North Sea deal to protect jobs in green energy transition

  • UK becomes first G7 country to agree a landmark deal to support the oil and gas industry’s transition to clean, green energy – while supporting 40,000 jobs
  • from 31 March 2021, the UK will no longer provide financial support for the fossil fuel energy sector overseas
  • UK government sets standard to transition to clean, green economy as we build back better – without leaving communities and vital industries behind

High-skilled oil and gas workers and the supply chain will not be left behind in the transition to a low carbon future, the UK government vowed today (Wednesday 24 March) as a landmark North Sea Transition Deal is agreed with industry.

The sector deal between the UK government and oil and gas industry will support workers, businesses, and the supply chain through this transition by harnessing the industry’s existing capabilities, infrastructure and private investment potential to exploit new and emerging technologies such as hydrogen production, Carbon Capture Usage and Storage, offshore wind and decommissioning.

Through the Deal, the oil and gas sector, largely based in Scotland and the North East, government and trade unions will work together over the next decade and beyond to deliver the skills, innovation and new infrastructure required to decarbonise North Sea production. Not only will the Deal support existing companies to decarbonise in preparation for a net zero future by 2050, but it will also create the right business environment to attract new industrial sectors to base themselves in the UK, develop new export opportunities for British business, and secure new high-value jobs for the long-term.

Extracting oil and gas on the UK Continental Shelf is directly responsible for around 3.5% of the UK’s greenhouse gas emissions. Through the package of measures, the Deal is expected to cut pollution by up to 60 million tonnes by 2030 including 15 million tonnes from oil and gas production on the UK Continental Shelf – the equivalent of annual emissions from 90% of the UK’s homes – while supporting up to 40,000 jobs across the supply chain.

Key commitments in the North Sea Transition Deal include:

  • the sector setting early targets to reduce emissions by 10% by 2025 and 25% by 2027 and has committed to cut emissions by 50% by 2030
  • joint government and oil and gas sector investment of up to £16 billion by 2030 to reduce carbon emissions. This includes up to £3 billion to replace fossil fuel-based power supplies on oil and gas platforms with renewable energy, up to £3 billion on Carbon Capture Usage and Storage, and up to £10 billion for hydrogen production
  • by 2030, the sector will voluntarily commit to ensuring that 50% of its offshore decommissioning and new energy technology projects will be provided by local businesses, helping to anchor jobs to the UK
  • the appointment of an Industry Supply Chain Champion who will support the coordination of local growth and job opportunities with other sectors, such as Carbon Capture Usage and Storage and offshore wind

An orderly transition is crucial to maintaining our energy security of supply, supporting high-value jobs, and safeguarding the expertise necessary to achieve a lower carbon future.

The UK government will therefore introduce a new Climate Compatibility Checkpoint before each future oil and gas licensing round to ensure licences awarded are aligned with wider climate objectives, including net-zero emissions by 2050, and the UK’s diverse energy supply. This Checkpoint will use the latest evidence, looking at domestic demand for oil and gas, the sector’s projected production levels, the increasing prevalence of clean technologies such as offshore wind and carbon capture, and the sector’s continued progress against its ambitious emissions reduction targets.

The UK government believes it is vital that any future licenses are granted to industry only on the basis that they are compatible with the UK’s climate change objectives. A dynamic checkpoint enables the assessment of ongoing domestic need for oil and gas, while expecting concrete action from the sector on decarbonisation. If the evidence suggests that a future licensing round would undermine the UK’s climate goals or delivery of Net Zero, it will not go ahead. The UK government will design and implement the checkpoint by the end of 2021 through extensive engagement with a wide range of stakeholders.

In a further move to support the shift to green technology and renewable energy in the UK and around the world, the UK government has announced it will no longer provide support for the fossil fuel energy sector overseas from 31 March 2021. This follows the Prime Minister’s commitment to end taxpayer support for fossil fuels projects overseas as soon as possible at the Climate Ambition Summit last December and the decision on the date to end this comes after consultation with industry. This will include UK Export Finance support, international aid funding, and trade promotion for new crude oil, natural gas and thermal coal projects – with very limited exceptions.

Business and Energy Secretary Kwasi Kwarteng said:

Today, we are sending a clear message around the world that the UK will be a nation of clean energy as we build back better and greener from the pandemic.

We will not leave oil and gas workers behind in the United Kingdom’s irreversible shift away from fossil fuels. Through this landmark sector deal, we will harness the skills, capabilities and pent-up private investment potential of the oil and gas sector to power the green industrial revolution, turning its focus to the next-generation clean technologies the UK needs to support a green economy.

At every step on the path to net zero emissions, we will create the right conditions for new green industries to base themselves in the UK and create new high-value employment opportunities, while future-proofing existing businesses to secure the long-term viability of jobs in our industrial heartlands.

The offshore oil and gas industry has been a major British industrial success story. For decades, the sector has strengthened our energy security, generated significant tax revenue to fund our public services, and supported hundreds of thousands of jobs across the UK. From the Shetland Islands and Aberdeen, to Teesside and the Humber, the industry is critical to the health of local economies.

Oil and gas is still vital to the production of many everyday essentials like medicines, plastics, cosmetics and household appliances – this is likely to remain the case over the coming decades as the UK transitions to low carbon solutions. Indeed, the government’s independent Committee on Climate Change recognises the ongoing demand for oil and natural gas, including it in all scenarios for how the UK meets its target for achieving net zero emissions by 2050.

Energy Minister Anne-Marie Trevelyan said:

We need to urgently end our reliance on fossil fuels and through our pioneering North Sea Transition Deal we will do so without putting our economy and communities at risk.

While the future oil and gas sector will look very different to how it does today, the industry, businesses and supply chains it supports will have a new mission to help the UK decarbonise and develop the clean technologies of the future, as we lead the green industrial revolution.

UK government Minister for Scotland David Duguid said:

The oil and gas industry has already made great strides towards a greener, more sustainable future and the North Sea Transition Deal, agreed between the UK government and industry, takes those ambitions a step further.

The North East of Scotland has long been seen as a centre of excellence in the oil and gas industry – there’s no reason why it can’t now be seen as a global centre of excellence for energy transition.

This is not just about making the transition from hydrocarbons to renewables. It’s about a transition of jobs, skills and expertise as well.

The UK government has worked consistently and intensively with the industry, and we will continue to do so, to make progress on a scientific, data and evidence-led basis.

Chief Executive of Oil & Gas UK Deirdre Michie said:

The North Sea Transition Deal is a transformative partnership which will harness the expertise of the UK offshore oil and gas industry to urgently meet the country’s climate ambitions of net zero emissions by 2050.

It will unlock billions of pounds of investment and see government and industry work together to deliver a homegrown energy transition, realising innovative low carbon solutions that can be exported globally.

The Deal will safeguard UK energy security, providing affordable energy to millions of households, secure tens of thousands of jobs in industrial heartlands across the country and support the UK economy. It is the first deal of its kind by any G7 country and a striking example of the UK showing global leadership on climate change ahead of COP26.

Chief Executive of the Oil & Gas Authority, Dr Andy Samuel said:

This deal marks an exciting new chapter for the North Sea, confirming energy transition in action. It is the culmination of a lot of work between government, industry and the OGA. As long as oil and gas remain part of the UK’s energy mix, they must be produced more cleanly and in line with net zero.

Our role includes monitoring and holding industry to account on its emissions reduction performance. The recent funding for a number of energy transition projects is very timely. We are happy to be supporting projects like Acorn, Hynet, Net Zero Teeside and Zero Carbon Humber, along with the Energy Transition Zone and the Global Underwater Hub.

Our studies show how the UK Continental Shelf can provide 60% of the UK’s overall carbon reduction requirements to meet Net Zero 2050, through electrification, carbon capture and storage, hydrogen and offshore wind.

There is huge growth potential in the new and emerging industries central to this transition away from oil and gas:

  • the global decommissioning sector is estimated to be worth £270 billion from next year and the government’s plans will ensure the UK’s £1.5 billion industry maximise these opportunities. For example, Petrofac, a provider of oilfield services based in Aberdeen, has built a strong track record for decommissioning in the UK and the North Sea resulting in the company winning its first decommissioning contract in Australia
  • the government’s commitment to a 40GW offshore wind target could help unleash around £20 billion of private investment in renewable energy by 2030, creating 60,000 new jobs and generating economic growth in areas such as north east of England, Yorkshire and The Humber, East Anglia and Scotland. An estimated 60% of spending on UK offshore wind will also be invested back into the economy by 2030
  • the UK will establish Carbon Capture Usage and Storage in 2 industrial clusters by the mid-2020s, while a £1 billion government CCUS Infrastructure Fund will provide industry with the certainty required to deploy this technology at pace and at scale. For example, Project Acorn will deliver a low-cost carbon capture usage and storage system in North East Scotland by 2023. Located at the St Fergus Gas Terminal, where around 35% of all the natural gas used in the UK comes ashore, the project is designed to be built quickly, taking advantage of existing oil and gas infrastructure
  • the government’s aim is for the UK to develop 5GW of low carbon hydrogen production capacity by 2030 that could see the UK benefit from around 8,000 jobs across the industrial heartlands and beyond. This will be supported by a range of measures, including a £240 million Net Zero Hydrogen Fund. In addition, BP is already developing plans for the UK’s largest ‘blue’ hydrogen production facility on Teesside, which could produce up to 1GW of hydrogen – 20% of the UK’s hydrogen target – by 2030 and would capture and send for storage up to two million tonnes of carbon dioxide per year

To aid the transition to a green economy, today’s package follows the recent Budget in which the Chancellor committed to funding that targets the oil and gas sector and supports businesses to develop green energy. This includes up to £27 million for the Aberdeen Energy Transition Zone to transform the area into a green energy hub, and up to £5 million additional funding for the Global Underwater Hub based in Aberdeen to open-up opportunities for the city to become a global hub for underwater engineering, including in offshore wind and hydrogen.

To ensure the UK economy remains competitive and resilient on the path to net zero, companies in all sectors must be prepared to address their climate-related risks and opportunities. Which is why the government has also published today proposals setting out how the UK’s largest companies and professional services firms representing £4 trillion in turnover will be required to prepare for the transition to a low carbon economy.

These proposals will ensure the UK’s most significant companies are analysing, understanding and disclosing their climate-related risks and opportunities to unleash a wave of private capital necessary to reach net zero emissions by 2050. This is part of the UK’s commitment to be the first G20 country to make Taskforce for climate-related financial disclosures (TCFD) aligned disclosures mandatory across the economy.

The North Sea Transition Deal delivers on the government’s 2019 manifesto commitment for a transformational sector deal.

Notes

The North Sea Transition Deal will be available here.

According to Oil & Gas UK, the Deal could support and create up to 40,000 direct and indirect jobs across the UK.

The Oil & Gas Authority already benchmarks industry emissions and in December last year laid its new Strategy in Parliament, adding a net zero obligation on operators.

To support the continued development of the North Sea Transition Deal the recent Budget included £2 million government funding, which could support further work to decarbonise the oil and gas industry by replacing fossil fuel power with renewables and help the supply chain adjust to the transition.

The Climate Change Committee (CCC) estimates that production of natural gas could drop by up to 80% by 2050, compared to levels in 2017. However, the projections for demand for oil and gas, though much reduced, is forecast to continue for decades to come.

Read the final UK greenhouse gas emissions statistics.

The government’s response to the consultation on ‘aligning UK international support for the clean energy transition’ will be published here. This world-leading policy to end financial and promotional support in fossil fuels overseas includes:

  • a one-year exemption for small businesses to ensure the most vulnerable companies have time to adjust
  • a new ‘Transition Export Development Guarantee’, developed by UK Export Finance (UKEF), to ensure that businesses, including the supply chain, are supported at all stages of their transition journey, and that oil and gas focused companies with credible transition plans can benefit from UKEF’s working capital support to achieve these plans
  • today’s announcement builds on the Chancellor’s November 2020 commitment for the UK to become the first G20 country to require mandatory climate-related financial disclosures. Climate-related disclosures also formed an important part of the Prime Minister’s Ten Point Plan for a Green Industrial Revolution.
  • the climate-related financial disclosures (TCFD) consultation will run for 6 weeks from 24 March to 5 May. Proposed regulations are to be made by the end of 2021, with regulations due to come into force on the Common Commencement Date of 6 April 2022, and to be applicable for accounting periods starting on or after that date
  • the following entities are due to be required to comply:
    • all UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies (Relevant Public Interest Entities (PIEs))
    • UK registered companies with securities admitted to AIM with more than 500 employees
    • UK registered companies which are not included in the categories above, which have more than 500 employees and a turnover of more than £500 million
    • LLPs which have more than 500 employees and a turnover of more than £500 million

/Public Release. This material comes from the originating organization and may be of a point-in-time nature, edited for clarity, style and length. View in full here.