Chancellor stepping on the gas (and climate targets)
The Chancellor’s energy policy prescription is good in parts, but we may not recover from the carbon content of the medicine.
The Autumn Statement offers a welcome consultation on helping energy intensive industries with additional costs arising from energy market reforms. The TUC’s evidence to the current Environment Committee inquiry shows that our lead competitor, Germany, provides massively more relief to their heavy industries.
But the Chancellor is also betting on gas drilling and gas power. A new shale gas drilling subsidy will add to the UK’s already extensive fossil fuel subsidies. And the Chancellor is directing far more gas in our power supply through to 2030 than advised by the independent Committee on Climate Change. And coal, despite its lead role in winter electricity supply, is the forgotten fuel.
New shale gas subsidy
The Chancellor is to consult on new tax incentives for shale gas, and announced an Office for Unconventional Gas “so that regulation is safe but simple.” TUC Congress 2012 opposed shale gas exploitation. The precautionary principle should apply to using large scale underground explosions to drive gas out of rock (“fracking”). Fracking causes increased seismic activity, with other environmental impacts including pollution of water supplies, significant water use and the safe disposal of mining waste products. These risks will be enhanced if the industry were to scale up.
The gas fracking tax scheme will be based on the oil and gas industry’s “field allowances” (tax breaks). They are already sizable. Budget 2012 announced a new £3bn “field allowance” for deep oil & gas fields West of Shetland worth £155m in tax reliefs the first two years. Overall, a new FoE analysis points to 32 oil and gas projects benefiting from hundreds of millions in tax breaks.
The Environment Agency is undertaking an environmental impact assessment of fracking. A report from the Royal Academy of Engineering called for the regulation of shale gas fracking to be clarified, and said robust monitoring systems must be established.
Much of the UK countryside could potentially be exploited for shale gas. Furthermore, shale gas exploitation is not sustainable by definition as it relies on a limited resource. A recent Deutsche Bank report on shale gas exploitation in the EU questions the size of the recoverable resource, the rate at which production can be achieved, and the extent to which the concerns of local residents and environmental groups can be accommodated.
Stepping on the gas
DECC’s new gas strategy says that a minimum of 26 gigawatts (GW) of gas capacity could be required by 2030 on current carbon targets. But it then holds out the prospect of an alternative climate change scenario under which “emissions reductions are more gradual”. If so, then 50% more gas, up to 37 GW of new plant, could be required. What would be the consequences of that much more gas?
- Extensive use of unabated gas-fired capacity (i.e. without carbon capture and storage in 2030 would be incompatible with the UK’s statutory commitments to cut our carbon emissions under the Climate Change Act.
- Higher gas bills through the expected higher gas prices on international markets by then.
- Higher gas bills because of increase in the UK’s carbon tax, from £30 per tonne of CO2 in 2020 rising to £70 in 2030.
- Giving priority to gas over renewables from 2020 effectively heightening renewable investor certainty now.
- Many of the UK’s 42 gas power stations will still be operational in 2030, so power companies would only need to build about 10 GW of new gas capacity. The average per plant is about 1.5GW, which implies up to 10 new power stations, not 30.
- A carbon intensity of 200g KWH, ie well above the Committee on Climate Change 2030 target. This in turn implies greater pressure on other industrial sectors to cut their emissions manufacturing, transport, domestic), or abandoning our climate change commitments altogether.
- Gas means fewer jobs than renewable energy. A new WWF study of our energy future shows that an ambition involving a high ambition for renewable energy, especially wind power, outpaces gas in terms of jobs and GDP growth, including 100,000 additional jobs by 2025.