The debate bout fracking is often framed as a polar choice between exploiting shale gas and investment in renewables.
Those in favour of developing shale gas like Peter Lilley MP like so suggest that shale gas does not require government subsidies to get started in the UK, whilst heaping opprobrium at the level of government support handed out renewable energy projects – especially windmills which they see as the unpopular Achilles’ heel of renewable energy.
This is simply untrue. In fact it would be virtually impossible for any infrastructural project on the scale of energy supply to get off the ground without some form of government intervention to attract investment and to get it to the stage where it can fly on its own. George Osborne has already promised as yet undefined tax breaks (A subsidy is a subsidy whatever you call it and however you deliver it) to the fracking industry. If they don’t need it then he is being incredibly profligate (and generous to his friends) at a time when the rest of us are being told there is no money for the delivery of essential services.
Guy Hands who heads the Terra Firma investment company recognises this. In an article in City AM in May 2013 he wrote:
What’s alarming, however, is that long before these problems have been addressed (let alone the first gas extracted commercially), we are seeing demands for cuts in support for existing and new renewable energy. This risks rolling back the real achievement of the sector – which is on course to generate enough energy to power one in ten UK homes by 2015, while also helping reduce carbon emissions. In addition, costs are falling sharply as the industry benefits from economies of scale and technology improvements.
But the sector’s critics claim these impressive results are only being achieved through “Soviet-style subsidies”, which give renewables an unfair advantage and badly distort the market. This is a deliberate misreading of reality.
he goes on to point out that global subsidies for fossil fuels are six times those for the renewable sector.
This huge figure – over $409bn (£271bn) a year – does not include the environmental cost of pumping carbon into our atmosphere. Even in Europe, where there is a carbon market, fossil fuel producers and users pay little or nothing towards their impact on climate change.
And there isn’t anything new about governments intervening in the market to support their energy industries. The US Congress, for example, first imposed tariffs on imported coal to protect their own mining industry over 200 years ago. Subsidies for the US oil industry are almost a century old. The nuclear industry could never have started without massive state support – and won’t be restarted without more public funding. The North Sea oil and gas industry has, in the past, received huge tax breaks. Similar help is already being discussed to help the new shale gas industry.
The truth here is that both shale gas and renewables would require significant public investment and subsidy over the next few years. The difference is that investment in renewables is strategic – it will continue to benefit us for many years to come. Investment in shale gas is tactical and it is like applying a very dirty and very expensive sticking plaster to a wound. It might seem to have a temporary beneficial effect but at what cost to the long term health of the patient.
After the totally uncritical reception given to the fracking cheerleaders at the recent IoD meeting in Preston by the business leaders of Lancashire, it is clear that we need far more mature reflection like that provided by Guy Hands in his article.