Energy Trilemma

David Duguid Excerpts

Thursday 23rd March 2023 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a considerable privilege to follow the right hon. Member for South Northamptonshire (Dame Andrea Leadsom), and I thank her for securing this vital debate for all of us.

This has been an important week because we have had the latest Intergovernmental Panel on Climate Change report, which bluntly gives what is essentially a final warning to humanity. The report lays bare what is already happening because of the damage that we are collectively doing to our planet as a direct result of the energy choices we have made for the last century. Extreme weather caused by climate breakdown has led to increased deaths from intensifying heatwaves in all regions, millions of lives and homes destroyed in droughts and floods, millions of people facing hunger and “increasingly irreversible losses” in vital ecosystems. That is the damage that has already been done, and if we continue down this path, the final consequences will not simply be about deepening that damage. It is much more fundamental; it is about whether we can continue to live and survive on this planet. That is the harsh reality of where we are, and that is why this debate is so vital.

In the years to come, energy is everything. It is quite literally the be-all and end-all, because the types of energy we use will determine whether we meet the challenge of climate change, and it will determine whether humanity can live on this planet for the foreseeable future. Unless we move immediately to a completely new system of energy production, we will have neither security nor prosperity. We often talk in this House about the scale of the challenges we have faced since the financial crisis in 2008: how to deliver sustainable economic growth, drive investment in our economy, drive prosperity and drive up living standards. The enormous opportunities that we have in green energy would enable us to kick-start that, to answer the questions on the supply chain that the right hon. Member for South Northamptonshire raised and to ensure we have the skills, so that we can lead the way in not only providing energy for ourselves but exporting green energy, just as we did with the oil and gas revolution in the 1970s. We have to rise to that challenge, and we have to rise to it here and now.

The terrible truth is that the UK is being left behind when it comes to green energy and green growth. The US and the EU are powering ahead, and we need to make sure that we are not playing catch-up in the United Kingdom. The Inflation Reduction Act passed in August 2022 makes a remarkable $369 billion available to climate and clean energy programmes in the US—just think of the scale of the opportunity that comes from that ambition. Where is our ambition to match that? President Biden’s programme is a real levelling-up agenda, making green energy the economic catalyst to restore and renew the industrial heartlands of the US. Likewise, the European Union is powering ahead. It is debating the passing of the green deal industrial plan, with which it wants to grow clean energy production, revitalise manufacturing and support well-paid jobs.

If I may, I will just look narrowly at Scotland for a minute or two, because I know the figures there better than the figures elsewhere. Last year, the SNP Westminster group commissioned what has been called the Skilling report—“The Economic Opportunity for Scotland from Renewable Energy and Green Technology”—which I know some colleagues in the House have read. There is no fantasy in that report, because we are just reflecting on what we already know.

When the report was published, Scotland was producing 12 GW of green energy. It is now producing about 13 GW, but the report highlights the potential to increase that figure to 80 GW by 2050: a fivefold increase over the course of that period, generating as much as four times the green energy that Scotland needs. That represents the opportunity to keep the lights on—a phrase that was referred to earlier—right across the United Kingdom, and ultimately to produce hydrogen on a scalable basis and export to other parts of the European Union as well. We need to take advantage of the natural opportunity that we have in green energy, making sure that we are at the cutting edge of that. According to Skilling, the transition from fossil fuels will ultimately deliver more jobs than we currently have in oil and gas—over 300,000 jobs by 2050.

The right hon. Member for South Northamptonshire talked about the planning regime and the skilled jobs that we need to develop in order to make this happen, but there needs to be a sense of urgency in doing all of those things, or we will miss that opportunity. There is an enormous challenge, if I may say so, in making sure that we have the jobs in turbine manufacturing and providing cabling. We will achieve that only if we have the visibility of the orders coming in that will encourage people to invest here from across the United Kingdom, and indeed, to come and invest from elsewhere.

[David Duguid (Banff and Buchan) (Con)]

Will the right hon. Gentleman give way?

[Ian Blackford]

I will happily give way.

[David Duguid]

I am genuinely grateful to the right hon. Gentleman for giving way, and I agree with pretty much everything he has said so far, which is unusual. I am sure he is familiar with the report by Professor de Leeuw at Robert Gordon University in Aberdeen, which assessed that at least 90% of the skills required for the net zero future already exist in the oil and gas industry. We should make the most of those skills while we can.

[Ian Blackford]

Actually, I agree with those comments from the professor and from the hon. Gentleman. When I have been in Aberdeen and been out looking at some of the offshore technology there, it has struck me that there is that transferability—if I may call it that—of skills from the oil and gas sector. Of course, we need to make that happen.

But what I would say is that, if Skilling is right—and I believe he is—the scale of the opportunity goes way beyond the jobs that we currently have in oil and gas. We need to make sure that we have the research and development and the innovation right across the supply chain, and that we are utilising not just our higher education sector, but the further education sector to deliver people with the appropriate skills to do this. That is an enormous opportunity. Out of that, there is an enormous opportunity to make sure that we have an industrial strategy that is fit for purpose as well. I would be delighted if we had these kinds of debates more often in this House—if we were actually having detailed discussions about how we do all this. What do we have to do to make the planning system work in a way that is respectful to local communities, but recognises the need and desire to move ahead?

[Ian Blackford]

I agree. The right hon. Member has made an important point. Often, the question is: how do we make sure we are protecting the rights of stakeholders and the rights of communities, while being able to do things at pace? What we have been talking about highlights the potential loss of technological leadership, because if we cannot do these things, we will not get that investment. In that context, let me go to the side a little, because I want to talk about one of the subsets of the green industry that has enormous potential for us.

We heard a comment earlier about nuclear and the opportunity to provide baseload. I have mentioned this in the House on a number of occasions, and I do not apologise for doing so again: there is enormous opportunity in tidal, and that has been demonstrated with the success we have seen with a number of projects. I encourage everyone in the House to examine a peer-reviewed Royal Society report published just ahead of COP26. It highlighted the opportunity of developing 11.5 GW of energy from tidal. If we look at the projects already developed in the United Kingdom, we tend to find that as much as 80% of that supply chain has been generated domestically. A number of the companies doing that are supplying equipment to such countries as France and Canada, as has been mentioned. There is a real danger that unless we recognise the scale of the opportunity, we will lose that leadership.

I am delighted that in the last contracts for difference round, the UK Government put in place a ringfenced pot of £20 million for tidal. That got us off to a degree of a start in fulfilling that ambition laid out in the Royal Society report. It was not as much as I would have liked. For us to fulfil that potential, we need to provide as much as £50 million annually, but I regret that over the past few days we have seen that that ringfenced pot will be cut to £10 million. I say to the House that we run the risk of losing this industry, and I appeal to the Government to revisit this issue. We can provide that baseload from tidal, as an alternative to nuclear energy. If we are ambitious about getting to that kind of scale in tidal, ultimately we will be providing that baseload on a more affordable basis.

[David Duguid]

I do not want to interrupt the right hon. Gentleman’s flow, and we can all agree that we wish there was more money available for different things, but he might not be aware that the £20 million that was initially ringfenced was for a two-year period. It has since been changed to a one-year or annual allocation. The £10 million for one year is essentially equivalent to £20 million for two years.

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[David Duguid (Banff and Buchan) (Con)]

It is a pleasure to serve under your chairmanship, Mr Deputy Speaker—I have not had the pleasure before now, so welcome to the Chair.

It is a pleasure to follow the right hon. Member for Ross, Skye and Lochaber (Ian Blackford). I found that I agreed with most of his speech, although perhaps not with some of it. In particular that last point about there being a simple binary choice—I think it is a mistake to think it is either one side of the argument or another. This issue is far more complex than that, and I will try to cover some of those points in my speech. I congratulate my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) on securing this important debate. I joined her committee as the report was being completed, but I was delighted to play a small part in that report and provide a forward to it.

The energy trilemma refers to the need to find a balance between energy security, affordability, and sustainability. As we continue through the energy transition, which we have already started, we need to keep the lights on, generate heat, and enable transportation—in other words, we need to keep our society and economy alive and well, and do that in an affordable and sustainable way. We are all aware of the increased energy prices right across the globe, caused initially by global shortages as the world economy started to recover from the covid-19 pandemic, and exacerbated further by Vladimir Putin’s invasion of Ukraine and the ongoing conflict there.

On affordability, I welcome the Government’s support for households and businesses through this difficult period, and particularly for those hardest hit. Fundamentally, however, affordability is best achieved by securing a reliable and plentiful supply of energy from a range of sources. Sustainability can also be defined in terms of keeping a secure and prosperous energy sector alive, including jobs and communities that the energy sector supports. More typically, sustainability usually refers to the impact that our social and economic activity has on the environment, and specifically to the impact on climate change from the emission of greenhouse gasses. Therefore, we need to keep the energy flowing, we need to make that energy affordable, and we need to reduce the impact on climate change created by the production and consumption of that energy. That is the energy trilemma.

The generation of energy for power, heat and transportation has, for many years, depended greatly on the combustion of hydrocarbons. That combustion of hydrocarbons has been shown to have a direct impact on the climate. So clearly, we must do something about that, and we are. The United Kingdom has already reduced carbon dioxide emissions by almost 50% compared with 1990 levels. Until covid, we had also grown the economy by more than 70% while doing so. In June 2019, the UK became the first major economy in the world to pass legislation to end our contribution to global emissions—in other words, net zero—by 2050.

Net zero means that any emissions would be balanced by schemes to offset an equivalent amount of greenhouse gases from the atmosphere, by planting trees or using technology such as carbon capture and storage. However, if climate change is a man-made problem as we keep hearing, it will need a man-made solution. Planting trees will make a contribution of course, and it is important we do that, as a return to nature, providing habitats and so on is very important.

Direct air capture is an exciting technology by which CO₂ can be stripped directly from the atmosphere using a facility that, although large, takes up only about one 100th of the footprint that an equivalent area of forest would take to do the same job. That very expensive solution is still under development and we should keep a close eye on it. Besides, the captured carbon from such a process will still need to be utilised and stored somewhere.

That leads me to carbon capture, utilisation and storage. The inconvenient truth—if I can borrow that phrase—for some is that today about three quarters of the UK’s energy comes from oil and gas. Some 20% of our energy today is electricity. The rest of our energy use is fuel for transport, heat for homes, and industrial power and processes. It is absolutely right that we accelerate the installation of as many renewable sustainable and low carbon sources as possible, and as fast as possible. The UK Government’s 10-point plan for a green industrial revolution, launched in November 2020, set out plans and commitments for a range of technologies, many of which have been discussed and will be discussed today, including CCUS.

That was followed in March 2021 by the North sea transition deal, incorporated later into the British energy security strategy in April 2022. The deal was and is a transformative partnership between the UK Government and the UK’s offshore oil and gas sector to harness the power of that industry to help deliver net zero by 2050. As well as formalising energy transition and decarbonisation commitments, the North sea transition deal unlocks up to £16 billion of private investment, supports up to 40,000 jobs, and reduces emissions by up to 60 million metric tonnes. In the two years since the deal was agreed, the offshore oil and gas industry has made significant strides in supply decarbonisation, developing CCUS and hydrogen, transforming the supply chain and facilitating workforce mobility, as was discussed earlier. The industry has reduced its own production emissions by 20% since 2018. Leasing rounds are being developed for electrification. Access to the grid is very important, something that has already been discussed. Just last week, the Chancellor committed £20 billion for CCUS development. Offshore Energies UK, the trade body that represents the offshore energies sector, has developed the world’s first well decommissioning guidelines for carbon capture and storage, and is advising on best practice for things like methane emissions reduction.

But some of the key pillars of the deal—Government support for domestic energy supplies, a stable fiscal regime for the sector and encouraging continued investment—have taken a little bit of a hit. I will come back to the energy profits levy later in my speech. Part of the deal is to ensure oil and gas for as long as we need it, and there continues to be demand. Even by 2050, it is estimated that we will still require between 15% and 20% of our energy, heat and transport to be supplied by hydrocarbons. It therefore makes sense that our own domestic source of oil and gas will need to be maintained and expanded to supply that demand, even as it continues to decline. We produce a little under 50% of our own gas at the moment, with a majority of the shortfall being supplied by other countries such as Norway, the US and Qatar. The carbon footprint of just getting that gas here can be up to twice as high as if it was produced here.

I welcome the UK Government’s launch of the 33rd UK offshore licensing round. Many have asked—I was hoping for a Labour intervention on that point, but the Labour Benches are woefully empty today—how that can at all be consistent with our net zero objectives. For the reasons I described, a barrel of oil or cubic metre of gas produced in this country is better for us than those produced elsewhere while we are still using it. Hydrocarbons produced here are done so much more responsibly, under the strictest of regulatory regimes, and create fewer emissions from transportation than those imported from elsewhere.

We also need to make sure we retain the skills, expertise, technology and the capital and revenue generated by oil and gas, which is still significant, despite being in decline, to help deliver the energy transition. Unlike previous licensing rounds, this licensing round has been launched following the introduction by the Government of the climate compatibility checkpoint. The checkpoint ensures that no offshore licence will be awarded that puts the UK’s Paris agreement and COP26 commitments at risk. It also puts more emphasis on the industry’s own operational emissions than previously, as well as keeping a close eye on the status of the UK as a net importer of oil and gas. We have been a net importer of oil and gas since 2004.

We will not get to 2050 with the lights on, our homes and offices heated and our economy still moving without oil and gas. It follows that we will certainly not get to net zero by 2050 without CCUS. The Acorn CCS and hydrogen project in my constituency forms part of the Scottish CCUS cluster. At the time of track 1 bidding it was generally regarded as the most advanced cluster and ready to go, and was selected as the reserve cluster for track 1. Crucially, as the right hon. Member for Ross, Skye and Lochaber (Ian Blackford) said, it is the only CCUS cluster in Scotland. It is vital for capturing emissions from industrial complexes such as Grangemouth in the central belt or Mosmorran in Fife.

There are plans for a new CCS power station in Peterhead in my constituency, which, when complete, will be able to provide a stable baseload powered from natural gas but with the Scottish cluster activated, and 95% emission free. This new CCS power station will help to maintain energy security into the future, particularly as—unless we hear differently today—there is unlikely to be new nuclear anytime soon in Scotland. I look forward to the further detail on the £20 billion announced by the Chancellor last week on CCUS and the progression of track 2. I also look forward to the Energy Bill, currently on Report in the other place but due to come back here soon, I am told.

Even if we were to get to absolute zero emissions—never mind net zero—across the whole of the UK, those UK emissions add up to around 1% of global emissions. We often hear that as an excuse for not doing anything, but I do not believe that for a second. The real opportunity that we have as a United Kingdom is for Governments and Parliaments to come together and work constructively with industry, not only to get where we need to be in future but to use the skills, experience, technology and resources available to us here in this country. That will enable us to make the energy transition to net zero in the most predictive and successful way, to take the opportunity to lead the world in the process of energy transition and to show not just how it is done but that it can be done.

I want to finish on the subject of the energy profits levy. Opposition parties have called for and continue to call for ever higher taxes on oil and gas producers. Compared with almost every other business that currently pays corporation tax of 19%—due to rise next month to 25%—oil and gas companies were already paying 40%, with the EPL bringing them to 75% overall. Contrary to Opposition parties’ calls for a straightforward punitive tax, I welcome the investment allowance provided by this Government. However, the allowance is not available for all investment opportunities, including in renewables, as has been pointed out. I am told by OEUK that over 90% of members have downgraded their investment plans in the UK as a result of the EPL. I recognise that the revenues raised by this tax go some way towards paying some of the energy support provided by this Government, but I look forward to engaging with the industry and Government on how and when the profits made by these companies in this country are deemed to have returned to a more normal level.

The EPL has a particular impact on smaller independent operators such as Harbour, Ithaca, Spirit, EnQuest and a number of other small businesses, which do not have the resources of BP and Shell to invest elsewhere in the world. Another impact on the small independent producers comes from the revisions to the EPL to eliminate the price floor, which has had the unintended consequence of reducing lending capacity available from banks to the sector. Unlike some larger companies, the smaller organisations cannot afford to fund capital expenditure solely from their own balance sheets.

The independent operators will be vital to ensure the continued development of North sea oilfields as the major companies redeploy assets elsewhere, and are therefore critical to help the Government avoid the costs of stranded North sea assets in the medium to long term. That will be critical to safeguard the UK’s security of energy supply in years to come, while at the same time those companies’ resources, skills and expertise are used to ensure that we make the energy transition to net zero as planned.

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[Dr Alan Whitehead (Southampton, Test) (Lab)]

This has been an interesting debate, and I congratulate the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) on securing it. I thought that it was about tackling the energy trilemma, so I have prepared all sorts of interesting things about the energy trilemma and how it works. However, although the contributions have been interesting, the debate has not necessarily been about the energy trilemma.

The right hon. Lady spent a lot of her contribution talking about the 1922 Back-Bench committee report on energy, which sounds very interesting. Indeed, it appears to contain quite crucial insights, particularly on the need for speeding up the planning system as far as grid development is concerned, speeding up connections, and developing new connections and ring main in offshore wind. As far as I am concerned, those things are crucial to delivering the rest of our green agenda. I can offer her a slogan, “no transition without transmission”, which she might want to put on the front of a future report. They are crucial insights, and it would be a good idea for her to provide a submission to the Labour party national policy forum on this, because she would get a better hearing than she would from the present Government.

The right hon. Lady mentioned the three-legged stool. This is about how we achieve our net zero outcomes while taking the whole question of affordability and of energy security along with us as we go. This is not a zero-sum game. It is not the case that if we consider affordability and security, we take away from our net zero ambitions. After all, we in this House already decided which of those legs we are going for most strongly when we decided on net zero as our target as far as climate change is concerned. That means we have to consider the energy trilemma from the point of view of not whether we will get there but how we can get there with those other matters being taken into account.

I would prefer to put the question of energy security into a slightly different mode, and that is the one it was put in by the World Energy Council, which has done a lot of work on the energy trilemma as a tool for deciding how we make progress in these areas together. It has produced an isosceles triangle—I am confident that the word “isosceles” has not been recorded in Hansard before—that has spines going to the centre of it, and we can advance further along to each corner from the centre with various elements of the energy trilemma in it. We have decided to advance substantially down the left-hand spine, which is the sustainability part of the triangle. The job we have to do is make sure that what happens with the other two legs does not draw back the sustainability leg but enhances it, which is exactly the point that the hon. Member for Kilmarnock and Loudoun (Alan Brown) made.

It also means we have to take decisions in other areas that are compatible with the particular length of spine we have gone down on that triangle. I would politely say to the hon. Member for Banff and Buchan (David Duguid) that, while it may be the case that the hydrocarbons we bring into the UK are more carbon-intensive than the ones we produce in the UK for transport reasons and others, they are still hydrocarbons. With what we have decided, yes, we are going to need oil and gas in our future economy, but in far smaller quantities than is the case in our economy at the moment. We have to think about the right use for oil and gas in our future energy economy, making sure that as much of that as possible is produced in the UK as opposed to importing, but also that the total that we have coming into the economy as a whole is compatible with that net zero goal on the left leg of the sustainability triangle.

[David Duguid]

I appreciate the hon. Gentleman giving me the chance to come back on that point. Surely he will recognise, as I think he did in his statement just now, that there will be a gap for some time, and that we need to keep that gap closed. As rapidly as we all want renewable and low-carbon energy to be developed, we need to make sure that that gap is closed, and that we do not become even more dependent on foreign imports than we already are.

[Dr Whitehead]

The hon. Gentleman is absolutely right: we should not be dependent on foreign imports. However, we need to be thinking about a long-term overall reduction in what we are doing. I do not think that simply saying, “We’re going to increase oil and gas production over the next period” is an answer to our present problems, because in the end, that is incompatible with the commitments we have made on net zero. We cannot go down that path in the long-term future.