UK Subsidises Fossil Fuels By £10bn A Year–Claims EU

By Paul Homewood

h/t Pat Swords

 

Last year the EU published their quinquennial report on energy prices:

 

https://ec.europa.eu/energy/data-analysis/energy-prices-and-costs_en?redir=1#documents 

As Pat noted, national governments collected €280 billion (roughly 1.9% of EU GDP) through energy taxation. Meanwhile, €76 billion was paid out in subsidies for renewables.

 

As well as subsidies for renewables, however, the EU regularly claims that large subsidies are also paid out for fossil fuels, with the EU putting the cost at €55 billion in 2016.

Of this, they claim that the UK accounts for about €12 billion, the highest country total.

 

 

I have seen claims like this from many sources, but have never been able to find a breakdown. Even BEIS did not know, when I asked them.

But I have managed to track the analysis down via the Trinomics study, quoted above, details of which are here. in turn, Trinomics give the OECD as their source of data, here.

This link leads to a tool, which gives the detail we need. According to the OECD, the main items of UK fossil fuel subsidies in 2017 were:

 

Reduced VAT on domestic electricity/gas – £4649 million

This is set at 5%, instead of the standard rate of 20%, so the argument goes that the government is foregoing income, thus costing the taxpayer.

I have commented on this before, and, to repeat, nobody would seriously regard this as a subsidy for fossil fuels, any more than zero rating for food means that the govt is subsidising food.

Even if a reduced rate of tax is counted as a subsidy, this is a energy subsidy for consumers, not for fossil fuels

Tied Oils Scheme – £1280 million

This relates to exemption from excise duties where oil is not used as fuel for any engine, motor or other machinery or heating fuel.

I gather this relates to industrial use, such as mineral oils for lubrication.

This exemption goes back many years and clearly is not a subsidy for fossil fuels in any shape or form.

Exemption from the Climate Change Levy (CCL) – £890 million

In short, businesses have to pay CCL on various forms of energy. However, a range of exemptions apply, such as companies who already have Climate Change Agreements in force, supplies not for use in the UK, and supplies to CHP stations.

All exemptions relate to specific circumstances of the users, mainly because they either have nothing to do with climate change, or because the companies are already taking action anyway.

Again they are not a subsidy fossil fuels.

North Sea Oil Capital Allowances – £1744 million

“Tax breaks” such as these are favourite targets of the eco-left, who love to present them as Big Oil receiving hand outs from the taxpayer. But this is never the case.

In this instance, it means that companies can claim 100% of capital expenditure in the first year as a taxable allowance, when paying corporation tax. This is a common arrangement for many industries.

Without this rule, oil companies would simply write off the capital expenditure in stages over several years. First year write off simply means paying less tax in the first year, but more in subsequent years, with the total being the same at the end.

Tax breaks like this are simply part of the overall tax regime, which brings in billions of extra tax from North Sea Oil every year, on top of ordinary Corporation Tax,

To split out one particular component is cherry picking.

North Sea Oil Decommissioning Costs – £519 million

Another tax break.

This one allows capital expenditures connected to the decommissioning of fields to be deducted from profits subject to the corporate income tax in full in the year in which they are incurred. Deductions are coupled with a carry-back provision which makes it possible for companies to deduct losses arising from decommissioning costs against profits earned in earlier years. This may therefore result in tax refunds.

Obviously decommissioning costs are a legitimate cost, which should be offset against profits during the life of the oil field. As such they are clearly tax deductible.

Again this is in no way a “subsidy”

 

Inherited Liabilities Related to Coal Mining – £1539 million

This appears to be a bit of a one off, at least in terms of the scale. In most previous years, the cost is much lower.

The OECD explain it:

The Coal Authority was established by the Coal Industry Act of 1994 in order to address those inherited liabilities for which no licensed coal-mine operator could be held responsible. Abandoned mining sites managed by the Coal Authority include all former British Coal Corporation pits. Mine subsidence and historic liabilities such as the treatment of mine-water discharges are the Authority’s two main programmes that we include here.

In short, when British Coal was privatised, there were long term liabilities the buyers clearly could not be expected to take on – indeed if they were forced to, they simply would not bought the business.

The cost does not relate to current fossil production or consumption. If anything it is a cost which relates to coal production prior to 1994, probably many decades earlier.  As such the EU certainly should not be counting them as a fossil fuel subsidy in 2017.

 

This lot comes to about £10.6 billion, which is in line with the EU table above.

Their intention is to persuade the public that their taxes are being used to fund fossil fuel production, thus diverting attention away from the truly massive scale of subsidy for renewable energy.