Budget 2013: Shale Gas Tax Breaks Miss the Point [BLOG]

"Shale gas is part of the future. And we will make it happen." With those words, the Chancellor of the Exchequer announced a series of measures in the Budget designed the boost investment in the fledgling UK shale gas industry.

Coming at a time when the main player, Cuadrilla, has just withdrawn a number of planning applicationsto conduct additional environmental impact assessments, a strong signal of support from the government is a welcome move for the industry.

None of the measures announced by the chancellor will come as a surprise to those who have been following developments in the UK. A favourable new tax regime, new planning guidance and proposals to allow local communities to benefit - all of these were expected and have been welcomed by the industry. However, casual observers have been quick to focus on tax breaks as being the big story here. They are wrong.

It is no secret that exploration for unconventional gas has hit a bump in the road in the last few years. In the past 18 months not a single new well has been sunk in the UK, while thousands of wells have been drilled and developed in the US. A favourable tax regime is very welcome, but the principle impediment to the industry is not taxation. It's planning. Of the Budget measures announced, taxation is probably the least important.

For understandable reasons, local planning authorities are playing the shale game very cautiously. They need to reassure themselves and their constituents that shale gas developments are safe for local people and the environment.

They are also acutely aware that every move in this game is being watched closely by some well-funded groups who are opposed to developing shale gas in principle. The slightest error in considering a planning application will lead to law suits and judicial reviews, and so caution is currently the planning authorities' watchword.

That is why companies who are still trying to answer some of the basic questions about potential UK shale gas resources are struggling to get permission even to sink exploratory wells.

So planning guidance in this area from central government is likely to be more significant for shale gas development in the UK in the short to medium term than tax breaks. It is also linked with the third announcement, namely community benefit.

Ultimately, for the shale gas industry to succeed it requires the consent of local communities. For that to be given it needs to demonstrate high safety and environmental standards, and we need to tackle the issue of community benefit - local communities sharing in the fruits of their local mineral resources.

If the chancellor's announcements can help planning decisions to be made fairly and in a timely manner, and can answer for local communities the question "what's in it for us?", then we may see the UK shale gas industry avoid the rut it is in danger of falling into.

There was a further measure announced in the Budget that is relevant to this debate - the decision to take two major carbon capture and storage (CCS) projects to the next stage of development. Shale gas is a fossil fuel. While it is significantly cleaner than coal, many people are concerned at the potential impact on global carbon emissions if shale gas development continues to rise.

Effective CCS technology for gas-fired power stations will go a long way to easing those fears, and the Government's continued commitment to this technology could lead to a greener future for natural gas.

So while tax breaks are likely to grab the headlines, they are not yet the most significant outcome for shale gas from this budget. Further down the line they could be significant - this year a record £13bn will be invested in the UK offshore oil and gas sector, largely as a result tax incentives in last year's budget.

I am a strong believer in the dynamic impact of lower taxes, and I support the chancellor's announcement on that. But without movement on the planning impasse, there won't be any gas to tax. That's the real story from the Budget.

Dan Byles is a Conservative MP for North Warwickshire and Bedworth and is the chairman of the All-Party Parliamentary Group for Unconventional Oil and Gas. He is also on the Energy and Climate Change Select Committee.