Brief Czech Republic France Germany Greece Hungary Phase-out 2020: monitoring Italy Netherlands Poland Europe’s fossil fuel subsidies Spain Sweden Laurie van der Burg and Matthias Runkel United Kingdom September 2017 European Union United Kingdom Key Leading on phasing out fossil fuel subsidies: findings • Although there are not specific examples of action to phase out fossil fuel subsidies, the United Kingdom (UK) has introduced taxation tools such as the ‘carbon price floor’ and ‘climate change levy’ to put a price on carbon, and has committed to phasing out coal-fired power by 2025. Lagging on phasing out fossil fuel subsidies: • The UK’s transparency and reporting on fossil fuel subsidies remains relatively poor compared with other European countries including France, Germany, Italy and Sweden. The fossil fuel estimates in this study are therefore likely to be an underestimate. • In recent years the government has significantly reduced the tax rate for North Sea oil and gas production. Overall fiscal support to oil and gas production was £665 million (€850 million) per year between 2014 and 2016. • Subsidies to households include reduced VAT on fuel and power consumption, resulting in £3.6 billion (€4.7 billion) per year in foregone government revenue. • Subsidies to the transport sector, including tax breaks for diesel, amounted to £7.4 billion (€9.5 billion) per year on average between 2014 and 2016. • The UK’s public finance institutions and the Royal Bank of Scotland (RBS), which is 73% state- owned, together provided financing to oil, gas and coal at home and abroad worth £1.3 billion (€1.9 billion) per year between 2014 and 2016, with RBS accounting for £937 billion (€1.2 billion) of this support. Shaping policy for development odi.org Status of the energy transition in the United (Department for Business, Energy and Industrial Strategy Kingdom (BEIS), 2017). The UK’s vote to leave the EU has led to The UK is the largest producer of oil and natural gas in much uncertainty regarding the implications for climate the European Union (EU), and became a net importer and energy policy (Committee on Climate Change, 2017). of these fuels in 2004 and 2005 (Energy Information Since Brexit, the UK has fallen to its lowest position in the Administration (EIA), 2016). UK oil and gas production Renewable Energy Country Attractiveness Index of Ernst peaked in the 1990s and has steadily declined ever since and Young Global Capital (Johnston, 2016). due to depletion of existing fields and few discoveries of new fields (EIA, 2016). While oil and gas production accounted for £2.1 billion (€2.6 billion) in government Status of fossil fuel subsidy phase-out in revenues in 2014, the North Sea oil industry is now a drain the United Kingdom on the UK budget (HMRC, 2017c). Recent government The European Union (EU) including all its Member estimates suggest that the industry cost taxpayers £312 States have committed to phasing out environmentally million (€263 million) in 2016, due to low oil prices, harmful subsidies, including those to fossil fuels, by 2020 tax cuts and the government taking a large share of (European Commission, 2011). In addition, EU Member decommissioning costs (Gosden, 2017). States are committed to phasing out subsidies to hard coal To increase oil and gas production, the UK is also mining by 2018. As party to the Paris Agreement, the UK looking to develop its shale gas reserves. A temporary has also committed to ‘[m]aking finance flows consistent moratorium on shale gas was introduced in 2011 following with a pathway towards low greenhouse gas emissions and two earthquakes triggered by a shale well in the Bowland climate-resilient development’ (United Nations Framework basin, but was removed the following year (EIA, 2016; Convention on Climate Change (UNFCCC), 2015). With Ambrose, 2017). nearly 40 other countries and hundreds of companies, In terms of coal production, the UK’s last deep coal the UK has signed a communiqué calling on countries to mine closed at the end of 2015, following a government- eliminate inefficient fossil fuel subsidies in 2015 (Friends aided phase-out (Littlecott, 2015). However, a few of Fossil Fuel Subsidy Reform (FFFSR), 2015). As a surface mines remain in operation in central and northern member of the EU bloc that is party to the G7, the UK England, south Wales and central and southern Scotland, has committed to phasing out its ‘inefficient’ fossil fuel and applications for new mines are ongoing partly as a subsidies, and called on all countries to do so as well, by result of low corporate tax rates (NAE, 2015). 2025 (G7, 2016). As a member of the EU, and therefore After a small revival in the use of coal in power part of the G20, the UK has repeated its commitment to generation between 2011 and 2013, coal-fired power phase out fossil fuel subsidies every year since 2009 (G20, generation has recently declined. In April 2017 the UK 2017). saw its first working day without coal power since the Despite the strong high-level commitments and calls industrial revolution (Brown, 2017). This stems from a to end subsidies, the government denies that it provides combination of the conversion of three of a total of six any fossil fuel subsidies as per its own definition for coal units by Drax Group to biomass, low renewable-based fossil fuel subsidies: ‘a government action that lowers the electricity prices, and, importantly, ‘the carbon price floor’, pre-tax price to consumers to below international market which puts a minimum price on fossil fuel-fired electricity levels’ (UK Parliament, 2017a; 2017b). It is worth noting (Delebarre, 2016; Jones, n.d.; Littlecott, 2016). Subsidies that renewable energy subsidies in the UK, as reported to coal-fired power, including in the form of capacity by the government, would also not qualify as subsidies payments, however, risk slowing the UK’s coal phase-out under this definition. However, our analysis has identified (currently targeted at 2025) (Worrall and van der Burg, numerous measures that support fossil fuel production 2017). and consumption in the UK. The government has also In 2008, the UK was the first country in the world to introduced new measures to support fossil fuel production adopt a Climate Change Act with legally binding targets in recent years. to tackle climate change. It sets five-yearly carbon budgets to cut greenhouse gas (GHG) emissions by 80% by 2050. However, analysis shows that the UK is likely to fail to Overview of fossil fuel subsidies in the meet its fourth and fifth carbon budgets (a 51% and United Kingdom 57% reduction in GHG emissions by 2025 and 2030 The UK government does not publish an inventory of its respectively) (CCC, 2017). fossil fuel subsidies or environmentally harmful subsidies. The UK has also committed to reaching a share of 15% This contrasts with Germany and Italy which demonstrate renewables in final energy consumption by 2020, in line greater transparency in publishing such inventories with EU targets. On its current course, the UK is likely to (see Whitley et al., 2017). In the absence of systematic miss this target. In 2016, fossil fuels still accounted for government reporting on fossil fuel subsidies or a roadmap 82% of total energy supply, and renewables for only 8.9% for the phase-out of fossil fuel subsidies, it is challenging 2 Brief: United Kingdom to assess whether the UK is on track to meet its subsidy in investments by the 73% state-owned Royal Bank of phase-out commitments. Scotland (RBS). Due to limited transparency, our analysis found no data for 22% of the fiscal support measures (including budget expenditure, tax breaks, and price and income support) Coal mining identified. Despite the UK’s commitments to phase out fossil fuel Domestic, and EU countries subsidies, it continues to provide support domestically The UK government supports coal mine rehabilitation and internationally in all sectors reviewed in this analysis through the UK Coal Authority (UKCA), a public body, through national subsidies and public financing. sponsored by the Department for Business, Energy and Table 1 below provides an estimate of the scale of UK’s Industrial Strategy (BEIS), that manages the effects of past fossil fuel subsidies on average per year between 2014 and coal mining. No estimates are available for expenditure 2016 (using publicly available sources). on coal mine rehabilitation in 2015 and 2016, but in These subsidies comprise fiscal support worth £13.3 2013 and 2014 the UKCA spent on average £28 million (€17.1 billion) per year between 2014 and 2016. This (€35 million) a year on subsidence damage claims, mine includes consumption subsidies, with subsidies to transport water pollution and other mining legacy issues (see £7.4 (€9.5 billion) accounting for the largest shares of spreadsheet) (Organisation for Economic Cooperation this support. Fiscal support to oil and gas production are and Development (OECD, 2015). Other measures that are estimated at an additional £665 (€850 million) per year. likely to have benefitted coal production as well as oil and The UK also provided international public finance for gas, but for which no estimates are available, include the fossil fuel production, worth £1.3 (€1.9 billion) per year mineral extraction allowance (MEA) and the abandonment between 2014 and 2016. This includes £937 €1.2 billion costs measure. The Department of Business Innovation and Skills (DBIS) provided a loan of £1.3 million (€1.7 million) to For more information on the sources of data and UK Coal production Ltd. to avoid insolvency and to help the methodology used in this report, please refer to the company to deliver a plan for a managed closure of its the Methodology chapter of the summary report, mines in 2015 (DBIS, 2014).