UK’s ‘most generous’ shale gas regime introduced

19 July 2013
By Tereza Pultarova
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Unparalleled tax breaks for shale gas exploration have been introduced today

Unparalleled tax breaks for shale gas exploration have been introduced today

Unparalleled tax breaks, introduced today by Chancellor George Osborne in an attempt to boost the fracking industry, will significantly reduce income tax for companies exploring shale gas in the UK.

The UK government has decided to back the controversial technology for extracting shale gas, after a study of the British Geological Survey revealed UK’s shale gas resources are even more abundant than previously believed.

Following the example of the USA, the government hopes shale gas exploration will bring about higher tax revenues, create jobs and reduce the country’s dependence on imported energy. Apart from that, it was claimed shale gas could help reduce household energy bills.

"Shale gas is a resource with huge potential to broaden the UK's energy mix,” George Osborne said. "We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits.

The new tax regime, based on existing field allowances for the development of technically or commercially challenging oil and gas resources, will reduce the tax on the income from shale production from 62 per cent to 30 per cent.

The Government has also outlined measures to ensure local communities benefit from the shale gas venture - £100,000 is going to be paid for each well where fracking takes place plus further 1 per cent of revenues if the drilling proves to be commercially viable.

"I want Britain to be a leader of the shale gas revolution - because it has the potential to create thousands of jobs and keep energy bills low for millions of people," Osborne said.

However, not everyone is so excited. Environmentalists, who have been speaking against fracking ever since the debate started, still maintain the technology, involving fracturing bedrock by high-pressure liquid, can cause earthquakes, pollute water supplies, damage the countryside and affect house prices.

"The Chancellor is telling anyone who will listen that UK shale gas is set to be an economic miracle, yet he's had to offer the industry sweetheart tax deals just to reassure them that fracking would be profitable,” Greenpeace energy campaigner Lawrence Carter said.

The opponents have also questioned the effect of shale gas exploitation on energy costs for regular consumers.

"Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace,” Andrew Pendleton, the head of campaigns at Friends of the Earth commented.

"Ministers should be encouraging investors to develop the nation's huge renewable energy potential. This would create tens of thousands of jobs and wean the nation off its increasingly expensive fossil fuel dependency," Pendelton added.

Despite generally supporting the shale gas extraction and utilisation, shadow energy minister Tom Greatrex questioned the soundness of the tax breaks.
"Announcing tax breaks before we know how much shale gas is actually recoverable, before anyone even has a licence to extract it, and before anyone even knows whether fracking needs tax incentives, makes no sense at all,” he said.

Unlike renewable energy in many European countries, fracking is not going to be subsidised. The favourable tax regime is so far the only incentive in place to encourage the development.

"Drilling and fracturing are tightly regulated, with sign-off needed from three Government agencies and local authorities, together with strict environmental impact assessments and permits. The UK's offshore oil and gas safety regime is one of the best in the world, and the same will be true for shale gas," said Corin Taylor, senior economic adviser at the Institute of Directors.

At the same time, the government has published planning guidance for local councils regarding shale gas applications.

The guidance outlines environmental, health and safety issues that have to be taken into consideration when decisions regarding fracking have to be made. Many of the communities earmarked for shale gas exploration have voiced their disagreement with the prospects in the past.

"There is huge potential to boost local economies and create thousands of jobs if we tap into benefits of shale gas," Planning Minister Nick Boles said.

"Our new planning practice guidance will provide certainty for councils, for residents and for business. A locally-led planning process will be complemented by robust regulatory checks and controls to safeguard the environment and provide reassure to residents."

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