Labour wants to 'unleash the North Sea's clean energy future'. What does that mean for oil and gas?

The windfall tax on oil and gas firms will end in 2030 – but the government has pledged to ban new drilling licences to help “unleash” clean energy in the North Sea.

Both policies have been revealed ahead of an eight-week consultation on the future the oil-rich area.

Known officially as the energy profits levy, the windfall tax – introduced in 2022 as prices surged in the wake of Russia’s invasion of Ukraine – will expire at the end of the decade.

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On Wednesday (5 March), energy secretary Ed Miliband confirmed this deadline, initially mooted at the October budget.

The government will consult on what will replace it; one option is a new tax regime pegging levies to oil prices. More broadly, the consultation will focus on how the green transition might be facilitated – a question with huge implications for the climate and the economy.

Miliband pledged to establish an “internationally-leading offshore clean energy industry” – but indicated that “oil and gas production will continue to play an important role”.

“This consultation is about a dialogue with North Sea communities – businesses, trade unions, workers, environmental groups and communities – to develop a plan that enables us to take advantage of the tremendous opportunities of the years ahead,” he said.

Environmentalists have welcomed the process – but so too have oil companies. The former have emphasised the commitment to ending new licenses, while the latter welcomed the end of the profits levy. Currently, fossil fuel polluters are charged a 38% levy on profits made from oil and gas, on top of the permanent tax regime of 40%.

There is still much to be decided– though both express cautious optimism now, it is unlikely both environmentalists and oil companies will be happy at the end of it.

Greenpeace celebrated the “reaffirmation of the government’s world-leading commitment to end our reliance on North Sea oil and gas”.

Tessa Khan, executive director of climate action group Uplift, echoed this.  

“After 50 years of drilling, the North Sea is an ageing, expensive basin – that is a geological reality, not a political choice. Our energy security now relies on the renewable resources we’re lucky to have in abundance.”

Offshore Energies UK (OEUK) chief executive David Whitehouse denied that the consultation spelled the end of the industry. Rather, he welcomed ‘meaningful engagement’ with oil and gas.

“[These] consultations, on both the critical role of the North Sea in the energy transition and how the taxation regime will respond to unusually high oil and gas prices, will help to begin to give certainty to investors and create a stable investment environment for years to come,” he said.

A lot remains unclear. For example, the ban on new oil should mean no new drilling – but some outlets have reported that oil companies could be allowed to increase the size of their fields with “bolt-ons” to existing licences.

The consultation will also focus on the transition to hydrogen, renewable energy and technologies such as carbon capture and storage – and how existing oil and gas jobs can be transitioned to renewable roles.

Unions have previously been critical of the plan, warning of mass job losses akin to those that happened after the closures of the mines.

“Until [we get more information], we need to resist any calls that amount to offshoring our carbon responsibilities for the sake of virtue signalling,” said Unite the union’s general secretary, Sharon Graham. “We must not let go of one rope before we have hold of another.”

However, Khan from Uplift said that the green transition presented opportunities for jobs.

“The government is right to draw a line under new licensing, which won’t slow the decline in oil and gas jobs or boost our energy supply,” she said. “Claims to the contrary are false and a pipe dream. In the past decade, despite hundreds of licences being issued, new licences have delivered just 16 days’ worth of gas, while the number of jobs supported by the sector has more than halved.”

According to industry data, some 441,000 jobs were supported by the oil and gas sector in 2013, falling to 213,000 jobs in 2023.

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