Green Energy Policies Under Gas Attack

on Jul 30, 2012

The gas versus wind spat that went public earlier this month between the UK’s Treasury and its Department of Energy & Climate Change (DECC) – and between respective ministers Osborne and Davey – revealed a rift in the country’s supposed commitment to climate change abatement. And a weakening of resolve as regards Britain’s increasingly optimistic target of a 20% shift to green energy by 2020, just eight short years away.

Beyond the Treasury’s attack on DECC’s Electricity Market Reform (EMR) paper – and specifically the Treasury insistence on an ascendancy of gas over wind in the years ahead – lies a bigger picture. It’s one of growing resistance amongst conservative politicians and the incumbent energy industry to investment in what for them are still largely unproven alternative energy sources. According to this viewpoint, wind and solar are all very well but until someone invents a practical and cost-effective way of storing the electricity they generate, they are destined to remain marginal players. Unlike natural gas: tried and true, much less carbon-intensive than oil, and quite possibly a game-changer if fracking is embraced in the UK.

!m[](/uploads/story/213/thumbs/pic1_inline.png)And it’s not just in the UK that cracks are appearing in the presumptive primacy of climate change mitigation in energy policy. Take Germany – since the Fukushima nuclear debacle in Japan’s March 2011 earthquake and tsunami, the Germans have decided to be done with nuclear. The plan is that in a decade from now, all nuclear plants will have been shut and the 15-20 percent of the country’s energy they supply will be coming from somewhere else. Given the country’s commitment to EU climate change mitigation, gas is being trumpeted because its greenhouse gas credentials are excellent relative to oil and other fossils, with natural gas having around 70 percent of the CO2 emission of oil – 50 percent of coal’s. But the fact is that coal, which Germany has in abundance, is a lot cheaper. According to recent data from Reuters, a coal-fired power station makes €16 (£12.50) per megawatt/hour more on its electricity than a gas-fired equivalent.

In principle, emissions trading should see coal being priced out of the market but it’s not happening in Germany or indeed elsewhere in the EU. Carbon is currently trading at under €7/tonne on the EU ETS but Reuters research suggests it would need to reach €35 to compel industry to switch from coal to gas.
Conversely – or perhaps perversely – in the United States coal is losing ground to gas. In Kentucky the US’s major coal-mining state, the giant Big Sandy power plant – operated by American Electric Power (AEP) – caused a furore recently by indicating its intention to switch from coal to gas. As reported in the NY Times, the coal state’s congressman Rocky Adkins bailed up AEP’s chairman Michael Morris and thundered, “Have you lost your mind?” But the fact is that in the US gas is supplied into electricity generation at well under the cost of coal.

The explanation is fracking, the force-feeding of shale rock with a liquid emulsion at pressures high enough to fracture the rock and allow escape and collection of natural gas deposits. Shale gas now accounts for nearly 30 percent of US domestic gas consumption and its seemingly unlimited availability has seen the price of natural gas tumble over the past decade. According to the United States Natural Gas Fund, LP (UNG), which aims to track the spot price of natural gas, the 2011 price was 42 percent down on 2010.

The point here is that, whilst natural gas is also fossil and thus emits carbon (also methane in the fracking process), its abundance and price is plainly suppressing the green initiative in the world’s greatest polluter. Today, the loudest calls in Washington DC and in the populist media are very similar to those emanating from the UK’s Treasury and its Chancellor of the Exchequer – energy investment should be in products which deliver, in terms of affordable and sufficient supplies and of jobs. This is natural gas and it seems that the ‘Age of Gas’ is dawning.


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