The proposal from the Department of Energy and Climate Change (DECC) to establish a sovereign wealth fund based on future revenues from the extraction of shale gas, is, in principle a good idea. Many countries now have such a fund, turning current oil and gas revenues into a national asset for the long term. Norway’s fund is most often quoted as an example; another lesser known example is the state of Texas in the US which has such a fund for its universities.
The details of the proposal from DECC are yet to be released so its final shape and impact is unknown. Given the size of the UK economy, and our budget deficit, the idea that we can build a large financial fund of the type enjoyed by Norway is unrealistic.
However, I would argue that there is still a great deal that could be done with a shale gas fund. Most sovereign wealth funds build financial capital taking revenues from the oil and gas industry and investing them in the stock exchange. I would propose DECC consider a fund for human capital, not financial capital.
Addressing the issue of human capital is central to our future prosperity. The UK is currently facing an acute shortage of STEM subjects. Science, Technology, Engineering and Mathematics are priority qualifications for shale gas but also for construction, energy, IT and the NHS.
I would suggest a fund for STEM education and training would have a positive transformational effect on our society.
It would act as a catalyst to encourage both college and universities to widen provision to those in work and those ordinarily denied access to education. I would envisage a fund not focused on or limited to undergraduate students, but rather targeted at new access programmes, work based learning and flexible learning for those in work or out of work but needing progression in all STEM related sectors.
Obviously, this fund will be expensive. The revenues from a modest shale gas industry will not solve shortage of STEM skills but will help.
I would suggest some of the government revenues from the oil and gas sector are also repurposed from current consumption into an educational endowment to address the skills and recruitment difficulties affecting the offshore industry.
The feedback in this system is such that the oil and gas companies paying for the fund will be one of the key recipients of its benefit. This is serendipitous in that it answers the key challenges facing the industry. Long term production levels depend on skilled people able to extract the final reserves.
Having spent the last 16 years studying energy sector skills I believe such an approach to skills shortages is now urgently needed. The press has recently been filled with debate on the level of oil reserves left in the UK.
Most of these debates miss a central point, namely that the biggest resource challenge facing the industry does not relate to reserves of oil and gas but to reserves of skilled and experienced people.
Energy is arguably the biggest driver of the economy but it experiences critical skills shortage, competition for experience and rising wages.
The last major industry skills survey by the Robert Gordon University, of which I was an author, identified skill shortages as the number one issue facing companies in the sector. A sovereign education fund would support the energy sector and that of STEM subjects across the UK.
It will be interesting to see how DECC’s policy develops. Capturing the bonus offered by shale gas revenues could serve as a template whereby government redirects some of the revenues gained from the highly taxed oil industry into a fund to drive forward the attainment of STEM skills much needed in the energy sector.
The status quo is where we have insufficient skills leading to industry challenges and people feeling little benefit from their resources. The future could be a framework whereby we convert a natural resource into an educational endowment.
David Gibbons-Wood is a lecturer in economics at Robert Gordon University and is also the director of the Centre for International Labour Market Studies.