Campaigners have brought a legal challenge to the UK Government for supporting plans they claim are “unlawful” for North Sea oil and gas production.
The “Paid to Pollute” campaign, led by Greenpeace, Friends of the Earth Scotland and 350.org, claims the Oil and Gas Authority’s (OGA) new strategy “ignores” public funding for fossil fuels which would otherwise be “uneconomic” to produce.
Three claimants, backed by the group, have applied to the High Court for a judicial review into the UK Government’s support of the strategy, which came into force in February and defined what is “economically recoverable” on a “pre-tax” basis.
Paid to Pollute argues that doing so fails to account for tax breaks and decommissioning refunds granted to the industry, and therefore some fossil fuel production “is not economic for the UK as a whole”.
Rowan Smith of the legal firm Leigh Day, representing the group, said: “The case argues that is unlawful, having regard to the terms of the OGA’s legal duty, and also irrational, because it will result in increased levels of oil and gas production, in conflict with the UK’s legal duty to achieve net zero emissions by 2050.”
The new OGA strategy puts legal obligations on the industry to achieve net zero emissions and maximise economic recovery (MER), but industry has argued that the pair are not in conflict because domestic supply negates the need for imported carbon-heavy fuel.
The OGA, named as one of the defendants alongside UK energy minister Kwasi Kwarteng, declined to comment.
A spokesperson for the Department for Business Energy and Industrial Strategy (BEIS) said it was aware of the legal proceedings but declined to comment further.
Industry body Oil and Gas UK said: “Our industry has never been the recipient of subsidies, has contributed £350 billion to the UK economy since oil and gas production began, and will use its essential expertise to accelerate the transition to a low carbon economy”.
Valerie Allan, Aberdeen-based partner at law firm CMS, said the case is part of a “rising trend” of campaigners using legal proceedings to “put pressure on the regulators and the wider industry”.
She added that a recent survey conducted by her firm into causes of disputes found that “net zero and energy transition are among the most significant areas concerning the industry”.
Tax regime
Paid to Pollute’s case highlights “tax breaks” for the sector, which now pays less to the Treasury than in prior years after former Chancellor George Osbourne made sweeping cuts to protect the industry during the last downturn in 2016.
It also hits out at hundreds of millions of pounds of rebates being given to oil operators on their decommissioning bills, which the National Audit Office has previously estimated could cost taxpayers £24billion.
Operators can carry a portion of huge decom costs against tax revenues paid on oil production in the past. Derek Leith, global oil tax leader at EY, has compared this to a “loan” that operators give to the government on tax relief for their production which is repaid once decom starts.
However it means that some firms like Shell have, in recent years, effectively paid no taxes to the UK Government as a result.
Shell has in the past said this is “not the full picture”, highlighting that the Brent field alone has contributed more than £20billion to UK coffers.
The OGA’s legal mandate also includes making large cuts to the cost of decommissioning in order to protect the Treasury. The regulator published an updated decom strategy earlier this week.
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