NEW analysis by Wood Mackenzie has warned that Labour’s proposed North Sea tax grab could result in carbon capture and offshore wind projects being shelved.
Sir Keir Starmer has proposed extending and increasing the energy profits levy by three percentage points to 78%, and would also cut investment allowances and ban new drilling licences.
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Unions have spoken out to raise their concerns about the plans, while analysts at investment bank Stifel have since suggested that anywhere between 20,000 and 100,000 jobs could be at risk if North Sea investment is to cease.
The plan is part of Labour’s mission to accelerate the energy transition – but Wood Mackenzie has warned that renewables projects could be jeopardised by the party’s aggressive tax plans for oil and gas.
“An accelerated demise of the UK’s oil and gas sector may play well with some voters, and the cancellation of future projects will reduce expected future emissions from the sector,” the report states.
“But several upstream companies are also heavily investing in energy transition projects. All CCUS projects and some key offshore wind projects are reliant on cashflow and profits from the upstream sector to support their development.
“Without the revenue from upstream, these projects are at risk of being delayed or shelved altogether. A distrust in the government’s stewardship of upstream may lead to reduced appetite for these investments. This could have significant implications for key pillars of the UK government’s legally binding net-zero commitment.”
The report also puts forward some scenarios for North Sea oil and gas investment if Labour are to win power on its current policy platform.
It estimates that if investment were to collapse, the lack of new pre-FID fields would see UK oil and gas production drop from an estimated 1.2 million boepd today to 630,000 boepd by 2030 – a reduction of 52%.
And while Labour has suggested the new 78% tax rate would bring the UK in line with neighbouring Norway, Wood Mackenzie also warned against direct comparisons. In addition to its consistency, Norway’s tax system allows all capital costs to be deducted; if this creates a loss in any year, the government will refund the companies for 71.8% of the loss.
Wood Mackenzie said it found no mention of a similar reimbursement in Labour’s manifesto.
The policy is instead more likely to accelerate early cessation of production and decommissioning. This would reduce tax receipts from foregone production and bring forward tax relief for the decommissioning costs, in what the briefing describes as a “double blow” for the exchequer.
