Hydraulic fracturing (fracking) is often considered as the most important innovation in the energy system in the last five decades. While the proponents of fracking cite economic benefits such as job creation in the local economy and wider economic benefits arising from cheaper natural gas, several academic researchers across disciplines have warned against the potential environmental damages it causes.

Despite the growing economic literature on the impacts of fracking related to various outcomes, the literature has been largely silent on the regulatory side of fracking. The discussion over fracking regulation is further complicated by the lack of federal-level regulation, which has exempted fracking from environmental-related laws. This has allowed state and local governments to regulate fracking activities with a high level of heterogeneity, which ranges from passing a resolution (no actual consequences) to outright bans. Over our study period (2009 to 2018), the number of such local-level regulations has increased: by our calculations, from just 12 in 2012 to 387 by 2018.

We examine what drives local-level fracking policies and the role of nonprofit environmental organizations in such regulations. We constructed a novel panel data set that contains the presence/absence of fracking regulation in each community, relevant socioeconomic variables, activities of environmental groups, and historical nearby shale gas and oil production. Following a framework used in the local referenda literature, we develop a two-way fixed effects model to estimate the effect of environmental groups on the likelihood of a community adopting a fracking regulation.

We use data from several sources: the list of nationwide communities with fracking bans or moratoriums (temporary bans) from Food & Water Watch, socioeconomic data of communities from the American Community Survey, shapefiles from US Geographical and the US Census Tiger/Line, environmental groups data from National Center for Charitable Statistics, and historical oil production data from the Enverus database.

We find that both the presence of environmental groups and their expenditures increase the likelihood of communities adopting fracking regulations. These results are robust to several sensitivity checks.