Hammering ‘big oil’ will do nothing to help fuel poverty or the climate


The most obvious problem is who and what precisely would the tax be targeting. The bulk of Britain’s gas today is imported. It would be hard to impossible to tax such production. Even if you could, the tax would only be passed on to consumers, negating any gains. As for retail fuel suppliers, many of them are effectively bust, having bet the house on wholesale prices remaining below the regulatory cap, and therefore have no profits to tax.

That essentially limits the field to North Sea producers, to UK based oil and gas traders, and to UK domiciled oil and gas companies. As Osborne discovered with his “fair fuel stabiliser”, the effect of taxing the North Sea more was merely further to deter investment in an already mature and declining asset, making the UK even more dependent on imports from the likes of Russia and the Middle East. Recognising the error of his ways, Osborne eventually in effect abolished Petroleum Revenue Tax entirely in an attempt to reinvigorate development.

Just the opportunity to drill on British soil or waters would these days be a fine thing. Climate change goals have taken the place of oppressive levels of tax as the main deterrent. Both BP and Shell have been steadily disengaging from the North Sea for years.

Shell recently doubled down on the withdrawal by scrapping plans to invest in Cambo, a proposed oil field off the Shetland Islands, citing an insufficiently strong commercial case. Yet as one of the prospects targeted by climate change campaigners in the run up to Cop26, it is hard to resist the suspicion that Shell decided simply that the potential returns were not worth the political heat. 

In any case, Scotland’s First Minister, Nicola Sturgeon, has put up a giant “not welcome here” sign to the North Sea’s dwindling band of faithful. Just as short sighted is Boris Johnson, who has effectively outlawed fracking. The US meanwhile sits pretty, with self sufficiency now underwritten by abundant frackers and far lower gas prices than are available in Europe.

If further taxing the North Sea is likely to prove counterproductive, that effectively leaves only UK domiciled oil and gas companies there for the fleecing. Just two of them – BP and Shell – are big enough to make a significant difference. Perhaps Sir Ed hadn’t noticed, but far from being the bad boys of the sector, both of them have got with the programme by leaning over backwards to join the green energy transition stampede. The business case for this transformation is that green energy will take a long time to deliver meaningful returns, if indeed it ever does, but that it can be funded in the meantime from the abundant returns of hydrocarbon runoff.


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