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Matt Ridley: Let’s Get Fracking And Slash Our Gas Bills

Matt Ridley, The Daily Telegraph

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 petrol.

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. 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 all.

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 work?

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.

Matt Ridley is the author of ‘The Rational Optimist’ (Fourth Estate). He is a member of the GWPF’s Academic Advisory Council

The Daily Telegraph, 5 December 2012