This is the wrong way to decide Rosebank and Jackdaw
A certain amount of currying up is going on:
The UK’s North Sea oil industry has made a last-ditch attempt to curry favour with the Labour government by appealing to Andy Burnham’s reindustrialisation agenda just days before he is expected to become Britain’s next prime minister.
Industry lobbyists have written to more than 400 Labour MPs to call on the government’s new leaders to allow more oil and gas drilling in UK waters to support homegrown energy and show “a commitment to UK manufacturing, industrial capability and the skilled workforce that has powered the nation for generations”.
That’s the wrong way to make a decision. This is even worse:
Ed Miliband wants to approve drilling in the North Sea to calm market jitters about his possible appointment as chancellor and prove he is no net zero “zealot”.
The Energy Secretary has privately signalled his willingness to grant consent for drilling at the Jackdaw gas field but cannot publicly confirm the move until a consultation closes next month.
The correct manner is very simple. Drilling both Rosebank and Jackdaw will have some benefits. Both will, equally, have some costs for there are benefits and costs to everything. Jointly this is a £50 billion decision according to claims about GVA and so on.
OK, one of those costs is the emissions that will come from the use of the production. No, let us not start with but there is no climate change and all that. Not even that if we don’t use this material then we’ll just use some other. They’ve a head of steam up here and it is our duty to describe the efficient and fair manner of dealing with their concerns. So, as all us sentient beings have been saying this past couple of decades, stick on the carbon tax and leave the market to take the decision.
We desire that things which increase human utility over time happen, those that do not not to. Those emissions are a cost, perhaps, so $80/tonne CO2-e at the wellhead and we’re done. If there is still a surplus value even after paying for all those damages then drilling these fields is utility adding to humans over time. So, we should do it. If not, then not.
That’s it, that’s the decision making method that should be used. Add the carbon tax then leave the market to sort through it all.
Instead - and we admit that this is a rumour, the chitchat of the inner circle - the decision seems to hinge upon whether a politician wishes to change the office from which he gets to shout at civil servants. This is why politics is the bad way of making these decisions and simple Pigou taxation plus markets the good. At least the second method is rational.
A £50 billion decision hingeing upon the job prospects of Ed Miliband? Come along now folks, we all know there’s got to be a better method than that.
Tim Worstall