Banning North Sea oil will only benefit Saudi Arabia
Fossil fuels will remain part of the energy mix for decades to come – if we don’t extract our own resources from the North Sea, our loss will be other polluters’ gain, says Andy Mayer
The new government’s plans to capitulate to the likes of Just Stop Oil by banning new drilling licences in the North Sea will do nothing to prevent climate change.
Global warming is driven mainly by the consumption of fossil fuels for energy not their extraction. The UK currently consumes 75-80 per cent of our primary energy in the form of fossil fuels and the world around 85 per cent. This is going to take a long time to change, with overall growth in the demand for energy, so far, marginalising the impact of otherwise impressive growth in alternatives.
Given that we will still be reliant on fossil fuels for several decades to come, any oil and gas not extracted from the North Sea will have to be sourced from elsewhere. The main thing we lose by not extracting our own resources are the associated investment wealth, taxes, and jobs. We instead pay for things in other places. Our loss is Saudi Arabia’s gain, and that loss will be concentrated in Scotland, most notably Aberdeenshire where up to 200,000 jobs depend on the industry.
There is a price effect from restricting supply. The logic of ‘leave it in the ground’ campaigns is that by restricting supply, prices rise, which makes alternatives relatively cheaper, and accelerates the low carbon transition. However, these are the same campaigners who only two years ago were arguing that extracting 50-100 years supply of onshore resources through fracking was a waste of time, as it would have ‘no impact’ on then high prices. Both cases cannot be simultaneously true, and this is regardless an argument about marginal impacts on regional (gas) and global (oil) markets, not a sensible case for or against any ban.
If there is an emissions case, it is likely negative. Imported oil and gas must be shipped here by diesel-powered tankers. The North Sea Transition Authority (NSTA) estimates this has four times the emissions profile of our own supply. But that will often be much more because developing countries use higher impact extraction techniques while also creating negative trade-offs on other environmental goods, due to lower standards on managing and avoiding the risks of pollution.
Which leaves virtue signalling the UK’s intention to lead the world on net zero as the only real purpose of the policy. As with the Climate Act, the idea is that where Britain will lead, others will follow, and that eventually must have a meaningful impact on demand.
But this is muddled thinking. Deliberately making ourselves poorer is a plausible path to net zero, but not an attractive one. That kind of leadership has few followers, and is unlikely to sustain in a democracy, which in part is why the last government got into such a mess on these issues. Policy incoherence poisons the investment climate by adding a ‘maniac-premium’ to expected returns, which is why last week’s hint of interference by Ed Miliband in a licensing round that is already underway was condemned by the industry.
The attractive path to net zero conversely involves making good on promises to decarbonise affordably without impacting energy security. This is not easy, and no one really knows yet how it can be done. But it clearly doesn’t help to remove access to the one resource where there is a moral case for taxing the problem to fund the solutions. When New Zealand’s government tried this, the position had to be reversed by the next administration, but real damage had already been done. Whether Britain’s progressive idealists will learn this lesson any faster remains to be seen.
Andy Mayer is chief operating officer, company secretary and energy analyst at the Institute of Economic Affairs