To frack or not to frack? That is the question

  • New incentives for councils accommodating fracking firms, could mean a huge cash boost for the councils
  • But the industry faces significant opposition from campaigners and environmentalists
  • Councils must take a measured, risk-based approach to their options

Fracking is creating a political fault line in the UK. The controversial technique for tapping hard-to-reach oil and gas deposits, by injecting high-pressure water into rocks deep underground, has the potential to vastly increase home-produced fossil fuels.

But it is bitterly opposed by many campaign groups, who say it comes with serious environmental risks, will exacerbate climate change, and divert resources from renewable energy.

Until recently, this argument had been focused on Westminster. But the national debate went local in January 2014 when Prime Minister David Cameron set out to encourage all councils in the UK to join in with his “fracking revolution”, by offering big tax incentives for authorities that allow drilling.

These will mean that councils that allow oil and gas firms to operate in their area can keep 100% of the business rates from these operations – rather than 50% as before – on top of other local incentives already announced.

It’s a tempting offer and places many cash-strapped councils in a tough position.

“To me, it [100% business rates] muddies the water to give councils two contradictory roles,” Barbara Keeley, Labour MP for Worsley and Eccles South, which contains a possible fracking site, told The Guardian. “One is a protective role, to check companies have safeguards.

“On the other hand, you have a cash strapped authority that’s lost £100m off its budget, like ours, that gets offered this cash incentive in business rates. The public involved in this, who live near the site, how can they trust the local council will make the right decision on this?”

Considering the arguments

And reaching the “right decision” involves weighing up some big issues.

For example, opponents of fracking claim that, while there may be short-term revenue gains, the extraction process itself could cause long-term pain to the environment, including contamination of groundwater, air pollution, exposure to toxic chemicals, waste disposal issues and large-volume water use, to name a few of the potential risks.

These risks could manifest themselves into long-term problems, which may be a future burden on local authorities, not to mention potential civil unrest issues.

Friends of the Earth’s Tony Bosworth said: “Local communities aren’t being fooled by exaggerated claims about economic benefits and strong regulations, and they won’t be bought off by bribes from an increasingly desperate industry that’s rapidly losing the argument.”

Safety issues

However, advocates of the process claim that the technique is safe, and the benefits are clear to see from the example of the United States, where fracking has transformed oil and gas production.

“Fracking itself does not cause earthquakes, but fluid injection into pre-existing fault zones can cause localised slippage that can result in minor tremors, like a truck driving along the street,” says Ernest Rutter, Professor of Structural Geology at the University of Manchester.

“About 2.5 million fracking operations have been carried out worldwide since its first use in the 1940s; hardly any have caused tremors, and many people in the UK have lived for decades with minor but persistent coalmining-induced seismic activity. This is not a hazard.”

About 2.5 million fracking operations have been carried out worldwide since its first use in the 1940s

Ernest Rutter, Professor of Structural Geology at the University of Manchester

In addition, research for The Guardian Public Leaders Network found that fracking for shale and gas production has had positive financial effects for most local governments in the USA – though there are drawbacks too.

US tax incentives

Key to achieving overall benefit was the system of incentives in place. Unlike the UK, this varies across the USA: in some states, local authorities tax production directly; in others the state government collects taxes and then returns a percentage to local government.

So, by this measure, in allowing direct local taxation, the UK Government does seem to be offering local authorities a genuine financial benefit. Plus, there may also be potential revenue streams in leasing out public land to oil and gas firms.

However, there are also significant costs associated with fracking that would need to be costed into any analysis undertaken by local authorities, including the intensification of road use and surface damage through heavy plant traffic, as well as pressure on other services, particularly water.

Fracking requires huge, consistent amounts of water – up to 1 million gallons per ‘frack’ – and the National Farmers Union has expressed concern. It said: “The fracking industry does represent an additional water user which could increase water stress in times of shortages”.

While this can be planned for, there will be a cost, and to meet this renumeration it needs to be structured to ensure that delays don’t compromise council cash-flows; it may in fact be beneficial for local authorities to consider direct partnerships with oil and gas operators.

Take time to consider options

Clearly, this is a complex decision, involving multiple, vocal stakeholders.

But while the issue is clouded at present, with strong arguments on both sides, and seemingly contradictory analysis, with time the situation should clarify.

The only option for local authorities is to take a true risk-based approach rooted in local conditions, taking account of the best expert advice. They should also ensure that financial incentives do not override non-fiscal risks, which the communities they represent may ultimately rate as far more important.

Take your time. While an injection of cash is a huge temptation now, the oil and gas deep under your authority has been there for millennia and is not going anywhere without your agreement. Leave it there until you are confident you are making the best decision you can.