'Generous' tax breaks for shale gas industry outlined

Bowland shale drilling rig The UK is believed to have large resources of shale gas that have yet to be extracted

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The government has outlined plans to give tax breaks to companies involved in the UK's nascent shale gas industry.

It has proposed cutting the tax on some of the income generated from producing shale gas - found in underground shale rock formations - from 62% to just 30%.

The plans would make the UK the "most generous" regime for shale gas in the world, the government said.

But they have been criticised by environmentalists, with Friends of the Earth calling them a "disgrace".

Greenpeace added that communities affected by fracking - the technique for extracting shale gas - faced a lot of disruption for very little gain.

Chancellor George Osborne says Britain must be" at the forefront of the shale gas revolution"

Chancellor George Osborne said shale gas was a resource with "huge potential" for the UK's energy mix.

"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," he said.

"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."

The shale gas firm Cuadrilla welcomed the news and said it would consider the implications.

"Whilst we are still in the exploration phase, we believe that shale gas has the potential to make a considerable contribution to the UK's energy supply and security, while at the same time creating thousands of jobs and generating very significant tax revenues and community benefits," said Cuadrilla's chief executive, Francis Egan.

Infographic showing shale gas extraction

The UK is believed to have large resources of shale gas.

A recent report from the British Geological Survey estimated there may be 1,300 trillion cubic feet of shale gas present in the north of England alone - much of it in the Bowland Basin under Lancashire.


Just how generous are these tax breaks?

Gas production is typically taxed at 62% although in some parts of the north sea long standing operations are taxed at up to 81%.

So the 30% tax rate proposed for shale gas does look generous.

The government insists it is in line with what already exists for small or challenging fields offshore.

What's more it won't be for the lifetime of the well.

In practice part of the profits from the well will be exempt from the higher tax rate. Just how much is still to be decided, but it will be linked to the amount of investment that a firm has made.

The industry insists the tax break is necessary as initial costs will be high and there is still much uncertainty about how much oil and gas will be liberated from our shale deposits.

But with up to 50 wells expected to be drilled in the next 2 to 3 years - the hope from the government is that this tax announcement will help to kick-start what could be a hugely important new industry.

Drilling companies have previously estimated that they may be able to extract about 10% of this gas - far in excess of the three trillion cubic feet of gas currently consumed in the UK each year.

However, the industry is still in its infancy with a handful of companies holding licences for shale gas exploration in the UK, none of which have begun extracting gas.

Water quality

In backing shale gas exploration, the government points to the experience of the US, where a shale gas boom has had a dramatic effect on the energy sector.

Under its plans, the tax break would apply to a proportion of the income generated from shale gas production. What that proportion is will be determined after a consultation.

BBC industry correspondent John Moylan says the industry regards the tax incentives as necessary, as costs are likely to be high during the initial exploration phase over the coming years.

The government has also confirmed plans to give communities that host shale gas sites £100,000 per site, and up to 1% of all revenues from production.

That is designed to offset some of the controversy surrounding the process of fracking.

Science Editor David Shukman explains the process of fracking

There are concerns the process, which involves pumping high pressure water, sand and chemicals into rock to force out the gas, is related to water contamination and even earth tremors.

Start Quote

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”

End Quote Andrew Pendleton Friends of the Earth

Water companies have warned that the quality of drinking water must be protected "at all costs".

Water UK, which represents the UK water companies, points out that fracking requires huge amounts of water which could put a strain on local supplies.

It also says the drilling and the fracturing process could damage water pipes.

"The water industry is not taking sides. If it (fracking) goes ahead we want to ensure corners are not cut and standards compromised," said Jim Marshall, policy and business adviser at Water UK.

Environmental groups argue that investment in the industry will divert attention from the need to develop renewable sources of energy.

Andrew Pendleton, from Friends of the Earth, condemned the move.

"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," he said.

"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."


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  • rate this

    Comment number 475.

    Process of hydraulic fracking to extract gas involves staggering volumes of water & some of the most toxic chemicals. Hydraulic fracturing uses between 4.5 & 13 million liters of water/ well (Large projects can use 19 million liters.) Entire farm regions of Pennsylvania & other states with widespread hydraulic fracking report their well water sources have become so toxic that water is undrinkable.

  • rate this

    Comment number 474.

    Ok who did Osbourne go to school with in the Shale gas club then?

  • rate this

    Comment number 473.

    I wholeheartably agree we should have a future strategy of renewable energy but I'm sick of Friends of the Earth wingeing about it. We need a dual focus of micro energy production (solar panels), gas & nuclear. Wind Power is a perpetual subsidy for wealthy land owners, wind Power is just another way to redistribute the wealth upwards, poor pay and the rich get richer. With Friends like that ...

  • rate this

    Comment number 472.

    If shale gas is so cheap to produce then why do the energy companies need a tax break to make it competitive?

    Its only cheap once you have found enough to extract to offset investment costs. It is still a needle in haystack.

    N sea has oil/gas but it took many costly attempts to find it.

    Tax break is a carrot, once profitability has been achieved, carrots are removed

  • rate this

    Comment number 471.

    By making those responsible for damage personally liable, we'd see better oversight overnight"

    Please enlighten us where this works in practice? Also explain how entrepreneurs and innovators can be encouraged to take risks in bringing new products and services to market if they face unlimited liability and prison.

    You should come back from planet Zog sometime and join the read world.

  • rate this

    Comment number 470.

    I have a gas boiler & cooker so would be glad to see the price of gas stabilised. As usual the science is dumbed down. What chemicals? What are the dangers to groundwater supplies? I would like to see more investment in renewables too esp. hydroelectric, which would also bolster our water supplies. We need a mix of technology to provide our power but more info is needed on the pros & cons of this.

  • rate this

    Comment number 469.

    Fracking Wastewater Wells Poison the Ground beneath Our Feet -http://bit.ly/KPFwFT

  • rate this

    Comment number 468.

    Clearly Government ministers getting their pockets lined by business - again. It's time that Osbourne and his cronies were investigated for fraud.

    Here's an idea - LET the energy supplies dwindle. Maybe then people will wake up and appreciate that these things are not unlimited. Yet another reason why population growth is not sustainable.

  • rate this

    Comment number 467.

    Gas prices will continue to rise, certain ministers will get nice jobs in the Energy Industry, we wont get the cheap gas we're being promised. It costs next to nothing to get it out of the ground, and when we're trying to pay of a National Debt built up by Tory and Labour alike we're going to give tax breaks to an industry that definitely doesn't share the love/wealth (astronomical profit margins)

  • Comment number 466.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 465.

    In the US, the "Monsanto Protection Act" was sneaked through as a clause in legislation on capital budgets. It indemnifies all GM firms from all harm that could arise from their activities in the future. This - the result of lobbying - happened just before a report came out showing glyphosate in human fetal blood.

    Wonder what protection will be given to fracking co's when they poison our water?

  • rate this

    Comment number 464.

    And once again our "masters and betters" walk all over us!

    You the public are being conned, you the public are being lied to and controlled and you the public voted for this, you the public deserve everything coming to you!

    Think before you vote at the next election! And think hard!

  • rate this

    Comment number 463.

    There is no option, we need the gas, we need the money and we need the jobs QED.

    HMG keep up the pressure! We in the North where this gas is need that boom in our local economy and so does the country. So let's go!

  • rate this

    Comment number 462.

    Why even bother 2 comment?

    How many times does the BBC site invite comments on topics & even though they get thousands of responses (such as last week regarding MP's pay rises), the following day the story just disappears from their page as if everybody's comments were just worthless.

    When will the BBC start working 4 the taxpayers & follow up on stories that attract thousands of comments?

  • rate this

    Comment number 461.

    "Sally the contrarian
    I've always said Culprits guilty of property damage, by pollution, should be held personally liable for restitution in a court of law"

    That's all very dandy, but totally disingenuous. Who will our descendants sue? People who are dead. Can they show a causal connection between the individiual decisions of individuals and corporations to show THEIR negligence? No.

  • rate this

    Comment number 460.

    A big party donation in the near future say 2014/15 ?
    Unless this is going to significantly reduce gas bills in this country then fracking is not worth the enviromental risk. If there is so much profit to be made from this then why the tax breaks?
    This Stinks if you ask me and all the profit will be wasted just like north sea oil was. Where is the debate on fracking is it safe?

  • rate this

    Comment number 459.

    @ 379 Gordon

    Wanting to replace this lot with the other lot would be naive, as they are really the same lot.

    What is needed is to remove the whole lot and rid ourselves party politics driven by professional politicians supporting leaders claiming to have ´a vision` and replace it with genuine democracy built around a voting system that produces governance through more than simple majority.

  • rate this

    Comment number 458.

    Cuadrilla are key players in UK fracking


    Their chairman is Lord John Browne who is a members of the House of Lords


    How convenient to have a chairman who is in the House of Lords, tax breaks eh? This smells as bad as our water will.

  • rate this

    Comment number 457.

    Are these the same environmentalist in hock to and fully paid up lobbyists for the massive energy companies paid billion in subsidies to build horrendous grossly inefficient zero environmentally friendly bat bird and people killing wind turbine power stations

    These turbine Companies are all based overseas. In Korea Denmark china Spain etc. and pay them MILLIONS to SWITCH OFF

    Just asking...

  • rate this

    Comment number 456.

    Anything to beat being held to ransom by the middle east. People moaning it's not environmentally friendly, it's a lot better than what we currently do, with massive transport costs and methane leaks. One step at a time, you have to be realistic, all the green fuels are not economically viable yet on a mass scale.

    I only hope it reduces energy bills, I think "keep energy bills low" is misleading


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