About fracking and Sovereign Wealth Fund

According to the Daily Mail, British Government is preparing an own “Sovereign Wealth Fund” to manage the revenues from the controversial fracking activities, or hydraulic fracturing, in the Northern England.

This proposal was already made by the Scottish First Minister Alex Salmond, giving a lecture at the London School of Economics on 15 February 2012 (“if Scotland becomes independent following a public referendum, it would use some of the tax revenues generated by its oil and gas industries to create a sovereign wealth fund for future generations“).

Recently, the Chancellor of the Exchequer George Osborne, in his recent Autumn Statement, has confirmed these plans. He said the new fund would use tax receipts from the exploitation of shale gas reserves in the North of England to invest in economic development projects in the region.

Between London and Edinburgh tensions continue yet. Last 3rd December, in fact, the Scottish Government renewed calls for a sovereign wealth fund to be set up for North Sea oil and gas. Scottish Energy minister Fergus Ewing branded Mr. Osborne’s decision “utter hypocrisy” after calls for a similar scheme for Scotland has been repeatedly rejected by Westminster governments.

According to scientists, UK is potentially sitting on shale deposits filled with enough gas to supply the whole country for at least 40 years, a discovery that could see a repeat of the North Sea oil boom. Estimates suggest 1,300 trillion cubic metres of shale gas reserves lie beneath the ground in the North of England. Blackpool can become the hub for expertise in onshore oil and gas. Other possible sites for the extraction of shale gas have been identified across the north of England, from Morecambe Bay and Cheshire across to North Lincolnshire and Humberside. The Weald Basin and the central belt of Scotland also harbour potentially valuable deposits.

British Government believes fracking could herald an “energy revolution” that will boost the home economy, make Britain more self-sufficient and bring down the high bills from energy firms. British Business and Energy Minister Matthew Hancock said it was estimated that at least £3.5 billion a year in net benefits could flow from shale extraction. For this reason, the HM Treasury has offered generous tax breaks to kick-start the technology.

Gillian Tett has commented the British decision as “more like a vote-grabbing gimmick than a concrete plan“. The reference is to the elections of May 2015 when Westminster composition will be renewed, and when Salmond would run for a seat in order to help ensure Scotland gets the extra powers it was promised.

Every UK SWFs-related project, then, starts quite constrained and complex. This explains a generalized skepticism around its constitution.

DISCLAIMER: Any views or opinions presented here are solely those of the author and do not represent any official position of the Italian Ministry of Foreign Affairs and International Cooperation.