Energy Profits Levy

[albie]

Well, Sunak has diverted attention from the need to reform the energy sector, while giving incentives for fossil fuel extraction.

More help for low income groups than the Labour policy, which is needed short term.
Politically clever from Sunak, with Rachel Reeves talking ignorant drivel in reply.

The "Energy Profits Levy" includes an "investment allowance" which applies to UK extraction of fossil fuels. This tax incentive amounts to a carrot to the energy industry to directly pursue extraction for export to international markets.

Here is an explainer of the Energy Profits Levy;
https://twitter.com/emilygosden/status/1529791323225595904/photo/1
And the Investment Allowance;
https://twitter.com/DrSimEvans/status/1529795087395442688/photo/1

The elephant in the room is what is not there.
1)
No reduction in the price cap to prevent future big increases in consumer costs, so the £800 increase in October could be the first of many.
2)
No plan to take infrastructure provision into public control....so National Grid remains a private company.
3)
No increase in funding for energy efficiency, such as home insulation.
The least cost method of reducing energy poverty, with a long term benefit.

No significant attempt to realign the energy industry, just financial support to mitigate the first phase of increases in fuel bills.
The energy companies will give some of their early profits back, and then recoup the money via higher bills.

[albie]

I should have mentioned that the poorest households are hit much more heavily than the better off as a result of inflation;
https://twitter.com/TheIFS/status/1529341497086124032

Energy price increases are a key driver of this difference.

[ravenrover]

But all Tory MPs voted against a windfall tax, was it last week?

[River Don]

But all Tory MPs voted against a windfall tax, was it last week?

Red meat to socialists.

[big fat yorkshire pudding]

It has the important caveat that there are allowances for investment. That's important and makes it more sensible.  Trick is to ensure the companies don't try and pass the hit on to customers, the big risk when there's a price cap (hence not favouring them).

[albie]

No Pud, that is not quite correct......it favours a particular type of investment.

The allowance is for UK extractions, which is effectively a 91p in the £ subsidy to the fossil fuel industry.
OFGEM could impose a lower price cap, but has no plans to do so.

Prices will rise under this scenario.
It is probably the biggest subsidy from consumers to the fossil fuel industry yet devised.

Why would you choose to incentivise fossil fuel recovery, in preference to directing investment to energy efficiency?

That same tax concession would give a much better return to UK policy objectives if it was aimed at a massive insulation boost. Instead, it will generate future returns to the energy conglomerates, trans national corporations unconcerned with the UK consumer interest.

As I said, politically Sunak has outplayed the slow witted Labour Party....but the consequences longer term for those in fuel poverty will be severe.

[selby]

  Albie, the North Sea will be the replacement for mostly the Russian Energy market in the EU, nearer and with a more dependant supplier ally in ourselves, but will give us leverage in our negotiations with the EU.
 

[River Don]

  Albie, the North Sea will be the replacement for mostly the Russian Energy market in the EU, nearer and with a more dependant supplier ally in ourselves, but will give us leverage in our negotiations with the EU.
 

I doubt the N Sea has sufficient, affordable reserves to replace Russian hydrocarbons.

[wilts rover]

  Albie, the North Sea will be the replacement for mostly the Russian Energy market in the EU, nearer and with a more dependant supplier ally in ourselves, but will give us leverage in our negotiations with the EU.
 

Oil and gas is extracted from the North Sea by private companies who sell it to the highest bidder - there is a thread about it.

Or are you sugessting the Tories should nationalise them?

[selby]

  RD , when I was involved in the industry admittedly in the 1980's and 90's  the companies roughly used a price of $18 a barrel for investment purposes anything above and they invested heavily.
  Seems a silly price now, but, if the present price stays about where it is for any length of time, with the more up to date satellite exploration techniques there will be a lot of hydro carbons both on land and at sea still to be found, plus the techniques of extraction could quite easily make redundant fields profitable again.with injection and extraction valves  to pressurise old wells and existing.
  Wilts if you don't think that governments and private companies at that level don't talk to each other with tax payers money and private investment at that level you are not as clever as I think you are.
  The companies will have been well aware of the benefit of future tax benefits on investments in this country well before the announcement today, and will have agreed the one off tax payment knowing they will come out of it smelling of roses before lunch time, in fact they will have read the chancellors brief before the announcement in all probability.
  Then there is the deeper water, some very big fields are known but costs at the time made it uneconomical, well they might not be any more.
  There are big bucks and economic power to go for now that a year ago were not on the table both for the western world and some big companies, it will be very interesting how it pans out, Russia and China could well be the driving force for the industry now.
   The oil field stopped in Dorset a few years ago and fracking by local objections could come under intense pressure now as the gas fields in other places will too.

[River Don]

I simply don't believe consumers can afford hydrocarbons priced at this high level.

We can already see it's causing a recession.

We need a balance. Cheap enough to create economic growth and profitable enough to fund exploration.

I think we're out of kilter, we are already starting to see demand destruction.

[wilts rover]

You may be right Selby - but did you miss this:

BP to review all North Sea investment in light of windfall tax:

https://www.telegraph.co.uk/business/2022/05/26/ftse-100-markets-live-windfall-tax-bp-share-price-energy/

[drfchound]

You may be right Selby - but did you miss this:

BP to review all North Sea investment in light of windfall tax:

https://www.telegraph.co.uk/business/2022/05/26/ftse-100-markets-live-windfall-tax-bp-share-price-energy/

Wilts, as you will know, the investment money requirement will be massive.
Maybe Mr Starmer will help them to overcome any issues they have with funding new investment ideas.

[River Don]

You may be right Selby - but did you miss this:

BP to review all North Sea investment in light of windfall tax:

https://www.telegraph.co.uk/business/2022/05/26/ftse-100-markets-live-windfall-tax-bp-share-price-energy/

Wilts, as you will know, the investment money requirement will be massive.
Maybe Mr Starmer will help them to overcome any issues they have with funding new investment ideas.

No need to worry it's all coming from yet another shake of the magic money tree.

[drfchound]

You may be right Selby - but did you miss this:

BP to review all North Sea investment in light of windfall tax:

https://www.telegraph.co.uk/business/2022/05/26/ftse-100-markets-live-windfall-tax-bp-share-price-energy/

Wilts, as you will know, the investment money requirement will be massive.
Maybe Mr Starmer will help them to overcome any issues they have with funding new investment ideas.

No need to worry it's all coming from yet another shake of the magic money tree.

RD, I dearly hope you are right.

[River Don]

You may be right Selby - but did you miss this:

BP to review all North Sea investment in light of windfall tax:

https://www.telegraph.co.uk/business/2022/05/26/ftse-100-markets-live-windfall-tax-bp-share-price-energy/

Wilts, as you will know, the investment money requirement will be massive.
Maybe Mr Starmer will help them to overcome any issues they have with funding new investment ideas.

No need to worry it's all coming from yet another shake of the magic money tree.

RD, I dearly hope you are right.

The magic money tree never turns out to be free...

[albie]

  Albie, the North Sea will be the replacement for mostly the Russian Energy market in the EU, nearer and with a more dependant supplier ally in ourselves, but will give us leverage in our negotiations with the EU.
 

Selby,

This is a non runner.

The EU have indicated a developed plan to decarbonise in the wake of the loss of Russian supplies.
This will accelerate withdrawal from fossil fuels at pace, to a conclusion within 5 years.

Very difficult to see a role for North Sea hydrocarbons in this scenario.
The investment supported by the levy is for resources that will take some time to come on stream.

It makes very little sense in terms of the market going forwards.
Why support new oil and gas exploration in preference to non carbon technologies, or to energy efficiency via widespread insulation of leaky housing stock?

[albie]

The Telegraph has woken up to the missing expenditure;
"when the Treasury talked about the £15bn package today they left off an extra £6 billion of spending commitments.

They costed up the extra £200 of the £400 off energy bills but… not the original £200 (which as of today is not being paid back)."

Not too good at doing the books, are they?

[BobG]

Crikey! If that's true Albie, some poor Civil Servant, undoubtedly being harrassed for a quick answer for another unplanned political volte face, without time to think, to reflect, will lose his job over it.

I had dealings with the Cabinet Office in a former life - during the times of Cameron and May.  Used to go meet them tbh. When you got to know the guys who actually did the work their main complaint was always the lack of clarity about policy, the changes in direction and the constant demands from their political leadership for instant answers. And in Mrs May's case there was the further irritation of her being constitutionally unable to delegate anything. Stuff used to get delayed for weeks waiting for her to get through the pile in her inbox. I know that's true cos it happened to a pretty significant project I was involved with.

BobG

[albie]

Yes Bob, no doubt someone lower down the food chain will be found a less demanding role.

Still, Sunak should be having his homework checked before making a major announcement. It does show this was thrown together in a last minute rush.

Incidentally, the subsidy to invest in oil and gas is in direct contravention of the agreement reached at Cop26 in Glasgow just a few months ago.
https://twitter.com/adamvaughan_uk/status/1530141768406032387/photo/2

Both photos from the New Scientist guy show the stark contrast between the 2 positions.

[BobG]

I can't get that page to load Albie. Keeps telling me 'server not found'. I'm using Firefox. Does it need some other browser?

BobG

[albie]

Bob,

It opens for me in Firefox, so I don't know why it will not for you.
Try his main twitter page;
https://twitter.com/adamvaughan_uk

Scroll down to the post 3 down, then click on the photo (there are 2).

[BobG]

Thank you Albie. I'm not sure if I should be crying now I've seen it though. I guess it reinforces my remark earlier today that the sophistication, or otherwise, of an electorate plays a huge role in what politicians get up.

This one is a downright abomination given the state of health of the planet. Did somebody mention Glasgow? Tbh, I can only think of one real reason why mendacious shit like this has been put forwards.

BobG

[albie]

It gets even worse, because as far as I can see, the investment tax break for oil and gas companies does not apply to the electricity generators.

Sunak has given a competitive advantage to oil and gas industry investment, not to the whole energy market.
This is important if the policy objective is to move from legacy fossil fuels to use electric for heat and transport.

A 91p in the £ discount on exploration investment, without the same incentive in the sector that the UK needs to grow, makes little sense unless the real objective is to support the business costs of the legacy industry.

[River Don]

The issue is, they don't think renewables are reliable.

They trust fossil fuels, they are proven.

Where this leaves the climate issue... Well, it's green crap isn't it?

[albie]

Reliability has not been an issue with renewables for many years, RD.
Sun shines, wind blows and the moon pulls on the tide....more than enough to get by.

Probably more seen by Bozo as a profit opportunity for party supporters.....like Covid was with the payouts for unusable PPE at excessive profit margins for people with no track record of providing the stock.

As for share buy-backs, well there is a golden gift horse not to be ignored!

[selby]

  They need power suppliers that drive income for the government not what they have to subsidise, and quickly with the infrastructure that is mostly in place, plus there is whatever Albie says a ready made market on our doorstep.
 It would also give the Steel and Engineering industries a rapid expansion while the renewable market has shown its inadequacy to keep up with market demand and is still requiring government subsidies, remove them and most renewable companies would withdraw from the market even now.
  Pound for pound the investment returns will be much quicker on line as would tax revenue, and investors follow the money not the ideals, its just a matter of fact.
  And it gives the nuclear industry time for the development of small reactors as RR are developing and Nuclear Fusion to be looked into.
  The 25% levy for green energy will come under scrutiny as bills go up, and with an election coming up would be a vote winner down the line nearer to an election and they could say look what we have done for you, at little detriment to power supplies as Hydro Carbons ramp up in the mean time.
  So in short, big export earnings, an infrastructure already in place, tax returns for the government, little lost for UK industry as most renewable companies are based abroad, and a relatively quick fix compared with the infrastructure being put in place for renewables an Industry that like the Chinese we could get into on the back of Hydro carbons we know are at our disposal, and to part satisfy the greens at the cost of just changing a date to 2100.

[River Don]

All good Selby if it wasn't for the fact that if we don't rapidly reduce carbon emissions now then we know and we can already see there are very serious consequences coming our way.

[selby]

Do we RD or is it some experts idea of what will happen like the forecasts of doom in the Covid crisis and their vision of how to handle it.
  I listened to a scientist the other day on the radio who quoted known numbers that the highest carbon readings recorded on Earth was in the Jurassic period with the number of active volcano's and it coincided with the highest number of Floral and animal numbers on Earth.

[wilts rover]

Do we RD or is it some experts idea of what will happen like the forecasts of doom in the Covid crisis and their vision of how to handle it.
  I listened to a scientist the other day on the radio who quoted known numbers that the highest carbon readings recorded on Earth was in the Jurassic period with the number of active volcano's and it coincided with the highest number of Floral and animal numbers on Earth.

The Jurassic - when most of the UK was under water - is this the comparison you are drawing Selby?

Or did 'your expert' forget that bit? Along with the fact we are loosing more species to extinction through climate change every year at the fastest rate ever.