State aid row engulfs UK shale gas plans

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EXCLUSIVE / The EU’s competition commissioner, Joaquín Almunia, has said that Brussels will investigate the UK’s plans for incentivising shale gas production “if needed”, as more lawmakers and NGOs call for an EU state aid probe to be launched.

In a twitter exchange on 14 January, EurActiv asked Almunia whether the EU would launch an inquiry into the UK’s use of public funds for its shale gas plans, as the Green MEP Claude Turmes had requested earlier in the day.

Almunia replied:

His office later clarified that any investigation would hinge on an assessment that British plans to allow local councils to keep twice as much tax monies from shale gas production – and let shale gas firms pay half the going tax rate – broke EU rules. 

“State aid is by definition a selective measure using a public resource to grant an advantage to a specific company or companies, that is different to general taxation measures,” an EU official explained.

The source agreed that the UK’s tax concessions were specific measures to advantage shale gas companies but said that the Commission would need to receive a notification, or make an assessment itself, before it could act.

Three MEPs contacted by EurActiv called for this to be initiated without delay. Jo Leinen (Socialists & Democrats), a former chair of Parliament’s environment committee, said that the British decision risked opening a ‘Pandora’s Box’ of conflict over state aid rules.

“I am sure there will be requests and complaints to the European Commission,” Leinen said. “The Commission is the guardian of European law and a rules-based functioning of our policy so I think that it should urgently analyse and intervene against this new subventing of fossil fuels.”

But the UK's Department of Energy and Climate Change maintains that the council incentives announced by Prime Minister Cameron this week follow the letter of the law.

“A 100% business rate retention for shale gas operations does not affect the amount of money operators must pay, but means that local government retains this rather than passing it to central government," a spokesperson told EurActiv. “It does not qualify as State Aid.”

Problematic contours

Legal experts contacted by EurActiv were divided on the legality of the UK’s plans. “They sound problematic and merit further investigation,” one told EurActiv. “They seem to be a form of assistance but their exact contours are not clear and I would need to look into [it] to be confident that it was a violation of state aid rules.”

The Dutch MEP, Gerben-Jan Gerbrandy (Liberals), told EurActiv that the UK measures were “a classic example of environmentally damaging subsidies” that conflicted with British commitments in previous international fora to phase out fossil fuel subsidies.

“Local politicians should be very, very careful with these perverse incentives not to push away the [environmental] risks just because they see a lot of Pounds Sterling going into their pockets in the future,” he said.

“I am looking forward to any investigations into whether this could be considered state aid,” he continued. “I can imagine that it could be.”

Nuclear state aid inquiry

In December, the European Commission launched two investigations into the British government’s guaranteed power price for a nuclear plant in Hinkley, and the German government’s subsidies for renewable energy. 

A public consultation is now underway on the issue, with a decision expected by the Commission in the Spring.

Luxembourg MEP Claude Turmes (Greens/EFA) told EurActiv that “it would be completely unfair and surprising if the Commission did not open such an investigation [into the UK’s shale gas subsidies] when it is also chasing renewable energy support schemes very vigorously.”

However, the UK is not the only EU state planning around a hole in public coffers left by the incentivisation of shale gas. Poland last year earmarked five billion zlotys (€1.2 billion) of public funds to aid the exploration and development of domestic shale gas production.

One Polish firm active in the field of unconventional gas, Orlen, says it needs public support to redress decades of financial aid to its competitors.

“Europe subsidises technologies endorsed as being ‘right’,” Jacek Krawiec, Orlen’s CEO told EurActiv in emailed comments. “There can be no revolution in energy when it is more profitable to invest in whatever is already enjoying the financial support of the authorities”.

He added: “Companies active in the EU already comply with national and EU environmental regulations which are much more restrictive than on the other side of the Atlantic, so they guarantee higher safety levels.”

Shale gas communication

In its draft shale gas communication, due to be published on 22 January, the European Commission says that “under certain conditions, shale gas also has the potential to bring climate benefits”.

Shale greenhouse gas emissions could be 41%-49% lower than from coal, and only 1%-5% higher, per unit of electricity, than from natural gas, the paper says.

But this would only be the case if methane emissions from shale drills were curbed. Methane is at least 25 times more potent than carbon dioxide over a 100-year period, and 72 times greater over 20 years.

Environmentalists note that the EU communication, which EurActiv has seen, also foresees “a potential overall share of unconventional gas of less than 3% of the overall EU energy mix by 2030,” and ask why huge amounts of public resources are being devoted to a fossil fuel that will have an insignificant effect on energy prices and energy security.

Antoine Simon, a spokesman for Friends of the Earth Europe, told EurActiv that the shale gas industry’s profitability was in question without public subsidies such as the UK’s, which “seriously call into question its compliance with European competition rules”.

“The least we would expect from the European Commission is that it ensures that this decision does not represent a market distortion or an unfair competition through government subsidies,” he added.

Timeline: 
  • 22 January 2014: European Commission to unveil recommendation on shale gas
  • 22 July 2014: Member states to be invited to inform Commission of measures they have taken under the recommendation’s remit
  • 22 July 2015: Commission to review implementation of recommendations and consider making them legally binding
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Comments

John DeFayette's picture

I am still looking for the sarcasm tag in this article--it is perfect for a publication like The Onion!

Are these super-state regulators and NGO's not the same ones who have been forcing on the poor European taxpayer every illiberal market distorting redistribution of European wealth possible for the promotion of windmills, solar panels and manure recycling? Are they able to make these pronouncements with a straight face?

More to the point, are they expecting us to drink their latest magic potion without protest? At times like these the grand old saying from the USA works wonders: Throw the bums out!

Mike Parr's picture

In terms of fossil vs renewables vs nuclear the recent un-edited EC Comm on energy markets noted that direct subsidies to fossil fuels were Euro25bn, RES Euro30bn and Nuclear Euro35bn. The EC then identified indirect subsidies (health and envo costs) for fossil fuels at Euro40bn.

The issue for UK shale is thus not just direct subsidies but indirect ones. Readers may also be interested in a recent US Military organised conference on the global fuel situation (the US military are very worried). Here is an extract from the conf:

David Hughes, formerly of the Geological Survey of Canada, cited official data demonstrating that shale oil production is likely to peak around 2016-17. Similarly, US shale gas production has sustained a plateau for the last year that is unlikely to retain long-term sustainability due to spectacularly high decline rates, and because the vast majority of production comes from just two or three plays

Given the above, there is a possibility that shale gas in the USA might not be a long term success. With respect to the UK, it raises the question why bother if the result is very disruptive and gives a short term benefit - quite apart from the subsidy aspects.

Mr Blue Sky's picture

I do wish that these Foreign civil servants would stop interfering in our National affairs.The Reichsleiter clearly has an agenda.

Mike Parr's picture

Blue sky-

Mad thatcher was the driving force behind the EU single market (through her poodle Cockburn) - & that means common competition rules that all members abide by - don't like what Thatcher created wrt the EU & single market - then leave - want to stay - abide by the rules that she created.

John B's picture

Mike Parr you're an ignorant troll.

Mike Parr's picture

Oh dear John B - suffering a bit of cognitive dissonance are we?

James D's picture

Can the people of Ireland hope that the UK move to permit shale gas drilling, will mean that the UK government, the EU commission and the international wind industry will no longer have any interest in degrading the beautiful Irish countryside and coastline with hundreds of wind turbines/pylons to help the UK and wider EU meet binding RE targets.. Irish people are only now becoming aware of these export plans hatched a few years ago by a handful of developers, civil servants and politicians with no public consultation under a "green" energy minister .Protest is spreading fast.

John DeFayette's picture

Sorry, James D. I don't think the eco-misanthropes and carpetbaggers are going away any time soon. If it's any consolation, we will see all of their lovely windmills rust away long before the end of our own lifetimes.