Government 'Subsidises Fossil Fuel'

11 November 2014, 06:10 | Updated: 11 November 2014, 07:13

The UK Government is providing £750 million a year in tax breaks to North Sea oil and gas, despite a pledge five years ago to end fossil fuel subsidies, campaigners said.

A further £414 million in public money is going into fossil fuel exploration overseas from Siberia in Russia to Brazil, India and Nigeria, a report by the Overseas Development Institute and Oil Change International said.

The organisations accused the UK Government of providing a total of £1.2 billion in subsidies a year despite signing up to a pledge by G20 countries in 2009 to phase out fossil fuel subsidies.

Since then, generous tax breaks have been provided to international energy giants to explore in riskier, deep-water fields in the North Sea, they said.

Investment in foreign fossil fuel exploration comes from the Royal Bank of Scotland, 80% owned by the UK Government, and through loans and guarantees through the Government's UK Export Finance department, the report said.

Across the G20 as a whole, governments are spending £55 billion a year to find new oil, gas and coal reserves, despite their pledge and evidence that the majority of reserves that have already been found need to stay in the ground to stop climate change.

The figure is double what the top 20 private oil and gas companies are investing globally in exploration, which the organisations said showed how dependent the fossil fuel industry had become on public subsidies.

Further exploration for new reserves is not only environmentally unsustainable, it was "bad economics'' in the face of rising costs for exploiting hard-to-reach reserves and falling coal and oil prices, the groups argued.

As a result, fossil fuel exploration - which would otherwise be uneconomic - is being propped up by public subsidies.

The Overseas Development Institute's Shelagh Whitley said: "Despite the widespread perception that renewables are costly, our findings reveal finding new fossil fuel reserves in the North Sea and elsewhere is costing UK taxpayers nearly £1.2 billion a year.

"Scrapping fossil fuel exploration subsidies would begin to create a level playing field between renewables and fossil fuel energy.''

Oil Change International's Stephen Kretzmann said: "Five years ago, the UK and other G20 governments pledged to both phase out fossil fuel subsidies and take action to limit climate change.

"Immediately ending exploration subsidies is the clearest next step on both fronts.''

WWF Scotland director Lang Banks said: "The science is clear. To reduce the risk of dangerous global climate change, the vast majority of known fossil fuel reserves need to be left in the ground and not exploited.

"That's why we need to see an end to subsidies for new North Sea oil exploration and a halt to incentives to exploit fossil fuels here or abroad.

"While it's true that the oil and gas industry will continue to be a major contributor to our economy for some time, we should urgently be setting out a plan to sensibly transition away from dirty fossil fuels.

"We need to see a transition that enables us to harness the engineering skills currently deployed in the oil and gas industry and apply them to supporting a range of cleaner forms of energy production.''

A Treasury spokesman said: "The Government is committed to supporting the North Sea oil and gas industry, which creates jobs and generates investment in the UK economy.

"As such, the tax regime for oil and gas includes a number of field allowances, which reduce the tax burden on specific, challenging field types.

"But these allowances do not constitute a subsidy. Even when allowances are used, oil and gas producers continue to pay at least 30% tax on their profits - significantly higher than the mainstream corporation tax rate of 21%.''