The UK — a transition like no other

Those knowledgeable in the science of electricity will doubtless be familiar with Lichtenberg figures. They result from a branching electric discharge often with a fern pattern that sometimes appears on the surface or in the interior of insulating materials. These phenomena were discovered by Georg Christoph Lichtenberg, a celebrated 18^th Century German physicist and intellectual known for his pioneering experiments in ‘electrical treeing’.

What does this have to do with Britain’s energy transition challenge? Almost nothing is the answer, except that counted among Lichtenberg’s many talents was his aptitude for philosophical and social commentary often in the form of memorable aphorisms. These are to be found most notably in his posthumous Sudelbücher (Scrapbooks). The surviving manuscripts are lodged at his alma mater, the University of Göttingen, and a statue memorializing the great man stands in the town’s marketplace.

One enigmatic pearl of wisdom from the master goes as follows: ‘I cannot say whether things will get better if we change; what I can say is they must change if they are to get better.’ This seems to characterize the UK’s conundrum over energy issues in the era of climate change. The government could be perceived as enthusiastically embracing the need to move away from fossil fuels. This marks a remarkable conversion for a country made great in the 19th century when coal was king and then provided with an economic liferaft in the latter part of the last century by revenues from the fortuitous finding of oil and gas offshore.

In the last few months, official statements have recognized the energy transition imperative with a 10 Point Plan for a Green Industrial Revolution announced in November by Prime Minister Boris Johnson and publication of an Energy White paper in December. Cynics may of course note that this coming November the UK is hosting the high-profile COP26 international gathering of signatories to the United Nations Framework Convention on Climate Change (UNFCCC), a treaty agreed in 1994. Glasgow was chosen as the host city.

Pressure to show green credentials is evident and Glasgow more than meets the criteria. The city has set a target for carbon neutrality by 2030, aims to be one of the greenest cities in Europe through its Sustainable Glasgow campaign, and is fourth in the world in the Global Destination Sustainability Index.

Yet politicians of all the leading UK parties must be squirming to explain the paradox of a Scottish venue for an international gathering seriously committed to reducing carbon emissions with reduction of dependence on the oil and gas industry top of the agenda.

For the UK Conservative government it is an extraordinarily difficult political balancing act. Brexit was rejected in Scotland but now it has to negotiate phasing out of the old (offshore oil and gas business) and ushering in the new (green initiatives/promotion of renewables) conscious of alienating Scottish voters when another independence referendum is in the air. Ironically some of the same dilemma applies to the majority party in Scotland, the Scottish National Party (SNP).

There are just six Scottish Conservative MPs in the UK parliament outnumbered by 47 SNP members. On 6 May Scottish Parliamentary elections may well see the SNP win a majority of seats having narrowly failed with 63 out of 129 in 2016. Such an outcome will almost certainly embolden Nicola Sturgeon, SNP leader and Scotland’s First Minister to honour the party’s pledge to call for another referendum on Scottish independence.

Oil and gas operations offshore Scotland have been a lightning rod in Scottish political debate since the 1970s. An unlikely by-election win in the Scottish constituency of Hamilton in 1967 by the legendary Winnie Ewing, now in her nineties, provided the catalyst for the rise of the SNP. The party was established as far back as 1934 but could never unlock the electoral seats held by the traditional parties. SNP’s popularity took off in the 1970s fuelled by the slogan ‘It’s Scotland’s Oil’. The implication was that the oil revenues from production offshore had been stolen by the UK Exchequer and were not benefiting Scotland sufficiently.

To head off trouble, the Labour government in 1979 facilitated the first referendum on a form of devolution. This failed to gain a sufficient majority of the electorate in Scotland but, in 1999, a second referendum established today’s Scottish Parliament with tax-varying powers within the UK political system, which is still dominated by Westminster.

The SNP today still trades on the legacy resentment felt by many over the UK government’s offshore oil policy which offered minimal special treatment for Scotland. But these days there is less to argue about and the narrative is beginning to lose its relevance. Nicola Sturgeon in 2019 announced a major green plan for Scotland headlined by a commitment to achieve net zero greenhouse gas emissions by 2045. This was not simply a moral obligation, but also an economic and social opportunity, she said at the time. But in March this year she was put on the spot when asked to comment on reports (never confirmed) that the UK government was considering a ban on all future UK offshore exploration. Her mixed message was to warn that an immediate ban on new North Sea exploration could cost ‘jobs, livelihoods and living standards’ in the north-east region, but to concede that ‘difficult decisions’ in the context of climate change lay ahead for the next parliament.

If you look at the value of domestic oil and gas production to the UK, it comes from energy security, i.e., the meeting of the country’s energy needs. That is something governments surely have to take into account unless there is a viable alternative. The production of oil and gas in 2018 accounted for more than one-third of the energy sector’s total contribution and 1.2% of overall UK GDP (equal to around £24 billion), according to the UKOG Economic 2019 report.

Renewables are catching up. UK government publication Energy Trends reported that energy consumption in 2020 was low as Covid-19 restrictions affected economic output, leisure, and travel. Energy requirements for industrial use and services (e.g., shops, restaurants, offices) were down 8% on 2019. Despite warmer weather, domestic demand was up 2% as more people stayed at home. Transport demand dropped 28% compared to 2019.

However, aided by windy conditions in the Spring of 2020 renewable generation reached record levels and contributed a 42.9% share of generation, outpacing for the first time annual fossil fuel generation, which contributed 38.5% of generation, a record low and down from 75.4% in 2010. Despite low output from nuclear, strong renewable performance pushed low carbon generation to a record 59%

As far as contributions to UK Treasury from offshore oil and gas go, that ship has sailed. Since 2008-09 UK oil and gas revenues have fallen from £10.6 billion (0.7 per cent of GDP) to £0.6 billion (0.03 per cent of GDP) in 2019-20. The fall in receipts has largely been driven by falling production and higher tax-deductible expenditure, according to the Office of Budget Responsibility.

That is not the whole story. All the opposition parties in Westminster, not only the SNP, can berate the government over the ugly financial mess emerging in these latter days of North Sea oil. The problem is who pays for decommissioning of all that infrastructure planted on the seabed in the good times. There is a debate too about the environmental and safety impact if, as is likely, a number of structures will be left in the sea after partial dismantling.

The official figure for the cost of decommissioning offshore UK is currently £50 billion, of which the taxpayer is likely to be on the hook for £24 billion in the years to come, according to the National Audit Office. This is because of significant tax reliefs granted to oil companies, which allow operators to deduct up to 75% of their spending on decommissioning from their tax. This can include reclaiming corporation tax paid since 2002. Who else but the government will be liable for the total cost of decommissioning those oil installations owned by operators that go bankrupt or lack the funds to carry out the work themselves.

The upside of decommissioning operations already recognized is that UK companies will have the opportunity to develop dismantling expertise and specialized equipment that can serve offshore provinces in many areas of the world. The global decommissioning sector is conservatively estimated to be worth £270 billion. Orkney Islands Council is the latest authority to make a pitch to be the site for UK decommissioning operations, proposing a former naval base at Lyness in the sheltered deep waters of Scapa Flow.

The latest twist in the UK energy plot was the North Sea Transition Deal announced on 24 March between the UK government and the private sector UKOG, said to be the first partnership of its kind for a G7 country. The landmark agreement provides assistance for the oil and gas industry’s transition to clean, green energy (including hydrogen production, carbon capture and storage, and decommissioning) while supporting up to 40,000 jobs across the supply chain. Extracting oil and gas on the UK Continental Shelf is directly responsible for around 3.5% of the UK’s greenhouse gas emissions.

Deal highlights include the UK no longer providing financial support for the fossil fuel energy sector overseas; setting standards for transition to a clean, green economy without leaving communities and vital industries behind. A joint government-industry sector investment of up to £16 billion by 2030 to reduce carbon emissions is promised.

Come November these transition plans will allow the UK government to hold its head up high at the Glasgow COP26. But delivery on the promises may prove more problematic. George Christoph Lichtenberg sardonically observed: ‘To make a vow is a greater sin than to break one’.

‘Official statements have recognized the energy transition imperative’

‘Latest twist in the UK energy plot was the North Sea Transition Deal’