Britain’s House of Commons Environmental Audit Committee has called for the Treasury to introduce an Investment Allowance for low carbon electricity generators who have been struck by the Government’s new Electricity Generator Levy. The recommendation comes in a report published today (Thursday 5th January 2023) titled, ‘Accelerating the transition from fossil fuels and securing energy supplies’, which highlights the disparity between sectors.
The Committee commented on how the tax reliefs and investment allowance available to the oil and gas sector serve to encourage increased investment in fossil fuel extraction. It is noted that the effective tax relief for oil and gas expenditure is now a massive 109% and that “this means that producers will effectively be paid to make such investments.” However, the new Government levy introduced exclusively on low-carbon electricity generators in the wind, solar, biomass and nuclear sectors offers no such reliefs. This risks future investment, and therefore the Government’s own targets for the Net Zero transition.
The report stated: “The tax system should help, not hinder, the transition to a low-carbon economy. The original way in which the Investment Allowance was structured provided a perverse incentive to accelerate investment in high-carbon oil and gas installations at a time when the public policy imperative was to accelerate the transition away from fossil fuels.”
The Committee went on to say that they had, “significant reservations about the extent of the financial support the Treasury is providing via the Investment Allowance, which the Institute for Fiscal Studies has noted ‘means that North Sea investment will be massively subsidised’ and ‘could lead to loss-making investments being rendered commercial’.
“The Government is not providing renewable energy generators with the same level of generous tax reliefs for new investment to enhance the UK’s energy security. We recommend that the Treasury examine how a similar low-carbon Investment Allowance could be introduced for electricity producers paying the new temporary tax of 45%.”
“The Select Committee has hit the nail on the head in identifying the inequality in treatment between the renewables and hydrocarbon industries, and flagged the perverse impact of the Electricity Generator Levy on investment in renewables.
“The Committee confirmed our fears that the levy is discriminatory in exclusively targeting low carbon producers, while restricting their ability to invest in the future of the UK’s low carbon economy.”
Rod Wood, Managing Director of Community Windpower.
The Committee’s concerns also reflect those of the general public. A recent poll commissioned by Community Windpower and conducted by Censuswide found that, of those expressing a view, the public opposes by a factor of 5 to 1 plans to raid earnings made by the UK’s vital renewable energy sector, while treating more favourably the huge profits made by oil and gas firms as a result of soaring energy costs.
Community Windpower has reluctantly signalled that it will pursue legal action if the Government will not engage with a view to redesigning the levy. The levy is at odds with the Government’s own legislated goals and legal responsibilities, cutting across its obligation to cut carbon emissions, abide by fair subsidy rules and foster investor confidence. Community Windpower has therefore been left with no option but to seek the court’s intervention.
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