In America, the shale gas revolution is creating jobs and growth. It can here too
WHEN is a job not a job? Answer: when it is a green job. Jobs in an industry that raises the price of energy effectively destroy jobs elsewhere; jobs in an industry that cuts the cost of energy create extra jobs elsewhere.
The entire argument for green jobs is a version of Frederic Bastiat’s broken-window fallacy. The great nineteenth century French economist pointed out that breaking a window may provide work for the glazier, but takes work from the tailor, because the window owner has to postpone ordering a new suit because he has to pay for the window.
You will hear claims from Chris Huhne, the anti-energy secretary, and the green-greed brigade that trousers his subsidies for their wind and solar farms, about how many jobs they are creating in renewable energy. But since every one of these jobs is subsidised by higher electricity bills and extra taxes, the creation of those jobs is a cost to the rest of us. The anti-carbon and renewable agenda is not only killing jobs by closing steel mills, aluminium smelters and power stations, but preventing the creation of new jobs at hairdressers, restaurants and electricians by putting up their costs and taking money from their customers’ pockets.
We now have an estimate, from meticulous work in a new report by the Renewable Energy Foundation, of just how costly those subsidies are going to get in a few years’ time: £15bn a year, or 1 per cent of GDP. Ouch. That’s more than this year’s growth.
Contrast that with news from the United States that, according to a report from IHS Global Insight, the cheap shale gas revolution now in full flow has created 148,000 jobs directly within the gas industry and – by making energy cheaper – has created at least another 450,000 jobs elsewhere in the economy. By 2015, the total impact of shale gas will be 870,000 new jobs, says the report.
Shale gas now provides more than a quarter of American gas from a standing start about five years ago. Its effect has been dramatic. Whereas gas prices rose sharply here in the last two years, pushed up by oil prices, the Libyan civil war (which constricted supply) and the Japanese earthquake (which boosted demand), by contrast they stayed low in the United States.
This is the first time in decades gas prices on opposite sides of the Atlantic have diverged so sharply. Cheap gas in America has caused a rush into using gas for electricity generation, the cancellation of coal and nuclear plants, the mothballing of gas import terminals, the revival of the US chemical industry, a fall in the price of farmers’ input costs (nitrogen fertiliser is made with natural gas) and the beginning of the conversion of some urban transport fleets to running on natural gas.
Oh, and by the way, with one exception in Wyoming, shale gas drilling has still not caused any verified cases of groundwater contamination. The environmental risks of gas are real but small compared with the documented impact that wind power has on eagles, bats, landscapes and pollution in Inner Mongolia (where the metals that go into their magnets are mined and refined), or that biofuels have on hunger and rainforest destruction.
Britain can get some of these benefits of the shale gas revolution whatever happens. We already have. Last Christmas, when all wind turbines stood helplessly still during the great freeze, three cargoes of liquefied natural gas heading for the United States from Qatar actually turned around and came to the Isle of Grain instead; that kept our boilers going, kept prices from rising faster than they did and in the long run staved off job losses.
Thus, if we were the only country – or part of the only continent – not to exploit the new resource of shale gas within our own borders, we might still get some of the indirect benefits. But we would also lose the revenues and the direct jobs that come with gas drilling. We would also lose competitiveness to countries with cheaper energy.
Back in 1800, Britain was becoming the richest country in the world with the fastest economic growth and the fastest job creation – the China of its day. That was not because we had suddenly become cleverer than everybody else at inventing things. It was because we had stumbled upon limitless, dense and above all cheap energy in the form of coal, and harnessed it to mechanise industry, cheaply amplifying the labour productivity of each person so much that he could be paid high wages.
That lesson – that cheap energy is an employment multiplier, while costly energy is an employment divider – has been forgotten. Please let us recall it before the green jobs myth causes more unemployment.
Matt Ridley is the author of The Rational Optimist. www.rationaloptimist.com
After just five years, shale gas provides more than a quarter of American gas