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.
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