BEIS Consults on New Climate Compatibility Checkpoint

As part of the North Sea Transition Deal, aimed at supporting the UK’s oil & gas industry through a period of transition to decarbonise North Sea production and encourage the focus on “net zero”, the UK Government made a commitment to introduce a climate compatibility checkpoint (the “Checkpoint”) to ensure new oil & gas exploration and production licenses are only granted in circumstances where to do so remains compatible with the UK Government’s climate change objectives, including to achieve net zero emissions by 2050. On 21 December 2021, 9 months after making this commitment, the Department for Business, Energy & Industrial Strategy (“BEIS”) launched a consultation to collate views on how the Checkpoint is to be designed (the “Consultation”).

Respondents are asked to answer a series of questions and provide comments on the various principles and proposed tests making up the Checkpoint, as well as being provided the opportunity to provide their own suggestions as to what objective tests may be included.

Principles

The Consultation proposes that the Checkpoint ought to be designed in such a way that it would satisfy the following principles:

1. The Checkpoint should be evidence-based;
2. It should be transparent; and
3. It should be simple.

Tests:

The Consultation proposes that a number of cumulative tests ought to be satisfied in order to achieve a positive outcome to the Checkpoint (meaning continued licensing is compatible with the UK’s wider climate objectives). The Consultation suggests the following six potential tests, some or all of which may form part of the Checkpoint when implemented:

1. The industry is on track to meet its commitments to reduce operational greenhouse gas emissions (Scope 1 and 2 emissions) by 50% by 2030 compared to a 2018 baseline (with intermediate targets of 10% by 2025 and 25% by 2027). This test would also need to consider the impact on this progress of granting new licences;
2. The industry’s operational greenhouse gas emissions when benchmarked against the global average for such emissions, continue to rank above average (how much above average remains to be determined);
3. The UK continues to be a net importer of oil and gas although a decision remains to be taken as to whether this should be assessed with oil and gas taken as a whole or each separately or possibly just looking at gas;
4. The sector is on track to meet its commitments in the North Sea Transition Deal with respect to the development of energy transition technologies (based initially on sums invested);
5. Consideration of progress in reducing Scope 3 emissions from UK produced oil and gas (wherever this may ultimately be burnt or used), although there is currently no universally agreed approach to tracking such emissions and no agreed targets for their reduction. However, a number of stakeholders have proposed that these emissions should be taken into account as they are many times greater than the Scope 1 and 2 emissions and that they should fall in line with the fall in emissions required to keep global warming within 1.5 degrees Celsius; and
6. Consideration of the “global production gap”. The consultation states “Widely accepted research suggests that the global sum of governments’ projections for oil and gas production far exceeds what the world can afford to burn if we are to achieve the goal of the Paris COP of keeping global temperature increases to 1.5°C. The difference between what is produced and what is “affordable” in climate terms is known as the “production gap”. It is argued therefore, that measures to prevent further investment in oil and gas must be implemented. A test which considers the production gap has been proposed in conversations with stakeholders. However, opinions differ on what production levels consistent with 1.5°C would look like for a single nation. Some argue for the immediate and complete cessation of oil and gas production. Others point to the global decline needed and say the UK should match that. Others argue for a position in between where the UK goes faster than the global average.”

Outcome of the Consultation

The UK Government intends to use the feedback from this Consultation to design the Checkpoint as a new measure to assess whether potential future licensing rounds should be undertaken. It states that the Checkpoint will ensure any future licences are granted only on the basis that they are compatible with the UK’s climate change objectives.

The Consultation anticipates that the Checkpoint would be exercised before the Oil and Gas Authority (“OGA”) offered a new licence round(s). As such, a new licencing round is unlikely to take place until the Checkpoint has been introduced. Indeed, the Checkpoint will determine whether new licensing rounds should be offered for exploration and production at all and the OGA will be expected to take the Checkpoint outcome into account in future licensing round decisions. However, the Checkpoint will not impact the consenting process for proposed developments under licences that have already been awarded to licensees. Moreover, the Checkpoint is only relevant in terms of whether new licenses are offered, and the specifics of licences offered will remain a matter for the OGA.

Although the Checkpoint is likely to primarily impact the offshore oil & gas industry, the Consultation notes BEIS intend to include the onshore oil & gas industry - as a devolved matter this would only apply in England, but not in Scotland or in Wales.

Responding to the Consultation

The Consultation is open until 28 February 2022 and a full copy can be accessed here.

Comments

We understand that BEIS is expecting a high level of response to the consultation and that their current intention is to issue their response to the consultation in the summer or early autumn.

The Climate Change Committee’s Chief Executive, Chris Stark, has indicated that the Committee will publish a document imminently which will address new oil and gas licensing in the UK, and its compatibility with the Committee’s climate objectives.

It will be interesting to understand the Committee’s views on the UK’s current approach to decarbonising North Sea production and whether these are consistent with the approach the government is proposing under the Checkpoint.