Professor Giovanna Michelon is a Professor in Accounting at the University of Bristol. Her research interests are in the field of sustainability accounting and reporting. Recently, Giovanna and her co-authors have become interested in the effects of disclosure regulation outside the traditional corporate reporting domain, which has led them to study the link between new hydraulic fracturing wells and surface water quality.
Transparency regimes are used in consumer protection, such as product labels, or in environmental regulation, including CO2 emissions. From 2010, many U.S. states started to regulate hydraulic fracturing, obliging operators to disclose the substances used in their fracturing fluids. Giovanna and her co-authors came across this new rule and wanted to see whether it would have an impact on operator practices, in particular whether mandatory disclosures for fracturing fluids made the practice cleaner and could reduce potential contamination.
To do that they also needed to compare the environmental impact before and after the new disclosure rule. They started collecting surface water data and analysing changes in surface water quality around new wells. This led them to first study the link between new hydraulic fracturing wells and surface water quality.
The study, jointly led by the Universities of Bristol, Chicago and Navarra and published on 20 August 2021 in the journal Science, found the largest salt concentrations occurred during the early phases of oil production, when wells generate large volumes of flowback and produced water. However, even the highest levels were well below what the United States Environmental Protection Agency considers harmful.
Tens of thousands of hydraulic fracturing wells drilled over the past few years across America, including in Pennsylvania, Texas, and North Dakota, have made unconventional oil and gas production part of everyday life for many Americans. The discovery of fracking is seen by some as the most important change in the energy sector since the introduction of nuclear generated electricity more than 50 years ago, but health and environmental concerns have also been raised, especially regarding the threat fracking could pose to water supplies.
The first major study of its kind
While previous research has focused on hydraulic fracturing potentially contaminating groundwater, this is the first major study of its kind to provide evidence that it can also affect surface water quality.
In an interview, Professor Giovanna Michelon said: “Our work provides the first large-sample evidence showing that hydraulic fracturing is related to increased salt concentrations in surface waters across several shales and many watersheds in the United States. While the elevated levels we discovered were within the bounds of what the US Environmental Protection Agency considers safe, the water measurements were predominantly taken from rivers, and it is important to recognise that not all wells are close to surface water and not all monitors are in locations where they could detect an effect.” 
Professor Michelon and her co-authors from IESE Business School University of Navarra and the University of Chicago Booth School of Business, combined surface water measurements with 46,479 hydraulic fracturing wells from 24 shales across the US to examine whether new drilling and development activities are associated with elevated salt concentrations (bromide, chloride, barium and strontium) in 408 watersheds from between 2006 to 2016. Using a statistical approach, they identified anomalous changes in ion concentration associated with new wells in the same watersheds. They discovered a very small but consistent increase in barium, chloride, and strontium, but not bromide in watersheds with new hydraulic fracturing wells.
Several findings support the connection between the elevated salt levels and the nearby hydraulic fracturing activities. The increases in salt levels were largest during the early phases of production when wells generate large amounts of flowback and produced water, which suggests a link between elevated concentrations and the unconventional oil and gas development process, according to the research. The salt concentrations were most pronounced where water monitors are closest to wells and for wells that produced larger amounts of water and for wells located in areas where the deep formations exhibited higher levels of salinity.
Paving the way to future research
According to co-author Dr Pietro Bonetti, Assistant Professor of Accounting and Control at IESE Business School of Navarra: “Better and more frequent water measurement is needed to fully understand the surface water impact of unconventional oil and gas development. A lack of water quality data limited our analysis”.
Hydraulic fracturing fluids contain chemical substances potentially more dangerous than salts. But they are not widely included in public databases, making a large-sample statistical analysis of these possibly hazardous substances infeasible. Also, many monitoring stations in a watershed are not located close to wells or may be upstream from the well, likely depressing the magnitude of the estimates.
Co-author Professor Christian Leuz, Joseph Sondheimer Professor of International Economics, Finance, and Accounting at the University of Chicago Booth School of Business, said: “Policymakers could consider more targeted water measurement, for instance, placing monitoring stations in locations where they can better track surface water impacts, increasing the frequency of measurement around the time new wells are drilled, and more systematically tracking other chemical substances related to hydraulic fracturing.”
Michelon concludes: “Due to the limitations of available water-quality measurements and because we study chemicals that are not that dangerous per se, we cannot conclude whether fracking is dangerous or safe. This does not imply that if we had data for these chemicals, our approach would also estimate significant associations between these chemicals and fracturing activities. We simply do not know and leave this issue to future research.”
The study is part of a research project that also looks at transparency requirements on fracking operations and examines the consequences of the new state-level disclosure requirements on drilling activity and water quality.
View the paper in Science: Large-sample evidence on the impact of unconventional oil and gas development on surface waters
Professor Giovanna Michelon
Giovanna has been at the University of Bristol since June 2019. She obtained her PhD from the University of Padova. Her research interests are in the field of sustainability accounting and reporting, and her published work has focused on the governance process and systems that underpin corporate actions and accountability on sustainability issues, as well as on the role that sustainability information plays in capital markets.