BP refuses to reveal windfall tax, renewable energy spending
Concerns have been raised by MPs that investment in North Sea oil and gas reduces taxation, effectively rewarding fossil fuels over renewables.
When questioned by MPs on Tuesday, BP refused to reveal how much windfall tax it would have paid in the absence of an investment "loophole", while SSE expressed concern that the levy "favors" oil and gas drilling over renewables projects.
BP Vice-President Matthew Williamson told MPs on the business, energy, and industrial strategy (BEIS) committee that he didn't know how much the company would have paid without an investment allowance, which reduces the windfall tax due if a company invests in North Sea oil and gas extraction. He also declined to say how much BP spent this year on renewable energy projects.
Jeremy Hunt, the Chancellor, reduced the investment allowance last week. Companies can only reduce their windfall tax bill by 29% of the funds invested in extraction, down from 80% previously. Hunt also raised the levy's tax rate from 25% to 35% and extended its life by two years.
In a testy exchange, the BEIS committee chair, Darren Jones, asked, “If it wasn’t for the loophole that was put in for investment into drilling for further oil and gas, how much more tax would you have paid this financial year?”
Williamson replied, “Our tax and financial teams will be working that out so I don’t have an answer for that today.”
Investment in low-carbon technology vs. share repurchases
Jones also questioned how BP's $8.5 billion (£7.15 billion) investment in low-carbon technology compares to its $8.5 billion (£7.15 billion) investment in share repurchases. Williamson said, “All I can say is for this year we’re looking at approximately 30% of spend for non-hydrocarbon investment, I don’t have the breakdown for renewables.”
Jones said the questions had been sent to BP before the hearing and said he was “shocked” Williamson could not answer them. Jones asked whether Williamson had requested the numbers from his team. “No I did not,” Williamson said.
BP’s investment scale in renewables projects has been under the spotlight this year. The company has committed to spending £18bn in the UK by the end of the decade but has been urged to reinvest booming profits in greater spending on green energy.
It invested £300m into renewables and “low carbon” projects in the first half of 2022 – the equivalent of just 2.5% of its £12.2bn profits.
BP stated earlier this month that it expected to pay $2.5 billion as a result of the windfall tax, also known as the energy profits levy before Hunt updated it. Shell sparked outrage when it claimed it had paid no windfall tax due to heavy investment in oil and gas drilling.
Separately, the Chancellor imposed a 45% levy on electricity generators to compensate for the "excess returns" seen by renewable and nuclear power companies as electricity prices rise.
Catherine Raw, managing director of SSE's thermal division, told MPs that the investment allowance for oil and gas companies jeopardized Britain's efforts to decarbonize the energy industry. Raw said, “It feels like an unintended consequence and slightly counterintuitive that effectively investment by oil and gas companies is favored to investment by renewables companies.”
She called on the government to speed up plans to aid in powering firms to build business models that incorporate hydrogen and carbon capture and storage (CCS) projects.
Will the UK phase out "unabated gas"?
Asked whether the UK was on track to phase out “unabated gas”, without attached carbon storage project by 2035, Raw said, “If we continue at the pace we’re at today, the answer is probably no.”
She said, “When we look at our own fleet we see two power stations continue to operate post-2030.” She said the phase-out over other power stations would rely on the development of hydrogen and CCS.
Will Gardiner, the chief executive of Drax, was forced to defend the £11bn in renewable subsidies it is expected to have collected by 2027. The subsidy for the UK’s largest power station was called “utterly bizarre” by Daniel Quiggin, a researcher at the Chatham House think tank who also appeared before the committee.
Gardiner said, “We’ve reduced the emissions from 20m tonnes or more to around three and I think that’s a significant achievement for the UK and we’ve contributed to the decarbonization effectively using the system the government has designed.”