Unlocking North Sea Potential: Why Reducing the UK Energy Profits Levy is Critical for Energy Security and Economic Growth

The UK's North Sea energy sector stands at a crossroads. Despite holding billions of barrels of recoverable oil and gas, soaring tax rates and policy uncertainty are threatening to strand these assets, risking energy imports, job losses, and economic decline. With the Energy Profits Levy (EPL) now at 38%—the highest in Europe—the UK risks ceding its energy independence to foreign producers. This article argues that urgent tax reform is essential to unlock stranded assets, attract investment, and balance climate goals with energy security.

The Tax Burden Stifling Investment

The EPL, introduced in 2022 at 25%, has surged to 38% following 2024 reforms. Combined with the 30% Ring-Fence Corporation Tax and 10% Supplementary Charge, the total tax rate now sits at 78%—far exceeding the U.S. federal rate of 21%. This disparity has drawn sharp criticism from industry leaders like INEOS, which warns that the UK's punitive regime risks losing £150 billion in potential North Sea investments.

The consequences are already evident. North Sea production has fallen by 15% since 2020, with fields aging faster than new projects are approved. Offshore Energies UK (OEUK) estimates that without reforms, UK oil and gas output could drop to just 20% of domestic demand by 2030, forcing reliance on higher-emission imports. For context, the North Sea currently supports 200,000 jobs and contributes £165 billion in economic value—a figure that could evaporate without investment.

Stranded Assets and the Energy Security Crisis

Over 7.3 billion barrels of recoverable resources lie within 50 kilometers of existing North Sea infrastructure hubs—a zone where tiebacks to existing platforms could reduce costs and emissions by up to 30%. Yet, the EPL's high rate has deterred companies from pursuing these projects. INEOS has publicly stated that the UK's tax regime makes developing these assets “uncompetitive compared to the U.S. Gulf Coast or Norway,” where rates are 40–50% lower.

The result? A looming energy security crisis. A Robert Gordon University study projects that without policy changes, the UK could lose 400 North Sea jobs every two weeks, exacerbating skills shortages and hollowing out coastal economies. Meanwhile, the government's own climate advisor, the Climate Change Committee, acknowledges that even under net-zero scenarios, the UK will require 13–15 billion barrels of oil and gas—a gap that cannot be filled by renewables alone.

The Case for Tax Reform: Balancing Climate and Security

Critics argue that reducing the EPL would undermine climate goals. Yet, the current system fails to incentivize the very investments needed to decarbonize the sector. The Decarbonisation Investment Allowance, now at 66%, is insufficient to offset the EPL's punitive rate. A pragmatic approach would involve:
1. Lowering the EPL to 25–30%, aligning it with global competitors.
2. Reinstating investment allowances for projects integrating carbon capture and storage (CCS).
3. Phasing in a carbon price mechanism (e.g., the proposed Oil and Gas Price Mechanism) to target excess profits while stabilizing investment.

This would free up capital for projects like the Rosebank field, which could produce 300 million barrels while funding £1 billion in CCUS initiatives. As OEUK notes, the UK's £385 billion potential economic value from North Sea production—achieved by meeting half domestic demand—is only possible with tax rates that attract global capital.

Investment Implications: Betting on Fiscal Pragmatism

Investors should monitor two critical signals:
1. Government consultations on post-2030 energy policy, due by autumn . A commitment to lower EPL rates could trigger a rebound in equities like BP (BP.L) and Shell (SHELL.L), which have underperformed peers in Norway and the U.S.
2. Licenses for Rosebank and Jackdaw, whose resubmissions under new environmental guidance could signal a shift toward pragmatic climate policies.

For now, the safest plays are in infrastructure firms (e.g., Wood Group (WG.L)) and CCUS specialists (e.g., Storegga Energy), which benefit from existing projects. However, a tax overhaul could unlock a broader rally in North Sea assets.

Conclusion: Act Now or Pay Later

The UK cannot afford to let fiscal overreach strangle its energy future. Reducing the EPL to competitive levels would unlock stranded assets, safeguard energy security, and create a bridge to renewables. Delaying reform risks a policy-driven collapse in North Sea production—a loss of £165 billion in economic value, 200,000 jobs, and energy independence. The choice is clear: reform now, or pay the price in imported energy and economic decline.

Investors should demand fiscal pragmatism—and position for the rebound when it comes.