Asked by
To ask His Majesty’s Government what assessment they have made of
the impact of the oil and gas windfall tax on investment and
jobs, and the capacity of the energy sector and supply chain to
deliver key components of the transition for achieving the United
Kingdom’s net zero objectives.
The Parliamentary Under-Secretary of State, Department for Energy
Security and Net Zero () (Con)
My Lords, the Government introduced the energy profits levy to
respond to exceptionally high prices that mean that oil and gas
companies are benefiting from extraordinary profits. The
Government have been clear that we want to see producers reinvest
profits to support the economy, jobs and the UK’s energy
security, which is why we have introduced generous investment
allowances. Our North Sea transition deal reflects the key role
of the sector in that energy transition.
(LD)
I thank the Minister for that reply. As we increase our efforts
to meet net zero, which we clearly must, does he agree that
through all the projections to and through net zero, we will
continue to use fossil fuel, albeit on a declining basis?
Therefore, is it not essential, because Norway has said that it
will produce every ounce of oil and gas that is commercial in its
sector, that we do nothing to prevent the transition being led by
the energy industry, which is increasing its investment in the
necessary technology such as carbon capture and storage, hydrogen
and green electricity, and that we need to ensure that it can
continue to do that?
(Con)
I am very happy to agree with the noble Lord. I am tempted to
observe that he might want to talk to some of his colleagues on
his Benches about that message. He is right that it makes much
more sense as we go through the transition to obtain those
resources from our own fields rather than import them at a much
higher carbon content.
(Con)
My Lords, I refer to my interests in the register and to the
previous questions I have raised on this matter in Treasury
Questions. The point is that the EPL has had a dramatic effect on
investment in North Sea oil. The question from the noble Lord,
Lord Bruce, asks what assessment the Government have made of it.
Would the Minister include in that assessment an analysis of the
bids that have been made—for example, for Chevron oil in the
Republic of Congo and in the Gulf of Mexico—by North Sea oil
companies that are no longer investing in the North Sea?
(Con)
My noble friend makes an important point. Taxation levels are
obviously a matter for the Chancellor and the Treasury. However,
there are a number of concerning stories from investors that they
have pulled out of investments in the North Sea; in fact, one
remarked that parts of Africa were a more stable tax
environment.
(Lab)
My Lords, I congratulate the Government on the £20 billion they
put into the small modular reactor enterprise, and the work they
have done for the STEP fission reactor. Does the Minister agree
that the best net-zero way of ensuring that we have energy to
provide the electrical baseload is to press ahead rapidly with
Hinkley C and Sizewell because, if we do not get this nuclear
power online, we are not going to make it?
(Con)
I do agree with the noble Lord. Nuclear reactors, whether it be
Sizewell or Hinkley, and small modular reactors will play an
important part in the net-zero transition. Of course, we want a
diverse supply mix; we want as much renewable energy as possible,
but nuclear will play an important role.
(CB)
My Lords, does the Minister recognise that the Paris Agreement
implies the use of much less oil and gas in the 2030s than now?
Therefore, issuing permits for exploration that usually requires
at least seven years to generate flows makes little sense,
particularly as the effect on prices and security would be
negligible. Does he recognise that issuing such permits is
essentially enabling and fostering bets on climate failure?
(Con)
No, I would not agree with the noble Lord, I am afraid; he is
absolutely dead wrong. Even with any new licences that might be
issued in the UK, UK production will continue to decline at the
rate of about 7% a year. It is estimated that global production
decline needs to be about 3% to 4% in order to ensure the
net-zero transition, so we will be declining at a faster rate
than what is required globally.
(LD)
My Lords, the windfall tax that the Minister mentions taxes
profits but also gives a substantial kickback on investment. On
renewables, the levy is against revenue and there is no such
kickback. When will the Department for Energy Security and Net
Zero stop discriminating against renewables?
(Con)
My Lords, what the noble Lord refers to as a “kickback” is
actually an investment allowance. If I am right, the same noble
Lord was asking me about reducing flaring and about introducing
electrification of fields. It is those investment allowances that
pay for the very policies that he asked me to introduce.
(Con)
My Lords, in concurring with the noble Lord, Lord Bruce, in his
statement that oil and gas are a vital part of transition to net
zero, can I ask the Minister what the situation is with the
Rosebank oil project, which is a world-class asset and one of the
largest of its kind anywhere in the world?
(Con)
I thank my noble friend for the kind invitation to respond to
that. He will understand that I cannot comment on licensing
decisions.
(Lab)
My Lords, analysis of the Office for Budget Responsibility data
in May this year showed the extent to which oil and gas firms
were able to reduce their energy profits levy while still making
record profits. Between this loophole, the decision against a 78%
rate and the decision not to backdate to catch all the surging
profits, it is estimated that over £10 billion of potential tax
will be missed between 2022-23 and 2023-24. I ask the Minister:
have the Government given any consideration to fixing the levy to
deliver the full benefits proposed since these figures came
out?
(Con)
I do not know where the noble Baroness gets her figures. I
responded in my previous answer to the question about investment
allowances—policies that the Opposition have called for. The
energy profits levy is expected to raise about £26 billion and is
set at a rate of 75%, which is one of the highest in the world. I
realise that the Labour Party’s policy is to tax firms into
extinction, but we need to leave them with some profits. Much of
the profits of oil and gas companies goes towards pension funds
and other shareholders which many pensioners and others rely on
for their income.
(LD)
My Lords, the IEA’s report World Energy Outlook 2022 is clear
that the solution to the energy trilemma of economic, climate and
security issues is to accelerate the move to greener energy. For
us in the UK, among other things, that means urgently equipping
our workforce with transferable skills for the energy transition.
What are the Government doing to make sure that a single offshore
energy skills passport that aligns training standards in all
offshore energy sectors is introduced?
(Con)
The noble Baroness is essentially right: of course we need to
transition to renewable energy sources, and that is exactly what
we are doing. The North Sea transition deal between the
Government and North Sea companies is helping to move them, as
far as the transition is going, to transfer their skills to many
of the new industries. For example, many drilling companies
operating in the North Sea also drill geothermal heat sources to
use for renewable energy. The two things are not mutually
incompatible.
The Lord
My Lords, what assessment is the North Sea Transition Authority
making of the alignment of company commitments, especially on
net- zero targets covering scopes 1, 2 and 3, over the short,
medium and long term as well as company alignment on capital
expenditure towards those targets? Can the Minister assure us
that, before licensing any expansion in North Sea exploration,
the authority will factor this into consideration when judging
projects under alignment with the UK’s net-zero legal
commitment?
(Con)
As I said in response to a previous question, I cannot comment on
any licensing decisions—we will know about them before too
long—but I can assure the right reverend Prelate that all the
appropriate considerations are being taken into account by the
Government and the North Sea Transition Authority on the issuing
of those licences.
(Lab)
I agree 100% with the Government’s nuclear policy but, bearing in
mind that we want the success of renewables and the end of oil
and gas, what assessment has been made of the fact that by
2050—which is not that far away—when the oil and gas is gone, we
will be relying on nuclear for intermittency? That will leave the
nuclear situation as a stranded asset, because it really does not
work that way; it has got to be a formal baseload. Once the rest
has gone and we are on renewables and left with nuclear, how can
it be intermittent?
(Con)
I totally understand the point the noble Lord is making. He is
right that many renewables are very cheap but intermittent, and
nuclear will contribute towards the baseload. He is asking for
long-term energy storage; the answer is hydrogen. We can store
large quantities of hydrogen—some really exciting projects are
coming forward—and it can then be burned, with no emissions, in a
power station to provide the supplies that we will need when the
wind is not blowing and the sun is not shining.
