The UK has been the most successful large economy at decarbonising: its emissions dropped 3.7% per year on average over the last decade. By 2050, the country has committed to be at net-zero carbon. Yet its North Sea Transition Authority is now hoping to award more than 100 licences for new oil and gas exploration and production by next June. Is this contradiction, hypocrisy – or an understandable balancing of energy security and climate action?
Current energy prices – especially for gas and electricity – are exceptionally high. This is the result of a collision of a decade of low prices and low investment across the energy complex, pandemic-related economic stimulus, and the disruptions of the Russia-Ukraine war. Bad luck and extreme weather have played a part too: maintenance problems in France’s nuclear reactors, summer heatwaves and drought across the US, Europe and China that dried up hydropower and boosted the need for air-conditioning.
The move to renewables is emphatically not the cause of the current crisis. In fact, Europe’s spending on technologies such as wind and solar slumped after 2011 and only recently recovered. If there had been less investment in renewables and electric vehicles, today’s energy market would be even tighter.
The policy failure is something else: it is the attempt to move rapidly to a low-carbon energy system, while attacking the production of fossil fuels and nuclear power, and not ensuring that their alternatives are in place.
Citizens will not stand for energy poverty, as worldwide protests from France to Sri Lanka in recent years demonstrate. People will tolerate some price rises and inconvenience, but climate policy will only be successful if it also delivers reliable, affordable and clean energy.
Fossil fuel producers, whether companies or countries, receive mixed messages. On the one hand, they are told to prepare for obsolescence, accused of profiteering, hit with windfall taxes, and see financing cut off. On the other, they are begged to increase supply and to make costly, long-term investments for the sake of consumers.
In contrast, the UK’s new licences will displace imported oil and gas with a likely higher carbon footprint, lower the trade deficit, and bring in tax revenues that can be spent to improve energy efficiency or protect vulnerable consumers from high bills.
A successful energy transition needs to consider two factors. Firstly, diversity – a combination of energy sources and geographies is more robust and affordable. A diverse energy system, blending renewables, nuclear and suitably low-carbon fossil fuels, is more resilient against surprises, and has more optionality in the face of wildly uncertain geo-economic futures.
Secondly, the reality we are dealing with a transition, not teleportation from a fossil present to a renewable future. The scale of investment is colossal: a tripling in annual clean energy spending to $4 trillion by 2030, according to the International Energy Agency. This is a large fraction of all global capital expenditure, about $22 trillion annually. Anything that can be done to re-use and reimagine existing assets and skills will save money, scarce critical materials, environmental damage and community disruption.
Moreover, fossil fuels can be low-carbon. Many leading energy companies have made commitments to net-zero in their own operations and technology such as direct air capture, CCUS, as well as the increased production of blue hydrogen all support the decarbonisation of the industry. In the UK, BP plans to spend £18 billion up to 2030 on lower-emission oil and gas developments and infrastructure, that will support its ambitious offshore wind plans. BP, Shell and TotalEnergies were prominent winners in the ScotWind licensing round in January.
Across the North Sea, Norway is a crucial provider of oil and gas to Europe, as well as electricity from its hydropower, and also the world leader in the share of electric vehicle sales. It has stepped up gas production to a record to meet Europe’s urgent demand, while having one of the industry’s lowest carbon footprints of production. The UAE is another country blending investment in renewables, hydrocarbons and nuclear power. I expect to see all three featuring prominently when I attend ADIPEC at the end of this month, one of the world’s largest energy conferences. Like the UK and Norway, the UAE has committed to net-zero carbon by 2050. It is expanding its oil production capacity to 5 million bpd by 2030, or possibly as early as 2025, and building a new liquefied natural gas export facility at the port of Fujairah that will help to meet the needs of Europe and displace coal in Asia.
Too often, fossil fuels, renewables and nuclear are seen as opponents. Developing the infrastructure and business models to blend them is not easy, but it is emerging. A pragmatic combination will best assure economic and climate security.
Robin Mills is CEO of Qamar Energy, an independent energy consultancy company based in Dubai.
