The UK’s government may lift the controversial 35% windfall tax it imposed on the energy industry last year in response to the supply crunch that sent energy prices soaring.
The decision comes amid a consistent decline in energy prices and would come into effect once these prices fall below a certain level, Bloomberg reported, citing an unnamed source in the know.
The energy price level, at which the tax would potentially cease to apply is yet to be determined.
Reports about the possibility of lifting the additional tax burden that the industry resented loudly first emerged in March, when City A.M. reported that the government was considering putting a floor on the tax for fear that Norway’s Equinor might decide to pull out of the Rosebank offshore gas project because of the additional levy.
Indeed, the security of investments has been the primary focus of critics of windfall taxes both in the UK and elsewhere, as industry leaders warned additional taxes would lead to a reconsideration of investment decisions and, as a result, lower oil and gas supply and higher prices.
As early as February, the UK’s oil and gas industry association, Offshore Energies, warned that with the windfall tax the total tax burden of oil and gas operators had risen to a massive 75%.
It was the highest tax burden of any industry in the UK, the body said, noting that many operators were already announcing lower investments and deferring drilling plans. They were also pulling out of new projects.
After the windfall tax was raised, Harbour Energy, the biggest oil and gas producer in the UK North Sea, backed out of the ongoing licensing round aimed at awarding more than 100 new licenses. Shell has said it would be re-evaluating each project comprising its $30.5 billion (25 billion pounds) planned investment in the UK energy system, and TotalEnergies has said it would slash its investment in the UK by 25%.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com