Environmental groups challenge government over ‘unlawful’ support

Environmental groups have brought a legal challenge to the UK Government for supporting “unlawful” plans for North Sea oil and gas production.

The “Paid to Pollute” campaign – led by Greenpeace, Friends of the Earth Scotland and 350.org – claims the Oil and Gas Authority’s (OGA) new strategy relies on public funding for fossil fuels, which would otherwise be “uneconomic” to produce.

Three people representing the campaign have applied to the High Court for a judicial review into government support for the strategy, which came into force in February and defined what is “economically recoverable”.

It puts legal obligations on the oil and gas industry to achieve net-zero emissions, while also maximising economic recovery. These aims are not in conflict, it is argued, because domestic supply offsets carbon-heavy fuel imports.

But Rowan Smith of legal firm Leigh Day, representing Paid to Pollute, said OGA’s stance was both unlawful, with regard to the terms of its legal duty, and “irrational”.

He added: “It will result in increased levels of oil and gas production, in conflict with the UK’s legal duty to achieve net-zero emissions by 2050.”

OGA, named as one of the defendants, alongside UK Energy Minister Kwasi Kwarteng, declined to comment.

A spokeswoman for the Department for Business Energy and Industrial Strategy said it was aware of the legal proceedings but declined to comment further.

Trade body OGUK said: “Our industry has never been the recipient of subsidies, has contributed £350 billion to the UK economy since oil and gas production began, and will use its essential expertise to accelerate the transition to a low carbon economy.”

Valerie Allan, partner in the Aberdeen office of law firm CMS, said the case was part of a “rising trend” of campaigners using legal proceedings to “put pressure on the regulators and the wider industry”.

She added a recent survey conducted by CMS into causes of disputes found “net-zero and energy transition are among the most significant areas concerning the industry”.

Paid to Pollute’s case highlights “tax breaks” for the sector, which now pays less to the Treasury than it did before fiscal measures were introduced to protect it during a previous downturn.

The campaign group also cites hundreds of millions of pounds of rebates awarded to operators for decommissioning, which the National Audit Office has estimated could cost taxpayers £24bn.

Operators can use tax revenues paid on their oil production in the past to offset future decommissioning costs.

Derek Leith, Aberdeenbased global oil tax leader at professional services giant EY, has compared this to a “loan” that operators give to the government once they start production and repay when decommissioning starts.

It means that some firms, like Shell, have effectively paid no taxes to the Treasury in recent years.

But Shell has insisted this is “not the full picture”, highlighting the Brent field alone has contributed more than £20bn to UK coffers.

OGA’s legal mandate also includes making large cuts to the cost of decommissioning in order to protect Treasury coffers, publishing an updated “decom” strategy earlier this week.

COURT: The ‘Paid to Pollute’ campaign – led by Greenpeace, Friends of the Earth Scotland and 350.org – claims the OGA’s new strategy relies on public funding for fossil fuels.