Monday, 8 August 2016

It's About Time We Talked About Fracking


After declaring that the government she leads will always be driven by "the interests of the many ordinary families for whom life is harder than many people in politics realise", Prime Minister Theresa May wants to ensure that families affected by fracking get a share of any money earned.

In effect it's a partial market solution to a problem of ownership of gas, ownership of land, and allocation of resources and funds - but it's not a solution that solves the problem that anti-frackers have, who won't settle for what they consider to be meagre gestures of financial recompense. It is that problem I will address here.

As everyone in this country knows very well, fracking is quite a divisive topic, with those opposed to it unlikely to change their minds as opposition to it is bound up in their group identity.

For me, with no group identity, when it comes to fracking I don’t actually have a dog in this fight – I think it’s a little too early to tell. As always I come to the proposition with an open enough mind to see how it plays out and whether the net benefits outweigh the net costs.

Because yes of course there are costs and downsides to fracking, but obviously there are potential benefits too - not least the fact that there is approximately 1300 trillion cubit feet of shale gas on our land - which is more than 500 years' worth of gas for the UK (not that we'll need that much).

The general feeling in the green camp tends to be one of alarmism: swallowing scare stories and off-the-peg media junk through the fear of any kind of tearing of the sacred holy veil of Gaia.

A better approach would be to say, if it turns out that the benefits outweigh the costs, then great, I’ll support it. If the opposite, then I’ll be first to speak out against it. But rather than foolishly swallowing something whole and trying to digest it slowly, it’s much better to nibble away at it and see how the empirical process plays out.

A few objections are levelled at fracking - that it is an environmentally unfriendly method of sourcing, and that is can cause little earthquakes.

There is no such thing as being an unfriendly method of sourcing energy, just as there is no such thing as a single price of a banana. The quality of being unfriendly is a relative term.

Fracking may turn out to be unfriendly compared to solar energy, but quite friendly compared to coal or oil. Besides, whether it's environmentally 'friendly' or not is only a small part of the picture, because the bigger issue is to do with utility, practicality and saleability.

As for the issue of fracking possibly causing little earthquakes - so what? This may possibly be an argument against fracking, but it's not obvious that it is, because it may not be.

In fact, given that shattering earthquakes that cause damage on a large scale have hypocenters far far deeper than the depths reached by drilling and then pumping water underground, it may actually be the case that those small dissipations of energy, in causing a few little earthquakes, reduce the number of large scale ones. 

Our progress towards using more renewables ought to be dependent on the consumers, and on whether it is beneficial to do so. Solar seems like it has much more of a future than wind, for example - in fact, I feel quite certain that in half a century henceforward the people of that time will be looking back at us and wondering what the heck we thought all the fuss was about.

Shale providers, like solar and oil providers, earn their living by how much the consumers feel the energy is worth at meeting their demand for warm houses, cooked food, and so on.

If there is a large social payoff to fracking for consumers - as measured, as usual, by what consumers are willing to pay - but nobody is fracking to meet this demand, other suppliers in search of a business venture will start solving the missing shale gas problem, rewarded by the payoffs of the revenue per cubic foot that is aligned with the benefit to customers. That is precisely how society should decide which energy sources should be predominant.

Life's gradual progression is very rarely a planned one (although to the naked eye it can easily give the appearance of being more 'designed' than it actually is) - it is a cumulative process that comes as a result of millions of ideas and exchanges going on in a trial and error process.

Discussions about things like fracking should never be alarmist where folk only fear the losses of some elements of the equation; it should be with the view that whichever provides the net benefit to society is the one that should be considered with most favour.

Geologists tell us that there are large amounts of gas locked into shales below the nation's floor, and it is common knowledge that less than 10% of our land is urbanised, so there is plenty of scope to install drilling rigs around the country if the benefits outweigh the costs.

Of course, this issue isn't helped by the fact that in the UK (unlike in America) pretty much all onshore natural resources like oil and gas are owned by the State, which means the Ricardian principle of land rent site being equal to the economic advantage obtained by it for its most productive use is likely to be sub-optimal.

What is needed, ideally, are proper allocations, whereby people whose land is shale gas rich can benefit from it (if they choose) - subject to consideration of the externalities (neighbours, locals) - as can all consumers who can buy cheaper gas. If it's done intelligently, then the costs of drilling for shale gas will be concentrated in areas of investors/providers, with benefits being widely distributed to consumers.

Generally speaking, though, I'm afraid there is too much lazy thinking when it comes to many of these 'controversial' topics - as there are a vast number of people who tendentiously operate on a kind autopilot logic of "If x involves some costs then we must not entertain x" - when, of course, in the real world, everything has some costs, because everything is a trade off - if you get less or more of something you get more or less of something else. If we discontinued everything that has costs we'd discontinue everything full stop

So fracking may be a bad idea, but it may be the case that people getting inexpensive energy, pensioners being affordably warm in winter, and low earners being able to cook without being petrified of opening the gas bill are worth what may be turn out to be tiny fusses over very little.

If we don't capitalise on the potential for more efficient energy provisions, we are effectively saying we don't prefer cheaper energy, which is exactly the same as saying we prefer more expensive energy, which is the same as admitting that we don't want to make life better for many people.

Moreover, if we don't capitalise on the ability to drill for gas one would presume it means we'll use more coal and oil for the same energy requirements, which one would have thought is contrary to the greens' aims as it will be worse for the environment (particularly as extraction costs for shale gas will surely be a lot less than in the oil industry).


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