Why the EPL is putting both our North Sea industry and climate change goals at risk

The Autumn Budget is a chance for the government to make a bold statement on the energy transition.

The sector has been looking for long-term thinking and fiscal stability and a government with such a large majority has no excuse not to deliver on that.

The industry understands that taxation is necessary to fund the journey to net zero, but does it need to be the energy profits levy? And does it need to be so penal?

Anybody listening to the operators, service companies or industry bodies, as well as trade unions will understand what is currently planned will almost certainly lead to the premature death of the North Sea.

Former Oil and Gas UK chief Malcom Webb summarised the views of many when he declared that the “vicious” taxation is bringing the industry to its knees. Reflecting on the sector following his recent retirement, he said: “Take this silly taxation regime away. It’s worse than silly, it’s malign. A taxation system that doesn’t allow you to offset your costs against the tax you pay is confiscatory.

“There’s no point in destroying this industry and punishing the economy in this way.”

So, why not use this moment to consider a new taxation regime as part of a more considered, long-term approach that acknowledges the world we live in?

Oil and gas remain a key part of the energy mix and will do so for many years to come.

© Supplied by BIG Partnership

Indeed, the revenues from oil and gas will be key part of funding the energy transition.

Decarbonising oil and gas and adopting renewables isn’t a binary process – it is much more nuanced.

We need to keep the lights on and manage the inevitable loss of jobs.

North Sea pivot towards renewables

Many businesses have been incredibly successful at pivoting towards renewables, such as Aberdeen-based Oceanscan Holdings Limited, which we recently advised as part of its sale to Venterra Group.

With its roots in subsea serving the oil and gas sector, it has become a leading international provider of sub-sea equipment, people and services to the wider offshore energy market with significant emphasis on renewables including offshore wind.

Building on such innovation, a new scheme is being introduced in January to help oil and gas workers find jobs in offshore wind.

The Energy Skills Passport will eventually encourage wider transferability of energy skills but not all of them will neatly cross over.

© Image: GettyImages

The reality is that fewer jobs will be required in renewables compared to oil and gas and even new jobs in emerging technologies such as carbon capture storage and hydrogen won’t make up the difference.

COP26 set a 2030 target of reducing emissions by 68% but GB Energy, which is being established by the Government to invest in renewable energy, simply won’t be able to deliver the investment and support to achieve this target in five years.

As contradictory as it seems, oil and gas must co-exist with renewables for some time yet as part of our climate goals.

Everyone in the industry is on the journey but we must work together to achieve the transition in a truly equitable manner.

When the Chancellor delivers her Budget on October 30, we need more than warm words if we are to protect the industry from a looming cliff edge.

Especially when our near neighbours in Norway are delivering a much more successful vision; demonstrating the advantages of long-term planning and accepting that oil and gas and renewables need to co-exist for the benefit of us all – including the environment.

Graham Alexander is a partner in the Aberdeen office of Johnston Carmichael and the head of the firm’s corporate finance team.