The UK government will keep the Energy Profits Levy (EPL) in place through 2030, following through on its pledge to maintain the policy introduced as European energy prices skyrocketed following Russia’s invasion of Ukraine in 2022. The decision was confirmed by the North Sea Transition Authority (NSTA) and the Department for Energy Security and Net Zero following approval of the national budget on 26 November.
The windfall tax raised the effective tax rate on oil and gas production from about 40 to 78%, making the UK Continental Shelf (UKCS) one of the most expensive areas to operate in the world. The government has said it plans to replace the EPL with a new fiscal framework by 2030.
Industry groups and oil and gas companies have argued that the levy will inflict lasting damage long before then and warn that it has already drained the appetite for new investments across the mature and declining basin.
The Labour-led government also reaffirmed that it will not issue new exploration licenses but will allow operators to expand existing producing fields or develop nearby unlicensed areas, if they can be developed via subsea tiebacks.
The NSTA said in a statement that its approach is designed to see that existing projects “remain economically viable and are managed for the entirety of their lifespan,” while emphasizing that new exploration would be “incompatible” with national climate commitments.
The regulator noted that falling production has already cost the UK an estimated 70,000 jobs between 2016 and 2023. UKCS output has dropped 75% from its peak of about 2.9 million B/D to roughly 630,000 B/D in 2024.
Industry group Offshore Energies UK (OEUK) issued a sharp response to the government decision, calling it a “bitter blow” to the nation’s energy workforce that will cost it an estimated £50 billion ($66.1 billion) in upstream investment.
“The future of North Sea energy depends on investment, which won’t come without urgent reform of the windfall tax. If the levy stays in place beyond 2026, projects will stall and jobs will vanish, no matter how pragmatic licensing policy becomes,” David Whitehouse, CEO of OEUK, said in a statement.
OEUK reiterated that the UK is now on track to import 80% of its oil and gas by 2030. Domestic production decreased 40% over the past 5 years and is projected to drop by another 50% by 2030. “This is an accelerated decline driven by government policy, not geology,” Whitehouse added.
The Aberdeen and Grampian Chamber of Commerce (AAGC) also criticized the decision. “The UK Government has accepted, through their announcement on tiebacks, that their policy towards a sustainable future for the North Sea is completely and utterly flawed, risks terminal damage to the UK’s energy security and is proving economically ruinous,” said Russell Borthwick, CEO of AAGC.
“But limited flexibility on licensing is immaterial if those companies producing the energy we need are taxed at a crippling rate of 78% until 2030. They cannot invest or survive while the EPL remains in place,” he added.
London-based Harbour Energy, one of the basin’s largest producers, followed the policy announcement by saying it would further reduce headcount as a result of the EPL remaining in place. On 1 December, the company announced plans to cut 100 offshore positions, adding to the nearly 600 roles eliminated since the levy was introduced in 2022.
“Harbour's UK business unit will continue to struggle to compete for capital within our global portfolio while the EPL remains,” Scott Barr, managing director for Harbour, said in a statement to media.
The UK government plans on starting a program next year to support UKCS oil and gas workers to find new jobs in renewable energy, defense, and advanced manufacturing sectors. The UK government has also committed £9.4 billion ($12.4 billion) to support carbon capture, utilization, and storage projects, many of which will involve offshore locations.
The government is also expected to decide next year whether to approve the license for the Equinor-backed Rosebank oil field. The project was originally licensed by the previous Conservative-led government but was delayed after a court ruled that regulators must account for the emissions generated by the end use of the produced oil and gas, known as Scope 3 emissions.
