Carbon Tracker recently submitted a response to the British Government’s consultation about the energy future of the North Sea. As decarbonisation continues to accelerate, the question of how we use the North Sea’s energy resources to support economic growth is becoming increasingly pressing. Our response to this important consultation is below.

Question 1

1a) What role can government play to ensure that local workers can benefit from the growth of these new energy sectors?
Please let us know your views:

The consultation rightly emphasises the declining nature of the North Sea basin and the limited potential for new oil and gas, with production volumes and jobs falling year-on-year regardless of the government in power. A ramp-up of clean alternatives is the only option for a country like the UK if it wants to avoid becoming increasingly dependent on rising imports, some of which would need to be sourced from unreliable partners, or even actively hostile governments. Local workers can benefit significantly from an expansion of the sectors listed, with the right policy framework in place. However, we would caution against over-optimistic plans for both carbon capture, usage and storage (CCUS) and hydrogen, which risk creating unfounded expectations and future disappointment. Recent years have seen investment into, and deployment forecasts for, these technologies scaled back significantly as the hard economic facts have become more apparent. Expert bodies including the International Energy Agency and the Climate Change Committee have revised their forecasts downwards, and it is now clear that they will have significantly smaller roles than previously believed. The government should therefore be more selective around where these costly technologies are truly needed, given electrification is likely to be the more desirable option in most cases, as the CCC’s Seventh Carbon Budget acknowledges. However, a focus for CCUS on sectors where there are no alternatives, such as cement, would require a departure from the current cluster-driven model.

We have explored these issues in a number of reports in recent years, including Curb Your Enthusiasm. There is a need for a more balanced view of CCUS, based not only on speculative jobs and GDP contribution forecasts (on which more independent studies are needed), but the significant, long-term subsidies that would be required to sustain the industry and the persistent technical challenges – and the attendant opportunity cost of these. We would also emphasise the particular risks of pursuing gas-based CCUS and hydrogen projects, from both an energy security and climate perspective. These will deepen the UK’s dependency on volatile gas imports, including in the form of LNG from the US, which is associated with high methane emissions. This issue, which we explore in our Kind of Blue report, gets to the heart of why efforts to reduce oil and gas production must be coupled with an equal focus on driving down demand.

1b) In addition to the investments in clean energy industries outlined in this section, are there any other areas you think should be targeted
for investment?
Please let us know your views:

The rapid scaleup of clean energy will only be feasible if planning barriers are removed, and it is for this reason that we welcome the government’s proposals to speed up clean energy project approvals. Grid investment must also be a strategic priority if the UK is to fully capitalise on its clean energy potential – a topic we explore in our Gone with the wind? report. The government’s target of near 100% clean power by 2030 will be impossible to achieve without it. Beyond existing European interconnectors, the government should champion ultra-long interconnector projects to unlock the vast offshore wind resources of the North Sea. This is a critical enabler of energy security and export opportunity. As Europe explores connections to North African solar, the UK should be equally ambitious – exploring long-term visions like a Transatlantic power cable to help balance peak energy demand across continents. Building out future offshore grids would position the UK at the centre of a clean, interconnected energy system.

1c) What opportunities do you foresee for the oil and gas industry to invest into clean energy?
Please let us know your views:

While there may be some opportunities for oil and gas producers to transition into clean energy where there is clear transferrable expertise, such as in geothermal, we do not view the sector as necessarily being best placed to drive the transition – a topic we explore in our Navigating Peak Demand report. Even before the recent cutback of investment into clean energy by European listed oil and gas companies, the sector accounted for a negligible share of clean energy investment, as the IEA has noted. Offshore wind is undoubtedly a major opportunity for the UK given its resources but this does not have to be deployed by oil and gas companies. An attempt to transition fully into green energy may not be in the best interest of either shareholders or current employees.

Question 7

7g) Where do you see the main opportunities in a) Offshore wind b) Floating offshore wind, c) CCUS (T&S) d) hydrogen e) decommissioning for the oil and gas supply chain?
Please share your views on offshore wind:

As discussed in relation to Question 1a, we believe the economic and industrial opportunities for CCUS and hydrogen are often exaggerated and should be approached with caution. With regard to decommissioning, a key opportunity lies in accelerating decommissioning of mature, depleted fields – not just as a supply chain growth area, but as a necessary risk mitigation strategy. Delaying decommissioning increases the likelihood that costs will ultimately fall to the taxpayer, especially where remaining asset revenues are insufficient to cover end-of-life liabilities. This risk is well illustrated in Carbon Tracker’s There Will Be Blood, which, while focused on US wells, highlights a principle highly relevant to the North Sea: the longer decommissioning is deferred, the higher the risk of shortfall. Bringing forward timelines would support supply chain certainty, retain offshore capabilities, and reduce fiscal exposure.

Question 9

9) How can we manage future oil and gas production from existing fields, in a way that accounts for the interdependencies across existing
assets and supports an orderly transition across the basin? We would welcome examples of technical or commercial dependencies including
timing-related considerations if relevant.
Please let us know your views:

The consultation is right to highlight the inevitable decrease in North Sea production, and thus it is important not to give false hope to workers about the prospects for a declining industry. Continued investment in new production risks becoming economically stranded as oil and gas demand falls and other, lower-cost producers are better able to compete. The concept of stranded asset risk has been a consistent theme of Carbon Tracker research over the years, and this is a very real risk in the North Sea – for workers, businesses and investors – and an issue explored in our North Sea blog.

Question 11

11a) To what extent do you agree or disagree that this position on new licenses will support the UK to set a globally leading example in
tackling climate change?

Agree

Please let us know your views:

An end to new licensing will help bolster the drive for a global fossil fuel phaseout, particularly in the face of current geopolitical headwinds and challenges for the multilateral regime on climate. The move sends a strong signal to investors and would be consistent with the ambitious NDC the government published in January. Such a policy also opens up avenues for the government to engage in initiatives such as the Beyond Oil and Gas Alliance. However, an end to exploration licences would still enable the continuation of development consents for licensed fields, hampering the UK’s ability to call for greater climate ambition. The government should thus consider its policy on such consents – particularly in the case of projects which have yet to reach a final investment decision. As the consultation acknowledges, there is a significant gap between current production plans globally and the goals of the Paris Agreement.

11c) Aside from oil and gas, are there any other sectors you think would be affected by these proposals? If yes, how would they be affected?

Yes

If yes, please provide your views on how they would be affected:

It is important for these proposals to be considered within the context of the Government’s overall strategy for decarbonisation. The government’s industrial strategy green paper, Invest 2035, highlights clean energy industries as one of its key “growth-driving sectors”. The paper also states the government’s commitment to sustainable growth, one which is aligned with net zero and environmental objectives. Government actions on oil and gas will therefore send meaningful signals to the range of sectors that will be benefit from the transition to a low-carbon economy, within transport, buildings and digital industries – including AI.

Question 13

13a) Which of the following options for revising the principal objectives, if any, do you prefer?

Multiple primary objectives

If you selected other, please specify:

The government is right to revise the objective of “maximising economic recovery” in line with its net zero ambitions. What is currently considered “economic” is to some extent based on assumptions about future oil and gas prices, which are likely to fall as demand substitution gathers pace. Two revised principal objectives should be instated, firstly to further economic growth in support of net zero, drawing directly from Invest 2035, and secondly to support energy security and resilience. The latter should flow from the need for energy security to be “reassessed and reframed in a rapidly changing world”, as emphasised at the recent IEA/UK Summit on the Future of Energy Security.