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Countries that turn their backs on cheap energy lose out

I have an op-ed in the Daily Telegraph on the economics
of shale gas in Britain:

As part of today’s Autumn Statement, George Osborne is expected
to approve the building of 30 gas-fired power stations, simplify
the regulatory process for fracking and provide tax breaks for
shale gas production in Lancashire as early as next year. This is
good news for Lancashire, for the British economy, for
manufacturing firms and for the global environment. To do anything
else would risk economic self-harm.

As recently as 10 years ago, there was a consensus that gas was
going to run out in a few decades and grow ever more expensive in
the meantime. Such pessimism is now a distant memory everywhere,
except perhaps in the forecasting models of the Department of
Energy and Climate Change. Gas, the most abundant fossil fuel, is
going to last at least a century, probably much longer.

Cheap energy is the surest way to encourage economic growth. It
was cheap coal that fuelled the Industrial Revolution, enabling
British workers with steam-driven machinery to be far more
productive than their competitors in Asia and Europe in the 19th
century. The discovery, 12 years ago, of how to use pressurised
water (with less than 1 per cent kitchen-sink chemicals added),
instead of exotic guar gel made from Indian beans, to crack shale
and release gas has now unleashed an energy revolution almost as
far-reaching as the harnessing of Newcastle’s coal.

Thanks to the shale gas revolution, the price of natural gas in
the US is now one third of the price in Britain. This explains why
America’s chemical companies and manufacturing firms are busy
“reshoring” their operations from Europe and Asia to states like
Pennsylvania, where energy is dirt cheap. America’s energy cost
advantage now beats China’s labour cost advantage. In other words,
if we do not treat the shale gas revolution as a huge opportunity
for Britain, then it will become a dire threat to our economy: if
we do not dash for cheap gas, we will lose much of what’s left of
our manufacturing to countries that do.

Fortunately, the Bowland shale under Blackpool looks to be every
bit as gas-rich as the best shales in North America, but even
thicker. Nobody knows how much gas will be recoverable, but if it
is anything like the Marcellus shale in Pennsylvania, the impact on
the North West’s economy will be huge. In America, shale gas now
supports a million jobs, produces nearly $50 billion in tax revenue
and halves the cost of energy for businesses and people. It has
revived manufacturing industry, taken market share from coal, cut
energy imports and promises to revolutionise transport, as buses
and trucks shift to using cheaper, cleaner methane instead of

And if cutting carbon emissions is what floats your boat, you
will like shale gas even more. The advent of cheap gas, by
displacing coal from electricity generation, has drastically cut
America’s carbon dioxide emissions back to levels last seen in the
early 1990s; per capita emissions are now lower than in the 1960s.
(See charts here and here.) Britain’s subsidised dash for renewable
energy has had no such result: wind power is still making a trivial
contribution to total energy use (0.4 per cent) while most
renewable energy comes from wood, the highest-carbon fuel of

Best of all, the shale revolution is causing consternation in
Moscow and Tehran, which had expected to corner the natural gas
market in decades to come. As a sign of the panic it is inducing, a
forthcoming Matt Damon anti-fracking film was financed partly by a company owned by the
United Arab Emirates government. (The film’s plot had to be rewritten after the authorities
absolved a gas company of causing pollution in a well-publicised
case in Dimock, Pennsylvania.)

Exploiting shale gas is safe, according to the Royal Society and
the Royal Academy of Engineering. Fracking of one kind or another
has been used here for decades; the earthquakes it causes are no
worse than a bus going past; it does not use much water compared
with other industries; it’s not responsible for flammable tap
water; and methane leakage is not as bad as has been claimed. Nor,
with a mile of rock between the fractures and the aquifers, does it
cause groundwater contamination. Last year there were 125,000 fracs
in the United States. According to the Environmental Protection
Agency, no frac has ever contaminated groundwater.

Yet still the environmental movement, deep in bed with the
subsidised renewable energy industry, wants to impede shale gas,
fearful that it might succeed. Until recently it looked as if the
Government’s energy policy was to go beyond picking winners to pick
losers – how else do you describe an policy that hands out the most
money to the most expensive ways of generating power? – and even
ban winners. How else do you explain repeated pronouncements about
not letting shale gas production go ahead until we know it will

Let the drilling companies try extracting shale gas. If they
fail, that’s their look-out. If they succeed, we will all benefit,
because the price of energy will come down. In America they have
driven down the cost so far that many shale gas companies are in
trouble – too successful for their own good. The same thing
happened with railways in the 1840s – most entrepreneurs went bust,
but the travelling public got a railway system. As Joseph
Schumpeter explained, that is how the market works – the consumer
gets most of the benefit of innovation, not the producer. Whereas
if subsidised wind fails to cut emissions or electricity prices,
then we consumers pick up the bill. Bad deal.

By Matt Ridley | Tagged:  rational-optimist  telegraph