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a blog from young economists at Nova SBE

There is a “Hydra” in hydraulic fracking

In Greek mythology the Lernaean Hydra was reptile-like monster that possessed multiple heads and had a poisonous breath. When a single head was decapitated it grew two new ones in its place and hence became an even bigger threat. Eventually Hercules who cauterised the stumps after decapitating it to prevent regeneration defeated it. A game-theoretic approach to the problem of the Learnaean Hydra without a Hercules would yield “don’t even try to chop off one of its heads” as a dominant strategy to not further increase its power.

Hydraulic fracking is a controversial yet widely used technique designed to recover gas and oil from shale rock. The underlying processes rely on the use and injection of various chemicals into the soil and come at partly unknown costs to the environment during the regular exploitation process and accidents. Hydraulic fracking’s “poisonous breath” is constituted of air pollution, water contamination, exposure to radioactive and other carcinogenic chemicals and in rare cases even seismic activity. Albeit the mentioned possible threats the full scope of consequences is still unknown and there exist more than 2.7 million fracking sites as of 2013.

In this light the Scottish government issued a moratorium on hydraulic fracking quoting the Scottish Minister for Energy “the ban would last however long it took to carry out a full public consultation on the extraction of shale gas and research into its impact on the environment and public health”.

We support the moratorium as allowing further exploitation using hydraulic fracking draws an imperfect analogy to the ancient Hydra as the number of exploitations sites/wells will continuously grow at unknown and not quantifiable consequences. Therefore as the gametheoretic solution to the ancient Hydra, fracking should not be touched until a modern Hercules in the form of scientists and engineers arises to set bounds to it. Before possible externalities are not fully quantifiable and/or risks associated with fracking are minimized by introducing more developed processes it shall be left untouched.

The drastic measure of completely banning hydraulic fracking is supportable as both global externalities as leakage of gas and other particles to the atmosphere constitute a global environmental problem and local externalities as flaming kitchen faucets and groundwater contamination are known but costs associated with those externalities not yet fully quantifiable. As we lack information about damage and abatement costs other common tools used in environmental economics as taxes on emissions, the introduction of a cap-and-trade system or simply by enforcing the property rights of those suffering the externalities are doomed to fail. With this massive lack of information a tax-solution would most likely not be cost-efficient.

#685 and #692

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Author: studentnovasbe

Master student in Nova Sbe

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