As part of the programme to mark 20 years since the creation of the Scottish Parliament, SPICe has been publishing twenty “20 year” blog posts on SPICe Spotlight over the course of 2019. This is the latest in the series and covers oil and gas. Our earlier post sets out more information on the programme and the series of blogs.
The Scottish Government’s commitment to net zero carbon emissions by 2045 – endorsed by Parliament in September – was widely welcomed across the UK and beyond. This builds on two decades of investigation, debate, scrutiny, ministerial statements and legislation all geared towards making Scotland a more environmentally sustainable country. It’s probably fair to say that the Scottish Parliament is one of only a few legislatures in the world where the environment, and climate change specifically, has been a dominant issue throughout its entire existence.
Introducing the current administration’s response to the global climate emergency, the Cabinet Secretary for Environment, Climate Change and Land Reform told the Parliament in May:
“Our response to the climate emergency will impact on how we live as a society and on how our economy operates. It must be a shared national endeavour…For those saying that this is too much and too expensive, I say that the evidence shows that the global cost of inaction far outweighs the cost of action. Future generations will end up paying even more if we fail to take action now.”
And yet, despite all of this, Scotland remains one of Europe’s largest extractors of fossil fuels, and the industry continues to account for roughly 10% of Scottish economic output. It is one of the great policy paradoxes of devolution that in addition to driving through world-leading climate change legislation, successive administrations have attempted to support, sustain and grow Scotland’s North Sea oil and gas industry. This approach has, more or less, been approved by the Parliament since 1999, neatly demonstrated by the Economy, Energy and Tourism Committee in 2015:
“We believe that it is vital for the Scottish economy that Governments, the industry and the trade unions continue to work ever more closely together in order to ensure that the objective of maximising economic recovery of oil and gas from the UKCS [UK Continental Shelf] is fulfilled prior to the inevitable decommissioning phase of its life.”
After the oil rush
Scotland’s parliament was (re)convened in 1999, the same year as the UK saw peak oil and gas extraction, mostly from the Scottish section of the UK continental shelf (UKCS). That year the industry averaged an extraction rate of 2.8 million barrels of oil equivalent each day, more than enough to meet the UK’s total energy requirements. Today the UKCS satisfies less than half of the country’s energy needs; indeed, the UK became a net importer of hydrocarbons from 2003 onwards. Despite this fall in production, the North Sea industry continues to support around 270,000 jobs across the UK, with around half of these being in Scotland.
Source: Scottish Government, Energy Statistics Database (2019)
The contribution of the industry to Scotland’s economy is well documented. Indeed, both the UK and Scottish governments want to maximise extraction from the North Sea, with the Oil and Gas Authority (OGA) set up by the UK Government in 2015 (and largely approved by the Scottish Parliament) to support this endeavour. The OGA, headquartered in Aberdeen, now regulates and promotes collaboration in the industry. Although most policy areas impacting the industry are reserved to Westminster, the Scottish Government also fully supports further investment in the North Sea.
This year, the UK industry will likely extract around 630 million barrels of oil equivalent (BOE) – the measurement used for equivalising volumes of oil and gas. Oil and Gas UK tell us that exploration and development activity grew in 2019, with 100 development wells being drilled. In addition, exploration efforts over the past two years have found reservoirs containing over 500 million extractable BOEs, adding to the approximately 10-20 billion already identified. We know that most of this will be used for transport, domestic heating or powering other industries.
The oil and gas industry “will play an essential role in our future energy system”
The Scottish Government sees the offshore oil and gas industry playing “an essential role in Scotland’s future energy system”. Its 2017 Energy Strategy argues that supporting oil and gas companies to extract more from the North Sea can actually lower net global emissions, particularly if domestic demand for fossil fuels continues at current levels. The reasoning behind this is if there is no domestic supply, Scotland will simply have to import all its fossil fuels, potentially from more carbon-intensive and polluting sources. The Minister for Rural Affairs and the Natural Environment defended this view in the Parliament in March 2019:
“Suddenly ending production would have an absolutely massive impact on communities and jobs, especially in the north-east of Scotland and in constituencies such as mine, Angus North and Mearns, where thousands of people depend on the sector. Doing that would also not help to reduce greenhouse gas emissions globally, because we would become reliant on imports until we were able to reduce the demand for oil and gas in Scotland”
The Scottish Government supports the oil and gas industry in a number of ways. For example, it will provide £90 million of funding through the Aberdeen City Region Deal for the Oil and Gas Technology Centre (OGTC). Furthermore, its enterprise agencies – Scottish Enterprise and Highlands and Islands Enterprise – account manage over 250 companies involved in the oil and gas industry (see 2016 SPICe briefing for explanation of enterprise agency support for businesses).
The Government is also involved in the Oil and Gas Industry Leadership Group bringing together the private and public sectors “to provide a strategic forum for discussion and to ensure partnership, collaboration and alignment between different parts of the industry”. And we should also remember that skills and training policy, including for the oil and gas industry, is a devolved area which the Government mainly funds through Skills Development Scotland.
Despite spending tens of millions of pounds each year supporting the oil and gas industry – and being committed to “maximum economic recovery” – the Scottish Government is simultaneously determined to help Scotland transition to a low carbon country. Whereas some, like Friends of the Earth, argue that these are utterly contradictory policy aims, the Government does not agree. Indeed, it believes that the transferable skills and expertise gained by oil and gas companies over the past four decades give the sector a strong advantage as they seek new opportunities in renewable energy sectors (and, indeed, many oil and gas companies are considering this).
To help the Government plan and support a transition to a more environmentally sustainable economy it established its Just Transition Commission in January 2019. The Commission aims to provide a set of “practical recommendations” to Scottish Ministers by early 2021 on a number of areas including risks related to regional cohesion and work quality. We know, for example, that the North East of Scotland is an area that will be impacted by the decline of the oil industry, and it is also probable that future jobs in this area may not be as well paid as current oil and gas jobs.
Interestingly, the SNP’s recent manifesto for the 2019 UK General Election called on the UK Government to ring-fence future oil and gas tax revenues (estimated at £8.5 billion over the next 5 years) to create a “Net Zero Fund”. This, according to the SNP, would assist in “the energy transition through investment in areas such as renewable energy, electric vehicles and carbon capture utilisation and storage” as well as helping “diversify the economies of oil hubs like Aberdeen, Falkirk and Shetland”. Of course, this demand does not require any action from the Scottish Government, but it does reveal an acknowledgement by the SNP leadership of the scale, and potential costs, of the challenges ahead.
A gradual response to an immediate crisis?
All messages coming from the Scottish Government about climate change tend to convey a sense of urgency and crisis. However, talk about our own domestic fossil fuel industry is characterised by an emphasis on gradual transition and minimum disruption to ‘business as usual’. It is entirely possible that the Parliament will continue supporting these two apparently opposing priorities for the next twenty years, as it has done for the previous twenty. However, JK Galbraith famously said that the art of politics “is in choosing between the disastrous and the unpalatable”. At the moment it seems that any talk of leaving oil and gas under the North Sea is politically “unpalatable”, but does that mean our Parliament is supporting the “disastrous”?
Greig Liddell, Senior Researcher.