To ask Her Majesty’s Government what steps they have taken to ensure that (1) subsidies, and (2) licensing decisions, related to the oil and gas industry are not subject to undue influence from outside interests.
First, I apologise for speaking seated; it is because I sprained my knee. Secondly, I welcome the noble Lord, Lord Offord, to his first outing as a Minister, and I look forward very much to his maiden speech later.
Between July 2019 and March last year, government Ministers had 63 meetings with fossil fuel and biomass producers. That is nine times the number of meetings they had with renewable energy companies. That strikes me as slightly odd: a Government who chaired COP 26 and are meant to be switching to renewables very fast are meeting fossil fuel and biomass companies nine times more than the companies they are meant to be relying on to deliver the sustainable future they promise.
As well as the small private meetings, Ministers also attended hundreds of other larger group meetings with fossil fuel companies and their representatives. Fossil fuel producers were present at 309 of these, compared with 60 for renewable energy generators. Again, I do not understand why Ministers are focusing on a polluting industry that we need to shut down rather than renewables—with all the new job opportunities —which we need to grow very rapidly. But there is a clue, because the Conservative Party under Boris Johnson has taken almost £1.5 million in donations from the energy industry since 2019.
I mention this slightly disturbing fact because my intention in this debate is to draw attention to the fact that we live in a corrupt country run by autocratic Ministers who facilitate their friends pocketing large amounts of public money either directly, via government contracts, or indirectly, through putting holes in the regulatory system. We have seen this recently with the fast-track scheme for PPE contracts, the second-jobs scandal involving MPs, and all sorts of lobbying, such as David Cameron on behalf of Greensill. Money buys access, and access gives you everything from subsidies to licences.
The point I am making is that corruption has real-world impacts on government policy and the lives of ordinary people. If you are in the development industry, it might give you changes to planning red tape. If you are in the energy business, it might buy you another decade of profitable polluting while the planet burns.
We have a Government who are keen to support a polluting industry that is equally keen to support the Government. That might be excused if the oil and gas industry was filling the coffers of the Treasury as well as the Conservative Party, but surprisingly that is not always the case. In a recent court case brought by some climate campaigners, the judge acknowledged that in some years oil and gas companies had paid less in taxes than they received in tax breaks. The judge wrote:
“The claimants point to clear evidence of negative taxation flows in particular years; specifically negative tax flows overall in 2015-16 and 2016-17 of £2 million and £359 million respectively.”
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.
My Lords, I congratulate the noble Baroness, Lady Jones, on securing this debate and look forward to the Minister’s maiden speech later.
We can point to donations or meetings, but I would like to spend a couple of minutes focusing on whether the structures of government are perhaps out of kilter with our modern goals for energy. It appears that there are legacy structures and conflicting goals within government that at times are not joined up.
In 2014, the Wood review was published and made a number of recommendations focused squarely on increasing the efficiency of the UK continental shelf in the extraction of hydrocarbons. The review then informed the Energy Act 2016 and ushered in the Oil and Gas Authority, a government-owned company that has taken over a range of responsibilities from government in relation to overseeing developments in the UK continental shelf. This body’s primary objective is maximising the economic recovery of hydrocarbons. It is therefore not necessarily a question of external influence. Rather, we have created a statutory obligation and a body single-mindedly pursuing a very narrow set of goals within our energy policy. It may be occluding the real energy agenda that we should be pursuing.
At the time of the Energy Bill in 2016, we argued that to create a new body with such a narrow remit represented a missed opportunity. It was clear even then that UK plc’s pursuit of barrels of oil and, to a lesser degree, therms of gas from the North Sea was unlikely to be the biggest priority. It is an old, mature field, and the biggest discoveries were all found decades ago. What remain are very risky and expensive fields, which the bigger operators are now finding it is not in their interests to exploit. When we think about energy security and climate considerations in the round, is it correct and right that we should have this body and this statutory obligation that skew our focus, and potentially the focus of Ministers?
My Lords, I apologise for missing the first few seconds of the debate; foolishly, I was sitting in the Chamber instead of here. I congratulate the noble Baroness, Lady Jones, on securing the debate. I have always longed to agree with her, since I like her so much, and I do agree with her on the two objectives of the debate. I am against subsidies for the oil and gas industry, as I am against subsidies for renewables. I am also against undue influence being brought to bear on government.
The oil and gas resources with which this nation has been endowed by a beneficent providence are, essentially, the property of the people. It is right that the economic rent and value of those resources should be extracted for the benefit of the people and not given away. I first made myself an enemy of the oil industry when I published a document called North Sea Giveaway, advocating that licences should be not allocated but sold to the highest bidder, so as to extract the economic rent. For a while, it actually changed the Government’s policy. That was before I was ever a Member of Parliament; I had more influence then than I do now. Sadly, it did not continue for ever, and eventually Governments and officials went back to allocating, rather than selling, auction blocks.
Instead of extracting the money that way, they tried to do so by imposing a whole range of taxes—the royalty, the petroleum revenue tax and the supplementary corporation tax, all on top of the basic corporation tax that other industries pay. Since 1975, when oil first began to be extracted from the North Sea—I was then an energy analyst in the City—the oil industry has paid over £186 billion in those taxes to the Government.
Beyond the folly of giving away the licences rather than selling them, the idea that the UK subsidises the oil and gas industry is a nonsensical myth. The £4 billion that the noble Baroness mentioned is not a subsidy. Every industry is allowed to offset the costs it incurs to produce revenues against the revenues that those costs generate. The oil industry is no exception, but in that industry some of the costs are incurred after the revenues have been generated—in particular, the decommissioning costs. It is absolutely normal and acceptable for companies to be able to offset those costs against revenues in previous years. They get back tax that they paid on those revenues that were in excess of their costs. That is normal, and to describe it as a subsidy is, frankly, an abuse of language.
I am enjoying this very much, but can the noble Lord comment on the rules that now underwrite those decommissioning costs with taxpayers’ money? As I understand it, that will cost us in the region of £20 billion over the coming years, because we are now underwriting some of those decommissioning costs. Is that not a subsidy?
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.
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.
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.
You could do all sorts of things to reduce demand for oil and gas—requiring people to spend thousands of pounds on shifting from gas to electric heat pumps, that sort of thing. The noble Baroness knows the answer to her own question.
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The judge quite rightly said that focusing on single years ignored the fact that
“the tax position over the life of the concession is at worst neutral”.
We know that the UK is one of the most profitable countries for the oil and gas industry in the world, but we cannot even be sure that it pays its own way in tax.
The Government will claim that there is no subsidy for oil and gas, as they define fossil fuel subsidies as
“measures that reduce the effective price of fossil fuels below world market prices.”
In other words, the Government are giving the industry millions of pounds in tax breaks, but this is not a subsidy because it does not result in lower prices for consumers—well, that is obviously absolutely brilliant. But if the Government do not like “subsidy”, we could just call it “fossil fuel support”. Our Government do not deny the tax breaks; they just make it clear that this does not lower prices—it just enables the companies to make more profit. In fact, it is so profitable that those making money out of this polluting industry have enough spare cash to give it to the Conservative Party. That is obviously something we need to be concerned about.
Of course, if a previous Prime Minister, Cameron, had not cut what he called the “green crap”, our energy bills would be £40 lower each. Imagine how much lower they would be if he had been serious about insulating homes and expanding cheap renewable electricity, reducing our current reliance on foreign gas.
I will not go into all the details of the donations made by the industry, directly and indirectly, as we would need far longer than the hour that we have just to list them. Our self-regulatory system of government does not stop people buying influence. Civil servants are not around to take notes when a Minister attends a party fundraiser where oil executives have paid £12,000 for a seat at the table. Civil servants cannot know what conversations go on when an MP gets a huge donation to the private office a few months before they are appointed as a Minister in charge of projects that the donor wants to push through. It has happened in the past few years and, to be fair, the Minister I am thinking about stepped aside from a major decision—but only after the media contacted them.
The National Audit Office cannot even get access to Ministers’ WhatsApp conversations with party donors about favoured projects, unless the Minister self-declares that they regard the messages as relevant. Even when Ministers have been taken to court to get those messages, suddenly the phone is broken or lost—or they do a Boris, who claimed that messages were lost when he changed his phone number. It is not very nice, is it, quite honestly? It is shameful.
Last year, we chaired COP 26, but the Government are now dishing out a large number of licences for North Sea exploration. I really do not see how that can be compatible with reducing our greenhouse gas emissions. Generic conditions have to be met, but only on new submissions; as I understand it, projects already in the pipeline get a licence without reference to climate change. How is that possible?
Individuals and companies linked to the oil and gas industries have donated more than £400,000 to the Conservative Party in the past year, while the Government mulled over these new licences. There might be parliamentary rules that stop Peers like me from asking Written Questions about the influence that such donations have on the Ministers making the decisions—which I have tried to do, but was stopped—but it is clear and obvious that the influences is there.
We have an acknowledgement that corruption is rife, the negative impacts on our environment are clear, and I really want to hear from the Minister today how we are going to junk the broken system of self-regulation in favour of a more robust legal system that involves either the police or an end to large-scale donations. The days of having a Ministerial Code enforced by someone appointed by the Prime Minister really should be gone. It does not work when Ministers do not play by the rules.
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.
The UK is rightly considered a leader on climate change, thanks to both its domestic actions and its role in international negotiations. It does not sit well for a country such as the UK, a very mature economy that has arguably benefited from the exploration of oil and gas over decades, to be seen to be trying to extract the very last drop of oil and gas out of the North Sea without a real economic case for doing so. We have had decades of relatively stable and secure energy provision. We have managed to provide a secure and affordable lowering of our carbon footprint at the same time, which has benefited businesses and consumers. Our oil and gas efforts in the North Sea and the UK continental shelf have not contributed to those goals; other sources in our energy policy do that job far more effectively. We need only look at the sudden spike in gas prices now to see how a policy based on fossil fuels can undermine our ability to deliver affordable energy.
I turn to the international case. The case will always be stated that we need to extract our oil and gas, otherwise we will be importing from other places. But in reality we do not use the majority of the oil production from the North Sea domestically, because our refineries are not fit for the refining of those oils; most of it is traded. On an economic basis, it does not matter where it is extracted—we will all face the global price set in the traded market—so that argument does not really hold water.
Another often-cited advantage to the UK is the jobs. The jobs in the North Sea oil and gas sector are very limited—around 30,000 direct jobs. Just the low-carbon economy today employs 200,000 employees, so clearly there should be a much greater focus on the low-carbon future sources of energy, rather than pursuing this very narrow goal.
We have not really addressed the problem of how a Government can develop a balanced policy fit for UK plc in terms of a large, rather than a narrow, set of interests. The risk is that, given these high prices, there will yet again be a temptation to invite in the fossil fuel experts. We will probably hear, even today, a call for a return to “drill, drill, drill”, and the idea that finding more resources will be the way out.
I argue that that would distort the reality, which is that we have a vast array of opportunities to exploit energy, which go beyond fossil fuels. We have a huge offshore wind industry and, as we have recently seen, we are granting very large licences to that sector. That is where our future lies, and it would be a mistake to invite in a narrow band of experts, yet again, to dictate to us what our energy policy should be in response to the current energy crisis.
I believe that there needs to be another Wood review—an updated opportunity to look again at what our focus should be for our own indigenous energy sources. It is clear that there are huge challenges ahead of us. From my perspective, climate is the largest of them, but equally there is energy security, and there are economic concerns that we have to address. We have huge potential to secure investment in a range of zero-emissions technologies, but we need to focus on that and make it our priority.
We should see the hydrocarbons in the North Sea in that context. They are no longer our greatest asset; if anything, they will be a net drain on the public purse in coming years. We receive very little in taxation. Let us start a review to assess whether the Government have the right bodies and the right powers in place—and if we are to have an energy Bill, let us look again at the OGA and whether the obligation it was given is correct for 2022.