Fossil fuel projects that qualify for tax relief ‘could create 899 million tonnes of CO2’

Dozens of prospective fossil fuel projects in the UK that qualify for Rishi Sunak’s tax relief on oil and gas could together pump up to 899 million tonnes of greenhouse gases into the atmosphere, analysis shows.

The chancellor announced last week that energy firms would get a 91p tax saving for every £1 they invested in oil and gas extraction in the UK, to the end of 2025.

Campaigners fear the move could cause companies to accelerate plans for projects that were already in the pipeline in order to benefit from the tax break.

Environmental group Uplift, which campaigns for a fossil free UK, identified 45 planned projects but said that between 33 and 39 of them were likely to be developed in the next three years.

They include Ithaca’s Marigold oilfield, BP’s Clair South project, and TotalEnergies’ Glendronach gas project. The controversial Cambo oilfield could also benefit, it added. On Wednesday, the government granted Shell a new permit to extract gas from the Jackdaw field.

If all 39 projects were approved, they could produce the equivalent of nearly 1.9 billion barrels of oil, which if burnt would emit as many as 899 million tonnes of greenhouse gases. That’s more than double the net amount of greenhouse gases the UK is estimated to have emitted in 2020 – around 405 million tonnes.

Caroline Lucas, Green MP for Brighton, shared Uplift’s concerns. She told The Independent that approving such projects would do nothing to cut energy bills or demand, and clearly wouldn’t cut emissions.

“The chancellor’s utterly unnecessary and downright dangerous tax breaks for fossil fuel companies don’t divert us from climate disaster – they send us hurtling even faster towards it,” Ms Lucas said. “In this year of our Cop presidency, incentivising and escalating the production of new climate-wrecking fossil fuels renders us a laughing stock on the world stage.”

Tessa Khan, director of Uplift, told The Independent: “If the investment loophole causes an acceleration in approval for projects, we will see disastrous consequences for the climate.

“Emissions from these projects in the pipeline are not compatible with the climate promises our government made when signing the Paris Agreement.”

Not all of the 899 million tonnes would be counted in the UK’s emissions, which only include those produced by UK-based businesses and consumed by UK residents.

Euan Graham, senior researcher at climate think tank E3G, agreed that the new tax break would be likely to speed up companies’ bids to get projects approved – a move he said was “undermining our climate safety”.

“This won’t help bring energy bills down, but it will put the brakes on a transition in the North Sea,” he said.

Mr Graham added that some of the projects might have gone ahead anyway, but he questioned whether they were an appropriate use of taxpayers’ money.

As previously reported by The IndependentThe New Economics Foundation claims that the new tax relief will cost the taxpayer around £1.9bn a year, and that it risks short-changing the public further down the road, as by the time the investments start returning profits, the temporary windfall tax on oil and gas profits may no longer be in place.

Climate activists and opposition MPs have criticised the subsidy, pointing out that climate scientists, the United Nations and the International Energy Agency have made it clear that the world needs to stop new investment in fossil fuels if it wants to avoid the worst consequences of climate change. They also asked why the government didn’t extend the incentive to include investment in renewables, or use the money to insulate UK homes instead.

Uplift said the tax breaks could also undermine the shared government and industry target of halving emissions created in the extraction process by 2030 against a 2018 baseline.

The independent Climate Change Committee has already said the target is “well below” the 68 per cent it says is needed by 2030 if net zero by 2050 is to be achieved.

Energy companies have said they are assessing the impact of the new tax relief.

A government spokesperson said North Sea oil and gas were “crucial” to the UK’s domestic energy supply and security for the forseeable future, so it was “right” to encourage investment. The tax break allows for investment in activities to cut emissions, including electrification, they added.

“There are already numerous generous incentives available to bolster investment in renewable energy, including the super-deduction, the UK’s competitive R&D tax relief regime, and the Contracts for Difference scheme – making sure the UK continues to invest in clean energy too.”

You can return to the main Market News page, or press the Back button on your browser.