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

May 11, 2020

By Paul Homewood

h/t Pat Swords

 

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

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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.

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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.

20 Comments
  1. Joe Public permalink
    May 11, 2020 6:20 pm

    Reduced VAT on domestic electricity/gas – given also to renewables-generated electricity & gas.

    YCMIU

    • May 11, 2020 7:02 pm

      It would be interesting to know if the reduced VAT is also counted as a subsidy for renewables.

  2. Phoenix44 permalink
    May 11, 2020 6:43 pm

    The thing about subsidies is that somebody has to gain. Reduced VAT is not a gain for anybody. We all pay less tax so we all get lower public services (or higher taxes elsewhere). It really is that simple.

  3. Joe Public permalink
    May 11, 2020 7:18 pm

    Paul

    In your Jan 2019 post “Guardian Wants To Add 15% VAT To Your Energy Bills”, you also pointed out:

    “… looking at the list provided by Trinomics, their “ fossil fuel subsidies” also include:

    1) Zero VAT on public transport – estimated cost £4.3bn

    2) Red diesel – £2.4bn

    3) Capacity market – £1.0bn

    None of these are subsidies to fossil fuels either. Indeed, capacity market payments should rightly be regarded as a subsidy for renewable energy.”

    https://notalotofpeopleknowthat.wordpress.com/2019/01/24/guardian-wants-to-add-15-vat-to-your-energy-bills/

  4. May 11, 2020 7:25 pm

    Desperate search for another weapon for Barnier to use in the on-going negotiations…

  5. jack broughton permalink
    May 11, 2020 7:40 pm

    A year or two ago you addressed this “subsidy” issue, I can’t remember the exact numbers, but did not the OBR state that the oil industry contributed on average £18 b / year to the exchequer and clarify that no subsidies were applied to fuels?

    A level playing field would be a good thing for the UK as industrial electricity prices in most of the EU are highly “subsidised” by higher charges to consumers – killing off the UK steel industry. France of course is now reaping the rewards for what was a massive state investment in nuclear power.

  6. Stuart Brown permalink
    May 11, 2020 7:44 pm

    This nonsense never ends:
    https://energypost.eu/investing-for-tomorrow-because-energy-subsidies-will-decline-25-by-2050-analysis/

    I wonder what governments will do for money when the taxes these ‘subsidies’ are all deducted from disappear.

  7. G B STUART permalink
    May 11, 2020 8:25 pm

    EU thrashing around like a snake . They will still be desperate to have a deal in place by 12/20 . A free trade deal with USA will prove much harder .

    • Adam Gallon permalink
      May 11, 2020 9:12 pm

      “They” won’t be, We should be.

  8. May 11, 2020 8:31 pm

    This story keeps coming up every couple of years – mostly reported by the BBC, Grauniad etc. Paul last debunked it 2 years ago:
    https://notalotofpeopleknowthat.wordpress.com/2018/06/23/uk-hiding-11bn-of-fossil-fuel-subsidies-new-report-claims/

    The official UK government position on subsidies for fossil fuels has been repeated many times over the years. The latest UK government statement was on 20th March 2020:
    “The UK does not give subsidies to fossil fuels.”

    But the scammers for the ruinable energy industry won’t give up with their anti-fossil fuel propaganda.

  9. Adam Gallon permalink
    May 11, 2020 9:10 pm

    So, like all these claims of “Subsidies” for fossil fuels, they’re not.

  10. May 11, 2020 10:30 pm

    Lets put this straight. What they call subsidy is mostly tax breaks. This means that fossil fuels pay taxes, sometimes a bit less. But they still pay into the public good. They are still a net financial benefit to our societies. Oly coal receives some true subsidies. Now over to wind and solar. They receive cash for a product that could not turn a profit if it tried. This means that those subsidies are real subsidies as they are a drain on the public finances. So, fossil fuels leave a lot of money for society to spend on all kinds of things. RE drain public finances making the cake to use for other stuff much smaller. And they dare to call fossil fuels subsidized. But what really irks me is that we take it on the chin. This is antcrap.

    • Joe Public permalink
      May 12, 2020 8:42 am

      “What they call subsidy is mostly tax breaks.”

      Those are given to charities such as FoE & Greenpeace too. Who’da guessed they were also subsidised by taxpayers!

  11. Gamecock permalink
    May 11, 2020 10:52 pm

    I betcha fuel taxes on petrol mean the governments receive vast funds from the oil industry.

    The internet says that 60% of the price is government’s take.

    • Frosty Oz permalink
      May 12, 2020 2:56 am

      Yes, how about we also count the taxes imposed on fossil fuels as a contra against these so-called “subsidies”.

      1L of petrol combusts to 2.3kg of CO2-e. 435L of petrol combusts to about 1 tCO2-e. UK fuel duty of 57.95p per litre is therefore equivalent to a carbon emissions tax on petrol of about £252 per tCO2-e. (57.95p x 435L = £252)

      • Chaswarnertoo permalink
        May 12, 2020 7:21 am

        You forgot the VAT. Petrol is taxed at over 200%. Including charging VAT on the fuel duty, a tax on a tax.

      • Frosty Oz permalink
        May 12, 2020 7:56 am

        Yes, I agree, plus VAT on the duty.

  12. May 11, 2020 11:57 pm

    Tax breaks aren’t technically subsidies, the media just erroneously combines the two different mechanisms under “subsidies” so as to say “look, ff receive subsidies, too”. A subsidy is money given by a government to a business or person. In other words, they’re receiving money that wasn’t theirs. A tax break simply lets you keep more money that was already yours to begin with.

  13. Gerry, England permalink
    May 12, 2020 9:40 am

    But giving taxpayers’ cash to otherwise uneconomic generation – now that IS a subsidy.

  14. CheshireRed permalink
    May 12, 2020 10:41 am

    Classic Green Blob lies, damned lies and statistics. A terrific filleting by Paul.

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