Ailing hydrocarbon sector welcomes tax relief, but green groups say first budget since 2015 climate deal should have offered more on renewables and efficiency
By Ed King
UK oil and gas company stocks rallied after the chancellor announced $1 billion in tax relief for the industry in his budget for 2016.
George Osborne said a 35% Petroleum Revenue Tax (PRT) would be “effectively abolished” and halved a ‘supplementary’ charge for North Sea operators on Wednesday.
“The tax reductions announced today will help significantly to improve the economics of North Sea projects,” said Richard Cockburn, energy partner at law firm Bond Dickinson
“The reduction of the supplementary charge may allow operators to take a second look at projects which, until now, were looking uneconomic.”
— Leo Hickman (@LeoHickman) March 16, 2016
This week the UK government was widely praised for pledging to write in law a commitment to zero carbon emissions in the second half of the century, requiring a radical shift away from fossil fuels.
But a Treasury budget briefing note argued investment in oil and gas production was vital even as the country moved towards a greener pathway.
“The government estimates that oil and gas will continue to meet 70% of the UK’s energy needs out to 2030,” it read.
Addressing a packed House of Commons, the chancellor said he planned to deliver a package that would support and protect future generations.
“We act now so we don’t pay later… we put the next generation first,” he said. “I am not prepared to say we ducked difficult decisions and we did nothing,” he added later.
Notable green measures included £730 million new support for renewables and small nuclear reactors.
But green groups said they were disappointed in the first UK budget after the 2015 Paris climate summit, which many had hoped would herald significant investments in low carbon energy.
The PM has set largely carbon free power destination, but chancellor has not put enough renewable fuel in tank to get us there #Budget16
— Matthew Spencer (@Spencerthink) March 16, 2016
“The £730 million announced for renewable energy should mean we’ll continue building offshore wind farms at about the current rate,” said Richard Black, head of the Energy and Climate Intelligence Unit.
“It’s equally notable that there’s nothing new for onshore wind, biomass and solar – or, indeed, for measures to cut energy waste, which we know is the energy investment that Britons support most. And we still have no idea what support looks like 2020.”
— Doug Parr (@doug_parr) March 16, 2016
Sepi Golzari-Munro from the London-based think tank E3G said investor confidence in the renewables sector would remain low given the limited long term support for wind, solar and biomass technologies.
“As the rest of the world races to decarbonise its infrastructure the Chancellor seems happy for Britain to be left behind,” she said.
“Osborne parroted future of “next generation” 19 times – yet announced climate-wrecking policies that’ll threaten their future,” added Green Party MP Caroline Lucas on twitter.
Detail of CfD announcement: £730m this parliament, less established projects delivering 2021-26, 2016 auction £290m pic.twitter.com/blWmk0OzAn
— Richard Howard (@RichardHowardPX) March 16, 2016
Mindful of the damage caused by recent floods, Osborne also revealed £700m in funding for vulnerable areas. York, Leeds, Calder Valley, Carlisle and Cumbria required better protection “in the face of increasing extreme weather events” he said.
New investment in new high speed and urban rail systems in London and the North was flagged, but matched by a pledge to freeze fuel duty for a sixth year in a row, a move even centre-right commentators found curious.
No sense in freezing fuel duty when oil prices are so low. Duty should usually move in opposite direction to cost of a barrel #budget2016
— Tim Montgomerie ن (@montie) March 16, 2016
As expected a carbon reduction commitment (CRC) to boost energy efficiency was scrapped, part of a government move to simplify tax obligations for business.
This would “greatly reduce the administration and compliance burden placed on many businesses that fall within the carbon reduction commitment scheme,” said Jayne Harrold, senior tax manager at PwC.
But fears greenhouse gas reporting requirements would also be phased out proved unfounded, due perhaps to intense lobbying in support of the scheme from corporate leaders in recent weeks.
— Nick Molho (@NickMolho) March 16, 2016
That decision was welcomed by Stephanie Pfeifer from the Institutional Investor’s Group on Climate Change, which represents 120 companies with £23 trillion management.
“It’s been a central concern of IIGCC’s investor members that the mandatory reporting of GHG emissions by UK listed companies should be maintained as part of today’s Budget,” she said in an emailed statement.
“We wrote to the UK Chancellor on 7 March asking him to uphold this requirement and signed a similar letter from the Aldersgate Group on 10 March. We are delighted to learn that HM Treasury recognises the need to sustain this rule going forward.”