Since the Labour Party came into power in the U.K. two years ago, the government has introduced stricter regulations on fossil fuels in a bid to shift to green energy. This has resulted in an uncertain investor environment in Britain’s North Sea, as many energy companies instead invest in renewable energy projects. It has also spurred higher levels of gas imports, and, in recent weeks, U.S. President Donald Trump said he thought the U.K. should backtrack on its green transition in favour of fossil fuels.
In June, the U.K. Labour government introduced stricter environmental rules for fossil fuel projects, which are expected to affect two North Sea oil and gas fields operated by Shell and Equinor. The move means approval for new projects must account for the environmental impact of emissions from using or burning the fuels extracted, also known as downstream emissions. The U.K. Department for Energy Security and Net Zero said this “will ensure the full effects of fossil fuel extraction on the environment are recognised in consenting decisions.”
This follows several blows to oil and gas projects in recent years. For example, in January, a Scottish court ruled that the approval of Shell’s Jackdaw and Equinor and Ithaca Energy’s Rosebank were unlawful, and the projects must be reassessed. The oil majors are expected to submit new assessments based on the current environmental guidelines. While the government said last year that it would not issue any new oil and gas licences, it also decided it would not revoke any licenses granted by the previous government.
While the new regulations are stricter than previously, they could provide the basis needed for Shell and Equinor to complete the assessments required to get the green light for their projects, by evaluating the full scope of carbon emissions they would produce. Decisions on the two projects are expected to be made by the Autumn or later.
Equinor responded to the new rules, saying, “We are currently reviewing today’s announcement. We remain committed to working closely with all relevant stakeholders to advance the Rosebank project.” The company added, “We welcome clarity and can confirm that we will submit a downstream end user combustion emissions assessment in full compliance with the government’s new environmental guidance.”
Some suggest that higher taxes and stricter limits on North Sea drilling could prevent the U.K. from tapping into its full fossil fuel production potential. Upon taking office, Prime Minister Kier Starmer increased the tax rate on profits from oil and gas extraction to 78 percent. While oil and gas output is expected to rise this year and next as Shell’s Penguins oil field and BP’s Murlach oil field come online, this follows a decline of 11 percent in 2023 and 2024, with crude output averaging 564,000 bpd last year. The industry association Offshore Energies U.K. stated, “Operators overwhelmingly view the UK continental shelf as uncompetitive for investment … especially compared to overseas opportunities [and] in comparison to offshore wind and carbon capture and storage.”
The U.K.’s gas import dependency is expected to rise from 55 percent at present to 68 percent in 2030, 85 percent in 2040 and 94 percent in 2050, even if new oilfields are approved, as Britain has already used most of the gas in the declining basin.
In a recent visit to Scotland, U.S. President Trump attacked the country’s growing wind power industry and called on the government to produce more fossil fuels, calling the North Sea a “treasure chest” that the U.K. was missing out on because of high taxes. Following the visit, he wrote on Truth Social, U.K. government ministers have “essentially told drillers and oil companies that, ‘we don’t want you.’ Incentivise the drillers, FAST. A VAST FORTUNE TO BE MADE for the U.K., and far lower energy costs for the people!”
However, the Labour government has repeatedly doubled down on its aims for a green transition. The U.K. Energy Minister Ed Miliband said in April that the country’s reliance on fossil fuels meant “markets went into meltdown and prices rocketed” after Russia invaded Ukraine in 2022. He added, “The cost-of-living impacts caused back then still stalk families today… So, the argument for the clean energy transition is not just the traditional climate case but the social justice case too – it is working people who pay the greatest price for our energy insecurity.”
Miliband warned that an anti-net-zero agenda would not only risk “climate breakdown” but would “forfeit the clean energy jobs of the future,” while a green power transition will help secure social justice and national security.
U.K. oil and gas production is set to decline in the coming decades if the government does not plan to approve new licenses. Meanwhile, the country’s renewable energy and nuclear power output is expected to increase significantly as the government finances a green transition and encourages private investors to do the same. It seems like the U.K. is now finally on the track that the U.S. started on under President Biden, before Trump backtracked on a plethora of favourable climate policies.
Credit: Oilprice.com
