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Oil and gas producers with North Sea operations are benefiting from a windfall of at least £430m from the sale of surplus EU carbon credits. The same hydrocarbon companies are also set to benefit from being awarded CO2 storage permits under carbon capture and storage plans being drawn up by the Department of Energy & Climate Change (DECC).
Falling oil and gas production in the North Sea has ensured that hydrocarbon production companies will be able to sell excess EU Emissions Trading Scheme (ETS) carbon credits at huge profit to companies in other industry sectors.
The government allocated carbon credits to oil and gas producers for the period between 2008 and 2012 based on emissions produced by the industry between 2000 and 2004.
In 2003 offshore oil and gas emissions totalled 21.9 million tonnes (Mt). It is thought likely that figure will drop to less than 10mt by 2012 as oil and gas production falls to less than half of 2003 production levels.
Sam Gomersall of carbon capture and storage project developer, CO2DeepStore, presenting at the Oil and Gas Emissions Conference in Aberdeen on 10 June, said: “While any reduction of carbon emissions is good for climate change, the EU ETS has not worked as intended in this area.”
“We calculate that offshore oil and gas companies will receive a windfall revenue of £430m in phase two of the EU ETS, based on a conservative CO2 price of only €15 per tonne. It is worrying that many beyond the oil and gas industry are not aware of this ETS policy malfunction. With a windfall income there is little financial incentive for oil and gas companies to make investments to cut CO2 emissions.”
The government has also yielded to lobbying from oil and gas companies with plans to prioritise upcoming carbon storage permit allocations to companies who already hold petroleum licences in matching North Sea sectors even though CO2 storage cannot start until oil and gas production has ceased. Any company wishing to administer a subsea carbon storage site in waters off the UK in the future will require a carbon storage licence from DECC.
The government position appears to be a contradiction of EU policy, which decrees that “member states shall ensure that the procedures for granting of storage permits are open to all entities possessing the necessary capabilities and that the permits are granted on the basis of objective, published and transparent criteria.” [1]
The decision also jeopardises the transformation of depleted oil and gas fields into operational carbon stores by the government’s target date of 2020, as oil and gas companies have not demonstrated active interest in administering carbon storage operations. Storage permits are likely to be valid for five years and development of carbon stores could be delayed by similar periods should hydrocarbon companies gain first option on storage permits.
“The government needs to re-evaluate its position,” commented Gomersall. “CO2 storage is not a hydrocarbon business and is certainly non core for today’s oil and gas companies. Priority access to CO2 storage licenses will both delay the uptake of CCS in the UK and increase the cost. Both leave the UK falling behind our global competitors in this climate critical technology.”