PwC comments on the Energy Security Investment Mechanism

Colin Smith, Energy and Infrastructure Tax Partner at PwC UK said: 

“The UK government has announced today the introduction of a much awaited price floor which will eliminate the Energy Profits Levy (EPL) in periods of relatively lower oil and gas prices.  

“The floor - referred to as the Energy Security Investment Mechanism - means that UK tax on oil and gas producers will drop to the ‘normal’ 40% rate if both oil and gas prices fall to, or below, $71.40/bbl and £0.54/thm respectively for two consecutive quarters.  

“Given the current volatility of gas prices, achieving both limits in the same period may be unlikely. Indeed, the government’s own announcement mentioned that the OBR does not forecast that prices will fall sufficiently before the end of the EPL period for the Energy Security Investment Mechanism to be triggered. As such, it may be unlikely that this announcement will give the sector ‘certainty’, as the government hopes.  

“The government also launched a review of the fiscal regime for oil & gas companies, as announced in the 2022 Autumn Statement. This review will consider whether and how the fiscal regime can: 

• Support UK energy security and helping to meet domestic energy demand
• Promote the pathway to a net-zero basin by 2050 
• Minimise barriers to investment in greener technologies
• Be made more efficient and predictable
• Deliver a fair return on the nation’s resources

“It has long been our view that the regime is overly complex, with a variety of different taxes, allowances and reliefs, so the aim to increase simplicity and certainty is welcome.”