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Do High Oil Prices Justify an Increase in Taxation in a Mature Oil Province? The Case of the UK Continental Shelf

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  • Carole Nakhle

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    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

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    Abstract

    In response to the structural shift in oil price coupled with greater import dependency, concerns about security of supply have once again emerged as a major policy issue. The UK, the largest producer of oil and natural gas in the European Union, became a net importer of natural gas in 2004, and, according to Government estimates, will become a net importer of oil by the end of the decade. A weakened North Sea performance means extra reliance, both for the UK and Europe as a whole, on global oil and gas network and imports. In 2002, the UK Government introduced a 10 per cent supplementary charge and in 2005, doubled the charge to 20 per cent in an attempt to capture more revenues from the oil industry because of the increase in the price of crude oil. However, higher tax rates do not necessarily generate higher fiscal revenue and in the long term may result in materially lower revenues if investment is discouraged. It is therefore argued that the increase in the fiscal take came at the wrong time for the UK Continental Shelf and that the UK Government’s concern should have been to encourage more oil production from its declining province, especially in the light of the rising concern surrounding the security of supply.

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    Bibliographic Info

    Paper provided by Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey in its series Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) with number 116.

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    Length: 42 pages
    Date of creation: Feb 2007
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    Publication status: Published in Energy Policy 35(8), pp. 4305-4318. (Revised Version)
    Handle: RePEc:sur:seedps:116

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    Keywords: Petroleum Taxation; Energy Security; Oil Price;

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    References

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    1. Zhang, Lei, 1995. "Taxing Economic Rents in Oil Production : An Assessment of UK PRT," The Warwick Economics Research Paper Series (TWERPS) 445, University of Warwick, Department of Economics.
    2. Paul G. Bradley, 1998. "On the Use of Modern Asset Pricing for Comparing Alternative Royalty Systems for Petroleum Development Projects," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 47-81.
    3. Rutledge, Ian & Wright, Philip, 1998. "Profitability and taxation in the UKCS oil and gas industry: analysing the distribution of rewards between company and country," Energy Policy, Elsevier, vol. 26(10), pages 795-812, August.
    4. T. R. Stauffer & John C. Gault, 1985. "Exploration Risks and Mineral Taxation: How Fiscal Regimes Affect Exploration Incentives," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    5. Dieter Helm, 2005. "The Assessment: The New Energy Paradigm," Oxford Review of Economic Policy, Oxford University Press, vol. 21(1), pages 1-18, Spring.
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    Cited by:
    1. Dinwoodie, John & Tuck, Sarah & Rigot-Müller, Patrick, 2013. "Maritime oil freight flows to 2050: Delphi perceptions of maritime specialists," Energy Policy, Elsevier, vol. 63(C), pages 553-561.

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