Based on the polluter-pays principle, researchers from Cambridge University argue that fracking companies should pay up to 6 billion British pounds per year to compensate for future climate change.
Chris Hope, from the Cambridge Judge Business School at Cambridge University, readily acknowledges the dangers of fracking: minor earthquakes, contamination of water sources and industrialisation of the countryside.
He also unequivocally asserts that shale gas will contribute to climate change in two ways: “From carbon dioxide emissions when the gas is burnt, and from the fugitive emissions of underground methane that leak into the atmosphere as the gas is extracted.”
But rather than oppose fracking outright, Hope proposes a middle ground: Companies producing shale gas should pay for the environmental damage shale gas will bring upon future generations through its contribution to climate change. And interestingly enough, he believes that the price might be high enough so as to make fracking significantly less profitable.
He believes that for every tonne of carbon dioxide emitted when the shale gas is burned, the company producing it should pay the amount by which it increases the impacts of climate change. This is commonly referred to as the social cost of carbon. The same should be done for methane. Using an assessment model, he calculates that the social cost of carbon is a little more than US$100 per tonne of carbon dioxide. While less is known about the social cost of methane, his best estimate is that it costs a little over US$1,500 per tonne.
Put into practice, every company involved in shale gas exploration and production would know from the start that they would have to pay a tax equivalent to the social cost on each tonne of carbon dioxide emitted, and another equivalent to the cost of each tonne of methane escaping from their wells. In Hope’s opinion, many shale gas prospects that initially look promising will turn out not be worth pursuing once these taxes are factored into the calculation. And as the social cost of carbon and methane increases in real terms, fewer and fewer shale gas prospects will be attractive as time goes by.