Oil and gas producers have expressed relief after the Albanese government reached an agreement with the Greens.

The government has secured a deal to pass a tax increase for fossil fuel projects in Commonwealth waters, without agreeing to the minor party’s demands for more severe hikes.

The deal, made on Thursday, clears the way for the government to enact new laws reforming the Petroleum Resources Rent Tax (PRRT). 

This tax applies to offshore oil and gas projects, but there is concern that Australians have not been receiving a fair return from the export of their natural resources.

The proposed changes are expected to generate an additional $2.4 billion over the next four years by bringing forward deferred payments and reducing permissible deductions, the government announced.

Woodside, the largest Australian oil and gas company, welcomed the passage of the PRRT legislation “without further amendments”. 

Woodside is the largest payer of the PRRT, contributing $681 million under the tax last year. 

“The legislation ... provides certainty for industry to consider future investment decisions,” a spokesperson said.

Despite the wide support from oil and gas developers for the proposed tax reforms when they were introduced last year, the opposition withheld support without reductions to environmental regulations that hinder new projects.

In exchange for the Greens’ support for the bill, which is now set to pass the Senate with the votes of Senators Tammy Tyrrell and Lidia Thorpe, the government agreed to postpone draft laws intended to expedite development approvals for new offshore gas projects.

“This is a big blow to the coal and gas corporations, a big win for the climate and First Nations voices, and it happened because the Greens have power in parliament,” Greens leader Adam Bandt said.

Labor says it remains committed to these reforms and plans to reintroduce them to parliament at a later date, likely after the next election, due by May next year. 

However, the decision to defer the push for now drew criticism from the peak oil and gas industry group, Australian Energy Producers, which described the offshore approval system as “broken”.

Santos’ $5.8 billion Barossa project in the Timor Sea and Woodside’s $16.5 billion Scarborough venture have faced costly delays due to ambiguity in the rules governing community consultation requirements, exposing them to legal action from environmental groups and traditional owners.

Australian Energy Producers chief executive Samantha McCulloch said regulations should provide clarity and certainty for industry while maintaining comprehensive and meaningful consultation. 

“The expected passage of the government’s PRRT legislation provides a level of certainty to the industry to assess future investment decisions,” she said. 

“However, securing this should not be at the expense of fixing the broken offshore approvals system.”

The federal government recently released its ‘Future Gas Strategy’, describing gas as fundamental to the nation’s transition to net-zero emissions and indicating that new production fields would receive stronger federal support. 

McCulloch noted that deferring offshore regulatory reforms was inconsistent with the strategy, which listed offshore regulatory reform as an “immediate action”.

The PRRT, currently levied at 40 per cent of taxable profit on offshore oil or gas projects, allows for generous deductions for capital investments. 

The changes legislated on Thursday will introduce a cap on the use of deductions, limiting the proportion of assessable income that can be offset by deductions to 90 per cent.

The Greens have long criticised the PRRT’s rate of taxation compared to the billions of dollars in profits made by companies such as Woodside, Chevron, and Santos, particularly since 2022 when profits surged due to the war in Ukraine, which exacerbated a global energy crunch and drove up commodity prices.

With the Greens initially advocating for much higher tax rates, the oil and gas industry was concerned that the government might agree to larger increases to secure their support. 

Treasury investigated a range of other reform options, identifying one option for significant structural change to the complicated tax regime that would net an extra $16 billion by 2050.

Independent Senator David Pocock has criticised the Greens for agreeing to a “dud deal”, which he says locks in a weak rate of taxation for gas companies and fails to cut back on greenhouse gas emissions. 

“They’re going to dud Australians on a fair return on our resources, on our gas, which we’re currently giving away to multinationals to export, make a lot of money, and then minimise their corporate tax here in Australia,” Pocock said. 

“Australians want better, and they deserve better.”