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.

Shale gas is an 'unconventional' fossil fuel that is found within natural fissures and fractures underground. Until recently, no method of safely transporting it to the surface existed.

It is mined via hydraulic fracturing, or ‘fracking’, the process of breaking apart layers of shale by horizontally pumping liquids and a number of chemical additives under high pressure thereby releasing trapped gas reserves.

To proponents, shale gas represents an untapped and welcome alternative energy source to traditional fossil fuels. To detractors it is a hazardous and highly-polluting fossil fuel.

At the moment the continent depends on gas imported from Russia, and disputes between that country and Ukraine have disrupted winter supplies in recent years.

In the US, shale gas already accounts for 16% of the world's largest economy natural gas production, although analysts disagree about its long term potential.

  • 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

EU official documents


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