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Tax breaks for fracking

Osborne plan aims to encourage investment in shale gas extraction projects.

Developers have given chancellor George Osborne’s proposed tax break for the shale gas industry a cautious welcome.

Cuadrilla chief executive Francis Egan said he was encouraged by Osborne’s announcement last week that the Treasury would soon consult on launching a “targeted tax regime” to help unlock investment in shale gas extraction.

He said that a beneficial tax regime could bring forward Cuadrilla’s plan to begin commercial shale gas production in the UK from 2015. But he warned that until further details were released it would be difficult to predict the advantages of Osborne’s proposals.

Egan added that benefits from such a tax break were secondary to ensuring that the Department of Energy and Climate Change (Decc) allows the developer to restart its hydraulic fracturing shale exploration in test wells in Lancashire.

The government stopped Cuadrilla using the drilling method - known as fracking - last year after it was discovered that the operation had triggered two small earthquakes (NCE 9 June 2011).

Consultation

Decc said that a decision on whether to give the green light depended on the outcome of its consultation on the introduction of stricter fracking guidelines, launched in April this year. A Decc decision is due by the end of the year but recommendations are expected to include pre-injection monitoring and a traffic light control regime to manage risks.

Past ICE president and Davies Maguire & Whitby director Mark Whitby said any shale gas tax break should be “clawed back” by the government when commercial operations take off, so that renewable energy projects could be cross-subsidised.

“Gas fits perfectly with low carbon,” he said. He added that the gas can be used in advanced combined cycle gas turbines which can be deployed when, for example, wind turbines stop generating power during calm weather.

Whitby acknowledged there are environmental concerns associated with shale gas extraction but said it was vital to ensure the UK’s future gas supplies.

“It’s much better to develop our own sources of gas and manage the environment risks than import from other countries where they might not care,” he said.

Concerns about the environmental impact of shale gas drilling prompted the Royal Society and the Royal Academy of Engineering to examine the technique. Their joint report declared hydraulic fracturing safe if guidelines are followed.

But three European reports on shale gas drilling released last month raised concerns about environmental risks, greenhouse gas emissions and potential contribution to gas supplies.

The government said it will engage with companies “in the near future” to ensure the final structure of the regime is “appropriately targeted while maintaining a fair return for the Exchequer”.

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