Recommendation 7

HM Government · verbatim extract Rejected

( Response to paragraph 33, 34, 55 and 57 ) 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. Data published by the Climate Change Committee suggests a significant proportion of our energy will come from oil and gas even when we reach net zero in 2050. To meet this supply domestic production is better in terms of jobs, tax receipts and environmental emissions than imported alternatives. Beyond energy, oil and gas will remain essential to modern life for many years to come, including in the production of plastics, chemicals, and fertiliser. As the International Energy Agency has recognised, the skills and resources of the oil and gas industry will be crucial for the transition to net zero. New licensing will help bolster our energy security, decarbonise production, and bring jobs, investment, and revenue to the UK. The sector’s investments, supply chains and skilled workforce are exactly what we need to lead the world in delivering the energy transition. Even with new licences, UK oil and gas production is declining at 7% a year. That is faster than UK consumption will decline as we meet net zero, and faster than the average rate of decline needed globally to align with 1.5-degree pathways, according to the UN environment programme. The Government has taken action to avoid a poorly managed decline by agreeing the North Sea Transition Deal, a global exemplar of how a government can work in partnership with industry to achieve a transition which leaves no-one behind. The Government has also introduced the Offshore Petroleum Licensing Bill, providing industry with long-term certainty about the offshore licensing process. This Bill will make the UK more energy independent by increasing investor and industry confidence with regular annual oil and gas licensing. The Bill’s emissions and net importer tests will ensure that future licensing supports the transition to net zero. New licensing simply slows the fall in UK supply, rather than increasing supply above current levels. This ensures a managed decline at a pace that supports the UK’s energy security and the offshore workforce’s transition away from fossil fuels. The expected emissions from potential future projects are factored into the UK’s carbon budgets and will not compromise them being met. We have already considered fixing an end date for future oil and gas licensing and decided not to pursue this approach. A 2021 review of the future of oil and gas licensing concluded that continued licensing for oil and gas is not inherently incompatible with the UK’s climate objectives. On gas, for instance, failure to maximise economic output from the North Sea is likely to lead to increased imports of the current main alternative, Liquefied Natural Gas (LNG). These imports are less secure, more carbon intensive and provide no tax revenue and fewer benefits for the UK’s economy, workers and supply chains – the same tax revenue, economy, skilled workers and supply chains that will be vital to the UK continuing to lead the world in the Net Zero transition. The review acknowledged that this might not always be the case in the future, It therefore recommended that a “checkpoint” be introduced, to ensure that the compatibility of future licensing with the UK’s climate objectives has been always evaluated before a licensing round is offered. Globally we are the first significant producer of oil and gas to have actively developed a climate compatibility checkpoint, which tests whether new licences would be compatible with our important climate commitments. On 22 September 2022 we published the checkpoint’s design and a detailed response to the public consultation that helped to inform this design. 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. Under the 1998 Petroleum Act that asset owners and operators are responsible in law for the decommissioning of their assets. 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.