The shale gas catastrophe and the wind power opportunity
Category: Thought for the day
According to this morning’s ‘FT’, Chancellor George Osborne is planning to announce measures in his autumn statement to support the burgeoning shale gas sector. Truth be told, if companies were to promote the kind of policies advanced by governments around the world, including the US, China and now it appears the UK, they would be accused of gross irresponsibility. BP’s behaviour during the build-up to the Deep Sea Horizon oil rig disaster would be held up as a paragon of responsibility compared to the current policies of our governments relating to shale gas.
Shale gas is incredibly dangerous for the simple reason that its extraction alone releases significant quantities of methane into the atmosphere. Methane is 22 times more potent as a greenhouse gas than carbon dioxide. Governments are burying their heads in the sand, and it’s a scandal. But it is one to which most of us give tacit assent because climate change is just too inconvenient.
So BP took short cuts and now it has been fined record amounts. It rode rough shod over safety requirements, and the Gulf of Mexico oil spill was the result, and now it is only right it pays the price. Do you agree with that?
Personally, I think we are exercising double standards. Companies are supposed to apply certain safety procedures, and if they fail to do so, they are slammed, especially if their negligence leads to disaster. But when it comes to planet Earth, governments do not live up to the standards they expect companies to apply.
Insurance may provide a partial explanation. If you insure your car, the insurance company works out the risk that you might be involved in an accident, and by aggregating that risk across millions of drivers, the industry can afford to cover you for potential losses. So let’s say there is a one in ten chance your car will suffer more than £1,000 worth of damage in a year. Providing you pay more than £100 a year, the insurance company can cover you from that risk and still make a profit. Likewise a corporate can insure itself against the risk of a major disaster. The key words here are aggregate risk. Insurance is a numbers game. The insurance companies then enforce safety procedures on companies that seem extreme to many.
But there is only one planet earth. There is no money that can insure planet earth. You can’t aggregate risk related to our one and only world, because there is just one risk; one possible accident. Therefore planet Earth is not insurable, therefore, safety standards based on probability of accident that are considered quite normal in a corporate setting are not applied by governments. Man-made climate change may or may not be real. But the probability of its being real, and the probability of being worse than is generally expected is high. In a micro setting, in which insurance is compulsory, such probability would be considered unacceptable. In a macro setting, it is ignored.
Two degrees is considered the key. The climate change conference in Doha agrees that average global temperatures must not be allowed to rise by 2 degrees. According to this article in ‘Spiegel’, a group of scientists from Norway’s Centre for International Climate and Environmental Research have worked out that if we carry on as we are global temperatures are more likely to increase by 5 degrees. See: Scientists Forecast Dramatic Temperature Increase
The point that climate change cynics overlook is that if the ice caps melt, we may see unprecedented levels of methane released into the atmosphere, accelerating warming. It may not happen, but if you were a corporate and tried to base a plan on the assumption that an equally likely event that would be catastrophic to your business model won’t happen, you would be laughed at.
It is possible that the consequences of man-made climate change are staring us right in the face: in the form of floods in some parts of the world, droughts in other parts, and hurricanes and superstorms becoming a frequent rather than a once-in-a-hundred-years event. It is possible that the causes of these events are unrelated to fossil fuels. But insurance works on probabilities, and in a micro setting these probabilities would be considered unacceptable.
The US celebrates shale gas. Shale gas may be helping the US economy step on the road to recovery. The US fines BP billions of dollars. Do you see the double standards?
George Osborne is reportedly planning a strategy to promote shale gas in the UK. That seems a tad short sighted to me.
But wanting to take global warning seriously is not the same thing as saying that we have to get used to a world without economic growth. The combination of renewables and investment in fuel efficiency can ensure we can meet our energy needs. The massive investments required can act as a stimulus to the global economy, promoting growth.
Take wind power. Every other day, I see an article slating wind power. Critics are wrong for two reasons. They are wrong because wind power is a burgeoning technology. It is becoming more efficient. The wind farms of the future may be in the sky, like massive kites, harnessing the power of wind at higher altitudes, or the familiar shape of a turbine may change completely to something less intrusive and more efficient. But to get there we have to start here. That’s why investment into wind power is vital.
There is a second reason. Even as it stands now, wind power is more efficient that is commonly realised. Don’t take my word for it, read this report: Beyond the bluster: why wind power is an effective technology
When BP said “Beyond Petroleum”, I was impressed. I just hope that authorities can see above the parapet and recognise that going beyond petroleum should be a global priority.
For more on climate change see recent articles here:
It’s back! Climate change hits the headlines again
Why climate change is an opportunity for investors and for the economy as a whole
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees