Commentary: Fracking energy mess — Deconstructing the green agenda

Fracking Energy Mess: Deconstructing the Green Agenda

By Michael J. Economides and Peter C Glover

It has the power to ruin economies, impoverish countless millions and leave many of us, quite literally, in the dark and cold. We are not talking about alarmist theories of what the future climate may do. We are talking about what the current and ubiquitous green agenda is doing.

Other than food no commodity is as important to the world as energy. Yet, because of angst-ridden theoretical speculation – note: not empirical science – the modern green agenda has affected an intellectual disconnect. It is a disconnect that has seen eco-theories eclipse energy realities such that national leaders, industry executives and even reasonable people are not engaging in rational debate let alone action.

Pitted against each other in what can only be considered as almost war-like entrenchments are environmentalists or “greens” on one side and economically-driven pragmatists on the other. There is no contest from an economic point of view. Solar, wind and other “alternatives” favoured by the greens are not and will never be viable. From a thermodynamic point of view they will never amount to much more than one percent of world energy demand without massive and unsustainable government subsidies.

Fossil fuels, headed by the recent emergence of shale hydrocarbons, arguably the biggest energy story in decades, have offered an imposing argument for the world dependency on them in the foreseeable future. The future of oil and gas is not solar and wind; the future of oil and gas is oil and gas.

There is no contest between the impact on a nation’s or region’s economy between fossil and alternative energies. Just as an example, since just last year Texas’ Eagle Ford oil and gas shale deposits, one of the largest shale discoveries in the US, have generated some $61 billion in economic impact on the South Texas economy, more than doubling its impact from 2011. Better yet for Texas, and indeed the entire country, it’s supporting more than 116,000 new jobs, with room for more.

What the other side is left with is the boogeyman of global climate change and emissions. But this is a non-starter today. First, there is an apparent and inexplicable holding to theoretical climate orthodoxy because, for almost two decades, there has been no warming in spite of the increase in carbon dioxide in the atmosphere.  Second, and this is almost whimsical, the success of shale gas and its significant increased use in US power generation has resulted in a dramatic reduction in emissions compared to the growing use of coal-burning in Europe and other countries around the world.

Given the global impact of the US shale gas and oil industries, Europe has been jolted into an appreciation of the huge economic benefits of shale hydrocarbons. But while European leaders may currently be reassessing their attitude towards shale developments, particularly, the fracking technique (hydraulic fracturing) that made it possible, one key barrier to success remains: naive cultural notions of what it means to be “green”.

The US energy market suddenly finds itself approaching what was, just a few years ago, unthinkable: energy independence. Europe, on the other hand, remains in the thrall of Russian gas dependency, expensive imports and domestic heavy industries, including power stations, that – an irony of ironies – has turned to cheap US coal imports as their chief affordable fuel. As a consequence US natural gas prices have fallen to one half of that being paid across the Atlantic. And a US coal industry which has found its product dislodged by domestic industry’s switch to natural gas has found itself a lucrative overseas market. No one suggests that developing shale industries would be a silver bullet for the European economies. But it is abundantly clear that the shale gas and oil industries have thrived in the US – despite an anti-fossil fuel president in the White House – because Americans own the mineral rights beneath their properties, unlike in much of Europe. Even so, it doesn’t take a rocket scientist to work out that developing domestic shale reserves still offers a major economic opportunity for many EU states. But here’s the problem. Europe’s energy strategy is still, primarily driven by its anti-carbon addiction and, in consequence, incompatible and competing priorities in its whole energy strategy.

This, even though climate alarmists are becoming increasingly desperate to find a credible explanation for the contradiction that the global average temperature has long flat-lined while CO2 levels have risen. The European carbon market has all but collapsed. Grasping that EU energy policies threaten an exodus of its leading heavy and chemical industries if prices are not brought down, European politicians have belatedly ‘seen the shale light’.

electricity prices

Figure 1: The graph which is opening the door to an EU re-appraisal on shale gas

In May, European President Herman Van Pompuy cited the need for Europe to face up to the challenge posed by the success of US shale gas and oil which has slashed its domestic prices and undercut European competitiveness.  “All leaders are aware that sustainable and affordable energy is key to keeping factories and jobs in Europe,” Van Pompuy told the media. He acknowledged that, “Industry finds it hard to compete with foreign firms who pay half the price for electricity, like in the United States.” That may be so. But the reality remains that, as a Washington Post correspondent astutely observed, Europe “has become a green-energy basket case. Instead of a model for the world to emulate, Europe has become a model of what not to do.”

Europe’s green agenda is undoubtedly the single greatest factor driving up the continent’s energy bills, up 40 percent since 2005. Now, however, shale development is perceived as the new way of bringing down, or at least stabilizing, gas prices, industry costs and domestic bills. Political and media observers have duly rushed to characterize Europe’s volte face on shale and fracking extraction as “rolling back its climate policy”. The well-funded green lobbies have expressed mass panic. But the reality is, however, that Brussels’ energy strategy remains as shambolic as ever with an anti-intellectual “green agenda” still dominating strategy.

At an energy summit in late May, European leaders persisted in re-affirming Brussels’ core commitment to high-cost, high-subsidy dependent renewable energy projects driven by an increasingly pointless war on carbon emissions. Yet it is this very renewables commitment, remember, that is singularly responsible for propelling Europe’s heavy industry and power sector to import increasing amounts of high CO2 emitting (albeit, high quality) American coal in a bid to remain competitive. Thus the “green agenda” levies and taxes that will always be necessary to ‘fuel’ the renewable energy projects can, in fact, never be abandoned. Europe’s politicians must continue to be caught between a rock – rising energy bills – and a hard place – the twin tyranny of a self-imposed carbon jihad and a renewable energy fantasy.

But Europe’s energy confusion is indicative of a more deep-seated cultural malaise: an abject failure to grasp that even a “green agenda” must be subject to economic realism. Unless we re-visit our understanding of what we value, economically and morally, “green” government energy policies will remain, as they are in Europe, contradictory, incoherent and unsustainably uneconomic. Governments love green taxes and levies. They provide a windfall of non-earmarked cash; but at a massive social cost. They render industries uncompetitive and unable to hire. They mire increasing millions in fuel poverty. They doom energy costs to remain artificially high – and all for no discernible environmental benefit.

As it stands, today’s cultural “green agenda” is nothing less than a case of anti-intellectualism, costing the earth, in pursuit of the illusory.