The publication of the draft UK Energy Bill this year caused much debate about the future direction of energy policy at a time when important investment decisions need to be made in relation to electricity generation. A fifth of the UK’s existing capacity is expected to close over the next decade [Ref: DECC]; £110 billion of investment is being sought; and important questions remain about the contributions to be made by nuclear, coal, gas and renewable energy. Severe economic conditions coupled with concerns about the long term impacts of climate change make the discussion heated. The debate also takes place against a backdrop of what has been dubbed the ‘shale gas revolution’ in the United States, where cheaply securing unconventional sources of gas from shale deposits deep underground has transformed the US energy market. This, combined with the discovery of substantial new conventional oil and gas fields, has led some to argue that gas, which produces lower carbon emissions than coal, should be used as a bridge fuel to low carbon renewable energy sources that will remain expensive until technological breakthroughs bring down their costs. Most see an important role for gas for now – it is a flexible fuel and gas-fired electricity generation (CCGT) provides a vital back-up for renewable electricity, which is dependent on the weather. However, proponents of renewable energy regard it as misguided to move from this perspective to advocating a more substantial contribution to be made by gas – the so-called ‘dash for gas’ [Ref: Telegraph]. The questions are complex, difficult and urgent.

A golden age for gas?
In recent years shale gas – an unconventional source of gas extracted from sedimentary rock through hydraulic fracturing (often referred to as ‘fracking’) – has become big news. Commentators point to the striking experience of the United States, where rapid growth in the production of shale gas has slashed prices and led some to argue that the country will become energy self-sufficient [Ref: Financial Times]. There is growing interest in unconventional gas in other countries and estimates for global recoverable gas resources have doubled in recent years [Ref: Economist]. ‘Fracking’ has generated controversy, with campaigners raising a variety of fears from the pollution of water supplies to increased seismic activity [Ref: Statesman]. Others argue the concerns are exaggerated and that the risks are manageable through appropriate regulation and high industry standards [Ref: IEA]. With distinct geological and political factors to take into account, there is currently disagreement over the significance of shale gas for Europe [Ref: EurActiv] and there is significant uncertainty over the scale of economically-recoverable shale gas in the UK [Ref: Guardian]. Meanwhile, the UK’s North Sea oil and gas assets are in decline (gas production in 2010 was 46% below the 2000 record year) and the country has become a net importer of gas [Ref: DECC]. Recently the UK has imported more expensive Liquefied Natural Gas (LNG) via tankers from countries such as Qatar, raising concerns about energy security and the impact of higher wholesale gas prices on energy bills. However, the UK also benefits from importing gas via major pipelines, and agreed a major energy partnership with Norway earlier this year [Ref: EAEM]. Renewed government confidence in gas as a reliable source of energy led Chancellor George Osborne, in his 2012 budget, to declare that gas would be ‘the largest single source of our electricity in the coming years’ – generating headlines claiming that he had fired the starting gun on the ‘dash for gas’, to the dismay of many environmental groups [Ref: Guardian].

The future is renewable?
Whilst the issue of man-made global warming has received less profile in the midst of the most severe recession for decades, it is undoubtedly significant. The burning of coal, natural gas, and oil for electricity and heat is the largest single source of global greenhouse gas emissions and therefore an important factor in the energy debate [Ref: EPA]. Under the Climate Change Act 2008, the British government is committed to reducing greenhouse gas emissions by 34% in 2020 and 80% by 2050, against a 1990 baseline [Ref: DECC]. The targets are challenging, especially in the context of slow decision-making over the replacement of Britain’s ageing nuclear power plants (nuclear is associated with low carbon emissions) [Ref: Telegraph]. For those that believe time is running out to minimise the risks of catastrophic climate change, now is the time to invest in renewable energy sources, rather than new ways to access fossil fuels. The Scottish government has made investment in renewable energy a priority and a recent report claims that the ambition of 100% of Scotland’s electricity being generated by renewable sources by 2020 is within reach [Ref: Scotsman]. Critics of a dash for gas point out that ‘relying on unabated gas which is cheap to build now doesn’t lead to lower cost decarbonisation’ but will ‘load the cost of decarbonisation into the 2020s’ [Ref: Green Alliance]. Former Lib-Dem Energy Minister Chris Huhne maintains that due to increasing world energy demands, as countries such as India and China grow their economies, the price of fossil fuels will keep rising whilst, due to technological advances, the price of renewable energy sources will keep coming down [Ref: Guardian]. According to this perspective, investment in renewable energy - such as wind, solar and tidal power - provides a more assured route to meeting our carbon emission targets as well as the promise of competitively priced energy in the future. For others, the technological advances made by the oil and gas industry that have made vast quantities of shale gas extractable, as well as those making conventional oil and gas accessible in inhospitable deep sea environments [Ref: E&P], underline the significance of gas in a world where abundant and cheap sources of energy are vital to improving the lives of billions.

Industrial competitiveness and rising energy bills
Following the publication of the draft UK Energy Bill, the coalition government has been criticised for creating confusion and avoiding tough decisions [Ref: BBC News]. Proponents of renewable energy are angry that subsidies for investing in it are to be reduced and that mechanisms for encouraging investment are hopelessly complex. Meanwhile, their critics deride what they regard as the excessive costs of renewable energy, which some estimate to be around £400 per household in the UK by 2020 [Ref: Policy Exchange]. At the heart of this debate lie fundamental concerns about Britain’s industrial competitiveness as well as the sustained increases in domestic energy bills that households are enduring. Weighing up the uncertainties surrounding the threat of future climate change alongside the actual damage being wrought by high energy prices now, proponents of more gas-fired power generation argue that it is a bridge fuel that offers scope to reduce carbon emissions whilst guarding against ruinous energy price hikes that will further undermine the competitiveness of British industry. Energy economist Dieter Helm argues that it makes no sense economically to push industry overseas, and that this will also result in a higher consumption of CO2 due to the greater emissions associated with overseas production [Ref: The Times]. Those arguing for far greater investment in renewable energy counter that much of the major increase in domestic energy bills since 2004 has been due to a 90% increase in the price paid for gas by power generators [Ref: FoE] Furthermore, they maintain, it will allow Britain to develop the knowledge and skills to export green technologies and hence be the more intelligent investment over time, as the costs of the technology declines and worldwide demand increases in the face of rising fossil fuel costs and growing concerns over global warming. All involved in this debate agree that we need a mix of energy sources, but there is clear blue water between competing ideas over what the primary direction of travel should be.