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RICHARD SCHMALENSEE:
For those of you

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00:00:26,470 --> 00:00:28,870
who don't read The Times
back to front every day,

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00:00:28,870 --> 00:00:31,960
there was a terrific
section that

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00:00:31,960 --> 00:00:35,230
relates to today's lecture.

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00:00:35,230 --> 00:00:37,990
It didn't give me nice
cases as Don's did,

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00:00:37,990 --> 00:00:44,230
but the headline captures a lot
of what goes on in the section,

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00:00:44,230 --> 00:00:46,090
and a lot of what
we'll talk about today.

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00:00:46,090 --> 00:00:48,470
The headline is, "Fuel to burn--

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00:00:48,470 --> 00:00:50,260
now what?"

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00:00:50,260 --> 00:00:53,710
So I'm going to talk about
shale and its implications,

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00:00:53,710 --> 00:00:56,260
and what it's done to
the energy universe

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00:00:56,260 --> 00:00:58,370
in the last couple of years.

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00:00:58,370 --> 00:01:01,390
But first, I've got
some unfinished business

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00:01:01,390 --> 00:01:04,330
from last time, a couple of
questions I didn't answer.

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00:01:04,330 --> 00:01:06,400
Prosper asked whether
anybody was still

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00:01:06,400 --> 00:01:10,630
making coal gas in the
old-fashioned, manufactured

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00:01:10,630 --> 00:01:14,590
gas, town gas, heat it
and use the results style.

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00:01:14,590 --> 00:01:16,370
And I couldn't find anybody.

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00:01:16,370 --> 00:01:17,380
I looked around.

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00:01:17,380 --> 00:01:19,810
I did the usual kind
of web crawling.

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00:01:19,810 --> 00:01:24,940
But what I did find is a lot of
people that have made and are

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00:01:24,940 --> 00:01:28,410
making gas from wood.

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00:01:28,410 --> 00:01:31,530
This is a reactor
being sold by a company

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00:01:31,530 --> 00:01:35,400
in South Africa that's sold
it to a number of locations--

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00:01:35,400 --> 00:01:39,280
wood pellets to make gas,
sometimes for a vehicle,

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00:01:39,280 --> 00:01:46,050
sometimes for use in gas mains.

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00:01:46,050 --> 00:01:47,970
And this one, this
is from Wikipedia,

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00:01:47,970 --> 00:01:50,130
but I couldn't resist it--
this is a North Korean

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00:01:50,130 --> 00:01:53,730
wood-powered truck.

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00:01:53,730 --> 00:01:56,340
But if you browse
around, there are

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00:01:56,340 --> 00:02:00,360
a lot of examples during
World War II where

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00:02:00,360 --> 00:02:03,510
these reactors were put on
cars that were then converted

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00:02:03,510 --> 00:02:06,300
to run on wood because
you couldn't get gasoline

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00:02:06,300 --> 00:02:08,400
in continental Europe
in World War II.

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00:02:08,400 --> 00:02:10,050
So it's not a novel technology.

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00:02:10,050 --> 00:02:13,930
It's not your first-choice
technology for vehicles,

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00:02:13,930 --> 00:02:16,950
but in places that have a lot
of wood and not much else,

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00:02:16,950 --> 00:02:20,850
it apparently is an interesting
and used technology.

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00:02:20,850 --> 00:02:22,470
There are plenty of vendors.

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00:02:22,470 --> 00:02:23,920
There plenty of examples.

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00:02:23,920 --> 00:02:26,370
So wood gasification-- but
I couldn't find anybody

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00:02:26,370 --> 00:02:29,290
who's doing coal commercially.

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00:02:29,290 --> 00:02:33,060
So that's unfinished item one.

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00:02:33,060 --> 00:02:37,260
Unfinished item two was CO2
emissions. [? Siddhartha ?]

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00:02:37,260 --> 00:02:42,900
asked about how fossil fuels
compare, and I kind of mumbled,

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00:02:42,900 --> 00:02:44,160
you will recall.

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00:02:44,160 --> 00:02:47,280
It turns out if you think
about it a little bit

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00:02:47,280 --> 00:02:50,430
beyond the mumble stage,
it's not a simple question.

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00:02:50,430 --> 00:02:54,120
You can do emissions per BTU.

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00:02:54,120 --> 00:02:55,260
You burn the stuff.

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00:02:55,260 --> 00:02:58,080
What do you get per BTU?

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00:02:58,080 --> 00:03:00,090
And that's the
carbon-hydrogen mix

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00:03:00,090 --> 00:03:03,520
in the fuel, which
varies slightly.

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00:03:03,520 --> 00:03:10,260
So you see coal has about
75% more emissions per BTU

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00:03:10,260 --> 00:03:11,520
than natural gas.

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00:03:11,520 --> 00:03:16,830
And petroleum-based fuels
are somewhere in between.

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00:03:16,830 --> 00:03:20,550
But of course, you don't
buy fuels for BTUs.

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00:03:20,550 --> 00:03:24,870
You buy fuels for some
purpose, some energy service.

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00:03:24,870 --> 00:03:27,150
You will recall, we don't
actually, most of us,

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00:03:27,150 --> 00:03:29,310
live for BTUs alone.

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00:03:29,310 --> 00:03:31,860
So home heating-- that
would be a good comparison,

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00:03:31,860 --> 00:03:33,570
but suppose you want
to do electricity.

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00:03:33,570 --> 00:03:37,170
Well, then you have to think
about how efficiently you

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00:03:37,170 --> 00:03:39,420
can use them in electricity.

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00:03:39,420 --> 00:03:44,340
You'll note that a gas
combined cycle plant is

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00:03:44,340 --> 00:03:49,320
more efficient than a
traditional coal/steam turbine

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00:03:49,320 --> 00:03:50,700
plant.

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00:03:50,700 --> 00:03:53,910
So that means in terms
of per kilowatt hour,

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00:03:53,910 --> 00:03:58,060
the advantage to
gas over coal grows.

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00:03:58,060 --> 00:04:00,550
And you think about
gas-powered automobiles

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00:04:00,550 --> 00:04:03,280
versus gasoline-powered
automobiles-- again,

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00:04:03,280 --> 00:04:06,070
there's a difference
in engine efficiency.

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00:04:06,070 --> 00:04:11,140
But even that, you've got
to think about the emissions

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00:04:11,140 --> 00:04:14,230
in producing it if you want
to do this kind of comparison.

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00:04:14,230 --> 00:04:16,959
And I haven't really
seen a good study

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00:04:16,959 --> 00:04:19,839
that lets you get to
that third level--

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00:04:19,839 --> 00:04:21,980
so good question.

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00:04:21,980 --> 00:04:26,440
Easy answer here, somewhat
easier answer, somewhat harder

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00:04:26,440 --> 00:04:27,280
answer here.

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00:04:27,280 --> 00:04:30,190
Can't answer that.

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00:04:30,190 --> 00:04:32,620
Any questions or comments
on either of these first two

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00:04:32,620 --> 00:04:33,120
topics?

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00:04:35,940 --> 00:04:40,450
OK, let me go to shale.

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00:04:40,450 --> 00:04:45,460
So the new technology
that really has changed--

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00:04:45,460 --> 00:04:47,910
but it isn't a new technology.

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00:04:47,910 --> 00:04:49,850
So let me be a little
bit clear about that.

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00:04:49,850 --> 00:04:55,120
But this is horizontal drilling
and hydraulic cracking,

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00:04:55,120 --> 00:04:56,960
called fracking.

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00:04:56,960 --> 00:05:00,860
So there are sort
of two pieces to it.

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00:05:00,860 --> 00:05:05,270
One is the ability to
drill deep into shale.

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00:05:05,270 --> 00:05:10,540
This little example shows
shale 7,000 feet deep,

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00:05:10,540 --> 00:05:12,280
in this case, the Marcellus.

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00:05:12,280 --> 00:05:16,390
I think this is from the
PennEnvironment thing.

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00:05:16,390 --> 00:05:19,690
And to do horizontal drilling--
horizontal drilling is not that

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00:05:19,690 --> 00:05:22,660
new, but it's relatively new--

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00:05:22,660 --> 00:05:28,870
and then to put down fluid,
which I'll talk about in a bit,

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00:05:28,870 --> 00:05:33,220
under pressure to make
cracks in the shale, which

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00:05:33,220 --> 00:05:40,900
permits gas and/or oil to
come back into the pipe.

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00:05:40,900 --> 00:05:47,410
Fracking, if you just drill
down and crack horizontally,

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00:05:47,410 --> 00:05:49,450
has been done for a long time.

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00:05:49,450 --> 00:05:50,920
Horizontal drilling
has been done

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00:05:50,920 --> 00:05:52,450
for a relatively long time.

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00:05:52,450 --> 00:05:57,550
Putting the two pieces together
has had a revolutionary impact.

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00:05:57,550 --> 00:05:59,350
I caution you,
"The Times" repeats

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00:05:59,350 --> 00:06:02,410
what the president said in his
State of the Union message,

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00:06:02,410 --> 00:06:06,850
which is, DOE started
all of this in the '80s.

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00:06:06,850 --> 00:06:09,460
This drives people in
the industry crazy.

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00:06:09,460 --> 00:06:12,460
They say, DOE invested a
few dollars in the '80s,

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00:06:12,460 --> 00:06:15,880
and then a whole bunch
of little US companies

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00:06:15,880 --> 00:06:19,900
have invested a lot since then
to actually make this work.

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00:06:19,900 --> 00:06:24,920
So big firms like Exxon did
not have this technology.

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00:06:24,920 --> 00:06:27,470
They're busy buying small firms.

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00:06:27,470 --> 00:06:30,340
Does this sound like a familiar
story from Don's discussion?

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00:06:30,340 --> 00:06:34,510
I mean, little guys experimented
and experimented and got it

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00:06:34,510 --> 00:06:36,140
to work.

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00:06:36,140 --> 00:06:38,170
So most of this fluid--

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00:06:38,170 --> 00:06:41,680
and we'll come back to
this-- is water and sand,

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00:06:41,680 --> 00:06:44,030
but there's other stuff.

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00:06:44,030 --> 00:06:47,980
And what other stuff varies
from producer to producer,

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00:06:47,980 --> 00:06:51,050
and is the source of a
good deal of controversy.

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00:06:51,050 --> 00:06:52,720
But it's mostly water and sand.

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00:06:52,720 --> 00:06:57,250
And what this does is it makes
it economical to extract gas

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00:06:57,250 --> 00:07:04,250
and oil from 7,000, 10,000-foot
underground shale deposits.

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00:07:04,250 --> 00:07:08,750
Now, it's not just that
it's possible-- it's cheap.

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00:07:08,750 --> 00:07:11,810
And cheap is the story.

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00:07:11,810 --> 00:07:14,960
Now, there's shale
around the world.

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00:07:14,960 --> 00:07:19,430
This is what one
installation looks like.

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00:07:19,430 --> 00:07:22,130
This would be called the "pad."

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00:07:22,130 --> 00:07:26,120
And what normally happens
is you drill multiple wells

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00:07:26,120 --> 00:07:27,950
from a single pad.

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00:07:27,950 --> 00:07:29,990
So they might go
underground this direction,

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00:07:29,990 --> 00:07:31,670
and this direction,
and whatever.

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00:07:31,670 --> 00:07:36,170
So you cover an area with
multiple wells from a pad.

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00:07:36,170 --> 00:07:40,220
When you pump the water down
under pressure, it comes back--

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00:07:40,220 --> 00:07:41,420
there's a shock.

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00:07:41,420 --> 00:07:44,900
And it comes back not only
with the stuff you put down,

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00:07:44,900 --> 00:07:47,210
but with stuff it picks up--

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00:07:47,210 --> 00:07:50,330
various underground minerals,
and chemicals, and occasionally

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00:07:50,330 --> 00:07:52,940
something's radioactive
or something's toxic.

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00:07:52,940 --> 00:07:56,240
It is then typically,
I assume, piped--

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00:07:56,240 --> 00:07:57,440
although I don't see pipes.

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00:07:57,440 --> 00:08:04,160
It's piped to a holding
pond, and from there it's

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00:08:04,160 --> 00:08:08,540
interesting-- in this picture,
it's being trucked away.

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00:08:08,540 --> 00:08:13,600
Sorry, the water is
stored in a pit or a pond,

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00:08:13,600 --> 00:08:16,210
and then taken to
a treatment plant.

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00:08:16,210 --> 00:08:19,330
What's often done
with it instead

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00:08:19,330 --> 00:08:23,320
is it's injected
underground in a deep well.

155
00:08:23,320 --> 00:08:29,430
So the water either gets
treated out of this pond

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00:08:29,430 --> 00:08:32,549
or it gets, either
here or someplace else,

157
00:08:32,549 --> 00:08:34,890
dumped back into
something that'll hold it

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00:08:34,890 --> 00:08:38,909
underground, some formation
where you might otherwise

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00:08:38,909 --> 00:08:41,070
store CO2, for instance.

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00:08:41,070 --> 00:08:43,549
But those are the
two possibilities.

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00:08:43,549 --> 00:08:49,710
So questions about the basic
story here, the basic process?

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00:08:52,120 --> 00:08:52,620
Yeah.

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00:08:52,620 --> 00:08:54,203
AUDIENCE: It
[? prevents ?] the ground

164
00:08:54,203 --> 00:08:56,238
after you start to [INAUDIBLE].

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00:08:56,238 --> 00:08:58,530
RICHARD SCHMALENSEE: Well,
the gas has come up with it,

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00:08:58,530 --> 00:09:00,990
so you're basically
taking the gas off,

167
00:09:00,990 --> 00:09:03,900
and then you take the water.

168
00:09:03,900 --> 00:09:08,090
Yeah, no, this is not full of
commercially recoverable gas.

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00:09:08,090 --> 00:09:08,780
Yeah, Jacob.

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00:09:08,780 --> 00:09:10,447
AUDIENCE: What kind
chemicals and fluids

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00:09:10,447 --> 00:09:12,000
do you typically pump?

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00:09:12,000 --> 00:09:16,320
RICHARD SCHMALENSEE:
Well, usually a surfactant

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00:09:16,320 --> 00:09:19,020
of some sort to reduce
surface tension, to make

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00:09:19,020 --> 00:09:23,330
it more easily penetrate.

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00:09:23,330 --> 00:09:28,610
In some cases, people have put
benzene and various petroleum

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00:09:28,610 --> 00:09:30,050
products down.

177
00:09:30,050 --> 00:09:32,420
This causes a lot
of distress, as you

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00:09:32,420 --> 00:09:37,880
could imagine, but usually--

179
00:09:37,880 --> 00:09:42,680
usually-- some surfactant
and other stuff.

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00:09:42,680 --> 00:09:46,310
For the little guys, this has
been sort of a secret sauce.

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00:09:46,310 --> 00:09:49,820
It's mostly water and sand.

182
00:09:49,820 --> 00:09:53,030
And I'm not going to tell
you what the rest is, haha.

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00:09:53,030 --> 00:09:59,300
Well, what's missing here
is this might be an aquifer,

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00:09:59,300 --> 00:10:01,460
so there might be
groundwater issues.

185
00:10:01,460 --> 00:10:03,170
And we're going to
talk about this--

186
00:10:03,170 --> 00:10:06,740
usually not coming up
from 7,000 feet down.

187
00:10:06,740 --> 00:10:08,700
The aquifers are higher.

188
00:10:08,700 --> 00:10:11,780
But if the well's
integrity is breached,

189
00:10:11,780 --> 00:10:14,120
stuff can come
out from the well.

190
00:10:14,120 --> 00:10:16,370
And that happens.

191
00:10:16,370 --> 00:10:19,660
OK, anything else?

192
00:10:19,660 --> 00:10:23,450
All right, so
that's the picture.

193
00:10:23,450 --> 00:10:28,210
So this process now makes
it economical to extract

194
00:10:28,210 --> 00:10:30,310
oil and natural gas from shale.

195
00:10:30,310 --> 00:10:32,410
Where is the shale?

196
00:10:32,410 --> 00:10:35,830
The key thing is this gray bar.

197
00:10:35,830 --> 00:10:41,710
The height is the amount
of shale gas recoverable.

198
00:10:41,710 --> 00:10:47,230
The black is coalbed methane,
which is also doable.

199
00:10:47,230 --> 00:10:50,050
But the new thing
is the gray bar.

200
00:10:50,050 --> 00:10:53,800
And you will notice
we have a lot of it.

201
00:10:53,800 --> 00:10:58,000
There's not that much in the
Middle East, some, presumably,

202
00:10:58,000 --> 00:10:59,950
in Africa, but
little exploration,

203
00:10:59,950 --> 00:11:03,980
some in Latin America, a lot of
it over here in Asia-Pacific,

204
00:11:03,980 --> 00:11:05,870
which is mostly China.

205
00:11:05,870 --> 00:11:08,920
So China appears to
have a lot of shale.

206
00:11:08,920 --> 00:11:10,340
We got really lucky.

207
00:11:10,340 --> 00:11:14,200
We have enormous amounts
of shale from which

208
00:11:14,200 --> 00:11:16,930
this stuff is recoverable.

209
00:11:16,930 --> 00:11:20,320
Australia often refers to
itself as "The Lucky Country."

210
00:11:20,320 --> 00:11:22,570
In this one we got lucky.

211
00:11:22,570 --> 00:11:28,120
Europe-- this, I
believe, is OECD Europe,

212
00:11:28,120 --> 00:11:37,480
and that is mostly Poland,
which is starting to work on it.

213
00:11:37,480 --> 00:11:39,760
So where is it in the US?

214
00:11:39,760 --> 00:11:43,570
Well, the good news and the
bad news is, a lot of it

215
00:11:43,570 --> 00:11:47,350
is near where demand is,
as opposed to, say, wind

216
00:11:47,350 --> 00:11:50,590
or solar that tend to be in the
desert or in the high plains.

217
00:11:54,400 --> 00:11:57,700
A big play here
is the Marcellus,

218
00:11:57,700 --> 00:12:02,260
and that's New York, and
Pennsylvania, and Ohio,

219
00:12:02,260 --> 00:12:05,110
and in this Eastern region.

220
00:12:05,110 --> 00:12:06,730
That's enormous.

221
00:12:06,730 --> 00:12:10,570
That's just an enormous
amount of recoverable gas.

222
00:12:10,570 --> 00:12:12,610
The other play that
people talk about,

223
00:12:12,610 --> 00:12:14,860
other plays that
people talk about,

224
00:12:14,860 --> 00:12:17,950
are the Bakken up here,
mostly in North Dakota.

225
00:12:20,470 --> 00:12:23,860
The Bakken has a
lot of oil that is

226
00:12:23,860 --> 00:12:27,940
being recovered using this
same technique, as well as gas.

227
00:12:27,940 --> 00:12:30,370
There are not a lot of
pipelines out of North Dakota,

228
00:12:30,370 --> 00:12:35,320
and as we will see, that's a
problem, but oil you can move.

229
00:12:35,320 --> 00:12:36,440
Oil's valuable enough.

230
00:12:36,440 --> 00:12:38,950
You can find a way to move it.

231
00:12:38,950 --> 00:12:44,000
The other places are the
Barnett, the Barnett shale,

232
00:12:44,000 --> 00:12:46,600
a lot of which is-- oh, yeah,
there are a lot of people

233
00:12:46,600 --> 00:12:49,910
up here in the Marcellus.

234
00:12:49,910 --> 00:12:50,840
Some of this is rural.

235
00:12:50,840 --> 00:12:52,610
Some of it's near urban areas.

236
00:12:52,610 --> 00:12:54,890
You read that
PennEnvironment document.

237
00:12:54,890 --> 00:12:58,370
They talk a lot about
schools, libraries, and stuff.

238
00:12:58,370 --> 00:12:59,810
Down here in Texas,
a lot of it's

239
00:12:59,810 --> 00:13:02,150
not near anything,
which is all good.

240
00:13:02,150 --> 00:13:06,680
And in the Bakken, a lot
of it's not near anything.

241
00:13:06,680 --> 00:13:09,560
I think the Eagle Ford
supposedly has a lot of oil.

242
00:13:09,560 --> 00:13:12,770
But people have been doing
various kinds of fracking

243
00:13:12,770 --> 00:13:15,050
in Texas, not
necessarily horizontal,

244
00:13:15,050 --> 00:13:20,510
but vertical and
experimental, for a long time.

245
00:13:20,510 --> 00:13:23,930
Nobody's drilled for
anything in the East

246
00:13:23,930 --> 00:13:26,660
since the first Pennsylvania
oil field went dry

247
00:13:26,660 --> 00:13:28,280
in the 19th century.

248
00:13:31,130 --> 00:13:33,440
Well, I'll say a little more.

249
00:13:33,440 --> 00:13:36,530
As you see, there
are plays elsewhere,

250
00:13:36,530 --> 00:13:40,370
in Arkansas, for instance,
there's some action.

251
00:13:40,370 --> 00:13:44,390
But this is the Marcellus, is
what people talk about a lot.

252
00:13:44,390 --> 00:13:49,370
The Bakken there's a lot of
action, and then down in Texas,

253
00:13:49,370 --> 00:13:51,840
with a little bit elsewhere,
little bit in California.

254
00:13:51,840 --> 00:13:55,400
Colorado-- again, people have
been doing this in Colorado

255
00:13:55,400 --> 00:13:55,940
for a while.

256
00:13:55,940 --> 00:13:57,950
The reserves are smaller.

257
00:13:57,950 --> 00:14:01,820
And I don't know much
about most of the others.

258
00:14:01,820 --> 00:14:05,690
Comments or
reactions about this?

259
00:14:05,690 --> 00:14:11,390
OK, so what's all this done?

260
00:14:11,390 --> 00:14:15,200
Well, it's created a boom.

261
00:14:15,200 --> 00:14:18,500
This is a map of
wells in Pennsylvania

262
00:14:18,500 --> 00:14:24,950
through the end of 2010.

263
00:14:24,950 --> 00:14:26,660
You see their trajectory--

264
00:14:26,660 --> 00:14:33,170
27 wells drilled in 2010,
then 161, then 785, then 1445,

265
00:14:33,170 --> 00:14:37,730
and 3,000 wells in the ground
producing by April of 2011,

266
00:14:37,730 --> 00:14:42,515
with rapid permitting going on,
concentrated in a few areas.

267
00:14:45,410 --> 00:14:48,980
Similar story elsewhere--
the Pennsylvania folks

268
00:14:48,980 --> 00:14:51,770
just happened to have
provided a convenient map.

269
00:14:51,770 --> 00:14:57,065
So you have a drilling boom
to get at this resource.

270
00:14:59,840 --> 00:15:01,070
What's it done?

271
00:15:01,070 --> 00:15:03,860
Well, it's depressed gas prices.

272
00:15:03,860 --> 00:15:08,120
You may recall last time,
this is a Henry Hub price.

273
00:15:08,120 --> 00:15:10,860
Last time, this graph
cut off about here.

274
00:15:10,860 --> 00:15:15,740
This is the result.
This is the rest of it.

275
00:15:15,740 --> 00:15:23,630
We're down in the neighborhood
of $2 per million BTUs, where

276
00:15:23,630 --> 00:15:28,394
the normal price was
tending to be around 10,

277
00:15:28,394 --> 00:15:32,400
eight, 10, was what people
thought was sort of normal.

278
00:15:32,400 --> 00:15:34,460
And again, if you go
back to the Pennsylvania

279
00:15:34,460 --> 00:15:39,440
figure, the drilling,
this is all since--

280
00:15:39,440 --> 00:15:42,050
it just began in 2007.

281
00:15:42,050 --> 00:15:45,980
There is no pre-2007
drilling in Pennsylvania,

282
00:15:45,980 --> 00:15:51,800
and there are more than 3,000
wells, probably 4,000 by now,

283
00:15:51,800 --> 00:15:52,620
producing.

284
00:15:52,620 --> 00:15:56,660
So this has come on
very fast, very big,

285
00:15:56,660 --> 00:15:59,720
and in parts of the
country where people live.

286
00:15:59,720 --> 00:16:03,170
And it's depressed
the natural gas price.

287
00:16:03,170 --> 00:16:07,310
To go to a question that
we discussed last time,

288
00:16:07,310 --> 00:16:10,970
this is arguably old business,
but just to do an oil--

289
00:16:10,970 --> 00:16:16,490
oh, yeah, people in the
business say what happened,

290
00:16:16,490 --> 00:16:19,460
the reason we're at $2, is a
lot of people got very excited.

291
00:16:19,460 --> 00:16:21,620
This happens in
businesses like this--

292
00:16:21,620 --> 00:16:22,940
everybody drills a well.

293
00:16:22,940 --> 00:16:26,420
All of a sudden, oh, my god,
we've drilled too many wells.

294
00:16:26,420 --> 00:16:28,670
It's not profitable,
most people say,

295
00:16:28,670 --> 00:16:34,130
to get at this gas at $2 a
million cubic BTU, but at $4

296
00:16:34,130 --> 00:16:36,680
it is, and at $6 it is.

297
00:16:36,680 --> 00:16:38,450
Somewhere in the
four to six range

298
00:16:38,450 --> 00:16:41,780
is where people look for
a long-run equilibrium.

299
00:16:41,780 --> 00:16:44,780
Drilling will slow
down for gas alone.

300
00:16:44,780 --> 00:16:47,350
Demand will pull the price
up, blah, blah, blah.

301
00:16:47,350 --> 00:16:50,600
So they look at the four
to six range, as opposed

302
00:16:50,600 --> 00:16:53,240
to the eight to 10
to higher range,

303
00:16:53,240 --> 00:16:55,340
as a place where gas
will settle down.

304
00:16:55,340 --> 00:16:58,850
And there is a lot of it.

305
00:16:58,850 --> 00:17:01,280
There's controversy
about how much there is.

306
00:17:01,280 --> 00:17:04,700
So one thing it did was
to depress the gas price.

307
00:17:04,700 --> 00:17:07,890
It drove an interesting
wedge between gas and oil.

308
00:17:07,890 --> 00:17:11,540
So this is another one
of these comparisons.

309
00:17:11,540 --> 00:17:18,650
If you just look at dollars
per BTU, which I caution

310
00:17:18,650 --> 00:17:21,200
is kind of a crude measure,
because not all BTUs

311
00:17:21,200 --> 00:17:22,819
are created equal.

312
00:17:22,819 --> 00:17:24,589
Gasoline is better
for automobiles

313
00:17:24,589 --> 00:17:27,230
because you can have a higher
energy density and a longer

314
00:17:27,230 --> 00:17:31,160
range, and so forth, and it's
easier to transport per BTU.

315
00:17:31,160 --> 00:17:33,470
So oil has a variety
of advantages,

316
00:17:33,470 --> 00:17:38,240
but if you just look at BTUs,
then the conversion factor

317
00:17:38,240 --> 00:17:42,810
is apparently 5.825, which
references tend to agree on.

318
00:17:42,810 --> 00:17:46,490
So that means if gas
is $2 a million BTUs,

319
00:17:46,490 --> 00:17:51,830
that translates into
$11.65 a barrel of oil.

320
00:17:51,830 --> 00:18:00,550
But when gas hit $2 recently
over here, oil was over $100.

321
00:18:00,550 --> 00:18:04,810
So that says in BTU terms,
the difference right

322
00:18:04,810 --> 00:18:07,910
now is enormous.

323
00:18:07,910 --> 00:18:13,130
If you can find a way to use
the gas BTUs and not oil BTUs,

324
00:18:13,130 --> 00:18:16,692
it makes a big difference.

325
00:18:16,692 --> 00:18:18,650
And it makes a difference
in a lot of settings.

326
00:18:18,650 --> 00:18:19,483
I have a colleague--

327
00:18:19,483 --> 00:18:21,830
I haven't seen the
paper, but he says

328
00:18:21,830 --> 00:18:25,070
it's straightforward
that a natural gas

329
00:18:25,070 --> 00:18:28,970
car dominates an electric car.

330
00:18:28,970 --> 00:18:31,580
An all electric car, you've got
to have an expensive battery,

331
00:18:31,580 --> 00:18:34,550
it has limited range, dadada,
you've got to plug it.

332
00:18:34,550 --> 00:18:36,740
And natural gas,
you need a tank.

333
00:18:36,740 --> 00:18:38,490
Engine is trivial to modify.

334
00:18:38,490 --> 00:18:42,200
It doesn't cost much more,
and the range is also limited,

335
00:18:42,200 --> 00:18:43,830
but it's about the same.

336
00:18:43,830 --> 00:18:47,330
So why would you buy an electric
car when you can buy a gas car?

337
00:18:47,330 --> 00:18:48,140
Well, we'll see.

338
00:18:48,140 --> 00:18:49,710
They're not subsidized yet.

339
00:18:49,710 --> 00:18:50,210
We'll see.

340
00:18:50,210 --> 00:18:51,920
But anyway, this is a big deal.

341
00:18:51,920 --> 00:18:55,100
Again, historically, there
are gaps between oil and gas.

342
00:18:55,100 --> 00:18:58,250
They don't track precisely
because as I mentioned

343
00:18:58,250 --> 00:19:02,030
last time, you don't really have
electric utilities substituting

344
00:19:02,030 --> 00:19:05,390
every five minutes
between oil and gas.

345
00:19:05,390 --> 00:19:09,650
But this is pretty
much unheard of.

346
00:19:09,650 --> 00:19:14,480
That difference in price
per BTU is unheard of.

347
00:19:14,480 --> 00:19:18,280
And it's opened in the
last couple of years.

348
00:19:18,280 --> 00:19:19,620
So that has implications.

349
00:19:19,620 --> 00:19:24,780
And again, "The Times" talks
about this without the picture.

350
00:19:24,780 --> 00:19:27,075
The other thing it
does is look at this.

351
00:19:27,075 --> 00:19:33,510
This is the Energy Information
Administration's Annual Energy

352
00:19:33,510 --> 00:19:36,270
Outlook Early Release,
which came out

353
00:19:36,270 --> 00:19:39,180
either January or February.

354
00:19:39,180 --> 00:19:43,800
It says this is their
projection for future production

355
00:19:43,800 --> 00:19:45,430
of natural gas.

356
00:19:45,430 --> 00:19:48,750
This brown thing on
the top is shale.

357
00:19:48,750 --> 00:19:50,250
I mean, look at
it-- there's nothing

358
00:19:50,250 --> 00:19:58,020
going on here until about 2006,
2007, and then it explodes.

359
00:19:58,020 --> 00:20:03,180
And by 2035, it
accounts for almost half

360
00:20:03,180 --> 00:20:05,280
of total US production.

361
00:20:05,280 --> 00:20:13,860
Previous work sort of focused on
these, just plain old gas, gas

362
00:20:13,860 --> 00:20:16,260
that you get with
oil, coalbed methane--

363
00:20:16,260 --> 00:20:22,230
steady decline, increase
in demand, lots of imports.

364
00:20:22,230 --> 00:20:25,440
Tight gas, which is
related, is going up,

365
00:20:25,440 --> 00:20:30,430
but shale gas is
projected to explode.

366
00:20:30,430 --> 00:20:33,870
I happened to look because I was
updating last year's lecture,

367
00:20:33,870 --> 00:20:36,240
and I had a graph
like this last year.

368
00:20:36,240 --> 00:20:40,440
The graph last year showed--

369
00:20:40,440 --> 00:20:47,520
this was, again, circa
last March or April--

370
00:20:47,520 --> 00:20:51,240
it showed the US being a
net importer of natural gas

371
00:20:51,240 --> 00:20:54,060
through 2035.

372
00:20:54,060 --> 00:20:55,920
Again, this was a year ago.

373
00:20:55,920 --> 00:20:59,070
It projected big increases
in shale, but not

374
00:20:59,070 --> 00:21:00,960
enough to offset
demand, and said

375
00:21:00,960 --> 00:21:03,660
we would be an
importer through 2035.

376
00:21:03,660 --> 00:21:06,060
The current projection
a year later

377
00:21:06,060 --> 00:21:10,290
is we'll be a net exporter
of liquefied gas by 2016.

378
00:21:10,290 --> 00:21:12,780
We'll be a net
exporter overall--

379
00:21:12,780 --> 00:21:16,450
pipeline and
liquefied-- by 2021.

380
00:21:16,450 --> 00:21:18,660
That's in a year.

381
00:21:18,660 --> 00:21:22,680
That's unheard of,
just to be clear.

382
00:21:22,680 --> 00:21:26,410
That's a dramatic,
dramatic change.

383
00:21:26,410 --> 00:21:28,780
I think when I taught
this two years ago,

384
00:21:28,780 --> 00:21:30,690
I'm not sure we mentioned shale.

385
00:21:30,690 --> 00:21:35,280
Anyway, the other thing is it
has had an impact also on oil.

386
00:21:35,280 --> 00:21:38,850
If you look at oil,
US production of oil,

387
00:21:38,850 --> 00:21:40,920
as we discussed early
in the semester,

388
00:21:40,920 --> 00:21:44,130
has been in long-term decline.

389
00:21:44,130 --> 00:21:49,830
in large part because of shale
and related developments,

390
00:21:49,830 --> 00:21:55,080
they now project a pretty steady
increase in US production.

391
00:21:55,080 --> 00:21:56,927
And this is not,
oh, my god, we've

392
00:21:56,927 --> 00:21:59,010
authorized deepwater
drilling or oh, my god, we're

393
00:21:59,010 --> 00:22:04,650
drilling the National Wildlife
Refuge on the North Slope.

394
00:22:04,650 --> 00:22:06,420
This is under current policy.

395
00:22:06,420 --> 00:22:10,920
This is under current policy
we will produce lots more oil.

396
00:22:15,120 --> 00:22:22,990
OK, what's good about this?

397
00:22:22,990 --> 00:22:25,810
What are the benefits?

398
00:22:25,810 --> 00:22:28,608
We'll come to cost in a minute,
but is this a good thing?

399
00:22:28,608 --> 00:22:29,650
Why is this a good thing?

400
00:22:29,650 --> 00:22:30,434
Maxwell.

401
00:22:30,434 --> 00:22:31,482
AUDIENCE: [INAUDIBLE]

402
00:22:31,482 --> 00:22:33,190
RICHARD SCHMALENSEE:
It'll get us energy.

403
00:22:33,190 --> 00:22:35,200
It'll move us toward
energy independence

404
00:22:35,200 --> 00:22:38,140
if we use the natural
gas in transportation,

405
00:22:38,140 --> 00:22:40,450
energy security, rather.

406
00:22:40,450 --> 00:22:45,010
It'll affect our balance
of payments regardless.

407
00:22:45,010 --> 00:22:48,370
But since most of our gas
imports are from Canada--

408
00:22:48,370 --> 00:22:51,250
I know they're shaky up
there-- but to the extent

409
00:22:51,250 --> 00:22:54,610
we use it in transportation, you
really get some energy security

410
00:22:54,610 --> 00:22:55,870
benefits.

411
00:22:55,870 --> 00:22:57,760
And let me just expand
on that a little bit,

412
00:22:57,760 --> 00:22:59,500
because I know other
people want to talk.

413
00:22:59,500 --> 00:23:03,520
One of the interesting things in
here that I hadn't focused on--

414
00:23:03,520 --> 00:23:05,590
in "The Times," rather--

415
00:23:05,590 --> 00:23:08,350
they talk about the
garbage truck market.

416
00:23:08,350 --> 00:23:11,020
Garbage trucks are
perfect for this.

417
00:23:11,020 --> 00:23:12,880
They're centrally fueled.

418
00:23:12,880 --> 00:23:15,250
They're in use for
a few hours a day.

419
00:23:15,250 --> 00:23:17,350
It's perfect.

420
00:23:17,350 --> 00:23:20,350
And given the price difference,
the fuel price difference,

421
00:23:20,350 --> 00:23:22,900
they said something like half
of garbage trucks sold now

422
00:23:22,900 --> 00:23:24,550
are natural gas compatible.

423
00:23:24,550 --> 00:23:28,090
A third of buses sold now
are natural gas compatible.

424
00:23:28,090 --> 00:23:32,110
So you do expect a
reasonable amount of use

425
00:23:32,110 --> 00:23:33,940
in transportation.

426
00:23:33,940 --> 00:23:36,400
That'll reduce our imports,
improve the trade balance,

427
00:23:36,400 --> 00:23:37,610
and improve energy security.

428
00:23:37,610 --> 00:23:38,920
Anything else?

429
00:23:38,920 --> 00:23:39,870
Yeah.

430
00:23:39,870 --> 00:23:41,458
AUDIENCE: Reduction
in emissions.

431
00:23:41,458 --> 00:23:43,750
RICHARD SCHMALENSEE: Reduction
in emissions, we'll get.

432
00:23:43,750 --> 00:23:47,230
I want to come back to that
later because that's an issue.

433
00:23:47,230 --> 00:23:49,750
You expect it to reduce
CO2 emissions as we

434
00:23:49,750 --> 00:23:52,300
move from coal to natural gas.

435
00:23:52,300 --> 00:23:53,800
There's some
controversy there and I

436
00:23:53,800 --> 00:23:54,760
want to come back to that.

437
00:23:54,760 --> 00:23:55,260
Jessica.

438
00:23:55,260 --> 00:23:57,056
AUDIENCE: [INAUDIBLE]
resource, but you

439
00:23:57,056 --> 00:23:59,348
have mostly infrastructure
layout [INAUDIBLE] so you're

440
00:23:59,348 --> 00:24:02,642
taking [INAUDIBLE]
or it's easier,

441
00:24:02,642 --> 00:24:07,222
there's less of a barrier
to entrance [INAUDIBLE]..

442
00:24:07,222 --> 00:24:08,680
RICHARD SCHMALENSEE:
You don't have

443
00:24:08,680 --> 00:24:11,350
too much of a
chicken/egg problem

444
00:24:11,350 --> 00:24:14,230
because you do have the pipeline
infrastructure in place--

445
00:24:14,230 --> 00:24:16,450
not everywhere, and we'll
see that in a second.

446
00:24:19,517 --> 00:24:21,100
You do have to put
in, if you're going

447
00:24:21,100 --> 00:24:22,600
to do it in
transportation, you have

448
00:24:22,600 --> 00:24:26,800
to put in refueling stations.

449
00:24:26,800 --> 00:24:30,460
"The Times" argues that to do
it effectively and trucking--

450
00:24:30,460 --> 00:24:32,380
forgetting about garbage
trucks and so forth

451
00:24:32,380 --> 00:24:34,600
that you can pretty
much do now--

452
00:24:34,600 --> 00:24:37,030
to do it for interstate
trucking you need, they said,

453
00:24:37,030 --> 00:24:40,720
2,800 fueling stations on
the major truck routes.

454
00:24:40,720 --> 00:24:42,970
And people are building them.

455
00:24:42,970 --> 00:24:43,797
David.

456
00:24:43,797 --> 00:24:45,288
AUDIENCE: [INAUDIBLE].

457
00:24:49,052 --> 00:24:51,010
RICHARD SCHMALENSEE: You
expect the US industry

458
00:24:51,010 --> 00:24:55,600
to be more competitive
because costs have come down.

459
00:24:55,600 --> 00:24:59,650
There's the other interesting
thing that we tend to forget,

460
00:24:59,650 --> 00:25:03,760
because we think of natural gas,
particularly in this class, as

461
00:25:03,760 --> 00:25:05,020
mostly an energy source.

462
00:25:05,020 --> 00:25:08,620
But it's a feedstock for a
variety of chemical processes.

463
00:25:08,620 --> 00:25:13,540
And so a bunch of the industries
that use that as a feedstock--

464
00:25:13,540 --> 00:25:15,940
plastics, importantly,
but others--

465
00:25:15,940 --> 00:25:18,160
are moving back to the
US because it's so much

466
00:25:18,160 --> 00:25:20,300
cheaper here than elsewhere.

467
00:25:20,300 --> 00:25:23,980
So you're getting natural gas
based manufacturing moving

468
00:25:23,980 --> 00:25:26,440
back, not only because
energy costs are

469
00:25:26,440 --> 00:25:31,450
down but because
feedstock costs are down.

470
00:25:31,450 --> 00:25:32,950
Anything else?

471
00:25:32,950 --> 00:25:33,650
Ryan.

472
00:25:33,650 --> 00:25:35,290
AUDIENCE: [INAUDIBLE]
American jobs.

473
00:25:35,290 --> 00:25:36,490
RICHARD SCHMALENSEE: Jobs--

474
00:25:36,490 --> 00:25:37,750
I've got a great
graphic on that,

475
00:25:37,750 --> 00:25:38,690
that I'll show you in a minute.

476
00:25:38,690 --> 00:25:40,420
But that's normally
the first thing--

477
00:25:40,420 --> 00:25:42,760
in Congress it's the
first thing they say--

478
00:25:42,760 --> 00:25:45,310
this is jobs.

479
00:25:45,310 --> 00:25:53,830
OK, I think we have most of
the benefits, but not all.

480
00:25:53,830 --> 00:25:55,330
Anything else
anybody can think of?

481
00:25:58,540 --> 00:25:59,890
Oh, sorry, yes, Kirsten.

482
00:25:59,890 --> 00:26:01,598
AUDIENCE: [INAUDIBLE]
continue to explore

483
00:26:01,598 --> 00:26:04,340
[INAUDIBLE] increases, so in
the future [INAUDIBLE] prices

484
00:26:04,340 --> 00:26:06,257
to be less volatile
[INAUDIBLE] in the ground?

485
00:26:06,257 --> 00:26:08,215
RICHARD SCHMALENSEE: It
might be less volatile.

486
00:26:08,215 --> 00:26:09,010
I think so.

487
00:26:09,010 --> 00:26:11,560
But you still have this
short-run inelastic demand,

488
00:26:11,560 --> 00:26:13,390
inelastic supply issue.

489
00:26:13,390 --> 00:26:16,750
And a really cold winter
or really warm winter

490
00:26:16,750 --> 00:26:18,140
can have an impact.

491
00:26:18,140 --> 00:26:20,980
They do store gas, not
just in the big tanks

492
00:26:20,980 --> 00:26:23,860
you see when you drive
south along the waterfront.

493
00:26:23,860 --> 00:26:25,780
But it's stored in
underground caverns

494
00:26:25,780 --> 00:26:27,040
and has been for a long time.

495
00:26:27,040 --> 00:26:31,150
So you would hope that the
volatility will go down

496
00:26:31,150 --> 00:26:33,440
because we're a little bit
out of the world market.

497
00:26:33,440 --> 00:26:35,080
Yeah, didn't have that.

498
00:26:35,080 --> 00:26:36,470
Anything else?

499
00:26:36,470 --> 00:26:36,970
Yeah.

500
00:26:36,970 --> 00:26:39,053
AUDIENCE: Would that mean
money for the government

501
00:26:39,053 --> 00:26:41,550
in terms of royalties?

502
00:26:41,550 --> 00:26:44,610
RICHARD SCHMALENSEE: It might
if it comes from federal lands.

503
00:26:44,610 --> 00:26:47,100
Suppose it comes
from private lands.

504
00:26:47,100 --> 00:26:50,490
I have friends who inherited
an otherwise useless ranch

505
00:26:50,490 --> 00:26:55,380
in Texas and were told there's
natural gas under your land.

506
00:26:55,380 --> 00:26:57,600
We'd like to drill.

507
00:26:57,600 --> 00:27:01,860
They like that, because they
weren't going to live there.

508
00:27:01,860 --> 00:27:03,390
In fact, nobody
was living there.

509
00:27:03,390 --> 00:27:06,300
And they're happy
to cash that check

510
00:27:06,300 --> 00:27:07,530
when it comes in every month.

511
00:27:07,530 --> 00:27:10,095
So it's money for the
government in revenues,

512
00:27:10,095 --> 00:27:11,220
depending on the royalties.

513
00:27:11,220 --> 00:27:15,500
It could be money
from landowners.

514
00:27:15,500 --> 00:27:18,110
And that's everything
except something

515
00:27:18,110 --> 00:27:22,580
that we haven't talked
about and you might not

516
00:27:22,580 --> 00:27:25,340
pick up until we've
talked about electricity.

517
00:27:25,340 --> 00:27:32,060
And that is one of the
issues of bringing in wind

518
00:27:32,060 --> 00:27:38,510
and solar is they vary and
they vary unpredictably.

519
00:27:38,510 --> 00:27:41,810
So you need resources
that can respond to that.

520
00:27:41,810 --> 00:27:43,160
I mean, storage would be swell.

521
00:27:43,160 --> 00:27:44,420
Storage is the Holy Grail.

522
00:27:44,420 --> 00:27:47,210
We don't have
storage economically.

523
00:27:47,210 --> 00:27:50,990
So what you tend to use is
you tend to use gas turbines.

524
00:27:50,990 --> 00:27:54,200
And gas turbines, if you recall
from-- not combined cycle,

525
00:27:54,200 --> 00:27:56,000
but old gas turbines--

526
00:27:56,000 --> 00:27:58,620
and on an earlier slide I
had the efficiency of those.

527
00:27:58,620 --> 00:28:01,430
And it's not high,
but they're quick.

528
00:28:01,430 --> 00:28:05,840
Well, this reduces the
running cost of the devices

529
00:28:05,840 --> 00:28:08,840
you will use to use
more wind and solar,

530
00:28:08,840 --> 00:28:10,700
and thus makes it
easier to integrate

531
00:28:10,700 --> 00:28:12,260
wind and solar into the system.

532
00:28:12,260 --> 00:28:13,280
Jacob, you had a point?

533
00:28:13,280 --> 00:28:15,947
AUDIENCE: Yeah, I was just going
to say I hope you're going down

534
00:28:15,947 --> 00:28:18,335
the path of it provides
baseload power for [INAUDIBLE]

535
00:28:18,335 --> 00:28:20,210
RICHARD SCHMALENSEE: It
can provide baseload.

536
00:28:20,210 --> 00:28:22,460
It provides, as we were
saying, lower emissions

537
00:28:22,460 --> 00:28:26,180
baseload power, particularly
the combined cycle stuff.

538
00:28:26,180 --> 00:28:28,831
AUDIENCE: [INAUDIBLE] used
to turn on and off really

539
00:28:28,831 --> 00:28:30,535
quickly when the
power demand spikes.

540
00:28:30,535 --> 00:28:32,660
RICHARD SCHMALENSEE: And
you use the combined cycle

541
00:28:32,660 --> 00:28:34,250
stuff for baseload.

542
00:28:34,250 --> 00:28:38,150
You may or may not remember
the brief discussion

543
00:28:38,150 --> 00:28:39,530
of combined cycle.

544
00:28:39,530 --> 00:28:41,580
We'll probably come back to it.

545
00:28:41,580 --> 00:28:45,830
But when we talked
about Hexion, I

546
00:28:45,830 --> 00:28:53,330
mentioned there were two
sorts of technologies.

547
00:28:53,330 --> 00:28:55,280
And the combined
cycle technology

548
00:28:55,280 --> 00:28:58,988
is a generating technology,
not unrelated to what

549
00:28:58,988 --> 00:29:01,280
was going on in Hexion, but
it's generating technology.

550
00:29:01,280 --> 00:29:03,830
You use natural gas or oil
or whatever, but typically

551
00:29:03,830 --> 00:29:06,530
natural gas, to
run a gas turbine.

552
00:29:06,530 --> 00:29:08,420
The exhaust from the
gas turbine is hot.

553
00:29:08,420 --> 00:29:11,030
You use the exhaust
from the gas turbine

554
00:29:11,030 --> 00:29:14,240
to heat water to make steam
and you run a steam turbine--

555
00:29:14,240 --> 00:29:16,160
hence combined cycle.

556
00:29:16,160 --> 00:29:20,180
You can get a lot of efficiency
because you're not putting out

557
00:29:20,180 --> 00:29:21,500
a high temperature exhaust.

558
00:29:21,500 --> 00:29:22,820
You're not wasting that heat.

559
00:29:22,820 --> 00:29:23,990
You use it.

560
00:29:23,990 --> 00:29:27,000
And you can use it effectively
in a steam turbine.

561
00:29:27,000 --> 00:29:28,930
So that's effective.

562
00:29:28,930 --> 00:29:33,560
So the other thing
we didn't talk about

563
00:29:33,560 --> 00:29:40,580
and that's because you don't own
homes, but if you own a home,

564
00:29:40,580 --> 00:29:42,890
you'll have lower heating costs.

565
00:29:42,890 --> 00:29:46,310
That bill that comes around
in the winter will be lower.

566
00:29:46,310 --> 00:29:48,560
This is a good thing.

567
00:29:48,560 --> 00:29:50,720
I just managed to
persuade my condo

568
00:29:50,720 --> 00:29:53,510
to convert to gas from oil.

569
00:29:53,510 --> 00:29:55,470
And electricity will be cheaper.

570
00:29:55,470 --> 00:30:00,980
So for those of us who pay these
bills, that's a good thing.

571
00:30:00,980 --> 00:30:06,830
We'll reduce gas and
probably oil imports.

572
00:30:06,830 --> 00:30:09,440
It will reduce it because
there's more production

573
00:30:09,440 --> 00:30:14,180
but also because you'll be
substituting gas for oil.

574
00:30:18,350 --> 00:30:21,380
US manufacturing-- people get
very excited about a rebirth

575
00:30:21,380 --> 00:30:23,023
of US manufacturing,
some of which

576
00:30:23,023 --> 00:30:24,440
is driven by energy,
some of which

577
00:30:24,440 --> 00:30:28,130
is driven by feedstock prices.

578
00:30:28,130 --> 00:30:31,100
Easier to integrate
wind and solar, money

579
00:30:31,100 --> 00:30:34,610
for people in rural
Texas for ranches they

580
00:30:34,610 --> 00:30:37,985
had no intention of living on.

581
00:30:37,985 --> 00:30:39,110
We're going to talk about--

582
00:30:39,110 --> 00:30:40,880
I didn't underline
"some," but I probably

583
00:30:40,880 --> 00:30:42,130
should have underlined "some."

584
00:30:44,720 --> 00:30:46,910
Fewer neighbors in
rural Texas than,

585
00:30:46,910 --> 00:30:49,580
say, in urban Pennsylvania--

586
00:30:49,580 --> 00:30:50,340
that's an issue.

587
00:30:50,340 --> 00:30:54,570
And of course, jobs.

588
00:30:54,570 --> 00:30:56,630
These are pictures
of North Dakota.

589
00:30:56,630 --> 00:31:03,020
And this is oil production
in North Dakota.

590
00:31:03,020 --> 00:31:05,720
North Dakota is now the number
four oil-producing state

591
00:31:05,720 --> 00:31:11,760
in the country from pretty
far down the league table.

592
00:31:11,760 --> 00:31:15,830
And for the last three years, I
don't know what the early 2012

593
00:31:15,830 --> 00:31:17,580
numbers are, but for
the last three years,

594
00:31:17,580 --> 00:31:20,780
it's had the lowest unemployment
rate in the country.

595
00:31:20,780 --> 00:31:24,880
So if you're from North
Dakota, this is fabulous stuff.

596
00:31:24,880 --> 00:31:27,070
All of a sudden the
land is worth something.

597
00:31:27,070 --> 00:31:28,820
All of a sudden there
are a lot of jobs.

598
00:31:28,820 --> 00:31:30,945
And if you're running a
restaurant, all of a sudden

599
00:31:30,945 --> 00:31:33,070
there are people who come in.

600
00:31:33,070 --> 00:31:34,540
This is oil production.

601
00:31:34,540 --> 00:31:35,860
This is gas production.

602
00:31:35,860 --> 00:31:39,160
And this is an interesting
graph for a number of reasons.

603
00:31:39,160 --> 00:31:40,660
You see what you
would expect, which

604
00:31:40,660 --> 00:31:44,560
is natural gas
production goes way up.

605
00:31:44,560 --> 00:31:47,050
But there aren't pipelines.

606
00:31:47,050 --> 00:31:50,570
And this is the
percentage flared.

607
00:31:50,570 --> 00:31:55,280
So "not marketed"
means "flared."

608
00:31:55,280 --> 00:31:57,940
They're burning it.

609
00:31:57,940 --> 00:32:04,660
So they're burning, depending
on the month, up to 40%,

610
00:32:04,660 --> 00:32:08,740
typically above 30%
of the gas produced.

611
00:32:08,740 --> 00:32:10,720
The money is in the oil.

612
00:32:10,720 --> 00:32:14,650
They don't have enough pipeline
capacity to get the gas out

613
00:32:14,650 --> 00:32:18,008
so they burn it,
which is a shame.

614
00:32:18,008 --> 00:32:19,300
Somebody will build a pipeline.

615
00:32:19,300 --> 00:32:22,890
That's money being burned.

616
00:32:22,890 --> 00:32:25,405
OK, comments?

617
00:32:31,520 --> 00:32:32,395
But there are issues.

618
00:32:36,110 --> 00:32:39,340
You can find, and
I was going to try

619
00:32:39,340 --> 00:32:42,700
to do it but my earlier attempts
to link YouTube videos didn't

620
00:32:42,700 --> 00:32:43,220
work well.

621
00:32:43,220 --> 00:32:47,800
But you can go to go to YouTube,
and most videos on fracking

622
00:32:47,800 --> 00:32:50,260
look like this.

623
00:32:50,260 --> 00:32:54,250
Somebody pours water,
lights a match, foomp.

624
00:32:57,100 --> 00:33:02,020
And earthquakes-- there was
some recent press coverage

625
00:33:02,020 --> 00:33:04,010
of fracking-related earthquakes.

626
00:33:04,010 --> 00:33:10,150
So this is not a completely
benign technology.

627
00:33:10,150 --> 00:33:11,548
I mean, neither were railroads.

628
00:33:11,548 --> 00:33:13,090
Neither were coal-fired
power plants.

629
00:33:13,090 --> 00:33:19,500
Neither are automobiles,
but it has issues.

630
00:33:19,500 --> 00:33:21,180
Some of the issues--

631
00:33:21,180 --> 00:33:23,700
they mostly come
from these features.

632
00:33:28,170 --> 00:33:31,080
Some of the fluids
contain toxics,

633
00:33:31,080 --> 00:33:33,160
some of the stuff that's
pumped down-- and again,

634
00:33:33,160 --> 00:33:36,685
it varies from
player to player--

635
00:33:36,685 --> 00:33:37,185
is toxic.

636
00:33:39,780 --> 00:33:43,290
The water that
comes up is at least

637
00:33:43,290 --> 00:33:47,190
as bad as the stuff that went
down, often quite a bit worse.

638
00:33:47,190 --> 00:33:51,300
It's got whatever
junk it picked up

639
00:33:51,300 --> 00:33:55,950
traveling through
thousands of feet of rock.

640
00:33:55,950 --> 00:33:58,620
The wells go through
aquifers often.

641
00:33:58,620 --> 00:33:59,670
You drill down.

642
00:33:59,670 --> 00:34:01,740
You're drilling down
through an aquifer.

643
00:34:01,740 --> 00:34:03,210
That's somebody's groundwater.

644
00:34:03,210 --> 00:34:05,850
That's the well
water that's burning.

645
00:34:08,960 --> 00:34:11,389
Methane has its own toxicities.

646
00:34:11,389 --> 00:34:16,070
It is flammable,
per that picture.

647
00:34:16,070 --> 00:34:18,650
And it is a greenhouse gas.

648
00:34:18,650 --> 00:34:23,179
So the question that Philip
raised of lower emissions

649
00:34:23,179 --> 00:34:28,295
gets to be a little complicated,
because methane leaks.

650
00:34:31,670 --> 00:34:34,969
So these are the main issues.

651
00:34:34,969 --> 00:34:39,019
Let me just walk through some
of the environmental problems.

652
00:34:42,880 --> 00:34:46,300
First is groundwater
contamination--

653
00:34:46,300 --> 00:34:51,920
not that big a deal in Texas,
big deal in Pennsylvania.

654
00:34:51,920 --> 00:34:53,925
They actually have
water in Pennsylvania.

655
00:34:56,600 --> 00:35:00,380
The best evidence I know
says that the problem comes

656
00:35:00,380 --> 00:35:03,530
from the well bore,
from going down--

657
00:35:03,530 --> 00:35:09,290
that it's very hard
for the gas to leak up

658
00:35:09,290 --> 00:35:13,190
through 7,000 feet of
rock into the groundwater.

659
00:35:13,190 --> 00:35:14,570
But in any case,
there are plenty

660
00:35:14,570 --> 00:35:19,130
of examples where groundwater
has been contaminated.

661
00:35:19,130 --> 00:35:20,990
There's also this
issue of wastewater,

662
00:35:20,990 --> 00:35:22,955
the stuff that's coming back.

663
00:35:22,955 --> 00:35:26,300
It's got all kinds
of junk in it.

664
00:35:26,300 --> 00:35:33,140
If you don't inject it safely,
if the holding pond leaks,

665
00:35:33,140 --> 00:35:35,660
if the treatment
isn't adequate, you

666
00:35:35,660 --> 00:35:38,330
can have that as a
source of contamination.

667
00:35:41,370 --> 00:35:44,280
There is nearby pollution.

668
00:35:44,280 --> 00:35:45,300
There's all this junk.

669
00:35:45,300 --> 00:35:47,550
You're running an industrial
operation-- again,

670
00:35:47,550 --> 00:35:50,070
not necessarily so
terrible in Texas.

671
00:35:50,070 --> 00:35:51,030
Do I have a picture?

672
00:35:51,030 --> 00:35:52,230
No, I don't?

673
00:35:52,230 --> 00:35:58,690
Not so terrible in some places,
but the methane will be out.

674
00:35:58,690 --> 00:36:00,070
That's not nice stuff.

675
00:36:00,070 --> 00:36:04,180
Various other toxic
things come out--

676
00:36:04,180 --> 00:36:06,160
volatiles in the groundwater.

677
00:36:06,160 --> 00:36:09,078
You get dust, and noise,
and a lot of traffic,

678
00:36:09,078 --> 00:36:10,120
a lot of vehicle traffic.

679
00:36:10,120 --> 00:36:13,510
You truck the gas out
typically, and find a pipeline.

680
00:36:13,510 --> 00:36:15,880
You don't build a pipeline
to every well site.

681
00:36:15,880 --> 00:36:20,670
So it's noisy, and
messy, and dirty.

682
00:36:20,670 --> 00:36:21,580
Does that matter?

683
00:36:21,580 --> 00:36:24,300
Well, in Pennsylvania
and New York,

684
00:36:24,300 --> 00:36:27,870
there tend to be a
lot of people around.

685
00:36:27,870 --> 00:36:32,120
In North Dakota and
Texas, not so many.

686
00:36:32,120 --> 00:36:34,820
So whether these things are
important or not depends on A,

687
00:36:34,820 --> 00:36:39,740
what the well does, and B,
what damages it inflicts.

688
00:36:39,740 --> 00:36:44,510
I mean, my friends' ranch,
there's nobody for miles.

689
00:36:44,510 --> 00:36:48,590
So yeah, there's dust, and
dirt, and traffic, and junk,

690
00:36:48,590 --> 00:36:52,190
but it's polluting
the sagebrush.

691
00:36:52,190 --> 00:36:56,145
In that PennEnvironment thing,
there are schools, hospitals

692
00:36:56,145 --> 00:36:56,645
nearby.

693
00:37:00,580 --> 00:37:05,650
Methane leakage-- let me
talk about methane leakage.

694
00:37:05,650 --> 00:37:09,580
There was just a
piece in "Nature"

695
00:37:09,580 --> 00:37:12,410
about methane leakage
from one field

696
00:37:12,410 --> 00:37:15,880
that folks managed
to measure well.

697
00:37:15,880 --> 00:37:18,220
And it was like--

698
00:37:18,220 --> 00:37:23,450
not to make up a number-- like
6% of total production leaked.

699
00:37:23,450 --> 00:37:27,240
Well, methane is
a greenhouse gas.

700
00:37:27,240 --> 00:37:29,580
We talked about that earlier.

701
00:37:29,580 --> 00:37:32,040
It has a relatively
short half life,

702
00:37:32,040 --> 00:37:35,210
order of magnitude 10 years--

703
00:37:35,210 --> 00:37:37,940
quicker than carbon dioxide
to come out of the atmosphere,

704
00:37:37,940 --> 00:37:39,420
but while it's in
the atmosphere,

705
00:37:39,420 --> 00:37:45,770
it's potent, more potent
than carbon dioxide per unit

706
00:37:45,770 --> 00:37:48,690
of mass, or maybe per
mole, one way or the other.

707
00:37:48,690 --> 00:37:52,010
In any case, this is
sort of a serious issue.

708
00:37:52,010 --> 00:37:56,300
If you're going to produce this
stuff at scale for a while,

709
00:37:56,300 --> 00:37:58,550
and dump a lot of methane
in the atmosphere,

710
00:37:58,550 --> 00:38:01,220
you're going to have
climate implications.

711
00:38:01,220 --> 00:38:05,180
There was a study that
said producing and using

712
00:38:05,180 --> 00:38:09,830
natural gas via fracking is
worse for the climate than coal

713
00:38:09,830 --> 00:38:13,400
on a lifecycle basis.

714
00:38:13,400 --> 00:38:17,630
That study was
pretty badly flawed

715
00:38:17,630 --> 00:38:23,030
because it assumed very
inefficient coal plants,

716
00:38:23,030 --> 00:38:24,890
but if the methane
leakage is high enough,

717
00:38:24,890 --> 00:38:26,810
that could be right.

718
00:38:26,810 --> 00:38:30,625
And if you use the right
measure of climate damage, which

719
00:38:30,625 --> 00:38:32,750
I think he used the wrong
measure of climate damage

720
00:38:32,750 --> 00:38:33,450
as well.

721
00:38:33,450 --> 00:38:35,300
But that's a serious issue.

722
00:38:40,230 --> 00:38:45,780
Earthquakes-- "Another
Fracking Earthquake,"

723
00:38:45,780 --> 00:38:46,740
from that t-shirt--

724
00:38:46,740 --> 00:38:49,410
great t-shirt.

725
00:38:49,410 --> 00:38:52,200
Again this year there
were discussions

726
00:38:52,200 --> 00:38:56,760
of earthquakes in
northeastern Ohio,

727
00:38:56,760 --> 00:39:01,200
thought to be associated
with basically dumping

728
00:39:01,200 --> 00:39:03,810
all that water deep
underground, kind

729
00:39:03,810 --> 00:39:08,700
of lubricating the formations.

730
00:39:08,700 --> 00:39:13,350
An Ohio regulatory authority,
with a lot of consultation

731
00:39:13,350 --> 00:39:17,760
with geologists, has
verified, they think,

732
00:39:17,760 --> 00:39:21,630
that in fact, the fracking was
the cause of small earthquakes.

733
00:39:21,630 --> 00:39:25,890
But small earthquakes
are earthquakes--

734
00:39:25,890 --> 00:39:27,910
magnitude 3 kind of
earthquake, for those

735
00:39:27,910 --> 00:39:29,160
who follow that sort of thing.

736
00:39:32,070 --> 00:39:34,350
In Ohio, they've
responded by saying

737
00:39:34,350 --> 00:39:35,790
it doesn't always do this.

738
00:39:35,790 --> 00:39:37,950
It does it when it's
injected in certain ways

739
00:39:37,950 --> 00:39:39,960
into certain formations.

740
00:39:39,960 --> 00:39:43,260
And they have a set of
regulations for Ohio

741
00:39:43,260 --> 00:39:48,660
that they think
will deal with this.

742
00:39:48,660 --> 00:39:51,030
But it's an issue--

743
00:39:51,030 --> 00:39:54,600
earthquakes, not
everybody's favorite.

744
00:39:54,600 --> 00:39:58,040
How many people have been
through an earthquake?

745
00:39:58,040 --> 00:40:00,030
Oh, yeah, from California?

746
00:40:00,030 --> 00:40:01,040
Where?

747
00:40:01,040 --> 00:40:02,510
All over.

748
00:40:02,510 --> 00:40:03,635
AUDIENCE: Last summer here.

749
00:40:03,635 --> 00:40:05,927
RICHARD SCHMALENSEE: Yeah,
there was a little one here.

750
00:40:05,927 --> 00:40:07,330
OK, that's true, that's true.

751
00:40:07,330 --> 00:40:10,100
That doesn't count.

752
00:40:10,100 --> 00:40:14,510
If it's not magnitude 5 at
least, it doesn't count.

753
00:40:14,510 --> 00:40:15,590
It's a weird feeling.

754
00:40:15,590 --> 00:40:20,630
And in Ohio it doesn't
happen, but it does now.

755
00:40:20,630 --> 00:40:21,530
It does now.

756
00:40:24,440 --> 00:40:28,910
And this one is actually very
interesting if, as I hope

757
00:40:28,910 --> 00:40:32,480
you did you looked at the
Jacoby et al. article.

758
00:40:32,480 --> 00:40:39,170
Their argument is if
you look down the road,

759
00:40:39,170 --> 00:40:42,260
and you're serious
about climate,

760
00:40:42,260 --> 00:40:46,130
you will recall from our
difficult negotiations

761
00:40:46,130 --> 00:40:49,520
the world's going to
need big reductions.

762
00:40:49,520 --> 00:40:52,130
And you can't get
the big reductions

763
00:40:52,130 --> 00:40:55,340
unless you can figure
out some magical way

764
00:40:55,340 --> 00:40:56,925
to do transportation.

765
00:40:56,925 --> 00:40:59,300
But you're not going to get
the big reductions unless you

766
00:40:59,300 --> 00:41:02,240
get the carbon emissions from
the electric power sector way

767
00:41:02,240 --> 00:41:03,710
down.

768
00:41:03,710 --> 00:41:05,600
Natural gas doesn't
do that for you.

769
00:41:05,600 --> 00:41:08,300
It gets it down,
but not way down.

770
00:41:08,300 --> 00:41:12,350
But if natural gas
is cheap, then you

771
00:41:12,350 --> 00:41:14,180
don't build a nuclear
plant, and you

772
00:41:14,180 --> 00:41:15,890
don't fool around with
nuclear technology

773
00:41:15,890 --> 00:41:19,670
because it's so noncompetitive.

774
00:41:19,670 --> 00:41:25,430
And wind and solar require
bigger subsidies to compete.

775
00:41:25,430 --> 00:41:29,840
And so the argument is it's
quite possible that cheap shale

776
00:41:29,840 --> 00:41:36,110
gas will slow the development
of very low-carbon technologies,

777
00:41:36,110 --> 00:41:39,110
and thus be a bridge to nowhere.

778
00:41:39,110 --> 00:41:42,770
We will easily lower the carbon
content of the electric power

779
00:41:42,770 --> 00:41:46,190
system, and heating,
and other things.

780
00:41:46,190 --> 00:41:49,490
But after a while, we won't
be able to go any farther,

781
00:41:49,490 --> 00:41:51,680
because we won't have
the technologies we need,

782
00:41:51,680 --> 00:41:55,040
because they will have been
non-competitive all along,

783
00:41:55,040 --> 00:41:58,710
and been very expensive
in subsidy terms.

784
00:41:58,710 --> 00:42:01,160
And so this could easily
be a bridge to nowhere

785
00:42:01,160 --> 00:42:06,850
that stops progress on
climate after a while.

786
00:42:06,850 --> 00:42:10,000
That's why it's a
complicated question.

787
00:42:10,000 --> 00:42:13,600
Short term, yeah, unless
you get a lot of leakage,

788
00:42:13,600 --> 00:42:17,140
but the long-term
question's really hard.

789
00:42:17,140 --> 00:42:19,980
What's it mean for
wind, solar, nuclear,

790
00:42:19,980 --> 00:42:23,230
or other carbon-free
technologies?

791
00:42:23,230 --> 00:42:27,260
The European Union,
I learned on Monday,

792
00:42:27,260 --> 00:42:31,270
has a formal plan to
have zero carbon dioxide

793
00:42:31,270 --> 00:42:37,360
emissions from its electric
power sector by 2050--

794
00:42:37,360 --> 00:42:39,180
zero.

795
00:42:39,180 --> 00:42:43,540
And as the presenter said, we
in Europe do a lot of talking.

796
00:42:43,540 --> 00:42:45,930
But if you do a
projection of what

797
00:42:45,930 --> 00:42:49,560
it takes to get 80% of
reduction in greenhouse gas

798
00:42:49,560 --> 00:42:53,250
emissions, boy, you better
be pretty low carbon.

799
00:42:53,250 --> 00:42:55,583
And natural gas won't
get you there no matter

800
00:42:55,583 --> 00:42:56,250
how cheap it is.

801
00:43:00,600 --> 00:43:01,920
What's the policy [INAUDIBLE]?

802
00:43:01,920 --> 00:43:03,570
Questions on any of this?

803
00:43:03,570 --> 00:43:04,800
Yeah, Max.

804
00:43:04,800 --> 00:43:09,980
AUDIENCE: [INAUDIBLE]
wind, solar, nuclear

805
00:43:09,980 --> 00:43:12,740
are fairly not competitive
right now, [INAUDIBLE]

806
00:43:12,740 --> 00:43:14,100
still develop the technology.

807
00:43:14,100 --> 00:43:18,520
So why would we keep
developing [INAUDIBLE]

808
00:43:18,520 --> 00:43:22,900
RICHARD SCHMALENSEE:
Well, wind and solar

809
00:43:22,900 --> 00:43:26,650
are being driven by
subsidies, and those subsidies

810
00:43:26,650 --> 00:43:31,040
get to be more expensive as the
alternative gets to be cheaper.

811
00:43:31,040 --> 00:43:35,920
So the argument is
yeah, you could,

812
00:43:35,920 --> 00:43:39,640
but if you were starting
a wind turbine business,

813
00:43:39,640 --> 00:43:43,480
you'd have to be really sure
of the subsidies or pretty sure

814
00:43:43,480 --> 00:43:46,840
that you can get the cost
down so you won't need them.

815
00:43:46,840 --> 00:43:50,740
The lower the cost of gas
is, the harder that second

816
00:43:50,740 --> 00:43:52,510
is to be sure of.

817
00:43:52,510 --> 00:43:56,000
And the lower the cost
of gas is, in a way,

818
00:43:56,000 --> 00:43:59,290
the first gets shaky because
it becomes hard politically

819
00:43:59,290 --> 00:44:02,200
to justify subsidizing
wind and solar

820
00:44:02,200 --> 00:44:04,712
when we're moving into gas
and emissions are going down

821
00:44:04,712 --> 00:44:05,545
and we're all swell.

822
00:44:08,620 --> 00:44:11,755
Nuclear, I think, is going
to be hit the hardest.

823
00:44:15,400 --> 00:44:18,130
Well, we may talk about nuclear.

824
00:44:18,130 --> 00:44:20,380
And we'll hear about nuclear
from some of your papers.

825
00:44:20,380 --> 00:44:22,690
So I'm looking
forward to learning.

826
00:44:22,690 --> 00:44:26,260
But I think what
people do tend to say

827
00:44:26,260 --> 00:44:29,410
is with gas at these
prices, even forget $2

828
00:44:29,410 --> 00:44:34,580
but $4, boy, is a nuclear
plant out of the money.

829
00:44:34,580 --> 00:44:37,090
And if you don't
build them, it's

830
00:44:37,090 --> 00:44:40,540
hard to really prove
out the technology.

831
00:44:40,540 --> 00:44:42,220
There's all these
fabulous designs

832
00:44:42,220 --> 00:44:45,460
for intrinsically safe,
small-scale nuclear plants,

833
00:44:45,460 --> 00:44:48,710
but unless we build them,
we're not going to know.

834
00:44:48,710 --> 00:44:51,980
And building them gets to be
a more expensive proposition.

835
00:44:51,980 --> 00:44:54,040
So it's hard to do
that nuclear stuff,

836
00:44:54,040 --> 00:44:56,200
because you really
need to do it at scale.

837
00:44:56,200 --> 00:44:59,410
That means somebody's got
to bear the commercial risk,

838
00:44:59,410 --> 00:45:02,510
and the commercial risk
gets bigger with cheap gas.

839
00:45:02,510 --> 00:45:04,990
So I think that's
the basic issue.

840
00:45:04,990 --> 00:45:07,790
I mean, the government
could say, look,

841
00:45:07,790 --> 00:45:11,500
I think this is so important
we're going to keep doing it.

842
00:45:11,500 --> 00:45:13,390
The Europeans might.

843
00:45:13,390 --> 00:45:16,580
I worry about us, and we'll
see about the Europeans.

844
00:45:16,580 --> 00:45:18,207
We'll see about the Europeans.

845
00:45:18,207 --> 00:45:18,790
Anything else?

846
00:45:18,790 --> 00:45:19,690
Yeah.

847
00:45:19,690 --> 00:45:23,660
AUDIENCE: Does it matter also,
though, if, in a few years,

848
00:45:23,660 --> 00:45:27,010
we'll have some sort of carbon
tax or something like that?

849
00:45:27,010 --> 00:45:29,080
Because then you
would start arguing

850
00:45:29,080 --> 00:45:32,767
that whatever emits carbon
will become less competitive.

851
00:45:32,767 --> 00:45:33,850
RICHARD SCHMALENSEE: Yeah.

852
00:45:33,850 --> 00:45:36,430
I mean, with a
serious carbon tax--

853
00:45:36,430 --> 00:45:45,330
again, cheap shale,
cheap gas, the advantage

854
00:45:45,330 --> 00:45:49,470
of renewables over
gas-fired power

855
00:45:49,470 --> 00:45:52,980
goes down with the price of
gas, given any carbon tax.

856
00:45:52,980 --> 00:45:56,940
You're right, the carbon
tax widens the gap.

857
00:45:56,940 --> 00:45:59,850
Cheap gas narrows it, so
you need a bigger carbon tax

858
00:45:59,850 --> 00:46:02,802
to have the same differential.

859
00:46:06,960 --> 00:46:12,032
I mean, we all say,
of course, we're

860
00:46:12,032 --> 00:46:13,740
going to have a carbon
tax at some point.

861
00:46:13,740 --> 00:46:15,532
We have to have a carbon
tax at some point.

862
00:46:19,150 --> 00:46:22,870
I know people who have been
saying that for 20 years.

863
00:46:22,870 --> 00:46:27,550
So I would love
to be young enough

864
00:46:27,550 --> 00:46:30,320
to have the feeling that of
course it'll happen soon.

865
00:46:30,320 --> 00:46:32,920
But I've watched it
not happen for so long.

866
00:46:32,920 --> 00:46:37,720
And I've watched the Republican
Party harden against climate

867
00:46:37,720 --> 00:46:41,830
so firmly that we'll see.

868
00:46:41,830 --> 00:46:46,330
It may take-- those
of us in the area

869
00:46:46,330 --> 00:46:49,720
speculate from time to time that
it's going to take something

870
00:46:49,720 --> 00:46:51,700
like an ozone hole.

871
00:46:51,700 --> 00:46:53,890
You recall or you
may not recall.

872
00:46:53,890 --> 00:46:55,600
What led to the
Montreal Protocol

873
00:46:55,600 --> 00:46:57,100
wasn't all the
brilliant chemical

874
00:46:57,100 --> 00:47:01,270
work done, a lot of it here
at MIT that won a Nobel Prize.

875
00:47:01,270 --> 00:47:05,530
It was the opening of the ozone
hole over the Antarctic, such

876
00:47:05,530 --> 00:47:06,970
an image.

877
00:47:06,970 --> 00:47:09,035
There's a hole in the ozone?

878
00:47:09,035 --> 00:47:11,410
Most of us didn't know there
was ozone to have a hole in.

879
00:47:11,410 --> 00:47:13,870
But there's a hole in
the ozone, and it's

880
00:47:13,870 --> 00:47:17,583
letting in all these harmful
rays, and it's getting bigger.

881
00:47:17,583 --> 00:47:18,625
That was pretty dramatic.

882
00:47:21,430 --> 00:47:24,610
Having the Arctic be
ice-free maybe-- maybe

883
00:47:24,610 --> 00:47:28,000
that'll be dramatic,
but we don't see that.

884
00:47:28,000 --> 00:47:30,790
Ozone hole, you go out,
and you get a suntan,

885
00:47:30,790 --> 00:47:32,500
and your risk of
skin cancer goes up.

886
00:47:32,500 --> 00:47:35,073
Well, that kind of comes home.

887
00:47:35,073 --> 00:47:36,490
There aren't any
more polar bears?

888
00:47:36,490 --> 00:47:38,740
Well, that's too bad,
but I can go to the zoo.

889
00:47:38,740 --> 00:47:42,900
So I don't know what
on the climate side--

890
00:47:42,900 --> 00:47:44,920
I love polar bears.

891
00:47:44,920 --> 00:47:47,470
Please don't quote me.

892
00:47:47,470 --> 00:47:52,240
They're "charismatic
megafauna," as the phrase goes.

893
00:47:52,240 --> 00:47:54,100
It may well take
something like that.

894
00:47:54,100 --> 00:47:58,140
Anyway, anything else before
I go to the policy arena?

895
00:47:58,140 --> 00:47:58,875
Yeah.

896
00:47:58,875 --> 00:48:01,725
AUDIENCE: Are the big
players large companies

897
00:48:01,725 --> 00:48:03,922
or small [INAUDIBLE]?

898
00:48:03,922 --> 00:48:05,880
RICHARD SCHMALENSEE: In
terms of this industry?

899
00:48:05,880 --> 00:48:07,860
AUDIENCE: Yeah, like
Chevron [INAUDIBLE]

900
00:48:07,860 --> 00:48:09,443
RICHARD SCHMALENSEE:
The big companies

901
00:48:09,443 --> 00:48:11,590
have bought small companies
to get the technology.

902
00:48:11,590 --> 00:48:13,620
So the people who
were big gas producers

903
00:48:13,620 --> 00:48:14,670
are big gas producers.

904
00:48:14,670 --> 00:48:17,180
Again, there are
still small players.

905
00:48:17,180 --> 00:48:18,430
There are still small players.

906
00:48:18,430 --> 00:48:24,300
AUDIENCE: [INAUDIBLE] direct
a little R&D money that way.

907
00:48:24,300 --> 00:48:27,010
RICHARD SCHMALENSEE:
I don't know.

908
00:48:27,010 --> 00:48:28,365
I don't have the sense--

909
00:48:34,490 --> 00:48:36,770
I could be wrong, but
I don't have the--

910
00:48:36,770 --> 00:48:39,020
and we do sort of
see these folks

911
00:48:39,020 --> 00:48:42,230
when they come to the Energy
Initiative to fund research.

912
00:48:42,230 --> 00:48:44,330
So we get some sense of
what at least some of them

913
00:48:44,330 --> 00:48:45,500
are interested in.

914
00:48:45,500 --> 00:48:49,490
I hear a lot more
interest in finding

915
00:48:49,490 --> 00:48:52,550
technologies than
extraction technologies,

916
00:48:52,550 --> 00:48:58,010
3D seismic underground
mapping, improvements there,

917
00:48:58,010 --> 00:48:59,375
rather than better drilling.

918
00:49:03,080 --> 00:49:06,950
It's a young technology, but
it seems surprisingly mature.

919
00:49:06,950 --> 00:49:09,320
Nobody says, "If only
we could do this."

920
00:49:09,320 --> 00:49:10,910
The one issue that
people talk about,

921
00:49:10,910 --> 00:49:14,360
and "The Times" mentions it a
little bit, is the technology

922
00:49:14,360 --> 00:49:19,610
was aimed at gas and it's
not yet tuned for oil.

923
00:49:19,610 --> 00:49:21,260
And there are places
where there's oil,

924
00:49:21,260 --> 00:49:23,468
but they're getting a ton
of oil out of North Dakota,

925
00:49:23,468 --> 00:49:25,370
so it's not too badly tuned.

926
00:49:25,370 --> 00:49:29,750
So this particular
technology doesn't

927
00:49:29,750 --> 00:49:32,278
seem to be a huge R&D target.

928
00:49:32,278 --> 00:49:33,320
At least that's my sense.

929
00:49:36,140 --> 00:49:37,100
It's very deep shale.

930
00:49:37,100 --> 00:49:41,860
The stuff that would help you
figure out where the gas is

931
00:49:41,860 --> 00:49:43,940
seems to be higher
on their wish list

932
00:49:43,940 --> 00:49:45,740
than techniques to get it out.

933
00:49:45,740 --> 00:49:48,050
If they can find it, they
can go down 10,000 feet,

934
00:49:48,050 --> 00:49:50,240
drill sideways, break the
shale, and get the gas

935
00:49:50,240 --> 00:49:51,830
out, which is pretty amazing.

936
00:49:55,910 --> 00:50:01,900
The policy arena-- so the
PennEnvironment report

937
00:50:01,900 --> 00:50:03,550
is pretty good on this.

938
00:50:03,550 --> 00:50:06,850
It's a bit of an advocacy
piece, but it's pretty good.

939
00:50:06,850 --> 00:50:14,590
You would normally think that
the air stuff would be EPA,

940
00:50:14,590 --> 00:50:17,350
the air pollution
issues I talked about.

941
00:50:17,350 --> 00:50:19,510
There is a Safe
Drinking Water Act

942
00:50:19,510 --> 00:50:21,140
that you would think
would cover stuff

943
00:50:21,140 --> 00:50:22,390
that would affect the aquifer.

944
00:50:22,390 --> 00:50:25,990
And indeed, it does
in a lot of areas.

945
00:50:25,990 --> 00:50:33,110
But there are exemptions to
a lot of federal legislation,

946
00:50:33,110 --> 00:50:36,640
put in place quietly in
the middle of the night,

947
00:50:36,640 --> 00:50:39,650
that means there's
relatively little EPA can do.

948
00:50:39,650 --> 00:50:41,840
It can set some standards
for local air emissions.

949
00:50:41,840 --> 00:50:43,910
And it's doing that
for methane emissions.

950
00:50:43,910 --> 00:50:47,690
It will probably have
regs on methane leakage.

951
00:50:47,690 --> 00:50:52,640
But the water side is
pretty limited by law.

952
00:50:52,640 --> 00:50:56,150
I mean, it covers a lot of
stuff that pollutes aquifers.

953
00:50:56,150 --> 00:50:57,560
It can't get at this.

954
00:51:01,690 --> 00:51:03,070
And even if it
set the standards,

955
00:51:03,070 --> 00:51:05,170
the enforcement would
be at the state level.

956
00:51:05,170 --> 00:51:11,740
And if you think about it,
this is not easy enforcement.

957
00:51:11,740 --> 00:51:15,280
I showed you 2,400 wells
in Pennsylvania-- lots

958
00:51:15,280 --> 00:51:17,153
more coming.

959
00:51:17,153 --> 00:51:19,570
How many inspectors do you
think the State of Pennsylvania

960
00:51:19,570 --> 00:51:22,210
has to inspect
natural gas wells?

961
00:51:22,210 --> 00:51:24,760
Well, they haven't
had any natural gas

962
00:51:24,760 --> 00:51:26,290
drilling in
Pennsylvania or drilling

963
00:51:26,290 --> 00:51:28,390
for anything in Pennsylvania.

964
00:51:28,390 --> 00:51:32,500
So they probably started
out with, let's say zero.

965
00:51:32,500 --> 00:51:36,010
And maybe they have a few if
their budget's been generous.

966
00:51:36,010 --> 00:51:38,320
So enforcement is a state issue.

967
00:51:38,320 --> 00:51:42,880
The rules about the
fluids are state issues.

968
00:51:42,880 --> 00:51:46,270
EPA can't control that.

969
00:51:46,270 --> 00:51:49,750
Rules for that well,
the bore, how well it's

970
00:51:49,750 --> 00:51:52,540
sealed, how thick the concrete
is, what, kind of concrete

971
00:51:52,540 --> 00:51:56,440
all of the stuff that gets you
down below the aquifer and that

972
00:51:56,440 --> 00:52:00,160
has to be inspected--
that's the state.

973
00:52:00,160 --> 00:52:07,020
The experience and attitudes
vary enormously among states.

974
00:52:07,020 --> 00:52:11,130
New York, as I'll mention in
more detail, has a moratorium.

975
00:52:11,130 --> 00:52:13,500
You cannot do this in
the State of New York--

976
00:52:13,500 --> 00:52:16,780
full stop, done.

977
00:52:16,780 --> 00:52:20,770
Pennsylvania is
letting people drill.

978
00:52:20,770 --> 00:52:22,630
Does Pennsylvania
have expertise?

979
00:52:22,630 --> 00:52:24,430
Does Pennsylvania have
an adequate budget?

980
00:52:24,430 --> 00:52:26,710
Does Pennsylvania
have adequate laws?

981
00:52:26,710 --> 00:52:28,660
The PennEnvironment
report suggests not.

982
00:52:28,660 --> 00:52:29,800
Others may disagree.

983
00:52:29,800 --> 00:52:31,720
I don't know enough
to have a view.

984
00:52:34,270 --> 00:52:38,350
Texas does oil and gas.

985
00:52:38,350 --> 00:52:40,450
They've been drilling
and fracking in Texas

986
00:52:40,450 --> 00:52:43,000
for a long time--
not at this scale.

987
00:52:43,000 --> 00:52:49,727
And Texas also has a lot of
rural areas, where it's dusty,

988
00:52:49,727 --> 00:52:51,310
and it's dirty, and
it's I don't care.

989
00:52:51,310 --> 00:52:52,570
Nobody lives here.

990
00:52:52,570 --> 00:52:53,410
It's a job.

991
00:52:53,410 --> 00:52:54,160
There are jobs.

992
00:52:54,160 --> 00:52:54,827
That's fabulous.

993
00:52:58,060 --> 00:53:00,100
Some states are revving up.

994
00:53:00,100 --> 00:53:03,100
There's a lot of
industry interest.

995
00:53:03,100 --> 00:53:05,470
Texas is now requiring
fluid disclosure.

996
00:53:05,470 --> 00:53:06,640
I think others are.

997
00:53:10,040 --> 00:53:13,560
There's an interesting
industry split.

998
00:53:13,560 --> 00:53:18,170
The small guys
oppose regulation.

999
00:53:18,170 --> 00:53:21,840
The small guys say, I don't want
to tell you what my fluid is.

1000
00:53:21,840 --> 00:53:23,210
I don't want to be inspected.

1001
00:53:23,210 --> 00:53:24,110
I'm doing a good job.

1002
00:53:24,110 --> 00:53:24,735
Leave me alone.

1003
00:53:24,735 --> 00:53:27,690
I'm just a little guy.

1004
00:53:27,690 --> 00:53:30,570
You talk to people from
Exxon, and people from Exxon,

1005
00:53:30,570 --> 00:53:35,910
and Chevron, and those guys
say, we need regulation.

1006
00:53:35,910 --> 00:53:37,625
This is anti-stereotype,
and it's worth

1007
00:53:37,625 --> 00:53:39,000
thinking about
because we'll come

1008
00:53:39,000 --> 00:53:41,850
to public policy
in a little while.

1009
00:53:41,850 --> 00:53:43,990
They want regulation.

1010
00:53:43,990 --> 00:53:46,167
Why do they want regulation?

1011
00:53:46,167 --> 00:53:48,750
They don't want to see a lot of
those videos of drinking water

1012
00:53:48,750 --> 00:53:51,000
burning.

1013
00:53:51,000 --> 00:53:53,670
They don't want a lot of states
to do what New York has done

1014
00:53:53,670 --> 00:53:57,160
and say, you can't drill here.

1015
00:53:57,160 --> 00:54:02,790
So the big guys think,
OK, it adds $1 or $2

1016
00:54:02,790 --> 00:54:07,270
per million cubic feet, to
control methane emissions,

1017
00:54:07,270 --> 00:54:11,680
to inspect the wellbore, to
limit the fracking fluids,

1018
00:54:11,680 --> 00:54:17,700
to disclose everything. $1
is nothing to the big guys.

1019
00:54:17,700 --> 00:54:19,740
$1 might be something
to the little guys.

1020
00:54:19,740 --> 00:54:22,450
The big guys are
afraid of a backlash.

1021
00:54:22,450 --> 00:54:25,330
The big guys are afraid,
and you hear them say this

1022
00:54:25,330 --> 00:54:26,890
after about two drinks.

1023
00:54:26,890 --> 00:54:30,190
This industry could go to
the way of nuclear power.

1024
00:54:30,190 --> 00:54:32,680
The public could be so
fed up with earthquakes,

1025
00:54:32,680 --> 00:54:36,400
and groundwater pollution,
and burning water coming out

1026
00:54:36,400 --> 00:54:40,400
of faucets, that
we get shut down.

1027
00:54:40,400 --> 00:54:45,200
And the country that could have
all this abundant, relatively

1028
00:54:45,200 --> 00:54:48,300
clean energy won't get it.

1029
00:54:48,300 --> 00:54:53,940
So the big guys are in favor
of sensible regulation.

1030
00:54:53,940 --> 00:54:57,260
There's a lot of industry
best-practice activity.

1031
00:54:57,260 --> 00:55:01,130
There's a lot of work by
the big guys with the states

1032
00:55:01,130 --> 00:55:04,150
to avoid a backlash.

1033
00:55:04,150 --> 00:55:07,810
Please impose reasonable
costs on this industry

1034
00:55:07,810 --> 00:55:09,085
we will still be cheap.

1035
00:55:11,720 --> 00:55:15,240
Don't shut it down.

1036
00:55:15,240 --> 00:55:17,930
An awful lot in the
environment community

1037
00:55:17,930 --> 00:55:21,840
think state
regulation can't work.

1038
00:55:21,840 --> 00:55:24,690
Pennsylvania's going to
regulate natural gas drilling?

1039
00:55:24,690 --> 00:55:27,310
They haven't seen a
well for 100 years.

1040
00:55:27,310 --> 00:55:28,620
What?

1041
00:55:28,620 --> 00:55:33,335
So they say it's
hard to enforce.

1042
00:55:33,335 --> 00:55:35,710
You're going to inspect every
well as it's being drilled.

1043
00:55:35,710 --> 00:55:37,627
You've got to monitor
the quality of concrete.

1044
00:55:37,627 --> 00:55:39,360
This is a serious
enforcement problem.

1045
00:55:39,360 --> 00:55:41,130
They're all over the landscape.

1046
00:55:41,130 --> 00:55:43,820
You can't do it.

1047
00:55:43,820 --> 00:55:46,970
Yes, in principle, regulation
might make this safe,

1048
00:55:46,970 --> 00:55:49,980
and so forth, and clean,
but you can't do it.

1049
00:55:49,980 --> 00:55:52,210
So you should just kill it.

1050
00:55:52,210 --> 00:55:54,770
Just kill it.

1051
00:55:54,770 --> 00:55:58,070
Again, if you
Google fracking on--

1052
00:55:58,070 --> 00:56:03,800
if you look at Google Images
and call for fracking,

1053
00:56:03,800 --> 00:56:07,520
you will get posters
and rallies galore--

1054
00:56:07,520 --> 00:56:09,020
ban it, ban it, ban it.

1055
00:56:09,020 --> 00:56:11,790
Stop fracking in Ohio.

1056
00:56:11,790 --> 00:56:14,330
Where else do you see a lot of--

1057
00:56:14,330 --> 00:56:15,800
it's banned in New York.

1058
00:56:15,800 --> 00:56:17,450
It's banned in France.

1059
00:56:17,450 --> 00:56:20,750
It's banned in at
least one German state.

1060
00:56:20,750 --> 00:56:23,480
And there are debates
in lots of other places

1061
00:56:23,480 --> 00:56:26,810
that say basically,
it's a moratorium.

1062
00:56:26,810 --> 00:56:32,300
If you can prove it's clean
and safe, we'll let it go on.

1063
00:56:32,300 --> 00:56:36,110
In North Dakota, it's jobs.

1064
00:56:36,110 --> 00:56:39,980
In Texas, it's we know this
and nobody lives out there

1065
00:56:39,980 --> 00:56:41,060
on those ranches anyway.

1066
00:56:41,060 --> 00:56:43,730
In New York, this is New York.

1067
00:56:43,730 --> 00:56:45,110
People live here.

1068
00:56:45,110 --> 00:56:46,870
Pennsylvania, people live here.

1069
00:56:46,870 --> 00:56:47,493
Yeah, Jessica.

1070
00:56:47,493 --> 00:56:50,160
AUDIENCE: How long could they go
using the natural gas reserves?

1071
00:56:50,160 --> 00:56:51,500
[INAUDIBLE]

1072
00:56:51,500 --> 00:56:53,948
RICHARD SCHMALENSEE: The ones
we have now, the shale gas?

1073
00:56:53,948 --> 00:56:55,580
AUDIENCE: Mm-hmm.

1074
00:56:55,580 --> 00:56:57,740
RICHARD SCHMALENSEE:
Hard to know--

1075
00:56:57,740 --> 00:57:01,460
what we're getting are estimates
of probably recoverable

1076
00:57:01,460 --> 00:57:02,390
reserves.

1077
00:57:02,390 --> 00:57:05,000
Proved reserves are much
lower, but estimates

1078
00:57:05,000 --> 00:57:06,750
are hundreds of years.

1079
00:57:06,750 --> 00:57:11,010
It's just a lot of
gas at low cost.

1080
00:57:11,010 --> 00:57:19,880
So what that thought leads to,
and the fact that it's cheap

1081
00:57:19,880 --> 00:57:24,190
leads to, it may be
impossible to kill

1082
00:57:24,190 --> 00:57:29,590
because the economic benefits
are so large that politically

1083
00:57:29,590 --> 00:57:32,110
it may be hard to kill.

1084
00:57:32,110 --> 00:57:34,150
But suppose everybody
in Pennsylvania

1085
00:57:34,150 --> 00:57:37,450
has their water burn
when it comes out of the.

1086
00:57:37,450 --> 00:57:42,650
Tap will New York
drop its moratorium?

1087
00:57:42,650 --> 00:57:44,390
Probably not.

1088
00:57:44,390 --> 00:57:46,590
Will Ohio impose a moratorium?

1089
00:57:46,590 --> 00:57:48,780
Probably.

1090
00:57:48,780 --> 00:57:53,610
So if you can't make it safe--

1091
00:57:53,610 --> 00:57:54,860
what's a little burning water?

1092
00:57:54,860 --> 00:57:55,652
I mean it's things.

1093
00:57:55,652 --> 00:58:01,610
But anyway, think about the
stuff we breathe every day.

1094
00:58:01,610 --> 00:58:02,720
But that's dramatic.

1095
00:58:02,720 --> 00:58:06,240
That's a YouTube video.

1096
00:58:06,240 --> 00:58:11,400
The PennEnvironment report has
sort of a balanced proposal.

1097
00:58:11,400 --> 00:58:14,620
It talks about
there's another part

1098
00:58:14,620 --> 00:58:16,550
of the environmental community.

1099
00:58:16,550 --> 00:58:19,480
It clearly couldn't be
killed in Pennsylvania.

1100
00:58:19,480 --> 00:58:22,613
It's 3,000 producing wells
and 10 a day being permitted.

1101
00:58:22,613 --> 00:58:23,530
What, are you kidding?

1102
00:58:23,530 --> 00:58:24,572
We're going to kill this?

1103
00:58:24,572 --> 00:58:26,560
I don't think so, not now.

1104
00:58:26,560 --> 00:58:28,810
So they say what you
need to do is eliminate

1105
00:58:28,810 --> 00:58:30,640
these federal
exemptions so EPA can

1106
00:58:30,640 --> 00:58:34,630
play a role for groundwater.

1107
00:58:34,630 --> 00:58:37,780
And they have a number of very
specific suggestions, which

1108
00:58:37,780 --> 00:58:40,510
I don't want to go in,
for tightening regulation

1109
00:58:40,510 --> 00:58:42,670
in Pennsylvania, like not
letting this stuff happen

1110
00:58:42,670 --> 00:58:46,570
near a school or near a hospital
just because there is increased

1111
00:58:46,570 --> 00:58:49,540
local pollution, no
matter what you do,

1112
00:58:49,540 --> 00:58:54,310
and giving the agency
some money to enforce.

1113
00:58:54,310 --> 00:58:56,410
It's easy to write rules.

1114
00:58:56,410 --> 00:58:58,000
Enforcement takes people.

1115
00:59:00,650 --> 00:59:03,160
And then finally, that
lovely interview with Fred

1116
00:59:03,160 --> 00:59:07,290
Krupp from the
Environmental Defense Fund.

1117
00:59:07,290 --> 00:59:10,140
As we'll talk about later,
the Environmental Defense Fund

1118
00:59:10,140 --> 00:59:13,860
has played a very
interesting role historically

1119
00:59:13,860 --> 00:59:17,970
in making environmental
policy in this country,

1120
00:59:17,970 --> 00:59:20,430
to the extent possible,
economically sensible.

1121
00:59:23,490 --> 00:59:29,130
And Krupp argues you can't
do anything in Washington,

1122
00:59:29,130 --> 00:59:33,030
so to say the EPA
should play a role--

1123
00:59:33,030 --> 00:59:37,400
of course, it should, but
you can't get that passed.

1124
00:59:37,400 --> 00:59:39,470
You can't get
sensible legislation

1125
00:59:39,470 --> 00:59:40,580
passed in Washington.

1126
00:59:40,580 --> 00:59:45,410
You can't get those loopholes
closed, at least not now .

1127
00:59:45,410 --> 00:59:47,210
And you probably
shouldn't kill it

1128
00:59:47,210 --> 00:59:50,930
because the benefits
are so large.

1129
00:59:50,930 --> 00:59:54,080
I think underlying that
is a realist saying,

1130
00:59:54,080 --> 00:59:57,500
you probably can't kill it
because the economic benefits

1131
00:59:57,500 --> 00:59:59,610
are so large for so many people.

1132
00:59:59,610 --> 01:00:03,930
So there really isn't any choice
but to work with the states.

1133
01:00:03,930 --> 01:00:05,870
Encourage the states
to talk to each other.

1134
01:00:05,870 --> 01:00:11,120
Encourage the big producers
to work with industry.

1135
01:00:11,120 --> 01:00:14,630
So that's sort of the
policy environment, I think.

1136
01:00:14,630 --> 01:00:15,440
Reactions?

1137
01:00:15,440 --> 01:00:17,300
Comments?

1138
01:00:17,300 --> 01:00:19,400
Anything?

1139
01:00:19,400 --> 01:00:20,960
OK, let me throw the floor open.

1140
01:00:20,960 --> 01:00:23,540
Suppose we were lucky
enough or unfortunate enough

1141
01:00:23,540 --> 01:00:27,640
to have shale in Massachusetts.

1142
01:00:27,640 --> 01:00:28,660
You're an MIT students.

1143
01:00:28,660 --> 01:00:31,000
You can march on
the State House.

1144
01:00:31,000 --> 01:00:33,220
You can get TV time.

1145
01:00:33,220 --> 01:00:36,450
You can make noise.

1146
01:00:36,450 --> 01:00:38,380
What do you do?

1147
01:00:38,380 --> 01:00:40,780
Drill, baby, drill--
we need the jobs.

1148
01:00:40,780 --> 01:00:42,460
We need the benefits.

1149
01:00:42,460 --> 01:00:43,678
Let's be real.

1150
01:00:43,678 --> 01:00:44,470
Let's make it hard.

1151
01:00:44,470 --> 01:00:46,210
It's not under Boston.

1152
01:00:46,210 --> 01:00:47,232
That would be too easy.

1153
01:00:47,232 --> 01:00:48,940
They're never going
to drill under Paris.

1154
01:00:48,940 --> 01:00:50,773
But suppose the shale
is in the western part

1155
01:00:50,773 --> 01:00:54,280
of the state, which has
been chronically depressed.

1156
01:00:54,280 --> 01:00:56,830
Suppose that's
where the shale is,

1157
01:00:56,830 --> 01:00:58,848
the western part, not
the Berkshires, kind

1158
01:00:58,848 --> 01:00:59,890
of central Massachusetts.

1159
01:00:59,890 --> 01:01:04,450
Pittsfield, has anybody
been to Pittsfield?

1160
01:01:04,450 --> 01:01:06,250
You've been to
Pittsfield, all right.

1161
01:01:06,250 --> 01:01:07,388
Are you from Pittsfield?

1162
01:01:07,388 --> 01:01:08,680
AUDIENCE: It's near Tanglewood.

1163
01:01:08,680 --> 01:01:10,472
RICHARD SCHMALENSEE:
It is near Tanglewood.

1164
01:01:10,472 --> 01:01:11,290
Tanglewood is nice.

1165
01:01:11,290 --> 01:01:14,020
Pittsfield, well, MASS
MoCA, but otherwise

1166
01:01:14,020 --> 01:01:17,410
been depressed for a long time.

1167
01:01:17,410 --> 01:01:19,930
We've got shale in Pittsfield,
in the central part

1168
01:01:19,930 --> 01:01:23,740
of Massachusetts where
there are no jobs,

1169
01:01:23,740 --> 01:01:26,140
and you're going to
march on the State House.

1170
01:01:26,140 --> 01:01:29,472
Alex, was that your hand I saw?

1171
01:01:29,472 --> 01:01:31,014
AUDIENCE: I was
going to say, I think

1172
01:01:31,014 --> 01:01:34,460
if there is a way to do it
safely, if they can figure out

1173
01:01:34,460 --> 01:01:37,514
how to do it so your
faucet isn't burning,

1174
01:01:37,514 --> 01:01:39,410
then I think it
would be [INAUDIBLE]..

1175
01:01:39,410 --> 01:01:41,484
But otherwise, I
don't think it's worth

1176
01:01:41,484 --> 01:01:42,780
it if you're causing more
problems to all the people

1177
01:01:42,780 --> 01:01:43,770
who live there.

1178
01:01:43,770 --> 01:01:46,760
Because there are a lot
of people in [INAUDIBLE]..

1179
01:01:46,760 --> 01:01:48,650
RICHARD SCHMALENSEE:
Even in Pittsfield.

1180
01:01:48,650 --> 01:01:51,320
So would you
advocate a moratorium

1181
01:01:51,320 --> 01:01:53,680
until we know for sure
how to do it safely?

1182
01:01:53,680 --> 01:01:57,355
AUDIENCE: I'd advocate
for regulations.

1183
01:01:57,355 --> 01:01:59,730
RICHARD SCHMALENSEE: Are we
sure we know how to regulate?

1184
01:01:59,730 --> 01:02:00,570
AUDIENCE: No.

1185
01:02:00,570 --> 01:02:02,280
RICHARD SCHMALENSEE: No.

1186
01:02:02,280 --> 01:02:04,890
OK, but you would say
at the very least,

1187
01:02:04,890 --> 01:02:06,840
the state ought to
acquire some expertise.

1188
01:02:06,840 --> 01:02:08,450
We ought to have
a legal framework.

1189
01:02:08,450 --> 01:02:09,992
I mean, nobody's
drilled for anything

1190
01:02:09,992 --> 01:02:12,960
but water in
Massachusetts ever, so we

1191
01:02:12,960 --> 01:02:16,170
don't have anybody who
knows about deep wells

1192
01:02:16,170 --> 01:02:19,110
or groundwater conta-- well,
we know about groundwater

1193
01:02:19,110 --> 01:02:20,160
contamination.

1194
01:02:20,160 --> 01:02:21,930
OK, anybody else?

1195
01:02:25,080 --> 01:02:25,860
Arianna.

1196
01:02:25,860 --> 01:02:29,610
AUDIENCE: My parents have a
house in upstate [INAUDIBLE]

1197
01:02:29,610 --> 01:02:31,170
New York.

1198
01:02:31,170 --> 01:02:33,610
And a couple of years
ago, actually, our town

1199
01:02:33,610 --> 01:02:37,770
exploded the
anti-fracking [INAUDIBLE]..

1200
01:02:37,770 --> 01:02:43,150
We were on literally
everyone's yard.

1201
01:02:43,150 --> 01:02:45,630
And I think that
even though there

1202
01:02:45,630 --> 01:02:50,970
are a lot of large-scale
benefits, in the end,

1203
01:02:50,970 --> 01:02:52,600
I think it's great
to do in Texas

1204
01:02:52,600 --> 01:02:54,900
and places where people
don't really live.

1205
01:02:54,900 --> 01:02:59,820
But there is a large segment
of not in my backyard.

1206
01:02:59,820 --> 01:03:05,670
And we like our house,
and primary residence

1207
01:03:05,670 --> 01:03:06,780
in New York City.

1208
01:03:06,780 --> 01:03:08,880
Part of it, I know, is
that it's nicer and clean.

1209
01:03:08,880 --> 01:03:14,070
The air is clean, and getting
to spend some time with nature,

1210
01:03:14,070 --> 01:03:14,570
I guess.

1211
01:03:16,903 --> 01:03:19,320
RICHARD SCHMALENSEE: I hope
you have some nature up there.

1212
01:03:19,320 --> 01:03:19,820
Yeah

1213
01:03:19,820 --> 01:03:21,930
AUDIENCE: Lots of trees.

1214
01:03:21,930 --> 01:03:27,540
But the idea it's great if
energy prices fall, but I

1215
01:03:27,540 --> 01:03:30,690
don't want it at my expense.

1216
01:03:30,690 --> 01:03:32,460
RICHARD SCHMALENSEE:
So you'd advocate,

1217
01:03:32,460 --> 01:03:35,070
if we can translate to western
Massachusetts, which isn't

1218
01:03:35,070 --> 01:03:37,680
that dissimilar, you'd say, no.

1219
01:03:37,680 --> 01:03:38,263
No, thank you.

1220
01:03:38,263 --> 01:03:39,680
They're doing it
in Texas, they're

1221
01:03:39,680 --> 01:03:40,920
doing it in North Dakota.

1222
01:03:40,920 --> 01:03:43,503
The people in Pennsylvania may
or may not have made a mistake,

1223
01:03:43,503 --> 01:03:45,240
but we're not going
to do it, full stop.

1224
01:03:45,240 --> 01:03:47,070
OK.

1225
01:03:47,070 --> 01:03:50,140
AUDIENCE: I would
also say, why would--

1226
01:03:50,140 --> 01:03:55,200
if you're [INAUDIBLE] or whoever
has a significant population

1227
01:03:55,200 --> 01:03:57,210
and has no experience
with it, why

1228
01:03:57,210 --> 01:04:01,200
be in a hurry to go ahead
and drill everything and not

1229
01:04:01,200 --> 01:04:05,190
just wait to see some
sort of regulations?

1230
01:04:05,190 --> 01:04:09,000
I mean, to have
a clear framework

1231
01:04:09,000 --> 01:04:11,370
of what you should regulate,
and how you should do it,

1232
01:04:11,370 --> 01:04:14,310
and what are the
consequences, and all that.

1233
01:04:14,310 --> 01:04:19,140
So like North Dakota and
Texas have a smaller, lower

1234
01:04:19,140 --> 01:04:20,220
population density.

1235
01:04:20,220 --> 01:04:22,860
Figure out the hard
stuff, and then

1236
01:04:22,860 --> 01:04:25,890
figure out if you want to do it
or not in a few years when you

1237
01:04:25,890 --> 01:04:28,050
know what the consequences are.

1238
01:04:28,050 --> 01:04:28,500
RICHARD SCHMALENSEE:
Of course, we

1239
01:04:28,500 --> 01:04:30,480
may not be happy with a
regime that would make

1240
01:04:30,480 --> 01:04:32,610
them unhappy in North Dakota.

1241
01:04:32,610 --> 01:04:35,100
Because they're desperate
for jobs and we're

1242
01:04:35,100 --> 01:04:36,000
not that desperate.

1243
01:04:36,000 --> 01:04:38,670
So they might be willing
to deal with that

1244
01:04:38,670 --> 01:04:42,000
to accept environmental
harms that we wouldn't like.

1245
01:04:42,000 --> 01:04:44,370
So you wouldn't just want
to follow them, necessarily.

1246
01:04:44,370 --> 01:04:46,230
Julian.

1247
01:04:46,230 --> 01:04:49,260
AUDIENCE: So I'm going
to agree with Alex

1248
01:04:49,260 --> 01:04:50,820
for the most part,
in that regulation

1249
01:04:50,820 --> 01:04:52,800
is needed to some extent.

1250
01:04:52,800 --> 01:04:55,710
It is needed to
keep things safe.

1251
01:04:55,710 --> 01:04:57,840
But realistically,
you're going to have

1252
01:04:57,840 --> 01:05:02,400
to work very, very hard to keep
people's hands off of money

1253
01:05:02,400 --> 01:05:04,530
sitting underground.

1254
01:05:04,530 --> 01:05:06,300
I'm from Santa Barbara, and--

1255
01:05:07,090 --> 01:05:09,590
RICHARD SCHMALENSEE: You can
see the oil out there, can you?

1256
01:05:09,590 --> 01:05:14,640
AUDIENCE: You can see 13
oil rigs from my house.

1257
01:05:14,640 --> 01:05:20,850
And there is a very, very, very
strong environmental movement.

1258
01:05:20,850 --> 01:05:25,920
It's California, blue Democrat
as hard as you can go,

1259
01:05:25,920 --> 01:05:27,000
pretty much.

1260
01:05:27,000 --> 01:05:28,290
RICHARD SCHMALENSEE: You
do have some Republicans

1261
01:05:28,290 --> 01:05:28,998
in Santa Barbara.

1262
01:05:28,998 --> 01:05:32,280
AUDIENCE: We do, but
it is quite blue.

1263
01:05:32,280 --> 01:05:34,290
It is quite, quite blue.

1264
01:05:34,290 --> 01:05:36,400
And still people drill for oil.

1265
01:05:36,400 --> 01:05:40,500
You can see the
oil rigs out there.

1266
01:05:40,500 --> 01:05:42,760
There are even pumps
on land and whatnot.

1267
01:05:42,760 --> 01:05:45,360
And it's kind of
a tough argument

1268
01:05:45,360 --> 01:05:47,160
to go against it economically.

1269
01:05:47,160 --> 01:05:50,670
I mean, when you can say that
OK, these people might have

1270
01:05:50,670 --> 01:05:56,667
some bad health effects
from fracking and whatnot,

1271
01:05:56,667 --> 01:05:58,500
but if they can't afford
health care anyway,

1272
01:05:58,500 --> 01:06:05,017
then what's the
difference, really?

1273
01:06:05,017 --> 01:06:07,350
RICHARD SCHMALENSEE: Well,
we have universal health care

1274
01:06:07,350 --> 01:06:09,940
in Massachusetts, to a
pretty good approximation.

1275
01:06:09,940 --> 01:06:11,100
So we're OK here.

1276
01:06:11,100 --> 01:06:13,650
So we may as well just
drill because everybody

1277
01:06:13,650 --> 01:06:15,750
can get health care?

1278
01:06:15,750 --> 01:06:22,770
AUDIENCE: Well-- like if
someone can't afford something,

1279
01:06:22,770 --> 01:06:23,970
the economic benefits--

1280
01:06:23,970 --> 01:06:27,327
I mean, not necessarily in
Massachusetts exclusively,

1281
01:06:27,327 --> 01:06:29,160
but let's say in another
state which doesn't

1282
01:06:29,160 --> 01:06:30,450
have universal health care.

1283
01:06:30,450 --> 01:06:32,130
RICHARD SCHMALENSEE: Let's say.

1284
01:06:32,130 --> 01:06:33,090
AUDIENCE: That
argument could be--

1285
01:06:33,090 --> 01:06:34,840
RICHARD SCHMALENSEE: Connecticut
or western Connecticut,

1286
01:06:34,840 --> 01:06:35,820
Rhode Island, yeah.

1287
01:06:35,820 --> 01:06:40,670
AUDIENCE: I mean, there are
economic benefits, which can

1288
01:06:40,670 --> 01:06:44,670
in turn have other benefits.

1289
01:06:44,670 --> 01:06:48,100
And yes, there should
definitely be regulation,

1290
01:06:48,100 --> 01:06:51,900
but the argument to say,
no, we should absolutely not

1291
01:06:51,900 --> 01:06:53,850
touch this stuff
that's under the ground

1292
01:06:53,850 --> 01:06:57,270
is going to be extremely,
extremely hard, especially when

1293
01:06:57,270 --> 01:07:02,790
you go against probably
all the lobbyists from X

1294
01:07:02,790 --> 01:07:06,403
different firms which
are for this measure.

1295
01:07:06,403 --> 01:07:08,820
RICHARD SCHMALENSEE: And all
the mayors of depressed towns

1296
01:07:08,820 --> 01:07:10,290
who say, we need jobs.

1297
01:07:10,290 --> 01:07:12,060
We need jobs.

1298
01:07:12,060 --> 01:07:14,323
[INAUDIBLE],, you're going
to agree or disagree?

1299
01:07:14,323 --> 01:07:15,531
AUDIENCE: Disagree, actually.

1300
01:07:15,531 --> 01:07:18,080
Because when we had the
climate negotiations,

1301
01:07:18,080 --> 01:07:19,860
we were talking
about how urgent it

1302
01:07:19,860 --> 01:07:21,844
is to start taking
action to reduce

1303
01:07:21,844 --> 01:07:23,828
the CO2 emissions [INAUDIBLE].

1304
01:07:26,810 --> 01:07:29,500
So if you start
using this method,

1305
01:07:29,500 --> 01:07:32,132
and many studies
shows that it might

1306
01:07:32,132 --> 01:07:34,810
have very bad effects on the
environment, and in 10 years

1307
01:07:34,810 --> 01:07:39,160
we will see what are the bad
effects that this method had,

1308
01:07:39,160 --> 01:07:41,920
it's going to be
like 2022 and then

1309
01:07:41,920 --> 01:07:46,210
we start discussing again how
to reduce greenhouse emissions.

1310
01:07:46,210 --> 01:07:49,450
I think it's going to
be too late by then.

1311
01:07:49,450 --> 01:07:51,340
RICHARD SCHMALENSEE:
So you'd say no.

1312
01:07:51,340 --> 01:07:54,732
AUDIENCE: We don't have room
for any more mistakes anywhere.

1313
01:07:54,732 --> 01:07:57,190
RICHARD SCHMALENSEE: Or let
them make the mistakes in North

1314
01:07:57,190 --> 01:07:59,807
Dakota and not nationwide.

1315
01:07:59,807 --> 01:08:00,640
[INTERPOSING VOICES]

1316
01:08:00,640 --> 01:08:01,330
AUDIENCE: --everyone.

1317
01:08:01,330 --> 01:08:02,630
RICHARD SCHMALENSEE: Nobody
in here is from North Dakota,

1318
01:08:02,630 --> 01:08:03,400
as I recall.

1319
01:08:03,400 --> 01:08:04,780
I can insult North Dakota.

1320
01:08:04,780 --> 01:08:05,837
Get out of town.

1321
01:08:05,837 --> 01:08:07,120
David.

1322
01:08:07,120 --> 01:08:09,940
AUDIENCE: I think from an
environmental perspective,

1323
01:08:09,940 --> 01:08:13,630
even if you didn't
know it's 100% clean

1324
01:08:13,630 --> 01:08:16,430
and no methane, no
water caught on fire,

1325
01:08:16,430 --> 01:08:18,880
it's still a terrible
thing for carbon emissions.

1326
01:08:18,880 --> 01:08:21,609
Because your actions for
decreasing your heating bill

1327
01:08:21,609 --> 01:08:24,069
or insulating your house
so it's more efficient

1328
01:08:24,069 --> 01:08:25,899
and so you don't
need as much heat,

1329
01:08:25,899 --> 01:08:28,131
or using cheap
natural gas but then

1330
01:08:28,131 --> 01:08:30,729
to continue having a
really inefficient house

1331
01:08:30,729 --> 01:08:33,160
and leaking heat everywhere.

1332
01:08:33,160 --> 01:08:36,040
RICHARD SCHMALENSEE: So
you're troubled by the bridge

1333
01:08:36,040 --> 01:08:37,359
to nowhere argument.

1334
01:08:37,359 --> 01:08:40,000
And you'd say, unless
we actually can fit this

1335
01:08:40,000 --> 01:08:41,290
into a climate policy--

1336
01:08:41,290 --> 01:08:44,350
which it could be if it
were part of a carbon tax,

1337
01:08:44,350 --> 01:08:46,731
use this for a
while, get off it--

1338
01:08:46,731 --> 01:08:48,189
would you be
comfortable with that?

1339
01:08:48,189 --> 01:08:49,819
Or you just say no.

1340
01:08:49,819 --> 01:08:52,609
AUDIENCE: I say
environmentally that's--

1341
01:08:52,609 --> 01:08:53,109
yeah.

1342
01:08:53,109 --> 01:08:54,309
Or you could use--

1343
01:08:54,309 --> 01:08:57,029
if the costs are so low, you
can have a very high carbon tax,

1344
01:08:57,029 --> 01:08:59,965
and use that money to perhaps
support solar or nuclear

1345
01:08:59,965 --> 01:09:00,590
or whatever.

1346
01:09:00,590 --> 01:09:05,050
But I think economically,
you can't make that argument.

1347
01:09:05,050 --> 01:09:09,460
You have to give people jobs
and environmental arguments

1348
01:09:09,460 --> 01:09:10,960
are going to get
legislation passed.

1349
01:09:10,960 --> 01:09:11,529
RICHARD SCHMALENSEE:
So you're saying

1350
01:09:11,529 --> 01:09:13,750
you'd march on the State
House, and you'd say,

1351
01:09:13,750 --> 01:09:17,745
"Only with a carbon tax,"
and you'd count on losing.

1352
01:09:17,745 --> 01:09:18,370
AUDIENCE: Yeah.

1353
01:09:18,370 --> 01:09:19,740
RICHARD SCHMALENSEE: OK.

1354
01:09:19,740 --> 01:09:21,279
No, no, I mean, hey--

1355
01:09:21,279 --> 01:09:22,450
you fight the good fight.

1356
01:09:22,450 --> 01:09:26,740
AUDIENCE: Jobs are not going
to part of the environment.

1357
01:09:26,740 --> 01:09:29,979
RICHARD SCHMALENSEE: Yeah,
you've actually been patient.

1358
01:09:29,979 --> 01:09:32,500
AUDIENCE: So I
would say that this

1359
01:09:32,500 --> 01:09:35,050
is an opportunity
for Massachusetts

1360
01:09:35,050 --> 01:09:38,529
to help take the lead a
relatively new industry.

1361
01:09:38,529 --> 01:09:41,538
And I don't think that
people will pass that up.

1362
01:09:41,538 --> 01:09:43,330
RICHARD SCHMALENSEE:
So you think no matter

1363
01:09:43,330 --> 01:09:45,609
what we say in here,
and what you guys

1364
01:09:45,609 --> 01:09:48,100
do when you march on the
capitol, we're going to drill.

1365
01:09:48,100 --> 01:09:49,189
AUDIENCE: Yeah.

1366
01:09:49,189 --> 01:09:50,564
RICHARD SCHMALENSEE:
But New York

1367
01:09:50,564 --> 01:09:54,010
didn't, maybe because of all
those signs in Arianna's town.

1368
01:09:54,010 --> 01:09:57,970
Maybe Arianna's town
shut down New York.

1369
01:09:57,970 --> 01:10:00,700
And there are a lot of people in
upstate New York who need jobs.

1370
01:10:00,700 --> 01:10:02,410
There are a lot of
depressed towns up there.

1371
01:10:02,410 --> 01:10:03,993
There are a lot of
landowners up there

1372
01:10:03,993 --> 01:10:05,950
who would love to
lease for drilling.

1373
01:10:05,950 --> 01:10:09,140
But they managed
to shut it down.

1374
01:10:09,140 --> 01:10:10,780
We're going to talk about that.

1375
01:10:10,780 --> 01:10:11,877
But you want to go one.

1376
01:10:11,877 --> 01:10:14,460
AUDIENCE: Well, yeah, I was just
saying I'm from South Dakota,

1377
01:10:14,460 --> 01:10:17,680
so I'm kind of jealous.

1378
01:10:17,680 --> 01:10:19,590
[INAUDIBLE] if you
look at that map,

1379
01:10:19,590 --> 01:10:22,720
basically, took a huge loop
right around South Dakota.

1380
01:10:22,720 --> 01:10:24,340
RICHARD SCHMALENSEE: Yeah.

1381
01:10:24,340 --> 01:10:27,820
Well, my guess is there are
people from some South Dakota

1382
01:10:27,820 --> 01:10:29,630
towns who are now
living in North Dakota.

1383
01:10:32,320 --> 01:10:34,570
North Dakota was going to
change the name of its state

1384
01:10:34,570 --> 01:10:38,448
to "Dakota" to avoid the "North"
for a while, but Matthew.

1385
01:10:38,448 --> 01:10:40,240
AUDIENCE: I just think
the economic benefit

1386
01:10:40,240 --> 01:10:42,340
is too big to pass up.

1387
01:10:42,340 --> 01:10:45,375
And if it was a serious
environmental concern,

1388
01:10:45,375 --> 01:10:46,500
it'll become more apparent.

1389
01:10:46,500 --> 01:10:49,028
It'll be accelerated
to regulation

1390
01:10:49,028 --> 01:10:52,158
if we allow it to
happen more here.

1391
01:10:52,158 --> 01:10:54,450
RICHARD SCHMALENSEE: So you
think it's going to happen.

1392
01:10:54,450 --> 01:10:57,282
We're going to see
environmental concerns.

1393
01:10:57,282 --> 01:10:58,740
What the big guys
are worried about

1394
01:10:58,740 --> 01:11:04,020
is weak regulation, leads
to environmental disasters,

1395
01:11:04,020 --> 01:11:07,140
leads to a nationwide
moratorium.

1396
01:11:07,140 --> 01:11:10,080
Whatever happened in New York
could happen nationwide, maybe.

1397
01:11:10,080 --> 01:11:13,740
Maybe not in North Dakota,
but that's their concern.

1398
01:11:13,740 --> 01:11:16,325
And you're saying
we should run that.

1399
01:11:16,325 --> 01:11:16,950
AUDIENCE: Yeah.

1400
01:11:16,950 --> 01:11:19,114
I mean, I think if they
realize the economic benefit

1401
01:11:19,114 --> 01:11:20,140
in the beginning,
they're not going

1402
01:11:20,140 --> 01:11:22,182
to solve it immediate--
like, altogether, they're

1403
01:11:22,182 --> 01:11:24,863
going to provide
some regulation.

1404
01:11:24,863 --> 01:11:26,280
RICHARD SCHMALENSEE:
Well, there's

1405
01:11:26,280 --> 01:11:27,760
a lot of work doing regulation.

1406
01:11:27,760 --> 01:11:30,420
Again, it varies state
to state, but OK.

1407
01:11:30,420 --> 01:11:32,190
Yeah.

1408
01:11:32,190 --> 01:11:35,670
AUDIENCE: I think there's a
two-part argument for doing it,

1409
01:11:35,670 --> 01:11:40,530
but doing it on a limited
scale, versus like you said,

1410
01:11:40,530 --> 01:11:45,510
there's kind of an oversupply
of gas at the moment.

1411
01:11:45,510 --> 01:11:47,410
And the technology
being relatively new,

1412
01:11:47,410 --> 01:11:48,910
it's relatively
expensive, so you're

1413
01:11:48,910 --> 01:11:51,330
buying high and selling low.

1414
01:11:51,330 --> 01:11:53,520
But it is important
to start getting

1415
01:11:53,520 --> 01:11:57,330
some kind of understanding
of the drilling process.

1416
01:11:57,330 --> 01:11:59,650
Because from what I
understand, the effects

1417
01:11:59,650 --> 01:12:01,650
are different from place
to place because what's

1418
01:12:01,650 --> 01:12:03,245
in the shale is different.

1419
01:12:03,245 --> 01:12:03,870
So what works--

1420
01:12:03,870 --> 01:12:04,680
RICHARD SCHMALENSEE:
And what's on the way

1421
01:12:04,680 --> 01:12:05,595
down, and the differences.

1422
01:12:05,595 --> 01:12:07,140
AUDIENCE: --in the Dakotas
is different from what

1423
01:12:07,140 --> 01:12:08,970
maybe works in
Massachusetts, but it's

1424
01:12:08,970 --> 01:12:10,610
different compositions.

1425
01:12:10,610 --> 01:12:14,780
So I would argue for
doing a limited roll-out.

1426
01:12:14,780 --> 01:12:16,700
You don't do it five
miles from town,

1427
01:12:16,700 --> 01:12:18,270
you do it 40 miles from town.

1428
01:12:18,270 --> 01:12:20,060
And you don't
authorize 3,000 wells,

1429
01:12:20,060 --> 01:12:23,920
you authorize 30 and
see what happens.

1430
01:12:23,920 --> 01:12:26,090
Hopefully, if there
is an earthquake.

1431
01:12:26,090 --> 01:12:28,825
You can figure out what's going
on before people freak out

1432
01:12:28,825 --> 01:12:30,158
and shut down the whole state.

1433
01:12:30,158 --> 01:12:31,950
RICHARD SCHMALENSEE:
So that's interesting.

1434
01:12:31,950 --> 01:12:33,762
And I hadn't heard
that proposal before,

1435
01:12:33,762 --> 01:12:35,220
which is what makes
it interesting.

1436
01:12:35,220 --> 01:12:37,650
So you'd say, we're
Massachusetts.

1437
01:12:37,650 --> 01:12:39,120
We haven't done this before.

1438
01:12:39,120 --> 01:12:41,910
We're going to hire some
people with expertise,

1439
01:12:41,910 --> 01:12:45,310
but the ones in Texas who
know what they're doing

1440
01:12:45,310 --> 01:12:46,830
are mostly staying in Texas.

1441
01:12:46,830 --> 01:12:51,570
So we can't effectively
regulate 300 wells.

1442
01:12:51,570 --> 01:12:56,220
Let's authorize 30, and let's
watch them closely, and see

1443
01:12:56,220 --> 01:12:57,060
what we can learn.

1444
01:12:57,060 --> 01:12:57,810
AUDIENCE: Yeah.

1445
01:12:57,810 --> 01:12:59,880
And once the market
stabilizes, then you

1446
01:12:59,880 --> 01:13:01,080
can start pumping more.

1447
01:13:01,080 --> 01:13:02,820
And then you'll
have a nice boom,

1448
01:13:02,820 --> 01:13:04,830
hopefully using cheaper
technology that's

1449
01:13:04,830 --> 01:13:08,630
more developed and
at a higher price.

1450
01:13:08,630 --> 01:13:10,007
RICHARD SCHMALENSEE:
Interesting.

1451
01:13:10,007 --> 01:13:11,090
Yeah, I hadn't heard that.

1452
01:13:11,090 --> 01:13:11,690
OK.

1453
01:13:11,690 --> 01:13:13,460
Marie, you had a--

1454
01:13:13,460 --> 01:13:15,140
AUDIENCE: Yeah, I
just wanted to mention

1455
01:13:15,140 --> 01:13:18,434
that I think there has been some
somewhat successful regulation

1456
01:13:18,434 --> 01:13:22,574
on this, as in Lebanon, Texas,
is going to make [INAUDIBLE]

1457
01:13:22,574 --> 01:13:25,990
long time, a lot of
regulation around this area.

1458
01:13:25,990 --> 01:13:28,280
And the Barnett
Shale is actually

1459
01:13:28,280 --> 01:13:30,425
right over the Dallas/Fort
Worth Metroplex,

1460
01:13:30,425 --> 01:13:33,950
so it is really in
an urban location,

1461
01:13:33,950 --> 01:13:35,872
and they're drilling
all around that.

1462
01:13:35,872 --> 01:13:38,810
And it's just a place where
it has been well regulated,

1463
01:13:38,810 --> 01:13:41,090
and [INAUDIBLE]
follow their example.

1464
01:13:41,090 --> 01:13:43,700
RICHARD SCHMALENSEE: Yeah,
I mean, Texas, for instance,

1465
01:13:43,700 --> 01:13:45,750
in the Bipartisan
Policy Center thing,

1466
01:13:45,750 --> 01:13:48,860
seems to have been the first
state to basically require

1467
01:13:48,860 --> 01:13:52,160
disclosure of
fracking fluids, which

1468
01:13:52,160 --> 01:13:54,770
is sort of a first
natural step, I think.

1469
01:13:54,770 --> 01:13:57,180
And then you limit
things that can go down.

1470
01:13:57,180 --> 01:13:59,515
So maybe we can
copy Texas, but they

1471
01:13:59,515 --> 01:14:00,890
have been drilling
in the Barnett

1472
01:14:00,890 --> 01:14:04,430
for a while with
different technologies.

1473
01:14:04,430 --> 01:14:06,982
OK, and we will all wear hats.

1474
01:14:06,982 --> 01:14:07,690
That'll be great.

1475
01:14:07,690 --> 01:14:09,100
Sam.

1476
01:14:09,100 --> 01:14:11,690
AUDIENCE: First, as
far as Massachusetts,

1477
01:14:11,690 --> 01:14:14,600
I think if you're trying
to sell that proposal,

1478
01:14:14,600 --> 01:14:18,700
you might have a hard time
selling it to Massachusettsians

1479
01:14:18,700 --> 01:14:21,590
copying Texas, just
from like association,

1480
01:14:21,590 --> 01:14:24,530
people of Massachusetts
aren't huge fans of Texas.

1481
01:14:24,530 --> 01:14:25,040
I think--

1482
01:14:25,040 --> 01:14:26,420
RICHARD SCHMALENSEE: You didn't
like Rick Perry's campaign?

1483
01:14:26,420 --> 01:14:26,920
Never mind.

1484
01:14:29,303 --> 01:14:31,220
AUDIENCE: But I did think
politically it would

1485
01:14:31,220 --> 01:14:32,180
be hard to sell.

1486
01:14:32,180 --> 01:14:34,590
Just in Massachusetts, people
are pretty environmentally

1487
01:14:34,590 --> 01:14:35,090
conscious.

1488
01:14:35,090 --> 01:14:38,390
And I think all it would take
is, like, one anecdote of oh,

1489
01:14:38,390 --> 01:14:40,640
my cousin in Ohio,
he had an earthquake

1490
01:14:40,640 --> 01:14:43,243
or his water is on fire--

1491
01:14:43,243 --> 01:14:44,660
RICHARD SCHMALENSEE:
So you think.

1492
01:14:44,660 --> 01:14:47,642
AUDIENCE: We like to overreact.

1493
01:14:47,642 --> 01:14:49,850
RICHARD SCHMALENSEE: The
political system overreacts.

1494
01:14:49,850 --> 01:14:54,200
So your view is, even
though Arianna's community

1495
01:14:54,200 --> 01:14:56,420
managed to shut down
the State of New York--

1496
01:14:56,420 --> 01:14:59,390
it's a pretty blue state, but
probably less environmentally

1497
01:14:59,390 --> 01:15:01,580
conscious than this one--

1498
01:15:01,580 --> 01:15:03,240
it would be tough to do here.

1499
01:15:03,240 --> 01:15:04,940
So what would you
advocate instead,

1500
01:15:04,940 --> 01:15:07,958
when you march on
the State Capitol?

1501
01:15:07,958 --> 01:15:10,250
AUDIENCE: Take the money and
invest in green technology

1502
01:15:10,250 --> 01:15:10,750
instead.

1503
01:15:10,750 --> 01:15:14,860
I think the path to nowhere
argument is pretty good,

1504
01:15:14,860 --> 01:15:15,360
as well.

1505
01:15:15,360 --> 01:15:16,250
RICHARD SCHMALENSEE:
It's pretty interesting.

1506
01:15:16,250 --> 01:15:16,830
Yeah.

1507
01:15:16,830 --> 01:15:19,748
What about the "go
slow" approach?

1508
01:15:19,748 --> 01:15:21,290
AUDIENCE: I think
once you start down

1509
01:15:21,290 --> 01:15:23,082
that, it's going to be
pretty hard to stop.

1510
01:15:23,082 --> 01:15:25,340
I mean, once you start
putting in a few,

1511
01:15:25,340 --> 01:15:27,987
it is going to produce cheap
energy, but it doesn't really--

1512
01:15:27,987 --> 01:15:28,820
[INTERPOSING VOICES]

1513
01:15:28,820 --> 01:15:30,800
RICHARD SCHMALENSEE:
And jobs, and jobs.

1514
01:15:30,800 --> 01:15:33,560
We'll put them in Pittsfield
or someplace like Pittsfield.

1515
01:15:33,560 --> 01:15:35,250
Yeah, Max.

1516
01:15:35,250 --> 01:15:37,970
AUDIENCE: I think the
biggest [INAUDIBLE] of this

1517
01:15:37,970 --> 01:15:41,120
is [INAUDIBLE] take
a lot of transparency

1518
01:15:41,120 --> 01:15:45,060
in the industry, the argument
that the chemicals are

1519
01:15:45,060 --> 01:15:48,140
proprietary, so
[INAUDIBLE] nobody really

1520
01:15:48,140 --> 01:15:50,780
has a good way of measuring how
much methane exactly is being

1521
01:15:50,780 --> 01:15:52,018
released in the environment.

1522
01:15:52,018 --> 01:15:53,560
And so we know the
economic benefits,

1523
01:15:53,560 --> 01:15:55,018
but we don't know
the environmental

1524
01:15:55,018 --> 01:15:56,572
[? measurements ?] of it.

1525
01:15:56,572 --> 01:15:58,530
And that's the biggest
problem with regulating.

1526
01:15:58,530 --> 01:16:01,330
Even if you did
a few small wells

1527
01:16:01,330 --> 01:16:03,760
before you moved into the
large scale, [INAUDIBLE]

1528
01:16:03,760 --> 01:16:06,560
regulating them, just because
of those loopholes and the fact

1529
01:16:06,560 --> 01:16:08,860
that there's no real
metric for how much damage

1530
01:16:08,860 --> 01:16:10,180
it's actually doing.

1531
01:16:10,180 --> 01:16:12,532
RICHARD SCHMALENSEE:
There are techniques--

1532
01:16:12,532 --> 01:16:13,990
not great techniques,
but there are

1533
01:16:13,990 --> 01:16:17,320
techniques-- that can measure
methane emissions, methane

1534
01:16:17,320 --> 01:16:18,400
leakage.

1535
01:16:18,400 --> 01:16:21,390
It isn't trivial.

1536
01:16:21,390 --> 01:16:23,190
That piece in "Nature"
talked about how

1537
01:16:23,190 --> 01:16:25,500
they managed to measure
methane emissions

1538
01:16:25,500 --> 01:16:29,040
from one area, methane leakage.

1539
01:16:29,040 --> 01:16:30,720
But it's naturally
tricky, because it

1540
01:16:30,720 --> 01:16:34,830
comes from lots of different
places and is dispersed.

1541
01:16:34,830 --> 01:16:39,290
You can, however, talk
about ceiling requirements

1542
01:16:39,290 --> 01:16:40,760
and how joints are done.

1543
01:16:40,760 --> 01:16:42,590
You could put in things.

1544
01:16:42,590 --> 01:16:44,690
It may be hard to
measure what happens,

1545
01:16:44,690 --> 01:16:47,210
but you could put in
place regulation that

1546
01:16:47,210 --> 01:16:49,340
will reduce it,
whether it'll reduce it

1547
01:16:49,340 --> 01:16:50,870
enough, blah, blah, blah.

1548
01:16:50,870 --> 01:16:55,660
So you're saying-- so where
would you go when you march?

1549
01:16:55,660 --> 01:16:58,160
AUDIENCE: I would advocate for
it because [INAUDIBLE] there,

1550
01:16:58,160 --> 01:17:00,680
but demand transparency
from the firms that

1551
01:17:00,680 --> 01:17:03,877
are doing it to kind of
[INAUDIBLE] and having them

1552
01:17:03,877 --> 01:17:06,210
[INAUDIBLE] or at least come
up with some sort of metric

1553
01:17:06,210 --> 01:17:10,075
to [INAUDIBLE] how much
damage they're actually doing.

1554
01:17:10,075 --> 01:17:11,450
RICHARD SCHMALENSEE:
Yeah, so you

1555
01:17:11,450 --> 01:17:14,030
might work on the development
of measurement methods

1556
01:17:14,030 --> 01:17:17,390
for methane, for instance, and
require them to implement them,

1557
01:17:17,390 --> 01:17:18,690
and so on, and so forth.

1558
01:17:18,690 --> 01:17:19,470
Yeah.

1559
01:17:19,470 --> 01:17:21,470
AUDIENCE: Given how afraid
some of the companies

1560
01:17:21,470 --> 01:17:23,900
are of backlash, especially
if you invite the bigger ones,

1561
01:17:23,900 --> 01:17:27,030
perhaps it isn't as slippery
a slope [INAUDIBLE]..

1562
01:17:27,030 --> 01:17:29,900
And if you build 30
and they do well,

1563
01:17:29,900 --> 01:17:33,500
and regulation starts
loosening, almost immediately

1564
01:17:33,500 --> 01:17:35,868
if anything does
go wrong, that's

1565
01:17:35,868 --> 01:17:37,160
the whole thing gets shut down.

1566
01:17:37,160 --> 01:17:39,030
The companies are
quite incentivized,

1567
01:17:39,030 --> 01:17:40,680
in a similar way to
nuclear companies,

1568
01:17:40,680 --> 01:17:43,437
to keep a completely
white sheet.

1569
01:17:43,437 --> 01:17:45,020
RICHARD SCHMALENSEE:
The big guys are.

1570
01:17:45,020 --> 01:17:45,920
AUDIENCE: Precisely, and so--

1571
01:17:45,920 --> 01:17:48,110
RICHARD SCHMALENSEE: The little
guys are the potential trouble

1572
01:17:48,110 --> 01:17:48,610
spots.

1573
01:17:48,610 --> 01:17:51,800
AUDIENCE: And so if
you have 30, given

1574
01:17:51,800 --> 01:17:54,470
that you have some data from
the big guys in other states,

1575
01:17:54,470 --> 01:17:56,840
it would make sense if
you have 30 test cases,

1576
01:17:56,840 --> 01:17:59,030
and then for the
future cases to be

1577
01:17:59,030 --> 01:18:02,210
from those people that have
at least some prior history.

1578
01:18:02,210 --> 01:18:04,043
RICHARD SCHMALENSEE:
Oh, that's interesting.

1579
01:18:04,043 --> 01:18:07,250
So you'd look at their
regulatory history elsewhere,

1580
01:18:07,250 --> 01:18:10,190
and you would try,
in Massachusetts,

1581
01:18:10,190 --> 01:18:12,967
not to let people who
have bad records drill.

1582
01:18:12,967 --> 01:18:15,050
AUDIENCE: And then you
have the comparative issues

1583
01:18:15,050 --> 01:18:17,150
between what they do in
Massachusetts versus North

1584
01:18:17,150 --> 01:18:20,358
Dakota [INAUDIBLE].

1585
01:18:20,358 --> 01:18:22,400
AUDIENCE: Just from an
environmental perspective,

1586
01:18:22,400 --> 01:18:24,840
isn't it better to
drill in Massachusetts,

1587
01:18:24,840 --> 01:18:27,860
in the sense that it's going
to be happening [INAUDIBLE],,

1588
01:18:27,860 --> 01:18:30,710
so you could argue that it
happened in Massachusetts,

1589
01:18:30,710 --> 01:18:32,850
and the type of
population that you have

1590
01:18:32,850 --> 01:18:34,940
and the quality of
engineers, you're

1591
01:18:34,940 --> 01:18:38,520
going to set industry best
practices in Massachusetts,

1592
01:18:38,520 --> 01:18:42,510
which are going to be copied
in North Dakota, then.

1593
01:18:42,510 --> 01:18:43,860
RICHARD SCHMALENSEE: Maybe.

1594
01:18:43,860 --> 01:18:47,010
The counter-argument is that
because of our population

1595
01:18:47,010 --> 01:18:50,910
density, the
potential for damage

1596
01:18:50,910 --> 01:18:53,715
is higher, potential for
environmental damage.

1597
01:18:53,715 --> 01:18:54,590
AUDIENCE: [INAUDIBLE]

1598
01:18:54,590 --> 01:18:55,840
RICHARD SCHMALENSEE: Yeah, no.

1599
01:18:55,840 --> 01:18:57,960
So you're saying
you'd do it here,

1600
01:18:57,960 --> 01:19:01,590
but you would allocate
state resources,

1601
01:19:01,590 --> 01:19:03,990
and of course you'd beg
for federal resources,

1602
01:19:03,990 --> 01:19:08,770
to improve best practices, to
improve measurement methods.

1603
01:19:08,770 --> 01:19:11,430
One of the things that the
Secretary of Energy Advisory

1604
01:19:11,430 --> 01:19:15,300
Board, the SEAB report that's
cited in a couple of places,

1605
01:19:15,300 --> 01:19:17,070
stressed--

1606
01:19:17,070 --> 01:19:20,430
they said the government
is lousy at this.

1607
01:19:20,430 --> 01:19:23,790
The big guys in the industry
are able to develop and improve

1608
01:19:23,790 --> 01:19:25,320
best practices.

1609
01:19:25,320 --> 01:19:27,820
They need to be
encouraged to do it.

1610
01:19:27,820 --> 01:19:30,340
The problem is once you come
up with a best practice,

1611
01:19:30,340 --> 01:19:32,820
it becomes a compulsory
practice, and so forth.

1612
01:19:32,820 --> 01:19:34,230
But that's another issue.

1613
01:19:34,230 --> 01:19:36,820
OK, I think we're out of time.

1614
01:19:36,820 --> 01:19:38,040
Have a great long weekend.

1615
01:19:38,040 --> 01:19:41,510
We will do
electricity next week.