UK Fossil Fuel Subsidies

There has been much discussion in the press and blogosphere recently about an OECD report on the ‘levels of subsidy’ enjoyed by fossil fuels worldwide, broken down by country.

The report, which counts tax breaks as a form of subsidy, calculates subsidies to fossil fuels in the UK at around £3.6 billion in 2010. Most of this ‘subsidy’ comes from a preferential VAT rate of 5% on domestic energy supplies, as opposed to the normal 20% for goods. Other tax breaks include relief on certain ‘economically marginal’ North Sea fields. North Sea oil and gas is heavily taxed and raises a large income for the Treasury. This is justifiable as the oil and gas are UK national resources and belong to the UK rather than to the oil and gas extraction companies. The Treasury’s policy has been to adjust the tax regime so that extraction remains profitable whilst maximising income to the Treasury.

The Guardian has calculated the level of subsidy for renewable energy at £1.4 billion for that year. Renewable energy subsidies are not largely a result of tax breaks, but a result of an obligation on energy companies to invest in renewable energy through various schemes such as the Renewables Obligation and the Feed In Tariff. As they do not come from the public purse, renewables subsidies can be regarded as an additional tax on energy companies. This impacts on profits but some have argued that the cost is automatically passed onto the customer. The profit regime of energy companies however remains opaque.

Energy companies are not necessarily oil companies, but for the sake of argument let’s say this leaves a net difference of around £2.2 billion in subsidy for fossil fuel industries.

Some commentators argue that this calculation is not correct as tax relief on an already very high tax regime cannot be counted as a true subsidy. Normally this reasoning would be correct, but in this case fails to take into account that North Sea oil and gas reserves are property of the UK and not property of the oil and gas companies. Failure to recognise this fact would be to provide a subsidy to the oil and gas companies of free oil and gas, both very valuable exhaustible resources. In contrast, wind and sun (and wave and tidal energy) actually are free, and inexhaustible.

This difference is key. The costs of renewable energy are the equipment used to harvest these free fuels (i.e. wind turbines and solar panels), and research and development. These costs are likely to naturally fall over time, and indeed have been doing so, even as efficiency rises. Conversely, as the finite reserves of fossil fuels become depleted, the market price of energy derived from fossil fuels will rise, as it is indeed doing, along with the costs of extracting them as the ever more difficult resource deposits are tackled. Tax relief given by the Treasury is based on the costs of extraction of ‘difficult’ fields – the Treasury however has no control over international oil and gas prices, which remain at record highs despite worldwide economic recession. In theory, the rising market price itself will eventually make economically marginal oil and gas fields viable. So why does the Treasury need to give additional tax relief? Simply, to bring the exploitation of these fields forward in time. The subsidy is being paid by the future UK economy for the benefit of the current government.

The same will apply to the “generous” tax regime that the Chancellor has said he will put in place for the exploitation of ‘shale gas’.

Wind and sun however will continue to be free into the foreseeable future. Subsidies given now to improve and bring down the cost of the harvesting technologies will result in permanently lower energy prices.

Green’ groups have seized on these figures as evidence that fossil fuels have an unfair market advantage, even without considering the contribution of additional carbon dioxide emissions to the increasing amounts of heat energy being held in the Earth’s atmosphere, resulting in a more energised biosphere and resultant climate impacts, as forecast by climate scientists.

Of course, climate science is in its relative infancy and it is notoriously difficult to predict localised weather, so the amount of environmental and economic damage resulting from the burning of fossil fuels is difficult to quantify. Lord Stern estimated in his review that the world could lose around 10% of GDP through the effects of climate change, with a 50C rise in global temperatures (currently predicted by the World Bank, amongst others) – around £243 billion annually if translated to the UK. If correct, this economic cost represents a subsidy to the fossil fuel industry as the industry does not have to pay to rectify the environmental damage its pollution causes. Of course, this figure for the UK is the cost of global emissions, not just UK emissions. UK emissions are about 1.75% of the world total, so we would be responsible for around £4.2 billion of that annual loss.

One indicator of whether or not climate change is actually having an economic impact is the reinsurance industry. In many US states, insurers must disclose to financial regulators their exposure to climate change related risks. Here in the UK, the government is currently in difficult negotiations with insurers to try to retain insurance for domestic homes at risk of flooding. 2012 has been one of the worst years in living memory for flooding.

So whilst statistics about individual storms, droughts etc are debateable and contentious, the insurance industry whose business it is to know about risk and put a price on it, is raising costs. These higher insurance costs also represent a subsidy to the fossil fuel industry.

Support for the fossil fuel industry could be a risky investment for the UK, according to the Bank of England. Tax breaks now to encourage the development of marginal oil and gas fields could be wasted if the future value of these resources disappears. Oil companies can write off the cost of establishing production from an oil field against tax immediately rather than over the lifetime of the field.

Back in November 2009, Andrew Mitchell MP gave a passionate speech to the Overseas Development Institute pledging to end the Labour Party’s support for fossil fuel projects across the globe, citing support amounting to three quarters of a billion pounds. He was absolutely clear that climate change is one of the major risks to humanity. Yet here in 2013, on the website of the UK Export Credits Guarantee Department, is listed support of $1 billion for Petrobras offshore oil and gas projects.

If the tax revenue from oil and gas was being used by the Treasury to reduce demand for energy through a programme of energy efficiency, then that would be a justification for continuing to develop fossil fuels. However, even the revenue from carbon taxes such as the CRC Energy Efficiency Scheme is not spent on improving energy security for the UK.

So it does seem clear that UK fossil fuel companies do receive significant subsidies which are not afforded to renewable energy, for extremely questionable benefits, except the short term financial interests of the current government and the oil and gas companies themselves.

Whilst renewable energy does not generate an income for the Treasury except for normal corporation tax (which, after tax breaks, is often all oil and gas companies end up paying on the marginal fields which are left to exploit, effectively giving away the resource itself free of charge), it increases UK energy security whilst ensuring long-term lower energy prices for consumers, as well as giving the UK the opportunity to become a world leader in the development of efficient technologies.

By contrast, the fossil fuel extraction industry has a finite lifetime which is increasingly beset by rising costs, technical difficulties and environmental risks, not to mention the obvious geopolitical destabilisation that political reliance on fossil fuel producing countries brings.

Valley Wood: One Year On

Well, incredible as it seems, it’s now one year since I took on Valley Wood, and a huge amount of weekend work has gone into it over the past 12 months.

It’s been an amazing journey so far . . . when I was last down there I found myself reflecting on progress so far whilst dozing in the shelter on a warm afternoon. In some ways I have achieved a huge amount  . . . but in other ways I have barely scratched the surface of what needs to be done there.

I found myself in quite an odd frame of mind, and thoughts came to me that in future the woodland would be maintained by other people after I am gone, but by then it would be a case of maintaining and looking after it, managing it and making it productive rather than all of the initial sorting out work which I am having to do. It occurred to me that I might be remembered as the person who took it on and sorted it out in the first place. That was quite a striking thought.

I suppose that there are really two notable achievements from the past year: the creation of an edible forest garden and a camping area so that friends and family can come down and help me with the work.

The forest garden is taking shape in the lower part of the wood – as with the rest of the wood, it was overgrown with rhododendron and I’ve had to put in a lot of work cutting those down to make room for new plants and trees. But now there are open areas with navigable paths there, and as well as some coppiced hazel which I discovered buried amongst the rhodies, I have added in a heavy-cropping blackberry, raspberry, blackcurrant, seven apple trees, a sweet berry rowan cultivar, gooseberry, blackthorn and ramsons. All except the ramsons seem to have taken and are doing OK – it will be great to see them grow over the next few years! There is plenty more rhododendron left to clear though to be planted up with more trees and shrubs.

The camping area has 4 level areas for tent pitching, plus there is room for a large tent on the top track but that is technically shared space with my neighbours. I have also made a temporary shelter out of some poles and a tarpaulin, as it often rains at Valley Wood – a good thing with the generally drier prospects which climate change is bringing. And when it rains, it pours! It’s beautiful when it rains, but it’s handy to be able to keep dry whilst it’s going on! There is also space to sit around a camp fire in the evening, and I have made a small pond as a final touch.

A good start I think – having established a base there, I will be able to enlist the help of friends to accelerate the rhododendron clearing. I’m hoping to begin planting up some of the cleared areas in the main woodland with new trees this autumn!

Basket Case

Inspired by a design I saw at a friend’s party last November, I decided to make myself a fire basket from an old washing machine drum and a wheel rim. And here it is!

Local Adventure 7

On Sunday went for a walk up through Redisher Woods up onto Holcombe Moor. The weather was cold and sunny, the landscapes were variously lush woodland and desolate but stunning moorland, and more reminiscent of Scotland than the outskirts of Greater Manchester.

The tower is Peel Tower, erected in honour of Sir Robert Peel who came from Bury and invented the police.

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Making A Rocket Stove

There are loads of good videos on YouTube about how to make your own rocket stove, but this is how I made mine.

I used two catering sized vegetable oil tins and a normal baked bean size tin.

First using a strong pair of scissors I cut the top off the first large tin. Better to use tin snips if you have them but good scissors will do. Start the cut by making a hole in the can with a hammer and a sharp screwdriver.

Then I cut both ends off the second large tin and rolled it up to make a narrow tube. I used garden wire to hold it tight.

Then I took both ends off the small tin using a can opener, and using the screwdriver scratched a circle near the bottom of both the big tin and the narrow tube. The circle is nearer the bottom of the tube than the tin because the tube sits inside the big tin to form the flue.

I cut a circular hole in the big tin and the flue, and put the small tin through both. Then I filled in the outside of the flue with wood ash from my wood stove, to insulate it.

Finally I cut a hole on the middle of the bottom of the second large tin which was left over, and made a lid for the stove. I cut some 1cm notches in the top of the stove so the lid would push down into it a bit, and then hammered down the edges to keep the lid in place.

Finally I sprayed the stove black with woodstove paint. Voila!

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Valley Wood – The Plan

Well, I took on Valley Wood in May, and I confess that when I bought it I didn’t really have any idea of how I was actually going to manage and improve it. But after a few months of hard-working weekends down there, I think I have a basic plan for it, which is turning out to be surprisingly sustainable, both financially and environmentally.

Valley Wood is a mixed woodland of conifers (mainly Noble Fir and Scots Pine) and all manner of deciduous broadleaved trees.

As it is long neglected, there is a fair quantity of dead trees in the wood – some lying on the forest floor, some hung up in other trees, and some still standing. A fair proportion of the standing dead trees are conifers.

The dead trees lying on the forest floor tend to be rotten, but this is good as they provide habitats for all kinds of life. They can happily be left to decay where they are.

Hung up trees and standing dead trees are potentially a hazard as they can fall over or down, and removing them frees up empty space in the woodland where new broadleaved trees can be encouraged. Dead standing trees are fortunately also ready-seasoned firewood with a very low water content, so can be harvested and burned almost immediately after only a short period of air drying. This is a massive benefit in financial terms, especially with the winter not too far away, as it removes the need for a firewood ‘production line’ where normally logs must be seasoned for at least one year before they can be transported and burned. Driving a van full of water-ridden logs which would burn poorly at the end of the journey would make no sense at all – but with this plan, there is a huge quantity of ready-seasoned firewood and harvesting it will open up the woodland to recolonisation by broadleaves.

It costs me about half a tank of diesel to visit the woodland, but I reckon the financial cost is only what I would have spent at home on a normal weekend, going out for a meal and some drinks on a Friday or Saturday. And as my living costs at the wood are negligible, I count it as cost neutral really. Similarly with the cost of the woodland itself – although I’m paying interest on the money borrowed, land tends to appreciate in value so I’m not making a loss on the land.

I reckon I can fit about a cubic metre of firewood in my van, which at home I normally pay about £80 for during the winter months – during summer my solar hot water system provides all of my hot water for bathing and washing up.

So as long as I come back with a van load of logs every time I visit, I’m £80 in profit – or another way of looking at it is that the sun is also heating my home for free in the winter as well as the summer, in the form of stored sunlight (firewood). This means that my only overhead as far as fuel goes is electricity, which I’m estimating at maybe £250 a year at current prices.

Not bad for a Victorian terrace.

The woodland has other harvestable products – ferns which can be sold for gardens, living Christmas trees, and maybe in time mushrooms if I get around to setting up some mushroom logs.

But quite apart from all of this, there is the sheer recreational value of the woodland, and as a destination for Transition camping expeditions and the like. But there is a lot of work to be done first – camping and communal areas to be hacked out of the mountainside, shelters to be built and the like.

A few weeks back, I received the documents from the Land Registry showing the ownership of Valley Wood going back to just after the Second World War. They show a long history of the woodland being bought from local or national government, and then being sold back again some time later.

As it doesn’t seem as though any kind of harvesting or management of the trees has taken place, my thought is that private owners have repeatedly tried to find a way of commercially exploiting the woodland, but have not succeeded due to the difficult terrain. The woodland is on a steeply sloping hillside, which makes mechanised timber extraction difficult and expensive, and extraction by horses and hand is not normally used for commercial operations. So the woodland has remained as it is, wild and neglected.

I am hoping that what Valley Wood actually needs is a different approach to management – a Permaculture approach which will maximise the efficient production of usable resources from the wood, whilst simultaneously meeting regeneration and biodiversity objectives.

The huge quantities of invasive rhododendron on site could potentially provide a firewood source for those staying in the woodland, to avoid the need to use the “good” firewood being extracted for domestic use. This would meet the goal of rhododendron control and a return of the forest ecosystem whilst providing warmth for those staying on-site.

The many apparent problems of the woodland can increasingly be seen as unique features, even beneficial in some respects. Instead of spending thousands of pounds (which I don’t have) on track improvement and tree clearance for artificial campsite creation, my expenditure on tools is as follows:-

Chainsaw (the only mechanised tool in use in Valley Wood)
Billhook (for clearing tracks and trimming trees)
Log tongs (for manipulating large logs)
Folding pruning saw
Mattock
Spade
Log trolley
Forestry winch (for hauling the log trolley up steep inclines, bringing down hung-up trees and moving large rocks)

All of which total I reckon about £500. So at £80 profit per trip in firewood, that’s about 6 trips before the equipment has paid for itself. Pretty good economics, sustainably speaking! Plus of course, this very light touch approach to woodland management is infinitely better in terms of resources used and environmental impact.

Very interesting, the way Valley Wood is developing. And the taste of my first woodland blackberries and raspberries on my last trip was a whole other world of experience in itself! 🙂

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Shocking

Just received my lowest ever electricity bill – £39.76 for the quarter, which is about £3 a week.

I don’t use gas, so those are the total operating emissions for the house. Not bad for an old Victorian terrace! And not bad for my bank account either.

Pretty pleased with that, I think!!

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Valley Wood

Well, like buses, Green Cottage updates sometimes come in threes!

Last but not least this time, a new addition to the Green Cottage “estate” is four acres of mixed woodland in North Wales.

I bought the woodland from woodlands.co.uk, it’s an unmanaged wild woodland which I aim to improve for wildlife (including family and friends ;)) and bring into production of wood fuel and possibly even charcoal and timber.

Achievements so far have been hewing a tent-sized camping area out of the hillside using a grubbing mattock, cutting down a few trees on the upper track to make room for a digger in the autumn, cutting down some rhododendron and making a couple of paths through the upper part of the wood to enable me to get around the wood which at the moment is pretty much impenetrable.

Incredibly hard work, but incredibly good exercise and therapy for the soul. Best thing I’ve ever done!! 🙂

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Log In

We received our first delivery of seasoned logs for the wood stove since February yesterday. We have survived since then on solar power for hot water and some scrounged logs for the odd fire.

These logs are lovely though, cut to just the right size and dried so they burn beautifully!

Acid Test for Hippies

Well, it seems that India, that ‘spiritual’ holiday destination so beloved of hippies, is second from top in the list of countries threatened by climate change:-

http://blogs.nationalgeographic.com/blogs/news/chiefeditor/2010/10/bangladesh-india-at-risk-from-climate-change.html

Bangladesh and India are the two countries most vulnerable to the impacts of climate change over the next 30 years, according tocalculations by the British global risks analysis company Maplecroft.

The same study determined that the countries least at risk from climate change are the Scandinavian nations and Ireland. The U.S. and much of Europe are among the countries facing “medium risk.”

Assessing a number of variables to calculatethe vulnerability of 170 countries to the impacts of climate change,Maplecroft identified Bangladesh and India as the two countries “facing the greatest risks to their populations, ecosystems and business environments.”
Other South Asian countries ranked in the highest category were Nepal, Afghanistan and Pakistan..

The company’s Climate Change Vulnerability Index (CCVI) evaluates 42 social, economic and environmental factors to assess national vulnerabilities across three core areas, Maplecroft said in a news release.

“These include: exposure to climate-related natural disasters and sea-level rise; human sensitivity, in terms of population patterns, development, natural resources, agricultural dependency and conflicts; thirdly, the index assesses future vulnerability by considering the adaptive capacity of a country’s government and infrastructure to combat climate change.”

The index rates 16 countries as “extreme risk,” with the South Asian nations of Bangladesh (1), India (2), Nepal (4), Afghanistan (8) and Pakistan (16) among those with the most exposure to climate change, whilst Sri Lanka (34) is rated “high risk.”

Other countries rated as “extreme risk” include: Madagascar (3), Mozambique (5), Philippines (6), Haiti (7), Zimbabwe (9), Myanmar (10), Ethiopia (11), Cambodia (12), Vietnam (13), Thailand (14) and Malawi (15).

According to Maplecroft, the countries with the most risk are characterised by high levels of poverty, dense populations, exposure to climate-related events; and their reliance on flood and drought prone agricultural land. “Africa also features strongly in this group, with the continent home to 12 out of the 25 countries most at risk,” Maplecroft said.

“Throughout 2010, changes in weather patterns have resulted in a series of devastating natural disasters, especially in South Asia, where heavy floods in Pakistan affected more than 20 million people (over 10 percent of the total population) and killed more than 1,700 people,” maplecroft said in its release.

“Very minor changes to temperature can have major impacts on the human environment, including changes to water availability and crop productivity, the loss of land due to sea level rise and the spread of disease.”

“There is growing evidence climate change is increasing the intensity and frequency of climatic events,” said Anna Moss, Environmental Analyst at Maplecroft. “Very minor changes to temperature can have major impacts on the human environment, including changes to water availability and crop productivity, the loss of land due to sea level rise and the spread of disease.”

Maplecroft rates Bangladesh as the country most at risk “due to extreme levels of poverty and a high dependency on agriculture, whilst its government has the lowest capacity of all countries to adapt to predicted changes in the climate.”

In addition, Maplecroft added,Bangladesh has a high risk of drought and the highest risk of flooding. “This is illustrated during October 2010, when 500,000 people were driven from their homes by flood waters created by storms. However, despite the country’s plethora of problems, the Bangladesh economy grew 88 percent between 2000 and 2008 and is forecast to by the IMF to grow 5.4 percent over 2010 and up to 6.2 percent over the next five years.

India, ranked 2nd, is already one of the world’s power brokers, but climate vulnerability could still adversely affect the country’s appeal as a destination for foreign investment in coming decades, Maplecroft said.

“Vulnerability to climate-related events was seen in the build up to the Commonwealth Games, where heavy rains affected the progress of construction of the stadium and athletes’ village.

“Almost the whole of India has a high or extreme degree of sensitivity to climate change, due to acute population pressure and a consequential strain on natural resources. This is compounded by a high degree of poverty, poor general health and the agricultural dependency of much of the populace.”

‘Low-risk’ countries

There are 11 countries considered “low risk” in the index, with Norway (170), Finland (169), Iceland (168), Ireland (167), Sweden (166) and Denmark (165) performing the best.

“However, Russia (117), USA (129), Germany (131), France (133) and the UK (138) are all rated as ‘medium risk’ countries, whilst China (49), Brazil (81) and Japan (86) feature in the ‘high risk’ category,” Maplecroft said.

Maplecroft researches, indexes and maps over 500 risks and issues to identify exposures and opportunities in both countries and companies, the company said.

It will be interesting to see how these people who apparently care so much about the planet and India manage to square the huge environmental impact of ‘plane travel to India with the fact that the country is right in line for being hit by the climate change juggernaut.

Interesting times indeed.

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