Gas and oil companies have accused Parliament’s Environmental Audit Committee (EAC) of being “disingenuous and misleading” in suggesting that the industry receives a subsidy.

Industry body Oil and Gas UK said in a letter to the committee that it had “redefined the meaning of the word subsidy to ensure that tax allowances available to the offshore oil and gas industry are brought within its fold”.

The committee had noted in its 2 December report, Energy Subsidies, that there was “no single internationally accepted definition of what constitutes an energy subsidy”.  There was no consistency over whether different types of tax reliefs, carbon charges and other benefits or market corrections were included in the definition and the report said “Methodologies differ widely, as do the nature of transactions and support mechanisms that might be subsumed in a measurement of subsidy.”

The committee concluded in its report that “although government resisted saying it had provided subsidy, “The reality is that energy subsidies in the UK are significant, cover all types of energy technology and run to about £12bn a year. Much of this is directed at fossil fuels.”

But Oil and Gas UK said in its 9 December letter that it “the EAC appears to believe that any allowance against any rate of taxation from time to time levied by parliament constitutes a subsidy. We profoundly disagree with this alarming notion”.

Report and letter can be accessed at http://bit.ly/1cg4zi2

In its report the EAC said it wanted the government to justify and wind down subsidy – including tax advantages – to fossil fuel industries. It said “Field allowances for North Sea oil and gas do not fully offset relatively high starting rates of corporation tax and petroleum revenue tax. The allowances nevertheless represent a subsidy because the higher tax rates compensate for the use of state-owned fossil fuel deposits.”

The committee also wanted to halt subsidy to mature technologies, and said that would include fracking. It said hydraulic fracturing and horizontal drilling were not new technologies. “Fracking is not a technology warranting financial support to become viable and competitive, and on that basis it does not warrant subsidy through a favourable tax treatment.”

In other sectors of the energy industry, the committee was clear that the planned capacity mechanism would be a subsidy for gas-fired generation, because “in practice it is the only technology that will be eligible for the payments when the capacity contracts are deliverable in 2018-19. “

On nuclear, the committee said it made “no sense to claim that a subsidy applicable to more than one technology therefore does not constitute a subsidy. It is already clear that new nuclear is being subsidised. The contractor for Hinkley Point will be able to use the guaranteed strike price for the electricity generated to raise capital at lower cost.”

It said other measures such as support for insurance, decommissioning and waste management would also constitute subsidy as it was not a similar approach to other types of energy.

The committee also looked at the effect of subsidies on fuel poverty and suggested that although the subsidies were intended to help the poor, it was an inefficient way of doing that. The government should develop a new strategy to provide long-term help to the fuel poor.

This article is from the January issue of New Power. 

Also in this issue:

What the water bill means for the power sector

Data: power project monitor

Interview: Rachel Cary, Green Allaince

and much more

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