Finance (No. 2) Act 2023

12 Energy (oil and gas) profits levy: de-carbonisation allowance

(1) The Energy (Oil and Gas) Profits Levy Act 2022 is amended as follows.

(2) In section 2 (additional expenditure treated as incurred for purposes of section 1), for subsection (3) substitute—

“(3) For the purposes of section 1 the company is to be treated as if, in addition to the investment expenditure (“the IE”) incurred by it in the accounting period, it had incurred in that period—

(a) expenditure of an amount equal to 80% of the amount of the IE, in a case where the expenditure is capital expenditure on the de-carbonisation of its upstream petroleum production, and

(b) expenditure of an amount equal to 29% of the amount of the IE, in any other case.”

(3) In that section, after subsection (4) insert—

“(4A) For the purposes of this section, where a company incurs expenditure part of which is capital expenditure on the de-carbonisation of its upstream petroleum production and part of which is not, the expenditure is to be apportioned on a just and reasonable basis.”

(4) After that section insert—

“2A Section 2: meaning of expenditure on “de-carbonisation of upstream petroleum production”

(1) Expenditure incurred by a company is expenditure on the “de-carbonisation of its upstream petroleum production” for the purposes of section 2 if—

(a) the expenditure is incurred in qualifying circumstances, and

(b) the main purpose, or one of the main purposes, in incurring the expenditure is to reduce greenhouse gas emissions in the carrying on by the company of its ring fence trade.

(2) For this purpose expenditure is incurred in qualifying circumstances if—

(a) it is incurred on the provision of an alternative energy asset which is to be used for the purpose of generating or storing power for use by the company in its upstream petroleum facilities,

(b) it is incurred on the modification of an asset so that it becomes an alternative energy asset which is to be used for that purpose,

(c) it is incurred on the provision of an asset (such as a cable or substation) where the asset is to be used to make a connection to the electric grid or to an alternative energy asset so that (in either case) the company can use the power generated in its upstream petroleum facilities,

(d) it is incurred for the purpose of reducing or eliminating flaring or venting,

(e) it is incurred for the purpose of capturing greenhouse gas emissions, or

(f) it is incurred for the purpose of monitoring or measuring greenhouse gas emissions (including with a view to detecting leaks of greenhouse gas emissions from the company’s upstream petroleum facilities).

(3) For the purposes of this section an asset is an alternative energy asset if the asset generates or stores power (wholly or mainly) from sources of energy other than fossil fuels.

(4) For the purposes of this section references to a company’s upstream petroleum facilities are to any facility used by the company for the purposes of its oil extraction activities.

(5) In this section—

• “the electric grid” means—

  (a)

  in Great Britain, anything which is a transmission system, or a distribution system connected to a transmission system, for the purposes of Part 1 of the Electricity Act 1989, or

  (b)

  in Northern Ireland, anything which is a transmission system, or a distribution system connected to a transmission system, for the purposes of Part 2 of the Electricity (Northern Ireland) Order 1992,

• “emissions” has the same meaning as it has in the Climate Change Act 2008 (see section 97),

• “fossil fuel” has the meaning given by section 32M of the Electricity Act 1989, and

• “greenhouse gas” has the same meaning as it has in the Climate Change Act 2008 (see section 92).”

(5) In section 3 (section 2: meaning of “operating expenditure”), for subsection (5) substitute—

“(5) In this section “tariff receipts” has the meaning given by section 291A of CTA 2010.”

(6) In section 18(1) (interpretation)—

(a) after the definition of “energy (oil and gas) profits levy” insert—

• ““facility” means a platform, an oil well, a platform well, an oil well head or upstream petroleum infrastructure,”, and

(b) omit the “and” before the definition of “ring fence trade” and after that definition insert—

• ““upstream petroleum infrastructure” means any upstream petroleum pipeline, oil processing facility or gas processing facility (as those expressions are defined by section 90 of the Energy Act 2011 but as if that section also applied (with the appropriate modifications) to Northern Ireland).”

(7) The amendments made by subsections (2) to (4) have effect in relation to expenditure incurred on or after 1 January 2023 and the amendments made by subsections (5) and (6) have effect in relation to expenditure incurred on or after 26 May 2022.