The business argument is with the EU

Even if the politics are a disaster zone.

Ever since the financial crisis, a previously buoyant eurozone has turned into a disaster zone. The single currency has lurched from crisis to catastrophe as the finances of member states have come under pressure. Bailouts that appear to be funded in large part from northern Europe are keeping several countries in southern Europe afloat. The next crisis is potentially lurking at the tail end of summer, with Cyprus due to get its next tranche of cash from the unofficial troika of the EU, ECB and IMF in early September. That is dependent on the country meeting stringent financial and budgetary targets and there is little evidence so far that they will be met.

With a German election by then just around the corner, it is unlikely that German chancellor Angela Merkel will be in the mood for leniency. The upshot could be that Cyprus is allowed to exit the single currency – the last six months having bought enough time to make it potentially a more orderly exit, and the economy is small enough for the ramifications to be less seismic than if a country such as Greece had fallen out.

Regardless of what happens in September (and it is as easy to paint a picture in which Cyprus gets the cash and everything carries on as it is), the eurozone’s troubles at least partly explain why the subject of the EU and the UK’s role within it is so high on the political agenda. As leader of the Conservative Party, David Cameron set out his stall clearly. He said he didn’t want the party to keep “banging on about Europe”. But the growth of anti-EU sentiment and the seemingly unstoppable rise of UKIP in particular has meant that, as prime minister, Cameron has had to bang on about it quite a lot.

UK politicians and the media are having to regularly discuss details (and not the possibility) of previously abstract ideas such as a referendum, renegotiation of the country’s relationship with the EU, or even complete withdrawal. The trouble is that all these discussions happen at a volume and intensity that rarely allow for sensible debate. Economic arguments are formed and numbers and statistics thrown around with little heed for anything other than scoring points and winning the argument.

It was somewhat sobering this month then to get a snapshot of what the UK’s exporters (clearly the key to UK economic recovery) think about Europe. The most often repeated story when it comes to discussions about where the UK recovery will come from is that exporters will have to seek out sales in high-growth emerging markets in far-flung corners of the world. So-called BRIC economies (Brazil, Russia, China and India) are cited above all as the key for our future success. Well, this didn’t chime with recent research conducted by economia. We asked the leaders of 500 businesses (a mix of those already exporting and those not currently doing so but with plans to do so in the next three to five years) to rate different markets around the world for their importance.

While it was no surprise to see Western Europe rated as important or very important this year by more respondents than any other market (71 per cent compared to the next most popular market, Asia at 55 per cent), what was less expected was the pattern when respondents were asked to rate the importance of markets in three to five years’ time. Here again Western Europe dominated by a similar margin. Even more unlikely was the rise of North America in the future (up by 5 per cent), knocking Asia back into third place.

Part of the explanation for the continued preference for Europe is the geography. Cost of exports was cited as a concern for and a factor in choosing markets by almost all respondents regardless of size or sector. And while the short distances help, some of the ease of doing business in Europe is driven by the standardisation of market rules and regulations and the lack of need to comply with different country guidelines or indeed to pay any import duties.

It appears from this that when asked about Europe on a purely business basis, without any of the political or emotive overlay, there is overwhelming support for the simplification benefits that arise from EU membership. More detailed analysis of the findings of this research needs to be conducted, but initial findings suggest there is also a worrying reluctance on the part of UK exporters to tap into the phenomenal growth of the emerging economies. In the mid-term at least, the ease of doing business in Europe appears to be winning over the potential returns from more long-term investments in places such as China, India, Russia or Brazil.

That would suggest that keeping close to Europe may be economically beneficial regardless of the politics.

This story first appeared on economia

Photograph: Getty Images

Richard Cree is the Editor of Economia.

GETTY
Show Hide image

North Yorkshire has approved the UK’s first fracking tests in five years. What does this mean?

Is fracking the answer to the UK's energy future? Or a serious risk to the environment?

Shale gas operation has been approved in North Yorkshire, the first since a ban introduced after two minor earthquakes in 2011 were shown to be caused by fracking in the area. On Tuesday night, after two days of heated debate, North Yorkshire councillors finally granted an application to frack in the North York Moors National Park.

The vote by the Tory-dominated council was passed by seven votes to four, and sets an important precedent for the scores of other applications still awaiting decision across the country. It also gives a much-needed boost to David Cameron’s 2014 promise to “go all out for shale”. But with regional authorities pitted against local communities, and national government in dispute with global NGOs, what is the wider verdict on the industry?

What is fracking?

Fracking, or “hydraulic fracturing”, is the extraction of shale gas from deep underground. A mixture of water, sand and chemicals is pumped into the earth at such high pressure that it literally fractures the rocks and releases the gas trapped inside.

Opponents claim that the side effects include earthquakes, polluted ground water, and noise and traffic pollution. The image the industry would least like you to associate with the process is this clip of a man setting fire to a running tap, from the 2010 US documentary Gasland

Advocates dispute the above criticisms, and instead argue that shale gas extraction will create jobs, help the UK transition to a carbon-neutral world, reduce reliance on imports and boost tax revenues.

So do these claims stands up? Let’s take each in turn...

Will it create jobs? Yes, but mostly in the short-term.

Industry experts imply that job creation in the UK could reflect that seen in the US, while the medium-sized production company Cuadrilla claims that shale gas production would create 1,700 jobs in Lancashire alone.

But claims about employment may be exaggerated. A US study overseen by Penn State University showed that only one in seven of the jobs projected in an industry forecast actually materialised. In the UK, a Friends of the Earth report contends that the majority of jobs to be created by fracking in Lancashire would only be short-term – with under 200 surviving the initial construction burst.

Environmentalists, in contrast, point to evidence that green energy creates more jobs than similar-sized fossil fuel investments.  And it’s not just climate campaigners who don’t buy the employment promise. Trade union members also have their doubts. Ian Gallagher, Secretary of Blackburn and District Trade Unions Council, told Friends of the Earth that: “Investment in the areas identified by the Million Climate Jobs Campaign [...] is a far more certain way of addressing both climate change and economic growth than drilling for shale gas.”

Will it deliver cleaner energy? Not as completely as renewables would.

America’s “shale revolution” has been credited with reversing the country’s reliance on dirty coal and helping them lead the world in carbon-emissions reduction. Thanks to the relatively low carbon dioxide content of natural gas (emitting half the amount of coal to generate the same amount of electricity), fracking helped the US reduce its annual emissions of carbon dioxide by 556 million metric tons between 2007 and 2014. Banning it, advocates argue, would “immediately increase the use of coal”.

Yet a new report from the Royal Society for the Protection of Birds (previously known for its opposition to wind farm applications), has laid out a number of ways that the UK government can meet its target of 80 per cent emissions reduction by 2050 without necessarily introducing fracking and without harming the natural world. Renewable, home-produced, energy, they argue, could in theory cover the UK’s energy needs three times over. They’ve even included some handy maps:


Map of UK land available for renewable technologies. Source: RSPB’s 2050 Energy Vision.

Will it deliver secure energy? Yes, up to a point.

For energy to be “sustainable” it also has to be secure; it has to be available on demand and not threatened by international upheaval. Gas-fired “peaking” plants can be used to even-out input into the electricity grid when the sun doesn’t shine or the wind is not so blowy. The government thus claims that natural gas is an essential part of the UK’s future “energy mix”, which, if produced domestically through fracking, will also free us from reliance on imports tarnished by volatile Russian politics.

But, time is running out. Recent analysis by Carbon Brief suggests that we only have five years left of current CO2 emission levels before we blow the carbon budget and risk breaching the climate’s crucial 1.5°C tipping point. Whichever energy choices we make now need to starting brining down the carbon over-spend immediately.

Will it help stablise the wider economy? Yes, but not forever.

With so many “Yes, buts...” in the above list, you might wonder why the government is still pressing so hard for fracking’s expansion? Part of the answer may lie in their vested interest in supporting the wider industry.

Tax revenues from UK oil and gas generate a large portion of the government’s income. In 2013-14, the revenue from license fees, petroleum revenue tax, corporation tax and the supplementary charge accounted for nearly £5bn of UK exchequer receipts. The Treasury cannot afford to lose these, as evidenced in the last budget when George Osborne further subsidied North Sea oil operations through increased tax breaks.

The more that the Conservatives support the industry, the more they can tax it. In 2012 DECC said it wanted to “guarantee... every last economic drop of oil and gas is produced for the benefit of the UK”. This sentiment was repeated yesterday by energy minister Andrea Leadsom, when she welcomed the North Yorkshire decision and described fracking as a “fantastic opportunity”.

Dependence on finite domestic fuel reserves, however, is not a long-term economic solution. Not least because they will either run out or force us to exceed international emissions treaties: “Pensions already have enough stranded assets as they are,” says Danielle Pafford from 350.org.

Is it worth it? Most European countries have decided it’s not.

There is currently no commercial shale-gas drilling in Europe. Sustained protests against the industry in Romania, combined with poor exploration results, have already caused energy giant Chevron to pull out of the country. Total has also abandonned explorations in Denmark, Poland is being referred to the European Court of Justice for failing to adequately assess fracking’s impact, and, in Germany, brewers have launched special bottle-caps with the slogan “Nein! Zu Fracking” to warn against the threat to their water supply.

Back in the UK, the government's latest survey of public attitudes to fracking found that 44 per cent neither supported nor opposed the practice, but also that opinion is gradually shifting out of favour. If the government doesn't come up with arguments that hold water soon, it seems likely that the UK's fracking future could still be blasted apart.

India Bourke is the New Statesman's editorial assistant.