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Shale gas revolution could paralyse the energy transition

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The shale gas boom offers a cheaper, cleaner alternative to coal but risks stalling renewable energy growth. Without stricter climate policies, shale gas could indefinitely delay the path to net zero.

Image courtesy of interviewee. November 12, 2024

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This video discusses the impact of the shale gas revolution on energy pricing, renewable energy investments, and climate policy. Since 2008, natural gas prices in the U.S. have decreased significantly, leading to a virtuous cycle of increased profits for shale gas exploration and more innovations in gas production. However, this cheaper gas has begun to overshadow and displace renewable energy sources, like solar and wind, hindering investments and research in green technologies.

This video raises concerns that instead of facilitating the transition to renewable energy (which was expected with the use of natural gas), the shale gas boom may act as a barrier to achieving a low-carbon economy. The research indicates that unless there is a strong market commitment to transitioning away from fossil fuels, renewable energy investments may decline.

It also highlights differences between U.S. and EU climate policies, noting that the EU has a more robust and clear regulatory framework to support renewable energy investments, while the U.S. approach is more fragmented and less predictable.

Additionally, the text touches on the political influences of major natural resource revenues, suggesting that the profitability of natural gas may lead to lobbying against renewable energy initiatives and to maintaining fossil fuel revenues, resulting in a "triple whammy" that could further delay the energy transition. Overall, it emphasizes the necessity for strong climate policies to ensure a sustainable future.

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Here are five key points from the video:

1. **Impact of the Shale Gas Revolution:** The video discusses the downward trend in gas prices in the US since 2008 due to the shale gas revolution. However, it notes that these low prices have not influenced gas prices in Europe and Japan, highlighting significant transportation costs.

2. **Causal Relationship with Renewable Energy:** There is concern that the boom in shale gas production may negatively impact investments in renewable energy sources like solar and wind, suggesting that lower profits for renewable investors could lead to reduced research and innovation in green technologies.

3. **Energy Transition Challenges:** The expectation that renewables would become cheaper than fossil fuels and lead to an autonomous energy transition is questioned. The availability of cheap shale gas might hinder the transition by making it more economically viable than investing in renewables.

4. **Policy Differences Between Regions:** The video contrasts the EU's committed climate policies, characterized by a clear emissions allowance system, with the US's more fragmented approach. The EU's policy clarity is seen as a positive factor for renewable investment, while the US's uncertainty could deter investment in green technologies.

5. **Influence of Political and Economic Interests:** The video points out that political choices and the influence of natural resource revenue can impact energy policies and market dynamics. This creates a complex scenario where political lobbying may favor the continued reliance on fossil fuels, exacerbating the challenges of transitioning to a low-carbon economy.

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Here are some key quotes extracted from the video you , summarizing the main points and concepts discussed:

1. **Downward Trends in Gas Prices**: "We see in the energy data very clearly a downward trend in financial gas prices in the US since 2008... gas has very high transport costs, we don't see these low US prices spill over to Europe and Japan."

2. **Impact of the SHE Gas Revolution**: "That makes us wonder, is there a causal effect of the SHE gas revolution to decreasing green patterns?"

3. **Investments in Research**: "The basic economic idea is that innovators need to see possible future profits before they invest in research."

4. **Innovations and Cheaper Gas**: "The SHE gas boom has increased profits for SHE gas exploration enormously, inducing more research leading to more innovations to lower prices."

5. **Displacement of Renewables**: "Cheap gas... pushes out renewables such as solar and wind... reduces the profits of these renewable investors and then in turn reduces research into green innovation."

6. **Gas as a Barrier**: "What we risk is instead of gas being the enabler, gas may become actually the barrier."

7. **Decline in Investments**: "A paper... predicts an immediate and persistent decline in investments in both renewable capacity and innovation."

8. **Forecast for Energy Transition**: "We feared actually that SHE gas may remain cheaper than renewables, possibly... forever. So it may stall the energy transition rather than induce it."

9. **Need for Market Commitment**: "If the market knows that by 2030, 2035, or by 2050 we have to move out of fossil fuels, then the market would’ve invested also in green innovations irrespective of what happened to SHE gas."

10. **Policy Differences**: "The EU policy has been very committed to a climate-neutral economy... while the US has a series of measures... but there is no single clear regulation."

11. **Investment Certainty in Europe**: "If the EU policy succeeds... then for sure it makes sense in Europe to invest in renewables."

12. **Economic Influence and Lobbying**: "We are sadly moving from a double whammy to a triple whammy where the low cost for SHE gas actually induces policies not only..."

These quotes encapsulate the author's argument regarding the interplay between SHE gas pricing, investments in renewable energy, and the varying climate policies between the US and Europe.

X-TIMESTAMP-MAP=LOCAL:00:00:00.000,MPEGTS:90000

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We see in the energy data very clearly a downward trends,

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financial gas prices in the US since 2008.

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And that's the start of the shield gas revolution.

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And at the same time as,

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gas has very high transport costs,

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we don't see these low US prices spill

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over to Europe and Japan.

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Now, 2008 was also the price

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where we saw a spike in patterns, renewable green patterns,

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which went then also down after 2008.

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So we have these combined patterns of changing trends,

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for gas, gas production, energy gas prices going down,

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and the patterns of green patterns going down.

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That makes us wonder, is there a causal effect

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of the SHE gas revolution to decreasing green patterns?

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The basic economic idea is that in innovat needs

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to see possible future profits

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before they invest in research.

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Now, the SHE gas boom has increased profits

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for she gas exploration enormously does inducing more

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research leading to more innovations

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to lower prices, et cetera.

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This creates an virtuous cycle

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of cheaper gas, more innovations.

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But now the cheap gas also pushes out renewables such

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as solar and wind, as an energy source

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for power supply and dev.

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It's reduces the profits of these renewable investors

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and then in turn introduces the research

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into green innovation.

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And then we get that negative feedback, which is sort

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of a set pattern because keep in mind,

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natural gas was always sort of believed to be an,

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an essential part in the energy transition.

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We, we moved from coal to gas to renewables.

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We thought that gas was essential.

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And now what we risk is instead of gas being the enabler,

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gas may become actually the barrier to, there's a paper by

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as ion barian humus, and they predict an immediate

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and persistent decline in investments in both renewable

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capacity and innovation.

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So it's immediate, but it's persistent.

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So what this means is we thought initially we the

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researchers that in the near future coming decades,

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renewables would become more, were cheaper than fossil fuel.

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So the transition would be sort of autonomous.

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Now with cheap shell gas, we fear actually

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that shell gas may remain cheaper than renewables,

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possibly if you have bad luck from a

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climate perspective forever.

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So it may stall the energy transition rather than induce

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it coming back.

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That gas, is supposed to be an enabler.

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Um, so cheap gas could have been a blessing,

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but what we would've needed is, the market would need

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to have understood that there's a commitment towards

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energy transition.

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So if the market knows that by 20 30, 35,

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or by 2050 we have to move out of fossil fuels,

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then the market would've

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Invested also in green innovations irrespective of

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what happened to Shell Gas.

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So this positive commitment that there is our profits

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to be made with renewable energy,

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that is an essential characteristic of good climate policy.

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That's a better complicated comparison

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because we didn't have a she gas revolution.

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Um, so, but let me first focus on the policy differences.

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So there's an important difference here in that, the eu,

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policy has been very committed

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to a climate neutral economy.

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And importantly, they have chosen emission allowances

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as the basis of the policy.

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It's the core. So in India, there has been set up a quota,

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a tradable emission permit system with insurers for sure

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that emissions go down to zero long before 2015.

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Now, on the other hand, the US has also a very clear target

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for climate policy.

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For example, the power sector is, is targeted

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to be net zero at 2035.

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But instead of having one very clear regulation to achieve

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that, there are a whole series of measures

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that the government hopes will achieve this aim.

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So what this means is this, is

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that the EU policy investment is much more robust.

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The market knows if the EU policy succeeds to stick

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to its rules to the regulations, then

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for sure it makes sense in in Europe

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to invest in your renewables.

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In the US it remains a bit, well,

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it may remains sensitive to what may happen in the future,

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and we don't know that yet.

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And now, so I'd like to add to that, that, so economists

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so far have much looked into innovations

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and how market size shapes innovations

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and in turn, innovations then shape market size.

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But there's the third dimension,

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which is the political influence,

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political choices, the interests.

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And we also know from research that,

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large revenues associated with natural resources

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in Jews also lobbying over policies that actually

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increase the value of these RO resources.

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So I would say we are sadly moving from a double whammy

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to a triple whammy where, the low cost

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for shield gas actually induces policies not only

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to become more anti renewables, but also actually to try

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and explicitly keep,

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keep the revenues from fossil fuels, flowing.

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So, this is, this is of course,

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we don't know for sure what's happening in the future,

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00:05:38.985 --> 00:05:40.005
but this is very a.

Impact of Shale Gas on Renewable Energy Trends

00:00:00 - We see in the energy data very clearly a downward trends, financial gas prices in the US since 2008. And that's the start of the shield gas revolution. And at the same time as, gas has very high transport costs, we don't see these low US prices spill over to Europe and Japan. Now, 2008 was also the price where we saw a spike in patterns, renewable green patterns, which went then also down after 2008. So we have these combined patterns of changing trends,

00:00:35 - and the patterns of green patterns going down. That makes us wonder, is there a causal effect of the SHE gas revolution to decreasing green patterns? The basic economic idea is that in innovat needs to see possible future profits before they invest in research. Now, the SHE gas boom has increased profits for she gas exploration enormously does inducing more research leading to more innovations to lower prices, et cetera.

00:01:04 - of cheaper gas, more innovations. But now the cheap gas also pushes out renewables such as solar and wind, as an energy source for power supply and dev. It's reduces the profits of these renewable investors and then in turn introduces the research into green innovation. And then we get that negative feedback, which is sort of a set pattern because keep in mind, natural gas was always sort of believed to be an,

Gas: From Enabler to Barrier in Energy Transition

00:01:35 - We, we moved from coal to gas to renewables. We thought that gas was essential. And now what we risk is instead of gas being the enabler, gas may become actually the barrier to, there's a paper by as ion barian humus, and they predict an immediate and persistent decline in investments in both renewable capacity and innovation. So it's immediate, but it's persistent. So what this means is we thought initially we the

00:02:09 - renewables would become more, were cheaper than fossil fuel. So the transition would be sort of autonomous. Now with cheap shell gas, we fear actually that shell gas may remain cheaper than renewables, possibly if you have bad luck from a climate perspective forever. So it may stall the energy transition rather than induce it coming back. That gas, is supposed to be an enabler. so cheap gas could have been a blessing,

00:02:44 - to have understood that there's a commitment towards energy transition. So if the market knows that by 20 30, 35, or by 2050 we have to move out of fossil fuels, then the market would've Invested also in green innovations irrespective of what happened to Shell Gas. So this positive commitment that there is our profits to be made with renewable energy, that is an essential characteristic of good climate policy.

Comparative Climate Policies: EU vs. US

00:03:13 - because we didn't have a she gas revolution. so, but let me first focus on the policy differences. So there's an important difference here in that, the eu, policy has been very committed to a climate neutral economy. And importantly, they have chosen emission allowances as the basis of the policy. It's the core. So in India, there has been set up a quota, a tradable emission permit system with insurers for sure

00:03:48 - Now, on the other hand, the US has also a very clear target for climate policy. For example, the power sector is, is targeted to be net zero at 2035. But instead of having one very clear regulation to achieve that, there are a whole series of measures that the government hopes will achieve this aim. So what this means is this, is

00:04:16 - The market knows if the EU policy succeeds to stick to its rules to the regulations, then for sure it makes sense in in Europe to invest in your renewables. In the US it remains a bit, well, it may remains sensitive to what may happen in the future, and we don't know that yet. And now, so I'd like to add to that, that, so economists so far have much looked into innovations and how market size shapes innovations and in turn, innovations then shape market size.

Political Influence and Economic Dynamics of Natural Resources

00:04:49 - which is the political influence, political choices, the interests. And we also know from research that, large revenues associated with natural resources in Jews also lobbying over policies that actually increase the value of these RO resources. So I would say we are sadly moving from a double whammy to a triple whammy where, the low cost for shield gas actually induces policies not only

00:05:38 - and explicitly keep, keep the revenues from fossil fuels, flowing. So, this is, this is of course, we don't know for sure what's happening in the future, but this is very a.

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