Written evidence submitted by OEUK (HCC0023)
Hydrogen and carbon capture in Scotland
Response to Scottish Affairs Committee Call for Evidence
Introduction
Offshore Energies UK is the leading trade body for the UK’s integrating offshore energies industry. Our membership includes over 400 organisations with an interest in offshore oil, gas, carbon capture and storage, hydrogen and wind. From operators to the supply chain and across the lifecycle from production to decommissioning, they are safely providing cleaner fuel, power and products to the UK. Working together with our members, we are a driving force supporting the UK in ensuring security of energy supply while helping to meet its net zero ambitions. We work on behalf of the sector and our members to inform understanding with facts, evidence, and data, engage on a range of key issues and support the broader value of this industry in a changing energy landscape.
The oil and gas sector are fully aligned with supporting the UK achieve net-zero by 2050, having developed its own Roadmap 2035[1] in 2019 and emission reduction targets for the sector in 2020[2]. The sector recently agreed the North Sea Transition Deal (NSTD)[3] with government setting out the role of the sector in reducing emissions from oil and gas production and in delivering the objectives on CCUS and Hydrogen as set out in the Energy White Paper and the Prime Minister’s Ten Point Plan. Many of our members are key investors and developers for Hydrogen projects including both those supported by carbon capture and electrolysis (i.e. “blue” and “green”) amongst other production pathways.
To what extent are the ambitions of the UK Hydrogen Strategy, published August 2021, adequate for Scotland?
OEUK and the wider offshore energy sector welcomed the publication of the UK’s much awaited Hydrogen Strategy, which provides a clear long-term signal that government is committed to building a world-leading UK hydrogen economy and sets out how it will work with industry to achieve this. Our sector is already committed to delivering objectives on Hydrogen and Carbon capture and storage (CCS). Many of our members are key investors and developers for Hydrogen projects across a number of production pathways. Through collective working from industry and Government, with the North Sea Transition Deal at its core, it is possible to build a sustainable future and help to deliver on the climate change solutions that are needed, unlocking billions of pounds of private investment.
Hydrogen and CCS cluster projects are key to the UK’s ability to achieve its target of net zero emissions by 2050 and need to be scaled at pace. However, we should also recognise the need to maintain parallel systems of investment, in both reducing emission intensity of oil and gas production, scaling CCUS and Hydrogen opportunities and increasing renewable coverage to ensure security of supply as we transition to net-zero. The integration of the energy system is essential to ensuring the UK drives down its emissions, whilst providing the power needed for homes and workplaces.
What should be the focus of UK Government investment to ensure that Scottish industry, supported by Scottish research, is able to become a world leader in green hydrogen for domestic use and export? AND Which market mechanism should be used to incentivise investment in producing low-cost green hydrogen?
The long-term growth of hydrogen will be supported by commitment to both “green” and “blue” hydrogen including other low carbon production pathways. There is a need for an economy wide, long-term policy framework to incentivise investment at scale right across the energy sector. The interaction between public and private investment including governments commitment to mid-long term business models will be key to delivering this. Investment in infrastructure must allow for a range of technology options to be developed and to support reliable delivery of services during the transition.
Specifically, from a research and development aspect, OEUK recognise that a range of innovative technologies, that could be crucial for decarbonisation, will struggle to mature to commercialisation with many ideas failing to progress through the middle Technology Readiness levels. Ensuring continued recognition for the role of R&D throughout the scaling of low carbon technologies will be key in addition to the wider commercial policies. In addition to wider business model work, long term consideration should be given to how the balance between R&D expenditure could be optimised to promote effective development strategies, including supercharging development expenditure for the benefit of scaling innovative ideas to the point of commercialisation.
Wider commercial experience with renewables has demonstrated the advantages of a government backed contract over alternatives such as a supplier obligation. For renewable electricity, the producer focused CfD is generally accepted as having performed better in terms of attracting a wider range of investors and increased competition compared to other structures. In addition, the interfaces with the retail market created by the renewable obligation certificates (ROCs) and other interventions are now seen as detrimental to competition and consumer interests.
A contractual producer-focused model is essential to achieve deployment of Hydrogen at scale and attract new investment quickly into the sector in the initial phases. Concentrating on production and availability of Hydrogen is important to demonstrate hydrogen applications and give users more certainty going forward about availability. It therefore helps address some of the “chicken and egg” issues related to Hydrogen deployment. However, this does not mean that government can completely neglect the demand side and action is required so that both sides of the market can be developed in parallel.
What infrastructure, and investment in infrastructure, is needed for green hydrogen to be easily available for heavy transport and buses across the whole of Scotland?
Whilst we have no specific comments on infrastructure for heavy transport and buses, it is important to note that wider investment in infrastructure to support hydrogen is key. The long-term growth of hydrogen will be supported by commitment to both “green” and “blue” hydrogen including other low carbon production pathways. Ensuring a reliable supply of hydrogen will encourage more fuel switching and establish a virtuous circle creating growth in the sector and alleviating the various coordination market failures which in turn will be critical for the scaling of the usage of hydrogen such as in heavy transport and buses.
What role should the oil and gas industry play in achieving a “just transition” to blue and green hydrogen in Scotland?
The oil and gas industry has an important role to support the development of a hydrogen market at scale and this is a central element of the North Sea Transition Deal. Scaling the hydrogen market, initially through methane reformation, will create space for the green hydrogen sector to develop as more and more renewable electricity generation is added to the system. The oil and gas sector are at the heart of that, already putting skills and resources to work to support and deliver this. Reliable supply of hydrogen will encourage more fuel switching and establish a virtuous circle creating growth in the sector and alleviating the various coordination market failures.
As well as the business models and certification requirements being developed by UK government there is a strong role for devolved government and local initiatives. For example, progress is needed on the complementary interventions such as local transport efforts, trials with industrial and domestic heating and in the construction of new infrastructure including filling stations for transport applications. Scottish Government also needs to work closely with UK regulators such as HSE and Ofgem to make sure that obstacles are removed and that new infrastructure can be created on an anticipatory basis to provide confidence to consumers, including local and national transmission and distribution networks.
What training is required to build a hydrogen-ready workforce in Scotland? What is the long-term sustainability of the Scottish workforce for hydrogen power?
It is already clear that the skills the oil and gas industry has today are vital to delivering Net Zero and the North Sea Transition Deal (NSTD) commits the industry to map the skills required for the transition with an integrated People and Skills Plan.
To sustain a robust and resilient supply chain, and mitigate gaps in labour supply, it is vital that we maintain investor confidence and encourage an increased and sustainable level of activity. Continued support for the sector and its vital role in delivering the energy transition plays a key role in this.
The Robert Gordon University Energy Transition Institute is working with the OEUK NSTD team to model
employment figures from now to 2035 in CCUS, green and blue hydrogen and electrification of offshore facilities. This work is expected to be finalised by the end of Q1 2022 and will complete the picture with figures already in the public domain for renewables. We already know it will take time for the carbon capture and storage and hydrogen industries to develop. It is vital that we have a managed transition to net zero so that the oil and gas industry can continue to help to provide energy security and ensure that the people who are in the workforce today, and the young people who are looking at what opportunities are there for them in the future, can see what positive role and opportunities there will continue to be in a diversified energy industry.
Furthermore, we are prioritising work to align competence and training standards between energy sectors, i.e. renewables, oil and gas, CCUS, Hydrogen. This work, chaired by industry skills body OPITO, will reduce duplication of time and cost but, most importantly, reduce barriers to redeployment of people between energy sectors including the development of a ‘skills passport,’ which OGUK fully supports.
OEUK Sustainability Team
March 2022
