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Should we extract the European shale gas? The effect of climate and financial constraints

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Fanny Henriet and Katheline Schubert

In France, hydraulic fracturing is prohibited by the Jacob Law of 13 July 2011 (1). This position, supported by a majority of the population (2) can seem puzzling at a time when France is trying to reduce its dependance on nuclear energy while also trying to prevent increases in the price of electricity. It is, moreover, in complete contrast to the enthusiasm that this new technology has attracted in the United States. The prohibition on shale gas mining rests on two strong arguments. First, hydraulic fracturing can provoke several types of environmental damage, including the pollution of surface water and artesian basins, and the creation of seismic vibrations. Second, investing in the extraction of shale gas can slow the transition towards renewable clean energy. On the other hand, those in favour of shale gas argue that this natural gas emits less CO2 than other combustible fossil fuels (oil and especially coal), and that its substitution for coal should therefore be encouraged as part of the fight against global warming. According to the IMF, “the abundance of natural gas can therefore provide a transition between the present situation in terms of the global energy mix, and a future full of hope involving mainly renewable energy sources.”

So, what strategy should be adopted? In this article, Fanny Henriet and Katheline Schubert assess whether climate concerns could justify the development of shale gas or, on the contrary, they call for a direct transition to clean energy. They take into account both the local environmental damage caused by the extraction technique, the global climate damage, and the budget constraints of governments. Using a model based on these three limiting factors, the authors arrive at three scenarios. The first only considers local damage, which argues against any extraction of shale gas. The second considers both local damage and the necessity of moving quickly on the global level to reduce CO2 emissions, which leads to an argument in favour of temporary shale gas mining in order to replace coal while awaiting the spread of renewable energies. An exercise in calibrating the European electrical power industry shows that, in this scenario, and in the absence of budgetary constraints (3), only a small fraction of European shale gas should be mined (around six per cent). The latter scenario puts the accent on limit of energy expenditure (4). The local environmental damage thus loses its importance in the face of the costs, which leads to further development of shale gas mining. This third scenario can entail a disregard for part of the local environmental damage in the face of monetary gains and therefore to massive overinvestment in shale gas, leading to the extraction of 20 per cent of resources and delaying the move to renewable energy. In addition, the authors recall that the refusal to extract shale gas, as in France at present, leads to only a modest increase in electricity prices, in the order of 1.8 per cent, compared with a non-moratorium situation.

(1) Hydraulic fracturing is a technique of massive fissuration of rock through the injection of a liquid – often water – under pressure. It allows the collecting of oil or gas in very dense rock, for which traditional wells would not work.
(2) IFOP survey, 13 Septembre 2012: 74 per cent of those surveyed were opposed to shale gas mining ; in a BVA study, 2 Octobre 2014, the figure was 62 per cent. Interestingly, this is greater than the opposition to nuclear power in France.
(3) Local damage is given a monetary value in order to compare it with other costs: it is equivalent to around 75 per cent of the cost of producing electricity from shale gas.
(4) A constraint on energy expenditure signifies that the government hopes to achieve its objective of reducing emissions without adding to the energy bill.

Original title of the article: “Should we extract the European shale gas? The effect of climate and financial constraints”.
Published in: Documents de travail du Centre d’Economie de la Sorbonne 2015.50
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