The UK government has unveiled proposals that could ease the tax burden on the offshore oil and gas sector but confirmed that it would also ban new drilling licences as part of a pledge to “unleash the North Sea’s clean energy future”.
The “windfall” tax on North Sea drillers, introduced in 2022 to help support households facing rising energy bills after Russia’s invasion of Ukraine, would be scrapped from 2030, the Treasury confirmed on Wednesday.
In its place, ministers will consult on a new regime, under which duties move in tandem with global wholesale energy prices, something the industry said would provide its investors with “certainty”.
Alongside the tax plans, the government announced an eight-week consultation on how to manage the North Sea’s transition from oil and gas to cleaner forms of energy, without triggering mass job losses.
The proposals, part of plans for the UK to reach net zero carbon emissions by 2050, follow through on Labour’s manifesto commitment not to permit any new drilling licences. This would make the UK the first major G7 oil producer to take such a step. However, the Guardian understands that oil companies could be allowed to increase the size of their fields with “bolt-ons” to existing licences.
Ed Miliband, the energy secretary, said the consultation would avert job losses in the North Sea oil industry during the transition to hydrogen, renewable energy and technologies such as carbon capture and storage.
“The North Sea will be at the heart of Britain’s energy future,” Miliband said. “For decades, its workers, businesses and communities have helped power our country and our world.
“Oil and gas production will continue to play an important role and, as the world embraces the drive to clean energy, the North Sea can power our plan for change and clean energy future in the decades ahead.”
The GMB and Unite trade unions have previously joined the Conservatives in opposing an end to new drilling licences, warning about the potential impact on jobs and energy security.
Gary Smith, general secretary of the GMB, said: “In the new geopolitical reality – it’s madness. If the North Sea is being prematurely closed down and we are increasing import dependence – that’s bad for jobs, economic growth and national security.”
Unite has previously warned of a repeat of the devastation visited on coalmining communities if no plan is put in place to protect workers. On Wednesday, it called for more concrete information on the government’s plans.
“Until that happens, we need to resist any calls that amount to offshoring our carbon responsibilities for the sake of virtue signalling,” said the union’s general secretary, Sharon Graham. “We must not let go of one rope before we have hold of another.”
But the oil industry issued a cautious welcome to the government’s blueprint for reforming taxation.
North Sea drillers currently pay a 40% tax on their profits, as well as the 38% energy profits levy brought in by the previous government in response to energy companies recording bumper profits as oil and gas prices surged in response to war in Ukraine.
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Under proposals that would come in from 2030, tax rates would be more closely linked to changing wholesale prices. That mechanism would mean the tax rate could be lower than it is today in times of global stability or lower demand.
The trade body Offshore Energies UK (OEUK) welcomed plans it said would protect jobs and allay investors’ concerns about a volatile tax regime.
David Whitehouse, the chief executive of OEUK, said a sliding-scale tax regime would “help to begin to give certainty to investors and create a stable investment environment for years to come”.
Greenpeace welcomed the “reaffirmation of the government’s world-leading commitment to end our reliance on North Sea oil and gas”.
Tessa Khan, executive director of climate action group Uplift, said: “As the first G7 country to stop new oil and gas licensing, the UK is showing crucial leadership when the oil and gas industry is trying to drag us in the opposite direction.
“We know that burning fossil fuels is driving extreme weather and the world already has more reserves than are safe to burn, so this is a hugely welcome step.”
Mel Evans, climate team leader at Greenpeace UK, said: “The government clearly recognises that creating a renewable energy system can provide this country and its energy workers with economic opportunities and stable, future-proofed jobs.”
