powerful interests, usually regulated corporations or industries, to influence government rules to benefit them at the expense of their competitors, and to raise barriers to new entrants to the market.
Regulations do not have to be obviously biased to benefit the establishment. Onerous legal requirements to doing business always benefit large companies with the resources to comply, at the expense of smaller competitors. Consider the pharmaceutical approval process, with its expensive clinical trials, and whether an entrepreneurial lab on a shoestring could possibly compete against the capital clout of Big Pharma.
As I wrote recently: “Powerful money interests are always capable of perverting public policy. The more power the state has, the more there is to corrupt.”
But regulatory capture is not limited to crude bribery or nepotism, nor to corporate interests. It more usually takes the form of persuasive arguments ostensibly made in the public interest. It can involve any kind of lobby, and it is easy to disguise as public-spirited concern. I encountered a good example recently.
In March 2014, Dr Shafik Adams, the water research manager of the Water Research Commission (WRC), told Engineering News to “let the science speak” about the implications of shale gas drilling on South Africa’s water resources, because “politics was jumping ahead of the science”. He did so in anticipation of Unconventional gas: Just the facts, a WRC symposium to be held on 18 and 19 August 2014.
Invitations are deliberately limited to “practitioners, researchers and professionals working in the water and mining sectors affected by unconventional gas,” in the hope that it will be an unbiased public policy discussion free of either corporate or environmental spin. That is, it promises to be an event right up my street. I sign my book with the line: “Distrust environmentalists as much as you’d distrust corporate spin.”
Imagine my surprise, then, to be invited to participate in a debate hosted by the Worldwide Fund for Nature (WWF) and radio station SAfm, only to find myself opposed not only by two green lobbyists, but also by the CEO of the WRC, Dhesigen Naidoo.
On the morning of Friday 30 May 2014, the two teams squared off before a live audience at the Gordon Institute of Business Science. The motion was: “Fracking threatens our water resources,” where “threaten” was defined to mean whether shale gas drilling would cause more harm than good.
The debate was moderated by Sakina Kamwendo, who recently joined SAfm from Metro FM. Time limits are vicious in a three-versus-three live radio debate, and she cracked an expert whip.
Flanking me to argue against the motion (that is, confusingly, in favour of drilling) were Pulane Kingston, a partner at Webber Wentzel Attorneys, and Omphi Aphane, deputy director general in the Department of Energy.
Ranged against us, in support of the view that shale gas drilling would do more harm than good, were Naidoo, Mariette Liefferink, the chairperson of the Federation for a Sustainable Environment, and Jonathan Deal, CEO of the Treasure the Karoo Action Group.
Naidoo was introduced on air as CEO of the WRC, which was established by the Water Research Act no. 34 of 1971. A representative of the Department of Water Affairs and Forestry sits on its board of directors, and it is subject to the Public Finance Management Act. It is a government institution, and Naidoo can only be described as a civil servant.
To be fair, Aphane should probably have declined the invitation too. He does have the defence that official government policy is not opposed to shale gas, and that he sat between a lawyer and a columnist, not between environmental activists or oil and gas industry executives. However, government representatives ought to be seen to be impartial.
The radio station wanted conflict, and explicitly said that it was a contest, not a panel discussion. (For the record, the “yes” vote won by 64%, where “yes” means “no to drilling”. Deborah Weber, who organised the debate on behalf of the WWF, admitted to me afterwards that the negative phrasing of the question was confusing.)
If you’re out to win an argument, instead of establishing an objective public policy position, you’re treading on dangerous ground as a civil servant. In taking the view that shale gas threatens our water resources, Naidoo duly painted himself into a partisan corner.
He at times undermined his own side by saying he merely argues that there are risks to water resources that the government ought to consider, which is not a view I’d dispute. I was on the opposing side because I don’t believe those risks imply that shale gas development in South Africa would do more harm than good.
In the heat of debate, Naidoo accused me of focusing on only one aspect of water resources, namely where shale gas drillers might obtain water. This was a misrepresentation, as I was sure listeners could judge for themselves.
I, in turn, wondered why a regulator was at the table, pre-judging the science, contrary to the advice of his own water research manager.
Afterwards, off air, Naidoo berated me for what he described as a “personal attack” on air. He told me he did not represent the government, but had been speaking in his personal capacity. He said he was merely asked by the WWF to “construct an argument” in favour of the motion, and he complied.
I was disappointed, because I had intended the attack to be purely professional. Naidoo was introduced as the CEO of the Water Research Commission, and listeners had no way of knowing that he wasn’t speaking as a civil servant.
If I had wanted to make a personal attack, I might have directed it at Liefferink, who admitted having “little profundity” about shale gas, and proceeded to speak about gold mining instead.
If I had wanted to make it personal, I could have simply called Naidoo a liar. He told listeners that I ignored groundwater pollution and wastewater disposal, focusing only on where the industry would source water, but in truth, I discussed all three in equal detail. Since we had a two-minute time limit, I can easily quote my entire statement, so you can judge for yourself.
“Shale gas does have implications for water resources, but I do not believe it poses a grave threat. There are three core issues: where will they get the water, does it pollute anything down the hole, and what happens with waste water.
“So, first. Modern shale gas drilling uses less water than conventional gas. A Harvard study [Mielke et al] found it uses less water than any other fossil fuel, nowadays. Biofuel, which environmentalists so love, uses nearly a thousand times more water. Some new fracturing methods don’t use water at all.
“But if we assume the worst (the scary number of 20 million litres per well), context matters. South Africa’s golf courses use enough water every year to frack 15,000 wells. If you drew that from the Gariep Dam, you’d need 3% of its total capacity, once off. In Texas, which is water stressed, shale gas accounts for only 1.7% of total freshwater use.
“Shell promised not to compete with Karoo residents for water. In fact, they say they’ll leave the Karoo with more water than they found it.
“This is actually plausible, but breaking even seems acceptable to me.
“The second charge is that shale gas drilling will pollute fresh water aquifers. But fracking happens several kilometres deeper than shallow groundwater. There is no evidence that pollution is a widespread risk, and no anecdotal claims have survived regulatory investigations. Ordinary surface spills occasionally happen, as they do in any industry, but even those are rare.
“Consider this: a leaking well is useless. Even if the industry did not care about the environment, it does care whether a well that costs as much as an Nkandla upgrade, can actually produce gas.
“The third question is what happens to waste water. This is not a new or unique problem. Most wastewater simply gets recycled, and the rest can easily be treated. The latest technology is called zero discharge water management, and produces no waste at all.
“To the best of our knowledge, the risks to our water resources are small and manageable. Any remaining questions can only be answered by exploration. Blindly taking risks is dangerous, but we are not blind. Excessive risk aversion can cause just as much harm.”
So Naidoo really was just “constructing an argument”, without any regard for its factual accuracy or the contraints of his public position as a civil servant.
It wasn’t the only case, either. He also said I had ignored the fact that the Karoo was water-stressed. In truth, I had used that very word, and cited the shale gas industry’s water use for Texas, instead of numbers that would have looked much better for my argument, such as those for Pennsylvania (0.8%) or the US as a whole (0.3%). In the course of the discussion, I also suggested potential sources for water that would not compete with other would-be users, and would not threaten South Africa’s limited surface water resources.
Naidoo contradicted his own colleagues by “jumping ahead of the science”. His introduction in his professional capacity misled listeners if he spoke only in his personal capacity. He prejudiced the process of issuing water use licences by publicly stating premature conclusions. And he misrepresented my position on air more than once, thereby giving the impression of being a dishonest environmental activist, instead of an unbiased government official.
None of this would have happened if he had declined the invitation. His words, selectively quoted, can now be used by environmental activists in support of their regulatory objectives. That is how regulatory capture works.
Public policy ought to be made on grounds of reasoned arguments about science, law, economics and the national interest, and not on the basis of uninformed populism, environmental exaggeration or corporate spin.
According to the second version of the National Water Resource Strategy, published in 2012, “South Africa has adequate water resource potential to serve its requirements for many years to come.”
The strategy does, of course, identify management issues that need to be addressed. Among them, notably, is better use of groundwater, of which South Africa has a great deal, since its surface water sources are indeed in short supply. The mapping of the Karoo’s groundwater reserves in preparation for shale gas drilling is currently ongoing. That research is more likely to enhance than threaten the country’s water resources.
I have difficulty with the idea that a government agency takes sides in a debate, merely for the sake of argument. It compromises their neutral position of public trust.
With South Africa’s levels of poverty and unemployment, we cannot afford to ban industries just because some people wax poetic about treating nature like a shrine that we cannot touch, or because we are afraid of processes we do not understand. We need a healthy, productive environment that sustains the people of South Africa. I have seen that the oil and gas industry can coexist with both nature and agriculture. I have seen how it can improve lives.
Fear-mongering is no substitute for sensible policies that minimise risks and maximise benefits. As sources of energy go, few offer as much benefit, for as little risk, as natural gas. There is no evidence that hydraulic fracturing poses a grave risk to our water resources, or that the regulations on the table are inadequate to protect them.
My biggest fear is not that shale drilling poses a threat to our water, but that we go exploring and find the Karoo Basin is not economically viable. That would be a tragedy. Rejecting shale gas before we even know would just be daft. DM
Full disclosure: My thanks to the WWF, which covered my travel expenses to Johannesburg for the debate, and presented me with a branded mug and keyring which greatly appeal to my sense of irony. I feel for the forsaken panda bear.