Chancellor confirms fracking tax relief

5th December 2013

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Matthew Drinkwater

Shale gas companies are to have their tax rates halved, fuel duties are being frozen and the government is to spend £540 million on energy efficiency, George Osborne has announced

In his autumn statement, the chancellor has revealed a new tax allowance scheme to encourage investment in shale gas exploration.

“The country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy like shale gas because it’s all too difficult,” Osborne told the House of Commons.

The new tax regime, which was proposed in July, will see the tax rate energy companies pay on some of the income from extracting shale gas cut from 62% to 30%, making the UK the “most competitive market in Europe”, according to the Treasury.

Alongside the new tax breaks for shale gas, Osborne confirmed that the government would spend £540 million in the next three years financing energy efficiency projects to offset the changes being made to the Energy Company Obligation (ECO), which funds retrofits of homes.

Earlier in the week, No.10 announced that the ECO was being changed, extending timescales and lowering carbon reduction targets.

In the documents accompanying the autumn statement, the Treasury states that the government wants to ensure this change is “carbon neutral” and confirms that it will be making £90 million available to the public sector to improve the energy efficiency of buildings, such as schools and hospitals, and a further £90 million to private landlords to install energy-saving measures in 45,000 of the least efficient rental properties.

Another £350 million will be offered in £1,000 grants to new homeowners to improve the efficiency of their home, extending the existing green deal cashback scheme, which was due to end in April 2014 to 2017.

Meanwhile, in a bid to encourage businesses to switch to more environmentally friendly fleets, the government has committed to maintaining the 1p per litre difference in duties for fuel gases, such as such as liquefied natural gas and compressed natural gas, and conventional fuels until 2024.

“This will provide businesses with the certainty they need to invest in alternatively fuelled commercial vehicles, supporting the de-carbonisation of the UK transport sector and contribute to reducing the transport fuel costs of businesses,” it states.

Osborne also announced, however, that he was scrapping the 2p a litre increase in fuel duty due to come into force next April.

The autumn statement confirmed that the government will be introducing a climate change agreement for data centres by the end of 2013, a new exemption to the climate change levy (CCL) for solid fuels being used in certain gasification processes, and that the CRC allowance price for 2014/15 will be £15.60/tCO2.

The Treasury is forecasting that revenues from environmental levies, such as the CCL and the CRC, will more than double on 2012/13 figures to £4.8 billion in 2014/15. However, IEMA has warned that the green tax regime could be a much more effective in driving more sustainable behavior in business.

“Long-term certainty is vital for business investment decisions in environmental measures such as energy efficiency and securing business investment. By perpetuating uncertainty with green taxes, the government risks failing to achieve its environmental policy objectives for climate change and any delay will increase the costs of investment to business,” said Martin Baxter, IEMA’s executive director of policy.

“Green taxes have the potential to drive environment and sustainability right to the heart of business decision making by gaining the attention of the finance director and catalysing improved environmental performance.

“However, if poorly conceived, they act as a cost on business, undermining competitiveness without achieving their full environmental potential.”

Baxter also lamented the Treasury’s decision to further cut the budgets of the government departments tasked with driving the sustainability agenda. In 2015/16, Defra and the business department (BIS) will have budgets 6% smaller than in 2014/15, meanwhile Decc has suffered a 10% cut and the communities department (DCLG) a staggering 45% cut.

“With Decc, Defra, BIS and DCLG facing further budget cuts, IEMA is concerned this will limit the UK’s ability to promote green growth and the ability to engage with policies emerging from Europe,” said Baxter.

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