Net zero North Sea – a managed transition for oil and gas

The UK and Scottish governments must together develop a new ‘net zero deal’ to keep North Sea oil and gas in the ground and invest in low-carbon industries to replace them, says a new report from the Institute for Public Policy Research (IPPR).

As the oil and gas industry reels from the impact of COVID-19 on oil prices, with thousands of jobs furloughed or already lost, the think tank is calling for the UK to move quickly to an economy less dependent on extracting and burning fossil fuels. Such a move is essential, argue the authors, if the UK is to lead by the ‘power of our example’ as host of the COP26 climate summit in 2021, and leverage greater action by other countries around the world.

The report, which follows publication of the UK Prime Minister’s 10-point plan for a green industrial revolution, argues that this is not about managing decline, but a managed transition – from reliance on fossil fuels to creating and expanding the industries and jobs of the future. Previous IPPR analysis suggests that a well-managed transition with investment in the low carbon economy could create 1.6mn jobs, shared across the country, including 134,000 jobs in Scotland.

Some 260,000 jobs are linked to the oil and gas industries across the UK, including 230,000 in the onshore supply chain, the report says. Many workers will need new skills for the industries that could replace them, and local communities – notably in north-east Scotland, but also elsewhere in the UK – will need support to prevent the risk of economic and social decline.

New analysis by IPPR reveals the full extent of the jobs directly dependent on oil and gas industries in the Aberdeen area – more than 10% of all jobs in the city itself, and 5% in surrounding Aberdeenshire. However, the report also notes that three-fifths of all the jobs directly and indirectly related to the industry are outside Scotland, with London and the South-East accounting for one job in five.

The report calls for the two governments to commit to a ‘co-design process’ for an agreed ‘net zero deal for oil and gas’ aimed at hitting their respective net zero emissions targets – 2050 for the UK as a whole, and 2045 for Scotland – and that also aligns with the 1.5^oC target of the Paris Agreement.

Any net zero deal should not be imposed on Scotland or local communities, but be achieved with consent, the report says. All the costs of this transition should be fairly shared between the two governments and business, with significant investment required from the UK government. Co-creation should also involve industry, trade unions, workers and communities.

Among the report’s 27 recommendations are that the two governments should jointly:

• Set clear five-year targets to reduce oil and gas production, consumption and export, in line with overall net zero targets and the Paris Agreement. At present 80% of UK oil and 20% of gas is exported.

• Remove or amend the law requiring companies to extract the most oil and gas they can from the North Sea – known as ‘maximum economic recovery (MER)’ – and instead cap how much they can extract. This should be used to prevent the UK from exporting surplus oil and gas that would generate carbon emissions abroad.

• Reform CEOs’ duties to include environmental obligations, with fully transparent reporting and pay and bonuses linked to long-term environmentally sustainable activity.

• The UK government should close the investment gap of around £30bn/y in this parliament in zero carbon and climate-compatible industries, to meet its net zero commitment, secure a just transition and restore nature. Further investment is needed in decommissioning, offshore wind, energy efficiency retrofitting, sustainable transport, hydrogen fuel and carbon capture and storage (CCS) plants.

• Work with local councils in oil and gas regions to invest in new infrastructure projects like the pilot Acorn hydrogen and CCS project in north-east Scotland, expanded ports to service offshore activity and better broadband and transport links. Investment should also aim to develop low carbon clusters of industry, such as in Grangemouth and Teesside, and to expanding academia and technical colleges to support them.

• Set up skills academies for existing workers at an annual cost of £40mn in Scotland and £63mn in England, to develop the new skills needed for some of the developing industries.

Luke Murphy, IPPR Associate Director, says: ‘It’s time for the UK to move on from oil and gas to a net zero North Sea and a greener and brighter future. As host of COP26, the UK has the opportunity to lead by the “power of our example” by committing to keep fossil fuels in the ground and offering a blueprint for affected workers and communities to make the most of the huge opportunities offered by the zero carbon economy. This plan provides a roadmap for how we can make the most of what the UK government says is an “unrivalled asset”.’