The Fracking Revolution: Shale Gas as a Case Study in Innovation Policy

ABSTRACTThe early twenty-first century has witnessed a boom in oil and natural gas production that promises to turn the United States into a new form of petrostate. This boom raises various questions that scholars have begun to explore, including questions of risk governance, federalism, and export policy. Relatively neglected, however, have been questions of why the technological revolution behind the boom occurred and what this revolution teaches about innovation theory and policy. The boom in U.S. shale gas production reflected long-gestating infrastructure developments, a convergence of technological advances, government-sponsored research and development, the presence or absence of intellectual property rights, rights in tangible assets such as land and minerals, and tax and regulatory relief. Consequently, the story behind the boom reaches far beyond the risk-taking and persistence of George Mitchell, whose independent production company achieved pioneering success with hydraulic fracturing (fracking) in Texas\u0027 Barnett Shale. Indeed, the broader story demonstrates how a blend of distinct policy levers, reasonably adjusted over time, can combine to foster a diverse innovation ecosystem that provides a robust platform for game-changing innovation. As exemplified by this story, the centrality of other policy levers can mean that patents play only a modest role, even in spurring technological development by profit-driven private players. Other lessons drawn from this case study include \"negative lessons\" about the possibility and even likelihood of downsides of a technological boom or the policies used to promote it-for example, environmental damage that more careful regulation of a developing technology such as fracking might have avoided. Anticipatory and continuing attention to such potential downsides can help prevent innovation-promoting policies from becoming \"sticky\" in a way that undercuts innovation\u0027s promise and popular appeal. Such lessons can helpfully inform efforts either to extend the United States\u0027 \"fracking revolution\" abroad or to develop other potentially revolutionary technologies such as those associated with renewable energy.INTRODUCTIONInnovations in hydraulic fracturing and horizontal drilling (often collectively referred to as \"fracking\")1 have produced a technological revolution in natural gas and oil extraction. The United States, the world leader in these technologies\u0027 development and exploitation, has suddenly returned to the role of energy-producing superpower.2 Cheaper and more stably priced natural gas, commonly derived from underground shale formations, has promised to provide a long-lasting boost to a flagging U.S. economy,3 even aiding in a revival of U.S.-based manufacturing.4 Both positive and negative spillover effects associated with the boom in use of new extraction technologies-spillovers that range from the economic to the environmental or political5-promise to reach not only across the United States\u0027 continental breadth but around the globe.6The technological revolution that preceded this U.S.-centered oil and gas boom represents a massive burst of innovation that could hold lessons for further technological development, including additional energy transformations. The revolution reflects a classic disruptive innovation, potentially the very kind of innovation that government policy should most look to foster. Yet few scholars have explored why this innovation occurred, or how the story behind the fracking revolution comports with or departs from dominant innovation theory. This Article examines the public policies, economic forces, and private initiatives that helped produce the fracking revolution, focusing on the development of shale gas extraction in particular. The Article primarily concentrates on developments leading to the revolution, including decades of work that preceded late-twentieth century breakthroughs. But the Article also gives some attention to the post-breakthrough diffusion of new extraction technologies and difficulties encountered as use of those technologies has become widespread. …