Study: US Can Profit from Unconventionals While Protecting Environment
Contrary to popular belief, the United States can capture the full economic benefits of unconventional gas and oil while also substantially addressing local environmental impacts and making major strides toward a lower-carbon energy system. But stakeholders must let go of the misconceptions, historic rivalries, and distrust that have led to zero-sum mindsets and slow progress, according to a recent report from Harvard Business School (HBS) and The Boston Consulting Group (BCG).
The report, America’s Unconventional Energy Opportunity, offers a comprehensive plan to overcoming the “false trade-offs between reaping the enormous economic benefits of developing unconventional gas and oil, minimizing environmental impacts, and making major progress towards reduced greenhouse gas emissions.”
U.S. unconventional oil and gas development, which has eliminated the need for natural gas imports and reestablished the United States as the world’s second largest oil producer for the first time since 1991, offers the United States the largest single opportunity to change the nation’s competitiveness and economic trajectory over the next two decades, but also its geopolitical standing, according to the report. This opportunity comes as the United States seeks to overcome the erosion of its economy, which began even before the Great Recession.
Unconventional energy development has contributed more than $430 billion to the United States’ annual gross domestic product, and supported more than 2.7 million jobs that, on average, pay twice the median U.S. salary, from exploration and production to supporting industries and local services. By contrast, the U.S. economy since 2005 has only added 4.9 million new jobs.
However, a real risk exists that American citizens, companies and communities will fail to capitalize on this historic opportunity because of misunderstanding and mistrust, said Harvard Business School professor Michael E. Porter, a report co-author and co-chair of the school’s multi-year U.S. Competitiveness Project, in a June 11 press statement.
Report Seeks to Lay Out All Facts on Unconventional Energy
The findings of the report are based on an extensive review of existing studies, new primary research, and interviews conducted across all stakeholder groups. Previous studies have examined the positive economic opportunities presented by unconventional energy; this new research involved a comprehensive assessment of the potential economic gains across the economy.
The report came from a project established by HBS and BCG and recognizing the economic potential for U.S. unconventional energy. HBS and BCG sought to put a more comprehensive set of facts on the table not just from one advocacy group, but producers, regulators, and environmental groups, said David S. Gee, a study co-author, BCG partner, and North America leader of BCG’s energy practice, in an interview with Rigzone.
Unconventional development has been credited with the United States’ potentially achieving energy independence, as well as creating a renaissance in U.S. manufacturing. In spite of the benefits of unconventional development, public support for hydraulic fracturing has waned and expanded development, threatened due to legitimate concerns on how unconventionals affect climate change and widespread confusion over the facts. Late last year, New York Gov. Andrew Cuomo’s administration said they would ban hydraulic fracturing statewide even though southern New York has excellent potential for cheap and plentiful gas resources. Other communities across the United States, including Texas, have implemented bans on hydraulic fracturing. Officials in Denton, Texas – which passed a ban late last year – will keep the ban on their books for now.
By 2030, the development of unconventional gas and oil could achieve significant results, such as supporting 3.8 million jobs with wages twice the national average, average annual energy savings per household of $1,070 from low-cost natural gas, and nearly $600 billion in annual contributions to the United States’ gross domestic product and $160 billion in government tax revenue from production-related activities alone. This also will have ripple effects in energy-intensive industries such as plastics, metals and heavy manufacturing.
The report outlines 11 action steps – involving all stakeholders – to guide the development of unconventional resources. These steps include:
- Continuing timely development of efficient energy infrastructure
- Deliver a skilled workforce for critical growth industries
- Eliminate outdated restrictions to oil and gas exports
- Develop transparent and consistent environmental performance data
- Set robust regulatory standards to address environmental risks
- Achieve universal regulatory compliance
- Strengthen bodies driving continuous environmental improvement
- Contain methane leakage with regulatory standards and voluntary reductions
- Set climate policies that encourage cost-effective emissions reductions
- Foster clean-energy technologies through industry and government research and development
- Build out a smart, efficient energy grid
“The lack of trust and productive solutions-based dialogue among stakeholders has created gridlock and put America on a path that is not in anyone’s interests,” the report authors said. “We see many stakeholders talking past each other and too few efforts to synthesize and find common ground. That has created unnecessary risks for our energy development, future U.S. competitiveness, and the trajectory of the overall U.S. economy.”
US Economic Performance Eroding
Over the past five years, HBS already had been examining ways to understand what caused the erosion in the United States’ fundamental competitiveness in economic performance through the U.S. Competitiveness Project. This erosion started well before the Great Recession and subsequent slow recovery.
While highly skilled individuals, large international companies, and some high-tech startups are doing well, middle and lower-class Americans have seen slow job growth and stagnating wages. Small businesses are creating fewer jobs, and more are closing than opening.
“Although the U.S. is doing relatively better recently than other advanced nations, such as in Western Europe and Japan, U.S. economic performance by many indicators is worse that we have experienced in generations,” the report authors said.
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