03-06-2021

Is the underground fair game to reduce greenhouse gas emissions?

By Nicolás Durán

Governments around the world have committed to make significant reductions to their greenhouse gas (GHG) emissions over the next decades. Many pathways leading to achieving this goal involve using subsurface technologies, such as underground CO2 storage, the use of geothermal energy, and switching from coal to natural gas to generate electricity. But strategies using the subsurface may come at a cost larger than that of the project itself, and the people living near the sites where these projects take place are picking up the bill.

Induced earthquakes are probably the most obvious example of these additional costs as tremors inflict damages on houses which are expensive to repair. As governments uptake these GHG mitigating strategies they might find strong opposition from local residents who are not willing to bear the additional burden. A simple solution to bring them on board is to compensate homeowners for these reparations. But faulty claiming processes and distrust in governments, or in the firms that carry on these projects and pay out the claims can make compensations seem like a too little, too late kind of solution.

Besides, damages are not a one-time problem as expectations that earthquakes will remain an issue in the future play a significant role. Underground projects are long termed, which makes earthquakes a recurrent feature that worsens with time as tremors usually become stronger and more frequent the more faults they activate on the ground. This reduces incentives for homeowners to repair their dwellings as damages are likely to be inflicted again, and compensation mechanisms don’t work smoothly enough. Additionally, if and when homeowners decide to sell their property, transactions will settle at increasingly lower prices as expectations are that maintenance costs will remain increasing in the future, eroding locals’ wealth levels. A strategy to align residents’ incentives with those of Governments seeking to reduce emissions needs to carefully address the expectations mechanism.

Take the case of induced earthquakes from gas extraction in the north of the Netherlands. Earthquakes have been a recurrent feature in this region almost since extraction began in the ‘60s. But relatively recent increases in the extraction rate made them more frequent and stronger, with damaged houses beginning to be sold relatively more frequently (see the graph on the left). Additionally, worst maintained houses were sold at an increasing discount, as seemingly expectations were that earthquakes would remain an issue going forward (see graph on the right).

Graph 10

Source: own elaboration using KNMI (earthquakes) and NVM (houses transactions) data.

Well designed compensation schemes should address these expectations. Whether this is through more transparency and better communication, or diminishing the project’s intensity to alleviate its effects depends on the specific case. The Dutch Government has been forced to put a cap, and eventually forbid gas extraction in the north as of 2030. As projects using the underground to reduce emissions are implemented in the Netherlands or elsewhere, lessons on how to handle the extra burdens on local residents should be drawn if these projects are to be kept running.