The International Energy Agency (IEA) has published a landmark report that sets out for the first time its scenario for the global energy system to reach net-zero annual emissions of carbon dioxide by 2050. Significantly, the scenario would mean no new supplies of fossil fuels, with profound implications for the coal, oil and natural gas industries.

The report, Net Zero by 2050: A Roadmap for the Global Energy Sector, acknowledges that countries that have committed to achieving net-zero emissions of carbon dioxide are currently responsible for about 70 per cent of emissions. The UK is among this number and continues to support an offshore oil and gas industry.

The IEA’s conclusions on 1.5 degrees, net-zero and fossil fuel use

Many countries and companies have now pledged to reach net-zero emissions of carbon dioxide and other greenhouse gases by 2050 in response to the goal of the Paris Agreement of “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. The Agreement also commits countries to “achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century”.

The special report on Global Warming of 1.5˚C published by the Intergovernmental Panel on Climate Change in 2018 pointed out that model pathways with no or limited overshoot of 1.5°C have annual emissions of carbon dioxide declining by about 45 per cent from 2010 levels by 2030, reaching net-zero around 2050.

The Net‐Zero Emissions by 2050 Scenario (NZE) outlined in the IEA’s new report is intended to be consistent with the objective of having a reasonable chance of limiting global warming to no more than 1.5°C by the end of this century. It concludes: “Net zero means a huge decline in the use of fossil fuels. They fall from almost four‐fifths of total energy supply today to slightly over one‐fifth by 2050.”

As a result, the report says that in the NZE there is “no need for investment in new fossil fuel supply”. It states explicitly: “The trajectory of oil demand in the NZE means that no exploration for new resources is required and, other than fields already approved for development, no new oil fields are necessary. However, continued investment in existing sources of oil production are [sic] needed.”

It also states: “No new natural gas fields are needed in the NZE beyond those already under development. Also not needed are many of the liquefied natural gas (LNG) liquefaction facilities currently under construction or at the planning stage.”

These findings send a clear signal to the fossil fuel industries that any further exploration for new reserves is likely to be a waste of money. Those companies, such as BP and Shell, that have committed to net-zero emissions by 2050 should urgently revise their strategies to include an immediate end to exploration, otherwise risk losing their credibility among investors.

What is the UK government doing and what more does it need to do?

The UK, which is due to host the UN climate summit COP26 in Glasgow this November, faces the challenge of aligning its domestic fossil fuel industries with its ambitions for net-zero emissions.

In a major speech on 14 May 2021, Alok Sharma, the COP26 President, said that the UK is “asking all countries to set targets to get us to net zero by the middle of the century, and to come forward with 2030 emissions reduction targets to take us there”.

The UK itself is committed under the Climate Change Act to reach net-zero territorial emissions by 2050. The Government will now need to take action ahead of COP26 to ensure that oil and companies operating in the UK’s section of the North Sea take account of the findings of the IEA’s report.

In March, the Government published a North Sea Transition Deal, which set out plans to decarbonise the upstream oil and gas industry but fell short of calling an end to exploration on the UK continental shelf.

The offshore oil and gas industry is regulated by the Oil and Gas Authority, which published a new strategy in December 2020. For the first time, it embraced an explicit objective of supporting the goal of net-zero emissions alongside its longstanding aim to maximise economic recovery from oil and gas on the UK continental shelf. The new strategy was published after a consultation last year, to which the Grantham Research Institute made a submission that encouraged the adoption of the net-zero aim, and suggested that the new strategy include “a requirement to help the industry to prepare for the decline in oil and gas production from the offshore industry, as reserves are gradually depleted and an expected reduction in domestic and overseas demand for oil and gas occurs over the coming decades”.

However, the new strategy still allows the Authority to issue licences for exploration, and its website states: “Working with industry and government to revitalise exploration is a priority for the OGA.”

In September 2020, the Department for Business, Energy and Industrial Strategy initiated a review of the future offshore oil and gas licensing regime. The Oil and Gas Authority summarises the outcome of the review as follows:

“Noting the ongoing role of oil and gas on our path to net zero, the Government will introduce a new Climate Compatibility Checkpoint on future oil and gas licensing rounds to ensure they are compatible with wider climate objectives, including net-zero emissions by 2050. This checkpoint will use the latest evidence of the time, looking at the UK’s demand for oil and gas, the sector’s projected production levels, the increasing prevalence of clean technologies such as offshore wind and carbon capture, and the sector’s continued progress against its ambitious emissions reduction targets. The Department for Business, Energy and Industrial Strategy (BEIS) has stated that design of this checkpoint will be completed by the end of 2021.”

Time to end licensing and explore other opportunities like CCUS

It is clear that the Oil and Gas Authority must now bring an end to current and future licences for exploration. I have written to Dr Andy Samuel, Chief Executive of the Oil and Gas Authority, to draw his attention to the IEA’s new report and I point out that “one inescapable implication of the new report is that the OGA should abandon its plans to ‘revitalise exploration’ as one of its priorities for 2019-24”. My letter adds: “This should be accompanied by an immediate end to any new licences for oil and gas exploration.”

The UK Government must now walk the walk and use its position as the controlling shareholder in the Authority to ensure prompt action. Anything less would be a failure of international leadership ahead of COP26.

The UK oil and gas industry should now focus on using existing reserves to supply diminishing demand for its products over the next few decades. It can also play an important part in the development of carbon capture, utilisation and storage (CCUS), a role for which the IEA’s Net‐Zero Emissions by 2050 Scenario emphasises: it includes an expansion from the current annual level of 40 million tonnes of carbon dioxide per year removed by CCUS globally to 7.6 billion tonnes in 2050, of which 95 per cent would be directed into permanent geological storage.

The views in this commentary are those of the author and do not necessarily represent those of the Grantham Research Institute.

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