The government's plans for a shale gas sovereign wealth fund lack the firm commitment to decarbonisation that is required
It is a case of better late than never, I suppose. Several decades after Norway channelled the country's oil and gas wealth towards a sovereign wealth fund that transformed a relatively impoverished northern European nation into one of the world's richest and most developed countries, the UK has indicated that it might have finally learnt the importance of finding a productive long term use for a lucky windfall. Set against the context of the UK's scandalous decision to burn through its North Sea oil and gas wealth twice over - once to release climate changing gases and a second time by diverting the proceeds into Thatcher's election buying housing booms and tax cuts (for an explanation of how Norwegians became millionaires while the UK continued its post imperial decline, this article from the Guardian's Aditya Chakrabortty is essential reading) - this week's announcement Ministers are planning a shale gas sovereign wealth fund is to be welcomed.
And yet, the vague and conflicting messages coming from government about how the proposed wealth fund will be utilised suggests that we are still yet to fully learn the lessons from Norway, nor fully accept the urgent need to decarbonise our economy.
In fairness to Lib Dem Energy and Climate Change Secretary Ed Davey, he did hint that the new fund was about "storing the financial benefits of shale production and putting it towards a low-carbon energy future". But details about how shale gas tax receipts would be put towards this low carbon energy future were not forthcoming. Meanwhile, Chancellor George Osborne suggested a fund that was apparently meant to benefit the whole country's low carbon transition could be "invested in the long-term economic health of the north to create jobs and investment there". In the Chancellor's view, the focus on boosting our "low-carbon energy future" appears to have been relegated to the sidelines in favour of a nod and a wink towards new roads and rail lines across the north.
The failure to provide a firmer commitment to ensuring this new sovereign wealth fund will be a green sovereign wealth fund, even as the country that pioneered the long term investment of oil and gas wealth is considering divesting its entire $840bn fund from fossil fuels, means Ministers will now attempt to spend the putative new shale gas fund countless times over on which ever project promises the biggest electoral boost.
We will be left with confusion where there should be absolute clarity. The reality is that if we are to make continued fossil fuel exploration compatible with long term carbon targets we need carbon capture and storage (CCS) technology as a matter of urgency. Why then is the government sketching out plans for a shale gas sovereign wealth fund and not stating explicitly, right from the start, that it will be used to help decarbonise the gas industry, primarily through CCS, but also through energy efficiency measures that would help ensure we burn as little gas as possible to heat our homes. If shale gas cheerleaders really are confident this nascent industry can deliver billions of pounds to the Exchequer they should also welcome this money being used to make CCS in the UK a reality.
Personally, I remain unconvinced that shale gas exploration in the UK can be justified at a time when falling oil prices make the economics increasingly challenging and climate science necessitates leaving a huge chunk of global fossil fuel reserves in the ground. These fears are further amplified by the shale gas industry's woeful communications efforts and the current government's failure to impose a power sector decarbonisation target that would necessitate CCS at gas-fired power stations.
But if we have to have a domestic shale gas industry and if our government is willing to buy the argument that gas can act as a "bridge" to a low carbon economy, then it needs clear long term policies to demonstrate that it is a "bridge" to a sub 2C, not a 4C, world. To that end, we need confirmation the power sector will really be decarbonised by 2030; a shale gas tax regime that recognises the environmental costs associated with fossil fuel exploration, not one built around tax breaks some within the shale gas industry privately admit they don't need; and a commitment to use any shale gas tax windfall (and remember the UK is still yet to extract any shale gas, geology and economics mean this promised boom could yet be a whimper) to develop the infrastructure that would give gas a future in a carbon-constrained world. I suspect that is precisely what Norway would do were it to uncover a shale gas windfall, although its current review of its wealth fund suggests it may go further still and just divest from fossil fuels altogether.
Until the UK government offers a clearer vision of how it plans to spend the promised shale gas billions, environmentalists will be forgiven for fearing a repeat of Thatcher's North Sea fuelled electioneering, in the form of a transparent attempt to bribe communities to support fracking projects with the latest infrastructure boondoggles.
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