The Real Cost of Doing Business - Fracking Industry May Feel a Big Hit from OSHA's Proposed Silica Exposure Rule

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In early September, OSHA issued a proposed rule that will limit permissible exposure to 50 micrograms of respirable crystalline silica per cubic meter of air. (See September 9, 2013 post.) This is approximately half of the current limit observed by industry. According to the U.S. Geological Survey, silica sand is used in approximately 60% of fracking operations.

Initial OSHA estimates indicated that annual compliance costs over the first ten years of the rule would hit $29 million. However, according to Bloomberg BNA’s Environmental Reporter, complying with such limits will come with a much heftier price tag for the fracking industry - to the tune of $247 million. In addition, the costs of compliance are heavily front-loaded, as the first year will cost the industry nearly $103 million, followed by $16 million for each subsequent year over nine more years.

Analysts have demonstrated that OSHA did not initially consider the economic impact of the proposed silica rule on the fracking industry, and the disparity between OSHA’s estimation and the real valuation of the costs of compliance appear to support that conclusion. Such analysts - such as Miguel Garrido, a Bloomberg Government quantitative analyst - suggest that drilling services companies are likely to pass this cost along to upstream oil and gas exploration companies.

The time to submit public comments on this rule is ongoing. On October 25, 2013, OSHA extended the public comment period from December 11, 2013 to January 27, 2014 to allow stakeholders additional time to comment on the proposed rule and supporting analyses.