Just the other day an honors student in our Department talked about economics of Coal Seam Gas (CSG) and was referring to possible coexistence between farming and CSG operations. For those who are not familiar with the situation in Australia, there is currently a heated public debate about whether to allow CSG development, especially in highly productive agricultural areas. There are reasonable fears that CSG developments might cause serious and long-lasting (if not permanent) negative effects on farming land, mostly interfering with the groundwater hydrology and water quality. The argument goes that the evident and substantial benefits from CSG developments might impose less evident, but perhaps even more substantial long-term costs by reducing agricultural productive capacity.
Now, my attention was drawn by the word ‘coexistence’ as I am familiar with its use in the literature dealing with Genetically Modified (GM) crops in relation to conventional, non-GM crops. In that context, coexistence is enforced by regulatory prescription of separation distances between GM and non-GM crops, so that cross pollination is prevented. The economics research in that area (e.g, Gray et al. 2011, Ecol. Econ. 70: 2486–2493) examined the outcomes of alternative initial allocation of property rights (non-GM have the explicit right to be free from GM, or vice versa) in a Coasean bargaining setting. Findings from this literature suggest that clustering across the landscape is likely to emerge, so that areas planted exclusively with GM crops are likely to be grouped together, and be separated from the non-GM crops in a least costly way.
Can this also work for CSG? Can an effective way to ensure coexistence between CSG and farming be found by devising a policy mechanism that will encourage CSG to cluster in areas where the potential damages to agriculture are lowest? And what is the right policy mechanism to use in this context?
Another student talked about ‘Good neighbor agreements’ that CSG companies offer to owners of land on which exploration for CSG is undertaken. In the actual legislation, these are defined as ‘Access Agreements’. These are negotiated agreements between the CSG company and the landholder specifying the conditions under which access to land is granted, and the compensation involved. An important feature of these agreements is that they are voluntary, and so a group of landholders could in theory prevent any CSG development in their whole area (surface or groundwater catchment or watershed) by concerted refusal to sign these agreements. This could ensure preservation of that particular area. However, if one or few of the landholders in the area signs the agreement, the probability of future damage affecting the whole area will increase, thereby diminishing the incentives for the other landholders to withhold their agreement. Consequently, the whole area might be subject to CSG development, and its capacity for agricultural production in the long-run might be significantly undermined.
So, there are some inherent possibilities for emergence of clusters across landscape when it comes to CSG. The question remains how can society ensure that CSG is clustered in those areas that stand to lose the least from such development, and prime agricultural areas are left undisturbed. Just from scratching on the surface it is apparent that this is a complex coordination problem, and that the access agreements have only limited capacity to guide the clustering process to socially desirable outcome. Some further policy refinements should be put in place if we can have any hope of coexistence between farming and CSG.
clustering sounds like an interesting end point, although these clusters may still impose large externalities where the groundwater system is large and interconnected. i think until the csg industry can confidently say they have the tech to contain fugitive gases adequately farmers will continue to put up resistance.