Environmental Audit Committee
Oral evidence: Accelerating the transition from fossil fuels and securing energy supplies, HC 109
Wednesday 20 July 2022
Ordered by the House of Commons to be published on 20 July 2022.
Members present: Philip Dunne (Chair); Duncan Baker; Barry Gardiner; James Gray; Ian Levy; Clive Lewis; Caroline Lucas; Jerome Mayhew; Anna McMorrin; Chris Skidmore; Claudia Webbe.
Questions 214 - 302
Witnesses
I: Louise Kingham CBE, Senior Vice President, Europe, and Head of Country, UK, bp; David Bunch, UK Country Chair, Shell; Linda Cook, CEO, Harbour Energy; and Tessa Khan, Founder and Director, Uplift.
Written evidence from witnesses:
Witnesses: Louise Kingham, David Bunch, Linda Cook, and Tessa Khan.
Q214 Chair: Good afternoon and welcome to the Environmental Audit Committee where we are taking oral evidence today into accelerating the transition from fossil fuels and securing energy supplies. I am very pleased to welcome our guests to our first panel but, before I do, I would like to confirm that regrettably we will not be moving into a second panel after we have heard from our first witnesses because the Secretary of State has had to withdraw at very short notice, alongside the officials who were going to be coming with him. We will be inviting him or his successor to come and speak to us on this subject when we resume after the summer recess.
I would like to welcome industry representatives. It would be very helpful if you would in turn indicate your role and the role that your company plays in the North Sea.
Linda Cook: I am the CEO of Harbour Energy. We are the largest independent oil and gas producer listed in London and the largest oil and gas producer in the UK today.
David Bunch: I am the UK country chair at Shell. We are entirely committed to transition in the UK, both in terms of our continued North Sea production and accelerated renewable power generation. Thank you for the opportunity to be here.
Louise Kingham: I am head of country for the UK and SVP for Europe for bp. I have been with the company for just a year. The company has a 113-year history and the UK is our home. Similarly to Shell, bp has made significant commitments towards net zero by 2050 or before.
Tessa Khan: I am a lawyer with expertise in climate change matters and I am the director of an organisation called Uplift, which focuses on research and advocacy in support of a fair transition away from fossil fuels in the UK.
Q215 Chair: It would be very helpful if we could start by asking the industry participants in turn to give us an overview on how you see the overall topic of transitioning from an economy dependent on fossil fuels, the role that the North Sea is playing within your company and your transition from fossil fuels to non-fossil fuels, if that is what you are doing, and give us some overall pointers to help the Committee to consider how this is going.
Louise Kingham: The UK is bp’s home; we have been in Scotland for 100 years and in the North Sea for 50 years. The UK is very important to us. For us, the North Sea as an operation is largely an oil basin. The majority of the 165,000 barrels produced is oil. A smaller proportion is gas. The company has ambition to continue to invest in the North Sea to work towards the ambitions set by the transition deal around achieving a net zero basin. We believe it offers the potential to showcase what we can do here in the UK. While all credible scenarios say that we still need oil and gas for energy production today as we work on the transition and build up the opportunities to produce more home-grown, low-carbon energy here in the UK, which is reflected in the British Energy Security Strategy as the medium-term ambition given that many of these projects take time to come to fruition, it is about balancing those two challenges, particularly growing security but also moving as quickly as we can, accelerating as fast as we can, to develop the pipeline of low-carbon energy that is so important for the future.
Q216 Chair: What proportion of your production is sold into the UK as opposed to going on to the international markets?
Louise Kingham: All our gas goes straight into the national grid.
Q217 Chair: What proportion of the grid supply is that?
Louise Kingham: About 10% of our production that is gas goes into the grid. The oil partly is exported because of the nature of the way the industry works. It is largely exported, some of it direct by pipeline to refineries where it can be turned into refined product. At some point, it comes back into the UK to balance the proportion of product that we need, be that diesel, aviation fuel or anything else, gasoline and so forth.
Q218 Chair: Within your own facilities? Or is it refined by other companies?
Louise Kingham: The refining work is across Europe. Some of the facilities are our own, for example in Rotterdam, and some are elsewhere.
Q219 Chair: You mentioned the time it takes to get to the development phase. Could you characterise for us the cycle from exploration to production and then the average duration of a field’s life?
Louise Kingham: It depends. It is on a project-by-project case basis so it depends on the project, but essentially there is an appraisal and exploration phase, a development phase and then a production phase. That can be anything from two to three years for an associated gas project—something that is familiar and already in a location we are operating in, which is where we focus a lot of our time to identify low-carbon and resilient oil and gas, which is our focus in the North Sea—right the way through to projects that can have a lifetime of 25 years, depending on the scale of activity. It varies quite considerably.
Earlier this year, we announced that we wanted to invest up to £18 billion in the UK on a twin-track approach, which is in both the North Sea, looking for the lowest-emission hydrocarbons, and investing in low-carbon energy. We also have a global target that by 2030 bp will have reduced its production overall of oil and gas by 40%.
Q220 Chair: I will not be focusing all my questions on you, but of the £18 billion investment, what is the split between fossil fuels and non-fossil fuels?
Louise Kingham: Three-quarters and one quarter; just over one-quarter of the £18 billion investment is in oil and gas, looking for low-carbon barrels. The balance is investment in low-carbon hydrogen, carbon capture and storage, offshore wind and electrification, electric vehicles in the UK, principally.
Q221 Chair: Was that three-quarters in the latter category?
Louise Kingham: Yes. It depends on which projects move at what pace. The biggest challenge is how quickly we can move. It could be that some projects move faster than others and that will adjust those percentages to, say, two-thirds and one-third.
Q222 Chair: We will come on to that. Thank you.
David Bunch, I would like to give you a chance to address the same question as to Shell’s posture for the North Sea.
David Bunch: Our posture for the UK is not an either/or, either renewables or the North Sea; it is very much a both/and—the careful co-ordination of those two things to manage the transition—in which we see three priorities.
The first of those is the rapid acceleration and deployment of renewable power and the necessary investment in the grid for transmission and connection to ensure that the power gets to the right place.
The second component, which we feel is very important, is on the demand side, both stimulating demand in the market for new energy vectors, low-carbon energy vectors such as hydrogen, and seeking efficiency. It is far easier to reduce a couple of points of efficiency than to generate the compensating energy.
The third component is entirely consistent with the Climate Change Committee’s model pathway to net zero. There is a requirement for gas and oil in the model pathway to net zero and we currently produce less than 50% of that gas indigenously. The compensating factor for that, which we are all seeing and it is playing out, is of course to a large degree importing LNG, which has a much higher carbon footprint and certainly does not help our balance of payments and does nothing for our jobs and skills. In accordance with the North Sea transition deal is the production of responsible gas here. An example of that, which I am sure we will get on to, is Jackdaw, where we believe we have taken every step to ensure it has a minimal CO2 footprint, given the technology available today. Going forward, we plan to land that gas in St Fergus, where we are planning to invest a significant amount of money in a carbon capture and sequestration facility to further clean up the gas later, hopefully not too long before the end of the decade.
In our view, those three things working in harmony will be what is required to ensure that we have a stable and just transition that avoids importing significant risk. Thinking about imports, if we do not develop our fields we need to consider LNG shipping disruptions. If there is a hurricane in the Gulf of Mexico, which is quite common, it can cause a huge disruption in the LNG shipping lanes. Similarly, we would be importing the risk of not only a cold winter in the UK but potentially a cold winter in north-east Asia.
Q223 Chair: Do you have an equivalent figure for the company’s investment plans?
David Bunch: Yes. We have committed up to £25 billion to the UK energy system through the balance of the decade, of which 75% is targeted for low-carbon and zero-carbon solutions.
To put that into context, because these numbers become so big they sometimes become a bit meaningless, pound for pound the profit generation in the North Sea will be invested back into the UK energy system, of which 75% is targeted for low-carbon and zero-carbon solutions.
Q224 Chair: You mentioned the risks with imported fossil fuels, which I understand. You also said there was some evidence that production in the North Sea is lower carbon than imports. Can you point to that evidence?
David Bunch: There is an incredible amount of science behind it. It is not speculation; it is fact. The North Sea basin in general is a low-carbon production field compared with LNG, which has to go through a liquefication component and be double, and sometimes more, carbon intensive. I can provide the Committee with the evidence.
Chair: That would be helpful. I will come to Linda Cook in a moment but first James Gray has a short question.
Q225 James Gray: It is a very quick question to which I think I know the answer. With crude at $100 a barrel, what is the likelihood of production or exploration starting again in the Arctic?
David Bunch: We certainly have no plans for exploration or production in the Arctic.
Louise Kingham: We are in the same position.
Linda Cook: The same position.
Q226 James Gray: At $100, you could do it, couldn’t you?
Linda Cook: It is not one of the geographies that Harbour Energy has decided to focus on.
Q227 Chair: Could we focus on the ones that you are focusing on in the North Sea? Could you give us a similar resume of where Harbour Energy is in terms of investment? I understand that essentially you are acquiring legacy assets rather than exploring new ones. Is that fair?
Linda Cook: That is essentially right. Harbour Energy is solely an oil and gas producer. That is our business. That does not mean we are not aligned behind the energy transition. We think it is incredibly important and we have our own targets to reduce emissions.
We have to keep in mind today that about 70% of the UK’s energy is supplied through oil and gas. It remains a critically important part of the UK economy and also tax revenues. Harbour’s role is that we do not necessarily explore for new oil and gas developments in new regions around the world. We are acquiring relatively mature assets from larger, typically major, oil and gas companies that they are no longer investing in and which are no longer strategic for them. It is neither right nor wrong; it is just a different strategy. We reinvest in those assets. We improve efficiency and reliability. We try to extend their producing lives and lower their emissions in order to maximise recovery from domestic oil fields. Most of our production today is in the UK. I think we supply or produce around 14% of the UK's oil and gas.
Over time, decades from now, when we do not need oil and gas, we are already starting that transition in the company. We aim to use our people and our infrastructure and our skills, including here in the UK, to help with that transition to enable our company to have longevity but in particular around things like carbon capture and storage. We are involved in two projects here in the UK, in one of which we are the lead developer, that use old, depleted gas fields in the southern part of the gas space, an existing gas pipeline that is no longer in use. We will reverse that and take CO2 emissions captured by industrial emitters, transport them offshore and store them underground.
Q228 Chair: How far is that from becoming operational?
Linda Cook: Part of it depends on the pace at which the Government can put in place the commercial and regulatory framework for CCS. I understand there is progress through the track 1 process. We are hoping to be part of track 2 with the project I referred to. If that happens and everything goes as fast as we believe it can, maybe by 2027, as early as 2027, we could be starting up.
Q229 Chair: Before I come to Tessa Khan, I have another quick question about the impact of ESG reporting requirements on quoted companies and the extent to which that may be constraining access to the capital market to conduct your business. Linda, as you have confessed, you are wholly engaged in fossil fuel work at the moment. Are you finding that the capital markets are tightening?
Linda Cook: The start of the question was around ESG reporting. I don’t think ESG reporting necessarily is a problem. We are fully behind the need for transparency. We report our own emissions. We talk about our long-term goals. We are a proponent of that.
Is there work to do in terms of getting consistent rules around all of that, around the world? Absolutely, but, in general, we are supportive.
Are capital markets tightening? I think we saw that starting several years ago. There are two reasons for it. No. 1, we had the shale revolution in the US. A lot of capital was thrown into the shale place. A lot of people lost money. Supply increased because of the technology developments there. There was oversupply, prices went down, people lost money, so definitely capital tightened up because of that.
Then the growing consensus around climate change and the need to transition to a lower carbon energy portfolio around the world resulted in pressure being put on lenders and investors around not investing in oil and gas. That has impacted a number of companies in terms of access to capital.
Q230 Chair: David, could you answer the question as to whether ESG is causing you any difficulty in presenting the company’s position to shareholders and are you finding capital markets becoming more expensive if they perceive you as primarily a fossil-fuel producer?
David Bunch: Linda Cook answered the latter part of the question, and we are obviously in a different position.
ESG and TSFD reporting is a welcome piece of transparency in an area that is becoming a huge industry with a multitude of different reporting standards. The degree to which there could be more standardisation and transparency is helpful because it allows people to make decisions.
Chair: Louise, do you have anything to add?
Louise Kingham: Just a couple of very small points. Among our aims, we want to show some leadership around transparency. We also recognise that this is a growing interest and it is evolving; therefore, how, when and what gets disclosed will evolve with it and we are keen to see that continue. We recognise that it is not a binary thing. Having said that, however, we are also quite keen to engage with a number of different groups, and already do, to understand the conversations, and engage in them, around disclosures and the purpose behind them and how we can all get to a place where we provide a common explanation about what is going on to educate and inform as opposed to confuse, and so use disclosures in a productive way.
Q231 Chair: Tessa Khan, I will bring you in now. We have heard that the UK is dependent for 70% of its energy on fossil fuels at the moment. Your organisation exists to try to bring that to zero as quickly as possible. Do you accept that to ensure that we can keep the lights on, and all that that entails, there has to be an orderly transition? How do you position yourselves and your critique of the oil companies in a way that will allow that to happen smoothly without disrupting the economy?
Tessa Khan: There is quite a lot I would like to say in response to some of what we have heard, but first, to answer your question directly, at the moment there are two very powerful imperatives for shifting away from fossil fuels at pace. Right now, they are responsible for a significant percentage of the energy that is consumed in the UK but, as we know, we are in a transition and at the moment we have a huge problem with energy affordability in this country. The International Energy Agency has defined energy security to mean the uninterrupted availability of energy sources at an affordable price. We are on the brink of a historic energy affordability crisis. According to the regulator, at least one-third of households across the UK will be unable to afford their energy bills this winter. That is a result of wholesale gas prices that, according to Cornwall Insight, the Office for Budget Responsibility and other credible sources, are forecast to stay exceptionally high at least until 2025 but, according to Cornwall Insight, energy bills will stay exceptionally high until the end of the decade.
Listening to the other panellists, you would think oil and gas are the only reliable sources of energy that we have access to. Of course, the real solution to energy security in this country—leaving aside the very powerful climate imperative that we have seen evidence of in the last 48 hours in the UK—is reducing demand, which we have great potential to do given how much energy is wasted in the UK as a result of the fact that we have among the leakiest housing stock in western Europe in particular, and, of course, unleashing the full potential of our renewable energy sources, which we have in abundance and which at the moment are four times cheaper than gas. We have these two opportunities, which we are not exploiting sufficiently. If we do, not only will we be able to move away at pace from the current level of oil and gas dependency, we will make sure that people are in warm homes and that all the other social and health benefits that stem from that are protected, that our climate is protected and also that we take advantage of the huge economic opportunities that renewables and the energy efficiency industry provide.
We know, for example, according to the UK Energy Research Centre, which aggregated 15 studies, that every £1 million invested in the oil and gas industry generates three jobs, whereas in renewables it would be 10 times as many. Ernst & Young and others have mentioned that the UK is the third most attractive market in the world for renewables. Renewables have to be where our focus is. I think you will have received analysis from E3G and others that shows that by 2030, if we put our shoulders to the wheel on energy efficiency, renewables and electrification, we could reduce our gas demand by 25%, halve our gas imports in just 10 years. This is not to mention the incredibly powerful climate imperative that we have heard about from the International Energy Agency and others, which showed that in a scenario where we stay below 1.5 degrees, we simply cannot have any new oil and gas developments.
An orderly transition is indeed one where we do not continue to open up new oil and gas fields that lock us into production—for example, like the Cambo oilfield—for 30 years to come with the stranded asset risk and all the other risks that come with it when we are in a period of rapid transition, but instead make a proper plan for the workforce of this industry, which is tired of the uncertainty involved in working in oil and gas. In a recent survey of the oil and gas workforce, 81% said they would be willing to transition out of the industry and that is because of the insecurity in the industry. When oil prices fall, as they did in 2020, tens of thousands of jobs are lost. The market is inherently volatile, as we are now seeing. We should be planning for that transition, for that workforce. We should be moving at full tilt to exploit the renewable, clean sources that we can actually afford and making sure we do not double down our dependence on oil and gas.
Q232 Chair: We have just heard that the two majors will be investing 75% of their assets into non-fossil fuel opportunities so that is surely what they are doing.
Tessa Khan: I do not think that position is representative of the vast majority of operators in the North Sea. We have done an analysis of all the active operators in the North Sea, and you have also heard from Harbour Energy that it currently does not invest anything in renewables. Of the 42 active operators on the continental shelf at the moment, only 11 currently invest in renewables and, of those 11, about one-third are investing in renewables in order to power their oil and gas operations. It is not renewable energy being generated to go into the grid. That is the reality of the oil and gas sector in the UK. It is not committed to the transition. It has big projects planned, multi-decade projects, where most of the profit will be, that will ultimately lock us into further dependency on the industry.
Q233 Chair: Have you done an analysis of how much dependency the UK will have on fossil fuels by 2050?
Tessa Khan: The Climate Change Committee and others have done that analysis.
Q234 Chair: Do you accept it?
Tessa Khan: Certainly, we accept that but we would also caution, as the UK Government have recognised, that we have consistently gotten wrong how quickly renewables become affordable. All four major renewable energy technologies—solar PVs, wind, batteries and hydrogen electrolysers—are currently on learning curves that mean that they will continue to become cheaper and cheaper and more widely deployed. I am pretty confident, especially when the EU and others are making plans to get off Russian oil and gas completely by 2027, that the transition will happen significantly faster than that. We have domestic production already in operation that will provide oil and gas into the 2030s, so we have a period of time to plan. Beyond that, I think we can be and should be ambitious about how quickly we transition.
Q235 Chair: Have you done any analysis? I understand the claims you are making and I am very sympathetic to the points you are making about the opportunities for renewables, but if there were to be no further exploration in the North Sea, which I think is what you are calling for, when would the fossil fuels from the North Sea be exhausted?
Tessa Khan: Around the mid-2030s.
Chair: Yet we know that we will have a 15% reliance by 2050, so for the remaining 15 years it would be 100% imports.
Tessa Khan: That, I think, is if you take the CCC’s balanced pathway, which was developed, I would say, in market conditions very different from the ones we are currently in. The EU has significantly increased the ambition of its energy targets. The CCC’s tailwind scenario, which is what underpins the analysis of E3G and others when they say that we can reduce our imports by half for gas by 2030, brings forward our net zero date by a number of years and there is an even more precipitous drop in the amount of oil and gas that we have in our energy supply.
Chair: I am conscious that we asked you to achieve a hard stop at 3.20 pm, but as we do not have a second panel, could you continue if colleagues have questions that take us beyond that time? Thank you.
Q236 Barry Gardiner: I want to focus on taxation and the windfall tax. First Ms Cook from Harbour Energy, you wrote to the Chancellor when he put the energy profits levy in place to complain about it. You will be aware, because you have operated, I think, all across the world in different companies, that the Government in the UK take the lowest government share, the lowest government take, of the profits of any oil and gas project in the world, don’t they?
Linda Cook: With the energy profits levy, it is now greater than the US.
Q237 Barry Gardiner: Yes, indeed, but you are saying with the energy profits levy, that is with the windfall tax, but before that it was absolutely the lowest in the world. What makes you think that we should not pay what everybody else in the world regards as an acceptable rate of tax? I think the average is 71%, isn’t it, and even with the EPL, it would only go up to 65% in the UK? It is still lower than the average anywhere else in the world, yet you complained about it. Why?
Linda Cook: Our complaint was mainly around the lack of fiscal stability and the fact that we are a capital-intensive industry. When we invest $1 in oil and gas, we do not get a return for many years to come, as one of my co-panellists mentioned earlier.
Barry Gardiner: Really?
Linda Cook: Typically, today, when we decide to drill a new well in the UK with lead times and everything, we start spending money and may not get the first production for two or three years.
Barry Gardiner: You don’t get 1p back?
Linda Cook: For several years.
Q238 Barry Gardiner: You get 91p back in tax breaks, don’t you? For every pound you spend, you get 91p back in tax breaks.
Linda Cook: If there are profits from those projects.
Barry Gardiner: I assume that you invest for profit.
Linda Cook: Absolutely.
Barry Gardiner: You have been around long enough; you would not be here if you hadn’t.
Linda Cook: Absolutely, but I think we make decisions that are very long-term in nature and paybacks take several years, so when we make a decision we are looking at the likelihood of fiscal stability. In 2014, the Government came out in support of fiscal stability, recognising that it was important, and then all of a sudden we find that the rules have changed. I will give you an example.
We have developed a project called Tolmount in the UK. It started producing in April of this year. Investment started two or three years ago. Hundreds of millions of pounds were invested. Production starts in April. That project is delivering 5% of UK gas production today. Now, all of a sudden, the tax on the revenue from that project, which finally starts, is taxed at a much higher rate than we had anticipated, yet we are unable to deduct the investment for that project against those revenues because the new project does not allow past investments under its allowance definition.
Q239 Barry Gardiner: Surely you got the 130% supertax deductible that the Chancellor announced last year and, therefore, you would be able to claim that for not only 100% of your investment in that project but also the 30% bonus that the public taxpayer is giving you on top of it.
Linda Cook: Yes, we have always understood—
Barry Gardiner: Let’s be absolutely clear. You did.
Linda Cook: I will be clear in that the returns from the Tolmount project are now materially lower than when the investment decision was made.
Barry Gardiner: Yes, indeed, because the Chancellor has introduced the 130% tax levy but you were able to take that back.
Linda Cook: No, no, because we cannot deduct past investment under the new investment allowance.
Barry Gardiner: But that was introduced last year. On any investment that you have made since then, you got 100%, plus 30% on top, back under the supertax deduction. Is that not the case?
Linda Cook: Today with the EPL, we get 91p for every £1 invested and it was less than that before.
Barry Gardiner: And you will get that going forward for new investments.
Linda Cook: Yes, for new investments; that is right.
Barry Gardiner: Quite honestly, pleading poverty here and arguing with the Chancellor and saying that the UK should not be setting a headline rate of tax for oil and gas that is 6% less than the global average I think takes the biscuit.
Linda Cook: We had issues with other aspects of the Bill, I am afraid.
Q240 Barry Gardiner: Could I ask Ms Kingham and Mr Bunch to talk us through the investment allowance and how that will accelerate final investment decisions on projects that you have been developing?
Louise Kingham: I will add to a couple of things that Linda Cook said. We completely recognise the challenges that we are all facing as consumers, as individual citizens, and that the Government have to act in support. Just speaking as bp—not on behalf of the sector because the North Sea is a mature basin and there are different companies with different needs and different drivers—we have said that we do not think changes to the fiscal environment are helpful in terms of stability generally over the long term and given the long term over which investments run. Windfall taxation as a surprise is not helpful. At the same time, we recognise that there are challenges for the Government ahead and for some time to come.
The proposal that we were expecting, which was being mooted before the tax arrived, was for a one-off. What followed was a multi-year proposal absent some detail that would help us plan the economics of individual projects. The clarity around the sunset period in the legislation now going through is helpful, it helps with planning, but there is still some vagueness around the historic price, whether we will return to the historic price and when, what that means and what it looks like. That will still hinder some in trying to do the detailed economics for their investment plans. With what we know now, without all that clarity, we at bp don’t think that the profits levy will impact our investment plans in the North Sea. That is as much as we know, sitting here right now.
As you will appreciate, Barry, we as a business have our normal processes to go through in making investment decisions at any point in time and these will run out to 2030, beyond the life of the energy profits levy as it is planned at the moment.
Q241 Barry Gardiner: I do not think any Member of Parliament sitting around this horseshoe would disagree with your statement. Stability is what businesses want in the fiscal regime in order to be able to plan their investments. I think we all agree with that. Therefore, we recognise that something like a windfall tax should only be applied in very specific circumstances, but those very specific circumstances have obtained this year, have they not? In that respect, I think I have the figures for Shell's reported quarterly profits of £7 billion in May. I do not have bp's figures. What were they?
Louise Kingham: In the first quarter we reported a loss of £20.4 billion. That is accounting for the non-cash accounting charges for exiting our Russian interests, as we announced in February. I believe the quarterly result was £6.2 billion.
Q242 Barry Gardiner: You would accept that in an era where exceptional profits are made, it is fair for the Government to impose an exceptional tax, albeit for a limited period.
Louise Kingham: We recognise that the Government have to act and are driven by choices around fiscal policy, absolutely, yes.
Q243 Barry Gardiner: Had the Government chosen to go even just to the average of the headline tax take of other countries, that could have raised an extra £13.4 billion, which would have not just covered the increase in costs to consumers in this country but could have also gone towards fulfilling the manifesto commitments to fund energy efficiency. Some of us would argue, therefore, that there is a real point in raising that levy still further.
The question I put to you was about the investment allowance and how it might accelerate your final investment decisions on projects that you have been developing. The Committee heard previously that over £8 billion-worth of North Sea energy projects could be approved by companies following that investment allowance decision because it was likely to accelerate them. Is that the case for bp and, if so, which projects might be accelerated?
Louise Kingham: From what we have looked at so far with what we know, we do not think that it will significantly accelerate any projects. It might accelerate some of the projects that have already been in plan by a matter of months, but it will not make them go any faster than that from what we can see at the moment.
Barry Gardiner: David Bunch, the same question to you.
David Bunch: I should clarify that our £7.3 billion profit is a global profit, of course, taxed in the jurisdictions in which it is made and not a UK profit.
The investment allowance is one component of an economic model that will be factored in. Similarly, as we all know, we have some pretty high proliferation, particularly in the supply chain of many of our projects at the moment, which is to the large detriment of a number of these initiatives.
Another consideration is that these projects are incredibly complex. They are sometimes decades in the planning and approval. To speed up and slow down is very difficult. They tend to follow the pace that they can follow safely and in line with the regulatory process.
Q244 Barry Gardiner: I take it that you are giving me the same answer as Ms Kingham, that the investment allowance will not significantly advance or accelerate any projects that you have in line.
David Bunch: Correct.
Q245 Barry Gardiner: Before the EPL was announced, before the windfall tax, oil and gas producers were operating under an exceptional regime of tax reliefs, which placed 40% of the burden of stranded assets on the taxpayer. You will have seen the June carbon tracker report, which looked at the £1 trillion-worth of stranded assets and broke that down by global financial centres. You will have seen that the bar chart for the UK, the London market, does not give an easily alignable metric but it looks like 40% or 45% of the assets are safe and the rest go from amber to red. Do you think it right that in the UK you should be operating in a fiscal regime that puts the burden of those stranded assets on to the taxpayer?
David Bunch: I am afraid I have not seen the report.
Barry Gardiner: But you know that previously the 40% did go on to the taxpayer; that that is the fiscal regime.
David Bunch: Yes. Over the past 50 years, the North Sea basin has contributed £350 billion to the Exchequer.
Barry Gardiner: But it should be a lot more.
David Bunch: It depends. There is significant risk in these projects and a number of these projects were undertaken on the basis of the fiscal regime and the understanding of how decommissioning and so on would be treated and, therefore, significant investment was made. A lot of these projects are multi-decade projects with no visibility on any return for sometimes many, many years. That was the basis on which they were undertaken. I think it is fantastic that the industry has been able to contribute such a large amount to the Exchequer, also supporting significant amounts of employment and also, I think, which is often forgotten, that our accomplishments in offshore wind are largely due to our offshore successes and capabilities. They have provided a significant contribution to the UK.
I do not think it has been helpful—if that is your question—to change the fiscal regime. It puts instability into the system.
Q246 Barry Gardiner: My question was not about that change to the fiscal regime. Look at Norway’s 79% tax take. Go to the UAE and it is 96%. In the UK, it was down to 34%.
I need to hurry up so let me simply ask you if you would like to see the investment allowance extended to low-carbon investments.
David Bunch: Yes, but can I clarify that? Whether or not it is within the construct of the so-called North Sea fiscal ring fence, or outside of that, a mechanism to incentivise investment in renewable technologies is only helpful.
Barry Gardiner: I will leave it there.
Chair: I am conscious that I took up a disproportionate amount of time and Barry Gardiner has, too, so we need to speed up, colleagues.
Q247 Jerome Mayhew: I will be very quick. I will do a quick-fire round—but not to you, I am afraid, Tessa Khan—and then I will focus on a couple of questions to David Bunch and Shell.
Can you give me a snapshot of the current proportion of your CAPEX going on low-carbon and renewable technologies as opposed to fossil fuel extraction, what you are doing at the moment and then how it will change? Let’s go to the three of you for how it is now and then come back to how it is going to change.
Linda Cook: Today in Harbour Energy, more than 90% is to oil and gas because that is the company that we are.
Jerome Mayhew: No renewables at all?
Linda Cook: No, but it depends on how you look at carbon capture and storage projects, which could become a material part of our investment portfolio in the coming years.
Jerome Mayhew: If they become commercially viable?
Linda Cook: Yes.
David Bunch: For Shell, it will be 75% over the decade. Right now, in the UK, I would say it is probably more like 80% in oil and gas and 20% renewables. To clarify: there is also a significant cost, not capital but cost, and on that metric today we are far closer to 50/50.
Jerome Mayhew: Can you please explain the difference?
David Bunch: Capital investment is future investment in projects that is depreciated and can have allowances and so on. Cost is your everyday operational cost of running a hydrogen refilling station, for example. That would be a cost that is just cash out today. On that metric, it is closer to 50/50.
Louise Kingham: We started at about £0.5 billion and we want to increase that tenfold by 2030. At 2025, we have a target for 40% of our CAPEX to be on low-carbon spend.
Q248 Jerome Mayhew: £0.5 billion in percentage terms is about 4%; is that right?
Louise Kingham: Yes.
Jerome Mayhew: You are going from 4% to 40%.
Louise Kingham: Yes.
Q249 Jerome Mayhew: The equivalent for Shell is about 1%; is that right?
David Bunch: Are we talking about the UK?
Jerome Mayhew: The UK.
David Bunch: We do not break out the UK but I would say no, it is double digits at the moment.
Q250 Jerome Mayhew: Is Harbour going to stick to oil and gas?
Linda Cook: If we include carbon capture and storage, which we think is integral to the UK making progress towards its targets, the percentage of our investment in that versus oil and gas could be as much as one-third in a short period.
Q251 Jerome Mayhew: If I could summarise your approach, renewables are for someone else; that is not your market sector. You are just about maximising oil and gas and if you have to put CCS on it in order to keep going, you will?
Linda Cook: Our carbon capture and storage projects are working with other industrial emitters, power generation and refineries. They will capture their emissions. We will transport and store them. They are not our emissions in most cases.
Q252 Jerome Mayhew: Louise Kingham, you have already answered. You said you will be going up to 40% by 2035.
Louise Kingham: By 2030.
Q253 Jerome Mayhew: David Bunch, where is the ambition for Shell?
David Bunch: By 2030, 75% of our capital, of the £25 billion that we have committed over the decade, to low-carbon and zero-carbon.
Q254 Jerome Mayhew: There does seem to be some divergence between the ambition of bp and the ambition of Shell. Do you think that is fair comment?
David Bunch: Could you explain a bit more?
Jerome Mayhew: The evidence we have received has been that bp has decided to go further and faster than Shell, reducing oil and gas production by about 40% by 2030, and, we have heard, to increase low-carbon investment tenfold to around 40% of its CAPEX by 2030. Those pledges are not currently matched by Shell, are they?
David Bunch: Let me explain. I do not think it is entirely helpful to draw direct comparisons. I think we are both very much committed to a decarbonisation strategy, but taking slightly different approaches to get to the top of the mountain.
To clarify in terms of magnitude, we have committed £25 billion just in the UK. Shell looks at carbon intensity, which is a complete life-cycle metric of carbon intensity from the well to the wheel, and we have put targets around reducing carbon intensity. The reason we do that is because the easiest way for us to reduce production or reduce scope 3 emissions, which are the emissions you burn when you start your petrol car, would be to divest that part of the portfolio. That does nothing to help the planet. Arguably, with less transparency in certain areas of the globe, it is a worse place to be. Therefore, we believe that carbon intensity, which is about the entire system and decarbonisation of the equivalent energy mix, is the right metric. In that respect, we have committed to a very ambitious set of carbon intensity reductions.
Q255 Jerome Mayhew: Let's look at that. According to the latest figures I see, and perhaps they have been upgraded since, you aim to reduce your NCI by just 20% by 2030. Is that still the level of your ambition or is it going further now?
David Bunch: Just think about what 20% of carbon intensity is. It is scope 1, 2 and 3 and we have to have a supporting energy policy to achieve that. It is incredibly ambitious and technically challenging, but we are very much committed to working in partnership with our customers and the Government to achieve it.
Q256 Jerome Mayhew: We have put the finger on the difference between bp and Shell; bp is committing to reduce production by 40% and you are saying you will carry on producing but try to reduce the intensity as you continue to produce. Why will you not go to the next step?
David Bunch: I am not sure it is the right thing to do because, with all due respect to bp, just because bp stops producing, does that mean it is not produced or does somebody else produce it? There is a demand and the demand does not evaporate when production stops. Therefore, we think intensity is an appropriate metric. I would also say that we have committed to, or are intending to, reduce production by 2% to 3% each year over the decade but we do not see that, in isolation, as the appropriate metric. That is perhaps just a slight difference in strategy.
Q257 Jerome Mayhew: Let me get my head around it. If you reduce the carbon intensity, you can maintain or even increase production while still hitting your targets; is that right?
David Bunch: You could produce more energy, correct, but on a lower intensity, which arguably is better for the planet. If we sold the North Sea, that production would more than likely be taken up by somebody else. Our production numbers would go down dramatically but is that the best thing to do? Or is it better to focus on introducing lower carbon energy vectors to reduce the absolute energy intensity of the energy that we need? That is the essence of our strategy.
Q258 Anna McMorrin: Can I just clarify then? You are saying that what you need to do is to keep producing energy from the North Sea because if you do not, somebody else will?
David Bunch: No, that is not what I am saying.
Anna McMorrin: That is what I just heard in your answer to my colleague.
David Bunch: I am sorry if I was not clear. It is a both/and. In order of priority, first is accelerating production of renewables and, with all due respect, the challenge we face is that it takes on average, from the point at which an offshore windfarm option is granted, over 10 years, nearer 15 years, to production. So we have this gap. That is the priority. In the interim, the Climate Change Committee has modelled, as we have talked about, in a balanced pathway, a clear requirement, in a net zero pathway, for oil and gas.
Q259 Anna McMorrin: Between 2010 and 2018, you dedicated just 1% of your long-term investments to sources of low-carbon energy and now you are doing very little to make that up. There was a lot of emphasis on your needing to do that then.
David Bunch: I think the number you quoted is a global figure; it is not the UK figure.
Q260 Anna McMorrin: What is the UK figure?
David Bunch: I don’t have that figure to hand but I would point to—
Anna McMorrin: You have come to the EAC without that figure to hand?
David Bunch: We do not publish, and we do not disclose, country by country investment figures. What we do disclose—
Q261 Anna McMorrin: Your advertising would tell a different story, wouldn’t it? To consumers looking to purchase fuel, your advertising tells a different story, a story that is very different from the reality.
David Bunch: I would point to who has the largest public charging network in the UK today: Shell. Who has committed to 100,000 chargers? Who has invested in the first total reconversion of a petrol forecourt to an electric site?
Q262 Anna McMorrin: You are still committed to fossil fuel for the next 14-plus years at least, despite your own targets, which were based on your own metric and your own tests rather than the Paris climate agreement.
David Bunch: The Climate Change Committee’s balanced pathway is consistent with Paris and our gas production is consistent with the Climate Change Committee’s suggested demand and production.
Q263 Anna McMorrin: You do say, though, that you will not change your underlying business operating plans unless these are also in step with the movement towards net zero emissions within society and among Shell customers. That is giving you a get-out-of-jail-free card, isn’t it?
David Bunch: I think you are quoting Ben van Beurden and subsequently, in his last update, he has removed the “in step” and replaced that with “we will be a pacesetter” so we will go ahead of society, which is where we are now leaning into.
Anna McMorrin: But you are still misleading.
Chair: Anna, we did cover some of the pathway before you got here.
Q264 Duncan Baker: Tessa Khan, do you feel some of the evidence you are hearing this afternoon rather says that some of the companies are gambling on the future and that we will not meet our objectives by 2050 and that is what is holding up some of their progress?
Tessa Khan: Yes, certainly. I think if you hear the plans that the industry, the sector as a whole, is making they are betting against us staying below 1.5 degrees. That is without question the only conclusion you can reach if you look at the lifetime of the projects, the capital expenditure and where that is going, and that is exactly why what we need from the Government is a much more robust regulatory framework for the industry.
As you know, at the moment we have the North Sea transition deal, which is too weak, as the Climate Change Committee has said. It is also effectively voluntary and we simply cannot rely on the industry to lead the way.
I find it, I have to say, pretty astonishing to hear from David Bunch that Shell’s business plans are in line with what is required by the Paris agreement when Shell is the only company represented here that has been successfully taken to court in the Netherlands over the consistency of its emissions reduction targets and its climate policy with what is needed to meet the objectives of the Paris agreement.
It is very convenient to focus on production emissions and carbon intensity and talk about the climate impact that flows from that, but it is a bit like a tobacco company pointing to its health achievements without talking about the health impact of smoking. We simply have to hold industries accountable—and indeed we do for all other industries—for the impacts of the products they sell.
The idea that they should not be accountable for scope 3 emissions or, as we have heard, that somebody else will simply pick up projects that they get rid of is, I think, one that needs to be interrogated. For example, there is academic evidence that has been accepted in court that for every oilfield that is not opened, it reduces global oil production. That is how the market works. I think there is a basic misunderstanding of market economics if you think that every time somebody doesn’t produce something, somebody else will produce something. The effect on price affects demand but, more importantly—and I think this is what is always quite conveniently forgotten—the market operates in a political context in which Governments around the world have agreed to hold warming to 1.5 degrees. That is a binding, legal obligation at an international level. It has been enshrined in the UK in domestic law.
All Governments, which are ultimately the ones that are responsible for approving new production because these resources belong to the state in every country in the world, will take steps to reduce production all over the world, which means you cannot simply assume that one project that is not exploited will necessarily be taken up by another country or company, unless you are indeed betting against us meeting the Paris agreement’s goals. In a world in which we reach those goals, we do not have endless exploitation of oil and gas resources and resources and assets being passed from one company to another.
Q265 Duncan Baker: That is very clear. If you pick up on the projects that effectively are not wanted by others, Linda Cook, the future of your company with 90% exposure to pure oil and gas exploration—you talked at the very beginning about having people, infrastructure and skills that you invest in, but the long-term viability of your company is what?
Linda Cook: That is why we invest in CCS today and are looking for opportunities to use our infrastructure and our people and skills.
Duncan Baker: Which we don’t know is commercially viable at the moment.
Linda Cook: That is exactly right, but there will be lots of oil and gas assets that are mature that larger companies will want to sell, and we are one of the very few buyers for these assets out there with the commitment to produce them responsibly. A point I want to make is that most people today are not buying oil and gas because they like it. They are buying it because it is the most reliable and affordable option they have. We have had a little taste of what will happen with what Putin has done in Ukraine. A sharp reduction in supply today will only drive up prices and make it uneconomic and unaffordable for the average person in the world. The focus, which we fully support as an oil and gas producer, needs to be on increasing the availability and reliability of affordable, lower carbon assets.
Duncan Baker: And transition.
Linda Cook: And the transition. We believe CCS, our commitment to lowering the emissions of the oil and gas we produce, our commitment to utilising the decommissioned infrastructure from oil and gas and depleted gas fields to capture CO2 and store it, can be an incredible part of the transition and the UK has a huge opportunity. We have the infrastructure in this country and we have depleted oil and gas fields. We have a tremendous service sector that has these skills and the ability to help us transition in a way that will not disrupt the economy and drive energy prices even higher.
Q266 Caroline Lucas: I have some questions on the climate checkpoint, but before I get to that I want to pick up, Linda Cook, on something you just said. You said that people buy oil and gas not because they like it but because it is cheaper. Can we clarify that we accept that renewables are about four times cheaper than gas?
Linda Cook: Some of them are getting to that point but they are not available. If someone had an opportunity—
Caroline Lucas: They are not available because companies like yours are not investing in them.
Linda Cook: Our company does not have the skills. Forgive me, maybe we are incompetent but our company does not have the skills to build solar panels or install wind. Our investors would much rather invest in companies that have decades of experience doing those sorts of things. I cannot tell them that we would be able to spend that money as wisely.
Caroline Lucas: We need to be quite careful with language and it is the case that renewables are four times cheaper than gas, so I think it is a bit dangerous to suggest otherwise, whether or not you are producing. I wanted to make sure that was on the record.
Linda Cook: That is not the case for transportation, for example, today.
Q267 Caroline Lucas: I want to talk about the compatibility checkpoint and I have some questions for David Bunch and then Louise Kingham. You all know that the Government are consulting on this climate checkpoint. What tests would you like to see excluded from the checkpoint and what tests would you like to see included?
David Bunch: Excluded or need more work are tests 5 and 6, the ones that reference the international scope 3 inclusion in the calculation and assessment of projects. The reason is not because of the principle of it but because there is no common accounting methodology at the moment to be able to do that operationally appropriately. It is not that we feel that they need to be excluded, but there certainly needs to be more work done on them.
Q268 Caroline Lucas: You would be perfectly happy to account for your scope 3 emissions if you were confident that the metrics were there?
David Bunch: We have no problem with accounting for—
Caroline Lucas: Accounting for them against your emissions targets. The country as a whole has signed up to 1.5oC, as you know, and, therefore, companies like yourselves are to move to be in alignment with that as well. If you were to account for your scope 3 emissions, what would that do in the amount of emissions that you are emitting and how much carbon is associated with them?
David Bunch: We lobbied very strongly for the internal combustion engine ICE car ban in 2030 to stimulate the transfer to electric vehicles. As you probably know, 97% of our UK emissions are scope 3. Those emissions are predominantly from diesel, petrol, aviation, so our ability to influence that reduction—as I said, we have taken action to become the biggest public charging network in the UK. We offer our customers the opportunity in the interim—I will respond to your question, but I want to illustrate that scope 3 is a demand side and it is not something we can do in isolation. Therefore, I think that to hold one entity to account without the appropriate demand side policies will be very challenging.
Q269 Caroline Lucas: I am sure it will be very challenging but none the less it is what many companies do, they account for their full impacts. I put to you that as a responsible company, with the huge impacts on our climate as we are seeing even as we meet here this afternoon, that is something that you should be doing as well.
David Bunch: I am perfectly aligned with accounting for them and trying to reduce them. The question is: to what degree can we solely and independently reduce scope 3? To give an example, if the ICE car ban was not in effect, how would any company in the UK reduce its scope 3 emissions if there was no incentive or stimulus to transfer to electrical vehicles?
Q270 Caroline Lucas: If you are saying that this cannot be done unilaterally, do we take it from that that you are one of the big promoters of the fossil fuel non-proliferation treaty, which is precisely an international framework to ensure that companies globally are accounting? The trouble is listening to you give evidence to us today, we can imagine many other companies in many other jurisdictions around the world all saying, “We can’t do this because we don’t have a global way of doing it”. What are you doing to support the moves that are afoot precisely to put in place a global way of accounting?
David Bunch: I think that we have been one of the very early adopters of TSFD. In the greenhouse gas protocols we were recently awarded gold standard. As you would imagine, we have an extensive climate change set of professionalism and expertise in the company that is working very hard to try to make sure that these standards are operationally appropriate. That is what we can do with our great experience and reach across the company.
Q271 Caroline Lucas: What you could do is put your weight behind the global initiative that many countries now are promoting, what is being called a fossil fuel treaty or a non-proliferation treaty. It is basically a global framework that will begin to ensure that we get down emissions overall. What else is your answer to the fact that the UNEP global production gap report shows that we are on course at the moment, if we follow the trajectory that we are on, for double the amount of carbon emissions to be emitted into the atmosphere by 2030 than is compatible with 1.5oC?
David Bunch: It may surprise you, but I am entirely in violent agreement with the need to move faster, to move quicker, to accelerate renewable power generation.
Q272 Caroline Lucas: Why then is Shell putting such a small amount of investment into renewables?
David Bunch: I think that 75% of our budget over the next decade is not an insignificant amount and, frankly, I think it is the largest statement of investment in renewable infrastructure in the UK that has been made. We cannot, for example, stimulate hydrogen demand in heavy trucks without the right environment and stimulus on the demand side to create the market, and that is what is needed.
Caroline Lucas: Let me hear from Louise Kingham.
Louise Kingham: To build on some of those comments, we are very supportive of the climate compatibility checkpoint. Having a dynamic tool like that every time there is consideration of do we do anything further in licence rounds to bring the climate objective to the top of the list and have that sense check is absolutely the right thing to do. The company is of that mind very quickly.
Similarly, you can see how tests 1 to 4 are workable. The call for a little bit more thinking about 5 and 6 is just thinking through whether there is a question of potential unintended consequences of trying to have a checkpoint in a set of tests that refer to the UK that obviously bring in international or global measurement that might somehow then have unintended consequences for the UK, for the wider economy and so on.
Q273 Caroline Lucas: What would be your alternative? If we take the starting point that we are on course to be emitting twice what we should be in compatibility with 1.5oC globally, what is your solution for the different jurisdictions that are working within that?
Louise Kingham: Of that global 40%, we will be spending 15% to 20% of our capital in the UK, akin to the kind of numbers of investment that are being talked about here. The biggest barrier that we have to accelerating that and getting the low carbon that will bring down our emissions, full stop, is the pace at which the ambition is being practically delivered, and that is our biggest challenge. To Tessa’s point about the fantastic ambition that we have, that is the real barrier to progress. What is more important, if we really want to transition as quickly as possible and, therefore, not even need a climate compatibility checkpoint exercise, we need to get on with the delivery and have the policy frameworks on the low carbon side that are in tune with any other measures that we put around the UK and the North Sea in particular.
Q274 Caroline Lucas: Rewinding back to some of the questions that Barry Gardiner put at the beginning of this session, if you have a Government that are massively subsidising fossil fuels and offering things like an investment levy to fossil fuels but not to renewables, how will we move to this lovely world where you will be able to have that chain of renewables to rely on?
Louise Kingham: I think that Barry made the point in that conversation earlier where we were talking about the vast reduction in the costs of, say, solar and wind that we have seen in the last decade, which is just fantastic. We talk about the energy system being very long term and slow to evolve, but some things can happen really quickly and be quite transformational just like that. I think that the challenge is you can see that that is the real cost and there is an opportunity there, but it is taking us still 10 years to get the blades turning from investing in a piece of seabed and it is not the answer.
Q275 Caroline Lucas: It is not enjoying these investment levies and all of the subsidies. You are investors. You cannot on the one hand be arguing for all the different subsidies that the fossil fuel industry gets and which renewables do not and then wring your hands at the fact that we are still not seeing enough investment going into renewables. It just seems completely—
Louise Kingham: No, sorry, Caroline, I misled you in what I said. I don’t think it is about the lack of investment. The investment is there and ready to be spent. It is the pace at which the policy framework around that investment to get it spent is not in play. For example, if you look at the Dutch model of offshore wind, you enter an auction, everything is pre-permitted, so you are up and running from winning that auction within two to three years. It takes us 10 in the UK. That is the stuff that we have to unlock. When you look at the British Energy Security Strategy, with all of the fantastic ambition that Tessa was referring to earlier, it is those pragmatic, basic things. It is not so much about the financials. It is all of that stuff where we are very anxiously saying, “Please can we go faster because we want to get this done”.
Q276 Caroline Lucas: Thank you. That is helpful. I will go back to David Bunch for a moment. You have made a good play about how you violently agree with the fact that we need to be making a transition to a greener economy. Why is Shell appealing against the ruling in the Netherlands court that it must reduce its carbon net emissions by 45% by 2030? We have touched on this already, but if you are in such violent agreement why are you disagreeing on that?
David Bunch: First of all, we very much agree with the sentiment of accelerating, which was in the agreement, but there are two components to the court ruling. One refers to scope 1 and one refers to scope 3 and a reduction places a responsibility on Shell to reduce each of those by 45% by 2030. Scope 1, which is operational emissions, is very much in line with our strategy and, in fact, our strategy and our commitment is 50% reduction by 2030 and scope 2. Not only scope 1, scope 2, so it goes further than the court ruling. The component of the court ruling that we appealed against is the scope 3 requirement. As I mentioned before, scope 3 is to hold one company accountable for scope 3 emissions globally in jurisdictions that perhaps in less progressive parts of the world will have far less energy transition incentives in society to promote electric vehicles. We think that to try to place that burden on one company is counterproductive. The only mechanism by which you can effectively do that to reduce your scope 3 is to divest those customers.
As I mentioned before, I genuinely believe that we are intending and committed to decarbonisation. If we divest those businesses and those customers, perhaps the transparency doesn’t exist and the demand still stays there. It is no better for the planet and that is the component of the ruling that we are appealing against.
Q277 Caroline Lucas: I want to come to Tessa Khan for her reflections on the court case and the defence that you have just given but also perhaps on the extent to which she thinks there could be implications for wider climate mitigation as we are seeing with what happened with the Dutch Government and also what happened a day or so ago here in the UK with the net zero stuck at 2oC.
Tessa Khan: In short, the legal basis of the decision against Shell in the Dutch court would apply to any oil and gas company that has a gap between its stated climate policy and a purported commitment to the Paris agreement’s climate goals and production plans that are inconsistent with that. The idea that it is a requirement that only applies to Shell is simply untrue. All oil and gas companies are on notice that they are legally vulnerable as a result of that court challenge and, indeed, there are challenges in other countries in the world against oil and gas companies. It is not simply Shell being picked on while other oil and gas companies get off scot-free.
The point that I made before applies equally to the idea that Shell should not be the only company in the world that is held responsible for the products that it sells in countries when there is still demand for those products. As I said, we have committed globally to radically reducing our consumption of oil and gas. It is the only way that we can stay below 1.5oC, so that demand will drop and every company in the world will be subject to that changing marketplace if Governments follow through on their legally binding commitment to keep global warming to 1.5oC.
The other point that the court made quite emphatically is that companies like Shell shape the demand for their products. It is not just a market responding in a completely neutral way to oil and gas. They advertise, they provide the transport infrastructure, they create demand in so many ways and limit the choices that are available to consumers for alternatives. There is real responsibility that the court recognised there and I think that applies across the board.
Q278 Clive Lewis: Linda, I will start by asking you how much your company has invested and is planning to spend on financial support for training and reskilling of your workforce for the so-called just transition so that they can move into more sustainable sectors of the economy.
Linda Cook: I am sorry, I don’t have that number now, but all of our people today are mostly employed in supporting our oil and gas operations in south-east Asia and here in the UK.
Clive Lewis: You cannot give me a figure on how much you are investing in—
Linda Cook: It would be small because we need all the people we have to do the jobs at hand today.
Q279 Clive Lewis: Okay, that is interesting. I will move on to David because that is a very interesting answer. Thank you.
David Bunch: I do not know the exact pound amount, but I can tell you that we have very recently committed £100 million not to training but to working across the country with academic institutions to help with reskilling in certain disadvantaged and underprivileged areas as part of our overall commitment to reskilling. I can revert back with the training amount that we put today but just as an example, as I mentioned, Aberdeen is an energy hub. The skills, competencies and supply chain experience that we have in Aberdeen is now being fully deployed towards offshore wind development, which is a huge advantage. It is also being deployed very much in CCUS where there are very common skills.
Q280 Clive Lewis: You cannot tell me the figure that you are investing in supporting those workers to train in offshore wind and carbon capture and storage? At the moment I think that virtually all of the workforce in your collective industry have to pay for their own training, which is an annual event because skills change and develop quite regularly and frequently. One of the things that workers have explained to us and unions in our surveys is that they are paying for their own training. That is an industry standard but I wondered whether that was going to change or whether there was any plan for yourselves as employers to start to invest in them and help them move into the sustainable sector.
David Bunch: Absolutely. I cannot give you the number right here but I can give you the commitment, and the commitment is live to retrain those folks.
Louise Kingham: I do not know the number throughout the entire organisation. I don’t even know if we collect it that way. I can check for you and follow up. But similar to David, in all of our low-carbon projects and also the ones we have today, our staff are trained and equipped, which we are paying for. We are not expecting them to pay for that. We have already started Aberdeen to Teesside from oil and gas to carbon capture and storage and hydrogen production. We have already identified and started to map the skills and the criteria to get from A to B. It is not a huge journey for quite a bit of the transition. I think the last time I gave evidence on this was before I joined bp. Caroline asked me about an environmental just transition for the oil and gas industry and we talked about that quite extensively.
We also have people who not only will get trained and supported but place and community will be better because they are working offshore in Aberdeen but they live in Teesside. If we can transition the people to different places, there is a bunch of other benefits beyond the training ones. I will give you another example. We advertised for 100 hydrogen jobs and 100 wind jobs. We got an overwhelming number of applications internally but we also had 10,000 applications from outside the company, which is fantastic. We just need to create more jobs and more opportunities to make use of that.
I don’t know quite where your evidence has come from, but certainly in my short time in bp I am not reading that as the experience. I think that there is a big investment in training, development and learning and a very clear focus on transitioning our own team members from one place to another but also managing that over time because we need to be doing all of these things.
Q281 Clive Lewis: Would you say that you are the kind of gold-plated industry exception?
Louise Kingham: I don’t know that I have the evidence to say that, Clive. It would be nice if I could but I think that we are certainly very focused and mindful about it and putting a lot of effort into it.
Q282 Clive Lewis: Unfortunately, the Secretary of State was otherwise detained from being able to attend today but I would have asked him whether there will be potentially more support from Government in this area. Linda, do you think you need more support from Government? It sounds like you do. Do you need more support from Government to be able to retrain and reskill your workforce?
Linda Cook: As I listened to my colleagues, I realised that a lot of our employees already have the skills that will be applicable as the transition progresses; for example, pipeline engineers, offshore engineers, mechanical engineers, fluid flow engineers, accountants, and so on. A lot of these skills are completely fungible.
Q283 Clive Lewis: Each worker is paying about £1,800 a year on average for their training every year.
Linda Cook: We provide a lot of training for our employees in internal and external training programmes. I cannot tell you today what percentage of it is paid for by the company and we can provide that information later.
Q284 Clive Lewis: Would Government support assist?
Linda Cook: I think that any Government support that helps accelerate the transition will be useful.
David Bunch: I think with some of the training—for example, the BOSIET training, offshore health and safety training—the Government could perhaps think about the transferability with the regulator so that you are not effectively doing the same training course for a different application, if you know what I mean.
Louise Kingham: To come back quickly, I do not think it is money. For example, if there was a national skills strategy in the Department for Education that said, “We are going on the journey to net zero, so these are the skills that UK plc requires”—it is for companies to source it, but if we had that set out it would drive the education system to give you different outcomes. The courses that would prop up the learning and development that we require as resources to use and to buy to do the training and education would pivot towards the market requirement. If the UK wants to excel in certain areas, we see that as a national effort and companies could respond to that demand.
Q285 Clive Lewis: That is not happening yet, is it?
Louise Kingham: No, it doesn’t exist. We asked for it some months ago. We said that we thought it would be a fantastic way forward, not least because I think that a lot of the educators are scrabbling about wondering what is needed while business in parallel is working it out. It is a little bit about the point where we are, but I think that could be really helpful.
Q286 Clive Lewis: I will stay with you, Louise, for the next part of my question. You are one of the biggest UK players in the oil and gas industry. Are you content with the North Sea transition deal?
Louise Kingham: We are supportive of it for sure. It sits alongside a number of other sectors that are there and we have a regulatory environment in the UK that I think the rest of the world looks to as being pretty good. We can always do better. I think it helps an entire sector to get on board and go in a particular direction. There will probably be some companies that take more of the weight and the responsibility than others but that is probably proportional to the contribution that they can make to it.
Yes, we are supportive. We recognise it for what it is, completely understand it is voluntary, but we are very much behind it. With our own progress, for example, in the last three years since 2019 we have taken out 28% emissions reduction against the 50% that is in the transition deal and our own global target is 50%. We are very supportive.
Q287 Clive Lewis: I am not surprised to hear that you are supportive. The recent Freedom of Information request that we have seen showed that as an industry you wrote the deal and that also included the carbon reduction bit we are talking about. It is not the burning, refining and the end product that gets used; that is not what we are talking about. We are talking about your own industry’s ability to extract from the North Sea and the amount of carbon you utilise there by taking it out. Does that not sound deeply cynical to the public, that when you are talking about the reduction of carbon as an industry, you are actually talking about the fact that you are building renewables to extract more oil and gas from the ground and to add to the amount of carbon going into the atmosphere, not to reduce it? I am not surprised, I suppose, because you guys wrote that deal. Can you not see the cynicism from the public on that issue?
Louise Kingham: I was not part of it because I had not joined the organisation at the time, but I had observed from being in another bit of the energy sector that you had automotive sector deals, offshore wind sector deals, a nuclear sector deal. The transition deal was not the first and I suspect won’t be the last. The nature of all of these is that they are co-written with a sector that needs to move and the Government or the regulatory authorities that are around them. I hope that you are seeing in those conversations that you have your regulators and your Government continuing to push you to raise the bar as the industry, because that is the whole point. The signal to me was it was a sector deal in conversation and it became a transition deal at the end, and I think that is positive—can we do more?
Q288 Clive Lewis: I think the public would see it as marking your own homework, frankly, and there will be a deep level of cynicism at the fact that when you talk about reducing the amount of carbon that you are producing, you are talking simply about your own sector’s use of energy rather than the end product coming out, which is the oil and gas. I am afraid to say that allows individuals such as yourself to go on to the media saying, “We have a plan for reducing our carbon output” when actually you do not. You are talking about, as we know with Jackdaw, increasing the amount of carbon that goes into the atmosphere at a time when we have just gone through the hottest day on record. Frankly, you should be feeling the heat, not the public.
Louise Kingham: The figure I quoted you of 28% is scope 1 and 2 and the idea of electrification for a net zero basin that you are referring to, for renewable power to electrify the platforms, is just one dimension to the portfolio of investments that we are making. While we need oil and gas and it is an economic opportunity and a security opportunity in what the Government strategy wants to see happen here, it is an important part of getting to that next level of how can you take the emissions out. To your point, we should be doing it all.
Q289 Clive Lewis: Tessa, would you like to give us a very brief overview of where you see the North Sea transition deal and whether it is marking its own homework?
Tessa Khan: Yes, certainly. I think the most obvious indicator that the North Sea transition deal is insufficiently ambitious—which as I said is a finding of the Climate Change Committee—is that it requires fewer emissions reductions from the sector than the country as a whole is expected to achieve under the Government’s own targets for emissions reductions in 2030 and 2035. In 2030, the sector is expected to reduce its emission by only 50% whereas for the rest of the country that is 68%, so that is clearly too little.
As we have heard, it is also a voluntary deal, so there is no sanction, there is no real incentive to decrease emissions in line with the deal. According to Offshore Energies UK, the industry body’s own projections in the energy transition outlook from last year, it is expecting an increase in operator emissions from the sector from 2021 to 2023 if all of the proposed projects that are currently up for approval are approved.
I also think that it is quite important to make the point that we have heard a few times about the relative cleanliness of UK production from the North Sea compared to other places that we might import our oil and gas from. Let’s just say that the UK’s production is very average when looked at from a global perspective. Norway is our biggest import partner, where we get the vast majority of the gas that we import into the UK, and its carbon intensity per barrel of oil is 7 kilos. In the UK we are at about 21 kilos and the US is at 11 kilos. There are practices that have been outdated for decades in Norway, like flaring, which continue to be allowed in the UK. It is clear that there is a lot further that we could go to clean up upstream emissions, if that is what we are talking about, in the UK. I will leave that there.
Q290 Clive Lewis: My final point is that I always think that on these big issues of politics and business we are looking at things from an institutional and structural perspective, never a personal perspective. In The Hague last year there were moves to perhaps bring in a fifth international crime of ecocide to go alongside things like war crimes and genocide. That could mean senior oil executives potentially ending up in The Hague and doing time at a future date. Have you considered that and what do you think about that? I think when we look at history and history looks back on this period and we look at the ecological and climate catastrophe that is unfolding in part because of what your companies are doing—I wonder how you reflected on those moves in The Hague. It is a general comment.
David Bunch: I don’t think there is a day that I wake up without thinking how do we go quicker, how do we go faster. I would say that pretty much every colleague I have, and I am sure across the table, feels exactly the same way. I am very comfortable, I think we do incredibly important work. It is vital to the energy system and, with all due respect, it will be companies like Shell and bp, which have the project management, the financial muscle and are prepared to provide the transparency, that will be able to get this enormous transition accomplished.
We have talked a lot about gas and the North Sea. I think we are seeing the alternative play out. Yes, Norwegian gas is very clean, but unfortunately the gas markets globally are being completely rewired and we know what is happening in those markets and what is filling them is not Norwegian gas. It is LNG, which has a significantly higher footprint. It may not be palatable, but consistent again with the balanced pathway that the Committee for Climate Change has outlined, we are still well below that demand level. For stability of a just transition, a course of action that focuses on acceleration of renewable power, a lot more focus—where I very much agree with Tessa is on demand and efficiency but then we need the stability of baseload consistent with the Committee for Climate Change pathway to net zero through this prevailing period. The IEA itself stipulates and models that we need $350 billion worth of investment a year in current oil and gas production to maintain that transition, not in frontier but in current, and that is a nuance that is sometimes lost.
Louise Kingham: To add to that very quickly, because I am conscious you are probably looking at the clock, given the time has run on, I am not a lawyer so I have not been following that particular example. I did nearly three decades in the not-for-profit sector before coming into bp and if I didn’t think bp really meant what it was up to, I would not have joined the company to try to help and make a contribution. I think that is the case for a number of our companies today. I can only speak for ours but I think that we have to recognise that there is an awful lot to do and we need to do it in concert. No single company, no single sector can do it in isolation.
Chair: Thank you very much. As you say, we have taken up a lot of your time. The last quick questions are from Chris Skidmore.
Q291 Chris Skidmore: I want to end on a constructive note. You have all talked about going further faster. You have talked about committing to the balanced pathway. As Tessa mentioned, with the North Sea Transition Deal there is an emissions gap of about 18%; 50% versus the balanced pathway of 68%. Do you all commit today that you would be happy to up that to 68% instead of 50%? Does that make sense; 68% should be your positive commitment and you would be happy to do that?
Linda Cook: I cannot commit to that today but I can commit to maintaining the goals we have already set within Harbour Energy, which are more aggressive in general than the North Sea Transition Deal.
Chris Skidmore: On the deal specifically, not about your company.
David Bunch: Yes. Inherent in the deal is electrification. If we electrify, it is 100%, so I think we are arguing over—
Q292 Chris Skidmore: No, I have to pull you up on that point. The Committee on Climate Change, which you have spoken positively about committing to its balanced pathway—you have said it several times—said in its progress report, and it came here to us last week, that there are no credible plans for the electrification of oil and gas platforms at the moment. You will have to address the CCC progress points but 68% would help to deal with that.
David Bunch: There is no 50% if there is no pathway to electrification and we are committed towards electrification. If you get to electrification, you go well past 68%.
Q293 Chris Skidmore: The balanced pathway is 68%, so you are happy today to commit to 68%?
David Bunch: I am happy to aspire and commit that we will do everything we can to get to 100%.
Louise Kingham: Whether it is 50%, whether it is 68%, it is about electrification and all of our organisations are working really hard to work out how to do that.
Q294 Chris Skidmore: Like net zero, it is quite important that you have a recognisable target you can work to and there is quite a big difference between 50% and 68%. The CCC commitment for a balanced pathway is 68%. Are you happy with following that?
Louise Kingham: I think what we are trying to convey is that the answer to that is electrification and all of our organisations, and others who are not here today, are working in partnership really hard now to try to crack that and get to that answer as quickly as we can. It is not economic as we sit here now, it is difficult to do, but we are working really hard to try to see how quickly we can get there.
Q295 Chris Skidmore: My final question is on methane. The methane action plan is part of the transition deal and we have had the methane pledge set up in Glasgow. Emissions reduction on methane is 50% in the transition deal, yet flaring and venting is still permissible over the next decade at least. We know that is contributing to about 40 kilotons of methane, yet this is a voluntary deal. Non-emergency flaring of methane has been banned in Norway since 1971. Would you be happy if I brought in a Bill in Parliament to ban flaring that was supported cross-party that you would be able to back that? It makes sense; if it has been banned in Norway, surely it should be banned in the UK as well.
Louise Kingham: I prefer getting on with the job as opposed to compliance and we are already doing it.
Q296 Chris Skidmore: But getting on with the job has not worked because flaring is still happening.
Louise Kingham: We are already making big reductions. That 28% reduction in the North Sea I talked about earlier is largely flaring reduction activity alongside some other operational efficiencies that we are doing.
Q297 Chris Skidmore: Legislation would be useful, like in Norway. Why can’t we be like the Norwegians?
Louise Kingham: I can’t speak for the entire sector. I am just saying that the answer from bp is that we are getting on with it anyway.
Chris Skidmore: You can speak for your company; you can speak for bp.
Louise Kingham: We are also using drones and other technology for getting the methane down. We have a sector-wide voluntary methane partnership where we are looking to improve the ways in which we can do that all the time. It is happening, it is absolutely happening.
Q298 Chris Skidmore: You have so much positivity about what you would like to see happening but when I suggest potential solutions you are pushing back on it a bit.
Louise Kingham: I am not pushing back, just simply saying that from my point of view I already see it in action.
Q299 Chris Skidmore: We could have a legislative target in place that means that just like with petrol cars this has to stop and why not have legislation like in Norway? It makes sense, doesn’t it, David?
David Bunch: I don’t know if that is the best use of legislative time. To go back to your example about—
Chris Skidmore: Methane is 54 times more powerful than carbon dioxide.
David Bunch: I am not diminishing the impact of methane. It is incredibly important and we are getting on with it. I am talking about the relative importance of getting things done and where legislative action—
Q300 Chris Skidmore: But there are Private Member’s Bill slots where there will be opportunity to have legislative time, so it seems like a good potential slot. Could we count on your support, maybe, Linda?
Linda Cook: First off, methane is a very small part, less than 5% of the total emissions in Harbour Energy, and we have already signed up to commit to stop all routine flaring by 2025.
Q301 Chair: I have two very quick final questions for the companies. Could you confirm how you are monitoring and verifying production emissions? Are you doing this through modelling or actual measurement?
Linda Cook: I think that more than 90% of our emissions are through actual measurement and they are independently verified.
David Bunch: Yes, similarly, and independently adjudicated.
Louise Kingham: Yes, internally and then externally audited on the back of measurements.
Q302 Chair: Thank you. I have a quick question for Tessa. We did not ask for your view on the energy profits levy and the investment allowance. Would you like to give me a very quick headline of what you think about it?
Tessa Khan: Certainly. I think it is a subsidy. That is not just my view, it is also a view shared by the Institute for Fiscal Studies, which says that the levy will operate to make otherwise loss-making investments profitable. I also think that when the Government introduced the energy profits levy to claw back some of these exceptional profits to be able to offset people’s energy bills, we are forgoing, as a result of the investment allowance, £1.9 billion that could be used to insulate 2 million homes, for example. The Jackdaw gas field, which we have heard about today, will benefit from effectively having £210 million taken off its tax bill as a result of the investment allowance. That is again money that would otherwise be going to protect people from an historic energy affordability crisis. I think it is a mistake.
Chair: That concludes our hearing. I thank our panellists, Linda Cook from Harbour Energy, David Bunch from Shell, Louise Kingham from bp and Tessa Khan from Uplift, very much for joining us and for being willing to stay to fill in for our second panel who were not able to be here.