Should'a gone fracking to beat fuel poverty

The Guardian tells us that the nation will be plunged into fuel poverty:

Two-thirds of all UK households will be trapped in fuel poverty by January with planned government support leaving even middle-income households struggling to pay their bills, according to research.

It shows 18 million families, the equivalent of 45 million people, will be left trying to make ends meet after further predicted rises in the energy price cap in October and January.

An estimated 86.4% of pensioner couples are expected to fall into fuel poverty, traditionally defined as when energy costs exceed 10% of a household’s net income, and 90.4% of lone parents with two or more children.

We do like that “traditionally” there. For the definition of fuel poverty is something rather new. The level of heating that is meant is vastly above what was normal even in the lifetimes of us old folk here. Efficient central heating only became a British commonplace in the 1980s after all. That the common even middle class experience of the 1970s as regards heating is now regarded as poverty is a sign of how far we’ve come. We all expect those linen shirts today as it were. To bludgeon the point, that you are defined as poor today for not having what only the rich used to have - a heated whole house - is evidence of considerable advance in living standards.

But it’s also interesting to ponder how we should - should have perhaps - deal with this. Ryan Bourne tells us that the carbon tax is the way to go. Indeed so, for what that does is operate as a filter on things that should be done and things that shouldn’t.

The economist William Nordhaus laid out the basics of climate change economics in a speech to accept his 2018 Nobel prize. Carbon emissions generate an “externality”, he explained, as households and firms consuming or producing carbon do not account for the social costs of global warming. The best response, he said, would be to estimate these global costs and account for them by adding a uniform carbon price to reflect the damage of all incremental emissions. We could call it “a carbon tax”.

The Stern Review says much the same thing. Take that Stern valuation of those externalities - $80 a tonne CO2. Call that, between friends and at current exchange rates, €80 a tonne.

Ireland’s tax is €7.41 per MWhr of natural gas at a tax rate of some €40 per tonne CO2. So double that to gain the Stern rate - €15 per MWhr. The European price of gas is currently €226 per MWhr.

The point about the tax is to put the costs into prices. If, having paid those costs, the activity is still value additive then we should go ahead and do it. For our task is to maximise human utility over time. All those dastardly things we do to the future are in that tax. The benefits of doing it are here and now. The tax also stops us doing the things that are not value additive, which detract from human utility over time.

So, would fracking for natural gas produce fuel which would be value additive? The other way of putting this is could fracked gas carry a tax of €15 per MWhr and still be value additive at a market price of €226 per MWhr? The answer is obviously and clearly yes. Therefore we should have gone fracking for gas, still should go fracking for gas.

Of course, the truly evil thing we’ve done here is agree with every single one of the assumptions made by the climate change crowd and still proven that fracking is the right thing to be doing. They’ll not forgive us for that, obviously. But it is true all the same.

The science of climate change says that we should be fracking for gas. However much anyone wants to deny it ‘tis true.