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Briefing date 27.05.2022
Sunak U-turns on ‘energy profits levy’ in £15bn cost of living package

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UK: Sunak U-turns on ‘energy profits levy’ in £15bn cost of living package
The Guardian Read Article

UK chancellor Rishi Sunak has “bowed to months of pressure” over the cost of living crisis and announced a £15bn package of support, which – says the Guardian – will be “part-funded by executing a remarkable U-turn to impose a windfall tax on energy companies”. Announcing the measures yesterday, Sunak said his “significant set of interventions” would help the poorest in society – with a one-off £650 payment for 8 million families on means-tested benefits, alongside an extra £200 for all energy bill payers that will not have to be repaid, the paper explains. It continues: “After months of rejecting Labour calls for a windfall tax on energy giants, Sunak announced what he called a ‘temporary targeted energy profits levy’, which is expected to raise £5bn…He insisted the energy levy – which he refused to call a windfall tax – was designed not to deter investment, with a 90% tax relief for firms that invest in oil and gas extraction.” The levy, which will come into effect immediately, “is not just a one-off as it will only be phased out ‘if oil and gas prices return to historically more levels’ and could be in place to the end of December 2025 – when a ‘sunset clause’ will end the tax, reports Sky News. Reuters notes that it is the “second emergency policy intervention to help with rising bills this year”, while the Financial Times unpacks how the different support measures will work. The story makes almost all the frontpages of UK newspapers.

North Sea oil and gas operators – including BP – have “hit back” at the announced levy, warning it was a “multiyear” assault on their profits that would “drive away investors” and cut production, reports the Financial Times. The levy will increase the rate paid by North Sea producers from 40% to 65%, the paper notes. BP said that, “naturally, we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans”. One senior government figure said Bernard Looney, BP chief executive, was partly to blame for the move, after he said this month that a windfall levy would not affect his company’s investment plans, the paper says. In a separate article, the FT reports that “oil and gas operators reacted with dismay”, but also notes: “In a bid to offset industry concerns, Sunak announced that North Sea operators planning big investments in new hydrocarbons projects would benefit from a new investment allowance built into the levy, which would mean companies receiving an overall 91p tax saving for every pound they invest”. The paper adds that “officials hope the allowance will ensure companies continue to plough ahead with new projects to bolster the country’s domestic energy supplies”. Bloomberg describes this as “a big incentive to drill more”. Shell said the tax relief was “a critical principle in the new levy”, but also cautioned that “a stable environment for long term investment” was fundamental to its plan to invest as much as £25bn into the UK’s energy system in the next decade, reports a separate Bloomberg article.

While electricity generators escaped the levy, Sunak also said that a windfall tax on power producers making “extraordinary profits” is still an option, Bloomberg reports. It continues: “Electricity companies such as SSE Plc have reported booming profits, in part because soaring gas prices have driven up what they charge for power sales. The government has been consulting the industry on potential market reforms that will affect pricing, and plans to set out options in the coming months.” The Times says that Sunak “is preparing to impose a windfall tax on electricity firms within weeks”. A government source tells the paper: “It’s called the energy profits levy for a reason…It’s a broad tax, we want to move sooner rather than later.” The tax on electricity generators would raise in the region of “the low digit billions”, the source added.

Elsewhere, there was a mixed reaction to the announcement, with charities describing the measures as a “life raft” that will provide struggling families with “much-needed breathing space”, reports the Press Association. However, climate campaigners said the levy is only a “sticking plaster” to provide temporary relief on energy bills that does nothing to improve the UK’s leaky homes, and encourages oil and gas companies into more production, reports the Guardian. (The Guardian’s live-blog highlights a tweet by Carbon Brief’s Dr Simon Evans on this point.) The Evening Standard reports that “fuel poverty and green campaigners and politicians called on the government to invest in home insulation, efficient electric heat pumps and renewables to cut the reliance on fossil fuels whose costs have soared”. The Institute of Fiscal Studies has warned that “if oil and gas prices remain high then the government will doubtless come under pressure to continue the additional household support for at least a further year”, reports BBC News. Finally, the Independent reports that Labour shadow chancellor Rachel Reeves has accused Sunak of “dither and delay” that had cost consumers £53m for every day he refused to act, and the Times notes that owners of more than one home will receive the government support multiple times.

US: Supreme Court allows Biden climate regulations while fight continues
The Washington Post Read Article

The Supreme Court yesterday allowed the Biden administration to use – for now – a higher estimate for the societal cost of rising greenhouse gases when federal agencies draft regulations, the Washington Post reports. Issuing a one-sentence order without comment or noted dissent, the court “turned aside a request from Louisiana and other Republican-led states to prevent federal agencies from using the administration’s estimate of the harm climate change causes, known as the ‘social cost of carbon’ (SCC)”, the paper explains. It adds: “The federal government uses the estimate in all sorts of rulemaking, including new drilling permits and assessing the costs for crop losses and flood risks.” Estimates of the SCC have been “something of a political football”, the paper notes: “After the Trump administration lowered the cost estimate from that set in the Obama administration, President Biden’s administration increased it. Republican-led states went to court.” The paper details how different rulings have led to the issue reaching the Supreme Court, noting that yesterday’s order “means the Biden administration can continue to consider the economic cost of climate change as it writes new rules and strengthens existing ones”. Politico says that the current SCC “is $51 for each ton of greenhouse gases spewed into the atmosphere, but experts believe it should be raised to as much as four times that amount”. The Associated PressNew York Times and Reuters all have the story.

Europe plans for risk that Russia cuts gas supply this year
Financial Times Read Article

EU’s energy commissioner Kadri Simson has said that Europe is developing contingency plans in case of a complete breakdown in Russian gas imports, with any country was at risk of being cut off by Moscow, reports the Financial Times. In an interview with the paper, Simson said the EU was racing to store as much gas as possible and could replace most of Russia’s deliveries this year but would have to do more if there were any “full disruption” of supplies. The article continues: “The plans being drawn up by the European Commission would include measures to ration gas supplies to industry, according to people familiar with the proposals, while sparing households.” Simson said: “We are facing a situation that any member state might be the next one [to be cut off]…So far we have been able to take care of the security of supply concerns of these three member states, mainly with the help of the solidarity of neighbours. This year if there will be full disruption, we are preparing contingency plans.“ At the same time, Reuters reports that “global liquefied natural gas (LNG) buyers and sellers are bracing for more uncertainty over Russian supplies and an unclear demand outlook from Europe and top importer China in the run-up to the peak winter season”. And Bloomberg reports on how “nuclear failures” in France by electric utility firm EDF are “sending ripples through European energy markets, threatening to undermine the continent’s plan to turn its back on Russian gas”.

In related news, Reuters reports that Germany’s economy minister Robert Habeck has said that the European Union can still strike a deal on a Russian oil embargo in the coming days or look to “other instruments” if no agreement is reached. Speaking at the G7 talks in Berlin yesterday, Habeck said all EU countries had to reduce their oil dependency – including Hungary, who have been vetoing a proposed embargo. Habeck said: “If you take that as the basis of discussion, then an agreement should be possible. If you include other topics into the question of an oil embargo it will be very, very difficult…I know that intensive discussions are ongoing. In five days we have the next EU Council, I assume that that is the corridor in which either an agreement is reached or one will have to consider other instruments.” Politico looks some of the options for how to get Hungarian prime minister Viktor Orbán to agree to the embargo.

Elsewhere, Climate Home News reports on how “Russian climate action and research is collateral damage in Putin’s war on Ukraine”.

G7: Struggle for environmental protection and energy efficiency
Frankfurter Allgemeine Zeitung Read Article

Germany’s Frankfurter Allgemeine Zeitung reports about key issues at the G7 ministerial meeting in Berlin, hosted by Germany as G7 president. The issues include “the expansion of renewable energies and energy efficiency” and “ensur[ing] broad biodiversity”. It adds that German economy minister Robert Habeck warned yesterday that the G7 must “stay together on course” and resolutely promote the global expansion of renewable energies, the decarbonisation of the consumption sectors and the increase in energy efficiency. An article quotes minister of the environment Steffi Lemke saying: “The most important signal that should go out from the G7 meeting is that we are tackling the global crises together.“ The outlet also notes that “the global south is demanding that rich countries increase their funding for international nature and species conservation by $700bn a year by 2030”. The German government has also promised in the coalition agreement that it would “considerably increase” its financial commitment to global biodiversity protection, the outlet adds.

Meanwhile, Deutsche Welle reports that “the climate talks in Berlin are focusing not only on the war in Ukraine and Russian energy, but also how the G7 nations can take a lead on the phasing out of coal”. It adds that Habeck told officials at the G7 talks that there was still an opportunity to phase out coal and fossil fuels and accelerate the transition to green energy. A draft communique sees the G7 ministers commit to a phaseout of coal by 2030, Reuters reports. The meeting of the G7 energy, climate and environment ministers is scheduled for Friday. German foreign minister Annalena Baerbock, who is responsible for international climate protection in the federal government, is also expected, reports Tagesschau. It adds that, according to Habeck, “if the initiative to phase out coal is successful, the result would be presented to the heads of state and government at the summit and then discussed in the larger group of the G20”. Associated Press and BusinessGreen also cover the latest G7 news on coal and energy security.

In more Germany news, Associated Press reports that German chancellor Olaf Scholz “expressed hopes” in a speech on the final day at the World Economic Forum in Davos for global cooperation on climate change, hunger and war. However, at the same time, Tagesschau reports on a call from Scholz to the Colombian president that is said to have led to a “controversial coal mine being expanded”. The media outlet notes that “German interest in Colombian hard coal has thus fuelled the already existing conflict over the “El Cerrejón” opencast mine”. It quotes a green member of the Bundestag, Kathrin Henneberger: “Human rights are being massively violated in the hard coal mining areas in northern Colombia and the local environment is massively damaged…Importing blood coal from this region is wrong.”

Finally, Reuters reports that European Commission’s decision to let farmers temporarily grow crops on land that is set aside to boost biodiversity, a step welcomed by farmers’ lobbies, was declined by Germany’s Greens-led agricultural ministry which decided to allow the land to be used only for livestock fodder, which is “less detrimental to local flora and fauna” as it does not require fertiliser. “The ecological damage of opening up these areas does not outweigh the economic benefit and the harvest,” said Silvia Bender, the state secretary at the Greens-led agriculture ministry, the outlet adds.

China’s slumping economy to cut coal use even as output swells
Bloomberg Read Article

China’s demand for thermal coal is “likely to keep falling through the rest of the first half” of 2022 as Covid-19 control policies “continue to mire the economy in a deep slump”, Bloomberg says. The outlet cites the China Coal Transportation and Distribution Association – a government-supervised non-profit organisation – which said on Wednesday that “consumption of China’s mainstay fuel is expected to decrease moderately over May and June after slumping steeply in April”. Separately, the National Development and Reform Commission (NDRC) – China’s top economic planner – said in a notice on Tuesday that “pricing-gouging” behaviours by coal industry operators would be “penalised according to law”,  China Energy News reports. The state-run industry newspaper says that the authority also called on “all aspects of society” to report suspected price-gouging behaviours for coal.

Meanwhile, the South China Morning Post says that “a sense of urgency appears to be lacking in China’s low-carbon push”, according to the European Union Chamber of Commerce in China. In a new report, the association is “calling for policy predictability and a detailed road map” to “counter Covid-related disturbances while striking a balance with China’s need to ensure energy security”, the outlet notes. The report noted that the “lack of an action plan” for reducing China’s “dependency” on fossil fuels would “delay its green transition and ultimately hurt its competitiveness”, it writes. A separate article by the outlet says that the US is “on the verge” of forming a climate change working group with China, citing Yang Fuqiang – a researcher with Peking University’s Institute of Energy – as the source. The article says that Washington “could offer its know-how on improving energy efficiency and capturing methane leakage during oil and gas production” to Beijing, but “some technical issues needed to be resolved”, according to Yang. Additionally, Bloomberg reports that the “shortage of lithium” in China has affected “about 80%” of the world’s lithium-ion batteries. It adds that “if battery makers can’t get enough lithium, it would curb the expansion of clean-energy vehicles, making it harder to meet global emissions targets”. [Lithium-ion is a key active material in the rechargeable batteries that run electric cars.]

Elsewhere, China’s Ministry of Ecology and Environment (MEE) released a “communiqué”, which said that the “main” targets of national ecological and environmental quality in 2021 have been “successfully completed” and the ecological and environmental quality has “improved significantly”, reports People’s Daily. The state-run newspaper notes that the reduction rate of the country’s CO2 emissions per unit of GDP, also known as CO2 intensity, is on track to meet the target set out by the 14th five-year plan, according to Jiang Huohua, a deputy director-general at the MEE. Finally, Cailian Press – a Shanghai-based financial newswire  – writes that, according to China’s Ministry of Finance, the World Bank has “approved” nearly $27m for a project called “China’s green and carbon neutral cities”. The project aims to “incorporate” biodiversity conservation into the process of the development of participating cities and establish a “carbon-neutral pathway”, the newswire says. Xinhua has the story, too.

UK power system has longest coal-free run since mid-2020
Bloomberg Read Article

The UK hasn’t used coal in its power system for about three weeks, which – according to Bloomberg – is “the longest run since mid-2020 when pandemic restrictions sapped demand for electricity”. It adds: “Coal has slowly faded from Britain’s power grid ahead of a complete phaseout set for 2024, but the polluting fuel has become more important in recent months after natural gas prices surged to record levels. Britain last used coal-fed power on 5 May, according to data from National Grid Plc. In May 2021, coal accounted for just 1% of the country’s electricity, down from 21% five years earlier.”

Security warnings at UK nuclear facilities hit 12-year high as inspections fall
The Guardian Read Article

The number of formal reports documenting security issues at the UK’s civil nuclear facilities has “hit its highest level in at least 12 years amid a decline in inspections”, the Guardian reports. It continues: “A total of 456 incident notification forms documenting security issues at UK nuclear facilities were submitted to the Office for Nuclear Regulation (ONR) over 2021, according to information obtained by the Guardian and the investigative journalism organisation Point Source. This is 30% higher than the 320 reports filed during the whole of 2020 and more than double the 213 reports that were filed in 2018.” These reported incidents include “physical security issues, such as unauthorised people gaining unsupervised access to secure areas, as well as cybersecurity issues such as attacks by malicious software”, the paper says, adding: “Experts said the news raised concerns about the regulator’s capacity to cope with planned expansion in the sector.”

Meanwhile, New Scientist looks at whether “we need nuclear power in the energy mix to stop climate change”.


The Guardian view on energy windfall taxes: cynical, but welcome
Editorial, The Guardian Read Article

Chancellor Rishi Sunak’s newly announced “energy profits levy” is “unmistakably a windfall tax”, says a Guardian editorial, which describes the move as “better late than never”. However, the measures are “a rush job”, the paper says: “They do not add up as convincingly as they should. Taxes on the electricity industry have been left vague. The amount raised by the windfall tax on gas and oil will not cover all the welfare support measures, especially the new £400 grant to all households – now larger than before and not to be repaid by consumers as originally intended. Borrowing will rise, suggesting more pre-election spending cuts elsewhere, under Treasury rules, if Mr Sunak wants to cut income tax.”

Elsewhere, Financial Times business editor Helen Thomas writes that “there may be decent ways to gather taxes on genuine windfall gains, but this isn’t it”. She adds: “The problem with windfall taxes has always been how you convince people this is a one-off (and it hasn’t been in oil and gas at least) that is targeted on a very particular set of gains. It’s hard to maintain that pretence, given the government’s talk about hitting electricity generators, another sector where huge investment is needed in the energy transition.” An analysis piece by the Guardian‘s political editor Heather Stewart writes that Sunak’s u-turn on a windfall tax flags up his “lack of long-term plan”. An Independent editorial says the measures mark “a point where the government abandoned all pretence of following Thatcherite fiscal principles, let alone austerity, and became wholeheartedly populist, or at least ‘one nation’”. And an editorial in the Scotsman says the government support is “welcome”, but “the people who need the money the most should have been targeted more precisely”.

The EU’s plan to sell extra carbon permits is bad for the planet
Editorial, The Economist Read Article

An editorial in the Economist criticises part of the EU plan, published last week, to end reliance on Russian fossil fuel imports. The plan was to be part-funded by the sale of additional carbon permits from the EU emissions trading system (EUETS), a proposal the editorial calls “a big blunder”. It continues: “The aim is to raise more cash for a Covid-pummelled Brussels. The result will be to undermine Europe’s green credentials.” The piece notes that the price of permits has fallen “by around a tenth since the sales were announced” and argues: “lowering prices now will only delay the inevitable pain of decarbonisation, which in turn could raise its long-term costs”. It concludes: “A carbon market…gives businesses, traders and others an incentive to find the most cost-effective way to cut emissions. But if everyone has to guess when and how Brussels will change the rules, the market will fail to fulfil its purpose – and the EU will give up its leading role in saving the planet.”

A tariff on Russian oil could pave the way to an embargo
Editorial, Financial Times Read Article

While a ban on imports of Russian oil “should remain the priority”, says a Financial Times editorial, an interim measure designed to stem Moscow’s profits from energy sales more quickly – a punitive EU tariff on Russian oil, proposed by the US and others – is worth looking at too”. The paper continues: “An embargo choking off the 3.4mn barrels a day of oil and oil products that Russia exports to the EU would be a stunning blow to its revenues. But an EU embargo is vigorously opposed by landlocked Hungary, which says it is less able than coastal states to source alternative oil, and its refineries are set up to process Russian crude so require costly conversion. Bringing Budapest round is likely to need financial support and a phase-in period for an embargo.” A phased-in ban would allow time for negotiations with other potential suppliers, the paper says, “and would be a sword of Damocles for Russia’s flagship industry”. It adds: “Limited domestic oil storage means Moscow would soon have to start shutting down fields, which would degrade and might never be viable to reopen. Some other oil exporters are betting that Russian oil displaced from EU markets would rapidly find its way to buyers such as China and India. Yet that would mean moving huge quantities of oil by ship, and there are serious capacity constraints.”


Stranded fossil-fuel assets translate to major losses for investors in advanced economies
Nature Climate Change Read Article

Financial losses from stranded fossil-fuel assets will likely fall mostly on “private investors” that are “overwhelmingly in OECD countries”, particularly through pension funds, a new study warns. The researchers trace the equity risk ownership from 43,439 oil and gas production assets through a global equity network of 1.8m companies to their ultimate owners. As “ongoing supporters of the fossil-fuel economy and potentially exposed owners of stranded assets”, stakeholders in rich countries have a “major stake in how the transition in oil and gas production is managed”, the paper concludes.

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