I didn’t get to study economics at University. I sat in on a few lectures, and was glad that I didn’t. But it would be nice to understand why and how economists arrive at their often counter intuitive conclusions. Science and philosophy often surprise us with what they turn out — things that run counter to what we’d expect from appearances. And it must be so with economics, because The Economist magazine has a story today, which claims that,
Shale gas will not solve Britain’s energy problems
This is very disappointing news indeed. I for one was pleased when Cuadrilla Resources announced estimates of gas reserves amounting to a possible 200 trillion cubic feet. More energy, and cheaper energy was surely an answer to Britain’s energy problems, especially for the 5.5 million households — up to 12 million people — living in fuel poverty. So what’s stopped the flow?
Cuadrilla thinks gas will start flowing by 2014. Alas, the finds will not solve Britain’s energy problems. Mike Stephenson of the British Geological Survey is sceptical that accurate predictions can be made from Cuadrilla’s two drill points. Even if the numbers are right, recovery rates may be only 10-20%. And mining such seams is controversial. Shale traps gas more tightly than other rock. To extract it, the shale is blasted with huge volumes of fresh water at high pressure, a practice known as hydraulic fracturing, or “fracking”. France and two American states have halted fracking because of fears that chemicals used may pollute water sources.
Right, the numbers do seem too good to be true. But even 10-20% of 200 trillion feet is still 20-40 trillion feet. That’s not going to hurt! And even if fears about ‘chemicals’ polluting water sources have some foundation, there seems to be scant evidence for them. The possible cost of a water source becoming contaminated should surely be put into perspective. It’s not as if the UK was a massive desert, landlocked at the middle of a vast continent. And, in contrast to the states, which is far less densely populated than the UK, people rely far less on private wells for their water supply. Furthermore, we know that France objects to shale gas because it’s so heavily invested in nuclear. The problems here are technical, not insurmountable. And have very little, as far as I can see, to do with economics. The Economist, whoever he is, continues…
Generating electricity from natural gas is relatively clean. Other fossil fuels produce more carbon dioxide, so replacing Britain’s coal-fired power stations with gas-fired ones would decrease the country’s carbon emissions. But cheap, plentiful fuel (both indigenous and imported) may lead to an increase in overall energy use, worries Kevin Anderson of Manchester University. Shale gas is also likely to divert investment in Britain from pricier but carbon-free nuclear and renewable-energy sources. “From a climate-change perspective this stuff simply has to stay in the ground,” he says.
The immediate consequence of Cuadrilla’s announcement, though, is to undermine the economic logic of the government’s energy policy. Chris Huhne, the energy secretary, recently told delegates at the Liberal Democrat conference that renewable generation is necessary because fossil fuels will be increasingly expensive; he wants to get the country “off the oil and gas price hook”. Yet even if Cuadrilla’s bounty is smaller than it hopes, the earth is riddled with shale rock; its exploitation may check the upward pressure on prices, weakening the economic case for reducing dependence on hydrocarbons.
Hmm. So, shale gas is cleaner than coal… It is easy to turn into electricity. And if it is abundant as it seems to be, it will create cheaper energy…
So in what sense exactly is it that ‘Shale gas will not solve Britain’s energy problems’? Is there some complex theory of economics I’m not getting here? What has this one-time wannabe-economist got wrong? Is there a graph, expressing a function as some exotic curve, which would explain why cheaper, more abundant stuff isn’t an answer to a shortage of stuff and rising prices? I am well and truly flummoxed.
It is time Mr Huhne admits it will be costly to curb global warming, says Dieter Helm of Oxford University. Shale gas may generate taxes. But the political price of saving the planet has gone up.
Ah, so that’s it. ‘Shale gas will not solve Britain’s energy problems’, because the likes of The Economist, and the Secretary of State for Energy and Climate Change simply don’t want it to.
We didn’t need an economist to tell us that.