Remove fossil fuel subsidies
Remove tax breaks and other subsidies from the fossil fuel industry, including those for decommissioning, and spend this money on activities to support climate justice.
The offshore oil industry pays little tax because they receive very large tax breaks, including to fund the decommissioning of rigs and pipelines, and for further exploration. The UK’s domestic fossil fuel subsidies are estimated at £13.6 billion a year, most of this as tax reductions.112 The same analysis ranked the UK 11th out of 11 OECD countries for transparency on fossil fuel funding. The result is that the UK has one of the lowest effective tax rates on offshore oil and gas profits in the world, with the Treasury receiving less than $2 a barrel in 2019 compared to the nearly $22 for every barrel in Norway.113 This subsidy massively undermines the UK’s stated goals on climate change.
The Observer found that Shell and BP paid no corporation tax or production levies on North Sea oil operations between 2018 and 2020, while claiming tax reliefs of nearly £400m.114
The UK Government has introduced a temporary Energy Profits Levy, but this also gives an 80% exemption for companies that invest in further oil and gas production, thus creating another tax break which incentivises creating extra climate change emissions.115
The cost of decommissioning the oil industry structures in UK waters is officially estimated to be nearly £50bn.116 Unlike for almost any other industry, the UK Government is committed to paying a large fraction of this cost from the public purse – currently estimated at over £18bn117 – by giving up to 70% tax breaks to the industry for decommissioning work. Of course, for any company that goes bust, the taxpayer will pay the whole bill.
Removing subsidies for the oil and gas industry would free up tens of billions to use elsewhere. Safeguards would be needed to ensure the loss of subsidies was not simply recouped from higher prices. These changes would no doubt be phased in over time and would need to be firmly linked to the Just Transition for workers and communities dependent on the industry.
For further information:
- Financing Climate Justice, SCCS, 2022, https://www.stopclimatechaos.scot/wp-content/ uploads/2022/09/FinancingClimateJustice_Report_ONLINE.pdf
- Sea Change: Climate Emergency, Jobs and Managing the Phase-Out of UK Oil and Gas Extraction, Friends of the Earth Scotland, Oil Change International and Platform, 2019, https:// foe.scot/resource/sea-change-climate-report/
2017-19 average from G20 Scorecard of Fossil Fuel Funding – UK Summary, IISD, 2020, https://www.iisd.org/system/files/2020-11/g20- scorecard-united-kingdom.pdf
Only 6 months left till COP26. What must the UK do to make it a success?, Oil Change International, 11 May 2021, https://priceofoil. org/2021/05/11/uk-needs-to-act-on-oil-and-gas/
Shell and BP paid zero tax on North Sea gas and oil for three years, the Observer, 2021, https://www.theguardian.com/business/2021/ oct/30/shell-and-bp-paid-zero-tax-on-north-sea-gas-and-oil-for-three-years
Sunak’s windfall tax is a ‘sticking plaster’, say climate campaigners, Guardian, 26 May 2022, https://www.theguardian.com/business/2022/may/26/rishi-sunak-windfall-tax-sticking-plaster-climate-groups
Decommissioning cost estimate, North Sea Transition Authority, 2021, https://www.nstauthority.co.uk/decommissioning/cost-estimate/
Estimates of the Remaining Exchequer Cost of Decommissioning UK Upstream Oil and Gas Infrastructure, North Sea Transition Authority, 2021, https://www.nstauthority.co.uk/media/7695/exchequer_cost_decommissioning_july_2021.pdf