fracking boom and coal bust

In 1981, an independent Texas natural gas producer named George Mitchell realized that his shallow gas wells in the Barnett gas fields of Texas were running dry. He had sunk millions into his operation and was looking for a way to generate more return. Mitchell was then a relatively small player in an industry that by its own reckoning was in decline. Conventional gas reserves were limited and were getting increasingly played out.

As he considered how he might save his operation, Mitchell turned his attention to shale. Oil and gas producers had been drilling shale since the 19th century, but mostly they drilled right through it to get to limestone and other formations.

When we interviewed him several years ago, Dan Jarvey, a consultant to Mitchell at the time, told us, “When you look at a [gas drilling] log from the 1930s or 1950s or 1970s it is noted as a ‘gas kick’ or ‘shale gas kick.’ Most categorized it as ‘It’s just a shale gas kick’ – as in, ‘to be expected, but to be ignored.’”

As Mitchell embarked on his 20-year quest to crack the shale gas code, most of his colleagues in the gas industry thought he was crazy. But Mitchell persisted and his efforts would ultimately culminate in today’s natural gas revolution.

In doing so, Mitchell upended longstanding assumptions about the future of energy. Just a few years ago, the convention wisdom was that no source of electricity could be cheaper than coal. Today, in the United States, natural gas is cheaper.

As a result, coal’s share of electricity generation went from over 50 percent in 2005 to less than 40 percent today. While global coal use continues to rise, the United States is at present leaving much of our coal in the ground. Meanwhile, estimates of recoverable natural gas reserves in the United States have nearly doubled, growing from 200 trillion cubic feet in 2005 to 350 trillion cubic feet today.

Leaving coal in the ground has been the longstanding goal for those of us concerned about global warming. Natural gas emits 45 percent less carbon. In large part due to the glut of natural gas, US carbon dioxide emissions have declined more than in any other country in the world between 2008 and 2012 — falling 12 percent to their lowest level since 1994.1

I begin today with Mitchell and the gas revolution, because as we pull back from the specifics of this story, we begin to see several very important lessons about energy, the environment, and the economy.

Energy Transitions Are Good for Environment

Let’s begin with energy transitions. We tend to think of fossil energy as being environmentally destructive. But that hasn’t always been the case. The first major energy transition that human civilizations went through was the shift from biomass to fossil energy.

Until just a few hundred years ago, basically all of the energy to power human societies came from biomass. Wood and dung for heating and cooking. Animal fat for lighting. Animal labor, requiring massive amounts of pasture land, for most motive power. The environmental impacts were enormous. Three quarters of all deforestation globally occurred before the beginning of the industrial revolution.

In 1870, prior to the development of gasoline and the internal combustion engine, New York, then a city of 800,000 people, was buried under the manure of 150,000 horses. A city filled with horse drawn carriages sounds quaint today but it was a major public health problem at the time.

One estimate from the 1890s projected that, at current rates of growth, horse droppings would reach the level of Manhattan’s third story windows by 1930. Feeding America’s horse population also required by another estimate about 5 acres per horse, an area the size of West Virginia, on top of the land needed to feed the human population.

Even today, about 3 billion people globally still rely on biomass for heating and cooking. Indoor air pollution, resulting from using wood and dung for heating and cooking, results in over 4 million premature deaths annually, and over 50 percent of deaths among children under five years of age are due to indoor air pollution.

So before we move on to talking about when and how we should move away from fossil energy, we should first take a moment to recognize that in many contexts, and periods in the past, fossil energy has been enormously beneficial for the environment and for human health.

Now, from virtually the moment we started using fossil fuels on a wide scale, we started moving toward fuels that burned cleaner. That happened in a number of ways and for a number of reasons.

First and foremost, we found ways to burn the fuels we had more efficiently. The efficiency of a steam turbine, for instance, has improved a hundredfold over the last three hundred years.

We also moved to fuels that were denser and cleaner burning. With each transition, from wood to coal to oil to gas, we have moved to fuels that burned cleaner, providing greater thermal output in relation to the pollution they created.

Our economies also became cleaner and more efficient overall because they became much more diversified. Agriculture and manufacturing are very energy intensive economic sectors. But there is ultimately only so much food that people can eat and so much stuff with which we can fill our homes and businesses.

So for economies to continue to grow, manufacturing and agriculture had to become relatively smaller shares of our economy, which is why, today, knowledge and services dominate economic output in all modern economies. The result has been that the energy intensity of our economies, the amount of energy in for each unit of economic output, has declined over time, as more of our economic output has come from sectors of the economy that are less energy intensive.

Mostly we moved to cleaner burning fuels and more efficient technologies to convert those fuels into useful energy for purely economic reasons. Cleaner fuels and more efficient energy conversion technologies allowed us to do more useful things at lower cost than the fuels and technologies they replaced.

But particularly as we became wealthier, we also placed higher priority on human health and the environment. For these reasons we took measures to clean up our fuels and energy technologies, even if it cost us something to do so.

The first air pollution regulations date not to the 1970s, but to 1845 when Britain required that railway engines consume their own smoke.

All of the mechanisms that I have just described – moving to cleaner, more useful fuels; using fuels more efficiently; moving from agrarian to industrial and then to postindustrial economies; and dedicating a rising percentage of our economic surplus to better environmental and public health outcomes – are fundamental processes of modernization.

Today, America is wealthier, our population is healthier, and our environment is cleaner than it was during the Industrial Revolution due to these processes.

As we have used energy ever more efficiently, moved to cleaner burning fuels, and taken measures to clean up our environment, our economy has grown and diversified. The same technological innovations that liberated virtually all Americans first from lives of hard agricultural labor and then from the sweatshop factories of the Industrial Revolution have also allowed us to produce more economic output with less environmental harm.

As we consider how we might continue and even accelerate these processes, it is important that we keep this context in mind. Efforts to protect the environment that are predicated upon policies and technologies that lower energy productivity, move from higher density to lower density fuels and technologies, and raise the cost of energy will not only negatively impact the economy, but are likely also to have negative environmental impacts.

Obama EPA’s Carbon Rules

That brings me to my next theme, which is that technological innovation is the key to both a cleaner environment and a stronger economy. Environmental regulation has an important role, a theme I will return to in a moment, but if the last several decades have made anything clear, it is that we are not going to regulate our way to a clean energy or low-carbon economy.

The key to cleaning up our air, protecting our landscapes, and reducing carbon emissions is developing and commercializing energy technologies that are better, cheaper, and cleaner than the technologies we have today.

The Obama administration’s just proposed regulation of carbon dioxide emissions offers an excellent illustration of why this is so. There has been a lot of hype about this proposal from both proponents and opponents of the proposed regulation, with supporters claiming that the regulations represent dramatic action by the administration to reduce emissions and opponents claiming the new regulations represent a “War on Coal.”

Let me suggest that neither claim is correct. What the new regulations mostly do is codify a transition from coal to gas that was already well under way. Even with no new regulations, the US Energy Information Agency was forecasting that no new coal-powered electrical generation would be built over the next several decades, a view that is widely held within the electric utility industry as well. Thanks to cheap gas and existing conventional air pollution regulations, EIA also projected that many older coal plants would be retired over that time period as well.

Projections of this nature are always a dicey business. Nobody a decade ago, least of all EIA, anticipated that the United States would be awash in abundant natural gas today.

Still, it is hard to see the new rules dramatically changing the electricity generation landscape from what it would have been otherwise. With or without new EPA carbon dioxide regulations, we are going to burn a lot more gas and a lot less coal over the next several decades. The real war on coal is being waged by cheap natural gas, not the EPA.

To give you a sense of the degree to which the current effort to regulate carbon dioxide emissions is a product of the natural gas revolution, consider that the gas revolution is literally responsible for the economic circumstances that have made regulating carbon dioxide emissions from coal power plants legally viable.

The law requires that the standard for emissions regulations is the best available, economically viable pollution control technology. Traditionally, that meant the best scrubber of one sort or another that could be affixed to a smoke stack to capture whatever pollutant was being regulated. But in the case of carbon dioxide, carbon capture remains an expensive and unproven proposition. So for the current proposed regulations, the EPA designated a combined-cycle natural gas plant as the best available technology.

These proposed EPA regulations are not the exception. Technological innovation, and the availability of cheaper, cleaner substitutes is often what makes regulatory actions both possible politically and successful in their implementation. We struggled for the better part of two decades to reach an international agreement to phase out ozone depleting chloro-flourocarbons. It wasn’t until the mid-1980s that Dupont developed a cheap substitute. Within just a couple of years, an international agreement was in place.

We also hear a lot about how the cap-and-trade program to reduce pollution that causes acid rain turned out to be much cheaper than anyone anticipated. But the reason had little to do with the emissions trading program. During the decade prior to the passage of the acid rain amendments to the Clean Air Act in 1990, scrubber technology improved dramatically and, thanks to new railway links, low-sulfur coal from the western United States became available in the industrial Midwest and on the east coast.

Tech Innovation Requires Government Role

That brings me to the next lesson from the shale gas revolution: the question of where good environmental technologies come from. George Mitchell is deservedly lauded as the father of the shale gas revolution. He was a visionary entrepreneur. He spent two decades figuring out how to do something that few believed could possibly succeed. But he didn’t do it all on his own.

A few years ago, my colleagues and I began looking into the origins of the shale revolution. We interviewed most of the key players who worked on the effort at Mitchell Energy. And what they all told us was that Mitchell received critical technical and financial assistance from both the Department of Energy and the Gas Research Institute, which was a publicly funded partnership between DOE and the gas industry.

Mitchell relied heavily on work done by the Eastern Gas Shales Project, which was started by President Ford in 1976. As he began experimenting with how to get gas out of the Barnett shale, a geophysicist who worked with Mitchell at the time recalled telling him that, “It looks similar to the Devonian [shale back east], and the government’s done all this work on the Devonian.” This was the work of the Eastern Gas Shales Project.

The Shales Project was just one of several aggressive government-led efforts to accelerate technology innovation to increase oil and gas production. Already in 1974 the Bureau of Mines was funding the study of underground fracture formations, enhanced recovery of oil through fluid injection, and the recovery of oil from tar sands. One year later, the government funded the first massive hydofracking at test sites in California, Wyoming, and West Virginia, as well as “directionally deviated well-drilling techniquesfor both oil and gas drilling.

The mandate from Congress was for government scientists and engineers to hire private contractors rather than do the work in-house. This was consistent with the tradition of the Bureau of Mines, which would set up trailers around the country to support oil, coal, and gas entrepreneurs.

This strategy contrasted with the government’s nuclear energy R&D work, which had been hierarchical since its birth in the military’s Manhattan Project. This decentralization proved wise, as it ensured that the information would rapidly reach entrepreneurs in the field and not gather dust inside of a federal bureaucracy.

From early on, Mitchell and his team relied heavily on information coming out of the Eastern Gas Shales project. “We were all reading the DOE papers trying to figure out what the DOE had found in the Eastern Gas Shales,” Mitchell geologist Dan Steward told us, “and it wasn’t until 1986 that we concluded that we don’t have open fractures, and that we were making production out of tight shales.”

Through the 1980s, Mitchell didn’t want to ask the government or the Gas Research Institute for help because he worried that he wouldn’t be able to take full advantage of the investment he was making in innovation.

But by the early 1990s Mitchell had concluded that he needed the government’s help, and turned to DOE and the publicly funded Gas Research Institute for technical assistance. The Gas Research Institute, which had worked with other industry partners to demonstrate the first horizontal fracks, subsidized Mitchell’s first horizontal well. Sandia National Labs provided high-tech underground mapping and supercomputers and a team to help Mitchell interpret the results. Mitchell’s twenty-year quest was also made possible by a $10 billion, 20 year federal tax credit to subsidize unconventional gas, which was too expensive and risky for most private firms to experiment with otherwise.

Though the collaboration between Mitchell and the government was one of the most fruitful public-private partnerships in American history, it was mostly unknown until we started interviewing the key players involved. And that points to another important lesson from the gas revolution. In these intensely polarized times, when it seems that almost everyone imagines that either government or corporations are the enemy, it seems impossible to imagine that the two might actually work together to further the public interest.

But the shale gas revolution is hardly the exception. Public-private collaboration of this sort has long played a critical role in creating our national wealth. While economists have long recognized that innovation is responsible for most of our economic growth, few realize that many of our world-changing innovations would have been unlikely to occur without government support. A short list of recognizable technological innovations includes interchangeable parts, computers, the Internet, jet engines, nuclear power, and pretty much every other major energy technology developed over the last 70 years.

Consider the Information Revolution. The government funded the R&D and bought 80 percent of the first microchips. The Internet started out as a federally funded program to connect networks of government computers. Every major technology in your iPhone can be traced back to major government research and development programs, mostly within the Department of Defense.

While interviewing the participants of the shale gas revolution, we were struck by how much respect and deference each side gave to the other. In many cases the government scientists and engineers acted as consultants to private firms like Mitchell’s. “We never forgot who the customer was,” said Alex Crawley, who ran the DOE’s fossil innovation program for many years.

Climate Pragmatism is Tech Innovation & Reasonable Regulations

As a young environmentalist, I was taught to be suspicious of such cozy relationships between industry and government workers, that government could not simultaneously promote industry while also attempting to regulate it. But when it comes to technology innovation, those cozy relationships, and the revolving door between government agencies, whether DOD or DOE, and private companies like Mitchell Energy, are absolutely essential to allowing knowledge to rapidly spill over and flow throughout the economy.

But while this kind of collaborative relationship between industry and government is extremely important, there is also an important role for regulation, not only to protect the public from accidents and environmental degradation, but also to improve technologies and promote better practices throughout the industry. Wise regulation in the long run promotes, rather than hinders the spread of new technologies and new industries, and this has never been more true than in the case of fracking. While US gas production has taken off, many European nations banned fracking for fear of the local environmental impacts and have started to return to burning coal.

Not long before he passed away last summer, George Mitchell teamed up with New York Mayor Michael Bloomberg to fund a large effort by the states to establish better fracking practices. They called for stronger control of methane leaks and other air pollution, the disclosure of chemicals used in fracking, optimizing rules for well construction, minimizing water use and properly disposing of waste water, and reducing the impact of gas on communities, roads, and the environment.

You would be hard pressed to find very many Americans who would call those reforms unreasonable. They are the kinds of things that many in the environmental community and the natural gas industry ought to be able to find agreement on. And indeed, states like Colorado, and environmental groups like the Environmental Defense Fund, deserve credit for bringing regulators and the gas industry together to improve practices. By squarely addressing the methane leakage problem, and reducing the local environmental impacts, government and industry can go a long way towards minimizing resistance to expanded natural gas production.

The same basic dynamic is true with regard to coal production. Carbon capture and storage has been more a talking point than a serious strategy for the coal industry for many years. But if the industry wants to assure a future for itself in what may, sooner or later, be a carbon constrained world, then getting serious about both demonstrating carbon capture technology and finding an incremental regulatory pathway to carbon capture – essentially rising performance standards for coal fired power plants – will be critical for the future of the industry.

Ecomodernism, Not Environmentalism

Before I conclude my remarks, I want to say a few words about climate change. Monday’s EPA announcement will no doubt stoke the fires of the climate science wars once again. This debate continues to prove immensely satisfying to partisans on both sides. It also has very little to do with whether or not nations take practical action to reduce their emissions.

I want to suggest to you today that the insistence from some that climate change is a hoax has perversely had precisely the opposite effect that many on both sides of the debate imagine. Far from having obstructed the effort to take effective action to address climate change, climate science skepticism is the only thing that has kept the environmental movement’s impossible climate agenda relevant. It is the gift that keeps on giving for the environmental Left, allowing them to chalk the movement’s failures up to ignorance and the nefarious conspiracies of the fossil fuel industry.

In reality, climate science is not telling us we must tax carbon, or put in place a massive new federal carbon regulatory agenda, or put the United Nations in charge of the global energy economy. The environmental climate agenda has failed on its own terms pretty much everywhere it has been implemented. There is no evidence that Europe’s cap-and-trade program has had a significant impact on emissions. Nor is there significant evidence that heavy public support for renewables has resulting in declining emissions. That’s because the history of energy transitions suggests that moving to diffuse, intermittent energy sources, and seeking to increase the price of energy is not a recipe for either a prosperous economy or a healthy environment.

In fact, there is good reason to think that climate skeptics and conservatives, insofar as they tend to be much more supportive of natural gas and nuclear energy, support a far more plausible pathway to a low emission future than does the environmental movement.

Only two modern economies have ever achieved emissions reductions consistent with achieving climate mitigation goals, France and Sweden. Both did so through large scale deployment of nuclear energy. In addition to the United States over the last decade, Great Britain also achieved deep reductions in emissions by moving from coal to gas in the 1980s and 1990s.

One need not be particularly concerned about climate change to support efforts to increase our utilization of these technologies. The long term process of decarbonization, moving from fuels that are dirtier, more diffuse, and less reliable to fuels that are cleaner, denser, and more useful economically has been strongly correlated with rising prosperity, better human health, and a cleaner environment all over the world. A serious effort to align climate efforts with these broader public objectives would be one that might find strong support across the political spectrum.

The contrast between the United States, where public support for technological innovation has driven the shift from coal to gas, and green icon Germany, where poorly conceived energy and environmental policies are driving a shift from nuclear and gas back to coal burning, should make our priorities clear. Policies that help us move up the energy ladder, always toward energy technologies that are cleaner, cheaper, and more useful, whether that involves public private partnerships to support energy technology innovation or reasonable regulations to require best practices, should be our priority for energy and environmental policy.

As we look toward the future of our energy system, our environment, and our economy, we should commit ourselves to the larger effort of constantly improving our technological creations. A clean, healthy, and prosperous future requires not a break from the past but an acceleration of the processes that have, over many centuries, allowed us to support many billions of people, leading increasingly prosperous lives, with relatively less impact on the environment. If our footprint, in absolute terms is still rising, in relative terms, meaning on a per capita basis, it is beginning to peak, as both population growth and economic growth slow when people achieve modern living standards and as our technologies become increasingly clean and resource efficient. By committing to accelerating these processes, meaning economic and ecological modernization, we have the opportunity to update the concept of sustainability for the 21st century.

In closing, I want to thank Governor Herbert and the State of Utah for bringing me here today. Utah is known as the Beehive State, a symbol of industry and perseverance for people who turned a harsh and unforgiving desert into a prosperous land of abundance.

But the hive also represents something else. It is a symbol of a shared clarity of purpose and a collective investment of labor toward the greater social good. Our contemporary energy and environmental debates, like so much else about our contemporary politics often seem purposefully designed to increase polarization and thwart all efforts toward finding a shared national purpose.

The Environmental Left demands a fundamental break from the past and, often, the very processes of modernization while the libertarian Right attempts to rewrite history, imagining that our prosperity is the residue of nothing other than market competition and individual entrepreneurial endeavor.

As an ecomodernist, I come here today to urge you to reject both of these stories about our past and our future. Virtually all of us today live more prosperous lives than did our grandparents or great-grandparents, requiring less of our natural capital, because of shared investments in technology and infrastructure and wise laws to assure that those technologies serve the purposes we intend.

Assuring a prosperous and ecologically vibrant future demands that we play those investments forward, not retreat from them as so many on both sides of our ideological divide demand.