From the TUC

Happy Shell pulls out of North Sea renewables

27 Apr 2012, by in Environment

Two questions for Shell today as it  pulls the plug on North Sea wind projects. With a 16% surge in three months profits to £4.5bn, why do companies like this need the Coalition’s £3bn subsidy for oil &  gas exploration off the Shetlands? And, is the company’s finance director right  to criticise the “vast amount of public subsidies going into renewables”, when the government already subsidises fossil fuels by £3.63bn a  year, mostly in the form of VAT breaks? That’s three times the support received by the renewables industry, as the REA reported this week.

Those in the renewables industry who feared that the new  government subsidy for offshore oil & gas world deter investment in renewables have so quickly been proven right.

How  we pay for the new £3bn oil & gas field allowance

Year 2012-13 2013-14 2014-15 2015-16 2016-17
Cost/benefit to HMT -£55 – £100m +£55m +20 +20

Five weeks after the tax break announced by the Chancellor, Shell  has pulled out of investing in North Sea wind farms. Simon Henry, finance director  at Shell, is reported as saying Shell “can’t make the numbers” add up to  justify building them. That contrasts with onshore turbines in America where it  controls almost 1 gigawatt of wind power. He says the British government should support an industry that is “already successful” – such as oil and  gas – as much as chase a renewable power sector that is “still  trying to become profitable”. He’ll be happy then.

Want the details? As our HMRC table shows, in Budget 2012, the Chancellor announced a new £3bn “field allowance” for particularly deep oil  & gas fields with sizeable reserves, targeted at the West of Shetland, as  part of the Government’s strategy to encourage further investment in the  region. Over the next five years to 2017, this will cost the Treasury a net  loss of revenues of £60m. As the impact assessment below shows, the first two  years of the scheme (2012-2014) involve £155m in tax reliefs to the industry.

Because the scheme is expected to stimulate investment which in turn should generate revenues, the investment is then partially offset by revenues of £95m in the last three years to 2017. The Treasury expects these revenue flows to continue into the next spending review period, but no data is provided.

PS: the HMRC carbon impact assessment says just this: “Oil and gas production installations produce carbon emissions.” Light touch regulation indeed.