Related to earlier discussions featured on this blog [here, here and here], the FT writes that Mark Carney, the chief of the Bank of England, warns of the potentially massive downside risk in the UK if binding climate change policy would left the majority of proven reserves unburnable (in the near future). He noted that 19% of the companies on the FTSE100 are related to extractive industries, and that if the world would decide on the 2 degrees limit, and without massive involvement of carbon capture, 'carbon budgetting' would imply that around two thirds of currently proven reserves should not be extracted.
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Showing posts with label UK. Show all posts
Showing posts with label UK. Show all posts
Wednesday, September 30, 2015
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 [oxcarre.blogspot.com], the UK Budget for the next few years includes sizeable reductions in taxes for the industry (see also The Economist [economist.com] 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 [BBC.co.uk] 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 [bbc.com], 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 [telegraph.co.uk] 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.
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 [BBC.co.uk] 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 [bbc.com], 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 [telegraph.co.uk] 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.
Wednesday, February 25, 2015
UK considers tax decreases to support North sea oil industry
Based on a report by Oil and Gas UK, an interest representing group, that pictures a grave outlook for the industry's activities in the North Sea, the FT [here and here] and the Guardian [here] report that the government is considering corporate tax breaks for the industry in order to stimulate further investment and avoid the scrapping of new projects. Taxes went up when prices were high, taxes may go down when prices are low.
The government's main interest, supposedly, is to maximise tax revenue from oil production and use. Lowering corporate taxation now may insure that new projects are not shelved, but instead developed bringing revenues for many years. Some of the immediate revenues for the government would be given back to the industry to assure 'profitability'. If not through taxation the industry may have to find different means of cutting costs, with as ultimate measure ending production in individual
projects. The question remains whether the government would need to help with this through taxation policy or whether a future oil price increase and technological innovation triggered by hard times would take care of it. Is there really no time to wait a few quarters to see what happens with the oil price?
The call for corporate tax reductions for the oil industry stands in contrast to the calls during the past months [see earlier posts starting here] to increase consumer tax on fossil fuel use based on carbon content. I'm speculating here, but part of the immediate tax rate decrease may actually be financed by increasing the tax on consumer use of carbon, in some revenue neutralising way of swapping consumer surplus to the oil industry. Why not?
The government's main interest, supposedly, is to maximise tax revenue from oil production and use. Lowering corporate taxation now may insure that new projects are not shelved, but instead developed bringing revenues for many years. Some of the immediate revenues for the government would be given back to the industry to assure 'profitability'. If not through taxation the industry may have to find different means of cutting costs, with as ultimate measure ending production in individual
projects. The question remains whether the government would need to help with this through taxation policy or whether a future oil price increase and technological innovation triggered by hard times would take care of it. Is there really no time to wait a few quarters to see what happens with the oil price?
The call for corporate tax reductions for the oil industry stands in contrast to the calls during the past months [see earlier posts starting here] to increase consumer tax on fossil fuel use based on carbon content. I'm speculating here, but part of the immediate tax rate decrease may actually be financed by increasing the tax on consumer use of carbon, in some revenue neutralising way of swapping consumer surplus to the oil industry. Why not?
Monday, February 23, 2015
OxCARRE Trip to Azerbaijan
From 20 to 24 February, Gerhard Tows, Thomas Nielsen (LSE) and Wessel Vermeulen joined a group of researchers and practitioners, many associated with the Centre for Euro-Asian studies at Reading University, for a workshop on "Sustainable development in resource rich countries" at Khazar University in Baku, Azerbaijan. The workshop was made possible through support of the British Council in Azerbaijan.
During the conference we discussed with students, professors, representatives of SOFAZ (The sovereign wealth fund of Azerbaijan) and SOCAR (the state energy company) on matters such as development of resources, governance, macroeconomic management and international linkages. The delegation from the UK was able to offer new and critical views on the current state of knowledge on how to manage resources in a country such as Azerbaijan, while our hosts were able to highlight how Azerbaijan is coping with the large increase of revenues in recent years and the current situation where revenues are expected to decline rapidly in line with the fall of the oil price. Additionally, it was an occasion to share research ideas and methods with the potential of future collaborations and joined-projects between researchers from universities in the UK and Azerbaijan.
The city of Baku is an almost surreal mixture of new property development, large and modern architectural structures, with a carefully renovated historic centre, whereas only a few kilometres out of the centre gives a picture on what is probably the situation of the large majority of the people of Baku and supposedly the rest of the country. A distinctively less wealthy part of town, around soviet-era structures, but an also more lively buzz on the streets and around small shops and teahouses.
In the short time we were in Baku, and given the time left after the main sessions we were able to taste a little from the new Baku and how people view the development of Azerbaijan as an important oil and gas supplier for Europe. There is proudness in this thought but also acknowledgement of the often inefficient ways the riches are used in domestic spending and investment, and disappointment in the way that critical views are under-appreciated. The government of Azerbaijan has a large responsibility to shoulder. We hope that with our visit to the country we have contributed positively, if only in a small way, in showing how it can find the best way of using its new found riches for the benefit of the entire population.
For more information on Azerbaijan and its natural resources, see the NRGI website, which offers plenty of new developments. For instance, the country risks being expelled from the EITI program soon after having severely cracked down on voices from civil society that had critical views of the government. A country report [nrgi.com] on Azerbaijan from RevenueWatch, now NRGI, gives a fairly good overview of the situation, including recommendations the country has received from various international organisations and independent institutions.
During the conference we discussed with students, professors, representatives of SOFAZ (The sovereign wealth fund of Azerbaijan) and SOCAR (the state energy company) on matters such as development of resources, governance, macroeconomic management and international linkages. The delegation from the UK was able to offer new and critical views on the current state of knowledge on how to manage resources in a country such as Azerbaijan, while our hosts were able to highlight how Azerbaijan is coping with the large increase of revenues in recent years and the current situation where revenues are expected to decline rapidly in line with the fall of the oil price. Additionally, it was an occasion to share research ideas and methods with the potential of future collaborations and joined-projects between researchers from universities in the UK and Azerbaijan.
The city of Baku is an almost surreal mixture of new property development, large and modern architectural structures, with a carefully renovated historic centre, whereas only a few kilometres out of the centre gives a picture on what is probably the situation of the large majority of the people of Baku and supposedly the rest of the country. A distinctively less wealthy part of town, around soviet-era structures, but an also more lively buzz on the streets and around small shops and teahouses.
In the short time we were in Baku, and given the time left after the main sessions we were able to taste a little from the new Baku and how people view the development of Azerbaijan as an important oil and gas supplier for Europe. There is proudness in this thought but also acknowledgement of the often inefficient ways the riches are used in domestic spending and investment, and disappointment in the way that critical views are under-appreciated. The government of Azerbaijan has a large responsibility to shoulder. We hope that with our visit to the country we have contributed positively, if only in a small way, in showing how it can find the best way of using its new found riches for the benefit of the entire population.
For more information on Azerbaijan and its natural resources, see the NRGI website, which offers plenty of new developments. For instance, the country risks being expelled from the EITI program soon after having severely cracked down on voices from civil society that had critical views of the government. A country report [nrgi.com] on Azerbaijan from RevenueWatch, now NRGI, gives a fairly good overview of the situation, including recommendations the country has received from various international organisations and independent institutions.
Monday, January 5, 2015
UK implements transparency guidelines for natural resource industry
The UK is moving forward in implementing transparency rules that aim to reveal the money flows between buyers, sellers and producers of natural resources. Last month it attained candidate status of the Extractive Industry Transparency Initiative. Since first January it's the first EU member state to implement the EU directive for extractive industries, which requires similar disclosure.
See here [ft.com] for the FT article, and here [resourcegovernance.org] from the Natural Resource Governance Institute.
See here [ft.com] for the FT article, and here [resourcegovernance.org] from the Natural Resource Governance Institute.
Friday, December 12, 2014
Monday, December 8, 2014
Everybody loves SWF
FT's Gillian Tett comments [FT.com] on the sudden popularity of Sovereign Wealth Fund constructs, including among western countries. She notes in particular that the UK Treasurer Osborne announced to set up one in his autumn statement [FT.com]:
we’re announcing a new Sovereign Wealth Fund for the North of England so that the shale gas resources of the North are used to invest in the future of the North.The revenues of shale gas are for now still largely illusionary. The question why the UK didn't set up a SWF for for their real revenues from the North sea was discussed in the Guardian [oxcarre.blogspot.com] not too long ago. On the OxCARRE [oxcarre.ox.ac.uk] website you'll find further research on Sovereign Wealth Funds and optimal savings of commodity export revenues.
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