U.K. says new oil and gas fields can overcome net-zero rules

Rosebank field layout Source: Chevron

The U.K. proposed a series of climate change tests to determine whether new oil and gas fields can be built off its shores, but said its net-zero pledge doesn’t require the industry to be shut down. 

New projects could potentially still be allowed if they can show that their proposed emissions are less than those that come from importing fossil fuels, the Department for Business, Energy and Industrial Strategy said in a consultation document Monday that seeks to align fossil-fuel production with its target to have net-zero greenhouse-gas emissions by 2050. 

Earlier this year, the International Energy Agency said no new oil and gas fields should come online if a climate crisis is to be averted. However, the U.K. has said it wants to avoid a cliff edge for the industry and, at the COP26 climate summit last month, it refused to join an alliance of countries fixing a date to phase out production.

“Clearly we are expecting there to be future licences,” Greg Hands, the U.K. energy and climate minister, said in an interview. “Homegrown oil and gas is generally more climate friendly than imports. That is something which I think the government is keenly aware of.”

The plans suggest that new licensing rounds could be paused, unless they can pass a series of six “tests” that show they are compatible with the U.K.’s climate targets, according to the consultation.They include considering the reductions in operational emissions from the industry compared with their commitments, and to the rest of the world. 

They would also consider the status of the U.K. as a net importer or exporter of oil and gas, and “international Scope 3 emissions from U.K.-produced oil and gas and whether these would be expected to fall in line with the decline in emissions required to keep global warming within 1.5 degrees Celsius if further licensing rounds were agreed.”

The tests would also consider the gap between all countries’ planned fossil-fuel production and global production levels consistent with limiting warming to 1.5 degrees Celsius.

‘Global’ Scenario

Hands said the government plans agreed with the IEA’s recommendation to have no new oil and gas, because that was a “global” scenario, and the U.K. is just one country. 

“We do not think that our North Sea transition deal, the climate compatibility check points, and future licensing rounds are incompatible with the IEA’s global scenario,” he said. “That’s what I’m saying. I’m not saying we’re not on the globe.” 

The decision comes after Royal Dutch Shell plc pulled out of plans for the controversial Cambo oil field in the North Sea, which had become the subject of a legal challenge with environmental campaigners arguing that new developments are at odds with the U.K.’s climate change laws.

The new tests will not cover projects such as Cambo, which have already gone through the initial licensing round. However, these projects could still be subject to further scrutiny because the Oil and Gas Authority would need to perform further checks under its revised strategy, “which is effectively a net zero test,” according to the document.

Hands said the new tests wouldn’t affect Equinor ASA’s proposed Rosebank project on the continental shelf, which is due to reach a final investment decision in May 2022. 

“I met with Equinor a couple of weeks ago and gave them strong U.K. government support for the important work they’re doing both in oil and gas and in renewables,” he said.

© 2021 Bloomberg L.P.

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