Sep 10 2012

Frackonomics, or, Why we can’t have anything nice

(2 pm. – promoted by ek hornbeck)

I was recently asked by a friend to contribute to a sort of compact reference on fracking (you can see the product here). As I was working on the section on the economics of fracking, it struck me that what is wrong with the economics of fracking is what is wrong with our whole energy economy; the incentives are set up to create a perverse outcome.

Because the environmental costs of fracking (and pretty much all extractive energy industries) are externalized, or perhaps “socialized” would be an easier term here, and the profits are privatized, the appearance of a very profitable industry is based upon false economic information.  The creation of these incentives to extract fossil energy with little regard to the environmental consequences (and sometimes even common sense) has vested enormous economic power in the hands of people who use that money to purchase political power.  They then perpetuate those same incentives over the objections of those who for years, Cassandra-like, point out that their continued activity is rendering our environment inhospitable to human life.  As an article in the Independent from 2006 “Disappearing world: Global warming claims tropical island,” chronicles:

Rising seas, caused by global warming, have for the first time washed an inhabited island off the face of the Earth. The obliteration of Lohachara island, in India’s part of the Sundarbans where the Ganges and the Brahmaputra rivers empty into the Bay of Bengal, marks the moment when one of the most apocalyptic predictions of environmentalists and climate scientists has started coming true.

As the seas continue to swell, they will swallow whole island nations, from the Maldives to the Marshall Islands, inundate vast areas of countries from Bangladesh to Egypt, and submerge parts of scores of coastal cities.

At the time of this writing, it is six years since what would seem to be a pretty poignant wake-up call, yet governments and corporate elites have done little or nothing to alter course. In the case of energy corporations, they are rushing in to  exploit the new  accessibility of resources that were previously locked in by ice with the eager assistance of President Obama:

Shortly before Thanksgiving in 2010, the leaders of the commission President Obama had appointed to investigate the Deepwater Horizon oil spill in the Gulf of Mexico sat down in the Oval Office to brief him.

After listening to their findings about the BP accident and the safety of deepwater drilling, the president abruptly changed the subject.

“Where are you coming out on the offshore Arctic?” he asked.

William K. Reilly, a former chief of the Environmental Protection Agency and a commission co-chairman, was startled, as was Carol M. Browner, the president’?s top adviser at the time on energy and climate change. Although a proposal by Shell to drill in the Arctic had been a source of dissension, it was not a major focus of the panel’s work. …

The president’?s preoccupation with the Arctic proposal, even as the nation was still reeling from the BP spill, was the first hint that Shell’?s audacious plan to drill in waters previously considered untouchable had gone from improbable to inevitable.

Other nations are rushing to firm up their military arrangements in the arctic, undoubtedly to protect their oil industries claims.  Not to be outdone by the energy sector in finding new ways to profit from climate change, financial sector geeks are developing strategies to profit from the scarcities caused by droughts and other climate disasters.

Our elected officials meantime have more or less ignored the most recent global negotiations to reduce carbon emissions continuing a pattern of derailing and undermining global climate change initiatives:

In each successive climate talk, the United States has acted to stall the process, defang the agreements, undermine the international community, and endanger the current and future people of the world.

Here is grassroots campaign 350.org’s founder Bill McKibben on why “Copenhagen failed spectacularly“:

“Neither China nor the United States, which between them are responsible for 40 percent of global carbon emissions, was prepared to offer dramatic concessions, and so the conference drifted aimlessly for two weeks until world leaders jetted in for the final day. Amid considerable chaos, President Obama took the lead in drafting a face-saving ‘Copenhagen Accord’ that fooled very few. Its purely voluntary agreements committed no one to anything, and even if countries signaled their intentions to cut carbon emissions, there was no enforcement mechanism.”

In Durban, the United States refused to agree to action to take place soon, instead pushing for implementation of an agreement in 2020, which Jamie Henn, McKibben’s associate, wrote, “isn’t just a delay, it’s a death sentence.” Wrote Henn of the United States’ posture in Durban, “the only thing the U.S. brought to the table was a wrecking ball.”

President Obama has steadily undermined international efforts to confront the gravest global concern, lied about it, distracted from it and gotten away with it.

In place of making real progress on global warming, they pursue both intensified oil drilling and “alternative” extractive energies like fracked natural gas and oxymorons like “clean coal.”  Any honest person who has any familiarity with coal can tell you that there is no such thing as clean coal.


Ask these guys about clean coal, they look like they could use a laugh.

It appears that the President may have been sold a bill of goods by the energy industry.  In his most recent State of the Union speech the President said:

This country needs an all-out, all-of-the-above strategy that develops every available source of American energy – a strategy that’s cleaner, cheaper, and full of new jobs.

We have a supply of natural gas that can last America nearly one hundred years, and my Administration will take every possible action to safely develop this energy.

It turns out that a 100 year supply is a pretty optimistic estimate of the available reserves:

In January, the Energy Department cut its estimate of the amount of gas available in the Marcellus Shale by nearly 70 percent, and a group affiliated with the Colorado School of Mines warns that there may be only 23 years’ worth of economically recoverable gas left nationwide.

The natural gas industry has made lots of pretty rosy claims about the quantity of natural gas that is economically recoverable which are increasingly being challenged by industry experts and insider-whistleblowers.

Then there’s the alleged “cleanliness” of the newfound reserves of natural gas (made economically recoverable by fracking technology).  There is currently considerable debate by experts as to whether this is indeed true.  It seems that the process may release much more methane than the natural gas industry has admitted

When US government scientists began sampling the air from a tower north of Denver, Colorado, they expected urban smog – but not strong whiffs of what looked like natural gas. They eventually linked the mysterious pollution to a nearby natural-gas field, and their investigation has now produced the first hard evidence that the cleanest-burning fossil fuel might not be much better than coal when it comes to climate change.

Led by researchers at the National Oceanic and Atmospheric Administration (NOAA) and the University of Colorado, Boulder, the study estimates that natural-gas producers in an area known as the Denver-Julesburg Basin are losing about 4% of their gas to the atmosphere – not including additional losses in the pipeline and distribution system. This is more than double the official inventory, but roughly in line with estimates made in 2011 that have been challenged by industry. And because methane is some 25 times more efficient than carbon dioxide at trapping heat in the atmosphere, releases of that magnitude could effectively offset the environmental edge that natural gas is said to enjoy over other fossil fuels.

While the energy industry has been selling the President a bill of goods, it appears that the President has been trying to sell us a bill of goods, too. In the State of the Union speech referenced above, the President said:

“And my administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade. And I’m requiring all companies that drill for gas on public lands to disclose the chemicals they use, because America will develop this resource without putting the health and safety of our citizens at risk.”

First, if there’s not as much gas as the President bases his jobs estimate on, then there won’t be as many jobs and the ones that exist will likely be of a shorter duration.

Second, and more importantly, the President’s language about safety and requiring disclosures from the energy industry regarding the toxic mix of chemicals that they use, turns out to be a little less impressive and durable a claim than it appears.  His regulations would only affect wells drilled on public land. The wells drilled on public land only account for 20-25% of wells,  the vast majority of wells are drilled on private land, thus are not affected by this rule.

Further, it appears that after his State of the Union speech, Mr. Obama wound up in a room with lobbyists from ExxonMobil, XTO Energy, Apache, Samson Resources and Anadarko Petroleum, after which Mr. Obama’s regulation proposal changed considerably:

The Obama administration yesterday issued a proposed rule governing hydraulic fracturing for oil and gas on public land that will for the first time require disclosure of the chemicals used.

But in a concession to the oil industry, companies will have to reveal the composition of fluids only after they have completed drilling, not before. That’s a sharp change from the government’s original proposal, which would have required disclosure of the chemicals 30 days before a well could be started. … the Environmental Protection Agency issued revised air-quality rules for oil and gas wells that gave drillers extra time to comply and lowered their costs. Industry officials praised both moves.

I guess those public interest and environmental groups that pressed the President to get more sensible regulations applied to the fracking process got more change from the President than they were hoping for.

The splashy new Auto Mileage Standards that President Obama recently proposed make one wonder whether the President has heard about climate change:

The Obama administration finalized new fuel economy rules Tuesday, boasting new requirements that are slated to double fuel efficiency of new cars and trucks sold in the US over the next 13 years; however, environmental scientists at the Center for Biological Diversity warned Tuesday that the new numbers are misleading in the complex regulations. Due to loopholes in the plan, total greenhouse gas emissions from cars and light trucks will actually increase from 2017 through 2025 and over the long term. …

“Cars and trucks are the low-hanging fruit in the fight to get carbon pollution under control, and the technologies to reduce emissions exist or are on the drawing board,” said Vera Pardee, an attorney at the Center for Biological Diversity’s Climate Law Institute. “But the administration rejected a standard employing those technologies and instead incentivized SUVs and heavier trucks over cars. Automakers’ profits may improve, but the climate crisis will get worse…Setting fuel economy standards for 2025 that are lower than what we can achieve right now is not the kind of progress we urgently need,” said Pardee.

The CBD statement continues:

The administration considered but rejected more climate-friendly standards – including a rule that would have reduced total vehicle greenhouse gas emissions despite an increasing number of cars driving more miles – even though they were technically feasible and cost effective. When various credits and “flexibilities” that reduce actual results are accounted for, the new national standards for 2025 are below standards the European Union, Japan and China have proposed for 2020.

Can we really continue to be complacent about this?  How many more years of dithering around can we really afford?  These are questions that are unanswerable with any precision, but one thing that is becoming more clear is that the harsh effects of climate change are going to affect first world people who live in (formerly?) temperate zones:

What we are seeing, here and now, is the transformation of the atmospheric physics of this planet. Three weeks before the likely minimum, the melting of Arctic sea ice has already broken the record set in 2007. The daily rate of loss is now 50% higher than it was that year. … The Arctic has been warming roughly twice as quickly as the rest of the northern hemisphere. This is partly because climate breakdown there is self-perpetuating. As the ice melts, for example, exposing the darker sea beneath, heat that would previously have been reflected back into space is absorbed.  …

The melting disperses another belief: that the temperate parts of the world – where most of the rich nations are located – will be hit last and least, while the poorer nations will be hit first and worst. New knowledge of the way in which the destruction of the Arctic sea ice affects northern Europe and North America suggests that this is no longer true. A paper published earlier this year in Geophysical Research Letters shows that Arctic warming is likely to be responsible for the extremes now hammering the once-temperate nations.

The north polar jet stream is an air current several hundred kilometres wide, travelling eastwards around the hemisphere. The current functions as a barrier, separating the cold, wet weather to the north from the warmer, drier weather to the south. Many of the variations in our weather are caused by great travelling meanders – Rossby waves – in the jet stream.

Arctic heating, the paper shows, both slows the Rossby waves and makes them steeper and wider. Instead of moving on rapidly, the weather gets stuck. Regions to the south of the stalled meander wait for weeks or months for rain; regions to the north (or underneath it) wait for weeks or months for a break from the rain. Instead of a benign succession of sunshine and showers, we get droughts or floods. During the winter a slow, steep meander can connect us directly to the polar weather, dragging severe ice and snow far to the south of its usual range. This mechanism goes a long way towards explaining the shift to sustained – and therefore extreme – weather patterns around the northern hemisphere

In the face of these larger climate changes that we are seeing, does it really seem like switching to compact fluorescent lightbulbs, inflating our tires more, taking shorter showers and maybe eating hamburgers less often is going to fix the problem?  Not to give short shrift to the goodness of making personal consumption changes, but, it really looks like we need change on a global scale to fix this problem.

To his credit, President Obama has dramatically increased spending on “green” energy, renewables and conservation over his predecessors, though he has also maintained high levels of spending on the sorts of energy that we ought to be moving away from.

The problem with President Obama’s “all-of-the-above” strategy, is that it isn’t leading anywhere and it doesn’t match the scale of the problem it allegedly addresses.  There is no larger plan to drastically reduce energy consumption or change over from an industrial economy to a sustainable economy and he has already dropped the ball repeatedly on cooperating with other nations for a global fix.

While this article puts a lot of blame at President Obama’s feet, it is fairly certain that any of his recent rivals both for the Democratic nomination and for the Presidency would have done much the same as he has in office. The effect of the power of the fossil energy industry on President Obama’s policy is painfully unavoidable, and it would no doubt have had the same effect on the other contestants for office.  One might have hoped for better from a man with the obvious intellect and capability of President Obama, but how much is arguable within the context of the system.

We could expect any politician to blather on about “energy independence.”  Talk about energy independence is silly, though, because it is based upon an improper definition of energy independence.  Energy independence is not when your country doesn’t have to go out and subjugate another country to get your oil which god mysteriously put under their sand.

Energy independence is when you don’t have to pay The Man for it.

Every day the sun shines, the wind blows, rivers flow, oceans wave, etc. offering us all free energy for the taking delivered direct to our doorsteps.

If the people that run the government (as opposed to the people) wanted energy independence, it could be arranged. But they don’t.  They want to be able to profit from people’s use of energy.  Allowing the people to use their government as a tool to achieve real energy independence for all is not in their interest.

And that’s why we can’t have anything nice.

This is really the challenge of our age, if we get it right, it will mean overturning the interests that have a stranglehold on our government and call the shots.  If we get it wrong, the next age is going to be mighty uncomfortable.

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