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Page added on March 8, 2014
Natural Gas Will Not Save the US Economy
Economist Kenneth Boulding famously said, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” But it’s not just economists who believe that anymore. Such ideas are still widely accepted by thought leaders, journalists, and politicians who, together, form a strong consensus that the U.S. recovery should be bolstered by natural gas exploration and production. The McKinsey Global Institute claims in a recent report that a natural gas boom is one of the most important “game changer” ideas for U.S. economic growth, while The Economist writes, “Become a champion of a global fracking revolution, Mr. Obama, and the world could look on America very differently.” And in his recent State of the Union address, President Barack Obama said “I’ll cut red tape” for factories that use natural gas, and that “Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas.”
But the belief that natural gas can be a “bridge fuel,” allowing us to grow rapidly in the age of global warming, is fit for a madman.
The current consensus is that if global temperatures rise more than 2 degrees Celsius above preindustrial levels, the consequences would be catastrophic (the Arctic melt would raise sea levels by tens of meters). So scientists have proposed a “carbon budget”: the total amount of carbon dioxide that can be released into the atmosphere without raising temperatures by 2 degrees. Using a conservative carbon budget of 450 parts per million—which has been endorsed by the International Energy Agency and Britain’s Stern Review—economists Humberto Llavador, John Roemer, and Joaquim Silvestre have thrown cold water on the idea that natural gas is our nation’s economic savior. In a forthcoming paper, they argue that given that budget, the world’s two largest CO2 emitters, the U.S. and China, must keep GDP growth within the threshold of 1 percent and 2.8 percent of GDP per year, respectively, for the next 75 years.
These results may sound surprising, but they are in line with a growing body of research on stranded carbon assets, which are assets such as fossil fuels (oil, coal and natural gas) that will lose their value well before they’re expected to. This can happen as a result of, say, market disruption (rapid advances in green technology like wind and solar polar or divestment) or government regulation (a carbon tax or stricter fuel economy standards). That latter is more likely because, even now, we have found way more fossil fuels than we could possibly burn without inviting long-term environmental disaster.
The Intergovernmental Panel on Climate Change’s carbon-budget model, widely considered the most reliable, puts the budget for 2012-2100 at between 886 and 1119 gigatons of CO2. Total known fossil fuel reserves in the world, if burned, would add 2860 gigatons of CO2 to the atmosphere. Thus, simple math indicates that almost two-thirds of all known fossil fuel reserves must remain unburned if global temperatures are to remain habitable. And these are optimistic estimates. James Hansen of the Columbia Earth Institute and other leading scientists and economists argue that all extraction of coal and other unconventional fossil fuels, like the Canadian Tar Sands, must cease immediately and the extraction of conventional fossil fuels, like oil and natural gas, must be significantly pared down.
Projects like the Keystone XL pipeline and other attempts to revive the U.S. economy based on fossil-fuel extraction are the equivalent of running up billions in debt and then running off to borrow more. The international community is already blowing through its carbon budget; the IPCC predicts that given “business as usual,” we’ll burn 1,000 gigatons of CO2 between 2012 and 2033, depleting the more conservative budget entirely and nearing the upper bound. We’ve already seen the consequences of temperatures growing by less than one degree Celsius, yet we’re on track to see them rise by more than six degrees by 2100. Our current trajectory tempts ecological and economic collapse, and yet, many are arguing that we accelerate the process.
Part of the problem is that our measure of growth, GDP, does not take into account the costs or sustainability of growth. One billion dollars of growth in the production of solar energy is not the same as $1 billion produced by coal in terms of ecological harm and sustainability, but GDP counts them equally. Instead we should measure progress using more extensive metrics like the Genuine Progress Indicator, which factors the impact of greenhouse gas emissions into its calculations. Further, we should institute a carbon tax, preferably an international one. Some companies currently price carbon internally—meaning that they put a price on the carbon produced by their projects, and subtract that from any expected returns—but do so at widely varying rates. A Carbon Disclosure Project study finds that nine of the largest energy companies in the United States internally price carbon dioxide emissions, at a cost ranging from $15 per ton (Devon) to $60 per ton (ExxonMobil). Governments should consider the social and environmental cost of carbon dioxide when they are making infrastructure and research investments, regulating extractive industries like fracking and offering tax incentives. Against the EPA’s recommendation, the State Department decided not to consider the social cost of carbon in its analysis of the Keystone pipeline.
The State Department also didn’t consider the very likely possibility that the pipeline will become a stranded asset. We can only hope it will—because that would mean we’ve finally learned that if we don’t live within our carbon budget, the long-term ecological and economic harm caused by our relentless extraction and burning of fossil fuels will obviate any short-term benefits to the economy. If we build our recovery on natural resources that need to remain underground to keep global temperatures stable, then we’ll be like the foolish builder in the Gospel of Matthew “who built his house on sand. The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”
Lew Daly is the director of policy and research at Demos. Sean McElwee is a researcher at Demos.
17 Comments on "Natural Gas Will Not Save the US Economy"
bobinget on Sat, 8th Mar 2014 6:20 pm
I would rather argue the premise that (low cost) gas Has Already Saved the Economy. Forget about going forward, we can argue that one after the fact.
Where would Europe, the Mideast, Asia, in particular Japan be today if they had had easy access to the sort of cheap gas the US has on tap?
GregT on Sat, 8th Mar 2014 6:58 pm
“In a forthcoming paper, they argue that given that budget, the world’s two largest CO2 emitters, the U.S. and China, must keep GDP growth within the threshold of 1 percent and 2.8 percent of GDP per year, respectively, for the next 75 years.”
“The Greatest Shortcoming of the Human Race is Our Inability to Understand the Exponential Function”
With ‘logic’ such as the above, the US economy would over double in 75 years, and the Chinese economy would double three times, and be eight times as large as it is today. I wonder what planet the people that wrote the ‘forthcoming paper’ are from? Obviously not the planet Earth.
dissident on Sat, 8th Mar 2014 7:31 pm
It’s a deeply held belief amongst some that we live in an infinite reservoir into which we can spew all the pollution that we want and from which we can extract all the resources that we want. Admitting that there are limits implies accepting some sort of regulations and limits on economic activity. That is an anathema to the laissez faire adherents.
J-Gav on Sat, 8th Mar 2014 9:33 pm
Exactly what I was thinking, GregT.
But hey, ‘saving’ this and ‘saving’ that is alway gonna make good copy.
Kenz300 on Sat, 8th Mar 2014 10:06 pm
Elon Musk Thoughts on transitioning to 100% renewable energy – YouTube
http://www.youtube.com/watch?v=rce5RZHCzLk
Makati1 on Sun, 9th Mar 2014 3:58 am
Obvious where their paycheck comes from.
rockman on Sun, 9th Mar 2014 7:54 pm
Bob – Along those same lines it’s good for folks to realize the role NG has already played in our economy especially with respect to the environment. Today the US is tied with Russia: we both produce about 20% each of global NG. But at one time a few decades ago the US produced more than 80% of the NG on the planet. And while folks like to think NG has saved the country from evil coal we are still the #2 producer on the planet. And we are #1 in proven coal reserves with 22%. Is there any doubt that the US would rival China as the greatest coal burner on the planet today were it not for our development of NG?
For can argue about how important NG is for the economy today or in the future. But IMHO I think it should be given much credit for allowing much less GHG production (as huge as it still is) by the USA. And I also think it’s very naïve to think as NG resources become more expensive/less available that coal consumption won’t increase. In fact, since the beginning of the industrial age US coal consumption has increased steadily(until 2008) despite our NG production. And given the economic slump and collapse of NG prices it’s easy to explain the recent drop in coal consumption IMHO. Which would also imply that as the economy improves and if NG prices continue to increase coal will continue it’s growth despite environmental concerns.
Dragon Oil on Mon, 10th Mar 2014 6:17 pm
Neither gas,coal, oil or any other “fossil fuel” are the problem. Pre industrial earth had a population well below 3 billion and just belched CO2. At 7+ billion, the individual carbon footprint is considerably smaller, but the population is now offscale and going ballistic. The problem is caused by the generation of heat to turn water to steam to drive turbine-generator sets. Not only does this emitt carbon (the heat trap)but it generates a huge amount of heat that is lost to the atmosphere ( it’s trapped). Thorium reactors will eliminate the trap and better heat transfer proceedures will require less to be generated. Letting the global population drop to 3 billion will do the most good. Bye the way, how’s your golf game?
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