Fracking companies are likely to qualify for tax relief, potentially worth billions, that the government is providing to oil and gas companies to encourage new exploration of fossil fuel resources.
Combined with high gas prices, additional funding – which amounts to a subsidy, according to activists – could provide a strong incentive to restart fracking operations if the moratorium in the UK is lifted, which could happen as early as this week.
Oil and gas companies will benefit from a loophole in the government’s contingency tax, which allows exceptions for companies investing in exploring new fossil fuel resources. The legal advice provided to the Uplift campaign group suggests that fracking companies would also be eligible for this incentive, as the contingency tax – officially known as the energy profit tax – is currently in place.
Tessa Hahn, director of the Uplift campaign, said: “Despite the historic cost of living crisis, the government is trying to rush another massive subsidy for oil and gas companies. The energy tax is expected to ease the burden of rising energy bills for households in the UK, but this investment loophole allows companies to reduce their tax bills if they build more polluting, unsustainable oil and gas projects.
“It is outrageous that fracking companies may be able to benefit from this subsidy when fracking – like all oil and gas drilling – does nothing to ensure safe energy available to people in the UK.
The Labor Party says the loophole means oil and gas companies will receive 20 times more incentives for taxpayers than renewable energy companies are entitled to. Labor’s analysis of government figures shows that around £ 4 billion could go to oil and gas companies under the door in the contingency tax and “super deductible” tax credits.
According to Labor analysis, the new rules mean that for every £ 100 that an oil and gas company invests in the North Sea, the company receives £ 91.50 from the taxpayer. For every £ 100 invested in renewable energy, the renewable energy company receives £ 25, but this will fall to £ 4.50 from April 2023.
If these incentives are extended to freckers, this may be enough to change the economy of fracking in favor of new operations. The Labor told the Guardian that for fracking companies, the rules would mean that for every £ 100 spent on fracking, only £ 7.50 would be paid by the fracker, with the rest being reimbursed by the taxpayer.
Ministers will face a key choice this week over whether to lift the moratorium on fracking, as the British Geological Survey has been asked to report on the potential for fracking in the UK, which is due by Thursday. Many on the right of the Tory party voted in favor of fracking, and Boris Johnson is seeking their support to support his ailing prime minister, weakened by two election defeats.
Khan said: “How can the government effectively justify taking into account new oil and gas projects when these industries are making record profits and destroying the climate? The simple answer is that it can’t. “
Ed Miliband, a shadow business secretary, said: “It is a shame that the government is returning billions of pounds of taxpayers’ money to the oil and gas companies themselves, which made record profits during this energy crisis. This distribution will either go for oil and gas projects that would happen anyway, or it will stimulate new projects that will not have a difference in consumers’ bills, it will take years to realize, and it will drive a coach and horses. through our climate commitments.
“[This could also] they end up throwing public money at dangerous, unpopular and expensive fracking projects. This is a government with the wrong priorities. “
A Finance Ministry spokesman told the Guardian: “As stated in Britain’s energy security strategy and with Putin’s invasion of Ukraine, which illustrates the merits of this, the North Sea oil and gas sector will be crucial for domestic energy supplies. of the United Kingdom and security for the foreseeable future – so it is right that we continue to encourage investment by continuing to focus on reducing emissions. We also ensure that the United Kingdom continues to invest in clean energy through incentives such as over-deduction, the UK’s competitive R&D tax credit regime and the Contracts for Difference scheme.
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