How Shale Gas Can Benefit Us and the Environment

(Photo: Tim Hurst)

It took less than an hour for Apple to sell out the initial supply of its new iPhone 5. It’s thinner, lighter, faster, brighter, taller than its predecessors, and yet it costs the same. That’s called progress.

Elsewhere, progress is met by protest rather than praise.

A suite of technologies has brought vast supplies of previously unrecoverable shale gas within reach of humans, dramatically expanding natural gas reserves in the U.S. and around the world. Horizontal drilling and hydraulic fracturing have produced a fuel that can at once promote a cooler planet and an expanded economy, essentially eliminating the tradeoff between climate change mitigation and the pursuit of other public projects and, perhaps, economic growth. But unlike the iPhone, the productivity gain embodied in shale gas technologies doesn’t attract a cult following and its benefits get obscured. 

Among some of the most ardent advocates of climate policy, the growth of shale gas extraction is lamented because, in addition to being 30-50% cleaner than coal (even accounting for escaped methane), it is also (gasp) cheaper than coal. And cheaper than wind. And cheaper than solar.

And that means shale gas not only postpones a day when renewables are competitive with fossil fuels, but also increases carbon emissions concomitant with the economic growth spurred by cheap energy. That’s why Mother Jones’s Kevin Drum recently wrote that the story of shale gas “gets a lot grimmer as you dig deeper.”

According to the International Energy Agency, the carbon emissions from expanded production are sufficient to wipe away nearly all the carbon emissions savings from substituting shale gas for coal. But consultancies estimate shale gas alone drives incremental GDP growth through 2020 and annually contributes between $100 billion and $230 billion to the U.S. economy by 2035. So at no cost to our global warming efforts, the average American household enjoys $2,000 higher annual income by 2035 with robust shale gas production. That is decidedly a good thing, right? Like the iPhone 5?

Not to some environmentalists who mistakenly conflate the high prices that induce energy conservation with high costs that reflect input requirements to produce energy. Low energy costs are good because they free resources for other production, including the production of environmental protection. Even if shale gas were only cheaper than coal, its widespread use would be a boon. But because it’s also cleaner, it becomes a win-win.

If a $100-200 billion larger economy were deemed unimportant, then policy could drive a wedge between the cost of shale gas production and the price paid by consumers. The difference would constitute a tax yielding revenues to the state with which to either reduce other taxes or undertake additional public projects, like clean energy investments. In other words, government could appropriate for its own uses the resources freed by the substitution of shale gas for coal. Carbon emissions would be lower, energy prices, and, therefore, the private economy would be at worst unchanged, and government would have new wealth with which to carry out policy. 

Many economists recommend taxing fuels at rates equal to the marginal damages they impose on society rather than at rates that make a politically favored fuel competitive. If the social cost of carbon emissions were internalized to its consumers by the optimal Pigouvian tax, shale gas would still be cheaper than coal, solar, wind, and all alternative sources of fuel.

Based on William Nordhaus’s estimate of the social cost of carbon, the Energy Information Administration’s estimates of the levelized cost of electricity production by fuel source, and Argonne National Laboratory estimates of lifecycle greenhouse gas emissions, shale gas remains the cheapest source of fuel even after the optimal carbon tax is imposed on each alternative. Shale gas is still 20% cheaper than onshore wind on an energy-equivalent basis, and 50% cheaper than solar, even ignoring the costs or intermittent solar and wind power. Shale gas would cost between $67-75 per megawatt hour (MWh) of electricity compared to $96 for onshore wind, $153 for solar, and a $111 for nuclear. Offshore wind costs in excess of $100 per MWh. 

These prices internalize the cost of carbon. But other environmental and human health risks are associated with shale gas, too. Though the National Research Council recently determined that shale gas extraction is not causing seismic activity, impacts on water quality are less certain (e.g., here, here, here, here, and here) as the U.S. EPA undertakes a thorough inquiry.

Nevertheless, the IEA predicts that mitigating such risks and safely exploiting shale gas would only raise production costs about 7%. Even then, shale gas is still 17% cheaper than the cheapest renewable fuel. If such cheap energy induces economic growth and an attendant increase in greenhouse gas emissions, so be it. The environmental damages from carbon taxes have already been paid for in full with the Pigouvian tax, revenues from which could be employed to mitigate related or unrelated environmental harm.

The rebuke of shale gas is uneconomic and reflects a penchant of environmentalists to oppose economic growth because of the greenhouse gas emissions that follow. As recent unemployment numbers should remind, however, a stagnant economy means diminishing living standards as the economic pie gets divided among a growing population.

Environmentalists and advocates for climate change mitigation would be wise to remember the environmental Kuznets curve: individuals are unlikely to worry about melting sea ice or the well-being of their great, great, great grand children until they have secured the livelihoods of the children they see at dinner each night. And it’s uncertain whether we make future generations better off by bequeathing them less atmospheric carbon or a bigger economy with which to battle greenhouse gases using technologies developed between now and then. Shale gas would help us do both.

The iPhone 5, which does more without costing more, is cheered for possibly lifting fourth quarter GDP growth by as much as half of a percentage point, or by $12 billion. Shale gas, which does what coal does while costing fewer dollars and fewer carbon emissions, boosted GDP by an estimated $76-118 billion in 2010 and will annually contribute an incremental $230 billion to GDP by 2035. Where are the throngs to welcome it?

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  1. James says:

    Hidden due to low comment rating. Click here to see.

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    • DavidS says:

      Not overstated one bit there, James. :)

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    • Seminymous Coward says:

      Are there enough petroleum products on Earth to burn to render Earth uninhabitable to (all) humans? I suspect not, but I’m curious if anyone has a firm answer.

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      • Brian says:

        Some one did a study and determined that it is possible to render most of the surface hotter than we would like. Results in populations being concentrated around the poles

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      • James says:

        Yes, there is enough fossil carbon – petroleum, coal, and natural gas – to cause a major extinction event. We know this, because it has happened before: http://en.wikipedia.org/wiki/Permian–Triassic_extinction_event If you will read the article, or other recent literature on the causes of this extinction, you’ll see that one of the leading contenders is a major volcanic eruption in a large coal field, which (in the absence of tool-using species back then) is about as close as you can reasonably expect to the current episode of fossil-fuel burning.

        The simplistic “render most of the surface hotter than we would like” is only the start of the problem. The heat and increased CO2 concentration set off chain reactions of other unpleasant effects, such as ocean acidification.

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    • pawnman says:

      Ah. So we continue to burn fuels that are worse for the environment and we don’t develop shale. That seems like a much better way to preserve “all multi-cellular life”.

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      • James says:

        How about actually “burning” fuels that are environmentally fairly benign, like uranium, plutonium, and thorium?

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      • pawnman says:

        Sadly, the same environmentalists who tell us fossil fuels are bad are constantly telling us how scary nuclear power is.

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      • James says:

        So why believe them, instead of trying to learn something of the science involved, and so understand what’s going on instead of just being a cheerleader for whichever political group catches your fancy?

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      • pawnman says:

        I don’t believe them. I’m with you…nuclear power is our absolute best option to reduce carbon emissions. Unfortunately, congress and the American people buy into the “nuclear is scary” hype, which is why we haven’t built a new nuclear plant in 30 years.

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  2. Nat says:

    I think there’s an interesting argument in here, but the terrible prose successfully obscures it.

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    • Seminymous Coward says:

      I think the intro and outro could be pruned off to leave a better article, but the rest of the prose seems fine to me.

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  3. JS says:

    Well, there is that minor issue of pollution that is disregarded in the shale gas discussion. If frakking (not sure about the spelling, but it seems close to the Battlestar Gallactica word, so I’ll leave it as is) is used, and the true cost of the pollution to drinking water is not included in the cost of the gas, then shale gas may not be the great deal described in this article.

    The true cost of coal is more closely tracked now via regulations that require pollutants be contained at the plant instead of the pollutants being spread out over a 500 square mile downwind area. Until we have a grasp of the cost of polluting the groundwater in areas where frakking takes place, we will not understand the true cost of shale gas.

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    • Seminymous Coward says:

      The article addresses your water quality concern and provides citations to 5 studies, an ongoing inquiry, and a worst-case mitigation cost estimate. The worst case lowers the gap, but it’s still cheaper.

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      • Dan Aris says:

        Unfortunately, I have not heard of any companies doing hydraulic fracturing that are publicizing their use of safe techniques.

        Does that mean that none of them *are* using the safe techniques? Of course not. But there seems to be a strong desire on their part to avoid having to pay the extra cost to be safe—and given all the misinformation that has been put out here (some on the anti-fracking side, true, but I’d be willing to bet money there’s a lot more from the pro-fracking side, given the money involved), I’m very reluctant to just trust that any given company will take the care required to ensure that my drinking water will be safe for the next 60 years. After all, they don’t have to live here once the gas is all extracted, and with the way the law currently stands, at least as I understand it, even if they wreck the environment (the drinking water is only the most prominent problem), they don’t have to do anything about it (unless a lawsuit can force them to for the one specific case).

        And yes, I do live in an area that sits partly on the Marcellus Shale, and I have heard that our area has been investigated by companies that would seek to use hydraulic fracturing to extract the gas from it, so this issue has personal importance to me.

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      • Paul M. says:

        In the very first study he cited, they admit that any water drawn from an area within a 1km distance from a well contains enough methane to be considered “a potential explosive hazard”.

        At a certain point you do have to stop and start asking, “Is it worth exploding water? Are we going to have to monitor water lines like gas lines? When a water main breaks, are we going to have to classify and secure the area like a gas leak? What happens if a Fire Department tries to use this water to extinguish a fire?”

        I get that cheap natural gas is useful, economically, “makes sense” in the numbers. But… so did/does nuclear. And didn’t we make a decision to avoid it because of its consequences and potential harms?

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      • PMZ says:

        I think the reason why you’ve had to point out to people that the author made a two-paragraph attempt deep in the article to address drilling issues is because the most of us were too overcome with the stench of bias, premeditated agenda, and the forced/overcompensated use of flowery vocabulary to continue past 3 minutes of reading.

        Clicking on one of the links he cites and really digesting what’s said in the link, you realize that Sexton is slicing a thin layer of the citation, presenting it as the central “meat” of the citation, and continues onto the next entree of B.S. before we know what we just swallowed. Anyone who reads the Freakonomics blog regularly understands this article’s flaw doesn’t lie with the fact that it swings far to the right with it’s conclusion, but rather its shortcoming lies in its attempt to bully the reader into thinking the author’s position should be that of everyone with its bombastic prose and hyperbolic rhetoric.

        You got me hooked with the title, but like any tabloid, I realized halfway into the piece that I had been duped into a waste of time.

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      • Seminymous Coward says:

        PMZ: If one cannot even read something with which one disagrees, it’s likely not due to well-thought-out rational beliefs.

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    • aaron says:

      The correct spelling is “frac’ing”.

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  4. Eric M. Jones. says:

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  5. Jason says:

    “The rebuke of shale gas is uneconomic and reflects a penchant of environmentalists to oppose economic growth because of the greenhouse gas emissions that follow. ”

    This is a mind-numbing series of strict rationality arguments that completely fails to account for any behavioral issues. It is great to assume that increased shale production leads to a better economy, that some of that new income would be invested in environmental improvement, and that a Pigouvian tax would mitigate much of the environmental damage. But won’t the energy companies oppose that taxation? Will the beneficiaries of lower energy costs really invest in alternative means of preserving the environment? Environmentalists know that you have to fight battles on the fronts that are presented. They live in the real world with real results from pollution that are difficult or impossible to reverse, not the world of theoretical supply, demand, and taxes to account for externalities that cannot possibly be transferred efficiently.

    Next time you make arguments about how to deal with externalities through economic growth and/or taxes, don’t forget about the political realities that come with that redistribution.

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    • pawnman says:

      If environmentalists really want to fight the battles presented to them, why do they continue to rail against nuclear power when the result is increased reliance on coal? And why WOULDN’T they be for shale if it pollutes less than other fossil fuels?

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  6. Brian says:

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    • Seminymous Coward says:

      “Not a single word was given to the problem of “fracking chemicals” or shale-based petroleum residues leaching into drinking water, or the landscape and physical stability problems caused by the actual drilling.”
      Not a single word was given except for two paragraphs on non-carbon-emission environmental effects, including a citation on seismic effects and whopping 7 citations related to water quality.

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      • Jake says:

        The citation on seismic activity was deceptive at least. Sexton correctly quotes the NRC as saying that shale gas fracking itself does not cause seismic activity, but omits the immediately following NRC statement that the disposal of the water in deep wells may cause earthquakes. In fact, it has been known for 30 years that injecting massive amounts of fluid underground DOES cause earthquakes, and this HAS ALREADY been observed in fracking areas in Ohio. Did Sexton suppose no one would actually read his citations?

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  7. Joel Upchurch says:

    The environmental advantages of natural gas over coal are hardly theoretical. Our per capita emissions of CO2 in the United States are at the lowest level since the Kennedy administration. Meanwhile ‘green’ countries like Germany are building

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    • zleo99 says:

      @ Joel: compare German CO2 emissions per capita with those of the US: you will see that German has been lower for decades. The US emissions have only decreased due to the slump in the economy post 2008.

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  8. Bjoern says:

    Terrible article! One of the worst I read on this blog.

    If one thing becomes clear, than that this is a very, very complicated situation with lots of vested interests. I would not just blindly trust any number here without asking what agenda the one providing it has (that goes for both sides).

    And the iPhone 5 rhetoric is just awful, sorry, certainly does not make the article more convincing. Do not try to tell people that this is as easy as picking the better smartphone, when it’s clearly much, much more complex.

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    • James says:

      I expect the iPhone rhetoric is especially unconvincing to the considerable number of Americans who have absolutely no desire to have an iPhone at all, let alone worry about whether the latest model is somehow “better”.

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