The UK government has pledged to “unleash the North Sea’s clean energy future”, as it confirmed plans to ban new drilling licences but also unveiled proposals that could ease the tax burden on the oil and gas sector.
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 follow through on Labour’s manifesto commitment not to permit any new drilling licences.
The GMB and Unite trade unions have opposed the measure, warning of a repeat of the devastation visited on coalmining communities if no plan is put in place to protect workers.
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.”
Extensions on the life of existing drilling licences would not be affected, ensuring that oil fields could “operate for the entirety of their lifetime”, the Department for Energy Security and Net Zero said.
The government also said that developers would be able to resume applying for consents for already licensed projects, as a result of “revised” environmental guidance on offshore projects.
This follows a supreme court ruling last year that requires regulators to consider the impact of burning oil and gas in environmental assessments of new projects.
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 would rise if wholesale prices also jumped sharply due to an oil and gas price shock.
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”.
Mel Evans, climate team leader at Greenpeace UK, said: “Our over-reliance on volatile and expensive fossil fuels is the reason our energy bills have remained so high in recent years.
“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.”
