Just Stop Oil protesting in London 6 December 2022.
Donor Dale Vince is abandoning Just Stop Oil and is instead intending to fund a campaign encouraging young people to vote and to vote Labour. He claims
The dividing lines have been drawn: Labour is green, the Tories are not. A vote for anyone other than Labour, or no vote at all, is a vote for another Tory government – this time with a mandate to pursue its anti-green crusade. Preventing that from happening is the only way to “just stop oil”.
I fundamentally disagree with him. I see no evidence that the Labour Party under Keith Starmer is in any way ‘green’. The Red Tories have made huge efforts to be indistinguishable from their Blue brothers and their intention to continue with Rosebank shows that they are in no way green and totally willing to analing Murdoch and the fossil fuel industry in exactly the same way.
9.40pm: A vote for Labour is a vote for the wolves dressed as sheep covert Conservatives and most definitely not a ‘green’ vote. It is so important to use votes to register support for climate action but that is certainly not done by voting Labour. I suggest that Dale Vince is blind to Labour’s obvious and glaring flaws.
The recently-approved Rosebank oil field in the North Sea has been touted as a way to boost the UK economy and its energy security. But even with its windfall tax on energy company profits, the project is a good example of how the UK could miss out on billions in taxes over the life of an oilfield.
Energy companies Equinor and Ithaca expect to invest £8.1 billion in Rosebank from development, during its operation and when they decommission the field once they’ve finished extracting its oil. Of this, 78% will be invested in UK-based businesses, and the project will support 1,600 jobs at the height of construction and around 450 UK-based jobs over its entire lifetime.
The UK charges a headline 75% rate of tax on all UK energy production and so, at first glance, a major project like Rosebank would be expected to generate billions in tax payments for the UK Treasury over the years. But, according to my research, it could instead create billions in tax savings for the companies involved.
Of the 75% tax that energy companies are currently charged, profits from oil and gas extraction in the UK are charged a corporate tax of 30%, supplemented by an extra 10% charge. The other 35% in taxes comes from the UK’s windfall tax.
Such levies are typically used to redistribute profits when a company benefits from external circumstances. For example, energy companies have recently seen profits soar as prices rose due to concerns about satisfying global oil and gas demand during Russia’s invasion of Ukraine.
The UK rolled out an additional 25% windfall tax in 2022 for oil and gas companies in response to this profit spike. On January 1 2023, the government increased it to 35% until at least the spring of 2028. The UK government raised £2.6 billion from the windfall tax alone last year.
When the windfall tax is added to the 30% rate and the 10% extra, that makes for a whopping 75% tax on energy companies. This seems like a lot, but the reliefs and other tax breaks open to companies often help a lot of these charges disappear. When a business invests its profits, it can benefit from first-year capital allowances, subtract costs related to daily operations and gain additional investment allowances that can be saved up to reduce taxes on future profits.
Crunching the numbers
If an oil company makes £10 million, for example, current tax rules would claim £7.5 million from this. But if the company reinvests the earnings in oil and gas extraction, it wouldn’t just zero out its tax, it could also set aside an extra £1.6 million against future gains – or £3.4 million if it invests in decarbonisation.
Project this on to Equinor and Ithaca’s multibillion-pound Rosebank investment and it could generate up to £8.4 billion in tax savings for the companies involved, based on my analysis of levies on energy producers,
A spokesperson for Equinor told The Conversation: “These are numbers we don’t recognise.” Adding that estimates by energy consultancy Wood Mackenzie found Rosebank would bring £26.8 billion to the UK through tax payments and investments, he continued: “Over the years, oil and gas taxation in the UK has changed many times. It is impossible to estimate with any certainty exactly how large tax revenue and value creation this project will generate for the UK.” Ithaca did not respond to a request for comment.
Many players in the UK’s oil and gas sector can take advantage of a range of capital and investment allowances, deductions and taxation reliefs. In fact, before the windfall tax, companies often got back more from the UK government than they paid in taxes.
The windfall tax will expire in 2028 or if energy prices fall below a certain level for six months. And so while it has forced some companies pay tax on some recent bumper profits, it won’t always be around to make even that happen.
UK chancellor Jeremy Hunt increased and extended a UK windfall tax on oil and gas companies last year. Sean Aidan Calderbank/Shutterstock
Shortsighted or strategy?
Compared to nations like Norway that offer more long-standing corporate tax regimes, the UK’s history is riddled with policies that have been swayed by short-term political urgencies. This sidelines long-term vision and provides a very weak signal to companies considering investment in the UK.
A revolving door of UK prime ministers in recent times hasn’t helped and has also seen investors lose some confidence in the country’s economy. A slew of lucrative tax reliefs might seem like the perfect way to counterbalance recent policy oscillations.
Central to the UK’s energy strategy is an intent to ramp up extraction, ostensibly to enhance national energy security. But will this happen with Rosebank?
When asked about this, the Equinor spokesperson said: “Rosebank will strengthen our contributions to UK energy security. The field is estimated to start producing in 2026/2027 and produce for more than 20 years. The gas will go into the UK pipeline system. The oil will be offloaded offshore. It is a light, sweet crude oil that can be used in refineries in the UK. If the UK needs the oil, when the field starts producing, the UK will get it.”
The UK continues to feed the oil and gas industry with reliefs, while renewable energy projects (but not gas-generation) face the electricity generator levy – a 45% charge on power generated above a £75 per megawatt hour (MWh) threshold. As much of the rest of the world moves towards more sustainable energy solutions, the UK should realign its tax priorities with the broader, greener global vision.
Protesters demonstrate against the British government’s approval of the Rosebank oil field’s development. Photograph: Lucy North/PA
Even if the 2050 goal is still met, postponing action – as the UK has done – will cause more heat and damage
Postponing action and taking a slower route to net zero emissions by 2050 will worsen the climate crisis even if the goal is still reached by that date, the new chair of the Intergovernmental Panel on Climate Change (IPCC) has warned.
Prof Jim Skea also said that approving new oil and gas fields only increased the already large amount of reserves that will have to be kept in the ground if global heating limits are to be reached.
The IPCC is the world’s foremost authority on climate change, under which thousands of the world’s best experts give advice to the 195 nations that founded the body. It does not comment on the climate policies of individual nations, but Skea’s comments on Monday clearly indicate that the recent actions of the UK government has slowed climate action, despite IPCC scientists warning of “a rapidly closing window of opportunity to secure a livable and sustainable future for all”.
In a four-line statement announcing the approval of the new Rosebank oil field 80 miles west of Shetland, the UK’s offshore oil and gas regulator showed its mission no longer serves the public good.
The announcement by the North Sea Transition Authority (NSTA), which regulates oil and gas extraction in the waters off the British coast, asserted that net zero considerations had been taken into account – a technical definition that makes it appear long-term oil production is compatible with climate goals. This has outraged and dismayed climate scientists, campaigners, and the many other people concerned about the UK’s faltering climate leadership.
The approval greenlights a process that is expected to produce first oil by 2026, and around 300 million barrels of oil (and a smaller amount of gas) over the next two decades. The project’s developers are Equinor, an oil company owned for the most part by the Norwegian state, and Ithaca Energy, owned by the Delek Group listed on the Tel Aviv stock exchange.
The decision is out of step with demands for rapid action on climate change coming from a range of quarters. This includes shareholder activists demanding corporations accelerate decarbonisation, direct action groups such as Just Stop Oil, and financiers concerned about the risks of “asset stranding” as renewables become cheaper than fossil fuels.
Public protests and legal challenges to the NSTA spotlight the irrationality and recklessness in the government’s expressed support for issuing new licenses. Activists are not alone in making this point.
A welter of scientific studies and reports by international agencies confirm that new fossil fuel extraction is incompatible with keeping global temperature increases well below 2℃.
Rosebank has been a major focus for climate activism in the past couple of years, as science, international policy and campaigners turn their attention to stopping new extraction, rather than solely focusing on reducing emissions. Calls to end new licensing for oil and gas are in line with climate science.
But a climate politics focused on new licensing alone misses the point. The thing is, like other North Sea oil fields yet to be approved, Rosebank was licensed for oil and gas extraction years ago.
The NSTA approval process follows licensing, sometimes after considerable time has passed. And it is this approval process that locks the UK into hydrocarbon production for years to come.
End ‘maximising economic recovery’
The core objective of the NSTA is to maximise the economic recovery of UK petroleum – a principle shorthanded as MER – as set out in the 1998 Petroleum Act. In practice, this means the regulator’s primary mission is to facilitate the extraction of oil and gas.
A revised strategy in 2021 paired MER with an obligation to support the UK’s net zero commitments. And the former Oil and Gas Authority changed its name to include an explicit reference to the “transition” in 2022, underpinned by ambitions for emissions reduction and decarbonisation.
NSTA sees its job as effecting the industry’s alignment with these goals. It is now also in charge of licensing for carbon capture and storage and offshore hydrogen storage.
Rosebank’s approval therefore reveals a deeper truth: the regulator’s guiding objective fails the public good test. Regulation aims to avoid economic, environmental and social harms, and ensure the public good through delivering collective benefits and upholding socially-desirable ideals. The Rosebank decision arguably breaches this principle.
Supporters of Rosebank argue it will contribute to the UK’s energy security and deploy decarbonisation technologies that reduce CO₂ emissions overall. These arguments do not stand scrutiny, however: oil from Rosebank, like around 80% of North Sea oil production, will be sold directly into international markets and will not materially affect the price of petrol or diesel for UK motorists.
Much of the value of that oil will flow into the portfolios of Equinor and Ithaca. That value could be harnessed to speed up transition to renewables or ensure its benefits are widely distributed, but that’s largely down to Equinor and Ithaca – not the UK government.
A decade ago, a decision by NSTA would not have raised much attention. Now it highlights a significant problem in need of reform. Piecemeal adaptation has left MER and other core regulatory principles untouched, which is at odds with the climate emergency.
Existing licensed fields escape the weak scrutiny embodied in instruments such as the climate compatibility checkpoint, a series of tests to be applied in decisions about future licensing rounds. What’s more, as a litmus test for approval, Rosebank indicates other licensed projects may get the go-ahead, like Cambo.
Removing NSTA’s central objective to maximise economic recovery requires nothing less than a rewrite of the Petroleum Act. This would be an opportunity to fundamentally revise what the North Sea is for, and whether or how to exploit its resources in the future. A start would be to consider a reversal of direction – a “minimising” of economic recovery, for example – which redefines the “economic” in terms of what is socially necessary.
Such a move will inevitably entail reviewing licences already in place, and will likely generate challenges from the sector and other powerful incumbents. Rosebank exposes, however, how the new mission of the offshore regulator has to be about securing a new public good. This needs wider social debate, and should ultimately be decided through parliament.
Don’t have time to read about climate change as much as you’d like?
Timing, they say, is everything. Yesterday, the world’s energy watchdog, the International Energy Agency (IEA), published its latest report, the 2023 Net Zero Roadmap.
The IEA categorically stated that the time for no new oil and gas was over. If we are to keep temperatures to 1.5 degrees, then world leaders must not develop new oil, gas, or coal beyond existing fields.
If we want a liveable planet, we must shift from fossil fuels to renewables.
This is not the first time, either, that the IEA has confirmed that no new oil, gas, or coal fields are compatible with limiting global temperature rise to 1.5ºC.
“Keeping alive the goal of limiting global warming to 1.5 °C requires the world to come together quickly. The good news is we know what we need to do – and how to do it,” said IEA Executive Director, Fatih Birol at the launch of the report. The IEA reiterated the way to do it is not to approve new oil and gas fields.
