What the frack?

I've generally tried to avoid involving myself in the fracking debate, particularly as questions about the future of this fledgling industry demanded a level of foresight that was entirely incompatible with my knowledge or the government's confusing and divided approach to energy policy. However, following publication of the 'once in a generation' energy bill, and the decision to lift restrictions on exploratory fracking, it would appear as if the way has been cleared for natural gas companies to invest and for me to venture an opinion. Many environmental campaigners have been dismayed by this apparent endorsement of Osborne's 'dash for gas,' but has the treasury really achieved the victory it wanted? From what I can see, there are still a couple of stumbling blocks before fracking can make a meaningful contribution to our energy mix.

Please note before I make any further comments that I'm not trying to deal with the ethical question of whether or not we should encourage fracking as something positive, or indeed whether it would even be a useful means of lowering energy prices or lowering emissions, I simply wish to highlight a few apparent inconsistencies at the heart of government policy. 

Unlike governments, which can plan in five-year election cycles, energy companies have to think in terms of decades-long investment projects, each of which can consume several billions of pounds. The upfront costs are often so large that it can be many years before a company can even think of turning a profit. As a result, before such important strategic decisions can be made, investors will want assurances that energy policy will not be radically altered by political whim or electoral upheaval. When we examine the framework laid down by the energy bill, these assurances are simply not in place.

For example, the lack of a 2030 decarbonisation target was acknowledged as a victory for Osborne and the fracking lobby, but the resulting compromise - a delay in the decision until 2015 - is hardly an outright win. In May of that year we can look forward to a general election. Given current polling, and Ed Milliband's vow to impose a 2030 target if Labour are elected, no company can be confident that the rules of the game will not be radically altered in three years time.

Moreover, the imposition of a decarbonisation target would pretty much make the use of carbon capture and storage (CCS) technology a requirement of all gas-fired power plants in the future. The problem is that not a single demonstration plant of this kind exists anywhere, in the world. This is not to suggest that CCS is a pipe-dream, just that it is extremely far from being rolled out on a commercial scale. The government is providing some funding as part of the new energy package, but not enough progress has been made, I would venture, to assuage the fears of investors who, quite understandably, don't want to deal with this extra expense themselves. 

I'd be interested to know the opinions of those who support fracking assiduously, but as the renewables industry can attest, an unclear policy pipeline is the last thing that investors in the energy business are looking for. In this bill, it is hard to see how the gas industry can look any further than the next three years. Given that a power plant has a lifespan of around forty years, decisions taken now could have very costly consequnces.