Shale gas will contribute to climate change in two ways, from carbon dioxide emissions when the gas is burnt, and from the fugitive emissions of underground methane that leak into the atmosphere as the gas is extracted. These concerns have led to protests against the drilling of shale gas exploratory wells. Others are more willing to accept shale gas, but as a fuel used only for a few years as the UK gears up for a low-carbon future.
How are we to make sense of this? One approach is to insist that the companies producing shale gas, like every other polluter, should pay for the environmental damage shale gas will bring upon future generations through its contribution to climate change.
For every tonne of CO2 emitted when the shale gas is burned, the company producing it should pay the amount by which it increases the impacts of climate change. This is known as the social cost of carbon. Similarly, for every tonne of methane that escapes into the atmosphere, it should pay for the social cost of methane.
The social cost of carbon has been well studied. On our present emissions path, the best estimate is that the social cost is a little more than US$100 per tonne of CO2. The social cost of methane has been much less studied. At our present rate of emissions, the best estimate is that the social cost of methane is a little over US$1,500 per tonne. This is why the prospect of considerable methane emissions from fracking has caused such concern.
How would this work in practice? Every company involved in shale gas would know from the start that they would have to pay a tax equivalent to the social cost on each tonne of CO2 emitted, and another equivalent to the cost of each tonne of methane escaping from their wells. Many prospects that initially look promising would turn out not to be worth pursuing once these taxes were factored in. The better, cheaper, prospects where fugitive emissions can be minimised would be favoured.
Applying climate change-based taxes is a market-based approach which encourages cleaner development and innovation to reduce environmental impact.
The government’s “sweeteners”, of 1 per cent of shale gas revenues to local communities, and handing local authorities all the business rates arising from shale gas wells, can be seen as financial compensation for the disruption fracking will cause locally. Climate change taxation would tackle the far greater global disruption that the climate effects of shale gas would otherwise bring.