Skip to main content

Paid to pollute: fossil fuel subsidies in the UK and what you need to know

Following the Paid to Pollute court case Francesca Willow explains how the UK government funnels public money into fossil fuel companies.

In the wake of COP26 in Glasgow last November, governments across the world have come under heightened scrutiny for the support they provide to the fossil fuel industry. Despite branding itself as a ‘climate leader’, the UK government has faced particular push-back from campaigners, as policy decisions show these claims to be nothing more than empty words.

A welcoming place for fossil fuel companies

Currently, the UK’s tax regime makes it the most profitable country in the world to develop big offshore oil and gas projects. Most spending on oil and gas exploration can be offset against tax, as it is classified as ‘research and development’. Almost all spending on new fields can be offset in the first year of development, and companies can claim tax relief for decommissioning offshore installations. 

Since the Paris Agreement, the government has provided £13.6 billion in subsidies to the UK oil and gas industry. From 2016 to 2020 companies received £9.9 billion in tax relief for new exploration and production, including £15 million of direct grants for exploration, and £3.7 billion in payments towards decommissioning costs.

Paid to Pollute legal case

These subsidies were highlighted at the end of 2021, as the Paid to Pollute case was heard at the High Court in London on December 8th. Environmental campaigners Mikaela Loach, Jeremy Cox and Kairin van Sweeden challenged the UK government directly in court, arguing that the state-owned Oil and Gas Authority’s (OGA) approach to offshore oil and gas is unlawful. 

While the hearing in the High Court was scheduled to take two days, the efficiency of the legal teams meant that it wrapped up in one. The hearing followed a public panel with the claimants on December 6th and a rally which was held on December 7th near the courts, with support from a coalition of environmental groups, activists and the general public. 

In early January 2022 the High Court ruled against the claimants but, while this may be a setback, the fight is far from over. While the claimants consider ground for appeal it is vital to remember that this case has always been part of a larger movement. One ruling alone cannot achieve climate justice, and this case has still seen major successes.

Most importantly, the UK government had to concede that oil and gas companies may make more from subsidies than they pay in tax. The government had previously denied this fact but, in an unprecedented development, were forced to admit to it in public record in the High Court. 

While the Court may not have ruled it as unlawful, forcing the government to be truthful about unacceptable levels of profits for oil and gas companies is key to shaping future conversation and resistance to the fossil fuel industry.

Handshake between two male hands with paper cash money in background

How the oil and gas industry benefits from government subsidies

The court case laid out the stark reality of a tax and subsidy system that props up the oil and gas sector at great cost to the taxpayer.

In 2015 the UK legislated an official policy of ‘maximising economic recovery’ of oil and gas in the North Sea. This doesn’t refer to economic recovery after significant damage, instead it is a commitment to continued drilling and exploration until there’s no oil and gas left. Burning the oil and gas in currently operational offshore fields would already exceed the UK’s fair share of the Paris goals; under this policy the UK is set to burn almost three times more than this amount. 

It doesn’t stop there. Oil and gas companies also aggressively lobbied the government for massive tax cuts, meaning giants like Shell and BP have paid next to nothing in tax while receiving hundreds of millions in handouts

Simultaneously, the UK receives less money from fossil fuel producers than its neighbours. In Norway the government receives about $21 per barrel of oil, while the UK receives less than $2. This amounts to the UK taxpayer propping up big polluters who give nothing in return, all the while risking the future of the planet.

Extracting more fossil fuels, and not paying tax

To avoid the worst impacts of climate breakdown, oil and gas production needs to rapidly decline and no new fossil fuels can be extracted. In the High Court the claimants challenged the Secretary of State for Business, Energy and Industrial Strategy, currently Kwasi Kwarteng and the OGA (the the state-owned Oil and Gas Authority - of the 13 members of the OGA’s board and senior management team, 8 previously worked in the oil and gas industry and 3 still hold shares in oil companies, including OGA chair, Tim Eggar).

The activists argued that the policy of maximising economic recovery fails to account for the billions of pounds of public money already used to support the oil and gas sector. Instead, it encourages production of oil and gas that benefits the industry, rather than the entire UK. They also stated that the OGA’s strategy is irrational and inconsistent with the UK’s legal duty to achieve net zero emissions by 2050, as it will lead to more extraction, and therefore more emissions, than if fossil fuels are left in the ground.

These arguments are understandable when we examine what these subsidies are actually used for. 

In 2020 Shell paid negative $99.1m in tax to the UK.

During the peak of Covid-19, the UK was the only country where Shell operated where it didn’t pay tax, instead directly paying $100m to Shell.

Shell’s CEO received $7M, while the company announced plans to cut 330 North Sea jobs in January 2021, subsequently announcing an increase in its shareholder dividend in February.

This is indicative of a wider trend. Loach, claimant in the case, climate activist and medical student, said:

“The UK government’s support for new oil and gas not only undermines global climate goals and any sense of climate justice, it also risks wasting huge amounts of public money on projects that are more likely to line polluters' pockets than bring any real economic benefit to this country. 

As a country with significant historical responsibility for the climate crisis, the UK has an obligation to be one of the first to move away from oil and gas production, deliver a just transition and, like Scotland, commit to financing communities that are already dealing with the impacts of the climate crisis.”

Oil rigs in the sea Scotland

Bosses win, workers lose

While many would associate the concept of maximising economic recovery with job protection, instead the oil and gas sector is increasingly volatile for workers, with jobs becoming more insecure and unsafe.

During the pandemic thousands of oil workers across the UK were furloughed or fired, while executives and shareholders received millions of pounds in payouts.

According to a 2020 survey, 80% of offshore oil and gas workers would consider changing jobs, indicating public mood doesn’t align with government policy.

The UK recently ended public support for fossil fuel projects overseas. Ending support for domestic extraction is both a logical move and a way for the UK to prove itself as a true ‘climate leader’. Global North countries like the UK have the resources, skills, and a powerful renewables industry, leaving them perfectly equipped to demonstrate true leadership in the transition to a decarbonised future.

Moving away from fossil fuels

Instead of using public money to prop up a declining industry, the UK has the potential to be the first major oil and gas producing country to move away from fossil fuels, setting a powerful precedent for the rest of the world. 

With proper government policies, green industries can create three times as many jobs as oil and gas. A just transition led by workers, unions and affected communities presents multiple opportunities for a brighter future, and this begins with stopping the flow of public money to the oil and gas industry.

There’s now a very public conversation about the huge amounts of money used to prop up fossil fuels, and that conversation isn’t going to go away. The pressure created by the case will only increase until the government stops supporting companies that are fuelling the climate crisis and starts prioritising local communities.

And, let us not forget, across the world people are winning the fight for social and climate justice. Towards the end of 2021, Shell pulled out of the Cambo oil field and Siccar Point Energy put the project on pause.

A few weeks later, a court in South Africa ordered Shell to cease its oil exploration activities after massive global opposition.

The work continues, and the movement will not be deterred. And remember that justice is within our reach.

What can consumers do?

There are many ways to continue the fight against fossil fuel subsidies and spread the word.

About the author

Francesca Willow is an artist, writer and founder of the website Ethical Unicorn. She aims to take a holistic, fact-based approach to sustainable living and social justice; believing that regenerative futures require a combination of consumer choice, inter-sectional collective action and policy change.

Read an interview with Francesca and Ethical Consumer.