Monday, March 23, 2015

UK Budget: North sea oil industry tax reductions. Anything green to compensate?

After requests from the UK oil and gas industry to reduce production levies and increase investment support, discussed earlier [], the UK Budget for the next few years includes sizeable reductions in taxes for the industry (see also The Economist [] of this week). There is not much about cutting carbon however.

A simple sum of multi-year measures makes a £1345M reduction in taxes for the Oil industry (Budget here, p. 68, account 11-14, all years to 2020, £275M for this year only). Add to that £1125M on decreases on fuel duties (account 8). Against that I found £340M of tax increases on company cars in 2020 (account  37), which I suppose is not really a green consideration, and £40M of tax increases on energy and water efficient technology through capital allowance from 2016 onwards (account 40; Yes an increase, it has the opposite sign from the tax reductions of oil industry, so it should count as more tax, or less subsidy).

Besides the oil industry in Scotland, another example is the story [] of businesses located in Wales that are being compensated for the high energy prices. "It is understood 16 firms including Tata Steel in Port Talbot qualify in Wales, sharing some £240M compensation." Interestingly, it is reported that the head of Tata Steel in Europe made this request directly, because "'heavy industries in the UK were burdened with environmental obligations that pushed up their energy bills, sometimes to levels 50% higher than their European competitors.'" The last part is weird, because for households the energy price difference between UK and continental Europe is the other way around as far as I remember. To push the argument, "[chemical and metal-based] companies employed nearly half a million people in the UK and accounted for 30% of total exports and imports."

The main thing highlighted by the government on sustainable energy is opening of negotiations on a £1000M Swansea Tidal Lagoon energy project [], but part of this £1B is financed by private sector and individuals (SWL website), but it's unclear how much.*  So that puts things in perspective.

* Apparently the government has to guarantee a sales price, much like it did with the Nuclear plant in Somerset, decided earlier this year (strike price ~£90/MWh for 35 years). The Telegraph [] put it at "tens of millions" in subsidy. Why? The guaranteed price is £168 per MegaWattHour (MWh) for 35 years. £168 is 4 times current price (so the government puts up the difference between spot and guarantee), the capacity is 500GWh/year. I get to ~£60M annual subsidy ( (168-168/4)*500.000 ). Over 35 years, with energy prices assumed increasing 2% year (so making the subsidy decline) and a 5% discount rate, a ~£1B subsidy Net Present Value (actually £948.6B). So the key figure: if the government was suppose to spend it's subsidy the coming fiscal year it would amount to £63M additional subsidy counted for a green energy measure.

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