A No to Windfalls and a Yes to Win-Wins

Article by David Simmonds CEng FIChemE

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In the face of rising pressure, are there any alternatives to imposing a UK windfall tax on the oil and gas sector?

THE UK Government faces growing calls to impose a windfall tax on the oil and gas sector’s record profits in a bid to ease the cost of living crisis. As the pressure continues to grow, I’m torn between supporting calls for industry to keep its cash or give it up.

When I see people struggling with high energy prices in a society that has to do much more to combat climate change, the answer is "yes" – we should impose a tax on Big Energy. However, there’s also this other voice inside me saying "no"; a fashionable windfall tax is superficially attractive and easily sold, but with consequences that will bite in the long term.

My dilemma is one many are facing within our chemical engineering community. We have worked many years for energy companies that have contributed to the climate crisis, yet we recognise that fast action is required to redress climate change and that these same energy companies have a huge role to play in engineering the green transition.

Greenpeace has made a strong argument that: “A windfall tax on oil and gas giants’ bumper profits is the only fair way to tackle the cost of living and climate crises simultaneously.”

Yet, the industry saw its income drop earlier in the pandemic, and I’d argue it’s better to let the energy companies retain their cash and use that additional financial muscle to stimulate innovation and implement new technologies that provide benefits beyond the short-term.

Yes, people will respond to that by saying that this only happens if those developments can create profits, but to be successful their investments have to be win-wins, where that profit too can fund change. So let's see if there are any potential win-wins from today’s  dilemma, particularly ones which can reduce fuel poverty and address climate change.

Having sought win-wins throughout my career, I believe there is an alternative to the straight yes-or-no answer, one where Big Energy gives more itself. I offer four lines of thought, two specific and two broader initiatives which help address these challenges.

Building heat loss efficiency

I expect higher energy prices are likely to be with us for an extended period. Consequently we need to help consumers, particularly those struggling with fuel poverty, to reduce their energy demand. This will simultaneously support our climate change objectives. Like others, I was disappointed to see that the UK Government’s new energy strategy offers nothing to improve the efficiency of our homes and other buildings.

This gap in the strategy provides an opportunity for the energy sector to directly offer more support, providing more technical expertise, specialists and grants linked to consumers’ energy contracts. In particular I see an opportunity for what I call "heating architects" to provide more impartial advice for insulating and heating buildings. Indeed I would like to see the energy companies collaborating to form an energy efficiency initiative that directly helps consumers, allowing their experienced engineers to jointly lead on the technical rollout of measures that directly help the public.

Electric vehicle charging

Many energy companies are starting to get into the market to support greener transport through provision of electric vehicle charging points. Their commitments to accelerate the deployment of these across fuel station forecourts will assist governments with their electrification targets. However I strongly believe there is a further role for energy companies to stimulate better standardisation of car charging, though I do recognise that standardisation to reduce costs can limit innovation, which is an alternative route to cost reduction.

However, I would contend that the energy sector has well managed both standardisation and innovation over the last century, and so has the capacity to assist. Examples of this include the rollout of natural gas in the 1960s to replace Town Gas, the promotion of LNG projects across the globe, and the standardisation of fuels across our forecourts, (including unleaded fuels), so let's put them on the spot to deliver.

While on EVs, another opportunity is for energy companies to contribute to developing and implementing battery recycling technologies to reduce battery ownership costs. There are already a number of initiatives in this area, but the major energy companies could – and should – help scale up these initiatives quickly using forecourts as recycling hubs.

Energy transition cooperation

There are a number of regional initiatives for decarbonising local industry, again well reported in The Chemical Engineer. Many energy companies are involved in these initiatives, but I contend that increased cooperation between companies will enhance the delivery of these programmes. When I was working in the sector in the late 1990s the UK Department of Energy sponsored cooperation between companies on low-cost satellite technologies for oil and gas. This produced a number of new initiatives, the acceleration of new technology deployment and a reinvigoration of North Sea production. More recently, while working in Africa, I looked to see how cooperation between a major gas development and other sectors could promote local cross-sector development opportunities.

I believe that such approaches to cooperation could deliver real results for our energy transition, for example towards accelerating better integration of conventional oil and gas and renewable energy technologies, and by enhancing cooperation between energy companies and other sectors, such as fertilisers and food, to reduce both short- and longer-term costs. An example of the former would be to plan a transition from natural gas through blue hydrogen and on to green hydrogen over a number of years, while the latter could support cheaper processes for fertiliser production. 

Explaining the energy market

Not a solution per se, but an inhibitor to the debate, is the wider lack of understanding of how the energy market works. Many consumers are confused as to how some energy companies have collapsed, while others have prospered. Earlier this month, The Times reported that energy prices have dropped here in the UK partly due to lack of gas storage, contradicting earlier reports that they rose because we didn’t have enough storage!

As those involved know, the story is complex and the scale significant, so we need to find a better way of communicating the challenges of why, for example, renewables on their own will not be able to fully meet our winter peak energy demands. This will help everyone better understand the constraints on the energy transition including the scale of future investment needed at the macro level, while also informing consumers on the most appropriate solutions for their future energy needs.

As to whether the energy companies do this directly is another question, as given public sentiment many will not believe them. Personally I believe they should look to organisations such as UK Climate Change Committee and other organisations actively involved in directing policy to assist; even the BBC’s Energy Brief could be more explicit on the challenges. Where appropriate, energy companies could circulate briefing packs to their own staff, so that they too can better articulate responses to questions on the topic.

What next?

I am sure that, with its additional cash, there are other ways the sector can support consumers to reduce their energy costs, and I open it up to our wider community to identify further win-win opportunities. In particular I strongly believe that if the sector were more on the front foot, and communicated and collaborated more, it would be able to better demonstrate how it is benefiting society. In developing countries, oil and gas majors have long been asked to provide social programmes to support their investments. Legislating for this in a developed nation or imposing a windfall tax will push investment away, so a more flexible and practical approach is needed.

It may be too late, but I would call upon the chemical engineering community to use its expertise and positions of management influence to encourage the sector to enhance its standing with the Government and improve its wider public perception, by offering practical solutions to today’s challenges; stimulating cooperation as an alternative to a windfall tax.

Article by David Simmonds CEng FIChemE

Retired engineer. Former Director of Simmonds Energy and Senior Manager at BG Group and Shell

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