Oil and Gas: Subsidies and Licensing

Baroness Sheehan Excerpts

Thursday 20th January 2022 Grand Committee

[Baroness Sheehan (LD)]

My Lords, I start by welcoming the Minister to his post—it may be a baptism by fire—and thanking the noble Baroness, Lady Jones, for introducing this debate. My views will be pretty similar to hers on this topic.

The compelling scientific evidence tells us that we must act now to curb greenhouse gas emissions from fossil fuels, but we seem to have an oil and gas industry which is resisting the science—not in words, because it is too clever for that, but in deeds. It is an industry that seems to have the various arms of government firmly tucked into its elbow and is leading them astray.

The OGA regulates and licenses petroleum exploration and production in the UK. Three of its 13 board members are shareholders in oil companies, and eight members of the board previously worked in the industry. There are no voices on the OGA board to put the view of climate scientists, workers or NGOs; it is not a balanced board. The Government seem to be similarly tainted. According to the Library briefing, £812,000 was donated to the Conservative Party between 2019 and 2020 by climate sceptics and fossil fuel interests.

Against this background, we must look at subsidies enjoyed by the sector. Of course, the Government insist that they do not give subsidies to fossil fuels, yet the UK’s tax regime makes it the most profitable country in the world for oil and gas companies, according to a report by Rystad Energy in January 2021. Since signing the Paris agreement, the UK has given £4 billion to oil and gas companies—and I thank the NGOs UPLIFT and Paid to Pollute for the figures. In the tax years 2015-16 and 2016-17, the Treasury gave more money to oil companies than it took from them in taxes. Here is a mind-boggling figure: in 2019, the UK received $1.72 in taxes for each barrel of oil, while at the same time and under the same conditions, Norway received $21.35 per barrel of oil. Here is another mind-boggling fact: Shell paid $1.8 billion in tax to Norway in 2020 but received from the UK Government £99.1 million, according to the company’s own annual report on payments to Governments. There are other examples, but time is short and the list is long, so I will move on.

I will quickly mention decommissioning. The UK taxpayer, not the polluters, pays the decommissioning costs of abandoned oil structures. The UK Government call this a tax rebate, but this process meets the WTO, International Energy Agency and IMF definitions of a subsidy. HMRC estimates that the cost to the UK taxpayer will be £18.3 billion—I think that is a gross underestimate. No wonder the risks of stranded assets are not a deterrent to the shameless companies pushing for new licences, because they are a licence to print money. The Government subsidise exploration, shareholders pocket dividends, and when the game is up, the company ups sticks and leaves it to the good old British taxpayer to pick up the tab. Shame on the Government for letting this continue. With vested interests whispering in their ear, it stinks of corruption. None of that tax relief is benefiting workers in the industry or you and me. We do not see the impact on our living costs, our energy bills or at the pump. The RMT union estimates that 12,000 jobs were lost in the industry in 2020. Compare that to Shell receiving £99.1 million in tax from the UK in 2020. The company went on to increase its dividend in 2021, just weeks after announcing plans to cut 330 North Sea jobs, and CEO Ben van Beurden took home $7 million in 2020. The system is rotten to the core.

The Minister will say that we have to protect the sector or we will be dependent on imports of Saudi or Russian oil and gas, but that is just not so. Most of our oil and gas imports come from Norway, and even if more was pumped from the ground, it would have to be placed on global markets and would not benefit UK citizens with lower prices. To reduce volatility and energy costs, the only solution is to produce more home-grown renewables. Put a halt to this madness and help our citizens lower their energy bills and reduce greenhouse gas emissions. Invest in the green transition, get job security for oil and gas workers, and get energy security for the country by moving away from dependency on geopolitically unstable areas.

In ending, I want to go back to the science. The Mauna Loa observatory in Hawaii recorded the highest-ever concentration of carbon dioxide in May 2021. At 419 parts per million, this is the highest since records began. We are in uncharted territory, and the rate of increase of carbon dioxide in the atmosphere is accelerating. The time for arguing and prevaricating is over—we have to stop burning fossil fuels.

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[Lord Lilley (Con)]

Maybe. It seems unwise to have got into a position in which the oil companies are required to do something that they cannot and have not been financing, and to take it to the taxpayer. I think that the noble Baroness will agree with me that up to now there has not been a subsidy. If we did not allow the costs of decommissioning to be offset against the revenues that the oilfields generate, we would effectively be taxing rather than supporting the most ecological activity that we require of oil companies; namely, the removal of what they have constructed in the North Sea.

The second thing that the noble Baroness is against is undue influence on licensing. One of the arguments in my pamphlet about the North Sea giveaway was that giving away those huge resources means that the civil servants who decide on it will be open to corruption. Amazingly, in the ensuing years, I found no evidence of that micro-corruption; nor is there any evidence of macro-corruption, in the sense of the oil and gas industries exercising undue influence. On the contrary, the offshore fields are not being developed—Cambo and the other one whose name I forget—and, onshore, hugely valuable shale resources are not being exploited. It is clearly not the oil industry that is exercising undue influence; somebody else must be. It is not those who want to reduce carbon emissions who are exercising undue influence because, by and large, particularly in the case of shale, if we import gas instead of producing our own—that is the consequence of not allowing shale exploration—we incur greater emissions, not just in transport but in liquefying and then deliquefying gas, which is an energy-intensive process.

There are two ways in which we can meet the net-zero target. One is to reduce demand, and the other is to reduce supply. The sensible way is to reduce demand. If you reduce supply ahead of reducing demand, the price goes up, as we are seeing now; the oil and gas companies make undue profits, which will upset you all greatly, and I do not particularly want to see them make undue profits either; and it will cause difficulties to households in the short term, which is what we are experiencing. I hope that we will see more realistic analysis than we have heard so far.

[Baroness Sheehan (LD)]

I want to ask the noble Lord something before he sits down. I bow to his greater understanding of the finances behind pricing of oil. Maybe he can explain why, in 2019, for each barrel of oil the UK received so much less—$1.72 in tax—than Norway’s more than $21 per barrel of oil. On the supply and demand side, would he not say that it is not one or the other? We need to do both if we are to get to net zero in the timeframes that we have set ourselves.

[Lord Lilley (Con)]

I have not looked at the profitability per barrel and the tax paid per barrel, but I used to do that every day 40 years ago. I assume that it is because our fields are now running down, whereas the Norwegian fields are still far from fully mature. As far as I know, Norway’s tax regime is not hugely different from our own; it was not then. On the question of whether we have to restrict supply as well as restricting demand, no, we do not. If you reduce demand and anyone has supply available and no market for it, they lose money—that is their problem—but if you reduce supply without reducing demand, you raise prices, increase profits to the industry and increase costs to ordinary households.