Tax reliefs and subsidies paid to oil and gas companies operating in the North Sea are disguising the economic risks of investment and wasting taxpayer’s money, according to a new report. [1]

Think tank Green Alliance argue that scrapping these tax incentives for new fields would help end the distorted market and ensure the sizable costs of decommissioning infrastructure is met by the private sector, rather than the taxpayer.

The UK has some of the world’s lowest taxes on oil and gas production: in 2019 the UK government received just $2 per barrel of oil in tax, while Norway received nearly $22 per barrel. [2] The result is that major fossil fuel companies, such as BP and Shell, are being paid to operate. Between 2016 and 2020, oil and gas companies received almost £10 billion in tax relief for new exploration and production, and a further £3.7 billion in tax relief for decommissioning costs. [3]

Rather than generating revenue for the Treasury, North Sea oil and gas production is likely to become a significant annual expenditure for the government. Taxpayers are already set to be lumbered with an estimated £18.3 billion in decommissioning costs, according to government figures. [4]

The declining reserves in the North Sea are “becoming harder to find and extract”, according to the National Audit Office. [5] Without tax reform, government proposals to open up new fields and grant licences will lock in further costs to taxpayers.

Heather Plumpton, policy analyst at Green Alliance, said:
“North Sea oil and gas extraction no longer makes economic sense for the Treasury, taxpayers or consumers. The North Sea is operating under a tax regime that hides market signals from investors. It’s time for the UK to stop the oil and gas subsidies, and instead support the transition to a zero carbon North sea.”

Joe Tetlow, senior political adviser at Green Alliance, said:
“International oil and gas companies are effectively being paid to extract in the North Sea, with UK taxpayers taking on all the risk. We should stop skewing the market like this. It’s bad economics and bad for the climate.”

Chris Skidmore MP and former energy minister, said:
“The North Sea is a mature basin with declining reserves – and it’s vital the UK taxpayer is not left to carry the risk of stranded assets as we transition to net zero. As the former government energy minister who signed net zero into law, I think we need to look again at the tax regime oil and gas companies are operating under to see if the balance is right.”

“As this new Green Alliance report points out, without tax reform, proposals to open up new North Sea fields and grant licences will lock in further costs to taxpayers. The tax regime is failing to reflect the need to transition to lower carbon sources of energy.”

[1] Green Alliance, The last drop: why it is not economic to extract more oil and gas from the North Sea 

[2] Oil Change International, 11 May 2021, ‘Only 6 months left till COP26. What must the UK do to make it a success?’

[3] Paid to Pollute, 25 November 2021, press release, ‘UK has given £14bn in subsidies to oil & gas industry’

[4] Oil and Gas Authority, July 2021, ‘Estimates of the remaining exchequer cost of decommissioning UK upstream oil and gas infrastructure’

[5] National Audit Office, 2018, Oil and gas in the UK – offshore decommissioning

Green Alliance
Green Alliance is a charity and independent think tank, focused on ambitious leadership for the environment. With a track record of over 40 years, Green Alliance has worked with the most influential leaders from the NGO, business, academic and political communities. Our work generates new thinking and dialogue, and has increased political action and support for environmental solutions in the UK.