The dramatic shift in the US natural gas sector over the past five years calls for a rethink of at least some aspects of natural gas policy. But heated debates over its economic and environmental impacts, and uncertain progress on regulatory and legislative changes, show how elusive agreement on a new policy trajectory can be.

A sharp rise in US gas production – marketed production grew by more than 30% from 2005 to 2012 – lacking a commensurate increase in domestic demand or access to export markets, has triggered a sharp and sustained decline in gas prices. This has had positive effects, such as reduced unemployment in some gas-rich states, a more competitive US manufacturing sector, and lower residential heating bills. But it has also raised concerns about environmental consequences, pipeline safety, and the viability of renewables, as well as questions about whether surplus gas should be exported or consumed domestically.

Amid continued conflict over the future of hydraulic fracturing, LNG exports, and other natural-gas related issues, Kenneth Medlock, a fellow at Rice University’s Center for Energy Studies, has published a series of policy recommendations for the Obama Administration. He is an economist, and as such, his recommendations offer solutions to vexing policy problems that seek to maximize economic value, rather than advancing a political point of view.

“Some groups will lose, but the net gains should be the focus of government rather than the performance of any single entity in the U.S. economy,” Medlock writes.

But what makes economic sense is not necessarily politically palatable. For example, new tax on natural gas production offers a logical source of funding for resource-constrained regulatory agencies, and is already in use in Pennsylvania, but it is hard to imagine that kind of proposal overcoming opposition if attempted at the federal level.

These are his recommendations:

• Levy a tax on natural gas production to fund regulatory oversight. This can help to overcome legitimate public concern that existing regulatory structures may lack the capacity or resources to adequately govern rapid industry growth.
• Establish an oversight review function at the Federal Energy Regulatory Commission to promote safety and provide transparent quality assurance for local and intrastate natural gas transmission and distribution infrastructure. This can alleviate concerns about potential pipeline explosions and methane leakage.
• Redirect subsidies from end-use energy systems, such as wind and solar, to research and development efforts with the potential to advance new energy technologies, such as scale electricity storage. And do it while gas is cheap. “It provides a low-cost bridge to a point when real breakthroughs are made and the commercial success of new technologies can be realized without government support.”
• Do not interfere with capital allocation to natural gas export projects. “Gains from trade are real. And, if they are present, any constraint on their realization is net welfare-reducing.” By extension, do not allocate government funds to promotion of technologies such as CNG vehicles. If there is a profit to be made, someone will invest.

You can read the full piece here.