Reaction to the UK Government’s net zero strategy has been rather muted. Some reports call it “underwhelming” or “disappointing”, but are they being unfair?
Part of the disappointment from some quarters is perhaps because there is very little new. Arguably the general policy and direction of travel is broadly correct: as far as possible the country must be weaned off fossil fuels; make more use of renewable energy sources; decrease energy consumption; and, make every effort to become a world leader in low carbon energy technologies.
The main issue is money. To deliver the strategy, significant public sector funding is a pre-requisite. Other countries have realised this and – despite lagging behind the UK in decarbonising electricity generation – are nevertheless likely to overtake the UK in the race to net zero by allocating much more public money to support nascent technology and attract substantial private investment.
The EU was seen as a leader with various initiatives – Fit for 55, RePowerEU – with billions committed. However, the US Inflation Reduction Act has created extra competition for Europe: $369bn of subsidies and tax incentives to support technology development while aiming to secure a major share of the global supply chain underpinning low carbon energy.
The UK is unlikely to be able to compete with that level of public investment, but it might aspire to find a proportionate amount for an economy of its size. However, last week’s announcements contained only modest government investment and placed a significant reliance on the private sector to deliver the strategy.
The Scottish oil and gas sector, in particular, would have been hoping for more support to have been announced.
Does this mean the oil and gas sector is being consigned to history? The documents suggest the Government actually has a more nuanced position. The strategy talks about the vital role the industry plays in energy transition and the need to maintain it during that time – although, at the same time, there have not been policy steps taken to mitigate any detrimental effects of the Energy Profits Levy on private investment in the UKCS.
Despite the push to Net Zero, the UK will depend significantly on oil and gas potentially until the end of the 2030s, and it makes no economic sense to bring about the industry’s premature demise.
Virtually all UKCS gas production is consumed in the UK so we’d simply be swapping UKCS gas for more imported gas (some of which has a higher carbon footprint).
Oil production is more complex; much from the UKCS is exported but closing down that production has no effect in reducing what we consume – it simply means all oil will be imported.
Laying aside the economics of closing an industry which remains a material part of Scotland’s GDP, the loss of capability and capacity in the supply chain could threaten the UK’s ambition to be a major low carbon technology leader. There are huge areas of overlap in capability between oil and gas, offshore wind, CCUS, Hydrogen and infrastructure supply chains. Avoiding a premature end creates the best opportunity for the UK to transfer that capability to new technologies.
The central North Sea contains geological structures that can store large amounts of CO2 and therefore has major potential for CCUS. It is also on the doorstep of key elements of the supply chain and would be a means of accelerating the transfer of jobs to new industries.
Therefore, while Acorn will likely be a leading carbon capture Track 2 project, it’s disappointing it wasn’t accelerated to Track 1 to boost this transfer.
The production decline curve in the UKCS is likely to see the loss of 40% of jobs before the end of this decade even if many of the larger discoveries are developed. Unless steps are taken to transition jobs to developing sectors and technologies, the loss of key skills will make the UK less able to build capability in key technologies required to be a leading global low carbon energy player.
The Government’s strategy is directionally correct. However, adequate funding and fast action is needed if it wants the UK oil and gas sector to play an important role in the energy transition.
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