PRESS RELEASE: Wednesday May 12
Campaigners launch legal challenge over UK government support for production of uneconomic North Sea oil and gas
“Unlawful” strategy ignores public subsidies to industry worth billions
Three environmental campaigners are launching a legal challenge against the UK government over its support for the production of North Sea oil and gas that is only economic because of subsidies costing the public purse hundreds of millions a year, the Paid to Pollute campaign announced today.
On behalf of the campaigners, law firm Leigh Day have applied to the High Court for judicial review of the state-owned Oil and Gas Authority’s (OGA) new strategy, in a case which highlights the tax breaks that make the UK the most profitable country in the world for oil companies to develop big offshore fields.[1]
The case argues 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.
Rowan Smith, a public lawyer at Leigh Day, said: “Our clients’ case is that the OGA’s new strategy encourages companies to produce oil and gas without considering the economic repercussions of that on the public purse and the UK as a whole. This means that, in some circumstances, such production is not ‘economic’ for the UK as a whole, but the OGA is still seeking to maximise it. The case argues that is unlawful, having regard to the terms of the OGA’s legal duty, and also irrational, because it will result in increased levels of oil and gas production, in conflict with the UK’s legal duty to achieve net zero emissions by 2050.”
Three claimants are being supported by 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.
One claimant Mikaela Loach, a climate activist and medical student at the University of Edinburgh, said: “Much of the UK’s oil and gas production is only economic because of public handouts. The government is paying companies billions in public money to extract every last drop of oil from the North Sea when it should be focusing on decarbonising the UK economy, meeting its international climate obligations and setting an example to the world as host of the UN Climate Summit in November.”
Every year oil and gas companies receive subsidies worth hundreds of millions of pounds through reliefs on decommissioning offshore installations, reduced tax rates and tax allowances.[2] In 2015/16 and 2016/17 the UK government gave more money to oil companies than it received in taxes.[3] From 2015-19, BP received a net £675 million from the government after tax, Canadian Natural Resources £584 million, ExxonMobil £458 million and Shell £374 million. Since signing the Paris Agreement in 2015, the government has paid £3.2 billion of public money to North Sea oil and gas companies.[4]
The new OGA strategy came into force in February 2021, a few weeks before the government announced that it would continue to allow oil and gas companies to explore the North Sea for new reserves.[5] The legal claim names as defendants both the OGA and the Business Secretary Kwasi Kwarteng, who is responsible to Parliament for the OGA and sets its policy.
“Irrational” strategy conflicts with UK’s legal net zero target
The 1998 Petroleum Act sets “the objective of maximising the economic recovery of UK petroleum.” The legal case states that Parliament clearly intended this to ensure production was cost effective, maximising the long-term value of oil and gas, and it notes that one of the principles in the OGA’s new strategy is to “add net value overall to the UK”.
In their legal case, the claimants argue that the new strategy is unlawful because it seeks to redefine MER to exclude consideration of the tax breaks the industry receives. The strategy states: “’Economically recoverable’ in relation to petroleum means those resources which could be recovered at an expected (pre-tax) market value greater than the expected (pre-tax) resource cost of their extraction.”
The legal case claims that this frustrates the purpose of the Act by allowing the recovery of oil and gas that is economic to the operator thanks to the financial support the UK government gives the industry through the tax regime, but not economic to the UK as a whole.
The new OGA strategy requires the industry “to assist the Secretary of State in meeting the net zero target by reducing… greenhouse gas emissions from sources such as flaring and venting and power generation, and supporting carbon capture and storage projects.”
But the campaigners’ application argues that the new strategy is irrational and inconsistent with the Net Zero target because it will lead to more oil and gas being extracted than would otherwise be the case if such uneconomic fossil fuel stayed in the ground, and therefore a greater amount of greenhouse gases being emitted. It says the business secretary’s consent to the new definition of MER fails to take account of UK domestic commitments on climate change.
UK Government will subsidise decommissioning with £18 billion of public money
The UK’s tax regime makes it the most profitable country in the world for oil and gas companies to develop big projects, according to industry analysts Rystad Energy.[6] In 2017, for each barrel of oil the UK received $1.86 in tax while Norway received $13.53.[7]
One of the most significant subsidies available to oil and gas companies is decommissioning relief for removing hundreds of old wells, rigs and pipelines, which they can offset against past, current and future profits. In 2019/20 companies claimed back £500 million from the government and official estimates put the total cost to taxpayers at over £18 billion.[8]
A second claimant, Kairin van Sweeden, an SNP Common Weal organiser and daughter of a Scottish oil worker, said: “The UK government is wasting public money extracting oil and gas at the expense of our wider economy and our environment. Instead of propping up a declining industry it should be funding a managed phase-out of fossil fuels and a just transition which creates new, green jobs and enables oil industry workers and affected communities in Scotland and the rest of the UK to shape their own future.”
Jeremy Cox, a former oil refinery worker and the third claimant, said: “The UK provides more subsidies to the fossil fuel industry than any country in the EU but these massive handouts aren’t creating benefits for oil and gas workers or the public. In fact, as more and more money has flowed to the industry, conditions have only got worse for workers and the UK tax take has declined.”
Shell alone received $99 million in tax back from the UK in 2020, according to its accounts.[9] The company increased its dividend in 2021 weeks after announcing plans to cut 330 North Sea jobs.[10]Oil and Gas UK estimates that 30,000 oil and gas workers could lose their jobs in 2020 and 2021.[11]
Carbon dioxide emissions from existing global fossil fuel reserves will push the world far beyond 1.5°C of warming and close to 2°C, research by Oil Change International has found.[12] The UN Environment Programme calculates that countries are still planning to produce more than twice the amount of fossil fuels in 2030 as would be consistent with a 1.5°C temperature limit.[13]
The Paid to Pollute campaign is supported by Oil Change International, Greenpeace UK, Friends of the Earth Scotland, 350.org, Platform, UK Student Climate Network, Fridays For Future Scotland, Parents For Future and Mothers Rise Up.
Dr Richard Dixon, Director of Friends of the Earth Scotland, said: “A just transition away from fossil fuels is crucial for workers and communities in Scotland but that won’t be delivered through continued cash handouts to oil giants. The Government must create a rapid transition to green energy with workers and communities and redirect public money into building alternative industries and guaranteeing decent, green jobs.”
Mel Evans, head of Greenpeace UK’s oil campaign, said: “The UK has one of the lowest effective tax rates in the world for oil extraction. Our government is backing an industry that’s hanging workers out to dry, trashing the climate and costing our economy more money than it brings in. Energy minister Anne-Marie Trevelyan should start a phaseout now that supports workers properly, which means stop issuing new oil and gas licences and start funding workers to retrain in renewables.”
Gabrielle Jeliazkov, Just Transition Campaigner, Platform London said: “Beyond this case, the UK government’s wider policy of ‘maximising economic recovery’ of offshore oil and gas resources is at the heart of its hypocritical position on tackling climate change. The UK will never be a climate leader while continuing to use public money to prop up oil and gas corporations – this only risks a deferred collapse of the fossil fuel industry with devastating consequences for peoples’ livelihoods, oil and gas dependent regions and the climate. It is well past time to redirect subsidies and tax breaks to funding a ‘just transition’ led by workers, trade unions and local communities.”
Aneesa Khan, Oil Change International Communications Officer, said: " Even if coal use were phased out overnight, the emissions from oil and gas in existing fields alone would push the world beyond 1.5°C. That means governments, particularly the one hosting the vital UK climate talks at the end of the year, need to plan for a managed phase-out of production, and not to prop up oil and gas with public money.”
Farhana Yamin, Climate Lawyer & Adviser, Climate Vulnerable Forum, and Former Advisor to the Republic of the Marshall Islands, 2013- 2018, said: "I strongly support this case and hope it generates outcry at the inexcusable use of public money going to the UK oil and gas industry who are seeking to extract more pollution than the planet can tolerate. As someone who was deeply involved in the negotiation of the Paris Agreement, it’s clear to me that the UK cannot meet its commitments under that Agreement while subsiding the fossil fuel industry. It’s incompatible with any claim of climate leadership, climate justice and common sense."
Rachel Kennerley, Climate Campaigner, Friends of the Earth England, Wales and Northern Ireland, said: “The UK government is out-of-step with what needs to be done in response to the climate crisis. Supporting drilling for oil and gas will clearly worsen the crisis when it couldn’t be clearer that this is the wrong course of action. This is just one of the contradictory things the government is doing which is leading to more court cases challenging everything from road building to funding a huge and damaging gas project in Mozambique."
Professor Peter Newell, University of Sussex, said: ‘As a specialist on climate change of more than 25 years, I fully support the legal challenge being brought against the UK’s Oil and Gas Authority. In the context of a climate emergency which the UK government itself has recognised, and ahead of a major UN climate summit that the UK is hosting, the government’s policy of ‘maximising economic recovery’ of its offshore oil and gas resources and offering greater subsidies to the fossil fuel industry than any other EU country sits in direct conflict with the Paris Agreement’s temperature goals and the obvious need to leave large swathes of remaining fossil fuels in the ground’.
[1] The UK offers operators best profit conditions to develop big offshore fields; Kuwait, Canada follow: Rystad Energy, 18-1-21
[2] Sea Change: Climate emergency, jobs and managing the phase-out of UK oil and gas extraction: Platform, Oil Change International and Friends of the Earth Scotland, May 2019
[3] Statistics of Government revenues from UK Oil and Gas Production: HMRC, July 2020
[4] Company payments 2015-19 and £3.2bn figure from UK Extractive Industry Transparency Initiative annual reports.
[5] UK government to allow new North Sea oil and gas exploration: Guardian, 24-3-21
[6] The UK offers operators best profit conditions to develop big offshore fields; Kuwait, Canada follow: Rystad Energy, 8-1-21
[7] The UK North Sea as a Global Experiment in Neoliberal Resource Extraction (page 25): Platform and the Public and Commercial Services Union, Feb 2020.
[8] Estimates of the Remaining Exchequer Cost of Decommissioning UK Upstream Oil and Gas Infrastructure (November 2020): Oil and Gas Authority
[9] Shell Report on Payments to Governments for the Year 2020
[10] North Sea cash engine motoring as Shell cuts Aberdeen jobs: The Herald, 5-2-21
[11] Business Outlook 2021, Oil & Gas UK
[12] Sea Change, see above.
[13]The Production Gap Report: 2020 Special Report: SEI, IISD, ODI, E3G, and UNEP. (2020).