Economic Report 2020

ECONOMIC REPORT 2020

Setting the framework for success Transforming the North Sea and wider UKCS into the engine for net zero will require substantial changes to legislative and regulatory frameworks. This has already been anticipated by the OGA, along with other regulatory partners, in its leadership of the Energy Integration Project and its proposed revisions of the MER Strategy framework. Regulatory changes alone, or a reliance on economy- wide measures, are unlikely to be sufficient to unlock this potential at the speed required. This has been the catalyst for the engagement between industry and government on the North Sea Transition Deal. These proposals outline a package of measures that will deliver government objectives rapidly across a range of the necessary outcomes whilst unlocking new diversified opportunities for the industry. The proposed North Sea Transition Deal is based around the following commitment areas: • Decarbonising oil and gas production, including through electrification • Carbon transport and storage infrastructure • Hydrogen production • Maintaining and strengthening the UK energy supply chain • Maintaining and creating high-quality jobs A key strategic objective in this work is to ensure that the transition process can access the existing expertise and technical knowledge that exists in the already substantial UK oil and gas supply chain. This substantial and diverse

set of contractors are already providing services worth around £28 billion worldwide, with a substantial part of this (around 60 per cent) related to UK activities. 46 The discussions around the North Sea Transition Deal have already explored a wide range of policy levers. When combined, these have the potential to release the investment needed to deliver a healthy oil and gas sector that is aligned with the transition to net zero, and which supports emerging new carbon capture and hydrogen technologies. Although these discussions will continue during the remainder of 2020 and into 2021, some of the key themes are outlined below. Carbon pricing policy Emission reductions across the economy will be partly driven by the price of carbon emission allowances which already provide a strong incentive for ongoing operational reductions. Carbon pricing will remain a key element of UK climate policy even though the EU Emission Trading Scheme will no longer apply. Government will shortly take a decision as to the way carbon prices will be set from 2021, which could either be the continuation of an allowance-based scheme or the introduction of a wider carbon tax. The impact of carbon prices on existing oil and gas production and the potential incentives to invest in emission-reduction technology are complex. There is a fine balance to be struck between the incentive properties

46 https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/news/2020/02/ey-review-of-the-uk-oilfield-services-industry.pdf

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