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“The world will not be destroyed by those who do evil, but by those who watch them without doing anything.”
— Albert Einstein
A debate in the United Kingdom about developing new oil reserves in the North Sea brings the uncertain economics of new petroleum development into greater focus.
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The Macro
The United Kingdom and its newest prime minister, Andy Burnham, are locked in a divisive debate about whether to develop the Rosebank and Jackdaw oil and gas fields in the North Sea.
Burnham took over as PM only in July, and while there is no shortage of high-profile, high-impact decisions he has to make, the Rosebank-Jackdaw decision could significantly determine the fate of the Labour government.
In short, giving the go-ahead to private companies to develop the two massive oil and gas reserves would, in the opinion of proponents, create hundreds of new jobs and billions of dollars in government revenues.
Adura, one of those companies involved in a bid to drill in the North Sea, claims the two projects would add $55 billion in gross value to the U.K. economy over its estimated 25-year lifespan, on top of billions of additional dollars in government revenue and returns on private investment.
That’s a compelling argument in favour of drilling. It is, however, a one-sided analysis of the gross value of the project.
Fortunately, a group of economists at Imperial College London have stepped forward to provide some modelling on the net value of the projects.
According to an analysis by Luke Hatton, an engineer and PhD researcher at Imperial College of London, the net costs of new oil and gas development in the North Sea would be enormous, easily outpacing the estimated economic benefits.
“The numbers presented here show there’s going to be a very strong destruction of [economic] value above and beyond what Rosebank and Jackdaw could generate for the U.K.,” Hatton told The Guardian newspaper.
Hatton’s research calculated future economic damage from the carbon pollution — the proponents estimate it would add 250 million tonnes of carbon to the U.K.’s carbon footprint — ranged from $225 billion to $635 billion in lost economic activity.
This number is likely low, given the calculations do not fully consider the impact of extreme heat, increased sea-level flooding or climate-related deaths.
Although the debate over Rosebank and Jackdaw is unique in a number of ways, it does closely parallel the debate in Canada over plans to build new pipelines to ship Alberta bitumen to foreign markets.
To date, unfortunately, there hasn’t been an analysis of net economic impacts of new Canadian pipelines.
Proponents, including Alberta Premier Danielle Smith, continue to promote the idea wars in the Middle East position Canada to become a much bigger source of oil and gas for countries all over the world.
And the pipelines — at least one additional route to the west coast and a less-defined route through to Ontario — would make Canada less dependent on selling oil and gas to the United States.
As for the net impact of increased oil and gas production on climate and the economy, there is a generally accepted argument among opponents of the project that lost economic activity from extreme weather (floods, wildfires, extreme heat) would outpace the government revenues and economic activity from building new pipelines and then ramping up oil and gas production to fill them.
In other words, there have been few efforts to put a specific figure on the net economic impact of increased oil and gas production.
There have been quite a few eloquent analyses about the questionable economics of investing more taxpayer money in bumping up fossil fuel production at a time when government is already having trouble keeping up with the economic costs of climate change and the need for taxpayer investment in oil and gas projects.
Perhaps a study that put a figure on the net costs of increased oil and gas production would sway voters and governments to take a different approach. But then again, it might not.
The most rabid proponents of the pipelines can only see short-term economic benefits, some of which are substantial. But they are only short-term.
Without a change in policy, the long-term prospects will be unconscionably hot and smoky.
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