By Peter Fontaine, co-chair, Energy, Environment and Public Utility Practice,

Cozen O’Connor

Pennsylvania’s 200-year history of coal mining has left a legacy of polluted waterways that remains one of the commonwealth’s greatest environmental challenges. More than 250,000 abandoned surface mines, many containing acidic-water-filled pits, scar Pennsylvania’s landscape.

Acidic drainage from these abandoned mines—called “acid mine drainage” or AMD—often has a pH below 5.0, which leaches heavy metals from surrounding rocks and kills fish and other aquatic species in its path. AMD from historic coal mining has rendered more than 2,400 miles of Pennsylvania’s streams and waterways unusable and contaminated untold numbers of household drinking water wells.

While Pennsylvania spends about $19 million annually on abandoned mine reclamation, this modest effort is dwarfed by the magnitude of the environmental problem, which some estimate will cost $50 billion to fix.

To date, relatively few AMD areas have been remediated, because of cost, potential liability, and a lack of meaningful economic incentives. The Marcellus Shale presents an exciting win-win opportunity for the state and drillers to work together while addressing Pennsylvania’s most intractable environmental problem.

Because many current and future Marcellus Shale wells are in close proximity to AMD areas there is an unique opportunity to beneficially use these acid waters for hydraulic fracturing and thereby to help abate AMD areas. If the right mix of legal and economic incentives can be engrafted on the current regulatory program, the Marcellus Shale could represent not just an opportunity to secure a dependable supply of cleaner-burning fuel but also the promise of lasting improvement to Pennsylvania’s streams and rivers.

In many areas of Pennsylvania, sufficient quantities of suitable water for hydro-fracing is lacking due to stream flow limitations and other regulatory restrictions. AMD water is a potential source of frac water if it can be treated to reduce suspended solids and other compounds that can block the horizontal fractures that are essential to the economic recovery of natural gas.[1]

The suitability of AMD as a source of frac water already is demonstrated in the field with several Marcellus Shale wells using impaired mine drainage waters for frac water. However, bold new legislation is needed to protect drillers and provide incentives to use AMD water.

Existing laws do not provide enough protection against liability under the Clean Streams Law. Also, because Pennsylvania is one of only a few states that do not charge a fee for natural gas extraction, there is no stable funding source to encourage AMD abatement projects in conjunction with natural gas extraction.

For these reasons, legislation is needed to:

(1) strengthen liability protection under the Clean Streams Law for drillers who reuse AMD, similar to the “Release of Liability/Covenant Not-To-Sue” given to redevelopers of Pennsylvania Brownfield sites;

(2) assess a meaningful impact fee for natural gas extraction, the proceeds from which would be dedicated to among other causes AMD abatement and restoration; and

(3) Create economic incentives for drillers to beneficially reuse AMD as frac water, such as a meaningful reduction in impact fees.

Recent efforts in Harrisburg could help to encourage the use of AMD as a resource for hydraulic fracturing. On July 22, 2011, Gov. Tom Corbett’s Marcellus Shale Advisory Commission published its much-anticipated report. Among the many recommendations was the proposal of legislation to encourage reuse of AMD for natural gas development.

The beneficial reuse of AMD also is part of a bill sponsored by Pennsylvania State Sen. Joseph Scarnati, which was voted out of the Pennsylvania Senate Environmental Resources and Energy Committee on June 14, 2011.

The bill would impose an impact fee on natural gas drillers of approximately $160,000 per well, spread over 10 years and reflect a well’s declining output over time with the first year of a well’s operation assessed at $40,000, the second year at $30,000, the third year at $20,000, and the fourth through tenth years at $10,000.

Forty percent of the fee would be dedicated to environmental initiatives, including reuse of AMD for frac water (Senate Bill No. 1100, Session of 2011, General Assembly of Pennsylvania). It is estimated that the bill would raise $121.2 million by March 1, 2012, and based on current gas prices and production projections, would generate $675 million over five years.

While the broad-brush recommendations of the commission and the Senate Environmental Resources and Energy Committee are steps in the right direction, bold substantive changes to existing law will be required if the Marcellus Shale boom is to be leveraged toward long-term environmental improvement in AMD areas.

Regulatory barriers must come down if the beneficial use of AMD for frac water is to occur at a sufficient scale to improve water quality.

Given the extent of environmental opposition to unconventional natural gas development in the Marcellus Shale, drillers should be evaluating sustainable practices, such as the beneficial reuse of AMD, to help mitigate environmental impacts and restore impaired water bodies.

[1] Natural Gas Plays in the Marcellus shale: Challenges and Potential Opportunities. David M. Kargbo, Ron. G. Wilhelm, and David J. Campbell, Environmental Science & Technology, Vol. 44, No. 15, 2010, at 5682.