The Labour Party, led by Keir Starmer, won the latest UK elections with a pledge to halt new oil and gas exploration. While the new government has upheld this promise, it is exploring alternative ways to maintain production.
In February, a Scottish court ruled that the previous government’s approval of two North Sea oil and gas projects—Jackdaw and Rosebank—was unlawful. Climate activists had challenged the approvals, and the court sided with them. However, the Starmer administration clarified that its commitment applied only to new projects, not those already approved by prior governments.
This response signaled that the Labour government’s transition agenda is more flexible than it first appeared. Now, further evidence suggests that renewable energy alone cannot replace oil and gas in the short term. Recent government discussions indicate a strategy to sustain production without violating climate commitments—by using tiebacks.
According to the Financial Times, government documents from a cabinet consultation reveal plans to ensure regulatory support for oil and gas activity that aligns with strategic priorities. The proposed solution involves tapping into oil and gas resources located near existing fields. This method is likely to draw criticism from climate activists, as it still involves fossil fuel extraction. However, for the Starmer government, it offers a compromise that balances environmental and economic concerns.
Beyond ensuring energy production, the government has also decided against renewing the windfall tax imposed on oil and gas companies by the previous administration. Introduced in response to record industry profits during the 2022 energy crisis, the tax is set to expire in 2030. The Labour government has stated it will not extend the measure unless wholesale energy prices reach extreme levels, as reported by the Financial Times.
This decision marks a shift from Labour’s earlier position. When it came to power, the party raised the windfall tax further, prompting backlash from the industry. Energy companies warned that continued tax hikes would drive them out of the UK. Since the tax’s introduction, production has fallen by 10%, causing a $6.5 billion loss in cash flow, according to Wood Mackenzie. The Starmer government now appears to recognize these economic risks, leading to a planned tax reduction from the current 78% to 40% in 2030.
“The government acknowledges that changes to the oil and gas fiscal regime in recent years have led to uncertainty for the sector and its investors,” the Treasury stated in consultation documents, indicating a more industry-friendly approach.
Ultimately, one of the most pro-transition governments is recognizing that hydrocarbons remain a crucial energy source. Labour leaders have also acknowledged that domestic production is preferable to relying on imports.
“For as long as we need oil and gas, banning new licenses never made any sense. In the new geopolitical reality, it is madness,” said GMB, one of the UK’s largest trade unions.
This evolving stance on oil and gas suggests the Labour government may further reconsider its energy policies. If pressures from economic and geopolitical factors persist, it could eventually reconsider the ban on new oil and gas licenses. For now, it seems to be taking gradual steps toward a more pragmatic energy strategy.
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