Source · Select Committees · Environmental Audit Committee
Recommendation 1
1
Not Addressed
Paragraph: 33
Vast numbers of fossil fuel assets risk becoming stranded due to energy transition
Conclusion
We have heard that vast numbers of fossil fuel assets are at risk of devaluing before they are extracted due to changes in energy consumption and therefore becoming ‘stranded assets’. This is a particular risk in the City of London, as one of the top four financial centres where this concern is concentrated. This risk has also intensified due to Russia’s full-scale invasion of Ukraine leading to divestment from Russian- linked fossil fuel assets. While there have been some calls for the burden of this risk to sit with the companies which are driving the phase out of fossil fuel investment through individual policies, we have not identified a consensus on this matter.
Government Response Summary
The government reiterates its stance on the importance of domestic oil and gas for energy security and describes OPRED's existing role in regulating decommissioning liabilities, without directly addressing the committee's conclusion on the specific risks of stranded assets in the City of London or the lack of consensus on who bears the cost.
Paragraph Reference:
33
Government Response
Not Addressed
HM Government
Not Addressed
The domestic oil and gas industry is vital to the UK’s energy security. While the Government is scaling up domestic clean energy sources, the UK still relies on oil and gas for most of our energy needs and there will be continued need over the coming decades. New licensing will help bolster our energy security, decarbonise production, and bring jobs, investment, and revenue to the UK. Even with new licences, UK oil and gas production is declining at 7% a year, ensuring a managed decline at a pace that supports the UK’s energy security and the offshore workforce’s transition away from fossil fuels. The Government has not fixed an end date for future oil and gas licensing, as a 2021 review concluded continued licensing is not inherently incompatible with the UK’s climate objectives. A climate compatibility checkpoint has been introduced to test whether new licences would be compatible with our climate commitments, with its design published on 22 September 2022. The Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) is responsible for regulating decommissioning activity including ensuring that the requirements in Part IV of the Petroleum Act 1998 are complied with. OPRED’s regulatory regime already ensures that operators are responsible for decommissioning installations and pipelines in the North Sea. The regime is designed to protect the taxpayer from decommissioning liabilities, and OPRED regularly reviews that purpose in the context of changes to the UK Continental Shelf, including the increased risk of stranded assets. In response to the recommendation in paragraph 34, OPRED would welcome the opportunity to engage further with the Environmental Audit Committee’s policy suggestion to understand more about the thinking behind their proposal.