Conclusions
1. There
is no single internationally agreed definition of what constitutes
energy subsidy. Methodologies differ widely, as do the nature
of transactions and support mechanisms that might be subsumed
in a measurement of subsidy. It is regrettable that this has provided
a way for the Government to reject—erroneously, in our view—the
proposition in some areas that it provides energy subsidies.
(Paragraph 11)
2. Energy subsidies
play an important and justified role in alleviating fuel poverty,
which remains a significant challenge. The Government's proposed
change of definition of 'fuel poverty' and weakening of the legislative
commitment—to 'address' it rather than 'eliminate' it—will
place a greater imperative on the Government to demonstrate that
it is committed to making fuel poverty a thing of the past. (Paragraph
27)
3. The Government
is undertaking a review to examine the scope for reducing 'green
levies' in energy bills. While such levies currently account for
9% of bills, they may not increase bills in the longer term because
they will drive energy efficiency. The review cannot significantly
assist the poorest bill-payers in the short term simply by scrapping
some green levies, because the biggest component of such charges
in bills—the Energy Company Obligation and Warm Home Discount—is
currently already directed at them. (Paragraph 28)
4. Renewables energy
has an important part to play in delivering the UK's emissions
reduction targets, and allowing the UK to play a full role in
tackling climate change. Subsidies for renewables are, in turn,
an essential lever to provide certainty to industry and drive
investment in those technologies. (Paragraph 42)
5. The Hinkley Point C deal will be scrutinised by the European Commission for state aid implications. It makes no sense to claim that a subsidy applicable to more than one technology therefore does not constitute a subsidy. It is already clear that new nuclear is being subsidised. The contractor for Hinkley Point will be able to use the guaranteed strike price for the electricity generated to raise capital at lower cost. It is debateable which of the various other Government-termed 'support mechanisms' and 'insurance policies' also constitute subsidy. Even in terms of the Government's 'similarity' definition of 'no public subsidy for new nuclear', there are aspects of support which are not 'similar' to that provided for other types of energy, notably on decommissioning and waste.
(Paragraph 51)
6. The capacity payments regime will constitute a subsidy for gas-fired electricity generation because in practice it is the only technology that will be eligible for the payments when the capacity contracts are deliverable in 2018-19.
(Paragraph 55)
7. Field allowances for North Sea oil and gas do not fully offset relatively high starting rates of corporation tax and petroleum revenue tax. The allowances nevertheless represent a subsidy because the higher tax rates compensate for the use of state-owned fossil fuel deposits.
(Paragraph 60)
8. As the Energy and Climate
Change Committee reported in 2011, hydraulic fracturing and horizontal
drilling are both techniques that have been present in the UK
for many years. They are not new technologies. Fracking is not
a technology warranting financial support to become viable and
competitive, and on that basis it does not warrant subsidy through
a favourable tax treatment. (Paragraph 61)
9. The variation in definitions of subsidy allows the Government to resist acknowledging subsidy in many areas, particularly on nuclear energy and the lower rate of VAT on domestic and small business heating fuel and electricity bills, and to claim that it has no 'harmful' or 'inefficient' subsidies despite fossil fuel consumption contributing to our greenhouse gas emissions. However, the reality is that energy subsidies in the UK are significant, cover all types of energy technology and run to about £12bn a year. Much of this is directed at fossil fuels.
(Paragraph 67)
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