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Time to reset energy policy priorities in the UK

The UK's energy strategy needs a rethink as production falls

Conflicting policies are derailing its carbon reduction initiatives while government rhetoric has failed to convince the public it understands and empathises with environmental concerns over hydraulic fracturing (fracking).

UK energy production in is in doldrums while domestic consumption continues to rise. Domestic oil and gas output has fallen every year since 1999. In 2012 alone, the UK's oil production fell 14% year-on-year to 355 million barrels - a decline of almost 70% since 1999.

Gas strategy

The UK's Conservative-led coalition government sees gas- and nuclear-power generation as a way to meet the country's growing electricity demand. It is also pushing renewable energy, which made up around 4% of the country's energy mix last year. This is in keeping with pan-European carbon reduction targets set by the European Commission (EC). The EC wants to see a 20% cut in greenhouse gas emissions, from the 1990 level of 5.5bn tonnes, by 2020. In the same timeframe, it also wants to see Europe derive 20% of its energy from renewable sources, with a further 20% to be saved through efficiencies by the same date. 

However, the UK's gas production is declining. Gas output stood at 41bn cubic metres (cm) last year, down 40% over the past decade. The country is not importing more gas to offset this loss either.  In 2012, the UK used 30% less gas-fired power than the year before. Instead, coal is plugging the gap. Coal consumption jumped 32% last year alone to 39 million tonnes of oil equivalent. It now accounts for the lion's share of UK electricity generation, making up 39% of the total. 

This contradictory shift has been driven by high European gas prices and cheap coal imports, and is unlikely to change in the short term.

Bank of America Merrill Lynch said in a 24 July note that in the first six months of 2013, gas demand in the six largest European countries increased 3.2% year-on-year. This will keep European gas prices supported by a greater reliance on Russian imports that come at oil-indexed price levels, the bank said.

Despite soaring coal consumption and having ample remaining reserves, of 228m tonnes according to Cedigaz, the UK's domestic coal industry is on its knees.

There are now just two active deep coal mines in the UK, down from 170 in 1984, according to government figures. UK Coal, the country's main coal producer, went into administration in July following a fire in March which closed its Daw Mill deep mine, in Warwickshire.

Shale gas could provide a much-needed economic boost for the UK, as well as being the source of relatively cleaner energy compared to coal.

Despite the UK having vast shale-gas potential, and despite government support for unconventional exploration, public opinion remains deeply divided on the issue. 

Although some surveys suggest the public may be warming towards shale gas many remain unconvinced and there have been anti-fracking protests across the country in recent months. Francis Egan, the chief executive of shale explorer Cuadrilla Resources, has even received death threats from shale-gas opponents

The problem is that the debate over fracking in the UK centres on emotional concerns and anecdotal evidence rather than scientific fact.

Even the Church of England has become involved in the debate. The Diocese of Blackburn, in northwest England, has produced a leaflet telling local people in Lancashire that they must choose "between economic gain and a healthy environment".

Framing the debate as a choice between money or the countryside is reductive. It over-simplifies a complex subject and ignores the fact that public discussion of unconventional exploration needs to be done rationally, objectively, with as much scientific data and analysis as possible. Emotion has no place in the debate.

The church does raise the valid point that not enough research has been done into the environmental impact of extracting shale gas, such as possible fugitive methane emissions.

But the fact is, that when it's burned,  natural gas produces around half the carbon dioxide of coal, and at present the UK's coal consumption is at a seven-year high. The environmental consequences of not cutting coal consumption will be  catastrophic.   

The UK needs to set a higher carbon price and work towards developing commercial-scale carbon capture and storage facilities. Using low-carbon forms of energy, such as wind and solar power, could help to cut carbon emissions - but what we really need is a diversified energy mix.

Shale gas should be an important part of that diversified energy mix, but there is so much misinformation in the public domain that it is difficult to see that happening any time soon. Flippant comments from some members of the Conservative party - the senior partner in the UK's coalition government - haven't helped either. Lord Howell, Chancellor George Osborne's father-in-law, caused outrage recently by suggesting fracking should be concentrated in the "desolate" northeast of England.

Such careless remarks only enforce the perception that policy-makers based in the affluent south of England neither understand nor empathise with the concerns of the whole country.

Public opinion can shape investors' opinions of any emerging sector, despite government support and promises of tax breaks. Shell, for example, recently said it had had a lucky escape by avoiding investing in UK shale gas because of the negative public reaction to fracking and some unfavourable media coverage.

The energy sector is vital for the UK's economy - it accounts for 3.5% of GDP and around 10% of total investment in the country. Around 20% of the UK's existing electricity generation capacity will be shut down over the next 10 years as ageing power stations are taken offline. The government needs around £100bn ($155bn) of investment in electricity generation and transmission by 2020, double the current rate. The UK government must find a way to balance the country's energy needs with longer-term economic and environmental issues. If it doesn't, the UK will continue to lose badly-needed investment in the sector and the country's energy security will be put further at risk.  

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