Oil & Gas UK Economic Report 2015

Greenhouse Gas Emission Reduction Efforts in UK Upstream In 2014, the UK upstream industry, comprising 100 offshore installations and 26 onshore terminals within the ETS scheme, emitted 14.7 million tonnes of CO 2 equivalent (mainly CO 2 and methane), amounting to about three per cent of the UK’s total GHG emissions. Most of the emissions come from combustion of fuels, usually natural gas, for electricity generation and compression and from flaring and venting of gas, usually for safety reasons. According to the International Association of Oil & Gas Producers (IOGP), energy consumption and gas flaring is lower in the UK and the rest of Europe than in other oil and gas-producing regions of the world. This is due to the comprehensive environmental and safety regulations that govern all UKCS operations. Total GHG emissions from upstream installations in the ETS have fallen steadily from 18.4 million tonnes in 2008 to 14.7 million tonnes in 2014. A longer time series from the national GHG inventory shows a steady decline in emissions between 1996 and 2014, amounting to 37 per cent over this period. This reflects not only the decline in production and decommissioning of some older fields and installations, but also the efforts by

operators to minimise all avoidable emissions and to improve energy efficiency and emissions intensity. As Figure 50 shows, the sector received free allowances in excess of its verified emissions within Phase II of the ETS. In Phase III, the allocation of free allowances to the UK upstream was almost halved. The UK upstream suffered a more severe reduction in 2013 than most other energy-intensive industrial sectors because it was decided that electricity generation should not be eligible for any free allowances in Phase III. Although perhaps justified for onshore generation, this represents an anomaly offshore where electricity generation accounts for 35 to 40 per cent of total GHG emissions and operators do not have access to the onshore grid. In 2014, the entire sector received free allowances for ten million tonnes of CO 2 , representing 69 per cent of total verified emissions. The shortfall is expected to rise gradually from 2015 to 2020. Furthermore, unless the ineligibility of emissions from offshore electricity generation is corrected in Phase IV of the ETS (2021 to 2030), the higher expected carbon price will make the UKCS more vulnerable to international competition and carbon leakage in the future and will create additional barriers to new field developments.

Figure 50: UKCS Faces Growing Carbon Exposure in ETS Phase III

10 12 14 16 18 20 22

Allowances Offshore

Allowances Onshore

Total GHG Emissions

Million Tonnes CO 2 e

0 2 4 6 8

2008

2010

2012

2014

2016

2018

2020

Source: Directorate - General Climate Action - European Commission

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ECONOMIC REPORT 2015