BIG oil and gas firms can earn more in UK Government incentives than they pay in taxes under a North Sea subsidy scheme, a High Court judge has found.

The finding comes after a trio of environmental campaigners – SNP CommonWeal organiser Kairin Van Sweeden, Edinburgh University medical student Mikaela Loach and former oil worker Jeremy Cox – mounted a bid to have to the state support system ruled unlawful.

Backed by the team behind the Paid 2 Pollute campaign and law firm Leigh Day, they took both Business, Energy and Industrial Strategy Secretary Kwasi Kwarteng and the government's Oil & Gas Authority (OGA) to court.

Mrs Justice Cockerill has now dismissed the claim. However, the challengers say her judgement confirms something previously denied by the Aberdeen-based OGA – that oil companies can profit from the UK's tax regime.

Cox said: "This judgment exposes the absurdity of North Sea oil and gas, where those in government responsible for tackling climate change are able to ignore how taxpayer money is used to prop up the industry.

"We still believe that, in doing so, the Oil & Gas Authority has acted unlawfully by ignoring tax subsidies when approving new fossil fuel projects and we are seeking legal advice on an appeal."

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The campaigners claimed that because OGA strategy ignored tax breaks for drilling firms, the agency could not lawfully conclude whether or not the resulting oil production is of an economic benefit to the UK as a whole – something that's required under legislation.

They also argued that the strategy's knock-on effect is to increase greenhouse gas emissions, conflicting with the UK's legal duty to reach net zero emissions by 2050.

The OGA is charged with achieving Maximum Economic Recovery (MER) of oil and gas in the UK.

Mrs Justice Cockerill ruled that the question of what that means is down to the OGA, not the court, and the consideration of tax flows is not included in the accepted definition of MER. 

Leigh Day says that ruling "effectively allows the OGA, when deciding on new North Sea developments, to ignore in law how payments from taxpayers encourage increased fossil fuel production" and the London court has misinterpreted the matter.

Solicitor Rowan Smith commented: "We consider that the court’s conclusion that it is not its role to interpret the meaning of MER as a statutory term, runs contrary to established principle. We also consider that, in reaching its findings, the court appears to have misconstrued the claimants’ case.

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"It was not about how taxes are set, rather it was the OGA’s failure to consider the effects of taxation as part of its MER assessment, which rendered the strategy unlawful. We are advising our clients on the potential for making an application to the Court of Appeal."

In a joint statement, the claimants said: "Today the High Court ruled against us, but accepted that the UK’s Oil and Gas Authority can ignore the billions of pounds in public money that prop up oil and gas companies when deciding whether or not to approve oil and gas extraction.

"The court also accepted that oil and gas companies may receive more pay-outs in public money than they pay in tax.

"While the court did not think this is unlawful, we think this is completely unacceptable in a time of bumper profits for oil and gas companies and during a climate emergency.

"The court may not have agreed with the legal arguments, but the costs of subsidising oil and gas production are now a matter of the public record.

"The UK Government needs to get a grip and stop passing public money to an industry making huge profits at the expense of the climate and UK households struggling with their energy bills. We urgently need energy policies that have our interests and the climate at their heart.

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"We’ll confer with our legal team regarding our next steps and the possibility of an appeal. Regardless of what we decide, the billions that the UK Government has wasted propping up the oil and gas industry have finally been made public.

"There is no going back. The fight to stop the flow of public money to oil and gas companies is just getting started."

The OGA said: "We welcome the judgement. We remain firmly focused on regulating and influencing the oil, gas and carbon storage industries to both secure energy supply and support the transition to net zero."

And Kwarteng stated: "Turning off North Sea oil and gas overnight would put energy security, jobs and industries at risk - and make us even more dependent on foreign imports This has to be a transition, not extinction."