What environmental concerns does widespread use of fracking create? What is the appropriate tradeoff between environmental concerns and economic growth? Joseph Schumpeter, an Austrian-born economist who emigrated to the United States in 1932, championed entrepreneurship and free markets. Schumpeter is perhaps best known for popularizing the phrase “creative destruction,” the concept that innovation—new technologies, new products, new ways of doing business—inevitably disrupts, supplants, and devalues the economic structure that preceded it. One such new technology—the hydraulic fracturing of shale and other rocks containing oil and natural gas deposits, popularly known as fracking—provides a perfect example of Schumpeter’s concept. Fracking holds the potential to turn world energy and industrial markets upside down, and to scramble geopolitical relations and alliances that have dominated the past half-century.

Fracking involves the injection of fluids at high pressure into rock formations containing hydrocarbon deposits such as oil and natural gas. The fracturing fluid cracks open new channels in the rock, creating pathways for oil and gas to flow and be captured by the driller. Although the technology was developed in 1947, it was little used until combined with modern horizontal drilling. Fracking became commercially significant in 1998, when it was applied to exploit the so-called “tight” gas formations in Texas’s huge Barnett Shale field. The potential reserves in such tight formations are enormous: China is estimated to have 1,275 trillion cubic feet of reserves; the United States, 862 trillion;

Argentina, 774 trillion; and Mexico, 681 trillion. Even South Africa’s Karoo region, a semi-desert lying between Cape Town and Johannesburg, may contain shale-gas reserves as large as 485 trillion cubic feet, the fifth largest in the world.