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When is a subsidy not a subsidy?

Left Foot Forward has an article by a trades unionist bemoaning Shell's decision to pull the plug on its North Sea wind projects.

Firstly, with a 16% surge in three months profits to £4.5bn, why do companies like this need the coalition’s £3 billlion subsidy for oil and gas exploration off the Shetlands?

Secondly, is the company’s finance director right to criticise the ‘vast amount of public subsidies going into renewables’ when the government already subsidises fossil fuels by £3.63bn a year, mostly in the form of VAT breaks?

This is quite extraordinarily silly, even by Left Foot Forward standards. The chancellor is trying to encourage oil companies to open new oil fields as quickly as possible, because then they will make even more profit and pay even more tax. The incentives for exploration off Shetland are more to do with the Chancellor's needs than those of the oil companies.

Moreover, the "£3 billion subsidy" is in fact nothing of the sort. As well as paying corporation tax, oil companies have to pay the Supplementary Charge, an extra whack of taxation charged simply because they are an oil company. The Shetland "field allowance" reduces the profits subject to this extra tax for new fields in that area. So what Left Foot Forward calls a "subsidy" is in fact a partial levelling of the playing field with other parts of the energy sector and indeed with other industry sectors.

I've observed from time to time the remarkable number of occasions on which an argument put forward by a left-wing political activist involves an abuse of the English language. This is yet another of those occasions.

Finally, I should also point out that the £3.63 billion of VAT breaks are of course also available to the renewables sector, because VAT is charged on electricity regardless of source.

From beginning to end, the Left Foot Forward article is a demand for special treatment disguised by misleading language and misleading figures. Why do people think they can get away with this kind of thing?

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Reader Comments (33)

Why do they think they can get sway with it..
Because they do.. time and time again

Damian Carrington, was doing the exact same thing in the guardian..

Ie not paying full vat, on energy. Equals fossil fuel subsidy!

Presumably he is in favour, of pushing million more into fuel poverty, by removing 'subsidies'
Everything seems to be political, with the left..

May 2, 2012 at 9:28 AM | Unregistered CommenterBarry Woods

Note how the one comparison the green side never does is quote the subsidy in pence per kWh or useful units like that. That gives a lot better idea of how the playing field is tilted which is the last think the renewables want.

May 2, 2012 at 9:30 AM | Unregistered CommenterChrisM

The one you highligh is a very common one. The lack of a tax being referred to as a subsidy.

One of the worst abuses is classifying double taxation provisions in international tax treaties as "subsidy". In effect, Exxon, headquartered in the US is given credit fo tax paid in foreign jurisdictions on foreign earnings - as any other (non-oil) company would have.

But this gets lumped in with "subsidies to oil companies".

May 2, 2012 at 9:35 AM | Unregistered CommenterGeckko

I've noticed, in the Graun over the years, that the word subsidy has a completely flexible meaning - depending on the political point being made.

Generally, if any entity is not being taxed to the full extent demanded by the rabid lefty writing the article - it's a "subsidy".

Likewise, if anyone reduces their tax bill by taking advantage of government promoted schemes to stimulate investment etc - they're either "subsidised" or "tax avoiders" when it suits the argument.

Basically the left believe all money is state property - and being able to keep any of it at all is a concession.

May 2, 2012 at 9:38 AM | Registered CommenterFoxgoose

And don't forget the climate change levy (a tax) that all non-renewable electricity generators have to pay (including nuclear which is the lowest emitter of CO2 of all generators).

If subsidies were calculated on a level playing field and worked out on a /MWh production basis, then the subsidies to renewables would be seen to dwarf anything else.

They think they can get away with this kind t of thing because they have long experience that telling lies works.

May 2, 2012 at 9:42 AM | Unregistered CommenterPhillip Bratby

Why do people think they can get away with this kind of thing?
Because they can. And do.
The enviro-left (which is to say most of the enviros) know that especially in the current climate knocking oil companies, "banksters" (how I hate that word!), indeed big and successful business in general will always be met with nods of approval by the sheeple.
If you don't believe me, go and read the comments on the DT, most of whose readers (you would imagine) would be at least neutral. 'Fraid not!
Anything that distorts the free market which they claim to oppose is a "subsidy". Anything which unfairly benefits Big Oil is a "subsidy" while anything which imposes additional burdens on Big Oil (like the Supplementary Charge) is fine.
They really do need calling on the "subsidy" to fossil fuels. That is a lie, pure and simple.

May 2, 2012 at 9:44 AM | Registered CommenterMike Jackson

I've always been surprised how easily the Scottish public have accepted paying our money to achieve an 18% level of electricity from renewables in Scotland when the target was only 10% in England.

It's even odder, that no one spotted that the target is a MWH consumed, whereas the subsidy is MWH produced. As around 7% of electricity produced is lost in transmission, there is a 10% shortfall in England i.e. in 2010, the target of 10% (produced) only delivered 9% (consumed).

But of course, hydro doesn't need subsidy. Great, so for the first 8% years us Scot's didn't need a single windmill littering our landscape.

I still can't fathom this out. OK, I accept the target is a national one (from the EU). Renewables are devolved to the Scottish government. So, it is up to us how we achieve our 10% target by 2010. That's logically. So, we have 8% of electricity from hydro, so we needed 2% of electricity from top up hydro, which means in 2010, we needed 20% of the wind ... and we needed to pay 20% of the subsidy ... 20% of the cost on consumers.

Instead, we simply gave away our 8% hydro to the UK pot and rolled over like a poodle and littered the Scottish hills with Danish windmills.

May 2, 2012 at 9:45 AM | Unregistered CommenterMike Haseler

The subsidy argument is a recurring theme of the green lobby. Carrington, as is mentioned above, frequently returns to the same statistic to claim that conventional fuels are 'subsidised' to a much greater extent than renewable sources of energy. This claim seems to be owed to an International Energy Agency report from last year, and its members also keep using the statistic.

I had a look at the report last year -- -- and it turns out that the calculations are more than suspect. There's the problem of including a reduced VAT rate for fuel as a 'subsidy', of course. And then there's the even bigger problem of not working out the subsidy available to each kind of fuel on an equivalent basis. When you do the sums on an Mtoe basis (i.e. per unit of energy), it turns out that subsidies for renewables are at least 13 times higher for conventional fuel. I suspect that, when one uses a proper definition of 'subsidy', the figure may be much much higher.

May 2, 2012 at 9:55 AM | Unregistered CommenterBen Pile


I meant that subsidies are 13 times higher for RENEWABLES than for conventional fuel.

Need a coffee to wake me up a bit, I think.

May 2, 2012 at 10:00 AM | Unregistered CommenterBen Pile

The Left just do not like oil wells and coal mines full stop. They seem to think that these resources are 'The Peoples' and oil companies and mine owners are just pumping/digging up money. What they forget is the capitial investment needed and the way the markets operate, if you want lower prices you reduce the costs so more is pumped/mined.

Its envy at its worst.

May 2, 2012 at 10:14 AM | Registered CommenterBreath of Fresh Air

Damian Carrington (in his own comments)

"presumably you also railed against the far bigger subsidies ploughed into oil, gas and nuclear?
and it still goes on - in 2010, fossil fuels received $409bn in 37 countries looked at by the IEA. Renewable energy got $66bn.
A level-playing field, taking into account environmental damage, would indeed be valuable

I really think he belives this.. he got quite 'grumpy' when a number of people pointed out his faulty logic, worth having a look at the other comments (readers more knowledgable than Damian)

"you asked for "comparative figures for the subsidies for fossil fuels vs. renewables in the UK" so "we could actually have a grown-up discussion about it?"
here you go

Thank you."

A Comment:
"I don't have time to look at every point in the article at present, so I'll just comment on the big totals at the moment.

Your link says fossil fuel subsidies totalled £3.63 billion and renewables £1.4 billion. It also says 90% of the fossil fuel subsidy is the reduced VAT on domestic fuel (which of course applies to renewables as well, so we can ignore that), so that leaves us with £0.36 billion, or approx. one quarter of what renewables get.

Therefore, renewables are much more heavily subsidised than fossil fuels (even more so if you consider the relative sizes of the sectors).

Are you absolutely sure you want a level playing field? Seems to me if that's what you got, renewables would be a heck of a lot worse off than they are at present.

So basically theu all do it, out of ignorance, lack of understanding, or politics, only they know..

May 2, 2012 at 10:15 AM | Unregistered CommenterBarry Woods

Damian Carrington (in his own comments)

"presumably you also railed against the far bigger subsidies ploughed into oil, gas and nuclear?
and it still goes on - in 2010, fossil fuels received $409bn in 37 countries looked at by the IEA. Renewable energy got $66bn.
A level-playing field, taking into account environmental damage, would indeed be valuable

I really think he belives this.. he got quite 'grumpy' when a number of people pointed out his faulty logic, worth having a look at the other comments (readers more knowledgable than Damian)

May 2, 2012 at 10:17 AM | Unregistered CommenterBarry Woods

The Left captured the language of politics years ago. Thus conservatives of any kind, however clever, find themselves reduced to debating in terms set by the Left, whether this measure or that measure is more or less 'fair', or 'racist', whether it will result in more or less 'justice' or whatever the buzz word might be. They seem to have neither the brains nor the courage to explain that Leftist concepts of fairness, racism, justice etc etc are special pleading of a most peculiar kind. And of course this has been going on for aeons: what were the normal commercial relations among men were given the perjorative term of Capitalism by Marx, or at least the term Capitalism was endowed with perjorative connatations by him, when it is only a descriptor of normal commercial relations. Where is the conservative fight back over language? At the very least, for every Lefty whine about Capitalist Oppression, where's the rebuttal? Over 'fair access' to universities, who is pointing out what nonsense this is, with its implications that working class kids are oppressed by boss-class exams and can't be expected to pass them etc etc. Which conservative did you last hear saying its down to the socialist education system, working class kids did all right in grammar school days...."The Silence of the Right" is a book waiting to be written.

May 2, 2012 at 11:07 AM | Unregistered Commenterbill

Because they do get away with it.Nobody on the "left" including the BBC, is going to say they are lying. If Shell were to accuse these "leftists" of being wholly corrupt lying thieves, because most of them are ultimately paid out of taxes, it would not only be the "left" who would express disagreement.

May 2, 2012 at 11:28 AM | Unregistered CommenterNeil Craig

This is precisely the kind of thinking which cause real harm.

“Climate policies that hinder or slow down economic development or increase the price of energy and food threaten to augment poverty and, as a result, increase net death and disease,” Dr Goklany said.

The increase in biofuel production between 2004 and 2010, for example, is estimated to have increased the population in absolute poverty in the developing world by over 35 million, leading to about 200,000 additional deaths in 2010 alone.

Full article here

The road to "Green Hell" is paved with "good" intentions.

May 2, 2012 at 11:30 AM | Unregistered CommenterDon Keiller

North Sea tax rates are between 70 and 80% depending on the type of field, license etc.

May 2, 2012 at 11:42 AM | Unregistered Commenternone

The Rio Summit was to have been the last last chance of getting agreement to the Agenda 21 World government based on taxing carbon, the sub-agenda being to stop the Third World developing by choking off cheap energy. The Left went along with this because they failed, or more probably, refused to accept the evidence showing that those behind it are amoral bankers and reinsurance companies.

The lefties now know the facts. The carbon scare is disappearing as indicated by Lovelock's acceptance of the experimental evidence rather than the political hype. Also they now realise they have been used as patsies. So, they are reverting to anti-capitalism, concentrating on the energy companies.

May 2, 2012 at 12:06 PM | Unregistered Commentermydogsgotnonose

Well if the Lefties are reverting to anti-capitalism they are throwing away a natural ally. Ultra-capitalists owe no allegiance to any country, customs or habits, and seek only to make money. Countries, customs and habits are the very things that need to be swept away to permit the victory, and dictatorship of, the proletariat. From two extremely different starting points, and with very different end games in mind, they are natural allies because of their eagerness for revolution. The status quo stops the capitalist from making more money, the status quo condemns the workers to their oppressed status. So revolution, in things great and small, works for both sides. And working together, they can do more than working alone. At times for convenience both sides will be happy to throw a cover over their closeness and express mutual loathing, but the mutual desire to 'smash' is very strong.

May 2, 2012 at 12:24 PM | Unregistered Commenterbill

May 2, 2012 at 9:38 AM | Foxgoose

Well-off lefties are, of course, happy to be 'subsidised' by poorer tax-payers, as Ken Livingstone has recently demonstrated :-)

May 2, 2012 at 12:31 PM | Unregistered CommenterDaveS

Bill, Where did you get that drivel from?

May 2, 2012 at 12:34 PM | Unregistered CommenterAC1

Let;s not forget that these subsidies are the result of political lobbying by scientists and NGOs. The same scientists who told us we're in for a drought 18 days before the wettest April on record.

May 2, 2012 at 12:47 PM | Unregistered Commentergeronimo

Yes, always need to careful about how a "subsidy" or a "tax" is defined.

Not a few people define the absence of a tax as being the logical equivalent of a subsidy or vice-versa [and I say that trying not to put too much political judgement on the matter].

May 2, 2012 at 12:49 PM | Unregistered Commentermichael hart

The reason we only pay 5% VAT on electricity and heating fuel is because heating your house is not (or should not be) a luxury. VAT is not applicable to non luxury items. Iirc, it was Gordon Brown who quite rightly stood up to Brussels on this issue, and as a compromise agreed to 5%. (this was one of the of the very few good things he did). Due to the colder climate, on average it costs 30% more to heat a house in Scotland compared with a house in England (and probably 30% more to heat a house in England compared with France). As I live in the predominantly cold north of Europe I resent any suggestion by Damian Carrington and his London lefties that I should pay 20% VAT extra on top of an extra 30% just to keep my house at a reasonable temperature. (which it isn't most of the time anyway, because the kerosene cartel want £750 just to fill up a 1100 litre tank of kerosene).

May 2, 2012 at 1:10 PM | Registered Commenterlapogus

I remember the TV programs [made well after events] describing how the early 1980's unemployment in the UK was essentially paid for by North Sea Oil. Some think that effectively saved the country from revolutionary social-unrest. Bad times, yes, whatever one's political colour.

Without that oil money [from taxes, not subsidies], the misery would have been far worse. Yet bizarrely, are we going to be looking at a replay? Will shale gas help second time around while the country knocks itself back into shape? I'm sure something is going to do the knocking. And I'm sure “renewables” won't be doing any “saving”.

May 2, 2012 at 1:12 PM | Unregistered Commentermichael hart

AC1 happy to engage but no time for those who simply insult

May 2, 2012 at 1:56 PM | Unregistered Commenterbill

I have noted for years that AGW true believers are frequently truth challenged- they not only tel fibs about the climate, but about a great number of things additionally.
Which raises the larger question of public square corruption- the corruption that enables people like this to get away with misrepresenting the facts so blatantly. Media, government, academia, all participate in this by at least the sin of omission.

May 2, 2012 at 2:08 PM | Unregistered Commenterhunter

@ bill,
Your post at May 2, 2012 at 11:07 AM is excellent. I hope you will expand on it.

May 2, 2012 at 2:10 PM | Unregistered Commenterhunter

Damian Carrington (guardian) is hoping all the sceptics will just die off soon....

"An alternative, as Yeo has pointed out on a previous occasion, is to simply let nature take care of the elderly sceptics, who will go to their graves sooner than the rest of the population. The question is will either happen quickly enough to avoid the six degrees of warming to which the IEA says our current path will lead?"

and I get a comment in for a change !!!

May 2, 2012 at 2:54 PM | Unregistered CommenterBarry Woods

Barry, can't see your message but did see the 97% of climate scientists is now 98.5% LOL

May 2, 2012 at 4:13 PM | Unregistered CommenterBreath of Fresh Air

The Green definition of 'subsidy' is prevalent in The Netherlands too I called a work colleague on it and he agreed that oil isn't in fact being 'subsidised' by the correct definition of the word. One down 16,734,098 to go!

May 2, 2012 at 4:29 PM | Unregistered CommenterFarleyR

"Why do people think they can get away with this kind of thing?"
Because they do.

May 2, 2012 at 6:05 PM | Unregistered Commenterpax

Some selected quotes that illuminate the issue of subsidies.

Ball, scholar-in-residence at the Stanford center and former energy reporter and environment editor for the Wall Street Journal, writes in the current edition of Foreign Affairs that the world’s renewable-energy push has been sloppy so far. It can be fixed through a new approach that forces these technologies to become more economically efficient, he writes in the article, “Tough Love for Renewable Energy.”

“If government officials wish to accelerate the next energy transition, they will need a different strategy to develop an industry that can survive without major subsidies, one that prioritizes funding to commercialize decarbonized energy technologies that can compete dollar-for-dollar against carbon-based energy,” Yanosek said.

With natural gas prices so low due to huge new supplies of shale gas, besting the current energy system has become tougher.

“Wind and solar power will never reach the scale necessary to make a difference to national security or the environment unless they can be produced economically,” he writes. “The objective is not wind turbines or solar panels. It is an affordable, convenient, secure, and sustainable stream of electrons.”

Ball, in Foreign Affairs, writes that rationalizing “the conflicting patchwork of energy subsidies that has been stitched together over the decades” is essential. Supporters of renewable energy point out that public subsidies for these technologies are a fraction of those for fossil fuels, both globally and in the United States. Realistically, Ball figures, subsidies should be examined not just in total dollar amounts, but also per unit of energy produced. This more apples-to-apples comparison would help foster an honest debate about which subsidies best promote the type of energy system countries want.

Bring on shale gas and let's have an honest debate on how the huge subsidies for wind power are harming our economy.

May 2, 2012 at 8:42 PM | Unregistered CommenterRobert Thomson

Damien Carrington and his fellow-travellers live in their own world, a world foreseen by Charles Dodson in 'Alice in Wonderland'. In the alternative reality inhabited by Carrington et al, any term means what they decide it should mean; attempting to argue with them using accepted dictionary definitions is doomed to failure from the outset.

May 2, 2012 at 10:58 PM | Unregistered CommenterAlexander K

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