We have a responsibility to use engineering talent to stop carbon being released into the atmosphere and to remove what’s already there. The North Sea better do it quickly or it will face the future like a dinosaur observing a fast-approaching space object. Not only are we seeing a rapid decline in appetite for oil and gas projects, but also UN climate predictions suggest we need to reduce the carbon in our atmosphere by a compounded 7.6% annually for the next decade.
It is not responsible to argue that the world can yet do without hydrocarbons nor that we should stop producing all domestic reserves and rely on unstable regimes with questionable environmental records to sell us energy no questions asked. We must use our expertise, our resources, and our ethical standards to ensure an orderly, rapid and just transition with the utmost respect for the consequences of our actions.
All is not lost for the North Sea, however, because it is here investors access reservoirs. Reservoirs of hydrocarbons, reservoirs to store carbon dioxide, reservoirs of legacy infrastructure and reservoirs of engineering talent. It is our responsibility to organise these into projects that demonstrate rapidly reducing carbon impact. The financial markets will dictate, and those who move quickly will be rewarded at the expense of those who stand still.
The world is shifting towards electric energy as it can be created cleanly. For more than a decade Xodus has advised the renewables sector, including on offshore generation and plant electrification. However, in some applications – such as shipping, heavy haulage, smelting and heating – the power density, transmission cost and weight of hydrogen provides advantages over battery charging and HVDC cables, especially if existing infrastructure can be re-deployed. The expertise in generation, containment, transmission, compression, and combustion developed by the oil and gas industry is directly applicable.
No scenario for reduced emissions currently eliminates the need for removing carbon dioxide from the air. How and where it is captured is one part of the puzzle, the other is where it should be stored. One solution is to put it back where it came from – into depleted oil and gas reservoirs. Doing this can delay the decommissioning of infrastructure and create an economic benefit to asset owners, which reduces the net cost to capture and store carbon.
Carbon will become expensive and difficult to handle (think asbestos) – the cost of responsible disposal will need to be factored into industrial and domestic settings. Rightly, society will soon make it unacceptable to ‘fly tip’ carbon into the atmosphere. How to price carbon and by doing so send clear signals on the business opportunity in carbon reduction is vital.
The UK ETS carbon emissions trading scheme is expected to launch this month. The UK Government has an opportunity to send clear price signals to investors via policy by setting a minimum price floor for each tonne of emitted carbon – recent EU ETS prices imply £40-45 per tonne would be a sensible starting point, given recent EU ETS price signals. This price could be revised periodically. There is a temptation to assume that the cap-and-trade market mechanism in the scheme will find the ‘right’ price. Similar arguments were made against introducing a minimum wage in the UK. All sides of the UK political spectrum now agree it was the right thing to do. Markets are not good at pricing certain externalities – especially climate risk where the effects are cumulative and thus harder to estimate.
In addition to effective carbon pricing mechanisms and policies to support, comes the need to manage ‘carbon leakage’. This occurs when polluting activities in the production of goods, are transferred or encouraged in countries where carbon policy is lax, to the unfair detriment, of countries with emissions taxes. In an effort to lessen carbon leakage, a carbon-based adjustment mechanism or “CBAM” involving carbon tariffs and or taxes at borders, as goods flow across those borders, is required.
This is particularly true when considering North Sea gas and potential alternative sources of supply originating from other parts of the world.
In all cases, the same themes emerge: engineers will play a vital role in saving our environment; all new projects must clearly understand their carbon impact; and financiers must be bold to not reject all carbon producing projects – but invest to minimise and remove carbon and understand their carbon risk exposure. We have the opportunity right now to think differently about carbon pricing, policy and tools for carbon flows across borders. This will provide clear incentives for investment to make a positive and lasting impact for the good of all humanity.
Recommended for you
