The UK’s largest oil and gas firm, Harbour Energy, has ramped up industry calls for a price floor to be included as part of the windfall tax as oil and gas prices start to fall.
The industry was expecting the mechanism to be attached to the Energy Profits Levy, meaning the windfall tax would not be applicable if oil and gas prices receded to ‘normal’ levels.
But the price floor was not included in either the latest budget or last week’s energy security plan.
The FTSE 250 company said the lack of a price floor could jeopardise both fossil fuel projects and future carbon capture and storage (CCS) developments.
“Industry has repeatedly asked government to introduce a floor price mechanism into the levy to ensure the tax is appropriately targeted at realised windfall profits and ceases to apply when oil and gas prices fall,” a spokesperson for Harbour told City A.M.
“The current design of the EPL impacts long term decision-making and risks undermining the otherwise welcome news on advancing technologies like CCS that will underpin the UK’s transition to a lower carbon energy system and be developed in large part by oil and gas companies,” they added.
Harbour’s comments come after North Sea oil and gas firm Ithaca Energy warned yesterday that the lack of a price floor, as well as the UK’s unstable investment climate, could jeopardise its involvement in the massive Rosebank oil and gas field.
David Whitehouse, chief executive of industry body Offshore Energies UK, echoed the warnings of both North Sea operators, and said the windfall tax as a whole risks deterring investment.
“We should be aiming to get as much as possible of that energy from our own resources – meaning the North Sea,” Whitehouse argued.
“The windfall taxes will prevent that from happening. They are driving investment out of the UK,” he said.
“When prices fall, as is already happening, the windfalls will disappear – but the tax will remain because it is locked in place till at least 2028,” he added.
However, environmental think tank Green Alliance said that adding a price floor to the windfall tax would simply be another “loophole” for oil and gas companies, highlighting the tax investment relief already included in the scheme.
“Adding further loopholes to the tax regime for oil and gas would be an incredibly poor deal for UK taxpayers, who won’t see any reduction in their energy bills as a result,” Heather Plumpton, a policy analyst at the think tank, said.
When approached for comment, The Treasury argued the windfall tax “strikes a balance” between using excess profits to fund efforts to tackle the cost of living crisis while the investment relief encourages further investment in the UK’s energy security.
A spokesperson said: “We have been clear that we want to encourage reinvestment of the sector’s profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay.”