Osborne Backs Fracking With Tax Breaks to Reduce U.K. Bills

The U.K. will consider tax breaks for shale-gas exploration as the government seeks to cut dependence on energy imports and hold down household electricity bills, Chancellor of the Exchequer George Osborne said.

Hydraulic fracturing, using pressurized water to drive gas from shale rock, was suspended after Cuadrilla Resources Ltd. set off two earthquakes last year in northwest England. The government, which says the ban ends soon, will set up an Office for Unconventional Gas to regulate the industry, Osborne said.

The chancellor wants the U.K. to give priority to gas as a power source as it’s cheaper than renewables and less harmful to the environment than coal. The U.K. also seeks to curb reliance on natural gas imports that have almost doubled since 2007 as local output dwindles. U.S. natural gas prices fell 87 percent from 2008 to this April as production from shale fields boomed.

“We don’t want British businesses and families to be left behind as gas prices tumble on the other side of the Atlantic,” Osborne said in his Autumn statement to parliament. His plans may place Britain ahead of efforts on the continent, where countries have hesitated to endorse the technique known as fracking because of concerns it will pollute water.

The Czech Republic proposed a temporary ban on exploration of shale deposits in September and France decided that month to maintain a ban. The Netherlands says it plans to conduct a study of the environmental effect of shale- and coal-gas exploration.

Environmental Impact

Pushing shale would be a “costly mistake”, according to Andy Atkins, executive director at Friends of the Earth.

“Unleashing fracking on communities across the nation would threaten their environment and keep the nation hooked on dirty fossil fuels for decades,” he said in a statement.

European shale development will be more controversial and costly than in the U.S., now the largest natural-gas producer as a result of fracking, because public opposition and geological challenges are less pronounced in America, GlobalData Ltd. said.

“I can’t imagine how shale gas production could have a significant impact on European gas prices,” with its cost and volume uncertainties, Jonathan Lane, the head of consulting for power and utilities at GlobalData, said by phone.

Accurate figures for commercial quantities of the resource are hard to establish as the U.K. is only exploring, said Nick Riley, head of science policy at the British Geological Survey.

All of Iraq

Cuadrilla Resources, seeking approval to drill, fracture and test a number of wells next year, says the shale rock it’s exploring in northwest England has more gas than all of Iraq. The Staffordshire-based company welcomed today’s news.

“Exploration is necessary to have a better understanding about how shale gas can be developed safely and sensibly from the Bowland Basin,” Chief Executive Officer Francis Egan said in a statement. The technology’s high costs will fall as the industry grows, he said.

The Department of Energy and Climate Change will consult on the terms and duration of shale exploration licenses, it said today. The ministry also set out plans for as many as 30 new gas-fired power stations with 26 gigawatts of capacity in a gas- generation strategy designed to shore up supply as a fifth of current capacity is scheduled to close in the next decade.

Environmental campaigner WWF said Britain may miss its legally binding targets to cut greenhouse gas emissions by 80 percent by 2050 and add to consumer bills should it push ahead with the gas plans. Energy Secretary Ed Davey said the strategy is consistent with targets that the U.K. can revise in 2014.

Osborne also confirmed that the Carbon Reduction Commitment green tax, which aims to cut emissions from large public and private organizations, will be retained in a “simplified” form. He said in March that the levy might be replaced.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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