The UK’s oil and gas regulator does not take tax breaks or foreign ownership into account when deciding whether a license is in the national interest
Three climate campaigners sued the UK oil regulator Wednesday to stop them from issuing more drilling licenses.
Kairin van Sweeden, Jeremy Cox and Mikaela Loach challenged the Oil and Gas Authority (OGA) in the high court over its interpretation of a legal duty to “maximise economic recovery” of petroleum.
Their lawyers argued that the regulator failed to consider government tax breaks to the oil and gas sector and the broader climate change context when deciding what was “economic”.
Outside the Royal Courts of Justice in London, Cox told Climate Home News: “All of the decisions [the Oil and Gas Authority regulator]These are the best of what is [based on] whether it is profitable for the oil and gas companies, never mind whether it’s good for the country as a whole.”
If they successfully argue the OGA’s decisions are unlawful then it will have to change how it assesses applications for oil drilling permits. Cox, who was once employed at an oil refinery said that he hoped this would limit or stop new oil and gas production in the UK.
“It’s one of the bricks in the wall of stopping new oil and gas projects because we already know we have more than we can burn to stay within net zero [emissions]2050, keep 1.5[C] alive,” he said.
The UK produced over 1 million barrels of oil a day in 2020, about 1% of the world’s total. The UK declined to join a group that has committed to phasing down production at Cop26 climate negotiations in Glasgow last month.
The case hinges on whether OGA acted unlawfully by failing to include tax in its interpretation of the phrase “maximise economic recovery”, which the government passed into law in 2015.
The claimants’ lawyer, David Wolfe, argued that the government had intended tax to be part of this definition while the OGA’s lawyer, Kate Gallafent, said the government had left the phrase deliberately vague.
“The OGA was unlawful to take out a key building block of ‘maximising economic recovery’, namely the fiscal position,” Wolfe told the judge. When her turn came, Gallafent responded that the words “economic recovery” are “inherently imprecise” and the OGA is not legally obliged to factor in tax.
According to a report by former oil company director Juan Carlos Boué, the UK’s oil tax regime is far more generous to oil producers than neighbouring countries like Denmark, the Netherlands and Norway.
Oil companies do not pay high taxes. Instead, the government pays them back when the oil price drops and they cease making as much profit. They also get tax breaks for the cost to decommission oil rigs. This expense is expected to increase as the world decreases its dependence on oil.
Defending its tax regime, the government’s lawyer Richard Turney said oil and gas extraction was a risky business and the UK’s tax regime must strike a “delicate balance” between getting money in and encouraging oil drillers to come to the UK.
The claimants argued the OGA, which is headed by a former oil businessman, unlawfully failed to take into account foreign ownership and the UK’s net zero emissions strategy when considering whether licenses are in the UK’s national interest.
They stated that only three of the ten largest UK oil drillers are UK-owned. OGA lawyers and the government said that this was irrelevant because they paid taxes in the UK. Wolfe responded for the campaigners and admitted that they had paid tax in the UK, but claimed they often distributed their profits overseas.
Gallafant argued that her client, the OGA, is trying to contribute to the UK’s net zero strategy by reducing the emissions which are a by-product of oil and gas production, like venting and flaring. The OGA does not have the remit or power to reduce “scope 3” emissions which come from burning UK-produced oil and gas, she told the judge.
Catherine Higham from the Grantham Institute, who coordinates the Climate Laws of the World project, told Climate Home that climate court cases have more than doubled in the time since the Paris Agreement was signed in 2015.
“We also see more cases like this one, which are quite clever in that they’re not necessarily challenging the overall targets that the government has… but they are challenging the consistency of specific acts or omissions or policies with their overall targets,” said Higham.
The OGA declined to comment. It is likely that a ruling will take weeks or even months.
Source: Climate Change News