Scotland has seen that the extreme expansion of windfall taxes may be the UK Government’s last-gasp attempt at extracting every penny of ‘investment subsidies’ they have made available over decades, along with every drop of available oil and cubic metre of gas from the North Sea. The parasite killing the host is an apt description of the government’s actions over decades for this industry, although they have gone to great lengths to make it look to the majority that the relationship is mutualistic. Continuing with new rounds of licensing and approvals for new oilfields such as Rosebank is a testament to the government’s determination to continue oil recovery despite the potentially catastrophic climate change events we are now facing.
Compared with significant other global oil producers, the UK does not fit the definition of a ‘petrostate’ but faces considerable losses from a transition, with higher North Sea production costs.
Fiscal dependency
When using the term fiscal dependency to describe the relationship between the UK government and the oil & gas industry, it must be emphasised that the role of taxation is not what we are led to believe. Taxes do not fund the state in a country that issues its own fiat currency, but they do play a role in removing spending power, keeping inflation in check.
Scotland does not benefit from oil as much as the rest of the UK. The financial sector in London is the main beneficiary in terms of employment and revenue through equity companies. However, current political operators would maintain that job losses in the North Sea would be considerable and that Aberdeen would decline, becoming an industrial wasteland.
The need for diversification in Scotland’s economy is urgent but the UK government controls our economy. Scotland cannot operate as a currency issuer, only as a currency user so does not have control of the financial levers it needs to increase diversification. Scotland, to use an automotive analogy, is stuck in first gear without a clutch and no recourse to an automatic gearbox.
Past and present BP
It is now 60 years since BP was awarded the first licence to drill in the North Sea and with a climate catastrophe already making its presence felt, the company is moving away from fossil fuels, which generate 34 billion tonnes of carbon emissions globally.
BP increased its global annual investment into its lower carbon businesses by 23% in 2023 ($3.8bn), an increase of 20% since 2019. As well as investing in infrastructure such as EV charging stations, BP is expanding into producing hydrogen to be used in decarbonising other forms of transport, besides cars.
It is clear that BP is looking to extend its presence in the fossil fuel market for as long as it remains profitable. Like other oil & gas companies, it is determined to get every ounce of value from Scotland’s resources, utilising unproven carbon capture technologies. With H2Teesside, BP aims to be one of the largest producers of blue hydrogen in the UK. Blue hydrogen is produced from natural gas and requires carbon capture. Despite decades of research, capture technology is not a viable climate solution. Aside from the fact that the energy used to capture CO2 is often natural gas-powered electricity, which is the case with the Teesside project, the carbon capture technology is expensive to scale up and incapable of keeping up with the levels of CO2 being emitted.
BP has partnered with the Northern Endurance Partnership (NEP), to provide the infrastructure needed to transport CO2 from emitters in Humber & Teesside to secure offshore storage for approximately 23Mt of CO2 emissions per annum in the North Sea by 2030s. It also plans its HyGreen Teesside project to be one of the biggest green hydrogen facilities in the UK. Green energy is produced using renewable energy. BP are to be applauded for investing in green hydrogen but its continuing production of blue hydrogen and its reliance on unproven technology poses a climate threat.
We have already established that the UK Government is fiscally dependent on the oil & gas industry but how can Scotland ensure that the BPs of this world and the UK Government are serious about a just transition within carbon targets?
Next steps – hydrogen?
We hear so much about wind & solar energy sources and heat pumps but not so much about hydrogen. Significant challenges must be addressed if hydrogen is to replace fossil fuels. But address them we must if we are to achieve our net zero targets and with other renewable energy sources intermittent, we must progress hydrogen production to underpin our future energy security.
What are the challenges? Hydrogen production technology is already in use and plans to decarbonise the transport industry are progressing. One of the challenges is providing investment for the infrastructure and storage facilities for hydrogen at the scale needed to sit alongside existing energy systems.
Scope 3 emissions court ruling
Just last month, a court ruling which may have implications internationally, determined that Scope 3 emissions should be considered as part of the planning application.
Following a decision by Surrey Council to extend drilling permission for an onshore oil well at Horse Hill, near Gatwick airport, campaigners took their case to have Scope 3 emissions considered at the planning stage to the UK Supreme Court and won.
Finally, campaigners are seeing their efforts rewarded and continue to pressure both the Scottish and UK Governments to ensure that a just transition is put in place and environmental targets are heeded.
We are undoubtedly at a climate change curtailment crossroads however, as the unregulated free market fosters the notion that greed is good and that natural resources are there for the benefit of private entities to exploit. If markets are to be operated in the public interest, they need regulation. Recent collapses in the financial markets globally have shown there is a requirement to regulate markets so that they function effectively. The previous UK Government’s attempt at managing the oil & gas industry and its fiscal policies should not be used as a model for Scotland.
Foreign Direct Investment
Recent increases in foreign direct investment (FDI) in Scotland, compared with the rest of the UK, have been used to portray Scotland as leading the way to increased growth. There are advantages to increased FDI in Scotland, but the disadvantages should also be considered. It is argued that technology sharing and expertise are benefits of FDI but there has been exploitation of labour and resources, particularly in the renewable industries. This is hampering a just transition, and the promise of increased job opportunities has not materialised.
Scotland’s future renewable strategy should include green hydrogen
Scotland could and should be the leading green hydrogen producer in the UK. The introduction of a hydrogen fund by the Scottish Government isn’t sufficient to make an impact.
The Hydrogen Innovation Scheme launched in 2022, to support targeted renewable hydrogen production, storage and distribution, and incorporation of hydrogen into Scotland’s energy networks. The £10mn Hydrogen Innovation Scheme is part of the Emerging Energy Technologies Fund and is being delivered from 2022 to 2026.
I live in hope, that in the not-too-distant future, BP will concentrate its investments more on green hydrogen and ease a just transition away from fossil fuels and blue hydrogen. BP states it “could deliver up to 5% of the UK Government’s hydrogen target of 10GW by 2030”. Just such a pity – this production will take place hundreds of miles away from the largest source of renewable energy in the UK…
If our friends in the North of England are benefiting, then why not Scotland? The UK Government denies that Scotland is a colony but continues to treat us as such. There is no other way but Independence for Scotland to achieve its climate targets.
Drax – Greenwashing
This week we heard the CEO of Drax waxing lyrical about Bioenergy with carbon capture use and storage (BECCS), which is dependent on the biomass used being carbon neutral.
The company is owned by National Power, which was set up when England and Wales privatised the electricity industry. Drax claims that by using BECSS in creating electricity by burning imported wood pellets, they will remove more CO2 from the air than is emitted during the process – making it carbon neutral.
Drax is the largest single emitter of CO2 in the UK energy sector responsible for 11.5 million tonnes (Mt) of CO2 emissions in 2023.
Sadly, the company is supported by the UK and Scottish Governments, receiving £617mn in public subsidy from UK energy bill payers in 2022. This year they await more government subsidies from paying out 12.6% in dividends plus a £300mn share buy-back scheme, half-year profits of £515mn and a projected yearly profit of around £996mn. This is a clear case of ‘corporate welfare’. As the cost of imported wood pellets soars, so too will the subsidies, expected to reach £10.4bn in 2027.
“It’s a startling fact that the UK’s largest single source of greenhouse gases is a government-backed project that receives hundreds of millions in energy bill payer funding every year.”-Tomos Harrison Electricity Transition Analyst, Ember.
It is a sad fact that shareholders hold more sway over company decisions than anyone else. Unfortunately, paying dividends out with one hand and holding out the begging bowl for public funding with the other is standard practice and takes precedence over the need to consider the consequences of climate change.
More in environment.
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