UK’s fossil fuel funding
The EU’s European Commission’s Energy prices and costs in Europe report published in 2019 shows that within the EU, the UK spent the most on fossil fuel subsidies in 2018, this drew a significant amount of attention to the country’s energy funding policies.
The report based on Eurostat data showed that the UK spent €12bn (£10.5bn) a year to support fossil fuels, which is more than its €8.3bn funding for renewable energy. Across the EU, the picture is different, with states on average allocating 45% of subsidies on renewables and 33% on fossil fuels.
This information has raised questions over whether the UK is committed to its climate ambitions, including the Paris Agreement of reaching net zero emissions by 2050.
Should exploration be subsidised? Oil will be needed for the foreseeable future
While oil consumption overall declined from 1.83 billion barrels per day in 2015 to 1.62 billion barrels per day in 2018, according to Statista, a more drastic suspension of drilling would cause a significant energy shortage, which renewable sources such as solar and wind would not be able to replace quickly enough. Therefore, oil is likely to still be essential during the energy transition to renewables before more environmentally-friendly sources of energy become developed enough to cover demand.
As part of a statement from January 2020, the UK Oil and Gas (OGUK) trade association chief executive Deirdre Michie outlined the industry’s response to the UK’s net zero commitments announcing that the industry can now see enough evidence of climate change influenced by drilling, but the country should take a gradual approach as global energy demand is “forecasted to grow by up to 30% by 2050.”
Another reason why a step-by-step process would be preferable according to the OGUK is that some industries such as aviation and chemistry would be extremely difficult to decarbonise in the next couple of years, so “oil and gas will continue to form part of a diverse energy mix, albeit at lower levels, roughly about a third of what it is today.”
Decommissioning must accelerate to meet climate targets, should this become the new frontier for investment?
When it comes to decommissioning, the government body Oil and Gas Authority has said that several hundred oil drilling constructions will be decommissioned in the UK Continental Shelf in the near future. This is expected to take decades and substantial resources, but it must be done, according to the government, to protect the environment.
The authority has also emphasised that decommissioning could present significant opportunities for innovation, cost reduction, and development of UK skills and capability, which the country could use to its advantage.
According to Shell, 10% of the North Sea oil and gas constructions have so far entered the decommissioning phase and the industry expects to see around 600 more installations decommissioned over the next 30 to 40 years. This, in turn, gives the UK the opportunity to pivot from a major oil producer to a global leader in decommissioning. As this expertise is set to be in high demand in the next couple of decades while massive decommissioning efforts spread around the world, this could position the country a step ahead.
Along with that, the UK could use the opportunity to focus its efforts on the development and funding of more renewable projects that produce less or no carbon emissions, and improve its energy research and innovation sector, which could make a real difference to the future of sustainable energy generation.
The choice isn’t binary
A more or less even split between respondents reflects that the choice isn’t binary. Few people think critical energy infrastructure can survive the offshore industry being defunded and turned on its head overnight. Oil will still have its part to play for some time.
Decommissioning however is an attractive industry as reflected by respondents who believe it should get the lion’s share of government money. It does seem inevitable that decommissioning services will see investment pour in over the coming years. How quickly the UK Government reacts to the opportunity, and to what scale that affects subsidies for new oil exploration remains to be seen.