A pragmatic path for Britain's oil, gas, and green energy transition

Some clashes of opposing ideologies produce insights, reconciliations, new ways of looking at the world. Others only dig into extreme and indefensible positions while the pragmatic middle ground is lost. The debate over Britain’s energy future, in particular its oil and gas, is so far of the second kind.

Conservative Party leader Kemi Badenoch said in Scotland’s oil capital Aberdeen earlier this month that, “we are leaving our resources untouched... We’ve got to get that oil and gas out of the ground.”

The UK’s upstream sector is in decline because of field maturity, compounded by erratic government policy, and a hefty windfall tax introduced by the Conservatives themselves in May 2022, increased by the Labour government following its election win in 2024, and extended to 2030. The tax rate is 78%, as high as neighbouring Norway, which has far larger remaining resources and a much more stable track record on government management of the sector.

Badenoch’s move is intended not just to challenge the government, but to avoid being outflanked by the Reform Party. The hard right populist movement, in second place in opinion polls ahead of the Conservatives, says it has “declared war” on green energy projects, and would scrap “stupid net zero” policies.

Badenoch had in March already binned the Conservatives’ commitment to reaching the UK’s national net-zero carbon goal by 2050.

Conversely, the Labour government, under Energy Secretary Ed Miliband, is committed to 2050 net-zero. More challengingly and debatably, it is still sticking to the target of a completely decarbonised power sector by 2030 – just five years away. It promises this will create jobs and save consumers money, reducing reliance on high and volatile gas prices.

It has pledged not to award new exploration licences. The fate of two major new developments, the Rosebank oil field west of Shetland, and the Jackdaw gas field in the central North Field, teeters on a knife-edge. They were set back by court judgements requiring them to consider the full impact of combustion of their oil and gas – “Scope 3 emissions” - in their environmental impact assessments.

Meanwhile the election of Zack Polanski as Green Party leader will sharpen the challenge to Labour from the environmentalist front.

The North Sea oil and gas debate is being sucked into a wider confrontation on the wisdom and costs of net-zero. That in turn is becoming part of the poisonous culture wars already being stirred up over issues such as immigration and trans rights.

This is a fruitless and destructive path that the energy industry should not follow. Unfortunately, both sides’ positions are counterproductive.

For the Conservatives and Reform, there is no way that oil and gas production will again be a “cornerstone” of the UK economy, as Badenoch promises. Intelligent use of remaining British oil and gas resources may be 10 or even 20% of a mid-century national energy solution.

But the bulk of the work will revolve around Britain’s exceptional wind resources, alongside solar, nuclear, electric cars, heat pumps and the usual other low-carbon technologies. These are increasingly competitive and even superior, and a sensible, economically literate Conservative Party should find a free-market way to capitalise.

The British public is rightly still strongly in favour of action on climate change. People are, though, worried about the cost and feasibility of the solutions proposed. Backing away from “net zero”, or actively opposing it as Reform does, is environmentally and politically inept. It’s not enough to say that net-zero is expensive, without recognising that climate change poses a huge threat to the UK, and that the country must not fail again to seize opportunities to build a vibrant economy on low-carbon businesses.

On the other side of the argument, environmentalists would agree with the government when it says that new hydrocarbon exploration licences would “not take a penny off bills, cannot make us energy secure and will only accelerate the worsening climate crisis.”

This statement has some strict factual truth while completely missing the point. The UK doesn’t develop oil and gas to lower prices at home, as it plays in a global market. It produces domestic hydrocarbons to earn tax revenues – vital at a time of exceedingly high national debt – to create jobs, and to improve the balance of payments.

The UK will produce another 3.8 billion barrels of oil equivalent by 2050, but this could nearly double, to 6-7.5 billion barrels, with better policies.

Continuing to develop new North Sea fields doesn’t create “stranded assets” – at worst, it risks the loss of some private capital. Keeping the existing infrastructure going as long as possible by maximising recovery from smaller resources defers decommissioning, and is fiscally and environmentally responsible. Oil and gas fields, companies and skilled workers are key resources for new low-carbon industries where Britain can still lead.

This is not an either/or choice, as the environmental movement likes falsely to paint it. The offshore industry can drill and spin wind turbines at the same time. The head of the North Sea Transition Authority says that of the £100 billion expected to be invested in the UK’s offshore over the next few years, about half will be in low-carbon technologies, particularly wind power and carbon capture and storage (CCS).

The Labour government, fortunately, is committed to CCS, even as environmentalists like to rubbish it. To the extent that carbon-intensive heavy British industry survives at all, it will need to capture its emissions. Britain, with Norway and Denmark, will be the main European carbon capture hub.

Even with more North Sea investment, Britain won’t again be “energy secure” in the sense of self-sufficient, but on a net basis, it still produces about half its own oil and gas. Clearly this is more secure than producing nothing.

And UK domestic production is strictly regulated, and lower-carbon than most imports, when including the emissions from transporting fuels and liquefying natural gas.

If extra British hydrocarbon production has a negligible impact on world energy prices, as the government suggests – probably correctly – then in its end-use, it simply displaces output from other countries. That makes the Scope 3 test for Jackdaw and Rosebank completely misguided. Better to produce at home than to import from an increasingly threatening and erratic US or an actively hostile Russia.

Britain’s economy and finances are too shaky to afford environmental purity from the left or climate-denying blinkers from the right. Both sides of British politics could make a case consistent with their historic principles, for a pragmatic yet ambitious climate and energy policy. The energy industry needs to put itself on the side not of soundbites but of solutions.