In the pursuit of a net-zero future, the United Kingdom has embarked on a path that reeks of hypocrisy: aggressively taxing its oil and gas sector while simultaneously relying on it to prop up the economy. The Labour government’s recent hikes to the Energy Profits Levy (EPL)—now at a staggering 78% headline rate—exemplify this contradiction, deterring investment and accelerating the decline of North Sea production. As the industry warns of an impending collapse, a new report suggests that reforming this tax could inject £137 billion ($185 billion) into the UK economy by 2050, safeguarding jobs and energy security.
Yet, instead of fostering growth, policies aimed at shutting down fossil fuels are starving the sector of capital needed to maintain output, all while the US oil and gas industry thrives by balancing profits, investor returns, and environmental stewardship.
The Net-Zero Mirage: Policies That Punish Production
The UK’s commitment to net zero by 2050, enshrined in law since 2019, has profoundly reshaped its energy landscape.
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This ambitious target demands a 100% reduction in greenhouse gas emissions, with the electricity sector aiming for net zero by 2035.
While the country has made strides—cutting emissions by 48% since 1990 while growing the economy by 65%—the oil and gas industry bears the brunt of the transition.
Policies favoring renewables over hydrocarbons have led to a deliberate phase-out of domestic production, with North Sea fields facing accelerated shutdowns to align with emission goals.Critics argue these measures undermine energy security and economic stability. The shift from coal to gas and renewables has been lauded for emission reductions, but it comes at a cost: higher energy prices that outpace those in the US and Europe.
Over-regulation and a hostile political stance toward oil and gas deter investors, with the sector warning that production could vanish “within years, not decades” without fiscal relief.
The Climate Change Committee emphasizes that while targets are achievable, they require robust policy action—yet current taxes push businesses toward gas over electricity, inflating the overall cost of net zero.
Adding insult to injury, carbon pricing mechanisms act as a “hidden net-zero tax,” squeezing British industry and risking widespread job losses in oil-dependent regions.
As demand for fossil fuels declines under net-zero mandates, companies face stranded assets and reduced viability, exacerbating the sector’s woes.
Taxing Profits to Death: Starving the Golden Goose
At the heart of this hypocrisy lies the EPL, introduced in 2022 as a windfall tax on soaring profits amid global energy crises.
Initially set at 35%, it was hiked to 38% by Labour in 2024, extended to 2030, and stripped of a 29% investment allowance that once encouraged reinvestment.
This punitive regime effectively taxes profits at 78%, leaving little capital for drilling to offset natural decline curves in mature fields.
Offshore Energies UK (OEUK) paints a grim picture: without reform, the industry risks collapse, forfeiting billions in tax revenue and thousands of jobs.
A proposed progressive, profit-based model could reverse this, unlocking £137 billion in economic value, boosting output, and creating 23,000 jobs by 2050.
Yet, the government’s short-term revenue grabs—projected at £12 billion extra by 2050 under a reformed 40% rate—ignore long-term perils, including heightened import reliance and compromised net-zero progress.
The windfall tax has already slashed production incentives, with companies halting projects and deferring investments.
In a sector where decline curves demand constant drilling to sustain output, this fiscal straitjacket ensures a self-fulfilling prophecy of shutdowns, all under the banner of environmental virtue.
Lessons from Across the Pond: US Fiscal Prudence and Environmental Balance
Contrast this with the United States, where oil and gas companies are channeling record profits back to investors while maintaining fiscal discipline and advancing environmental goals. In 2024 alone, the global industry distributed $213 billion in dividends and $136 billion in buybacks, with US firms leading the charge amid robust demand.
Majors like ExxonMobil and Chevron prioritize shareholder returns, boasting average project yields of 22%—far outpacing renewables’ 8%—without abandoning sustainability.
US operators are fiscally responsible, using profits to reduce debt, fund operations, and invest in low-emission technologies. Environmental, social, and governance (ESG) frameworks guide practices, with companies plugging methane leaks, enhancing efficiency, and exploring carbon capture to curb emissions.
Higher ESG scores correlate with better financial performance and lower risk, appealing to investors and bolstering competitiveness.
Unlike the UK’s tax-heavy approach, US policies under frameworks like Project 2025 emphasize energy independence, allowing profits to fuel innovation rather than fill government coffers.
This balance—profitable, responsible, and environmentally mindful—demonstrates that hydrocarbons can coexist with climate goals, without economic self-sabotage.
A Call for Sanity: Reform or Ruin
The UK’s energy hypocrisy is unsustainable. By taxing oil and gas into oblivion while preaching net zero, policymakers are eroding the economic foundation that funds the transition itself. As OEUK urges swift reform, the government must heed the warning: a profit-based tax model isn’t just beneficial—it’s essential to avert collapse and harness £137 billion in growth.
Learning from the US, Britain could foster an industry that rewards investors, protects the environment, and sustains prosperity. Without change, the very engine of the economy risks grinding to a halt, leaving net zero as nothing more than a costly illusion.
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