A prominent petro-economist has labelled the Labour Party’s plans to impose an £11 billion “windfall tax” on the oil and gas industry “misguided”.
Alex Kemp, professor of petroleum economics at Aberdeen University, also described the proposals as the “worst possible signal” for new entrants to the basin.
At the launch of Labour’s manifesto, party leader Jeremy Corbyn set out proposals to make oil and gas companies “shoulder the burden” of transitioning to a low carbon economy.
Mr Corbyn said a “Just Transition Fund” would help oil and gas workers retrain for jobs in the renewable energy and green technology sectors.
Prof Kemp said introducing such a levy would “discourage investment” into the UK North Sea, meaning the country would have to import more oil and gas from countries that are “doing nothing to reduce their emissions”.
Earlier this week, a report from PwC and Oil and Gas UK warned that the sector’s traditional backers were becoming increasingly reluctant to invest.
Prof Kemp also pointed out that capital investment in the UK oil and gas industry is currently around £5-5.5bn, a dramatic decline compared to the levels witnessed before oil prices collapsed in the second half of 2014.
That year, £12.5bn was invested in the basin.
Prof Kemp said: “It’s quite misguided to suggest there is a windfall that can be claimed from the North Sea under today’s conditions.
“Investment in the North Sea is down dramatically. We hope it has bottomed out, but it is at a very low level historically.
“The industry is not making a big windfall at the moment. If it were, there would be more investment in the North Sea.”
Prof Kemp also spoke of the importance of placing the burden of responsibility for the energy transition on the right people.
He said the vast majority of emissions came not from the production of oil and gas, from their use in transport and heating.
“If we want to cut emissions we need to put incentives on people at the sharp end,” he said. “We, the motorists, are the ones polluting.”
Prof Kemp said increasing petrol duties or providing subsidies to incentivise people to switch to electric vehicles should be considered.
Martin Ewing, partner and oil and gas specialist at Pinsent Masons in Aberdeen, said: “The oil and gas industry is acutely aware of the challenges it faces and the need to diversify.
“The UK’s biggest players are already prioritising investments in their renewables and clean-tech divisions, as well as cross-training skilled workforces.
“But it’s extremely important to recognise that the industry still plays a vital role in the UK’s energy landscape, which often seems forgotten.
“This proposed tax levy will be a significant concern to oil and gas companies, and could divert investment being spent on the continued innovation to make infrastructure, and the eventual decommissioning processes, as efficient, safe and sustainable as possible.”
Graham Swindells, chief executive of Cluff Natural Resources, said: “Labour’s focus on moving to a greener energy for the UK is to be commended, however excessively taxing oil and gas companies would be immensely damaging for the industry and the economy.
“These measures run the risk of damaging the energy sector and UK jobs by negatively impacting further investment from major energy companies who are already investing significantly in the North Sea in a manner aligned with the UK’s drive to achieve net-zero carbon emissions by 2050.
“The proposals would also have serious implications for the UK’s energy security and result in a further increase in foreign imports at significantly greater environmental cost.
“Utilising the UK’s domestic natural energy resource, versus foreign imports should be a priority for UK business, jobs, the economy but critically also, for the environment.
“Mr Corbyn’s plans are well intentioned but not the optimal way to secure the UK’s green energy future.”
Michael Burns, oil and gas partner at law firm Ashurst, said: “This would be a huge challenge for the UK oil and gas industry, and an increase in tax is at odds with the strategy of encouraging more investment in the North Sea that is currently being implemented by the Oil and Gas Authority.”
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