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The Innovation Issue

The Innovation Issue

The Magic Nexus team

Innovation plays an important role in policy-making, especially when it comes to the water-energy-food nexus. Sometimes, however, innovation cannot meet the needs of all sectors at the same time, causing various tradeoffs. For example, while desalination technology produces extra water for residential and industrial use, it also requires extra energy inputs. In such situations then, how can policymakers reconcile diverging policy goals? And how can decision-makers analyse and account for the possible adverse effects of certain policies in other areas, for example the effects of agricultural policy in the water and energy sectors?

In the MAGIC project we analyse the role of innovations in the policy-making process and in the emergence of “nexus policies”. In this issue, we invite you to take a look at some of our case studies and the core theoretical issues surrounding the role of innovations.

In our first article we analyze the classic energy-food nexus issue, bioenergy. While it may be seen as a policy solution towards meeting climate goals, bioenergy also increases demand for land, water and agricultural inputs. Land and water resources are already heavily exploited in Europe, both directly and indirectly. In the European Union an important proportion of biomass is imported (for example through animal feed). Upscaling bioenergy production would thus raise new sustainability concerns: would Europe have enough land and water to meet its bioenergy use? To what degree does Europe depend on biomass from outside the EU? Would sustainability in Europe come at the cost of sustainability elsewhere?

Our second article explores hydraulic fracturing for shale gas extraction (fracking). This technology exemplifies some of the major challenges of the water-energy nexus. From a bio-economics viewpoint, shale gas is only viable if gas prices are high, making it a risky investment. From a geopolitical standpoint, shale gas may help increase energy security in countries that depend on natural gas imports, thus reducing risk. This case study illustrates the difficulty of assessing technological innovations, amid political and economic complexity when contrasting judgements can be made.

The third article takes a deep dive into green bonds, an increasingly popular option to finance climate and sustainable development policies. However, this policy solution may raise more questions than answers. If nation states act as issuers of green bonds, new debt may be created. If nation states act as regulators, questions arise with regard to what constitutes “green”, especially in the context of the nexus in which different factors, and the interactions between them, must be taken into account.

The issue closes with a more theoretical discussion of the issue of trust in the use of innovations as a policy solution. Scientific research and innovation do not necessarily translate into clear policy solutions. Innovations should thus be assessed not only as a solution to a practical problem, but also with regard to social impacts, political interests, and power asymmetries. The current erosion of trust in policy solutions points to the need to take into account potential benefits and uncertainties alike.

 

Is Shale Gas Dead?

Is Shale Gas Dead?

Cristina Madrid-Lopez

It’s been a rough ride for the shale gas sector. The market boomed in 2008 shortly after natural gas prices reached USD $6 per million BTU ($/MMBTU). Then, lower gas-prices during 2014-2016 marked what many considered the beginning of the end of the shale gas extraction era – producers could hardly afford the high costs of horizontal drilling and hydraulic fracturing at a time when prices were close to USD $2/MMBTU. But then, as prices inched up in mid-2018 to USD $3/MMBTU, there was a mixed reaction. While shale gas enthusiasts regained optimism about the sector’s future and its potential contributions to energy policy objectives, critics were and still are skeptical of its potential due to the impacts and financial costs of extraction. With such uncertainty then, is there cause for optimism for shale gas, or is the market facing a bleak future?

Finding consensus on the answer to this question is going to be difficult because shale gas extraction is a component of what Stephenson has called “the fracking phenomenon”. In other words, “fracking” is a complex issue and as Roger Strand has put it, it is more useful to accept that some questions might not have one straight answer, but many valid ones. And that is fine.

Considering different answers as valid is not the same as falling into vague or “unscientific” methods. Analysts that follow the principles of Post-Normal Science (PNS) often use the same tools as other scientists and take into account factors other than facts, such as people’s perceptions and knowledge. Consequently, they do not look at quantitative results as an absolute truth but understand them as the final step of an analytical process influenced by a (mostly social) context.

 

The Bioeconomics view

Bioeconomics is a useful lens with which to understand the energy and material flows associated with a productive activity such as shale gas extraction. Figure 1 maps the productivity of all wells in Pennsylvania, US, at different ages where three main stages can be observed. During the early stage of drilling and fracturing, productivity increases. At the same time, the adverse impacts on water, air and land and the local population also increase. During the production phase, the well is capable of providing enough gas to recover production costs and the environmental impacts are usually minimal. Finally at the decay stage, gas production is too low to provide benefits and adverse impacts are usually the result of a lack of proper maintenance.

Figure 1: Average productivity and life stages of a shale gas well (from Madrid-Lopez, under review)

The point at which a well leaves the production stage and enters the decay stage is determined by the price of the gas. Clearly, once a well enters the decay stage, the gas company might prefer to plug it up and open another one, creating a more significant impact on land and water ecosystems. In a situation of lower gas prices, the production stage is minimized. The shale gas sector can only maintain a regular level of daily production if the number of wells (and their impacts) are increasing.

 

The Geopolitical view

When shale gas is saved for the times when gas prices are higher, however, the production of natural gas decreases, endangering the energy security of the producer. Wood Mackenzie reports that China’s shale gas extraction has doubled since 2016 and that, despite the relatively higher costs of shale gas development in China, the government’s commitment to the sector is grounded in energy security and geostrategic reasons. Since mid-2016 the sector’s productivity in the US has increased again, even when prices are close to USD $4/MMBTU which is about the average cost of production in the US. The Trump administration has heavily supported shale gas producers in Pennsylvania and other states, partly in order to fulfill local-development campaign promises that made Pennsylvania swing from a Democrat to a Republican majority state and partly to maintain a strong influence over the world energy market.

With Dutch natural gas reserves close to exhaustion and the international relations between Europe’s main gas provider, Russia, and the European Union in a critical moment, being a trade partner of Europe sounds like an appealing option for exporting countries. Consequently, despite low gas prices and high environmental and social impacts, governments might choose to promote shale gas development for strategic reasons.

 

Power relations and public participation

Power relations play an important role in defining political agendas and, consequently, what actions are taken. Trade-offs between global, national and local strategic policies are very important to determine the future of shale gas development. It can be argued that the high income states of New England in the US suffers from a global scale ‘NIMBY’ effect, meaning that they benefit from a regular and low-cost gas supply, while extraction has been banned in most of the state.

In order to ensure that the analysis that we are carrying out will provide answers to questions that are relevant for stakeholders, the obvious step is to involve them in the analysis. Traditionally, public participation is included in research either to gather information about a case study prior to the analysis or to gather feedback afterwards. In MAGIC, public participation is also included before the design of the analytical method. Thus, in the WP6 case study on shale gas we include a consultation to key actors in the European Commission.

 

Innovation to policy

Shale gas fracking can be viewed from different perspectives, as discussed here with framings from Bioeconomics or Geopolitics. What does this mean in terms of policy measures, and more broadly for the governance of innovations? The contribution of technological innovations to policy objectives is uncertain but can nevertheless be studied. Some have argued that having shale gas at hand will delay the energy transition to renewables. However, natural gas, due to its market-readiness and its potential for use in decentralized systems, has been proposed as an energy source that can contribute to achieving a Low Carbon Economy.

Shale gas development might not have the potential to make a major contribution to climate or energy policy. However, it has a high geopolitical value. It would be wise for Europeans to keep an eye on its mid-term development in the current scenario of fracturing diplomatic relations among the major external gas providers, which happen to coincide with the depletion and closure of one of Europe’s most productive gas fields, the Groningen field in the Netherlands.