This post is by Jessica Kleczka, policy assistant at Green Alliance.
The Oil and Gas Authority (OGA), a government body appointed to ensure “maximum economic benefit from oil and gas reserves”, will be at the Royal Courts of Justice on 8 December over public payments to the fossil fuel industry.
The case is being brought by three environmental campaigners, Jeremy Cox, Mikaela Loach and Kairin van Sweeden, and is supported by the campaign group Paid to Pollute, a coalition of campaign organisations.
The claimants argue that, by not including the significant tax breaks for oil and gas companies in its definition of “economic recoverability”, the OGA’s strategy is unlawful and will encourage more oil and gas extraction, thus compromising the UK’s commitment to net zero emissions by 2050. The case is a judicial review examining the lawfulness of the strategy.
Finance is still flowing into UK fossil fuel projects
The UK pledged, last month at COP26, to cease all financing of non-domestic fossil fuel projects. Yet, within its borders, that ambition is not evident. Forty oil and gas projects are still up for approval in the UK in the next few years, and the controversial Cambo oilfield and Cumbrian coal mine are still on the cards. The UK has one of the lowest oil tax rates in the world, making it the most profitable country for large offshore projects.
Shell, Europe’s biggest fossil fuel producer and the largest stakeholder in the Cambo oil field, received almost £100 million from the UK government in 2020. Both Shell and BP paid no corporation tax or production levies on their North Sea oil operations between 2018 and 2020, whilst producing a combined 1.7 billion tonnes of CO2 a year. That is a footprint five times higher than the UK’s.
Since signing the Paris Agreement, the UK has given almost £14 billion in public subsidies to the fossil fuel industry: that includes £4 billion “negative tax revenues”, which the Treasury pays directly to oil and gas companies, and £10 billion in tax reliefs for new exploration and production. The government is, in fact, set to lose money on offshore oil and gas fields through tax breaks. The Office for Budget Responsibility forecasts that, between 2016-2022, petroleum revenue tax will result in a net loss to the exchequer of £500 million a year.
In 2015, the UK legislated a policy of “maximising economic recovery”, which requires the OGA to support any profitable extraction of offshore oil and gas. Most of the direct payments given by government to the oil and gas sector covers decommissioning, currently £18.3 billion. This will only rise if more oil and gas is extracted from the North Sea. According to the latest UN Production gap report, the UK is on track to double the amount of fossil fuels that can be burned if we are to stay within our agreed climate limits, and three times our fair share.
Litigation is increasingly used to enforce climate action
Climate change related court cases have more than doubled since 2015, with ‘strategic’ cases aiming for broader societal shifts dramatically rising. The majority of cases (58 per cent) have had favourable outcomes for climate action, and they are quickly becoming an instrument to enforce or enhance governments’ climate commitments.
While most cases target corporations and governments using environmental and human rights arguments, an increasing number focus on financial risks and corporate due diligence. These claims affect not only fossil fuel companies, but also banks, pension funds, asset managers, insurers and major retailers. They often relate to issues such as deliberate disinformation or ‘greenwashing’, failure to disclose and manage climate risks, and corporate human rights responsibilities. And this is likely to grow with public concern.
Scotland recently announced that it will no longer support unlimited oil and gas extraction, and Nicola Sturgeon has said that the Cambo oil field should not go ahead. Wales is the only UK country to have joined the Beyond Oil and Gas Alliance formed at COP26. There is momentum around phasing out fossil fuels, with the UK promising to end overseas fossil fuel projects. Some Conservative MPs are pushing to accelerate the move to clean energy.
Rethinking tax breaks for fossil fuels is one way to signal this shift. Phasing out fossil fuels will be a challenge for an economy that has been hooked on them for so long but by focusing instead on securing the net zero jobs of the future the UK government can show itself to be a leader in putting an end to the fossil fuel era and prioritising a just transition.
[Image: The “Paid to Pollute” claimants: Kairin van Sweeden, Jeremy Cox and Mikaela Loach. Photo: Jessica Kleczka]