Offshore energy industry pleads with Hunt for help: Windfall tax ‘rocked investor confidence’ amid US threat
The UK’s North Sea industry body has urged the Chancellor Jeremy Hunt to create an attractive investment climate to compete with rival energy markets such as US, China and EU ahead of the spring budget this month.
Offshore Energies UK has written to Hunt, City PM has learned, with the group calling on the chancellor to restore confidence in the domestic energy sector.
Criticising the new toughened windfall tax on oil and gas operators and the new levy on electricity generators, which has “rocked investor confidence and companies’ investment plans” – they urged him to give more industry support.
Mike Tholen, director of sustainability at OEUK, told City PM: “Two windfall taxes on the oil and gas sector plus a windfall tax on the electricity generators have significantly undermined the appetite of companies and international investors to invest in the UK.
“The spring budget must prioritise energy security and support our world-class industry maintain energy security whilst accelerating the transition.”
OEUK also raised concerns over the lack of response to the US Inflation Reduction Act, which commits vast subsidies and tax breaks to green energy projects that set up Stateside – warning that the UK is in a “global race for energy investment.”
Meanwhile, China is also backing projects with state funding, while the EU is planning to loosen state subsidy rules.
“The UK mustn’t be left behind. We need to create an attractive environment supported by intelligent policies to deliver long-term investment across the whole energy landscape, just as the US, China and the EU are doing,” Tholen explained.
He outlined that the UK is well-placed for a lower carbon future, with the country home to decades of engineering and subsurface expertise – and that the North Sea industry had to be supported through the transition to a greener future rather than being used merely as a method of raising tax revenues.
Tholen argued a lot of the same skills, companies and people from the offshore oil and gas sector will be key to delivering the energy transition – developing solutions such as offshore wind, hydrogen and carbon capture, utilisation and storage (CCUS).
In his view, there needed to be more “green lights for low carbon projects projects to deliver hydrogen, CCUS and offshore wind at scale.”
This would include further licencing rounds for carbon storage, more growth of offshore wind and for the government to accelerate both track one and two CCUS clusters.
“The race to net zero is on, and we must seize as much early-mover advantage as possible if the UK is to become a low carbon centre of excellence,” he added.
Last month at a green energy conference in London, Hunt admitted the new US subsidies represented a “very real competitive threat” and announced the the government would respond in the “next few months”.
He said: “We are not hanging around on this. We need to give all those guys you saw at the conference a clear sense of how we are going to respond to the Inflation Reduction Act.”
However, he warned it wasn’t going to be easy for the UK to access the “GDP equivalent of $391bn,” in line with the US spending commitments.
When approached for comment, a Treasury spokesperson said: “The Energy Profits Levy strikes a balance between funding cost of living support while encouraging investment in order to bolster the UK’s energy security.
“We have been clear that we want to encourage reinvestment of the sector’s profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay.”
UK is falling behind, warns energy boss
OEUK’s comments follow warnings from Sayma Cox, chief executive of North Sea Midstream Partners, that the UK could miss out on carbon capture investment to other regions without a long-term subsidy plan.
NSMP processes and transports 20 per cent of the gas across the domestic industry, meaning it has a huge responsibility for energy security.
She said: “When I look at my company where we are looking to invest into the energy transition – we are looking for the legislation, we are looking to see what the subsidies could be and how the government can help the pace with the energy transition. Those are areas where we need to work phenomenally more speedily than we have done to date.”
Cox was speaking at the International Energy Week conference in London, where she called on all parties involved in the industry to work together.
She said: “The government is not working with companies collaboratively. There is not one company which is going to be the solution to the end. We all have to work together – that not just companies and the government as well as its regulators. We all have to work together to be able to pick up the pace with the energy transition.”