General election: Why North Sea oil should worry about the markets, not Corbyn – leader comment

Labour leader Jeremy Corbyn. Picture: Stefan Rousseau/PA Wire
Labour leader Jeremy Corbyn. Picture: Stefan Rousseau/PA Wire
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Labour’s planned windfall tax on the oil industry may never come to pass but the future is clear and the markets will punish those who ignore climate change.

The idea that climate change is a serious problem that we must address is now almost universally accepted. For some, the UK should be carbon neutral by 2030, while one of Theresa May’s last acts as Prime Minister was to commit to net-zero carbon emissions by 2050. So we know where we are going, but not how quickly.

Labour’s newly published manifesto promises a “Green New Deal” with the aim of achieving the “substantial majority of our emissions reductions by 2030” and, as part of that, it plans an oil industry windfall tax so “the companies that knowingly damaged our climate will help cover the costs”.

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In response, industry group Oil and Gas UK warned any tax increase would damage long-term competitiveness, “threatening jobs and future tax revenues and needlessly damaging the UK economy”. And, if the windfall tax is of any significant size, this is almost certainly true.

Oil and Gas UK’s website says it wants to “tell the world that we can be a big part of the solution to tackling climate change” and talks about carbon-capture-and-storage (CCS) as being part of that solution.

The sector is a vital part of Scotland’s economy and it’s possible it can remain so, if CCS lives up to the industry’s billing.

However the technology has not yet been shown to be viable, so more work needs to be done – and quickly. Another ‘survival strategy’ could be to diversify into marine renewables, using the skills learned from long experience of working in the North Sea’s hostile environment.

Bankruptcy warning

One thing seems certain: companies that simply ignore the need to fight climate change are going to go bust. That’s not just the opinion of the Scotsman or some stereotypical sandal-wearing environmentalist, it’s the view of the governor of the Bank of England, Mark Carney.

“Companies that don’t adapt... will go bankrupt without question,” he warned earlier this year.

But, and this is one of the most important things to bear in mind, he also said there would be “great fortunes” to be made for those who follow the right path and that capitalism would be “part of the solution”.

So while it looks likely that North Sea oil will avoid Corbyn’s windfall tax, given Labour is currently on course for election defeat, the judgement of the market is coming.

And it will be brutal on those who are found wanting.