The North Sea will take a £17.5 billion hit from the new windfall tax, the Aberdeen and Grampian Chamber of Commerce (AGCC) has claimed.
Chancellor Rishi Sunak unveiled the levy last week, increasing the tax rate on profits from 40% to 65%, saying it will raise around £5bn over the next 12 months.
The move has received a mixed response from industry.
Despite a sizeable investment allowance – which totals a 90% return on spending – the move has drawn ire for not extending the incentives to renewables which form the brunt of energy majors’ spending plans this decade.
READ: Windfall tax measures could ‘accelerate’ major UK oil projects
READ: Industry slams oil and gas windfall tax which will send ‘shockwaves’
AGCC policy director Ryan Crighton estimated that, on the current rate of tax over the next three-and-a-half years, it could see a total of £17.5bn taken from oil and gas firms.
“This tax is an ill-thought-out response to what was an appallingly ill-informed debate about the contribution the energy industry already makes to the Exchequer.
“In the short-term, taking an additional £5bn from companies already taxed at 40pc will achieve very little apart from making the North Sea – already one of the world’s most-mature basins – less attractive to investors.
“This levy has no incentive to invest in low carbon technologies and no clarity around what constitutes a high oil price, which suggests an intent to keep it in place until the sunset clause kicks in.
“By then, £17.5bn could have been taken out of the industry at a crucial point in our net zero journey.
“We’ve well and truly shot ourselves in the foot.”
© Supplied by Aberdeen and GrampiaA sunset clause in the levy is being put in place for the end of 2025, or when oil and gas prices return to historically more “normal” levels – which has not been clarified.
To that point, petroleum economist Alex Kemp of Aberdeen University said: ““Is there such a thing as normal prices? That would be my first question.”
The Energy Profits Levy has drawn criticism and praise North Sea industry.
Industry body Offshore Energies UK has said it will send “shockwaves” for years to come.
However analyst firm Wood Mackenzie, along with operator Ithaca Energy, operator of the Cambo project, has said it could accelerate spending plans.
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