Source · Select Committees · Environmental Audit Committee
Recommendation 45
45
Acknowledged
Paragraph: 248
The tax system should help, not hinder, the transition to a low-carbon economy.
Conclusion
The tax system should help, not hinder, the transition to a low-carbon economy. The original way in which the Investment Allowance was structured provided a perverse incentive to accelerate investment in high-carbon oil and gas installations at a time when the public policy imperative was to accelerate the transition away from fossil fuels. We welcome the modest change introduced by the Chancellor to limit the 80% Investment Allowance to investment expenditure on upstream decarbonisation, while having significant reservations about the extent of the financial support the Treasury is providing via the Investment Allowance, which Accelerating the transition from fossil fuels and securing energy supplies 89 the Institute for Fiscal Studies has noted ‘means that North Sea investment will be massively subsidised’ and ‘could lead to loss-making investments being rendered commercial’.
Government Response Summary
The government acknowledges that the tax system should support the transition to a low-carbon economy and highlights changes made to the Investment Allowance to target investments that reduce emissions from oil and gas production.
Paragraph Reference:
248
Government Response
Acknowledged
HM Government
Acknowledged
The Government recognises that the tax system should support the transition to a low-carbon economy. That is why, alongside the introduction of the Energy Profits Levy (EPL), the Government also introduced an Investment Allowance to incentivise investment in oil and gas production. In the Autumn Statement 2022, the Chancellor announced a change to the Investment Allowance to limit the 80% Investment Allowance to investment expenditure on upstream decarbonisation. This change will ensure that the Investment Allowance is targeted at investments that will help to reduce emissions from oil and gas production, rather than investments that will increase production.