What Unconventional Fossil Fuels Change About Our Energy Picture, and What They Don't

Reuters

Part of what makes debates about energy confusing to many is that the language of resource depletion allows one to make strong and accurate claims to justify widely divergent positions. Of course, we are running out of fossil fuels; they take millions of years to replace. Yes, we will never run out of fossil fuels; there will always be some amount that we will choose to leave in the ground because they are not worth extracting. You can logically say both or you can emphasize one. In any case, neither statement is helpful in getting to the core about why people care, and disagree, about energy, which has more to do with differences in values, appetite for risk, time horizons, as well as urgency of competing social priorities. Debates about energy poverty, climate change, and air pollution also have the requisite combinations of linguistic imprecision and real uncertainty to allow for strong conflicting claims.

The "are we running out?" framing distracts from two important points in Charles Mann's article. First, unconventional fossil fuels--fracking, tar sands, methane hydrates and several others--are growing in importance. Unconventionals comprise truly massive resources, but what makes them "unconventional" is that they are more dispersed than traditional fossil fuels. They are scattered around the world, they are difficult to reach, are mixed with other materials, and require much more processing to be useful. As a result they are almost invariably more expensive, more energy intensive, and more polluting than conventional fossil fuels. Adam Brandt at Stanford has probably done more than anyone in characterizing these resources.

Second, Mann's conclusion correctly focuses on the central policy challenge we confront. But let's be clear that this is not because environmentalists have banked on using resource depletion as the reason to address climate change. Energy security has at times been used as side effect of addressing climate change, but not as a central motivation. The more important policy issue that plentiful unconventionals bring up is the risk of myopia and over-reliance over the longer term. The policy challenge is about dealing with an array of persistent energy challenges--including access, air pollution, climate, and security--in a policy environment in which energy could become much less publicly salient than it has been in recent years.

These are important points in Mann's article. But in two ways--on climate and on energy security--the rise of unconventional changes things less.

CLIMATE

Increased use of fracking and possibly methane hydrates does not change much on climate change. We were never on the verge of running out of fossil fuels--we have coal. Debates about coal reserves argue whether we have a 100 or 200-year supply. We have roughly 10 times as much carbon in coal in the ground as we can afford to put into the atmosphere without risking disruptive climatic consequences. Coal is cheap, easy to extract, and crucially, a large reliable domestic resource for key energy economies, notably China, India, and Russia as well as the U.S. Fracking and methane hydrates come on top of this. Coal has always been sufficient to destabilize the climate and undermine international agreements to reduce greenhouse gas emissions. Addressing climate change involves getting to a broad consensus, making it a sustained social priority, and adopting risk management perspective, perhaps aided by focusing events, interpretation of events as harbingers, valuing health co-benefits, and considering ethics. It's not something that resource depletion will force us into.

ENERGY SECURITY

In the U.S., energy security is about using oil for transportation--and a lot has to change for natural gas to become an important transportation fuel. Natural gas accounts for 2% of U.S. transportation energy today, despite a unit of energy from oil costing about five times more than a unit of energy from natural gas. This could change, and is likely to if price spreads persist. But it will require the kind of transition in infrastructure and end-use technology that, as indicated by Prof. Smil, has occurred only slowly in the past; adoption of ethanol in Brazil is probably the fastest case. If it does change in a substantial way, then there is a real risk that all this natural gas will not be so cheap anymore. If 100s of millions of aspirational car drivers plan to fill up on compressed natural gas rather than gasoline then the story of abundance will quickly revert to one of scarcity.

One should also ask why we really care about energy independence. What will change if we import less oil? The world is much more interconnected than it was, not just for energy. Global trade as a portion of gross world product is more than twice what it was in Churchill's pre-WWI effort to switch the British fleet to oil and also twice what it was at the time President Nixon announced Project Independence. It's more than just trading goods and services; it's cross-border flows in investment, in people, in data, and ideas. Note that since we import a substantial portion of our consumption, we are also thus "dependent" on many aspects of modern life, such as foreign steel, fruit, cars, microprocessors, and flat-panel displays. This "dependence" is a consequence of seeking comparative advantage and trying to remain competitive in a global economy. The notion that we can increase domestic production to buffer ourselves from shocks originating in far away places has plenty of historical origin, but is less feasible than it used to be.

Unlike in many other countries, producers in the U.S. are not owned by the government and are free to sell their coal, gas, and oil wherever they can get the best price. If a supply shock or a demand shock happens on another continent, even domestic production will not insulate us from that. Do we really think that a company is going to sell at a discount to U.S. consumers when it could fetch a far higher price in Asia? Even if we were produce 100% of our consumption, all that insulates us from distant events is the cost of moving energy from one country to another. As prices rise, and transport technology improves, that frictional effect becomes smaller and smaller. The current effort to build gas liquefaction and coal shipping terminals in the U.S. reflects the effort to export energy and take advantage of prices that are higher elsewhere--4 times higher for gas. As we move to unconventionals and energy resources become more heterogeneous we can expect a world with more, not less trade. Moreover, consider whether a country that produces twice as much oil as it consumes (Iran), or even 3 (Russia) or 4 (Saudi Arabia) times as much, is actually energy independent. Those countries are desperately dependent on global demand and prices in a way that deeply affects their societies and makes US dependence seem tangential.

CONCLUSION

Unconventionals are important, but they don't change our need to do something about climate change amidst plentiful fossil fuels. They also don't extricate us from the shocks and apparent chaos inherent to participating in the global economy.

An important insight in Mann's article is that it will be harder to do something about climate change if we enter a regime that resembles the 1960s or 1990s, when energy was a benign issue in the background. Abundant gas may lead to lower air pollution and years of declining greenhouse gas emissions. The social demand to do something about energy could fade, just when the physical dimensions of the climate problem become more urgent. A decade-long lull in private sector investment and public concern is when we would most need a renewed emphasis on energy policy making.