UK Government climate compatibility checkpoint consultation: response from Cabinet Secretary for Net Zero, Energy and Transport

To Rt Hon Hon Kwasi Kwarteng MP
Secretary of State for Business, Energy and Industrial Strategy

Dear Kwasi

UK Government consultation on a cimate compatibility checkpoint for North Sea oil and gas licensing rounds

The 2021 IPCC report on the severity of the global climate emergency has been described by the secretary general of the United Nations as a “code red for humanity”. The report confirms that the threats that global warming poses are already both immediate and severe. It states that without urgent action to reduce global emissions in line with the goals of the Paris Agreement, those impacts will only accelerate. The science is absolutely clear that the global extraction of fossil fuels cannot continue indefinitely if the Paris Agreement goal of limiting global warming to 1.5 degrees is to be achieved

The Scottish Government’s view, set out ahead of the COP26 summit in Glasgow in November 2021, is that in line with UK obligations and aspiration to achieve Net Zero by 2050 and by 2045 in Scotland there must now be the fastest possible managed and just transition away from dependence on oil and gas. 

Such a managed transition is essential in order to ensure that the move to renewable and low carbon sources of energy is done in such a way that employment can be created, regional economies protected from the impact of transition and that our domestic industries can become global leaders in the technology required to transition to the net zero age.

The issues surrounding a just transition for the oil and gas sector are complex, difficult and often contentious. This is especially true when considering the oil and gas workforce, the communities in which they live and work, and the regional economies that have greatly benefited from oil and gas activities and who will be most impacted by the transition to net zero.

There are around 25,000 people directly employed in oil and gas in Scotland, most of whom are located in the North East. Estimates vary considerably, but once we include employment in the wider oil and gas supply chain, as well as associated jobs supported by oil and gas sector demand, that figure rises to over 70,000 people potentially linked to the sector in Scotland alone.

For a truly just transition we need a twin track approach – rapid decarbonisation and rapid uplift in investment for alternative net zero and low carbon technologies and approaches.

We recognise that oil and gas accounts for around 73% of the UK energy demand, in particular for domestic and transport use as well as generating 39% of the UK’s electricity. A significant amount of this demand is met by imports and we note that the relationship between North Sea production, imports, exports and final demand is a complex one with much of the North Sea production not appropriate for use within the Scottish or UK energy system. We also note that 11% of demand for oil is for non-energy uses, producing everyday goods, from medicines to the raw materials for wind turbine blades or battery manufacturing. According to most scenarios in the Climate Change Committee’s 6th UK Carbon Budget, oil and gas are still expected to account for between 11-18% of UK energy demand by 2050. However, we also note the findings of the International Energy Agency (IEA) in their Net Zero by 2050 report (May 2021), which at a global level, shows that to achieve the 1.5 degrees Paris Agreement goal then no new oil and gas developments are needed, as existing (i.e. already producing and under development) fields will be sufficient to meet demand. 

Most recently, we have noted the CCC’s advice (24 February) in response to this consultation supporting a tighter limit on UK oil and gas production, with stringent tests and a presumption against exploration. We agree with the CCC conclusions, although we acknowledge that the CCC remit and scope of analysis does not extend to matters of security of supply, economic development and Just Transition.

This consultation also takes place at a time when across Scotland and the UK there are hundreds of thousands of families and households facing very challenging financial circumstances as a result of rising costs combined with high inflation – this is a cost of living crisis that needs to be recognised particularly in terms of ensuring a more consistent and stable form of our energy supply. Governments cannot continue unlimited extraction of oil and gas and must instead focus on reducing energy demand and accelerating the deployment of renewable energy. In Scotland, we already have a highly advanced renewable energy industry. Nearly 100% of our net electricity demand already comes from renewable sources. We therefore agree with the CCC that this adds to the imperative to accelerate the development of alternative sources of energy. It is vital that we do this to both reduce reliance on fossil fuels - but also to seize the economic opportunities that the transition offers us.

The Scottish Government recognises the continued role of oil and gas production as part of the transition to a net zero economy and in this context, believes enhanced and robust climate conditionality for any new exploration rounds and for projects that are awaiting field development approvals. Before setting out our views on the UK Government’s consultation proposals for an enhanced conditionality checkpoint, I will summarise the approach being taken here in Scotland.

Scotland’s approach: Energy Strategy and Just Transition Plan

Scotland is committed to delivering a just transition to net zero emissions by 2045. We recognise that the oil and gas industry will play a vital role in that transition, especially through their highly skilled workforce. To support the wider transition of the sector we must expand and develop our renewable energy sector while reducing our dependency on fossil fuels, making sure we do so in a way that also recognises our collective responsibility to tackle the global climate emergency.

Key to supporting the industry in making that transition is assisting it to move towards technologies that decarbonise offshore productions during the transition period, whilst also accelerating the development of alternative technologies and renewable energy sources that will replace the use of fossil fuels in our energy demand. The UK Government’s failure to award the Scottish CCUS Cluster, which includes the Acorn Project, full Track-1 status compromises our ability to take crucial near-term action to reduce emissions – not just in Scotland, but across the UK. The Cluster’s Acorn project is uniquely placed as the least-cost and most deliverable opportunity to deploy a full-chain CCS project in the UK. The project has the potential to support an average of 15,100 jobs between 2022 and 2050, with a peak of 20,600 jobs in 2031 – more than 20% of the current 70,000 jobs in the oil and gas sector. Action to support the Scottish Cluster and ensure it is delivered at the earliest possible opportunity is vital.

Scotland’s first Just Transition Plan, which is also a whole energy system strategy, will involve working closely with the sector to seize the economic opportunities that those technologies present while playing our part in the global energy challenge and securing a just transition. As part of the Bute House Agreement we are undertaking work to develop a detailed understanding of Scotland’s energy requirements as we transition to net zero, ensuring we support and protect our energy security and our highly skilled workforce whilst meeting our climate obligations.

We have committed to working with communities and with those who are most impacted across Scotland, including our very highly skilled oil and gas workforce, to co-design that plan, and we have committed to take forward a 10-year £500 million Just Transition fund for the north-east and Moray.

In terms of trade implications, in Scotland’s Vision for Trade we are committed to coherence between our trade, our climate targets and our efforts to improve environmental sustainability. We are working to ensure that trade is used as a lever to progress towards net zero, while developing Scotland’s competitive advantage in areas with positive environmental and economic impact. To help deliver this we will provide trade support to businesses that align with our long term climate priorities and goals. This is supported by our policy to end overseas trade support and promotion for any solely fossil fuel based goods and services.

Response to consultation proposals on a UK climate compatibility checkpoint

The UK Government has indicated it intends to continue granting exploration licences subject to a UK Climate Conditionality Checkpoint. While our positions on the role of new exploration differ, we are keen to respond to the consultation recognising that this letter will reach you shortly after the consultation closing date of 28 February, I would request that the views of Scottish Ministers are considered.

The Scottish Government’s view is that a climate compatibility checkpoint is the minimum step required. It is our clear view that Climate Compatibility checkpoint should not only apply to new exploration but that any undeveloped licences should also face a compatibility checkpoint or test. The consideration of undeveloped licences should also take place ahead of granting of any new licences.

Scottish Government views on the tests that should feature in an enhanced Checkpoint

It is clear that any credible and effective package of conditionality tests must include both domestic and international dimensions, extending to at least all of the six tests outlined in the consultation document, and these tests will provide an appropriate evidence basis for a limit on oil and gas production that is in line with our commitments under the Paris Agreement (and now reaffirmed under the Glasgow Climate Pact) and that reflects the global context of emissions associated with the use, as well as production, of fossil fuels. This means that some form of test 5 (in relation to capturing “consumption” emissions) and test 6 (in relation to capturing the North Sea’s role in the global “production gap” identified by the UN) are essential for the checkpoint to have any credibility domestically and internationally.

Furthermore, given the ever evolving understanding of global emissions projections and on the basis that the UK Government has indicated its intention to pursue further licensing rounds, it will also be important that these aspects of the Checkpoint remain subject to regular review and updating in the future. If it becomes clear that emissions pathways are becoming further off track from the global carbon budgets needed to achieve the Paris temperature goals, then the conditionality tests should be reviewed accordingly. 

On the domestic facing tests, the Checkpoint must reflect the fact that the different nations of the UK have set different statutory net-zero emissions target dates. Scotland is committed to reaching net-zero by 2045, five years before the UK as a whole.

The Scottish Government is currently undertaking a programme of analysis to better understand the role of Scotland’s energy system in the global transition to net-zero emissions. As this work progresses over the course of the coming year, we will stand ready to further engage with UK Government counterparts on the design of the specific tests for the checkpoint.

We would also recommend that the UK Government seeks to use the approach outlined in the compatibility checkpoint to apply conditions to any greenfield oil and gas development – should any pass the climate compatibility test – that would require that development to plan to operate on a decarbonised basis from its inception in order to gain a licence to operate. This could include requiring the use of renewable energy, whether from wind farm developments, direct connection to onshore electricity or the adoption of zero carbon fuels – to power the platform’s operations. Such conditionality would help send a message to the sector that the UK Government is serious about decarbonisation of oil and gas platforms and supporting the sector towards meeting its targets under the North Sea Transition Deal. This could also help to further support the development of offshore renewable energy developments, though we note the CCC’s advice that the evidence on the net impact of further North Sea oil and gas production on global emissions is not clear-cut as UK production has a lower than average carbon footprint however extra gas and oil extracted will support a larger global market overall.

Scottish Government views on the scope of the checkpoint

The Scottish Government remains of the view that an enhanced climate conditionality checkpoint must apply to existing licenses not yet in production, not just to new licensing rounds. Applying the same sets of principle to existing licences is absolutely consistent with making sure that we meet our climate change obligations and those licences should be considered ahead of any proposed new rounds.

We recognise that the process for new exploration rounds is separate to the process in place for approving field development. We support the CCC recommendation that equivalent stringent tests apply to later development stages, including consenting and production. Recognising that a licence only grants operators a right to explore for petroleum. The licence is only the first step in the process to develop a new field. Operators also need to engage in a series of assessments to gain approval from the OGA of their development. This is followed by an authorisation phase during which operators finalise their Field Development Plan. Thereafter, the OGA monitors the compliance of projects with the planning and consenting agreements. The Scottish Government is willing to work with the UK Government, the Oil and Gas Authority and stakeholders to ensure the most effective approach can be introduced to enhance conditionality across all stages of this process.

Close

The Scottish Government is willing to work with the UK Government, the Oil and Gas Authority and stakeholders to ensure the most effective approach can be introduced to enhance conditionality across all stages of the oil and gas licensing and consenting process. This must be a transparent and credible process, that can be scrutinised by all Devolved Administrations given our united commitment to achieve the 1.5 degrees Paris Agreement goal. All of our Government’s must work together and ensure that the Climate Compatibility Checkpoint that is introduced is a robust, transparent and credible process. We reiterate the offer that was made last year that a UK four nations summit be convened to consider and agree the final Climate Compatibility Checkpoint process.

If we are to deliver a just transition for our oil and gas industry, all Governments need to play their part by sending clear, responsible and transparent signals. Enhanced Climate Compatibility for oil and gas exploration and development, if properly designed and rooted in the science of climate change and principles of just transition, can play an important role in this process and is essential for the continued credibility of the UK’s commitment to meeting its targets and global responsibilities under the Paris Agreement. There is a bright future for the energy sector in Scotland, and for a revitalised North Sea, in supporting our transition to a net-zero energy system. The Scottish Government will do everything in its control to ensure that we deliver on that vision in the future.

Michael Matheson