U.K. Pledges Tax Breaks for Shale Gas, Low Emissions Cars

U.K. Chancellor of the Exchequer George Osborne offered tax breaks to low emissions vehicles while promising support for shale gas developers and energy-intensive industries in his annual budget today.

Osborne told lawmakers the U.K. will support the manufacture of “ultra-low emission vehicles” with tax incentives. He also said he’ll bring in a “generous new tax regime” to promote early investment in shale gas, and will exempt ceramics and other industries from the climate change levy, a tax on power and gas.

“This is yet another budget from Osborne where he does something good with one hand and confounds it with tax breaks for dirty fuels with the other,” David Powell, a campaigner for the Friends of the Earth environmental group, said in an interview from London.

Osborne, a Conservative, has sought to promote gas and slow the development of renewable energy, especially onshore wind, bringing him into conflict with Energy Secretary Ed Davey, a member of the coalition government’s junior partner, the Liberal Democrats. He also persuaded Davey to delay a decision to set a 2030 decarbonization target for the power industry until 2016.

The chancellor today almost doubled the so-called carbon price floor, a tax on power generators that use fossil fuels. The rate will rise to 18.08 pounds ($27.42) per ton of carbon dioxide in April 2015, from 9.55 pounds the previous tax year and 4.94 pounds for the tax year starting next month.

Carbon Capture

Osborne also announced measures to promote carbon capture and storage. The government said two groups featuring Royal Dutch Shell Plc and SSE Plc, and Alstom SA, Drax Group Plc, National Grid Plc and BOC Group Ltd. are preferred bidders in its 1-billion-pound CCS competition. The technology seeks to capture factory and power plant emissions and pump them underground for permanent storage.

Osborne proposed to exempt industries using “metallurgical and mineralogical processes” from the climate change levy on power consumption from April 2014. A draft law will be published in the fall, he said. He also said he’ll introduce a new field allowance for shale gas developers that would reduce their tax burden, and provide clarity around planning rules for them.

The government proposed tax breaks to businesses using low-emissions vehicles as company cars that will cost 105 million pounds over the three tax years starting April 2015, according to budget documents posted on the Treasury Website. At the same time, Osborne scrapped a fuel tax rise planned for September.

Osborne’s budget contains a “green economy-shaped hole,” according to Caroline Lucas, the country’s only lawmaker from the Green Party. She said the chancellor should step up efforts to promote a part of the economy that’s now worth 120 billion pounds, or 9 percent of Britain’s economic output.

“We need urgent investment in nationwide green infrastructure to stabilise the economy, tackle the environmental crisis and deliver clean and secure energy for the future,” Lucas said in an e-mailed statement.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE