The battle of definitions: ‘no subsidies for the oil industry’

13 May 2013 anna

The oil and gas industry enjoys no subsidy from government, nor are we asking for any.

– said last week by Oil&Gas UK CEO Malcolm Webb at the Oil Politics conference at Aberdeen University

(I should mention that there were several more substantial conversations at this conference that I will take a little time to write up. But I thought this bold statement merited its own blog post)

This, then, is the story that the UK oil companies (represented here by the CEO of their trade association) choose to tell about their relationship with government.

Hold on. What about the nearly £1bn a year in ‘new field allowance’ tax breaks, expanded by George Osborne to encourage companies to drill the ‘less attractive’ new fields of the North Sea? What about diplomatic support, providing ministers at 3 days’ notice for signing contracts, and maintaining whole consulates to support the oil industry? What about navy frigates sent to the Gulf of Aden to protect tankers? What about the billions of pounds’ worth of loans underwritten via the UK Export Finance?

So I asked Mr Webb to define subsidies. His response:

The new field allowances are not subsidies … A subsidy is monetary support from government that reduces investment to below the cost of production.

I’m not sure what would qualify for this definition of subsidy, if the new field allowances don’t: their explicit purpose is to make new fields in the North Sea viable investments. But the technical definition in accounting terms is beside the point. Direct transfers from government to company are unpopular and easier to challenge, and there are multiple other ways to subsidise the industry that do not appear on balance sheets – here I’m paraphrasing the International Energy Agency (IEA):

Governments like to keep subsidies ‘off-budget’ for political reasons; on-budget subsidies are an easy target for pressure groups interested in reducing the overall tax burden.

For more information on subsidies see our Feb 2013 briefing 'Making a Killing'
For more information on subsidies see our Feb 2013 briefing ‘Making a Killing’

Mr Webb said he had not seen this IEA report but looked forward to reading it.

This is essentially a battle over framing. Mr Webb is trying to keep his industry out of the ongoing debate on energy subsidies. Renewable energy is bound up in political debate with the notion that ‘subsidising’ it will ‘bring our bills up’. Meanwhile the many ways the UK government props up oil and gas stay large

ly out of the conversation.

With lots of hot debate on tax avoidance, as well as an ongoing parliamentary inquiry on subsidies, we have an opportunity to challenge the direct and indirect subsidies for fossil fuels. Will Mr Webb renounce all off-budget government handouts as readily as he did narrowly-defined subsidies?

PS A fellow conference participant pointed out to me that diplomatic subsidy, even on the scale of several million pounds per diplomat, is small compared to the tax bill from oil companies. Accurately counting up the indirect subsidies will be an important part of curtailing them. But keep in mind also that to the company in question, this relatively small intervention by the UK external energy policy machinery may be worth billions in contracts signed with another government.

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