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Shale gas: make polluters pay for the social cost of fracking

While the prime minister has shown unequivocal support for exploiting Britain’s shale gas reserves, stating the country should “go all out for shale gas”, more cautious voices point to possible effects…

Is this a sunset, or sunrise, for fracking? danielfoster437

While the prime minister has shown unequivocal support for exploiting Britain’s shale gas reserves, stating the country should “go all out for shale gas”, more cautious voices point to possible effects such as minor earthquakes, contamination of water sources and industrialisation of the countryside.

Besides these, shale gas will contribute to climate change in two ways, from carbon dioxide (CO2) emissions when the gas is burnt, and from the fugitive emissions of underground methane (CH4) that leak into the atmosphere as the gas is extracted. These concerns have led to protests against the drilling of shale gas exploratory wells. Others are more willing to accept shale gas, but as a fuel used only for a few years as the country gears up for a low carbon future.

Putting a price on it

How are we to make sense of this? One approach is to avoid the all-or-nothing rhetoric and instead insist that the companies producing shale gas, like every other polluter, should pay for the environmental damage shale gas will bring upon future generations through its contribution to climate change.

How much should they pay? For every tonne of CO2 emitted when the shale gas is burned, the company producing it should pay the amount by which it increases the impacts of climate change. This is known as the social cost of carbon. In a similar fashion, for every tonne of methane that escapes into the atmosphere it should pay for the social cost of methane.

Creeping industrialisation of the countryside: oil and gas wells in Texas. Amy M. Youngs

The social cost of carbon has been well studied over the years. The model we use to calculate it, the PAGE09 integrated assessment model, employs simple equations to simulate the results from more complex, specialised, scientific and economic models. It does this while accounting for the profound uncertainty that exists around climate change. Calculations are made for eight world regions, ten time periods to the year 2200, for four types of impact (sea level rise, economic impacts, non‐economic impacts, and discontinuities, such as the melting of the Greenland and West Antarctic ice sheets). On our present emissions path, the best estimate is that the social cost is a little more than US$100 per tonne of CO2.

The social cost of methane has been much less studied. We know from estimates of Global Warming Potentials – the warming effects of each greenhouse gas – that methane, tonne for tonne, is much more potent than CO2. Initial results from the PAGE09 model indicate that at our present rate of emissions, the best estimate is that the social cost of methane is a little over US$1,500 per tonne. This is why the prospect of considerable methane emissions from fracking has caused such concern.

The polluter pays

How would this approach work in practice? Every company involved in shale gas exploration and production would know from the start that they would have to pay a tax equivalent to the social cost on each tonne of CO2 emitted, and another equivalent to the cost of each tonne of methane escaping from their wells. Many prospects that initially look promising will turn out not to be worth pursuing once these taxes are factored into the calculation. The better, cheaper, prospects where fugitive emissions can be minimised will be favoured.

Should shale gas be a transitional fuel? Tax will determine this. If we carry on along our present path, the social cost of carbon increases in real terms by a little more than 2% per year, doubling in about 30 years. For methane, the cost rises a little faster, doubling in about 20 years. So fewer and fewer shale gas prospects will look attractive as time goes by.

On the other hand, if the world is very successful at bringing global greenhouse gas emissions under control, the social costs will not increase over time, and shale gas will be able to play more of a role for longer. If climate change “lukewarmists” are right and the effects of greenhouse gases on the climate has been overstated, then these social costs will end up lower, around US$65 and US$1,000 per tonne respectively, which would allow more shale gas development.

Applying climate change-based taxes like these to shale gas should be attractive to the government. It is a market-based approach which encourages cleaner development and innovation to reduce environmental impact. It offers the prospect of significant tax revenues, which start at US$100 per tonne of CO2 and US$1,500 per tonne of methane, but which will rise in real terms – all at a time of austerity when the budget deficit is still a concern.

Under the Institute of Directors' central production estimate, and with a central methane leakage rate of 2%, the tax revenues will be about £6bn per year (in current prices) by the time shale gas production really gets going in the latter half of the 2020s. This is all based on the polluter-pays principle that should be at the heart of this self-described “greenest government ever”.

The government’s “sweeteners”, of 1% of shale gas revenues to local communities and handing local authorities all of the business rates arising from shale gas wells, can be seen as a financial compensation for the disruption fracking will cause locally. The introduction of climate change taxation would tackle the far greater global disruption that the climate effects of shale gas would otherwise bring.

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19 Comments sorted by

  1. Christopher Moxon

    Paediatric Doctor/ Clinical Research Fellow

    I don't like that the recession has been used as an excuse to consider making short term profits from more environmentally damaging sources of fossil fuels.This proposed system with a CO2 and methane tax is much better than the current system of allowing companies to profit now and for society to pay for it later. As suggested it makes us a little more balanced in making choices - in particular the choice between apparently cheap fossil fuels and apparently expensive renewables. However this doesn't…

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    1. Peter Kurilecz

      logged in via Facebook

      In reply to Christopher Moxon

      how is the use of natural gas damaging? already we are seeing a reduction of CO2 in the US as a result of increased used of natural gas
      what is rarely talked about is how natural gas also serves as a feedstock for a large number of industrial processes

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  5. Paul Matthews

    Mathematics lecturer

    That picture of oil wells is not a fracking site.

    That's two misleading pictures in The Conversation's environment section in as many days (the other being the photo-shopped polar bear on the ice floe).

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    1. Michael Parker

      Environment and Energy Editor at The Conversation

      In reply to Paul Matthews

      Please do let me know why you think that's not a fracking site, as it was labelled as such by the photographer. And why is that relevant anyway? It's an image that's illustrative of oil/gas/energy - what bearing does it have on piece if it is an oil well, or indeed a prop erected for the filming of There Will Be Blood?

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    2. Paul Matthews

      Mathematics lecturer

      In reply to Michael Parker

      Details are at the Bishop Hill blog. He found the original flickr page where the photographer says she changed the title after being corrected. Fracking sites as planned in the UK will not look anything like this.

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    3. Peter Kurilecz

      logged in via Facebook

      In reply to Michael Parker

      to save you sometime this is what was posted at the Bishop Hill blog
      'A bit of googling took me to the Flickr page of the photographer, Amy Youngs, which revealed that she had originally captioned the photo as being of a shale field. To her credit, she had changed it when she received this comment:
      This is NOT a picture of hydraulic fracturing. This is an old school oil field with vertically drilled wells, spaced so production can be maximized out of a tight formation. The wells may or may…

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  6. Grant Burfield

    Dr

    Wow, those oil and gas fields in the second image look almost as aesthetically repulsive as wind farms. But considering that this is an article about shale gas, are you 100% certain that they are shale gas fields?

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    1. Michael Parker

      Environment and Energy Editor at The Conversation

      In reply to Grant Burfield

      As the caption suggests, the author made a point about the "creeping industrialisation of the countryside" which this illustrates nicely. There are a number of images to be found where you can see this same effect, in some areas with frack pads if more recent, and sometimes those using conventional oil and gas drilling that are decades old.

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  8. Allan Lindh

    Turkey Farmer

    This seems to me a bit wrong headed. We cannot know the future social costs of leaked methane, whether to the atmosphere or the water table. Ditto for fracking chemical releases into the water table. What we can, and should do, is require the research, and regulation, to minimize the release of methane, and contamination via fracking chemicals. Not all fracking is the same. Some very well contained formations probably won't leak at all, IF the drilling and production are done with great care, especially sealing the well casing. Some formations are so shallow, and/or poorly contained, that they probably shouldn't be produced at all. Reality is that methane produces less CO2 than coal, when all goes well, and we need to reduce CO2. A highly polarized all or nothing argument is a great disservice to the debate. This is a matter that requires good science, and very good engineering, and that is what we must insist on.

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  9. Allan Lindh

    Turkey Farmer

    What you see in the photo is a drill rig, used in the initial development of the field, be it oil or gas. Once you advance to production, both oil and gas use much smaller, less visually intrusive installations. And because fracking involves a lot of horizontal drilling, it requires few drilling derricks in the beginning, and fewer production sites in the long run.

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  10. Malcolm Whitmore

    Project Manager

    The article makes a clear and consistent case for a fundamental change in the way we cost our economic existence on the planet. He provides clear evidence for the need to tax carbon at source ,this will allow the economy to plan a realistic way to operate within the natural limits to the stability of the planet.

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    1. Allan Lindh

      Turkey Farmer

      In reply to Malcolm Whitmore

      Quite agree, but the question is where to start. Coal is by far the worst culprit, best to start there. And if one compares relative risks, relative environmental damage, coal comes off much the worse. Concern for the future of the Earth, and of Human Kind, seems a bit susceptible to adopting the "flavor of the week" as its most greatest concern, with fracking the latest fad. Long term rational policy that carefully weighs all the risks and benefits provides the best chance of finding our way…

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  11. Stephen Ferguson

    Software Engineer

    Excellent idea. Those who profit from pollution should indeed be forced to internalise the 'social costs' of said pollution.

    However the contention that "It offers the prospect of significant tax revenues...when the budget deficit is still a concern" is profoundly mistaken. Moreover it is founded on the all-pervading belief that governments are dependent on others (taxpayers, borrowing) to fund their spending, which in turn feeds the pernicious, not to mention tragic, notion that we can't afford…

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