January 13, 2014 / 12:05 AM / 6 years ago

UK offers local councils incentive to accept shale gas drilling

LONDON, Jan 13 (Reuters) - British local councils that allow shale gas developments will keep 100 percent of a levy they collect from the sites under a government move to persuade communities to accept the fracking process used to extract the gas.

The local tax, known as business rates, is levied by councils on commercial properties in England and Wales. Councils use business rates to pay for local services.

Britain’s shale gas industry is still at the stage of exploration, not commercial production, but energy companies see it as one of Europe’s strongest prospects.

The government is pushing for further exploration despite fierce local and environmental opposition to the hydraulic fracturing process.

Prime Minister David Cameron’s office said in a statement on Monday that the full business rates take, up from 50 percent under previous rules, could be worth up to 1.7 million pounds ($2.8 million) a year to councils for a typical site.

Local councils have lost big chunks of the grants they receive from central government since 2010 as the Conservative-Liberal Democrat coalition tries to reduce Britain’s budget deficit. Hence any potential increase in alternative sources of revenue could be an incentive for them.

The Local Government Association (LGA), which represents all but two of the 375 councils in England and Wales, said the announcement on business rates was a step in the right direction but not enough to satisfy communities affected by fracking.

Environmental campaigners say fracking, which involves pumping water and chemicals into the ground, can pollute water supplies and cause earthquakes.

“Local areas will be keen to hear more details on how the community benefits package will be strengthened to fairly renumerate those who will be most affected,” the LGA said in a statement.

“Given the significant tax breaks being proposed to drive forward the development of shale gas and the impact drilling will have on local communities, these areas should not be short-changed by fracking schemes.”

The central government has already announced measures aimed at encouraging companies to invest in British shale gas.

Those include a cut in tax payable on any profits from shale gas - a separate tax from business rates - to 30 percent from 62 percent, confirmed by finance minister George Osborne in December.

Geological studies show Britain has large scale shale reserves that could reverse a rising dependency on energy imports, but more drilling is needed to see whether the deposits are commercially viable.

France’s Total is set to become the first major oil company to invest in the industry in Britain when it commits 30 million pounds to drilling for shale gas in Lincolnishire, central England, sources told Reuters on Saturday.

Shale gas, which has helped transform the U.S. energy market, is gas trapped in dense rock formations.

Three companies are leading the charge to develop Britain’s shale gas resources: Australia’s Dart Energy which is partnered with GDF Suez, London-listed IGas Energy and Cuadrilla, a privately owned business partnered with British utility Centrica.

Britain will launch its latest licensing round to allow companies to explore for shale gas in early summer.

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