UK climate change report underlines fiscal importance of domestic energy supply

12/10/2020
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ABERDEEN - A major independent report which sets out detailed routes for meeting the country’s climate targets has recognized the positive contribution the UK’s changing oil and gas industry can make in the energy transition.

The Sixth Carbon Budget published by the Committee on Climate Change outlines an ambitious and challenging program of change for all industries to meet a range of scenarios.  It recommends a future energy system which utilizes renewables, hydrogen, carbon capture and storage. Oil and gas demand is expected to fall by up to 85 percent and 70 percent respectively by 2050 depending on the selected scenario.

The committee makes the case for meeting as much as possible of the UK’s ongoing domestic needs from domestic production, warning of the risk that lower production costs internationally could favor imports.

The report confirms the important role of the UK’s oil and gas supply chain and the opportunity that exists from the £50bn investment required annually through to 2050 to achieve the country’s climate goals. The sector has thousands of companies across the UK that are set to play a critical role. The UK oil and gas industry supply chain currently has an annual turnover of over £26bn and the majority of companies are already also active in renewables or other parts of the energy industry.

The leading representative body for the sector, OGUK, today said the report underlines the need to deliver a homegrown transition towards net zero. It comes as the Committee on Climate Change underlined the importance of policy to ensure a fair transition, noting the Government’s planned North Sea Transition Deal can enable workers in the sector to transition to the hydrogen sector and other energy sectors.

The report recognizes the role the changing sector can play during the transition and beyond, recommending:

  • The development of a ‘blue hydrogen bridge’ where the reformation of gas with carbon capture and storage is used in the short to medium term to establish a mass market for hydrogen, providing around 60 percent of hydrogen supply by 2035 and with its share of this growing market falling to 32 percent in 2050 as green hydrogen capacity builds up. Hydrogen will support shipping, heavy goods vehicles, industry and some building heating
  • The development of Carbon Capture and Storage at scale, with the emissions pathways for Scotland, Wales and Northern Ireland highly dependent on carbon storage capabilities. Carbon capture and storage to be applied at scale to the manufacturing and construction sector in the 2030s and continues to remove CO2 at similar levels out to 2050
  • The report calls for action to reduce emissions from the remaining fossil fuel supply (the main source of Fuel Supply emissions) by 75% by 2035 from 2018 levels. Mitigation actions include fuel switching, CCS and technologies to reduce methane flaring, venting and leakage. This is in line with industry’s existing commitments to halve emissions in the next decade before reaching 90 percent by 2040.
  • Reducing imports of oil and gas and directing spend instead to the UK economy, however the report warns lower production costs internationally may favor imports over domestic production. The CCC makes clear its proposed budget is designed to be met by reducing UK sources of emissions and not displacing them to other markets. Increased oil and gas imports that displace domestic production would not be consistent with this principle.
  • Low carbon investment must scale up to £50 billion each year to deliver Net Zero, supporting the UK’s economic recovery over the next decade. This is a significant opportunity for the UK’s oil and gas supply chain to realize new opportunities, support jobs and grow exports.

Commenting, OGUK Chief Executive Deirdre Michie said:

“The destination has always been clear, and the UK’s changing oil and gas industry is stepping up to help us get there. As the big choices facing our economy and society come into sharper focus, the UK has an opportunity to lead the way and we are committed to being a positive partner on this journey.

“We recognize that the industry we see today will be different to the one we see in the future. Many oil and gas companies are already adapting and transforming and with our supply chain is actively pursuing the new energy opportunities highlighted.

“As we look to bring these big changes to life, securing targeted support for our domestic supply chain remains critical if it is to attract a healthy share of the £50 billion investment the Committee on Climate Change says will be required annually by 2050.

“As the report notes, how we respond to these challenges at home can have a positive impact globally, and our sector continues to blaze a trail having published a clear pathway towards a net zero industry last year and committed to challenging emissions reductions targets earlier this year.

“This reinforces the need for a homegrown transition which puts the essential expertise of supply chain companies to work, protects jobs, while creating new ones of the future, while maintaining the supply of secure, affordable and low carbon energy produced in the UK to meet demand both now and in future.

“This vision for the future forms the basis of OGUK’s Roadmap 2035, our blueprint for net zero published last year, and its delivery can be accelerated through a North Sea Transition Deal.

“It shows the important contribution our industry can make as the country looks to carve out new industrial opportunities which can be exported globally, while at the same time meeting as much of the UK’s oil and gas demand with homegrown resources produced with ever decreasing emissions.”

 

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