Impacts of transitioning to Net Zero on the UK oil and gas industry: Challenges, opportunities and policy lessons
Achieving Net Zero requires pivoting away from fossil fuels, but the economic risks of an abrupt or unplanned transition are enormous. Success demands that governments understand and manage the impact on the oil and gas industry, argues Hafez Abdo.
For transitioning to Net Zero to be a success, it is essential that policy makers have a clear understanding of the economic impacts of the process and how these can be managed. These impacts – both opportunities and risks – will be profound, not least within the business community and most of all in the fossil fuel sector. Achieving an accelerated transition while avoiding excessive disruption to businesses is crucial for success.
To help policy makers navigate this difficult terrain, new research at the University of Nottingham aims to unpack the impacts of transition on the oil and gas industry in the UK and gain a deeper understanding of stakeholder perspectives in this key area.
The lessons from our research will help policy makers to construct a balanced approach to the transition to Net Zero – one that avoids disruption to the supply chain and major shareholder losses, and instead promotes a stable and planned move towards sustainability.
What is Net Zero and why does it matter?
Net Zero simply means balancing the greenhouse gas emissions with the greenhouse gas removal so that the total amount (or ‘net’ amount) does not increase. It does not mean zero emissions.
In June 2019 the UK Parliament passed legislation requiring the Government to reduce the UK’s net emissions by 100% relevant to 1990 levels by 2050. Targets like this are an important tool for combatting climate change. But they are also potentially a blunt tool: without a nuanced understanding of the opportunities and risks presented by this rapid transition, achieving the target may come with unintended consequences.
A successful transition must mean managing the risks, avoiding economic crashes and their associated social and political crises. Investing communities are keen to learn about the opportunities and drawbacks of the transition in order to maximise benefits and reduce, or avoid, costs and losses.
The fossil fuel sector: an ally in transition
Achieving Net Zero means reducing emissions, and this simply and directly means reducing our consumption of fossil fuels. The fossil fuel industries have often been blamed for their environmental impact, becoming seen as ‘dirty industries’. However, oil, gas, and, to a lesser extent, coal, are still needed to fuel our economy as renewable energy options cannot yet offer the capacity to meet all our energy needs.
The dilemma is thus that the world needs to use less oil, gas and coal, but does not yet have sufficient alternative options.
The danger is that an unbalanced transition and a too-fast phasing out of fossil fuel – built on an approach that casts ‘dirty’ industries as the problem – may result in the bursting of a carbon bubble that may lead to global economic crisis. The potential disruption of such a development is already being seen in the Russian-Ukrainian war and the current energy crisis.
Rather than treat the oil and gas sector as the problem, governments need to engage the industry a key partners in transition: partners who offer unrivalled capacity, capabilities, skills and capital. But to do so, they need a detailed understanding of the challenges and opportunities that Net Zero presents for the sector.
New insights from research
>Our research aims to answer a number of questions that are essential for policy makers to engage the oil and gas industry in a shared, managed approach to transition:
- To what extent does transitioning to Net Zero negatively impact the UK oil and gas industry and its stakeholders?
- Does transitioning to, and achieving, Net Zero offer the UK oil and gas industry any opportunity?
- To what extent does Net Zero legislation expose the UK oil and gas stakeholders to risks of financial losses?
- What roles can the UK oil and gas industry play to facilitate achieving Net Zero?
To answer these questions, we aim to survey annual reports and account of companies operating in the UK Continental Shelf (UKCS) and interview key personals from the UK oil and gas industry including policy makers.
We will also conduct a range of interviews with professionals connected to the oil and gas industry, including policy makers, oil and gas professionals, investing and financing institutions, consultants, supporting organisations and specialist sector media.
What do we aim to achieve?
Surveying companies’ annual reports will allow us to understand what companies are doing to mitigate risks associated with transitioning to Net Zero. It will allow us to assess the usefulness of disclosures made by these companies regarding transitioning to Net Zero and the extent to which they promote the transition.
Unpacking perceptions of key stakeholders of the impact of the transition to Net Zero and the opportunities that comes with the transition will offer key policy lessons. These lessons will aid policy makers to construct a balanced roadmap for the transition where the oil and gas industry is supported and disruption is avoided.
We are keen to share the insights arising from this research with relevant policy audiences. To find out more, please email Hafez.abdo@nottingham.ac.uk.