Exclusive: Budget tax breaks for oil and gas will add a year's worth of emissions

Tax breaks for oil and gas unveiled in last week’s Budget could result in an extra year’s worth of emissions, putting pressure on other sectors to cut harder and faster if the UK is to meet its mandatory carbon budgets.

Figures compiled by campaign group Friends of the Earth (FOE) show over 495 million tonnes (MT) of CO2 are likely to be emitted as a direct result of the measures, well in excess of the 456MT government figures show the UK emitted last year.

This number is the approximate impact of the 1.7 billion barrel equivalent of oil and gas expected to be extracted as a result of the tax break for decommissioning announced in the Budget, according to industry body Oil & Gas UK (OGUK). This represents over three years’ worth of oil consumption, assuming demand remains at the 2010 level of just under 519 million barrels.

And FOE says 456MT is likely to be an underestimate, given OGUK also expects another “hundreds of millions of barrels of oil” to be unlocked by the £3bn worth of tax breaks George Osborne promised for exploration of difficult fields off the coast of Shetland.

“The Budget offers the green light for a year’s worth of CO2 that would otherwise not have happened,” David Powell, economics campaigner for FOE, told BusinessGreen. “The Chancellor should have been announcing a Budget that saved 1.7 billion barrels, not going gung-ho in the other direction.”

He added the tax breaks would have been better spent encouraging low-carbon alternatives to fossil fuels.

“The oil and gas industry says these measures will unlock £50bn worth of investment – it doesn’t need that level of support,” Powell said. “But what does need support are the new industries like wind, wave, and hydro that haven’t had a century of subsidies.”

Of course, the 1.7 billion barrels would not be extracted over one year – an OGUK spokeswoman told BusinessGreen it could be over the next 20 to 40 years.

But it is likely to put pressure on both the UK’s third carbon budget, for which almost 80 per cent of emissions are already locked in, and the fourth budget, which runs from 2023 to 2027 and imposes a limit of 1,950 MtCO2e of emissions during that period. Overall, the UK is looking to shrink emissions 80 per cent on 1990 levels by 2050.

A Department of Energy and Climate Change (DECC) spokeswoman told BusinessGreen that the government was committed to meeting the carbon budgets and any extra emissions would have to be balanced out by cuts in other parts of the economy.

“The carbon budgets are set in law and we have to meet them,” she said. “If emissions are rising within one sector another could have to make some cuts.”

The Committee on Climate Change, which tracks progress towards the UK’s climate targets, said it could not comment on speculation, but it would be producing an update in June.

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