11 Jun 2015
Innovative Strategy Would Allow U.S. to Capitalize on America’s New Energy Advantage While Protecting the Environment and Speeding the Transition to a Lower-Carbon Energy Future
Experts at Harvard Business School and The Boston Consulting Group Lay Out a “Win-Win” Plan That Would Support 3.8 Million Jobs by 2030 and Substantially Reduce the Impacts of Hydraulic Fracturing
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Michael Porter

BOSTON—In a new report released today, experts at Harvard Business School (HBS) and The Boston Consulting Group (BCG) have put forward a comprehensive plan to overcome the false trade-offs between reaping the enormous economic benefits of developing unconventional gas and oil, minimizing environmental impacts, and making major progress toward reduced greenhouse-gas emissions.

The report, America's Unconventional Energy Opportunity, provides solutions to breaking the gridlock that threatens America’s historic energy opportunity. It outlines a strategic, fact-based approach to developing America’s new energy advantage to increase U.S. competitiveness and drive much-needed job and economic growth, to reducing environmental impacts, and to accelerating progress on climate change. The report was an independent research effort by HBS and BCG, with no outside funding support. BCG provided pro-bono, in-kind support and expertise to take on this complex topic with HBS.

“Unconventional gas and oil represents perhaps the single largest source of competitive advantage and economic opportunity for the United States over the next decade or two, at a time when both are badly needed,” said Michael E. Porter, a professor at HBS, a cochair of the school’s multiyear U.S. Competitiveness Project, and a coauthor of the report. “But there is a real risk that American citizens, companies, and communities will fail to capitalize on this historic opportunity because of misunderstanding and distrust.”

“Our research makes clear,” he continued, “that, contrary to popular perception, the U.S. can capture the full economic benefits of unconventional gas and oil while also substantially addressing local environmental impacts and making major strides toward a lower-carbon energy system.”

Based on an extensive review of existing studies, new primary research, and interviews across all stakeholder groups, the report provides a comprehensive fact base and analysis that shows:

The development of unconventional energy offers an unprecedented opportunity for increasing U.S. competitiveness and growing well-paying jobs that are accessible to the average citizen.

The local environmental impacts of hydraulic fracturing can be managed cost effectively—without hindering the economic opportunity—by using known processes, filling gaps in regulation, and improving enforcement.

Unconventional natural gas is the only feasible, cost-effective way for the U.S. to substantially reduce greenhouse gas emissions through 2030 while enabling the penetration of renewables.

While previous studies have addressed the positive economic opportunities of unconventional energy, this new research involved a comprehensive assessment of the potential economic gains across the economy. By 2030, the development of unconventional gas and oil could achieve significant results:

Support 3.8 million jobs with wages twice the national median—half of which would be accessible to middle-skilled workers

Produce average annual energy savings of $1,070 per household from low-cost natural gas, up from nearly $800 today

Contribute almost $600 billion in annual GDP and $160 billion in government tax revenue from production-related activities alone, with ripple effects in energy-intensive industries such as plastics, metals, and heavy manufacturing

In addition to generating economic benefits, unconventional gas and oil will also continue to create major geopolitical benefits for the U.S., including reducing the trade deficit, improving energy security and exposure to unstable regions, and opening up new avenues for trade and diplomacy abroad.

Despite these high stakes, America lacks a strategy to fully capitalize on this crucial opportunity. Instead, unconventional energy production is mired in political gridlock, driven by public and stakeholder frustrations about the local community and environmental impacts of hydraulic fracturing, as well as climate concerns.

No one is winning. Industry is facing state and local opposition and bans on hydraulic fracturing. Opposition to critical infrastructure projects has led to protracted delays in building safe and efficient pipeline infrastructure, while antiquated export restrictions on oil and gas limit U.S. economic growth with no compensating benefits for Americans.

Environmental performance is also lagging. Spills, contamination, leaks, and other local impacts persist despite available technologies to mitigate them. And progress toward carbon reductions is also stymied by divisive opposition and an inability to agree on a coherent policy approach.

Much of the debate over unconventional gas and oil is uninformed or reflects purposefully misleading arguments, the report says. The “facts” advanced by all sides are frequently incomplete or taken out of context. Many stakeholders are also hung up on the false trade-offs between harnessing America’s energy advantage, protecting the environment, and mitigating climate change. All this leads to misinformation and confusion in the general public.

The report presents a new, strategic path forward. “We must approach this challenge from the perspective of what’s in the national interest and where industry, NGOs, governments, and local communities can find common ground,” said David S. Gee, a BCG partner, the North America leader of the firm’s Energy practice, and a coauthor of the report. “There is no inherent trade-off between environmental protection and industry profitability—we can have both.”

The report finds that the development of unconventionals creates significant environmental risks, but that real progress is being made in managing these risks at a cost that does not threaten competitiveness. With sound regulation and strong compliance, the cost of good environmental performance is modest. Mitigating the environmental impacts, such as through water recycling and reduced flaring, can actually reduce costs.

Pursuing America’s energy advantage and mitigating climate change are complementary, not antithetical. The report finds that increasing the use of natural gas in the power sector is essential for achieving large-scale greenhouse-gas emission reductions over the next 15 to 20 years and for supporting the near- and longer-term growth of renewables. Climate advocates benefit from unconventionals because the utilization of low-cost natural gas supports critical grid investments and provides the standby power capacity that is essential to lower carbon solutions over the longer term.

Industry also benefits from progress on climate change because it will enlarge demand for natural gas and reduce opposition to critical infrastructure and expanded development, according to the report.

The report outlines 11 action steps – involving all stakeholders - that offer a viable, practical, and economically competitive path forward:

Continue the timely development of efficient energy infrastructure

Deliver a skilled workforce for critical growth industries

Eliminate outdated restrictions to gas and oil exports

Develop transparent and consistent environmental performance data

Set robust regulatory standards to address environmental risks

Achieve universal regulatory compliance

Strengthen bodies driving continuous environmental improvement

Contain methane leakage with regulatory standards and voluntary reductions

Set climate policies that encourage cost-effective emissions reductions

Foster clean-energy technologies through industry and government research and development

Build out a smart, efficient energy grid

The report finds that, to pursue this strategy, stakeholders must let go of the misconceptions, historic rivalries, and distrust that have led to zero-sum mind-sets and slow progress. All sides need to acknowledge the legitimate concerns of other groups while focusing on solutions based on a common fact base. The facts reveal an ample middle ground where all stakeholders can benefit from unconventional energy development.

“We at BCG and HBS are committed to playing our role in sharing the facts on the energy and environmental opportunity and working across stakeholder groups to enable productive steps forward. We intend to share our findings and recommendations at industry, environmental, and government conferences, as well as through cross-stakeholder forums such as the one held in March at Harvard,” said Gregory J. Pope, a principal at BCG and a coauthor of the report.

Only a thoughtful, coordinated approach by industry, environment stakeholders, and governments will truly allow America to win.

To download a copy of the report, please go to www.bcgperspectives.com or www.hbs.edu.

To arrange an interview with one of the authors, please contact Alexandra Corriveau at (212) 446-3261 or corriveau.alexandra@bcg.com or Ryan Colaianni at (202) 777-3845 or ryan.colaianni@edelman.com.

About the HBS U.S. Competitiveness Project
The U.S. Competitiveness Project is a research-led effort by Harvard Business School to understand and improve the competitiveness of the United States—that is, the ability of firms operating in the U.S. to compete successfully in the global economy while supporting high and rising living standards for Americans. The Project focuses especially on the roles that business leaders can and do play in promoting U.S. competitiveness. Current faculty research focuses on improving PK–12 education; closing the middle-skills gap; and improving America’s aging infrastructure for moving people, goods, and information. For more information about Harvard Business School’s U.S. Competitiveness Project, please visit: www.hbs.edu/competitiveness and www.hbs.edu/competitiveness/survey/.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 82 offices in 46 countries.

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