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Comment: UK fracking fight highlights need for carbon pricing strategy

Polarised shale gas exploration debate makes an effective EU energy market essential says Policy Exchange think tank

Protestors block the entrance to Cuadrilla’s drilling site in the village of Balcombe in West Sussex (Pic: Flickr/no dash for gas)

 

By Simon Moore

Like so many energy debates, the furore over fracking sees louder and louder shouts from implacable opponents about the terrible risks/glorious opportunities the new technology offers.

The media both feeds and feeds off this. As one news producer recently told me, he’d rather have a “disco” between extreme pro and anti positions than air a middle-ground position.

The degree of uncertainty in the shale debate appears too great for most of the media and the campaigners to handle.

More worrying is how government policy reacts to such huge uncertainties about both shale and its alternatives.

Rising demand

First, let’s review a couple of things we can be reasonably confident of. The first is that there will be demand for gas in the future.

Even in the Committee on Climate Change’s most aggressive decarbonisation strategy (p.31), there is still at least 40GW of gas capacity on the power system in 2030 (a recent report from Greenpeace and WWF had 42GW of gas capacity in 2020, going to 36W in 2030 (p. 11)).

Gas-fired power stations will be needed, at minimum to fill in gaps when weather-dependent renewables aren’t generating. It will also be used for the things like heating, cooking, and industrial applications for several decades.

A second one is that, if shale is produced commercially in the UK, it is displacing some more expensive source, at the moment LNG imports. In other words, if it’s more expensive than any other way of getting gas, then it won’t be produced.

So, in that sense, shale gas production will lower prices, at least compared to what they would otherwise have been.

Business case

The impossible questions are by how much and whether shale can be “produced commercially”.

It rests on resolving a number of uncertainties: about geology; about the economics (both of production and compliance with environmental regulation); about energy and climate policy; and increasingly, about public opinion.

That is the point of the exploration process – to learn about the opportunities and the costs of potential production.

The British Geological Survey have given an estimate of the scale of the resource in the ground, in one part of the country, but finding out how much can be extracted, and what it’ll cost to get the gas out of there requires test drilling and time.

Right now, the only sensible answer to the question of what impact shale will have on UK energy supplies is to say “I don’t know”.

The answer is the same for almost any energy technology. The question is how you cope with that uncertainty.

Unfortunately, in recent years, energy policy in the UK has moved to a position that demands answers before they can be given.

Any centrally-planned system (and that is what the forthcoming UK Electricity Market Reform programme is) requires far more information that officials can conceivably possess and assess.

It demands that government be able to weigh the costs of a variety of energy technologies, for decades into the future, alongside understanding of demand patterns, climate policy, carbon prices and the rest.

Crystal balls

It is this incessant need to predict and to forecast that obliges government ministers, NGOs, industry and everyone else who has weighed in on fracking over the past months to argue not for a process of discovery to find out more, but instead to argue that shale should either be ruled out for good or is going to save the day.

Neither side can possibly know what they claim. Shale gas may transform the UK energy equation. It may not. For many, this uncertainty is unsatisfactory.

The best way we have for exploring the uncertainties of the future is a market, with a proper carbon pricing strategy.

We need additional support for new low carbon technologies, but it should not undermine the ability of the market to explore the future and whether new technologies can change prices.

Instead, the move away from markets in electricity and toward central-planning means that persuading civil servants of the correctness of your forecasts is far more valuable than the ability to demonstrate it in competition with rivals.

Simon Moore is an Environment & Energy Research Fellow at the Policy Exchange think tank. Follow him on twitter @SMoore1984

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