Economic Report 2016 - Oil & Gas UK

As a major energy-consuming industrial sector, almost all the UK upstream industry, comprising offshore platforms and onshore terminals, falls within the scope of the EU ETS. In 2014, the EU ETS captured 95 per cent of total upstream CO 2 emissions. Installations responsible for any CO 2 emissions are required to monitor and verify such emissions and to surrender allowances to cover all their emissions each year. Since the industry is deemed to be at risk of carbon leakage, installations receive some free allowances based on an assessment of historical performance relative to an industry benchmark but no free allowances are allocated for emissions from electricity generation. Offshore platforms are not connected to the onshore grid, so they have to generate their own electricity using produced fuel gas for all operational needs. This accounts for more than half the total CO 2 emissions from UK offshore installations. The effect of the ineligibility of emissions from electricity generation is that, uniquely among the six largest industrial sectors in the ETS, upstream oil and gas is short of allowances and has to purchase them in the market each year to meet their ETS obligations.

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Figure 8: UK Upstream Offshore Sector Emissions and Allowances

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Phase II

Phase III

Phase IV

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Total UK Offshore CO 2

Emissions

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Phase II (2008-12) 14.2 mt per annum

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4 GHG Emissions (Million tonnes CO 2 ) 6 8 10 12

Phase III (2013-20) 11.3 mt per annum

Phase IV (2021-30) 8.6 mt per annum

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2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Total Emissions

Other Sources

Electricity Generation Free Allowances

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Source: BEIS, DG CLIMA, Oil & Gas UK projections

In 2015, upstream installations within the ETS emitted 15.6 million tonnes (mt) of CO 2 , up 4.9 per cent from 14.9 mt in 2014 13 . Offshore installations accounted for 12.7 mt of this figure (+5.6 per cent) and onshore oil and gas terminals handling offshore UK production were responsible for a further 2.9 mt (+1.7 per cent). An estimated 6.6 mt (52 per cent) of all offshore CO 2 emissions were attributable to electricity generation. The increase in total CO 2 emissions in 2015 was smaller than the increase in hydrocarbon production (+10.4 per cent), indicating a decline in the carbon emission intensity of upstream operations contrary to the longer-term trend towards higher intensity observed since 2000 as resource depletion has proceeded.

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Carbon emission intensity declined in 2015 contrary to the long-term trend.

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13 Source: DG CLIMA EU Transaction Log (2016) .

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