UK’s tax breaks for oil and gas ‘unlawful’ and harm climate action, court hears

Image Credit: Sabrina Merolla/Zuma Press Wire/Rex/Shutterstock

The strategy being pursued by the UK government’s oil and gas regulator and business secretary is “unlawful” because it fails to regulate tax breaks for oil and gas companies, a court has been told.

The hearing today at the Royal Court of Justice in London also heard that the latest Oil and Gas Authority (OGA) strategy, which came into force in February, is not consistent with the government’s legal commitment to cut greenhouse gas emissions to net zero by 2050. 

During proceedings, a lawyer acting on behalf of the government argued that OGA could only regulate direct emissions from the industry and does not “have the power” to regulate emissions produced when the oil or gas is burned.

The judicial review was brought against two defendants, the OGA and the Secretary of State for Business, Energy and Industrial Strategy (BEIS). The OGA is an offshoot of BEIS, and the current business secretary Kwasi Kwarteng is listed as OGA’s sole shareholder. 

The case, supported by the environmental non-profit Uplift and the Paid to Pollute campaign, was brought by three claimants: Mikaela Loach, a climate activist and medical student at the University of Edinburgh, Kairin van Sweeden, an SNP Common Weal organizer and the daughter of a Scottish oil worker, and Jeremy Cox, a former oil refinery worker. They were joined in court by Uplift Director Tessa Khan. 

It is the latest example of the courts being used to challenge governments and companies over climate policies and the extraction of fossil fuels, and comes days after Shell pulled out of the Cambo North Sea project, putting the future of the development in question.

Paid to Pollute claims oil and gas companies have received billions in tax relief and towards the costs of decommissioning projects since the Paris Agreement, though the government disputes this. 

David Wolfe QC of Matrix Chambers, acting for the claimants, argued that tax breaks for oil and gas companies had left the government worse off—or with “net negative tax revenues”—in two years out of the past six, and that this could provide an “incentive” for companies to increase extraction. 

He argued that the failure of the OGA strategy to include taxes made it “unlawful”, because it contradicts the government’s objective, set out in the 1998 Petroleum Act, of “maximizing the economic recovery of UK petroleum.” 

Wolfe said “the exclusion of taxes” from OGA’s regulation of the sector is “based on a misdirection” of the law, and that “the tax position is absolutely part of ‘economic recovery’”. 

Wolfe also argued that this potential “incentive” for oil and gas companies might lead to an increase in greenhouse gas emissions, making it incompatible with the government’s legally-binding net zero targets. 

OGA and BEIS had a legal team of at least seven people in court against the claimants’ three. Acting for the defendants, Richard Turney of Landmark Chambers denied that the UK government was paying “subsidies” to oil and gas companies. 

Kate Gallafent QC of Blackstone Chambers, also for the defendants, argued that taxes were a matter for the Treasury, and are not OGA’s responsibility. She said the claimants were focusing on taxes and overlooking “other benefits” the oil and gas industry provides, such as jobs. 

On OGA’s interpretation of the need to “maximize economic recovery,” Gallafent said that a “pre-tax methodology is the correct approach” and a “long-term practice”. 

‘No power’ to regulate indirect emissions

Regarding the tax breaks’ impact on the climate, Gallafent added that the OGA is not able to regulate Scope 3 emissions – those that arise from burning fossil fuels—saying “we can’t stop Scope 3 emissions because we’re not in charge of transport” and electricity, adding: “We don’t have the power in relation to Scope 3 emissions.” 

In his rebuttal, Wolfe said it is in OGA’s power to consider taxes when regulating the sector, and that this could impact emissions and net zero targets. 

The arguments were concluded in the day’s session, doing away with the need for the hearing’s second day. Mrs Justice Cockerill said she would make her judgment known “soon”. 

A government spokesperson recently told the Guardian that the UK did not pay any fossil fuel subsidies: “No other significant oil and gas-producing nation has gone as far as the UK in supporting the sector’s gradual transition to a low-carbon future, as demonstrated by our North Sea transition deal.

“While we are backing the UK’s transition to green energy, there will be ongoing but diminishing need for oil and gas over the coming years, as recognized by the independent Climate Change Committee.”


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