UK to encourage hydrofracking of natural gas.

Proposed U.K. government policies to encourage hydrofracking of natural gas ignited a firestorm of protest this summer, with critics complaining that they were not consulted and that rules will restrict local planners’ authority. But the country appears to have few other options. The United Kingdom is in an energy quagmire that is forcing it to turn to shale gas.

The country’s aggressive carbon emissions goals call for the U.K.’s power supply to be virtually carbon-free by 2030. But the government had been planning to slash emissions with low-carbon power strategies—new nuclear reactors and carbon capture and storage systems on existing power plants—that remain too expensive to build. And conventional natural gas from the North Sea that could buy time for the scale-up of renewable power is dwindling.

Cost matters to U.K. voters. Nearly three-quarters of its citizens are worried about climate change, according to a national poll released by the London-basedU.K. Energy Research Centre in July. But more than four-fifths told the researchers that they are “fairly or very concerned” that both electricity and gas will become unaffordable in the next 10 to 20 years.

If the U.K. can’t find an affordable supply of natural gas via hydrofracking of its shale deposits, it might have to restart mothballed coal-fired power plants to keep the lights on in future decades. “One way or another, we’ll muddle through,” says George Day, economic strategy manager at the Loughborough-based Energy Technologies Institute, a partnership between industrial firms and the U.K. government. “Whether we’ll hit our carbon targets is another question,” says Day.

Those targets would slash greenhouse gas emissions 80 percent by 2050 from 1990 levels. For the country to get there, the U.K. power industry would have to slash its carbon intensity from more than 500 to 50 grams of carbon dioxide per kilowatt-hour by 2030, according to the quasi-independent Committee on Climate Change. Under that committee’s roadmap, 60 percent of new cars sold in 2030 should be electric, rising to 100 percent by 2035.

Day and other government advisors project that such ambitious targets are well beyond what renewable energy alone can deliver, however. Britain’s solar potential pales in comparison to even Germany’s lackluster supply of sunlight, leaving wind power—principally from offshore farms—to carry the burden. “Do we actually have the industrial capacity to deliver 50-plus gigawatts of offshore wind within the next decade or two?” says Day. “That would be very difficult.”

Even some renewables advocates agree that the U.K. must pursue nuclear and carbon-capture technology as well. “It seems likely that you’re going to need all of the above,” says Briony Worthington, shadow minister for energy and climate change for Labour in the House of Lords. At the very least, says Worthington, the U.K. should seek new reactors to maintain nuclear’s 20 percent share of the power supply as a source of low-carbon energy.

The problem for the government is that investment in CCS and nuclear is, at present, nonexistent. To a large extent that is a failure of the European Trading System, which was intended to render low-carbon technologies competitive with fossil fuels. With the collapse of Europe’s carbon market, that incentive is missing.

To attract CCS and nuclear investment, the U.K. established its own carbon prices that are set to rise to £30 per ton by 2020 and £70 per ton a decade later. It has also proposed floor prices for low-carbon power, with the government topping up a generator’s revenues if the market price falls below a fixed threshold. To support CCS it has set aside £1 billion to defray the cost of building early CCS projects.

Still, investors are moving cautiously. Only two CCS projects are eyeing the government’s financing. A consortium led by Shell proposes to capture carbon dioxide from the Peterhead power station in Scotland and pipe it out to the North Sea for sequestration in a depleted oil and gas field. A second project would send carbon dioxide to the North Sea from a coal plant in North Yorkshire. Final investment decisions for those projects are not likely before 2014 or 2015.

Nuclear reactor construction is lagging further. While the government wants to see 16 gigawatts of new nuclear capacity operating by 2025, only one project is getting serious attention: a proposal by French power generator Electricité de France to build a 1,600-megawatt EPR reactor at the Hinkley Point nuclear station, whose 1970s-era reactors are scheduled to shut down in 2023.

Bakken Shale: North Dakota Fracking

Though North Dakota has historically had lower unemployment rates than the rest of the country, it barely felt a hiccup with the onset of the Great Recession. Not only have the number of jobs increased steadily in the region over the past decade, but the average take-home pay has increased at a healthy clip as well.

A big part of that is due to the fact that drilling in the Bakken Shale -- with its enormous oil deposits beneath North Dakota's soil -- has become a very profitable endeavor. In fact, in 2006, North Dakota ranked ninth in daily production of oil in the United States. In just seven years, it shot all the way up to second, behind only Texas. The state currently produces 821,000 barrels of oil per day. 

The big playersTwo players account for a large portion of business in North Dakota's oil fields. Continental Resources leases the most land of any oil company in the state, and stated last year that it plans to triple its oil output by 2017, with the Bakken shale accounting for most of this growth. Hess  also made a big splash in 2010 with a $1 billion land purchase.

At the same time, several smaller players are also turning a profit to the benefit of North Dakotans and shareholders alike. As Foolish colleague Matt DiLallo recently pointed out,Kodiak Oil & Gas and Oasis Petroleum have combined to go from producing about 4,500 barrels of oil per day in 2010 to more than 60,000 by the end of this year.

And even though the Bakken has been active for years now, the land grab continues. Just last month, Whiting Petroleum announced that it was buying 40,000 acres of land for roughly a quarter of a billion dollars.

Telling Washington to stay awayGiven the vested interest North Dakota citizens, politicians, and oil companies have in seeing the Bakken shale continue to produce profits, it's no surprise that the state is wary of the Obama administration's plans to institute nationwide regulations regarding the fracking process, which made this oil boom possible in the first place.

Expected to be released sometime in early 2014, these regulations will likely require disclosures of materials used in the fracking process, specifications to ensure safe well construction, and rules for the management and disposal of wastewater.

Though only 5% of oil in the United States comes from public lands, both sides of the aisle in North Dakota are fighting against intrusion from D.C. politicians. In May, a bipartisan delegation from the state claimed that these federal regulations were completely unnecessary.

"We believe we already have substantial regulations in place that allow for continued oil and gas production while protecting the environment and the health and safety of our citizens," Sen. Heidi Heitkamp (D-N.D.) said.  These regulations include the fact that fracking chemicals are already disclosed via the industry-standard website, Fracfocus.org.

Continental Resources CEO Harold Hamm also claims that while it only takes 30 days to get a drilling permit through North Dakota authorities, doing so through the federal government would take close to nine months. That kind of delay, he argues, inhibits efficient economic development in the region.  

No matter how the regulations play out, finding the right investments while historic amounts of capital expenditures are flooding the industry is crucial to padding your nest egg. You can get a comprehensive look at three energy companies set to soar during this transformation in the energy industry.