Screw company profits: This is Energy Capitalism

Screw company profits. This is capitalism! On the pages of the Wall Street Journal there were a couple recent articles demonstrating opposite business success stories. a) First mover advantage – is an advantage in energy technology; and b) first mover advantage – is not an advantage in energy technology. So what is the right answer? Well, since I’m by training a neo-Marxist economic-political Geographer, my perspective is slightly different than everyone else’s. But the verdict in an energy system, that relies heavily on a free market – and competition (no matter how distorted), then boom and bust for companies may actually be good for the Earth, society and the first movers who foresee the collapse. 

The argument can logically be made, that through effective and clear economic and energy policies, that a predictable investment environment should be established that fosters technological innovation. This perspective runs through much of my analysis of how to defuse climate change. However, in the harsh world of Capitalism, we know that firms will seek that first mover advantage and/or in the game for competition – and to win. Therefore, flattening out the peaks and troughs of government and industry price points, means lowering the incentive for some companies (think gas peaker plants, used only when electricity demand is super high and the temperature is 100 degrees). On the other hand, it would also mean less wasted resources in the tight world of energy R&D. Well, as a consumer, do I really care what company produces my solar panels? I want it cheap, just like my toys, computer and clothes. And that means – MADE IN CHINA. Or, efficiently produced in the US/EU (pick your developed country).

We can talk about technology bubbles and even oil and gas bubbles, but there are benefits for companies to race as a herd in one direction, with price being a central component to winning. As demonstrated by the company that produces highly efficient public LED street lighting – if you can tie together innovation and the price of your component, then there is a winning formula there. And as the WSJ article on the lack of a first mover advantage states, ” Rather, they will likely be companies with the scale to compete on price and absorb the inevitable cyclical losses that afflict most manufacturing industries prone to bouts of oversupply.” Thus innovate and get it right – when you and the industry are small… but be prepared to massively scale up and slash the cost quickly to survive over the long term – particularly when government subsidies are lowered. Now, that is Energy Capitalism for you.


Shale gas arises in France and Bulgaria

The once solid bans on fracking technology to extract shale gas in Bulgaria and France are weakening. Both countries have established committees to examine the technology and practices throughout the EU. The Bulgarian parliament has established an ad-hoc committee to examine EU practices, while the French Government will examine the technology and regulations. The closer look at the technology is not an indication of weakening environmental protection, rather it acknowledges the role shale gas can play in each country’s energy mix.

Exclusion of fracking technology only weakens a countries energy security. Gas deposits represent an effective source for domestic energy security. Just as gas storage and network interconnectors ballooned to a key security of supply concern after the 2009 Russian-Ukraine gas dispute, shale gas is emerging as another tool in the box of energy security.  In the EU, the contribution domestically tapped shale gas will be limited in each country, so there is no panacea of independence being held in the ground; however, it is not mana we are looking for in the ground – just a little bit for boosting energy security levels, which in a time of crisis can make a significant difference.

Domestically sourced shale gas, provides two elements for security of supply. It provides another source of gas, thus reducing foreign dependence and used as a bargaining chip to reduce pricing of Russian gas. It also boosts overall energy security. Therefore, ignoring the role that shale gas plays in a country’s energy supply is not in the interests of politicians. Gas pricing is an annual concern of politicians. Also, if a crisis occurs, there will be calls as to why shale gas was not explored and possibly exploited in the past. Providing the right regulatory and business environment becomes an action of self-preservation for smart politicians. Objections of environmentalists can be addressed for the wider public. Politicians will be able to cite other extraction and regulatory practices in other countries to demonstrate the safety of using the technology in their own backyard.

Fracking technology is not in or out in Europe. Most commentators have adjusted and are getting it right. There will be shale gas in Europe, although at mixed levels in different EU countries. It will only be a game changer in so-far that it contributes to overall energy security – at the same level as other diversified energy sourcing. Through an effective regulatory regime shale gas emerges as a useful technology to meet Europe’s growing appetite for a lower carbon fuel. As the extraction technology becomes cleaner, more transparent, and proven, older objections will drop away, and shale gas will emerge as a solid technology.