The government has launched a consultation on the design of an oil and gas climate compatibility checkpoint.
On 20 December, BEIS outlined how the checkpoint will apply to any future oil and gas licenses to ensure they are aligned with the government’s climate change commitments, helping the UK’s oil and gas sector to transition to net zero. It follows a commitment set out earlier in 2021 to introduce the checkpoint alongside the North Sea Transition Deal.
The consultation is now open for views and sets out potential tests that could be used to assess new licenses, including domestic demand for oil and gas, the sector’s projected production levels, the sector’s continued progress against emissions reduction targets, and the sector’s progress in supporting energy transition technologies. Its rationale for the latter is that it could incentivise investment in, and the development of, technologies such as carbon capture usage and storage (CCUS) and hydrogen.
This test would work by comparing the sector’s progress in developing energy transition technologies with commitments set out within the North Sea Transition Deal. If the sector were to fall behind relative to a predefined trajectory towards targets in the North Sea Transition Deal, then the test would fail, resulting in a negative checkpoint outcome. These targets include 5GW of low carbon hydrogen capacity by 2030 and an ambition to capture 10mn tonnes of carbon dioxide per year by 2030, of which the latter has since been increased to 20-30MtCO2 across the economy through the Net Zero Strategy.
It stressed that delivering on these ambitions will call for the oil and gas industry to play their part, leveraging the existing infrastructure they have, where appropriate, to provide key transport and storage capability. It did, however, acknowledge potential limitations of such a test, such as how the ability to directly influence the development of key energy transition technologies, including CCUS and hydrogen, is limited to a small number of oil and gas companies, which makes it outside of the control of most of the sector.
Further issues include how making the checkpoint outcome dependent on the successful deployment of newer technologies could add uncertainty to the investment landscape, with some also arguing that continued licensing is necessary to provide a stable investment environment for the sector to invest in energy transition technologies.
The consultation will remain open until 28 February 2022, with the final checkpoint design then announced in due course.
