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Friends of the Earth Scotland and energy campaigners Uplift have written a pre-action letter to Mr Kwarteng advising him of a potential claim for judicial review.
They said the UK Government is lawfully bound to take responsibility for the decision to approve or reject the Cambo oil field contrary to “claims that it cannot intervene”.
If given the go-ahead, the Cambo site could yield as many as 255 million barrels of oil over its lifetime, according to environmental campaigners.
They estimate the 132 million tonnes of CO2 emissions that could be produced would require an area of land some 1.5 times the size of Scotland to counteract them.
The Department for Business, Energy & Industrial Strategy (BEIS) previously said Mr Kwarteng “is not involved in the decision whether to grant consent for the Cambo oil field”.
But the campaigners claim the Energy Act (2016) allows the Secretary of State to give directions to the Oil and Gas Authority that are “in the public interest”.
In their letter, the groups say that should the department maintain its current position, they are “likely to commence judicial review proceedings seeking declarations as the Secretary of State’s legal error(s)”.
Tessa Khan, lawyer and director of Uplift, said: “The Government has repeatedly tried to shirk responsibility for this decision, claiming the process is controlled by the regulator, the Oil and Gas Authority (OGA), and that it ‘cannot intervene’, but they are wrong.
“They can and must use the power they have to stop this new and damaging fossil fuel development.
“For a Government that enthusiastically took back control from EU regulators to be suddenly cowed by a UK regulator doesn’t make sense.
“Kwasi Kwarteng is bound by law to be involved in the decision to approve or reject the Cambo oil field. To claim otherwise is unlawful.”
Dr Richard Dixon, Friends of the Earth Scotland director, said: “The climate can’t afford new oil and gas projects like the Cambo field which would be spewing devastating climate pollution for decades.
“The recent code red climate warning makes it absolutely clear that we must urgently transition away from fossil fuels if we are to limit further climate breakdown.
“The Government does have the power to stop Cambo and it must use that power instead of trying to wash its hands of this dirty development.”
A BEIS spokeswoman said: “As we have previously stated, the Cambo oil field was originally licensed in 2001 and consent for development of the field is a matter for our expert regulators, the Oil and Gas Authority (OGA), and the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED), following their standard regulatory processes.”