By Sophie Squire
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Rigged—how the government helps bosses profit from North Sea oil

This article is over 1 years, 9 months old
Amid deepening climate and energy crises, the world’s biggest fossil fuel companies still find an ocean of profits in the North Sea—thanks to tax breaks and handouts the British government gives them
Issue 2792
A graphic depicts a North Sea oil rig against a background of dollar bills

Fossil fuel bosses get billions in tax rebates

For fossil fuel bosses Britain is a kind of heaven. They can benefit from a privatised energy industry, tax perks—and a Tory party that falls over itself to roll out the red carpet to big business.

And there is one, still lucrative resource—the North Sea.

North Sea oil and gas projects are ­presented as a solution to the energy crisis and rising bills—despite the devastating environmental impact of new drilling. All this is a lie. It’s not to bring down ordinary people’s bills that Tories are rushing to hand out new licences for new North Sea oil and gas projects.

Even if every company had their licences approved tomorrow, it would take years, even decades, for these projects to be operational. There is no way new fields can extract enough oil and gas to stop energy prices from going up by 54 percent in April.

It’s all about making Britain an attractive place for fossil fuel companies to do business. Even Labour’s very limited call for a “windfall tax” on bumper profits was too much for Boris Johnson.

He said this would “clobber the oil and gas companies right now with a tax that would deter investment in gas just when this country needs gas as we transition to green fuel.”

Instead, energy companies operating in the North Sea pay no tax thanks to tax breaks designed to encourage them to do business there. Not only that—they also receive cheques from the HMRC tax office. This is largely thanks to tax rebates supposedly paid to them for decommissioning oil rigs.

Of all the energy companies that ­operate in the North Sea, a third are handed money from HMRC in negative tax. In the 2019-20 tax year, HMRC paid ExxonMobil £177 million, Shell £110 million, and BP £39 million.

BP’s tax rate was minus 19 percent in 2020. The year before, it was minus 54 percent. In contrast Shell paid over £730 million in taxes in Norway in 2019, where the tax rate on the company is at 78 percent.

Outrageously, this new plan to hand money to fossil fuel companies came in 2015—just months after the Paris Climate agreement. That’s yet another example of how little regard ­governments pay to their supposedly green commitments.

But perhaps it’s no surprise that the Tories are so friendly with the oil and gas companies. Between July 2020 and June 2021, individuals and companies involved in North Sea oil and gas ­projects donated £419,900 to the party.

But the Tories aren’t the only ones committed to the fossil fuel industry. The Scottish National Party won’t even back Labour’s call for a windfall tax. But even the windfall tax itself isn’t enough. It allows Labour to dodge calling on fossil fuel companies to be taxed ­properly in normal times—let alone nationalising them.

Taxing companies and renationalisation are important. But they should be the prelude to more radical change. We desperately need an energy system that isn’t based on profit, and which turns it back on fossil fuel use entirely in favour of renewables. 

Renewable energy sources such as wind farms would be much quicker to construct than an oil rig. In fact they would take months, not years, to be fully operational. But to do this, power must be wrestled away from greedy bosses.

A rough history—the North Sea and its exploitation

The bosses have always seen profitmaking potential in the North Sea. BP first discovered substantial amounts of natural gas in British waters about 27 miles off the coast of east Yorkshire, in 1965.

In 1975 oil extraction began at the Argyll field off the northeast coast of Scotland. By the 1980s Britain has become a lead exporter of oil, having extracted two billion barrels of the fossil fuel.  About a decade later Britain also became a significant exporter of natural gas.

For some time Britain was absolutely central to the energy trade. That’s why North Sea Brent crude oil is still used as a benchmark for oil pricing worldwide. But the boom, at times, came at a great cost.

In 1988 a series of explosions ripped through the Piper Alpha rig, 120 miles north east of Aberdeen, killing 167 workers.  The company which operated the rig, Occidental Petroleum Limited, believed that fire was so unlikely there was no need to prepare. It put profits before the lives of workers, as other platforms nearby continued to feed fires with a supply of gas and oil.

Oil and gas extraction in the North Sea hit its peak in 2000-01 and has been in gradual decline since. But energy companies are still drawn to extraction in North Sea. In recent years, new technology has opened up opportunities to keep on drilling.

The appeal of fossil fuel to the bosses in the North Sea has never just been about the resources. The government has, since extraction began, essentially allowed companies free rein there.

Licences historically have been handed out to any major company that wanted them, especially during the 1970s as multiple crises in oil and gas production unfolded.

Business magnate T Boone Pickens remarked in his memoir that fossil fuel companies were easily persuaded to begin exploration in the North Sea.

“I couldn’t help thinking about the great possibilities across the Atlantic, especially when I learned that 50,000 acre tracts were being given free to companies willing to explore them,” he wrote.  “To oilmen used to paying millions just for the privilege of drilling, that was a real incentive.”

The privatisation of the energy industry only opened the door even wider for companies to do as they pleased in the North Sea.

One of the first things Tory prime minister Margaret Thatcher did when she came to office in 1979 was to sell off 5 percent of what was then majority state-owned BP.

By 1987 the government had let go of all control over BP. Then just over a decade later, the Electricity Act of 1990 privatised the whole industry. So now, private companies can make huge profits selling gas all over the world to the highest bidder as energy prices rise.

Sticker in Newington, Scotland demands the Cambo oil field proposals be scrapped.

A sticker in Newington, Scotland demands the Cambo oil field proposals be scrapped. (Pic: Magnus Hagdorn/Flickr)

‘We stopped an oilfield’—campaigner Lauren MacDonald

Climate campaigners last year paused the development of the Cambo oil field. The company responsible for the project, Siccar Point Energy, could not continue construction after Shell withdrew funds.

Lauren MacDonald, an activist in the Stop Cambo campaign, told Socialist Worker that winning mass opposition to the project was essential to win.

“We aimed to stop the oil field, which was due to extract 179 million barrels and would be in commission by 2050,” she said. “By this time Britain is meant to have reached net-zero emissions.”

“The way we played our cards, we got a lot of media coverage and managed to raise a lot of awareness about the oil field.  “This applied a lot of pressure, especially to Shell. There was an intense backlash.

“It became so toxic for the companies involved. The international energy agency stated last year that if we are going to keep global energy rises below 1.5 degrees, there must be no new fossil fuel projects. With such a reputable source saying that, we were further able to gain support from the public.”

Lauren added that this victory proves that climate change is a massive issue for ordinary people despite what those at the top say.

“We see poll after poll that finds that ordinary people are terrified about climate change, but the problem is that so many of us feel powerless. I hope the victory over Cambo has shown that we do have a voice.

“Ordinary people are angry. Instead of investing in a just transition to renewables, the Tories pump money into oil and gas companies. It’s just unforgivable.”

Laura added that the fight to stop fossil fuel extraction is inseparable from the battle against rising energy bills and fuel poverty. “As it currently stands one in four households in Scotland are already living in fuel poverty. I’m already worried about how my family is going to cope.

“The money is there for a just transition away from fossil fuels to renewable energy. Just look at how much the state hands to energy companies every year. And it is also possible for those who work in the fossil fuel industry to be retrained to do green jobs. So no one needs to get left behind.

Lauren wants more people to join the movement to stop fossil fuel projects. “We need to get organised”, she said. “There are over 30 oil and gas extraction projects looking to gain licences. We can’t stop with Cambo.”

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