The impact of shale gas on the costs of climate policy

This report investigates the effects of an increased exploitation of shale gas reserves around the globe and the extent to which it can serve as a low-cost GHG mitigation option. We compare a scenario of global shale gas exploitation with a scenario in which shale gas use is very limited. Both scenarios are modelled with the global techno-economic POLES model and rely on a high regional disaggregation. The effects of shale gas production on the energy market and, consequently, on GHG emissions are analysed in a baseline case without additional climate policy and for mitigation targets compatible with the 2°C target. We find that shale gas should not be considered a cheap option to reduce global GHG emissions due to three reasons: the effects of global shale gas availability (a) are small in the short-term, (b) lead to higher baseline GHG emissions for most countries in the long-term due to lower energy prices and (c) result in higher costs of compliance with climate targets. Further, shale gas competes with renewable energy sources resulting in smaller cost reductions for renewable energy technologies. Lower energy prices also reduce the payoffs for energy efficiency measures, leading to shortened investment in such measures