Public Accounts Committee report calls on government to get a better handle on future fossil fuel infrastructure decommissioning costs

The Public Accounts Committee (PAC) of MPs has today published a new report warning there is “significant uncertainty over costs to taxpayers of decommissioning offshore oil and gas assets”, as well as a “poor understanding” within government of the potential liabilities associated with decommissioning fracking assets.

The report calls for a clearer strategy from government to minimise decommissioning costs, establish the UK as a global hub for offshore decommissioning expertise, and take steps to ensure taxpayers do not “pick up a hefty bill”  to decommission fracking infrastructure.

The report notes that HM Revenue & Customs (HMRC) estimates oil and gas companies will pass on £24bn of decommissioning expenditure to taxpayers through tax reliefs, but there remains a wide range of possible future costs as most companies are still improving the certainty of their cost estimates.

Work is on-going to reduce the cost of decommissioning, but the PAC argues savings could be maximised if the government developed a more coherent strategy to support the sector.

“There is potential for the UK to become a global leader in decommissioning skills and technology but we are concerned that the Department for Business, Energy and Industrial Strategy (BEIS) does not yet have a clear plan for maximising the potential economic benefits,” the report states.

The report also raises fresh concerns about how tax breaks and wider support for the oil and gas industry could run counter to the UK’s carbon targets.

“The Department… needs to ensure its support for oil and gas remains compatible with its other activities aimed at achieving climate change goals, including ensuring alignment with the development of carbon capture, usage and storage, which could potentially reuse offshore oil and gas assets,” the report states.

“Taxpayers will incur costs running to billions for oil and gas decommissioning, but it is far from clear what these costs will be in practice,” said PAC chair Meg Hillier, MP. “The Oil and Gas Authority must bring greater certainty to its cost estimates. Together with the Department for Business, Energy and Industrial Strategy it should be transparent about how these estimates measure up to reality, and explain exactly what impact it is having on reducing costs.”

She added that it was “concerning that the Department has not yet properly set out the terms for how fracking assets will be decommissioned”.

Hillier argued the government must now come forward with a plan for decommissioning fracking assets before the industry grows further. “It would be wholly unacceptable for taxpayers to pick up a hefty bill that could have been reduced had more timely action been taken by the government,” she said.

A BEIS spokesperson defended the tax relief on offer to the industry and the government’s wider strategy for establishing the UK as a leader in decommissioning expertise.

“The oil and gas industry employs around 280,000 people, meets around half of our energy needs and has contributed over £334bn in taxes,” he said. “By providing tax relief on decommissioning we are attracting continued investment into our reserves, supporting jobs and further boosting the economy. We are working with industry to minimise costs and recently launched a call for evidence on how we will seize the £80bn export opportunity to turn the UK into a global hub for the decommissioning. Click here to read more