Investigating the so-called ‘windfall tax’

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Rishi Sunak offers huge fossil fuel subsidies to develop fossil fuel extraction in UK.
Rishi Sunak offers huge fossil fuel subsidies to develop fossil fuel extraction in UK.

Rishi Sunak awards a huge tax break to further destroy the climate.

It’s called a windfall tax – it’s a further windfall for fossil fuel companies on top of their windfall of higher prices following the invasion of Ukraine.

https://neweconomics.org/2023/11/the-windfall-tax-was-supposed-to-rein-in-fossil-fuel-profits-instead-it-has-saved-corporations-billions#:~:text=The%20levy%20raised%20the%20effective,to%2075%25%20in%20November%202022.

Back in May 2022, the UK government announced the energy profits levy, as a response to the growing pressure for a ​‘windfall tax’ on the massive profits being generated by companies pumping oil and gas in the North Sea. These profits were fuelled by skyrocketing fossil fuel prices in the wake of the Russian invasion of Ukraine. The levy raised the effective rate of corporation tax paid on oil and gas profits from 40% to 65%, and again to 75% in November 2022.

But, it came with a caveat. Despite the UK’s urgent need to kick its addiction to expensive fossil fuels, this government didn’t want to discourage investment in more oil and gas extraction. So they included a tax loophole to ensure that companies investing in new projects to pump fossil fuels out from under the North Sea would see their tax relief (already generous by most standards) rise to 91%. In other words, fossil fuel companies could deduct 91% of their capital investment costs from their corporation tax bill. The ​‘windfall tax’ may have, on the surface, attempted to tackle the grotesque profits being raked in by massive companies in the midst of the cost of living crisis – but it also made it cheaper for these companies to extract the fossil fuels contributing to the sky-high cost of living in the first place.

At NEF, we analysed last week’s new OBR data, and found that the loophole included in the energy profits levy has massively increased the amount of tax relief which fossil fuel companies will potentially receive. We estimate that oil and gas extractors could receive up to £18.1bn in tax relief between 2023 and 2026. That’s a massive increase of £10.5bn, or 136%, from the £7.6bn they were expected to receive before the energy crisis. This is an enormous amount of lost revenue that could go to the government to be spent on lowering our energy bills or improving our public services. The OBR expects the UK oil and gas industry to pay £24.3bn in tax between 2024 and 2027, meaning that closing the tax loophole in the energy profits levy could almost double the amount of tax revenue our government could receive – and the businesses in question would still walk away with billions.

Even if you accept the government’s warped logic, which seeks to encourage greater North Sea extraction, the policy appears to be failing. While total potential for tax relief has risen by £10.5bn, total forecast investment has risen by just £3.4bn. This would represent an abysmal return on a government tax measure. Relief has largely been extended to investments which were expected to occur anyway, suggesting the policy is (intentionally or not) little more than a vehicle for oil and gas companies to keep most of their explosive profit growth, while the windfall tax sustains an illusion of fairness.

The energy profits levy helped pay for the government’s emergency cost of living support measures – in theory. But our energy bills remain extortionate, costing 50% more than they did in early 2022, prior to the Russian invasion of Ukraine. With the poorest households over £200 a week short of the amount they need for an acceptable standard of living, this government has still not provided enough support. Looking forward, removing the perverse tax reliefs extended to the oil and gas industry could free up almost £13bn of tax revenue between 2024 and 2026: enough to give every household in the country three £150 annual payments to help cover their energy costs.

It’s reasonable to compare the so-called windfall tax to Norway’s windfall tax since they are both taxing fossil fuel activities in the North Sea. The Uk’s Labour party has repeatedly said that it intends to impose a “proper windfall tax”. There was further brief mentions of this during the Labour Party’s reformulation and massive restriction of it’s green policies yesterday 8th February 2024 but it remains unclear what is intended.

What’s obviously clear is that Norway’s windfall tax has made and continues to raise huge sums for Norway. There is still a disguised fossil fuel subsidy for exploration and extraction – from what I can see it appears to be 78%. That’s a long way from Sunak’s 91% and since we’re dealing with vast sums of money, 91 – 78 = 13% of vast sums of money is still vast sums of money (as any Chancellor should realise).

https://blogg.pwc.no/skattebloggen-en/the-norwegian-petroleum-tax-system#:~:text=The%20special%20tax%20is%20a,effect%20from%201%20January%202022.

Example:

Investment in an offshore operating asset in Year 1 is 100.

In the ordinary tax base (22%), 100 must be capitalized and depreciated linearly over 6 years. The depreciation in Year 1 is 100 / 6 = 16.7, i.e., a deduction of 16.7. This results in a tax amount in Year 1 of -16.7 * 22% = -3.7

In the special tax base (56%), the entire amount of 100 can be deducted directly. The special tax base will therefore initially be -100. However, we must deduct the tax amount from the ordinary tax base of -3.7 from the -100. The special tax base will thus be -100 – (-3.7) = -96.3. To calculate the special tax amount, we must use the technical special tax rate of 71.8%. The special tax will thus be -96.3 * 71.8% = -69.3.

Hence, total tax on the investment of 100 in the offshore operating asset in Year 1 is 

-3.7 + (-69.3) = -73, i.e., a tax deduction of 73.

In Years 2 – 6, the linear depreciation continues in the ordinary tax base. For each of these years, the tax on the investment of 100 in Year 1 is thus -3.7 in the ordinary tax base. At the same time, this tax is treated as “income” in the calculation of special tax, as the amount must be deducted in the special tax base. The special tax will thus be 3.7 * 71.8 = 2.7 in each of the years. Total tax per year will therefore be -3.7 + 2.7 = -1. 

Looking at the entire period Year 1 – Year 6 as a whole, the total nominal tax for the investment of 100 in Year 1 is the sum of -73 in Year 1 and -1 for each of Years 2 – 6 (5 years), i.e., -73 + (-5) = -78, resulting in a total deduction of 78 over the period.

https://www.globalwitness.org/en/press-releases/despite-windfall-tax-and-record-profits-shell-paid-just-15-million-to-uk-22p-per-brit-last-year/

Despite windfall tax and record profits, Shell paid just £15 million to UK, 22p per Brit last year

By comparison Norway received £6.3 billion from Shell, over a grand per Norwegian

28th March 2023, London – Energy giant Shell paid just £15 million in taxes and fees to the UK last year on their drilling, compared to over £6.3 billion to the Norwegian government over the same period, according to Global Witness analysis of Shell’s latest tax reporting, released today.   

This means Shell paid around just 22p per UK citizen, compared to the £1,171 it paid for every citizen of Norway. This £15 million is much closer to the £9.7 million it awarded its CEO in 2022, than the considerably more it paid to most other countries in which it drills.

The UK ranks 19th out of 25 countries for taxes received by Shell last year, with the likes of the USA, Germany, Qatar and Italy all receiving far more from Shell than the UK. It comes despite the introduction of a UK windfall tax that Rishi Sunak, as Chancellor, described as a “significant set of interventions”.

Rishi Sunak on stopping Rosebank says that any chancellor can stop his huge 91% subsidy to build Rosebank, that Keir Starmer is as bad as him for sucking up to Murdoch and other plutocrats and that we (the plebs) need to get organised to elect MPs that will stop Rosebank.
Rishi Sunak on stopping Rosebank says that any chancellor can stop his huge 91% subsidy to build Rosebank, that Keir Starmer is as bad as him for sucking up to Murdoch and other plutocrats and that we (the plebs) need to get organised to elect MPs that will stop Rosebank. [3rd version of image has same text].
Continue ReadingInvestigating the so-called ‘windfall tax’

What does it mean to be a climate denier?

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In the ‘coming soon’ notice announcing this article I said that “[t]here aren’t any real climate deniers anymore”. I was mistaken and there are a very few people like Jeremy Corbyn’s brother Piers Corbyn. I’ve only met and spoken with him once but I’m satisfied that he’s genuine in his beliefs despite them being misguided. He and others like him have the right to believe whatever they like and he’s harmless enough – while he may persuade a few people the vast majority will understand that he’s mistaken and wrong.

Image of UK Prime Minister Rishi Sunak reads 1% RICHEST 100% CLIMATE DENIER
Image of UK Prime Minister Rishi Sunak reads 1% RICHEST 100% CLIMATE DENIER

So apart from Piers Corbyn and a few similar people, there is no such thing as a climate denier nowadays. The Capitalists profiting from climate destruction have known for 60 years of more that they were profiting from destroying the planet and were forcing future generations to endure intolerable climate conditions, annihilating many thousands of species of plants and animals and generally totally fekking everything.

Governments are controlled, directed, owned by a very few extremely rich and powerful people, the very people that are profiting and maintaining their wealth, power and influence from destroying the planet. According to this perspective we do not exist in a democracy and it is instead a pretence hiding the influence of the rich and powerful. We exist in a plutocracy – we have a wealthy ruling class that politicians serve.

It cannot be accepted that politicians like UK’s Prime Minister Rishi Sunak or our expected next Prime Minister Keir Starmer and the like are mistaken true believers like Piers Corbyn believes. Rather they are climate deniers in the sense of the fossil fuel industries – Exxon, Shell and BP – who know fully well that they are destroying the planet but deceive and mislead to continue making a filthy profit. It’s obvious to see that these politician cnuts serve this rich elite’s interests – Tory and Labour UK governments have answered to media tycoon Rupert Murdoch, sucking up to him, grateful to accept his orders.

Image of InBedWithBigOil by Not Here To Be Liked + Hex Prints from Just Stop Oil's You May Find Yourself... art auction. Featuring Rishi Sunak, Fossil Fuels and Rupert Murdoch.
Image of InBedWithBigOil by Not Here To Be Liked + Hex Prints from Just Stop Oil’s You May Find Yourself… art auction. Featuring Rishi Sunak, Fossil Fuels and Rupert Murdoch.

Sunak, despite being fully aware of the climate crisis is continuing to destroy the planet. Announcing the go-ahead for the Rosebank oil field he said that he intends to get every last drop of North Sea oil.

All the media companies attacking climate activists – GB News, the Mail, Express, etc – represent filthy rich interests profiting from climate destruction.

Continue ReadingWhat does it mean to be a climate denier?

Climate groups taking UK Government to court over Rosebank oil field approval

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https://leftfootforward.org/2023/12/climate-groups-taking-uk-government-to-court-over-rosebank-oil-field-approval/

The UK government is facing two separate legal challenges over its approval of the massive Rosebank oil project in the North Sea.

Both Greenpeace UK and climate group Uplift argue the approval of the oil field breaks the Government’s net zero pledges and fails to acknowledge the project’s environmental harm and emissions impact.

Uplift claims the Energy Secretary failed to prove how the oil field was consistent with the UK’s legally binding net zero emissions target and argues, the government did not provide a good enough assessment of the environmental impact of Rosebank on marine life.

In Greenpeace UK’s application, it argues the Environmental Impact Assessment used to approve the oil field did not consider downstream emissions, and is therefore invalid. The campaign group also argues that there is no evidence Scottish Ministers were consulted on the impacts of Rosebank, which it claims breaches Conservation of Offshore Marine Habitats and Species Regulations.

Greenpeace also argue oil contamination could affect whales and wild birds, while the drilling and cable laying under the sea could destroy habitats for species that live on the seabed.

Rishi Sunak gave the go-ahead for the controversial undeveloped oil field in September, set to be the UK’s largest untapped oil field containing an estimated 500 million barrels of oil. With Norwegian owner Equinor set to receive £3 billion in tax breaks.

https://leftfootforward.org/2023/12/climate-groups-taking-uk-government-to-court-over-rosebank-oil-field-approval/

Image of UK Prime Minister Rishi Sunak reads 1% RICHEST 100% CLIMATE DENIER
Image of UK Prime Minister Rishi Sunak reads 1% RICHEST 100% CLIMATE DENIER
Continue ReadingClimate groups taking UK Government to court over Rosebank oil field approval

Warning: the UK government’s hydrogen plan isn’t green at all, it’s another oil industry swindle

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Kevin Anderson and Simon Oldridge

Membrane type LNG tanker Puteri Firus Satu in Tokyo Bay. Author Tennen-Gas shares under GNU Free Documentation License.
Membrane type LNG tanker Puteri Firus Satu in Tokyo Bay. Author Tennen-Gas shares under GNU Free Documentation License.

https://www.theguardian.com/commentisfree/2023/dec/04/uk-government-hydrogen-plan-oil-industry-taxpayer-blue-hydrogen-climate-crisis

A taxpayer-funded drive for ‘blue’ hydrogen is good news for fossil-fuel lobbyists, but bad news for the climate crisisMon 4 Dec 2023 12.25 CET

With the impacts of the climate crisis so apparent for all to see, it is becoming ever harder for governments to fob off voters with promises of action tomorrow. At Cop28 we’ll see increasingly overt action by fossil fuel companies and petrostates to preserve their traditional power. But it is just as important to scrutinise emerging so-called green or low-emission solutions, which sound plausible, but are often simply big oil’s business-as-usual in a new guise.

The UK’s much touted low carbon hydrogen standard (LCHS) is an example of this. While hydrogen can be a low-emission fuel, the UK’s plan is quite clearly a fig leaf for “blue” hydrogen – which is made from fossil fuels – and according to one study, is even more at odds with our commitment to limiting global temperature rises to 1.5C than burning coal.

Today, the vast majority of the UK’s hydrogen production is made from natural gas (the marketing term for methane) in a very carbon-intensive process. Blue hydrogen would also be produced from methane, but with promises that the resulting CO2 emissions would be captured and buried underground. But even if most of the CO2 can be safely captured (a very big “if”), blue hydrogen’s full life-cycle emissions are likely still to be high.

That is in part as a consequence of methane leaks across the vast North Sea supply chain. Methane is a very powerful warming gas, so even with relatively low leakage rates, blue hydrogen will be bad news for the climate. Currently, 84% of the UK’s misleadingly named “low carbon” hydrogen capacity under development is of this blue variety.

Companies will be awarded substantial taxpayer funding for blue hydrogen plants that are certified compliant with the new LCHS – and here, the hallmarks of lobbying are only too apparent. The LCHS method for calculating life-cycle greenhouse gas emissions appears rigged to greenwash blue hydrogen.

https://www.theguardian.com/commentisfree/2023/dec/04/uk-government-hydrogen-plan-oil-industry-taxpayer-blue-hydrogen-climate-crisis

Protest placard reads Greenwash detected
Protest placard reads Greenwash detected
Continue ReadingWarning: the UK government’s hydrogen plan isn’t green at all, it’s another oil industry swindle