'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 955.

    #916 The only problem is that said reactors still need development and testing with a timescale beyond when the lights potentially go out (5 years testing for the Thorium MOX one in Sweden to check the whole fuel cycle out). Plus the inevitable opposition from all those who stop reading at the word "Nuclear".

    Right now with our Infrastructure this is the best of a bad lot needed to keep us going

  • rate this

    Comment number 954.

    This conversation is ridiculous, this is a "just do it". Do we want jobs for our young people? In which case we need (in UK and Europe) competitive industries (or have we given up on that) which in turn need competitively-priced energy! And we have it, in large quantities! Sitting right under us, mostly in former coal mining areas! It would re-juvenate those blighted areas!

  • rate this

    Comment number 953.

    The concerns over water contamination should be taken as a given, check out Northern Alberta and BC Canada. Residents have to truck in drinking water due to gas present in the water, Some cases of actually being able to ignite the water as the gas evaporates. If you have some areas with water shortages now then imagine what you will have when they start drilling, no going back.

  • rate this

    Comment number 952.

    I cannot understand environmentalists who would rather see the less well off in the UK live in fuel poverty"

    For the record, that's known as a "strawman" argument. What I cannot understand is why you would want to see our descendants live in a world with much higher sea levels, increased deserts and harsher climate simply so you can enjoy subsidised energy and warmer summers.

  • rate this

    Comment number 951.


    It is easy to see why the world is in such a mess, as there is so little factual understanding about anything by so many on these HYS pages, just pure ignoramous bias.

    If ignorance was wealth, we would be the wealthiest nation in the world.

  • Comment number 950.

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

  • rate this

    Comment number 949.

    Just like the North Sea was plundered the ground we stand on will be plundered by Cameron's friends.

    What exercises me is the way that we are being expected to fund it.
    And we are being told that it is for our own good.

    If the weather was just a tiny bit warmer then we would truly be a Banana republic.

    Do you think Cameron thinks we are already a full blown Fracking republic?

    Has a ring to it?

  • rate this

    Comment number 948.

    935. JasonEssex

    Every technology has maintenance costs, so I fail to see the point.

    More moving parts, pressurised, hot, hazardous, flammable the materials involved . . higher the maintenance costs. I'd have thought that after initial infrastructure, wind is the simplest after solar.

    Reliability will increase over the years and costs will reduce.

    So I think your being selective there.

  • rate this

    Comment number 947.

    If you need to cut tax to ease your conscience or make it more appealing, then it's not something you should be doing.

  • rate this

    Comment number 946.

    Also see 'Water companies warn on fracking'
    Tories willing to sell of the family silver again?

  • rate this

    Comment number 945.

    @11. Jack Darby

    Not only am I appalled by the lack of impartiality in the editor's picks, I am also appalled at the lack of knowledge or understanding shown in the post referenced above. Highest positive votes, too. I'm afraid that's a poor reflection on the effort people have made to educate themselves on this matter.

  • rate this

    Comment number 944.

    Oh great. So I suppose I can expect contaminated water and gas coming out of the water taps soon.

    But as long as some (probably non-British) gas drilling companies are going to be getting their tax breaks & making even more ginormous profits to pay obscene bonuses to top execs, that's okay then. We can always screw even more from the elderly, disabled or jobless, after all.

    Frack off George.

  • rate this

    Comment number 943.

    More tax breaks for the rich, whilst they kick the rest of us when we're down - the same old story is never ending under this government.
    Another disgraceful episode of Cameron and his ruling elitists.
    And dont make me laugh talking about cheaper bills - the people of this country are blatanly ripped off as consumers. Why would this change?

  • rate this

    Comment number 942.

    @ 854 Chiller

    Dear Mr/Ms Chiller

    I am pleased to inform you that the tests you requested have been in place since the mid 50s. I am further pleased to inform you that not only have all Members have passed but most have tested with distinction.

    The programme has be so successful that as of 1989 it has been extended through training offered by a charitable concern.


  • rate this

    Comment number 941.

    What do you expect from a corrupt Government & Energy corporations!
    Fracking will only destroy OUR SOIL, WATER & AIR.
    Research what Fracking has done to parts of USA & Australia.
    Follow Ian R. Crane's informative work on the dangers & LIES of Fracking.

  • rate this

    Comment number 940.

    This is all about the friends network, Bush is the one who will make all the money and hardly any will actually enter the British Economy.

    Cameron and his cronies already decided all of this at the last Bilderberg meeting, scoff at it if you want, they are also going to introduce GM crops, so the two combined will ultimately destroy the earth.

  • rate this

    Comment number 939.

    Who will do the Fracking in the UK? Probably foreign utility companies like those trying to build Nuclear in the UK because legislation stops them building them in their own nation!
    These companies are loyal only to their country of origin not their host nation. So there is every chance they will export the gas back home and leave us with the mess!!

  • rate this

    Comment number 938.

    Oh look, more corporate welfare. Is there no end to government largesse to the private sector ?.

    And the answer is: No. not while the poor can still be further impoverished.

    Your next...

  • rate this

    Comment number 937.

    Who has backed themselves into a corner ?

    Human beings !!!

    How are they going to get out of it ?

    Toast themselves.

  • Comment number 936.

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


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