Why the Shale Revolution is beneficial for the world’s poor

James Durbin/Reporter-Telegram via AP, File

James Durbin/Reporter-Telegram via AP, File

Fighting poverty requires big ideas and the implementation of those big ideas. Brazil, noted by journalist Jonathan Tepperman for its poverty-fighting successes, certainly had one in Bolsa Família (Family Grant). Central to former President Lula’s social welfare campaign, Bolsa Família was simply a cash-giving program. Most development programs offered goods and services.

The predecessor to this program began in Campinas and Brasília in 1995, leading to 100 other cities to do the same. Lula’s predecessor, Fernando Cardoso tried a flimsy version nationally. It would not be until Lula’s administration that the program was implemented on a grander and more ambitious scale.

Three key ideas contributed to Bolsa Família’s success, which should be replicable in other low-income countries. First, distributing food and other goods is “complicated, costly, and inefficient,” necessitating a bureaucracy that is a problem in itself in badly governed and often corrupt societies. Second, Lula’s initiative assumed that the poor knew best what the poor needed. This has since been supported by academic studies. Third – in the context of the privatizations of government-run companies in the 1980s and 1990s that marginalized millions economically – Lula gave money directly to Brazilians to re-enter to market economy.

While the governments of low-income countries are still unenlightened by Brazil’s anti-poverty efforts, a symptom of extreme poverty – a lack of energy or “energy poverty” – is starkly (literally at times) visible. 50 percent of the world’s population lack energy security; 2 billion people have bad to no access to electricity at all. 90 percent of those suffering from energy poverty live in South Asia and Sub-Saharan Africa.

Governments are not inclined to help. So much so that foreign companies and non-profits are expected to alleviate the lack of access to the modern lifestyle, which allows for water pumps, ovens, medical equipment in hospitals – all that is taken for granted. Alphabet, the parent company of Google, set up an initiative called Project Loon to launch high-altitude balloons that will cover the world with internet access.

Morgan D. Bazilian, lead energy specialist at the World Bank, reported that 2 percent of Liberians have regular access to electricity, and 50 percent of Tanzanian companies have trouble conducting business because of energy insecurity. Obstacles like these keep poor people in poverty, because energy is intertwined with improvements in health, education, and employment. And like Lula’s program, an effective solution to energy poverty requires big ideas.

“People have gained access to electricity… thanks to concerted government leadership, massive public investments in infrastructure, good planning, well-trained work forces, supportive regulations, and financially viable institutions,” according to Bazilian.

While governments in low-income countries opt for inaction once again, it is good news that the shale revolution in oil and gas production will benefit them by lowering energy costs. As of 2014, efficiency gains in the shale sector have been approximately 25 percent per year, and “increases in capital expenditures are triggering even more potential production growth,” writes Citi Global Head of Commodities Research Edward L. Morse. Although shale oil and gas extraction is originally an American development, the technology for it is transferable outside of the US.

Saudi Arabia, for example, wants to explore shale oil and gas to free up more oil for exports and increase the country’s revenues. So does Russia. Other foreign countries would want to engage in shale drilling to reduce dependence on imports, increase export earnings, and enable domestic economic development. That would all put downward pressure on energy prices in the global markets.

There are potential problems that affect shale oil and gas exploration that would have an effect on oil- and gas-producing low-income countries. One is the environmental externalities; the fracking process pollutes underground aquifers and creates waste above ground. This would come down to the potency of local regulations. Another is the question of whether the surge in production in the beginning of the fracking process is sustainable. This concern seems to be unfounded. Finally, the economics of fracking may not be lasting; in 2012, the shale exploration industry spent $60 billion more than it generated in revenue. But the high costs associated with the shale revolution were mostly attributed to land acquisition, which is high in the early years.

The lack of energy for poor people is still a great challenge. It has led to non-government entities, including foreign companies, to generate their own solutions. The good news is that the energy industry is on the impoverished citizens of the world’s side.

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