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Unconventional Energy Sources: Lessons from the US? Christopher R. Knittel Director, Center for Energy and Environmental Policy Research and William Barton Rogers Professor of Energy, Sloan School of Management, MIT http://mit.edu/ceepr Goal of my presentation • Would like to discuss four things • Fracking has completely transformed US natural gas and oil industry • Fracking has led to substantial local economic growth • Uncertain climate change implications of this • • Underscores our amazing ability to find and use fossil fuels US fracking experience underscores the need for a coordinate global policy http://mit.edu/ceepr Fracking: The perfect storm http://mit.edu/ceepr Why the US? • • • • • High oil and natural gas prices Strong property rights associated with land owners Access to water (probably too much access) Existing oil and natural gas industry Favorable geology http://mit.edu/ceepr Benefits to local economies? http://mit.edu/ceepr Benefits to local economies? • Recent research (Bartik, Greenstone, and Knittel) estimates the local economic benefits • • We use a unique empirical strategy using geology to mimic a “natural experiment” Bottom line, we observe: • • • • Increases in county-level hydrocarbon production of $400M Increases income of 5%, 6% increase in employment No impact on net governmental revenues Main result: 6% increase in housing values http://mit.edu/ceepr Example of our empirical strategy http://mit.edu/ceepr Benefits to climate? http://mit.edu/ceepr Implications for climate change: 3 Effects • • • First, the relative price of natural gas (lower CO2) and oil/coal (higher CO2) falls • This leads to the previous figure---a shift from coal to natural gas • In the longer run, a shift from oil to natural gas Second, the relative price of natural gas (higher CO2) and renewables (lower CO2) falls • This slows the transition to renewables • Also, reduces R&D in renewables • Reduces the appetite for renewable subsidies Third, the relative price of coal and other generation methods falls outside of the US http://mit.edu/ceepr More US NG = More US coal exports 6 Million Tons of Coal Exports 120 5 100 4 80 3 60 2 40 1 20 0 Million Tons of Coal Exports (Country-specific) 140 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total (Million Tons) 2011 2012 2013 2014 Germany http://mit.edu/ceepr More US NG = More US coal exports 12 Million Tons of Coal Exports 120 10 100 8 80 6 60 4 40 2 20 0 Million Tons of Coal Exports (Country-specific) 140 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total (Million Tons) China Germany 2011 2012 2013 2014 India http://mit.edu/ceepr More US NG = More US coal exports 12 Million Tons of Coal Exports 120 10 100 8 80 6 60 4 40 2 20 0 Million Tons of Coal Exports (Country-specific) 140 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total (Million Tons) China Germany 2011 Chile 2012 2013 2014 India http://mit.edu/ceepr The need for coordinated policy • • • The US experience with shale gas underscores the need for global policy Much of the discussion has been about increases in US exports of natural gas • We are likely to see these exports increase But, there is an easier way to export our “natural gas” • Export our BTUs as coal instead • US Coal exports have fallen since their peak in 2012 • • A real transition from natural gas to coal requires other countries not increasing their coal use This is where coordination is key http://mit.edu/ceepr 200 1600 180 160 1400 140 1200 Oil Reserve Growth Rate: 4.6% per year since 1950 2.7% per year since 1980 1000 120 100 800 Gas Reserve Growth Rate: 2.9% per year 600 80 60 400 40 200 20 Oil Reserves (Billion bbls.) 2013 2010 2007 2004 2001 1998 1995 1992 1989 1986 1983 1980 1977 1974 1971 1968 1965 1962 1959 1956 0 1953 0 Proven Natural Gas Reserves (Trillion m3) 1800 1950 Proven Oil Reserves (Billion bbls.) The world is awash in hydrocarbons Natural Gas Reserves (Trillion M3) Source: Covert, Greenstone, Knittel. “Will we ever stop using fossil fuels?”, 2015 http://mit.edu/ceepr Compiled from BP Statistical Review of World Energy, various years And, let’s not forget about all of the coal http://mit.edu/ceepr Constant battle between demand and technological progress http://mit.edu/ceepr Wrapping up • • • Two main policy points: 1. There is a lot of talk about zero-carbon technologies taking over • The cost of solar, wind, EVs, etc. are indeed falling • BUT, there is also technological progress for hydrocarbons • Climate change policy must realize this 2. Technological advances in one country, absent coordinated policy, will lead to an increase in hydrocarbon consumption • For cheap gas to be good for the climate, we must leave the coal in the ground http://mit.edu/ceepr How important is this? Total&Temperature&Increase&from&Reserves&and&Resources:& 16.1°F Total&Temperature&Increase&from&&&&&&& In9Place&Deposits:&1.5°F&to&6.2°F http://mit.edu/ceepr