George Osborne is the Chancellor of the Exchequer of the United Kingdom. This grand title (the British love grand titles) translates into the Finance Minister in most nations. Mr Osborne is not renowned as an environmentalist, but does. Like all politicians, love grand schemes and big projects. It is as though big projects – like holding the Olympic Games or building the Millennium Dome – are the only worthwhile projects that should catch the attention of the holder of a grand title.
Virtually every big project (unless it is a big project which does not appear sexy, like building better drains and sewers) ends up as a mark of the project designer’s vanity. The Millennium Dome was an excellent opportunity for Mr Blair to waste public money on a big project. The Olympic Games was another opportunity to spend other people’s money on a project. In the case of all these big vanity projects (unlike building the drains) there is usually some attempt to justify the cost by creative accounting using single entry bookkeeping.
The latest big project to catch the eye and vanity of the Chancellor of the Exchequer is the proposal to extract shale gas. Now this may or may not have benefits; there are certainly risks of water contamination and other dangers associated with exploding shale underground in an attempt to collect methane locked up in the shale for millennia. However, Mr Osborne regards this big project as one which the taxpayer should help finance. Normally extracting oil and gas is taxed at 62%. The tax is a useful part of the income that the nation needs, and although much tax is wasted by governments, the principle of taxing oil and gas extraction at high rates is a good principle.
Mr Osborne proposes to cut this tax to 30%.
His justification is “We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits. I want Britain to be a leader of the shale gas revolution because it has the potential to create thousands of jobs and keep energy bills low for millions of people.”
This is a high risk enterprise. It is risky in financial terms and also risky in environmental terms. The companies that are trying to extract shale gas do not seem to have been put off so far by the 62% tax; form them this is likely to be a windfall and it certainly will help them attract investment and bring other larger competitors into the business of extracting gas from shale. They also face the risk that after the initial investment begins to pay off another Chancellor of the Exchequer will simply put the tax back up to 62% or more.
However, it is interesting to look at the Chancellor’s reasoning for the tax break for shale gas companies. Exactly that same reasoning applies to solar water heating systems; they too can help energy security, lower energy bills and can create thousands of jobs. However installing solar water heaters on millions of homes is not a big project. It does not have the vanity rating of extracting shale gas, even though it does virtually no environmental damage.
One final point: the figures. There seems to be about 1,300,000,000,000 cubic feet of shale gas. The figures are expressed in cubic feet because that gets the figures into trillions. It would be more logical to express the figures in cubic metres, but that brings the figure down; you have to divide by slightly more than 35, which means there are approximately 36,811,900,593 cubic metres of shale gas. Of those 38.8 billion cubic metres only 10% are thought to be recoverable, which reduced the gas from trillions of cubic metres to 3.8 billion cubic metres.
The United Kingdom used about 900 TWh of natural gas in 2011, which if my maths is correct converts to about 78 billion cubic metres of gas, so the tax break, the environmental damage and the risk brings should raise a question: is it worth it?
Filed under: climate change Tagged: | Chancellor of the Exchequer, climate, energy, environment, george osborne, millenium dome, Millennium Dome, olympics, shale gas, solar watre heating, tax break for fracking, UK annual natural gas usage, vanity projects