Government risks wasting billions subsidising oil and gas that is incompatible with global climate target
UK has given industry almost £14 billion in subsidies since signing the Paris Agreement
The UK government risks wasting billions subsidising oil and gas production that is incompatible with global climate targets if it approves industry plans to develop Cambo and other proposed new fields, the Paid to Pollute campaign warned today.
It revealed that since the Paris Climate Agreement the government has provided £13.6 billion in subsidies to the UK oil and gas industry. Analysis of new OECD data shows that from 2016 to 2020 companies received £9.9 billion in tax reliefs for new exploration and production and £3.7 billion in payments towards decommissioning costs.
Oil and gas producers are pushing the government to approve up to 18 new projects which will benefit from the same generous tax breaks, including the Cambo oil field off Scotland. However, the International Energy Agency has said new investment in oil and gas projects must stop this year if governments are serious about the climate crisis.
This month world leaders reconfirmed the target of limiting climate change to 1.5°C in the Glasgow Climate Pact and also committed to phase out inefficient fossil fuel subsidies. The financial think tank Carbon Tracker has warned that the 1.5°C target means Cambo and at least four other proposed projects risk becoming stranded assets with little or no economic value.
Subsidies for UK oil and gas production are at the centre of a case that will be heard at the High Court on December 8thand 9th. Three environmental campaigners are challenging the UK government, arguing that the state-owned Oil and Gas Authority’s (OGA) strategy is unlawful because it encourages production of oil and gas that is not economic for the UK as a whole and conflicts with the country’s legal duty to achieve net zero emissions by 2050.
One claimant, Mikaela Loach, a climate activist and medical student at the University of Edinburgh, said:
“The UK government’s support for new oil and gas not only undermines global climate goals and any sense of climate justice, it also risks wasting huge amounts of public money on projects that are more likely to line polluters' pockets than bring any real economic benefit to this country. As a country with significant historical responsibility for the climate crisis, the UK has an obligation to be one of the first to move away from oil and gas production, deliver a just transition and, like Scotland, commit to financing communities that are already dealing with the impacts of the climate crisis.”
Industry plans to spend £21 billion on new oil and gas projects
The UK’s tax regime makes it the most profitable country in the world to develop big offshore oil and gas projects, according to industry analysts Rystad Energy. Companies are able to offset against tax most spending on exploration, which is classified as “research and development.” They can also offset almost all spending on new fields in the first year of development. In addition, OECD figures show that the UK made £15 million of direct grants for exploration from 2016-20.
Companies also qualify for tax reliefs on decommissioning offshore installations. In 2019/20 companies claimed back £500 million from the government, and official estimates put the total cost to the UK government at over £18 billion.
OGUK, which represents the UK offshore oil and gas industry, is campaigning for the government to approve up to 18 new projects. If all go ahead, companies will spend up to £21 billion on developing new fields and extending the life of existing reservoirs over the next five years, boosting UK oil production by 2.7 billion barrels of oil equivalent.
Drilling at Cambo, west of the Shetland Islands, could start as early as 2022 if the OGA gives Shell and Aberdeen firm Siccar Point the go-ahead. The field would be expected to produce for about 25 years, generating emissions equivalent to operating 18 coal-fired power stations for a year.
However, Carbon Tracker warns that the world must move away from oil and gas in order to meet climate targets and only the lowest-cost projects are likely to be economic in a world of rapidly falling demand. It released analysis at COP26 which found that even on a 1.65°C pathway Cambo would risk failing to break even.
Carbon Tracker has previously analysed four other proposed offshore projects and warned that they would be “deeply loss-making” on a 1.65°C pathway. They would require investment of £5.7 billion, including £4.4 billion for the Rosebank-Locknagar oil field west of Shetland, planned by Equinor, Suncor and Siccar Point.
Lord Deben, chairman of the Climate Change Committee, the government’s statutory adviser, told MSPs in Holyrood in August: “The justification for any new oil and gas exploration or production has to be very, very, very strong and I cannot say that I have so far seen any such evidence.”
Last week Scottish First Minister Nicola Sturgeon added her support, saying: “I don’t think we can go and continue to give the go ahead to new oil fields. So I don’t think that Cambo should get the green light.”
A second claimant in the High Court case, Kairin van Sweeden, an SNP Common Weal organiser and daughter of a Scottish oil worker, said: "The Glasgow Climate Pact recognises that we must stop subsidising fossil fuels, yet the UK government's subsidies to oil and gas producers makes the UK the most profitable country in the world for big offshore oil and gas projects. The UK government has to stop supporting industries that are causing the climate emergency and instead redirect our public money towards retraining, re-skilling and re-employing the current oil and gas workforce into renewables. They should have the just transition the miners deserved but never received.”
“Irrational” strategy conflicts with UK’s legal net zero target
The High Court legal challenge names as defendants the OGA and the Secretary of State for Business, Energy and Industrial Strategy, currently Kwasi Kwarteng, who is responsible to Parliament for the OGA, is its sole shareholder, and sets its policy.
The claimants argue that the OGA’s interpretation of its legal duty to “maximise economic recovery” (MER) of oil and gas fails to take account of the billions of pounds of public money supporting the industry. They say this allows the recovery of oil and gas that is economic to the operator, because of the financial support it receives, but not to the UK as a whole.
They also argue that the OGA’s strategy is irrational and inconsistent with the UK’s legal duty to achieve net zero emissions by 2050 because it will lead to more oil and gas being extracted than would be the case if uneconomic fossil fuel stayed in the ground, and therefore greater greenhouse gas emissions.
Jeremy Cox, a former oil refinery worker and the final claimant, said: “Just weeks after world leaders gathered in Glasgow and the Prime Minister urged them to keep the 1.5°C target alive, the UK government will have the hypocritical audacity to argue in High Court that it should continue to subsidise new oil and gas production. We know every new oil and gas project is incompatible with the 1.5°C target. The UK should listen to the International Energy Agency and the United Nations, reject projects like Cambo and use the public money we've wasted on oil and gas extraction to fund a just transition and support other countries to decarbonise.”
The three claimants are being supported by the environmental non-profit Uplift, which in turn is co-ordinating Paid to Pollute, a new campaign supported by a coalition of environmental groups including Greenpeace UK, Friends of the Earth Scotland and 350.org.
For further information and to arrange interviews, please contact:
Gabriella Smithgabriella.firstname.lastname@example.org 054906
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NOTES TO EDITORS
Paid to Pollute used OECD data, updated in November 2021, to determine the £9.9 billion cost of tax reliefs for exploration, appraisal and development from January 2016 to December 2020. It used OECD data on budgetary transfers and government funding announcements to identify £3.7 billion grants for decommissioning over the same period. HMRC and OGA figures put the total cost of support measures slightly lower, at £12.2 billion. This, however, is allocated to the fiscal rather than the calendar year and excludes onshore investment allowances, direct budgetary transfers, and other mechanisms.
About Paid to Pollute –The Paid to Pollute campaign brings together UK, Scottish and international organisations seeking accountability for UK government support for the oil and gas industry. The campaign is coordinated by the not-for-profit initiative Uplift and supporters include Oil Change International, Greenpeace UK, Friends of the Earth Scotland, 350.org, Platform London, Friends of the Earth England, Wales and Northern Ireland, UK Student Climate Network, Fridays For Future Scotland, Parents For Future, Mothers Rise Up, Extinction Rebellion, the Robin Hood Tax, Tax Justice UK and Operation Noah. https://paidtopollute.org.uk/
About Uplift – Uplift is a not-for-profit initiative with a mission to support and energise the movement for a just and fossil fuel-free UK. It resources, connects, and elevates ideas and voices to support a just transition away from fossil fuel production. https://upliftuk.org/
 Tax breaks outlined here meet the WTO and IMF definitions of subsidies. Decommissioning relief also meets the WTO definition of subsidy. The UK Government however denies it subsidises upstream oil and gas production, as it uses a definition that relates to reducing prices for consumers.
 See notes to editors at end of release.
 North Sea oil producers push UK to back 18 new projects: Financial Times, 1-9-21
 Planned UK Cambo Oil Field is Uneconomic, Unaligned with Paris Goals: Carbon Tracker, 10-11-21.
 The North Sea oil industry’s £6.8 billion plan to breach climate targets: The Ferret, 3-11-19. Of six projects analysed by Carbon Tracker one, Captain, is now in production, and another, Liberator, has surrendered its licence.
 Climate Change Committee warns Cambo oil field yet to be justified: The Herald, 31-8-21
 Nicola Sturgeon finally says Cambo oil field ‘shouldn’t get the green light’: The Herald, 16-11-21