Call it the George Osborne effect

Dave Powell

10 October 2012

At Conservative party conference on Monday, Chancellor George Osborne cheerfully unveiled his fifth (fifth!) tax break for fossil fuels in the space of just a few months.

To be fair, this was in the main one of his less ghastly speeches for the environment of recent years. He said something nice about renewable energy and didn't appear to have gritted teeth or be kicking a kitten in the face whilst doing it.

But lo and behold, yet more Government support for those poor struggling paupers of the oil and gas industry. They've not had a bad seven months:

• The first two tax breaks were in the March Budget. The suits jumped up and down in paroxysms of glee, which tells you everything you need to know
• Just three months later (what's the point of a Budget, anyway?), a new £500m field allowance for shallow-water gas fields
• In September, a £250-500 million allowance for older sites, to encourage the reticent wee lambs of Shell and the rest to milk every last drop of oil and gas from the seabed

And then on Monday, a consultation on how best to let shale gas companies off some tax to encourage them to stop fiddling with their belly button fluff and put derricks everywhere.

No detail yet: we asked DECC whether they had any more info than that in the rather Spartan Treasury press release. Ha ha, they told us, you know as much as we do.

Osborne's tax breaks are part of his quest to get shale drilling going so we can have lubberly cheap gas like in the USA. I'm not going to go into the many reasons why this is bonkers: have a look at my colleague Tony's blog from yesterday. Suffice it to say, shale is a redder megaherring. If the Chancellor really was keen on exploiting "enormous energy reserves that could potentially create thousands of jobs and reduce consumer bills", as an aide suggested without irony, he'd be looking at chucking all his weight behind the green economy. This, despite the Chancellor's grumbling, has been quietly getting on with things - carving out a £100 billion + chunk of a global market.

Instead, the Chancellor's doing all he can to replicate over here what the Economist called the 'Dick Cheney effect': the notorious acquiescence of the US regulators to shale gas companies. Otherwise known as the Halliburton Loophole.

We already know about the Chancellor's abhorrence of our planning system - in practice, decades of hard-fought planning rules and protections for local people's say over their environment. And it tells us a lot about Government dynamics that the Chancellor promises tax breaks for the shale gas industry despite the Energy Secretary, Ed Davey, not formally having given the green light to shale to restart in the UK. Osborne's not afraid of putting the frighteners on his Lib Dem colleague.

With global gas prices so high, and the Chancellor coquetting doe-eyed in front of the oil and gas industry, why do shale investors need a tax break as well? Perhaps there's something similar going on to the nuclear industry, as my colleague Simon blogged: called upon to stump up the dosh to match the Government's dreams, gas bigwigs may be sucking in air, tutting worriedly, and informing that the Chancellor that it will, in essence, cost him.

Earlier this year MPs in the Environmental Audit Committee held a snap session looking at the environmental implications of Budget 2012. Economic Secretary to the Treasury Chloe Smith MP (remember her?) claimed straight-facedly that tax breaks for fossil fuels have no carbon impact - because oil or gas dug up here is just stuff that would otherwise be imported from somewhere else.

That's not quite true though, is it? Let's assume the Chancellor is right (which he isn't) - that bunging tax sweeties at domestic gas producers will lead to lower UK prices (which it won't). If that happens, basic economics says the lower prices are, the more fossil fuels people will use. Plus, of course, there's the opportunity cost: every nudge of thought and cash given to either public or private investment into high-carbon infrastructure is time and money that hasn't been spent on low-carbon stuff.

Smith ended up getting finger-waggled at by Joan Walley MP, the Chair, increasingly irked by the stonewalling she received: "It just makes it very difficult, and I wonder what the purpose of a Committee session is, if we cannot have any inkling as to what the thought processes are inside the Treasury".

We can have a stab at those thought processes. Smith was quite frank that the Treasury needs, and actively courts, the revenues that the oil and gas lot bring in to the Exchequer. Better ramp up our own production and hit it with a tax bill, said Smith, than import it from Johnny Foreigner. None of which is particularly helpful from the point of view of climate change, or moving to green industries.

So Smith may have been shuffled off, but the boss remains. He's a Chancellor on a fossil fuel crusade, determined to chuck whatever is needed at the gas industry to entreat them to cover the land in drilling rigs. 

And as for carbon budgets? It's hard to conclude that Osborne gives a monkey's.