Fracturing rule offers a concession

MUCH of our economic debate implies we must choose between going green or going for growth. There is now hard evidence that the real choice is between green growth or no growth at all.

For the first time in the postwar period, energy and other commodity prices are unusually high for this point of the global recovery. Normally the cost of basic materials falls in real terms for at least two years after a recovery begins. In the past, this boosted real incomes, supported spending and fuelled recovery.

Today there is a different phenomenon in the developed world: the ''squeezed middle''. Far from boosting incomes and spending, high energy and material prices have undermined an already fragile recovery buffeted by financial crisis and the legacy of debt. The new pattern has consequences for our future.
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The century-long decline in commodity prices seems to have come to an end. The cause is Asia. China is growing at five times the rate of Britain during its industrialisation, and the numbers of people involved are unprecedented.

We can hope, of course, that new resources will gradually substitute for old as prices rise. The most promising candidate is shale gas, which has expanded dramatically in the US, leaving the gas price there at half the European level.

We will need shale gas to compensate for the costly production of declining oil.

The speed of the US exploitation of shale gas is unlikely to be repeated in more densely populated regions such as Europe. Outside the US, mineral rights are usually owned by governments, which means there is less incentive to drill and more incentive to argue ''not in my backyard''. Many shale-rich areas are short of the water essential to the fracking process.

So far, shale gas has not stopped the rise in global gas prices even though cargoes of conventional gas have been diverted from the US. This partly reflects increased demand from the newly industrialising countries, but it also reflects a switch from nuclear after the Fukushima disaster. We will need a lot of shale gas to compensate for three of the biggest industrial economies - Germany, Italy and Japan - going non-nuclear.

Given these trends, we can hope for cheaper energy in the long run, but it would be rash to bank on it. We should encourage resource-frugal growth where possible.

Energy saving is the win-win: it has potential for job creation and supports growth by cutting bills and boosting spendable income. But there must be a wider agenda for resource efficiency, too - recycling, repairing and reusing - as the Rio+20 summit in June will spell out.

Resource-hungry growth could rapidly stall due to commodity price rises, simply because so many of us want it. If we want sustainable growth, we do not have a choice. We must go green.

GUARDIAN

Chris Huhne is a former British secretary of state for energy and climate change.