The Climate Change Secretary, Ed Davey, promised this week to ‘reduce the volatility of energy bills’. Unfortunately, his proposal to eliminate the peaks and troughs in the electricity market involves elevating bills to a much higher level and leaving them there. Besides the pain this will inflict on already stretched households, the result of the highly rigged energy market envisaged by the government will be to make British industry chronically uncompetitive.
The conceit that fossil fuel prices are necessarily set on an upward and increasingly volatile trend over the coming decades has been put about by the Department for Energy and Climate Change (DECC) for years in spite of mounting evidence to the contrary. In the US, gas prices have been on a steep downward trend over the past half decade and are now less than half what they are in Britain. How has the US managed to bring prices down at the same time as hugely improving its energy security? In two words: shale gas.
Over the past half a dozen years hydraulic fracturing — or ‘fracking’ — has enabled the extraction of gas reserves which, until recently, it was believed it would be uneconomic to exploit. It is not just the US which stands to benefit: Europe has almost as much shale gas, a good share of which lies beneath Britain. Israel has oil shale deposits 30 miles southwest of Jerusalem, which the World Energy Council says could yield the equivalent of 250 billion barrels of oil. By means of comparison, Saudi Arabia has about 260 billion barrels of conventional oil reserves.
While shale is turning the world’s energy politics upside down, it poses an obvious threat to three groups in Britain: Big Environmentalism, Big Oil and Big Government. All of them have made plans, stretching decades into the future, that involve taxing or charging consumers much more on the premise that fossil fuels are on the way out. Their response to the shale discovery in Lancashire has been to ignore it. Staggeringly, the Department for Energy & Climate Change has managed to produce a draft energy bill which completely ignores the issue of fracking. It is rather as if Herbert Asquith’s government a century ago had published a draft bill on securing hay and straw supplies for road transport, completely oblivious to the motor car.
Fracking was apparently left out of the draft energy bill following a meeting at 10 Downing Street at which energy companies suggested the quantity of shale gas beneath Britain might not be as great as once thought. As a result of the meeting, it seems David Cameron decided that our reserves are too small and too troublesome to be exploited. He should be careful whom he consults. The energy industry must be licking its lips even more at the prospect of the heavily rigged energy market proposed by the government — which could involve £130 billion of subsidy to wind companies alone in the coming years.
A government genuinely serious about economic growth would have made more effort to counter the noisy misinformation campaign against fracking emanating from the US. Thanks to a less than robust response from the government, propagandists have been allowed to get away with the claim that people living in areas where fracking is undertaken could find themselves with flammable gas coming out of their water taps. The claim originates from a US documentary which showed a householder in Colorado lighting the methane from his tap — without telling viewers that it was a local phenomenon which pre-dated fracking. This misleading footage is used frequently by the BBC.
There are, of course, quite proper environmental concerns, and fracking could pose a threat to drinking water if conducted too near the earth’s surface. But the shale in Britain would require exploitation more than a mile below the aquifier, the rock from which drinking water is drawn. A Durham University study last month found that British fracking poses ‘negligible’ risk. A Commons committee last year drew the same conclusion. Yet set against this pile of evidence stands the Climate Change Act 2008, which places a statutory duty on Britain to reduce carbon emissions by an unfeasible 72 per cent by 2050. Hence Whitehall’s pre-programmed bias towards expensive and intermittent wind farms and the almost vindictive spoliation of our countryside.
Aware of the burden on British industry, George Osborne made £250 million available in his autumn statement to help bail out high energy-consuming businesses caught out by green legislation. While the Chancellor’s sentiment is to be admired, the flaw in his logic is obvious. Taxpayers are paying twice: once through higher energy bills and again through handouts to help business cope with the extra costs.
Meanwhile, the US has adopted a policy which combines energy security, cheap energy and lower — if not ultra-low — carbon emissions. Big Oil is as forceful a power in Washington as it is anywhere, yet it has failed to halt the shale revolution — and American consumers are the winners. It is a shame that the British government is more easily manipulated by these vested interests. Shale is not, in itself, a solution to Britain’s energy crisis, just as North Sea Oil wasn’t in the 1970s. But to ignore shale, as the government seems intent on doing, would be an act of near-criminal negligence. There has always been a tension between green ideology and the basic scientific facts of energy supply. If nothing else, David Cameron’s government has made clear which side it is on.
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