Labour faces moment of maximum danger on North Sea drilling

LONDON — U.K. Energy Secretary Ed Miliband was on the world stage last week demanding high-polluting fossil fuels are phased out of global energy systems. 

“This is an issue that cannot be ignored,” he told the COP climate summit in Brazil. 

Yet this week could see his own government water down commitments to phase out fossil fuels.

Insiders say a drawn-out fight over the future of drilling in the U.K.’s Scottish oil and gas heartlands is finally reaching its conclusion. 

It is a row which has split the governing Labour Party, pitted Miliband against the all-powerful Treasury, and will, some of Labour’s own MPs fear, undermine the government’s climate credentials and expose the party to even more political pain. 

“If a progressive government with a big majority, in the country that started the Industrial Revolution, can’t hold firm on new fossil fuel drilling,” worried one Labour MP, “how can we expect developing countries to do what’s needed to tackle climate change?” 

The MP, along with other officials and experts in this piece, was granted anonymity to give a frank view on sensitive political planning. 

The decisions follow months of full-throated lobbying by fossil fuel companies, who argue tough action against high-polluting oil and gas firms will hit jobs and derail the wider economy — but also by green campaigners, desperate to hold Labour to its promises to make the U.K. a global climate leader. 

And there is a growing risk for ministers that, as the government searches for a compromise to satisfy the party and balance fiscal demands with net-zero ambitions, it will land on a solution which pleases no one at all. 

Licenses, taxes, elections

Two government figures and three figures from industry told POLITICO they expect minsters to announce a decision on North Sea licenses on Wednesday, to coincide with the Budget. 

Labour swept to power last year on a promise to ban new oil and gas exploration licenses in the declining basin, as well as maintaining taxes on high polluters in the North Sea. 

But there is likely to be a “pragmatic” shift on North Sea policy, one of the government figures said. Officials are looking at allowing oil and exploration on existing fields (so-called “tiebacks”) and potentially loosening rules on investment relief, they said. 

Fossil fuel lobbyists argue that, without this sort of help, thousands of jobs and billions in investment are at risk. 

“There is a sense that the industry are not crying wolf this time,” the same government figure said. 

They added that ministers will likely be making decisions with Scottish elections in May firmly in mind — conscious that the future of the oil and gas sector is a priority for many Scottish voters already worried about the decline of the North Sea economy, embodied in the closure of Grangemouth refinery. 

Approving tiebacks would allow Miliband to say he has stuck to his election pledge while still expanding opportunities for oil and gas producers. 

The Treasury is also due to decide the future of the Windfall Tax on oil and gas companies before the end of the year — a levy on profits hated by the industry but used to fund Miliband’s rush to move the U.K. to a cleaner energy system.  

The tax is currently set to remain until 2030, but Chancellor Rachel Reeves is considering scrapping it earlier, in a bid to drive the U.K.’s stalling economy. 

Lobby group Offshore Energies UK (OEUK) claims the country could enjoy a £40 billion economic boost if the Windfall Tax was ditched as soon as next year.  

A fourth industry figure said a decision on whether to approve drilling on the controversial Rosebank gas field — which already holds a license — could also come this week, although the field’s developers think it is more likely in the new year.

Officials from Miliband’s Department for Energy Security and Net Zero summoned OEUK for a meeting Friday in Whitehall, according to two of the industry figures.

‘Politically stupid’ 

The idea of softening fossil fuel policy is alarming some on Labour’s backbenches. 

Referencing the pledge not to allow new drilling licenses, Barry Gardiner, an environment minister under Tony Blair and now a member of parliament’s Environmental Audit Committee, said: “It is a commitment that I am sure the chancellor will wish to honor, given that yet another broken promise or U-turn would be as politically stupid as it would be environmentally illiterate.” 

The pledge, he said, had “sat happily with the U.K’s commitment at the last COP to phase out fossil fuels.”

Fellow Labour MP Clive Lewis said any watering-down would be a “mistake.”  

“It would signal that the government is more focused on reassuring fossil-fuel interests than giving the public a credible plan for energy security and climate stability. Voters aren’t blind to that,” he said. 

But their views are not shared across the party. 

Mary Glindon, a Labour MP in the former industrial city of Newcastle, hosted OEUK in parliament earlier this month. 

“The truth is that our once proud North Sea energy industry is shedding about one thousand jobs a month. … Without renewed investment, I fear for our communities and the prosperity of our young people,” she told an audience of MPs, lobbyists and business leaders. 

Policy in the North Sea must show workers “that we are on their side,” Scottish Labour MP Torcuil Crichton told POLITICO earlier this year.  

Gary Smith, general secretary of GMB Union — traditionally a champion of Labour which represents thousands of oil and gas workers — told the same OEUK event: “This is a crucial moment in terms of the Budget, and if the government gets this wrong on the future that the North Sea, it will be a strategic, long-term disaster for this country.”  

A DESNZ spokesperson said: “We will implement our manifesto position in full to not issue new licences to explore new oil and gas fields.

“Our priority is to deliver a fair, orderly and prosperous transition in line with our climate and legal obligations, with the biggest ever investment in offshore wind and first of a kind carbon capture and storage clusters.”

Pressure all around

Even if the government is willing to upset its greenest backbenchers, it still won’t be enough to win round the biggest backers of oil and gas. 

OEUK, in a letter to Prime Minister Keir Starmer this September, seen by POLITICO, said that “without fiscal reform, changes to the regulatory framework and licensing will be insufficient on their own to transform the outlook for the industry.”

Robin Allan, chairman of the lobby group BRINDEX, also argues potential changes to the industry’s fiscal and licensing regimes would do little to revive the industry. 

“The tweaking and tinkering of existing policies will not make the North Sea an investable basin,” he said. To restore business confidence, he argued, “wholesale reform is needed.” 

There is nervousness inside Labour that attempts to navigate these pressures will leave the government, already struggling with voters, even more vulnerable. 

The Green Party, helmed by media-savvy new leader Zack Polanski, is rising in the polls.  

Labour would be “wriggling out” of their climate commitments if they pushed ahead with tiebacks and Windfall Tax reforms, argued Green MP and the party’s Westminster leader Ellie Chowns.

It would be “politically mad to allow new drilling licences when the Greens are surging in the polls,” argued the same Labour MP quoted at the top of this article. 

“The growing support for the [Green Party] shows that people want honesty, consistency and a transition [to net zero] that protects workers and communities rather than corporate profits,” said Clive Lewis. 

And the pressure would not just come from the left.  

Nigel Farage’s poll-topping Reform UK has promised to let oil and gas companies drill the North Sea basin until it is dry. 

The Conservatives, too, are staking out a much stronger line backing fossil fuels. 

“Anything short of an overturn of the [Windfall Tax] and … a complete overturn of the [licensing] ban is going to fall far short of what the industry needs at this time,” said Tory Shadow Energy Minister Andrew Bowie. 

Think tanks close to Miliband’s own left flank of politics are getting restless.  

Softening the regime in the North Sea might appear to have political dividends by heading off the Tories and Reform, said Alex Chapman, senior economist at the New Economics Foundation, but Labour should resist it. “I think it would be a terrible, terrible decision,” he said.