Last month, more than 40 oil and gas firms operating in the North Sea signed a letter addressed to the Treasury expressing "grave concerns" following the Government's decision to raise the Energy Profits Levy from 3% to 78%, extending the tax by one year until 2030.

Referring to the tax plans, introduced by the previous Conservative Government in May 2022, as a "blunt response" which risks jeopardising future investment and incurring job losses, the letter argued that the Government's proposals "risk operators - big and small - further scaling back or postponing their investment plans in response" and warned that, "the ramifications will be felt throughout the supply chain, through jobs, and the communities this industry supports, both directly and

indirectly".

It also claimed that a punitive tax regime would shift investment away from a transition to renewable energy, stating that "the companies investing in nascent opportunities like floating offshore wind and CCS will require the cash flow from a stable and predictable oil and gas business to fund these opportunities".

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The letter was published by oil and gas trade association Offshore Energies UK, whose Chief Executive David Whitehouse argued in The Financial Times that the windfall tax has "meant that so far this year we are at historical lows for wells drilled in the North Sea and that fundamentally means we are not seeing the investment that the sector needs".

While the North Sea basin is in terminal decline, with the amount of oil and gas produced by new licences since 2010 amounting to just over two weeks worth of domestic demand, this has little to do with an excessively harsh tax regime having deterred investment.

In fact, despite generous tax breaks, the North Sea oil and gas industry has become a net drain on the taxpayer over the past decade. According to Green Alliance research, between 2016 and 2020, oil and gas companies received £9.9 billion in tax relief for new exploration and production, combined with £3.7 billion in relief for decommissioning costs.

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Despite this, in 2019, the British Government received less than $2 in revenue per barrel of oil - compared to a figure of $22 per barrel for the Norwegian government - and, between 2015 and 2017, the British government made a net loss from North Sea production, subsidising it to the tune of £361 million, while decommissioning costs grew as a proportion of total operating costs, reaching 15% in 2017.

Stuart Dossett, senior policy adviser at think tank The Green Alliance, disputed that North Sea oil and gas firms would be deterred from investing in an energy transition by allegedly punitive tax rates.

"Amid surging energy prices in recent years, oil and gas companies have seen record profits and left households to foot the bill," he explained to Byline Times.

"These companies have chosen to spend those profits on payouts to shareholders rather than reinvesting in new renewable energy projects. In 2022 Shell made £32 billion, its highest profits in 115 years.

"Of that, 65% was given to shareholders, dwarfing investment in renewable energy projects at just £2.8 billion and even oil and gas investments at £10 billion. We know these companies are not short on cash, they are simply choosing not to invest in renewable energy generation," he continued.

Will an Extension of the Windfall tax Harm Energy Security?

Chris Weaton, an analyst at investment bank Stiefel, was quoted in The Financial Times as saying that the extension of the Energy Profits Levy would "cause a very dramatic decline in investment and therefore production and jobs, and a big hit to energy security".

However, as gas production has declined by around 67% since 2000, the majority of what remains in the North Sea basin is...