Innovation and Regulatory Holdup: The Case of Shale Gas

The shale gas industry is at the crossroads. The current regulatory frameworks have not lived up to expectations as the recent experiences in Europe (France) and North America (Quebec) demonstrate. Although the patterns of regulation and the approaches used in both continents are, in some respects, similar, still some important differences do exist. To better understand the reasons for such a performance, the paper examines best practices in nanotechnology and financial industries. Five lessons emerge from this analysis, and they are applied in the context of shale gas industry. Disruptive technologies create a “knowledge gap” between the industry and regulatory agencies, and this makes the latter less effective. This is reflected in their inability to develop a regulatory framework that is flexible and capable of taking into account the rapid pace of technological changes that occur in this industry. Also, both countries were unsuccessful in making their regulation credible essentially because they have not taken into serious consideration the environmental, health, and equity issues. Nonetheless, France performs better than Quebec in the harmonization of its regulation with the rest of its trading partners, but France still needs to make further advances in this area. Unless regulators develop new regulatory frameworks that take into account the five lessons learned from the analysis of other dynamic industries with disruptive technologies, they will not be able to appease the opposing interest groups, and this may negatively affect the shale gas industry and a country’s growth and development.