4th Report - The future of Scotland’s oil and gas industry

We are concerned that clean energy jobs are not being created at the pace or scale required to match the heavy job losses arising from the decline of the North Sea oil and gas sector. The scale-up of clean energy is progressing more slowly than the decline of the oil and gas sector. The Government should avoid accelerating the decline of North Sea oil and gas production through its policy environment while this remains the case. (Conclusion, Paragraph 52) The Government should urgently address this gap with increased Government investment proportionate to the scale of the challenge. The Government must set out clearly how its investments and policy environment will create the jobs and revenue necessary to replace the jobs being rapidly lost in North Sea oil and gas. (Recommendation, Paragraph 52)

Such an approach is the minimum necessary for a smooth transition of workers, and to avoid the risk of harming UK tax revenues, economic activity, and employment in many Scottish communities, where the effects of the transition will be disproportionately felt. The loss of jobs abroad has detrimental impacts to the UK. This represents not only the loss of world- renowned skills and expertise in the energy sector, but also a significant hit to regional economies, population dynamics, demographics and communities. (Conclusion, Paragraph 53)

We recognise that with time moving to clean energy improves the UK’s overall energy security. However, as fossil fuels are to continue to form part of the UK’s energy mix for decades to come, there are compelling arguments to meet as much of that need as possible from domestic sources. Easing the gradient of production decline means higher economic returns, lower emissions, and anchors jobs and skills in the northeast of Scotland, which will be necessary for the rapid growth of clean energy sectors. (Conclusion, Paragraph 54) 55

The Government should set out how it intends to address the issue of the North Sea oil and gas industry’s decline outstripping the scale-up of clean energy. We urge the Government to take a pragmatic approach to its licensing policy as an outcome of its consultation, Building the North Sea’s Energy Future. In its response to this report, the Government should clarify how developers may be permitted to undertake additional drilling activity under existing exploration licences. (Recommendation, Paragraph 55)

We recognise that maximising economic return from clean energy investments requires supporting and expanding UK-based supply chains. (Conclusion, Paragraph 56) The Government should set out how it intends to increase the proportion of UK-based supply chains used by clean energy generators. (Recommendation, Paragraph 56) Tax and regulatory environment

We welcome the Government’s acknowledgement that it now needs to take action on the oil and gas industry’s fiscal environment. However, a lack of clarity on the fiscal regime beyond 2030 has created uncertainty for industry in the North Sea. The Energy Profits Levy at its current rate of 38%, which brings the headline rate of tax to 78%, is seen by many in industry as no longer proportionate. We are concerned that without reform the levy will accelerate the decline of the North Sea oil and gas industry and its associated supply chain, resulting in job losses. The UK will require oil and gas in its energy mix for decades to come and the fiscal regime should reflect that. (Conclusion, Paragraph 66)

In its response to this report, the Government should commit to a publication date for the outcome of its consultation on the new fiscal regime. To provide much-needed clarity and confidence to the sector, the successor regime should be brought into effect as soon as possible, rather than replacing the Energy Profits Levy from 2030. (Recommendation, Paragraph 67)

We welcome the Government’s publication of updated guidance on environmental impact assessments for new oil and gas fields, providing greater certainty to the sector. Given that each application will be considered on a case-by-case basis and the Government has not shared how factors will be weighted in its assessment, transparency surrounding the process could be improved, especially as this is an area of public interest. (Conclusion, Paragraph 75) 56

We recommend that the Government commit to issuing an explanatory statement after assessing each application, setting out how it has balanced the environmental impact against the economic and energy security benefits of oil and gas fields in its assessment. A justification is vital to ensure the industry and wider public can understand and be confident in the Government’s stewardship of the North Sea continental shelf. (Recommendation, Paragraph 76) Managing the transition

Given what is at stake if transition is mismanaged, we are disappointed that Unite the Union has been unable to share, as promised, its plan to create 35,000 energy transition jobs. The plan might have been a valuable and timely contribution to our inquiry and could have assisted us in developing our recommendations to the Government while it develops its own North Sea transition plan. Unite’s clear failure to supply the plan ultimately casts doubt over its existence. (Conclusion, Paragraph 83)

A coherent transition plan for the North Sea is urgently needed. While we recognise that the Government has been in power for 15 months, plans are not yet in place and the transition is already well underway. The Government’s consultation, Building the North Sea’s Energy Future, which commits to producing a plan in dialogue with industry, trade unions and communities, is a welcome start but is moving too slowly. (Conclusion, Paragraph 89)

The Government should recognise the urgency of the need for a coherent plan for the North Sea by committing to dates for the publication of its consultation response and consequent transition plan. The transition plan should be long-term in scope, provide certainty to the sector, and speak directly to the challenges faced by the communities in the northeast of Scotland, who are disproportionately affected by the UK’s transition away from oil and gas. We recommend that the Government’s transition plan contains specific and measurable outcomes on increasing the transfer of skills from the oil and gas industry to new sectors, with clear commitments from both governments and industry on how to achieve them. This could include target figures for oil and gas workers transitioning into specific industries, for clean energy job creation, and data on the UK supply chain content in both oil and gas and renewable energy activity. (Recommendation, Paragraph 90)

It is vital that the skills of workers who have made Scotland’s oil and gas industry successful are not lost. We welcome the efforts of both governments to support the development of clean energy jobs and the transfer of skills from the oil and gas sector to other industries. In particular, 57 we welcome the establishment of the Oil and Gas Transition Training Fund. Access to an effective training fund will serve as an incentive for workers to transition and shows that the Government is serious about supporting people into the jobs of the future. A Government-led training fund will also improve ministerial accountability and coordination of the North Sea energy transition at a national level. (Conclusion, Paragraph 98)

The forthcoming transition plan should set out how the UK and Scottish governments will work together to deliver the Oil and Gas Training Transition Fund. It should clarify the duration of the funding available and the degree of UK Government involvement in the scheme, to ensure sufficient accountability at a UK level. In its response, the Government should outline whether it has considered how co-investment plans with the private sector or the revenue generated by the Energy Profits Levy could finance the transition fund in the long term. (Recommendation, Paragraph 99)

There has been a failure of communication from consecutive governments to oil and gas workers about the transition and what they need to do to prepare and benefit from it. Government action is required to ensure the visibility and promotion of clean energy jobs, as well as to ensure existing workers are aware of the reality of transition and that these new opportunities are available to both prospective and existing workers. (Conclusion, Paragraph 103)

As part of its North Sea transition plan, we recommend that the Government conduct a communications campaign about the scale of the energy transition and the employment opportunities available, directed at both oil and gas workers and new entrants to the sector. This should include information about skills transferability between oil and gas and other sectors and should also signpost how to find relevant job opportunities. (Recommendation, Paragraph 104) Grangemouth oil refinery

The Grangemouth case is the energy transition’s canary in a coalmine. It has illustrated the need for Government’s active stewardship in the energy transition. Petroineos advised the Committee that the UK and Scottish governments were aware of its plans to cease operations at the refinery five years ago. Both the UK and Scottish governments should have acted sooner to prepare for the resulting job losses and set in motion a feasibility study for future industries at the site at a much earlier point. This lack of action created an employment gap and trauma for the local community that could have been avoided. Petroineos, in collaboration with the Government, local authorities and trade unions, ought to have produced a comprehensive exit plan. (Conclusion, Paragraph 124) 58

In its response to this report, the Government should outline what has been learned from this case and what can be done to ensure that comparable industrial transitions will be better managed in future. Having consulted trade unions and communities during its consultation on Building the North Sea’s Energy Future, we recommend that the Government set out principles in its consultation response which outline the conditions and actions that constitute a just transition for workers and communities and draw on best-practice examples. These principles can act as a guide and create an expectation for transitioning high-carbon companies to produce an exit plan that benefits workers and communities. We recommend principles that emphasise the importance of early government intervention in industrial transition, proactive engagement with workers and communities, and which aim to maximise good, long-term and well-paid jobs. (Recommendation, Paragraph 125)

Continued momentum on the future of Grangemouth is vital. Project Willow must not be left to gather dust while jobs are at stake. We welcome the Scottish Government’s £25 million Just Transition Fund and the UK Government’s commitment of £200 million in ringfenced National Wealth Fund funding to leverage private investment in Grangemouth’s future. However, more clarity is needed on how decisions about investable proposals will be made, and how the Government’s taskforce on Project Willow recommendations will feed into the investment taskforce. This is crucial as it is potentially in the Government’s gift to unlock certain projects through regulatory changes. (Conclusion, Paragraph 137)

The Government should explain in its response to this report how its taskforce on regulatory recommendations will feed into decisions taken by the National Wealth Fund. The Government should make clear the role and influence of the Grangemouth Investment Taskforce Board in relation to the allocation of the £200 million National Wealth Fund funding. It should clarify whether the speed at which a new project at Grangemouth can begin, as well as the number and quality of jobs to be created, will be taken into account when making decisions about investable proposals. (Recommendation, Paragraph 138) 59