The UK’s “two competing energy policies”
The Chancellor’s announcement of a new subsidy regime for shale gas exploitation will apparently make the UK the “most generous” regime for shale gas in the world. FoE reckons that North Sea oil and gas ‘field allowances’ given out in the last financial year were worth £2bn to industry. To add to that, the Chancellor is consulting on cutting the tax on income generated from producing shale gas – found in underground shale rock formations – from 62% to just 30%.
When the Lords debated the Energy Bill last week, Baroness Worthington remarked: “A grand bargain had been struck between the [energy] department and the Treasury, and that grand bargain has been the cause of a great deal of uncertainty. Essentially, it has allowed for two competing philosophies and energy strategies to emerge. One strategy is a dash for gas—unabated gas—which is obviously the Chancellor’s preferred option, and the other is much more sensible: the department’s policy of a mix of low-carbon generation.
FoE’s David Powell has updated previous research on the extent of fossil fuel tax breaks for ‘marginal’ fields. These tax breaks, known as ‘field allowances’, reduce the headline rate of tax payable on profits from particular fields. Of the 34 North Sea oil and gas licences awarded in last year, 28 came with one of these field allowances. Assuming taken up in full, the allowances will reduce tax paid on those fields by £1.95bn over five years.
The effect of tax breaks is far more than their (probably limited) economic impact – they mark the latest move in the Chancellor’s determination to provide a political certainty for gas investment that he has been rather less keen to provide for renewable energy.
An unwillingness to support a 2030 decarbon target for the Energy Bill is matched by the government’s planned support for unabated gas fired power stations to continue operating all the way out until 2045. As Lord Deben commented in the Lords Energy Bill debate, if we want to meet our statutory requirements for emission reductions, “It aint gonna stand up”.