Responding to pressure from Tory backbench MPs who don’t want windfarms in their constituencies, George Osborne has apparently told the Treasury to prepare a plan to cut public subsidies to windfarms by 25%.

If you disagree with this, you might want to let our MP Craig Whittaker know. There’s also a relevant Twitter discussion going on – ♯endfossilfuelsubsidies.

Ok, the costs of constructing and operating wind turbines are coming down, so a reduction in subsidies is due, but the general estimate seems to be that a 10% cut would be fair and appropriate.

A 25% cut would make it hard for windfarms to be economically viable at this stage of their development, and it’s intended to cut the development of new wind turbines. This is despite the facts that creating green collar jobs would be one of the most effective ways out of recession, and that windfarms reduce the UK’s carbon emissions – which the government is legally obliged to do under the Climate Change Act.

This seems like another example of George Osborne’s crazy fixation on the idea that cutting public spending is going to help the economy – an idea neatly demolished by Nobel Prize-winning economist Paul Krugman,  on Newsnight recently. He pointed out that cutting public spending puts people out of work and reduces demand in the economy – so there’s no market for the products of the private sector, which is consequently unable to take up the slack from cuts to the public sector. Krugman is also on record as criticising the Labour opposition for its weak critique of Tory cuts policy and failure to provide a robust alternative.

Strangely, Osborne doesn’t seem to have problems with subsidising fossil fuels, corporate biomass and nuclear energy.

Proposed increases in nuclear subsidies

Finn Jensen of Blackshawhead writes:

Supporters of nuclear energy oppose wind turbines on the grounds that nuclear, unlike renewable energy, does not need public subsidies. Don’t they recognise that the nuclear industry has received far more government support than all the renewable technologies together? 

Recently the German utilities RWE and E.ON abandoned plans to build new nuclear plants in UK, because they couldn’t make the economics work without increased public subsidy. GDF Suez has demanded more financial incentives if it is to proceed with plans to build a new nuclear plant in Cumbria. This is because, without subsidies, the cost of nuclear-generated electricity is far higher than electricity from other types of power plants.

A March 2012 briefing note on Subsidising the Nuclear Industry, by Tom Burke, Tony Juniper, Jonathan Porritt and Charles Secrett, provides some surprising information: 

The government’s plan for an electricity market reform includes the introduction of  Contract for Difference Feed in Tariffs which would provide EDF with a subsidy of £63-£75 billion over the next 35 years. If all the planned nuclear plants are built the subsidy would amount to almost £4 billion a year. 

The nuclear industry cannot get third party insurance in case of a serious accident. So the government is proposing that nuclear operators’ liability should be capped at £1 billion per plant – with the taxpayer paying the rest. The Fukushima disaster may well exceed £300 billion.

Likewise, the government has proposed that the costs of waste disposal for the nuclear industry to be capped. The Department for Energy and Climate Change (DECC) spends £6.93 billion a year on managing nuclear waste and other liabilities from Britain’s current nuclear power programme. This amounts to 86% of DECC’s current budget, meaning that DECC is spending over eight times as much on cleaning up the nuclear past as it is on securing our future energy and climate security. 

Dozens of agencies, offices, quangos and departments support the nuclear industry, costing billions of pounds per year. Similar levels of support do not exist for other low-carbon technologies. 

It is impossible to have nuclear power without huge security and counter-terrorism costs. Most of this is paid for by the government, but secrecy prevents us knowing how much. 

Surely, these are all subsidies?

Summary of average fossil fuel support 2008-10, from HMRC  and other UK government departments, in UK£ millions

Source: OECD, United Kingdom: Inventory of Estimated Budgetary Support & Tax Expenditures for  Fossil Fuels, 2011 http://www.oecd.org/dataoecd/55/23/48786785.pdf 

The main sources of support for coal 2008-2010:

•  Reduced Rate of VAT for Fuel and Power  – domestic consumption of both heating fuel and power in the United Kingdom is subject to a 5% rate of VAT, compared to 20%  for regular products

• Inherited Liabilities Related to Coal Mining – eg Coal Authority costs of dealing with abandoned mining sites, mainly mine subsidence and historic liabilities such as the treatment of mine-water discharges

The main sources of support for oil 2008-10:

• Reduced Rate of VAT for Fuel and Power – see support for coal, above

• Various Petroleum Revenue Tax (PRT) allowances – mainly PRT Tariff Receipts Allowance,  PRT Oil Allowance, PRT Safeguard. These all exclude some petroleum revenue from being considered as taxable profits.
• Support for capital formation – PRT Uplift for Certain Capital Expenditures. This applies to the development of new oil fields that received development consent before 1993. It allows tax deductions for specific types of capital spending.

The main sources of support for gas 2008-10:

• Reduced Rate of VAT for Fuel and Power – see support for coal, above

• Various Petroleum Revenue Tax (PRT) allowances – mainly PRT Exemption for Sales to British Gas, PRT Tariff Receipts Allowance, PRT Oil Allowance, PRT Safeguard. These all exclude some natural gas revenue from being considered as taxable profits.
• Support for capital formation- PRT Uplift for Certain Capital Expenditures -This applies to the development of new natural gas fields that received development consent before 1993. It allows tax deductions for specific types of capital spending.

The Organisation of Economic Cooperation and Development (OECD) reports that its analysis of fossil fuel subsidies shows that phasing them out would provide a “quick win” in terms of helping to recover from the recession, “while also tackling environmental problems like climate change.”

However, it’s potentially problematic that the OECD recommends phasing out subsidies to fossil-fuel consumption – provided in the UK through reduced VAT on domestic heating and power – since this would raise people’s energy bills. But maybe this could be selective – VAT on renewable domestic heating and power could stay at 5% and VAT on fossil fuel domestic heating and power could rise to the same level as regular products.