Wednesday 16 March 2016

Budget 2016: Osborne scraps CRC, raises CCL and cuts tax for oil & gas

Budget 2016: Osborne scraps CRC, raises CCL and cuts tax for oil & gas


The UK Government has guaranteed tax reliefs for the oil and gas industry and plans to abolish the “bureaucratic and burdensome” Carbon Reduction Commitment (CRC).

As part of his Budget announcement today, Chancellor George Osborne said he will cut the Supplementary Charge on oil and gas from 20% to 10% and scrap the Petroleum Revenue Tax (PRT).

The PRT is a special tax on profits from oil and gas production in the country or the UK Continental Shelf.

The announcement is part of the government’s plans to simplify the regime for investors and “level the playing field between investment opportunities in older fields and infrastructure and new developments”.

Both the tax cuts will be backdated so they are effective from the 1st of January this year.

Companies will also be able to access tax relief on their costs when they retain decommissioning liabilities for an asset after a sale.

Business energy taxes reform

Mr Osborne announced the CRC – a a mandatory reporting and pricing scheme to improve energy efficiency in large public and private organisations - will be scrapped following the 2018/19 compliance year.

The Budget document states: “It will significantly streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers rather than CRC participants being required to forecast energy use, buy and surrender allowances.”

The Climate Change Levy (CCL), which is an environmental tax on energy delivered to non-domestic users - will be increased from 2019 “to recover the revenue” from abolishing the CRC and “incentivise energy efficiency in CCL-paying businesses”.

However, the energy intensive industries like steel will remain protected.

The CCL discount for sectors with Climate Change Agreements (CCA) will also be increased.

For electricity, it will rise from 90% to 93% while the discount for gas will jump from 65% to 78% from April 2019.

“The government will retain existing eligibility criteria for Climate Change Agreement schemes until at least 2023,” it added.

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Low carbon and renewable energy

The Chancellor has pledged £730 million in further auctions to back renewable energy technologies.

It would be provided under the Contracts for Difference (CfD) scheme for up to 4GW of offshore wind and other “less established renewables” for projects generating power in 2021 to 2026.

The first auction will offer £290 million.

“Support for offshore wind will be capped initially at £105/MWh (in 2011-12 prices), falling to £85/MWh for projects commissioning by 2026,” the document states.

It comes after the competition watchdog highlighted a number of failings within the CfD auction scheme.

At least £50 million has also been pledged for innovation in energy storage, demand side response and other smart technologies in the next five years.

It follows the National Infrastructure Commission’s report which said using electricity in a “smart” way  could help consumers could see savings worth up to £8 billion a year by 2030.

Mr Osborne has invited bids for small modular nuclear reactors (SMRs) “to pave the way to build one of the world’s first”.

The government will publish an SMR delivery roadmap later this year and will allocate at least £30 million for an advanced manufacturing R&D programme to develop nuclear skills capacity.

It will also be consulting on the priorities and delivery models of the £1 billion Shale Wealth Fund later this year and how it can be deployed in local communities.

The ambition for greater electricity interconnection has also been increased by 80%, which means at least 9GW of additional capacity will be supported.

Written by

Bruna Pinhoni

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