The impact of rising domestic energy bills on the health and well-being of the British people has been extensively documented. What has received less attention is how these same price increases are reducing the nation’s industrial competitiveness.
Rising energy costs are weakening manufacturing output. This in turn is driving both the goods trade deficit and a sharp decline in our status as a global manufacturer, which has slid from fourth largest in the world to ninth over the past 15 years. The long-term viability of energy-intensive industries is at risk.
If the UK is to reverse its fortunes, urgent attention needs to be paid to reducing the cost of energy and to securing supply, says Sir Alan Rudge, President of the ERA Foundation. The foundation has repeatedly highlighted how energy production and security policies need to be overhauled drastically, a key priority being the scrapping of green taxes that were introduced as part of the Climate Change Act 2008 (or, at least, a significant reduction of these tariffs). They have added as much as 28 per cent to industry’s fuel bills, and it is anticipated that increases will escalate over the next few years.
Equally, alternative sources of energy must be secured as coal-powered power stations are closed and the ageing nuclear stock is patched together until an overdue new generation of reactors is built. Many believe the solution lies in windfarms and solar panels. However, these are expensive to build and run (they require significant subsidies), are incapable of producing a reliable baseload source of energy and will not result in rapid decarbonisation. Shale gas, on the other hand, offers a secure and competitively priced supply of energy.
Admittedly, fracking has had a great deal of bad press, including accusations that it is responsible for public health problems, polluted water supplies and significant depletion of water resources. Yet many of these aspersions have been found to be untrue or exaggerated. For instance, contamination of groundwater by fracking fluid is possible, but is very unlikely if proper procedures are followed.
The prediction is that the location of major shale gas reserves will reshape world politics and the associated flow of wealth. No longer will Middle Eastern oil or Russian gas remain tools that have determined the direction of geopolitics over the past forty years. Experts estimate that there are trillions of cubic feet of shale gas lying beneath us – if the UK can exploit this, we can secure our energy supply, improve the sustainability of industry and manufacturing, and reduce our trade deficit.
How would you describe the energy outlook for the UK today?
When looking at our energy needs, you have to start with the economy. The UK has been running a negative balance of trade since the end of the Eighties and it’s been getting worse. There is a deficit in the trade of goods of £100bn a year, the main cause of which is the shrinking of our manufacturing industry from more than 20 per cent of GDP to its current 11 per cent since the mid-Nineties. One of the main factors impacting upon the future of manufacturing industry is the high cost of energy.
In your view, what factors are driving these cost increases?
licies based on the alarmist 2008 Climate Change Act are raising the cost of energy, both to industry and to the general population. As green taxes force the prices up, more manufacturing firms – many of which are foreign-owned and therefore don’t have any special reason to be here – are looking to move out of the UK. Our economy cannot afford this to happen. The point of green taxes is to encourage businesses to operate in a more environmentally friendly way, isn’t it? Global warming alarmism was the reason for the 2008 act and it was an overreaction.
The world has not heated as predicted. The extent to which human activity is contributing to natural climate variability remains uncertain. Meanwhile, we are not reducing emis-sions. Let’s not forget that while we are closing coal-fired power stations, or converting them to burning more expensive imported woodchips with an increased carbon footprint, China and India are busy building new coal-fired stations that will far outweigh our total contribution to carbon dioxide emissions.
Current policies don’t make sense. There is no advantage in making us poorer. Poor nations can’t save the environment. We have a huge debt due to borrowing and the banking crash, which means we are paying more than £50bn a year in interest. If manufacturing output decreases further, our financial situation will worsen. To save the environment, first we must save the economy. We need to rebalance the economy with manufacturing at its heart.
What measures do you think are needed to reduce these energy costs?
Shale gas offers a huge opportunity. In the US, it has totally transformed their energy situation. Costs have gone down by 40 per cent and they are producing sufficient gas to meet their own needs and to become an energy exporter. This will reduce their dependency on the Middle East, which must have strategic and political significance. In addition, shale gas produces half the carbon-dioxide emissions of coal, leading to a substantial reduction in the national carbon footprint.
What of the concerns that many people have about the dangers of fracking?
If you were in a sinking boat with a large hole in it and someone offered to come along and patch it up, would you turn them down just in case they didn’t make an invisible repair? That sums up the attitude of those opposed to shale gas. They would prefer to sink, it seems.
What of the risk of earthquakes, poisoned air and water, and damage to health?
The Shale Gas Shock by Matt Ridley highlights how much of what is claimed about fracking is not true. Fracking takes place at great depths, typically more than a mile down, and provided it is carried out in a properly controlled way it is less dangerous than any other source of fossil-fuel production – drilling for oil offshore can be a tricky business, for example.
How about the visual impact above ground?
Shale gas installations are about the size of a large garage, and can be disguised to blend in with the local environment. They certainly look nothing like typical industrial sites or power plants. Nor do they require as much space as renewables; one shale gas site can produce the same amount of energy as 47 wind turbines, for example, and the supply is not dependent on the weather.
How cost-effective is it in comparison to renewable fuels such as wind or tidal power?
Wind power is between two and five times more expensive than shale gas. Aside from that, there is the big problem of variability of wind, which the National Grid cannot handle. Tidal power, while it’s probably the most predictable renewable source, would require vast areas of water to be closed off to make it effective, which is not financially or environmentally viable.
Does the UK have the skills – and importantly, the access to finance – to make shale gas a success?
Because we have become a highly indebted nation, spending more than we earn, we don’t have enough wealth to do it ourselves. We will need foreign investment initially, and imported expertise until we have developed our own skills.
If the profits from shale gas will be made by foreign companies, does this mean local communities will miss out?
Where shale gas production has occurred, it has regenerated local economies by creating jobs and using local services. Shale gas has the potential to enrich communities.
What do you think will happen if the UK doesn’t embrace shale gas?
It will be pretty grim. If you look at the recent Davos meeting, there was serious concern about industrial capacity moving from Europe to the US as a result of rising energy costs. If we don’t embrace shale gas there is a very good chance that we’ll frighten away the high-energy-using industries, which will be disastrous for the UK economy.
Are we all doomed?
We’re not doomed. Our generation will get away with it. What we’re doing is passing the debt and the problems on to our children. We need to face up to the facts and take positive action. We’re sitting on several hundred years of gas supply. This is a great opportunity. We shouldn’t be wasting time arguing and whingeing – it’s time to get up and go.
Sir Alan Rudge is the president of the ERA Foundation.