UK: BP declines to reveal how much ‘loophole’ saved it in windfall tax

BP refused to disclose how much windfall tax the company would have paid if it had not created an investment loophole on Tuesday.

However, SSE, a fellow energy group raised concerns that the levy favours oil and gas drilling over projects related to renewables.

Matthew Williamson, BP vice president, stated that he didn’t know the amount the company would have paid if it had not received an investment allowance. This reduces windfall tax if a company invests in North Sea oil and natural gas extraction. He declined to disclose how much BP spent on renewable energy projects in the year.

Last week, Jeremy Hunt, the chancellor, reduced the investment allowance. The windfall tax bill for companies can be reduced by only 29% of the funds they have invested in extractive activities, compared to the previous 80% discount. Hunt also raised the tax rate for the levy from 25% to 35% and extended its life by two years.

Darren Jones, chair of the BEIS committee, asked in a heated exchange: “If it weren’t for the loophole for investment into further oil and gas drilling, how much tax would you have paid this year?”

Williamson responded: “Our tax and financial teams will be working on that so I don’t have an answer right now.”

Jones also wanted to know how the $8.5bn (£7.15bn), BP has earmarked for buying back its shares compares to its investment in low-carbon technology.

Williamson stated that while we are looking at around 30% spent on non-hydrocarbon investments for the year, Williamson does not have the breakdown for renewables.

Jones stated that the questions were sent to BP prior to the hearing and that he was shocked Williamson couldn’t answer them. Jones inquired if Williamson had asked for the numbers from his team. Williamson replied, “No, I didn’t,”

This year, the scale of BP’s investments in renewables projects has come under scrutiny. The company has made a commitment to spend £18bn in the UK by the end of the decade, but it has been urged not to invest the booming profits in green energy.

BP spent £300m in renewables and low carbon projects in the first half of 2022 – just 2.5% of its £12.2bn profits.

BP stated this month that it expects to pay $2.5bn due to the windfall tax (also known as the energy profits levy) before Hunt updated it.

Rival Shell was angered when it claimed it had not paid any windfall tax due to heavy oil and gas drilling.

Separately, the chancellor imposed a 45% tax on electricity generators to address the “excess return” that is seen by nuclear and renewable power companies because electricity is linked to rising gas prices.

Catherine Raw, managing director of SSE’s power division’s thermal division, said that the oil and gas investment allowance was a risk to Britain’s efforts to decarbonize the energy sector.

Raw stated: “It feels strange and counterintuitive that investment by oil-and-gas companies is favoured over investment by renewables businesses.”

Raw demanded that the government accelerate plans to assist power companies in building business models that include hydrogen and carbon capture-and-storage (CCS) projects.

Raw was asked if the UK was on track for eliminating “unabated gasoline” without an attached carbon storage project, and Raw replied: “If the pace that we are at today, the answer to this question is probably no.”

She stated that “When we look at the fleet, we see that two power stations remain in operation post-2030.” She also said that the development of hydrogen or CCS would be the key to the elimination of other power plants.

Chief executive of Drax, Will Gardiner was forced to defend the £11bn worth of renewable subsidies that it expects to have collected by 2027. Dr Daniel Quiggin, a Chatham House researcher who appeared before the committee, called the subsidy for UK’s largest electricity station “utterly bizarre”.

Gardiner stated: “We’ve cut the emissions from around 20m tonnes to three. That’s a remarkable achievement for the UK. We’ve also contributed effectively to decarbonisation using the system that the government has created.”

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