Feeding off the locals

Amber writes*

Gas extraction in the north of the Netherlands been highly beneficial for the government and economy. Gas revenues accounted for 3% of annual GDP and a total of nearly 417 billion euros. However, the local population of Groningen, the province where gas extraction takes place, bear the costs. Their houses suffer severe damages from earthquakes caused by gas extraction, costing them large sums of money. Moreover, Groningers sleep with one eye open as they do not feel safe in their houses. The government has made minimal effort to compensate Groningers, deliberately delaying action by starting new and long investigations. Since the first heavy earthquake in 2012, the government kept extracting gas above the annual cap.

One of the many houses with severe damages to foundations resulting from the earthquakes

Why the delays? One reason might be the government’s significant role in gas extraction. Of the 4 companies involved, 2.5 are state-owned: EBN (Energie Beheer Nederland) and Gasunie are fully state-owned, and the state owns half of GasTerra. Moreover, the other two actors (Shell and ExxonMobil) are actually one company: NAM (Nederlandse Aardolie Maatschappij), which is in charge of all gas extraction. The government receives royalties, dividends and taxes from NAM that add up to 70% of NAM’s profits.

Although it might make sense that the government compensate Groningers out of its own revenues, it does the opposite when it fails to act. Groningers have been fighting NAM and the state in the courts for nearly a decade without much progress. But the last two years have offered some hope.

A secret contract from 1963 (containing the original division of benefits and costs between actors) was released three years ago. It showed that the role of the Dutch state was much larger than originally thought. The document was used in court in 2018 and although the court ruled the state is not directly liable for damages, it did rule that EBN is. After another case, where a couple sued all actors involved (including the state), the Dutch High Court ruled in July 2019 the Dutch state can be considered accountable from 2005 onwards, as the state would by then have received ample signals of what was going on. Thus, the state is liable.

Unfortunately, even though the state is proven to be responsible, it is not taking this responsibility. Proof is still lacking on whether the state did do enough to prevent damages or whether it deliberately chose not to. A parliamentary inquiry has been set up only recently (February 2021) and it will finish only in 2023. Thus, it will take almost three more years to find out who is legally accountable. By then gas extraction in Groningen will have already been finished and the houses already repaired (though these procedures are long and unfair). As a final disappointment, the judge ruled there was no criminal intent of NAM endangering livelihoods. Hence, it is highly questionable whether the judge will rule against the state and in favour of the Groningers.

Bottom Line: Part of the Dutch state’s profits from gas extraction are at the expense of Groningers, who are unlikely to be compensated. This example shows that trade-offs between national economic growth and (local) human development are still relevant in wealthy countries with rule of law and democratic institutions.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

2 thoughts on “Feeding off the locals”

  1. Hi Amber, I think your blogpost is written clearly and gives a good overview of the situation! One point of critique I would like to mention is that in the first paragraph you say that the government is ” deliberately delaying action,” (which suggests to me that it is a proven fact) whilst at the end you write that ” Proof is still lacking on whether the state did do enough to prevent damages or whether it deliberately chose not to.” Maybe I misunderstand it but this seems a bit incongruent to me and it makes the piece seem less impartial in my opinion. But great work overall!

  2. Interesting post! It is not clear to me, though, a) why is the state being prosecuted at the courts (specific charge)? b) why the Dutch involvement in the gas extraction sector is portrayed as negative? (Since, goods/services offered by the public sector often refrain from profits and just cover costs. As the price offered by the public sector are in principle lower than private sector, this should give these public-owned firms more flexibility to increase the costs of inputs to limit environmental/social impact) (Also, the fact that the state owns some firms should not prevent it from transferring money to households through compensation.)

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