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PEPANZ has it wrong

The Petroleum Exploration and Production Association of New Zealand (PEPANZ) claims there are no ‘direct’ or ‘major’ subsidies to the oil and gas industry, but the Productivity Commission’s report confirms they do exist.

The only quibble seems to be about how much the New Zealand tax payer supports the industry. The Productivity Commission notes (p 153) that in 2016/17 the motor excise tax refund – mostly to the agriculture, construction and fishing industries – totalled $58.7m which recognises the off-road nature of their operations but effectively functions as a consumption support to these sectors.

The Productivity Commission unfortunately accepts massaged figures from MBIE that less than $4m in additional support measures was provided in the form of favourable tax depreciation rules for petroleum mining and funding for ‘public-good’, petroleum-related R&D.

Research by the Fossil Fuels Aotearoa Research Network (FFARN) suggests that in 2016/17 the industry received over $36m in production support in the form of total value of drilling rig and seismic ship tax exemptions, tax deductions for petroleum mining expenditures, acquisition of geoscientific data, R&D grants, support for the Petroleum NZ annual conference and Petroleum Club, and international promotion and conference attendance.

Tax payer funded geoscience surveying and R&D (which PEPANZ and MBIE justify as a ‘public good’ that increases our knowledge of fault lines and natural hazards) is primarily provided free to the industry as a necessary inducement to encourage oil companies to explore and drill in New Zealand’s ‘frontier’ waters.

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