Fracking for Shale Gas could fuel our homes for ten years, but it could also provide the impetus for a
shift in culture from overspend buoyed up by unsustainable deficit and debt to saving for the future if we were to use the profits to set up a long term Sovereign Wealth Fund.
It’s not a process that’s popular with the public –at least those local to a drill, after all, we’re talking about an extraction process which, it is feared, pollutes the water shelf, creates water shortages and might, (might) cause earthquakes. A deeply unsettling prospect for Brits used to a life of unencumbered serine monotony.
It could, however, bring in an enormous amount of petrol dollars, relive oil shortages, lower energy and fuel costs and generally act as a much welcome boost to an economy still scraping in the doldrums of the bust half of the economic cycle. It will cut the cost of petrol and boost growth just before the next election with a manageable impact on the environment.
Great. I hear you cry if you’re not currently protesting at a drill site. The problem with this however, is that we have been here before.
North Sea Oil was the future once – Billions upon Billions of proven reserves of Oil and Gas have been extracted which has kept the UK wonderfully supplied and unforgivably complacent – homes were converted to Gas – Gas Hobs, Gas Heating, Gas electricity generation, some oil and gas were sold to other countries but the rest went to record profits for the energy companies and a short term, and short sighted, boost to growth allowing governments to get themselves re-elected.
But nothing has been gained which would be of long term benefit to the UK – as Gas and Oil prices have increased, so too has our dependence on a dwindling supply of domestic energy and our appetite for expensive foreign oil and gas. We haven’t made our homes or our economy more energy efficient in the face of a cliff face in domestic production, we’ve barely begun to invest and innovate in sustainable alternatives. We’ve just burnt the oil lamp hoping if we rub harder another Genie will appear.
We did find some more, mercifully – which is why Shale Gas, and Fracking is important even if you find it unpalatable.
There is an estimated 26 trillion cubic feet of shale gas and 0.7 billion barrels of oil under the nations collective feet – enough, some reckon, to power the UK for another decade. This is why, despite concerns about the environment, Fracking has to go ahead – otherwise we will face a consumption and a fuel crisis, crippling high prices at the Pump, an increase in fuel poverty, possibly even blackouts.
Better to drill than freeze or stagnate.
The problem, just as with the North Sea, is that it too will run out, sooner than is comfortable and we can’t just hope to be lucky thrice. The UK squandered the wealth North Sea Oil gave us, we can’t afford to do it again.
So the question arises, what should we do? It’s a question which was posed to myself and other bag carrying colleagues at a policy workshop in Westminster a few months ago, and the answers deserve an airing:
The benefit gained from Shale Gas can’t just be short sighted – we need to use this additional grace period to aggressively invest in renewables and energy sustainability – 83% of homes are heated by Gas and only 9% by electricity – yet in a decades time North Sea Oil and Gas production will be in terminal decline, Shale Gas reserves will have all but been used up and energy demand will have increased – either we make sensible contingencies to switch and more urgently pursue micro generation, such as solar panels on homes, we pray for a new gas miracle, or we import hugely expensive gas and oil to the detriment of the economy.
The more interesting idea which came to me in that meeting, however, speaks more of my own hopes for what coalition can allow; a rejection of short term thinking. Use what remains of our Oil and Gas wealth to create a Sovereign Wealth Fund to guard the UKs long term interests.
Norway had an oil boon at exactly the same time as the UK, from exactly the same source but unlike the UK, Norway has used its resources to think Long term. The Norwegian Sovereign Wealth fund model is worth some $729.2 billion – by comparison – UK Debt was in the region of $1859 billion in May 2013.
Not that I would suggest the UK use oil wealth to pay down our past debts. The next generation needs to adopt a different tone from the generations which preceded it and look to the future, not just our current circumstances. It’s not just the environment and climate change it’s our provision for a growing and ageing population’s health, care and pension needs. It’s how we make education affordable and accessible, it’s how we interact with other nations and how we keep the lights on. We can’t afford to look at an enormous and time 0limited amount of potential wealth and divide it up for today’s benefit alone, we have to plan ahead.
A Sovereign Wealth Fund screams sustainability. Its mere existence alone would demonstrate a change in attitude we need from governments deficit planning to governments planning ahead, taking responsibility for the future and mature enough to live within its means.
Diverting, or increasing, taxes on Oil and Gas profits in order to invest in and fund a wealth fund – able to operate autonomously from the Treasury with a remit to invest in profitable investments around the world and increase its wealth would not create an immediate benefit to the economy. It would not boost growth in the short term, or help reduce the cost of living in the immediate future. It would probably not have any impact on unemployment, but it would be a strong statement of intent about what sort of government and fiscal policy we want to see in future and it would help protect us from economic, and indeed energy, shocks.
Running parallel to efforts to eliminate the deficit and then reduce debt, a government body tasked with using set aside wealth to accumulate wealth would be a powerful contrast to decades of overspend and disregard for future generations. Instead of mortgaging the countries tomorrow on future generations this fund could, in decades to come, fund infrastructure projects alone freeing the government from the need to borrow or its profits could be given over to the exchequer to help boost state income and fund day to expenditure.
It could act not just to improve the state’s balance sheet, it would act to diversity its income and also invest in regions of the world which are fast growing, improve our ties with the capitals, cultures and peoples of a world fast changing to keep Britain at the centre of world commerce.
It’s always seemed idiosyncratic and an ugly symptom of our democracy and culture that the government is always looking to the short term to minimise short term pain, and get elected, than do what’s right for the long term. Unlike individuals, the government can afford to take the long view. Shale Gas might be the economic golden bullet we need right now to get the economy moving but it is no long term solution.
There is a need in politics to not just talk about today, but demonstrate vision for the future. At the next election it is the party which breaks the short termism of the past which will best articulate its fitness to govern in the long term interest of the country.
Shale Gas might only fuel our homes for ten years, but it could provide the initial fuel our future needs, that spark which fires our future growth. I can’t think of a better way for this coalition to make its mark, to not just break the mould of one party government, but to be the government which planned ahead.