Cambridge University Study Calls for Increased Taxation of Fracking Companies

A new study from the University of Cambridge has suggested that any companies attempting to frack for shale gas in the UK should be forced to pay £6 billion a year by the mid 2020's in extra taxes that will compensate for the damage to the environment caused by the sectors activities.

The government has already laid out guidelines that require companies such as Cuadrilla Resources and IGas will pay communities local to their wells and fracking operations in order to compensate for the inconvenience, but Chris Hope, a special advisor to parliament and a reader in policy modelling at the Judge Business School in Cambridge, claims that these companies should also be charged for their contribution to climate change.

"Shale gas will contribute to climate change in two ways, from carbon dioxide emissions when the gas is burned, and from the fugitive emissions of underground methane that leak into the atmosphere when the gas is extracted."

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Hope states that the cost of carbon produced when oil and gas is burned has been well studied and is calculated at $100 per tonne of CO2. The cost of methane is less well known, but due to the fact that it is a much more potent greenhouse gas, Hope claims that the best estimate is $1,200 per tonne.

Using these figures, Hope estimated a fair tax to be levied against the industry. "Under the Institute of Directors' central production estimate and with a central methane leakage rate of 2%, the tax revenues for the UK will be about £6bn per year in current prices by the time shale really gets going in the latter half of the 2020s."

He believes that creating the tax now would help any fracking companies thinking of operating in the UK to calculate their total costs, rather than be faced with additional charges in the future for environmental damage they have caused.

"Many prospects that initially look promising will turn out not to be worth pursuing once these taxes are factored into the equation. The better, cheaper prospects where fugitive emissions can be minimised will be favoured."

By. Joao Peixe of Oilprice.com