Tax cut for shale gas firms planned

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

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 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 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 present in the north of England alone – much of it in the Bowland Basin under Lancashire.

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

But currently 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.

‘US boom’

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.

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.

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.”

BBC News – Business

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