Written evidence submitted by Centre for Energy Policy, University of Strathclyde (NRG0047)
Call for evidence: GB Energy and the net zero transition
Evidence submitted by the Centre for Energy Policy, University of Strathclyde
ABOUT THE CENTRE FOR ENERGY POLICY
The University of Strathclyde’s Centre for Energy Policy (CEP) works with research, government and industry partners to understand and address the pressing public policy challenge of ensuring transitions to mid-century Net Zero targets deliver sustainable and more equitable prosperity. Established in 2014, CEP has a track record of independent, rigorous, multidisciplinary research and timely and responsive knowledge exchange and policy engagement on energy and climate issues in a wider public policy context. Focused on achieving real-world impacts, the Centre has helped shape UK and Scottish Government policy in areas including energy efficiency, industrial decarbonisation, heat decarbonisation and low carbon transport.
Read more at: https://www.strath.ac.uk/humanities/centreforenergypolicy/
RESPONSE
CEP’s response is based on our peer-reviewed evidence generated across a number of funded programmes including the UK Energy Research Centre (UKERC) (1) (where new evidence on the role of state-owned energy companies such as GB Energy is currently being generated and has informed our response), the Energy Demand Research Centre (EDRC) (2), Scotland’s Net Zero Infrastructure project (3) and the Industrial Decarbonisation Research and Innovation Centre (IDRIC). (4)
1. What impact will the UK Government’s approach to net zero have on Scotland’s oil and gas industry?
1.1 The UK Government’s approach to net zero, and how it works with partners such as Scottish Government and industry to achieve these ambitions, will have significant impacts on Scotland’s oil and gas industry. As the global economy ‘goes green’, the UK needs to capitalise on areas of competitive advantage in developing new industries such as offshore wind and Carbon Capture Utilisation and Storage (CCUS) and this must involve utilising the deeply embedded skills, capacity and infrastructure associated with the oil and gas industry which supports significant levels of direct and indirect jobs. (5)
1.2 The UK Government’s approach to net zero must also learn and apply the lessons of the past to ensure a just transition that delivers more sustainable and equitable prosperity across sectors and communities. As CEP’s Net Zero Principles Framework (NZPF) underscores, efforts must focus on avoiding offshoring emissions, jobs and GDP. (6, 7) For example, Scotland delivered one of the most significant reductions in emissions in the 1990s with the end of large-scale steel production. (8) Yet at some cost to local communities which relied on the industry for jobs. (9) Engagement with industry and policy stakeholders suggests that in areas that have experienced such decline, perceptions have developed which could pose barriers to recruitment and local supply chain development for new and emerging industries. (10) These cultural and equity issues will need to be considered in Government’s policy development for the energy transition.
1.3 The decline of the oil and gas industry and how it is managed could have important ripple effects throughout the UK economy. The industry’s complex supply chain has
developed over five decades of operation at the heart of many key industrial regions and sustained significant levels of jobs within and outside of the sector. Our recent research (11) highlights that sectors like construction, services, wholesale/retail and transport may face greater absolute employment losses than the oil and gas industry itself as it declines in the coming years. This must be factored into retraining and upskilling programmes and in managing the freed-up capacity that could be utilised.
1.4 Due to its capital-intensive nature, the oil and gas industry employs vast infrastructural assets (such as pipelines and drilling equipment) both onshore and offshore that should be repurposed to service developing projects like CCUS and hydrogen. The decommissioning of such assets may enable further labour market opportunities and/or constraints, which adds to the challenging dynamics of transitioning the UK economy.
2. What state of readiness is the oil and gas sector in for the net zero transition?
2.1 Private sector actors linked to the oil and gas industry are already exploring and investing in low carbon activities. For example, our research as part of the Ocean REFuel (12) programme is examining the impact of green energy developments on the Shetland economy, which will involve the repurposing of infrastructure such as the oil terminal at Sullom Voe. (13) Our work has also explored the economy-wide impacts for the UK of establishing a new Scottish CO2 Transport and Storage (linked to Carbon Capture, Utilisation and Storage – CCUS – deployment) in which oil and gas industry actors, alongside Government, are also investing. (14)
2.2 The sector’s state of readiness is contingent on policy leadership and action to incentivise and enable investment decisions. Research finds that Government has a critical role to play in enabling firms to capture ‘early mover’ advantage, build efficiencies in the use of new equipment and sustain competitiveness and jobs in regional industry clusters, and can do this through investing and guaranteeing demand as it has done, for example, in the case of CCUS.(15) Government can also help enable the development of new export bases linked to emerging sectors such as CO2 Transport and Storage, leading to more positive jobs and GDP outcomes for the wider economy.(16)
3. Is the scaling up of the clean energy sector keeping pace with the decline of jobs and investment in the oil and gas sector, or does the UK Government need to do more to close this gap?
3.1 Research (17) has highlighted that the gradual decline of the oil and gas sector will free up labour capacity across the economy, including workers with specialised skills. However, this workforce will not become available in the timeframe and in sufficient quantities for new industries such as CO2 Transport and Storage. Appropriate training and reskilling programmes aimed at both oil and gas workers and workers in other sectors will be essential. Without action to address skills and worker gaps, costs to projects and the overall net zero bill could be driven up. (18) Thus, UK and Scottish Governments have a critical role to play to manage the timing and sequencing of projects to mitigate these risks and need to work together closely in achieving this. (19)
4. UK Government interventions will be necessary to maximise the ability of oil and gas workers to find jobs in clean energy?
4.1 The UK Government can provide leadership and put in place policy frameworks to incentivise and support industry, workers and others to act on and access opportunities in clean energy. (20) Initiatives such as establishing Skills England and the Office for Clean Energy Jobs are welcome steps in this process, as is the new UK Government industrial strategy, Invest 2035. A comprehensive long-term workforce strategy is also required. Together these mechanisms need to include commitments to adequate funding, offer certainty around project timelines and incentivise industry and other investment in training for reliable and decent career paths and jobs. This certainty can also assist in overcoming potential barriers to recruitment and attracting new and existing workers to emerging sectors and industries, driving improvements in inclusivity and diversity. (21, 22, 23)
4.2 A workforce strategy must recognise that most jobs supported by the oil and gas industry are indirect. (24) Research (25) shows that some of the employment impacts from the declining oil and gas industry could be in sectors like services and retail, where workers will likely have skills different from those needed in nascent sectors like CCUS or hydrogen. Understanding the nature of labour demand, supply and displacement associated with energy sector and net zero transitions will be essential to effective planning.
4.3 Flexibility around resourcing, including the apprenticeship levy and how it is used, as well as investing in engaging with young people from primary school level to build awareness of a variety of career paths is vital. In addition, more could be done to provide incentives for those retiring from oil and gas to train and upskill new and existing workforces. Thought must also be given to the use of terminology such as ‘green jobs’, which is not always well understood amongst potential recruits, and fails to recognise the numerous roles across sectors that contribute to the clean energy mission. (26)
5. Are Scotland’s energy industry and associated supply chains well-placed to transition to clean energy generation, or is more support needed?
5.1 There is still work to be done to develop Scotland’s energy industry and associated supply chains to deliver clean energy generation ambitions. A coordinated effort between UK and Scottish Governments, industry, workers, unions and other bodies and agencies is required. This needs to be built on a detailed understanding of factors such as the demand for labour and its supply, the potential for displacement of economic activity and jobs and the opportunities that could be leveraged in relation to making use of existing infrastructure and supply chains. Moreover, how all of this is impacted by multiple clean energy projects being developed in parallel. Research can make a vital contribution in developing more standardised approaches to collecting the required data, for example around labour demand and supply. (27, 28)
5.2 Research finds, for example, that clean energy industries such as the Scottish offshore wind sector could be of significant benefit to the wider Scottish and UK economies. However, this contribution could be substantially greater if the projected and potential growth in offshore wind to service both domestic and export markets for green hydrogen and/or electricity is accompanied by the development of a strong and sustainable domestic supply chain, ideally on a par with that established around the oil and gas sector. (29)
6. What actions should the UK and Scottish Governments take to ensure the necessary generation and transmission infrastructure to support the development of Scotland’s renewables sector?
6.1 UK and Scottish Governments must ensure planned and early investment in infrastructure, as this can lead to the most positive economic outcomes. Our research finds that if investments in electricity network upgrades to supply increased demand for electricity are made on a reactionary basis after demand has transpired, the sustained GDP and employment gains would be reduced, by around £500 million per annum and 3,100 jobs. (30) This is a specific issue for Scotland, where infrastructure capacity is most constrained and renewable deployment particularly intense.
6.2 Planned investment will need to be combined with efforts to resolve constraints around planning as well as labour supply. The economic gains of investing in clean power (alongside other net zero projects) are likely to be greater if worker and skills shortages in the UK labour market are overcome. The timing and sequencing of generation and transmission infrastructure projects will also need to be effectively coordinated. This can help avoid congestion leading to costs for projects and the overall net zero bill being unnecessarily inflated, which recent research on CCUS deployment has demonstrated. (31)
7. How can GB Energy most effectively support employment, economic growth and the development of clean energy supply chains in Scotland?
7.1 The establishment of GB Energy and investment in it by UK Government offers positive policy signals (e.g. derisking investments, helping to guarantee demand and ensuring competitiveness etc.) to private sector investors who will be largely responsible for scaling-up activity, driving employment, economic growth and supply chain development relating to clean energy (including nuclear reactors, new battery technology, wind turbines, and solar panels) in Scotland. Research shows that Government spending on net zero and clean energy initiatives can help ‘crowd in’ private sector investment by putting in place the conditions for industry and workforce expansion and providing investor certainty. (32) Moreover, research on state-owned enterprises (SOEs) in the energy sector suggests that hybrid private and public sector models effectively drive innovation in technology and market development more than purely private or public approaches, as the former is characterised by adequate research and development capacity. (33)
7.2 GB Energy can support expansion of clean energy technology generation, distribution, storage, and supply in Scotland through clean energy clusters (existing and new). For instance, the Cromarty and Moray Firths in Scotland, as the leading floating offshore wind cluster in Europe (34) offer existing potential for GB Energy to invest in increasing floating offshore wind capacity at lower cost than elsewhere in the UK. Such clusters have proven particularly effective in attracting international investment (35), which is an essential driver of local GVA, attracting and developing high-skilled labour, and expanding the supply chain in the clean energy sector. Research highlights that regions with established clean energy clusters have experienced employment growth rates 2.5 times higher than the national average. (36) In this regard, CEP research has shown that further capacity investment in Scottish CO2 Transport and Storage linked to the Scottish CCUS network enables not only the expansion of the Scottish economy but also a larger expansion of the UK economy and the creation of more jobs in the sectors linked with the operation of the Scottish Transport and Storage industry. (37)
7.3 Scotland's low-carbon sector employs over 46,500 skilled individuals, supported by a talent pool from the 101,400 employed in the oil and gas industry and 20,000 students pursuing engineering and technology degrees. (38) GB Energy could dedicate funds to support more investment in local skills development in Scotland, emphasising upskilling and reskilling labour in the oil and gas sector. (39) This could involve working with technical, academic and other partners. Consideration should also be given to how Scottish firms of all sizes can be included in procurement activities, this building capacity and developing the local energy supply chain.
7.4 GB Energy needs to work closely with UK and Scottish Governments, industry and others to understand the impacts on the wider Scottish and UK economies and on taxpayers, households and businesses of these projects depending on how they are funded, their timing and other factors such as skills and worker shortages. Recognition of the impacts on indirect as well as direct jobs and supply chains will be vital. (40)
7.5 Even if GB Energy delivers large quantities of renewable electricity, the challenge to help consumers, transport and industry transition to electricity remains. For example, for households less able to pay for new low carbon electrified heat solutions (where most policy focus is on heat pumps), government support will be vital to avoid them being stranded on gas heating that becomes increasingly more expensive. Thus, efforts led by GB Energy need to go hand in hand with action such as the Warm Homes Plan, on social tariffs and tiered standing charges and bringing the cost of electricity down through processes such as Review of Electricity Market Arrangements (REMA). (41) Action that spans UK and Scottish Government remits.
8. How should GB Energy work with the Scottish Government and other Scottish bodies?
8.1 The agreement between the UK and Scottish Governments regarding GB Energy and developing supply chains and infrastructure signed in 2023 is an important step forward regarding collaborative working. Extending this coordination and joined up approach to other devolved nations through mechanisms such as the Council of Nations and Regions, and including local government, will also be essential. This can support successful planning around managing costs and risks and ensuring appropriate levels of benefits to communities, as well as providing the necessary policy signals to industry, not least to secure private investment.
9. What does a just transition look like for workers and communities across Scotland’s highland and island communities, and what role might community energy play in this?
9.1 Scotland’s highland and island communities have a vital role to play in the energy transition due to their geographical location, natural advantages and the fact that they already host the oil and gas industry, as well as newer industries such as offshore wind. CEP is currently exploring what green energy developments such as the redevelopment of the oil terminal at Sullom Voe will mean for the Shetland economy and research due to be published later in 2025 will offer important insights. Both on the potential economic benefits (jobs, GDP) as well as the challenges that will need to be managed such as a very constrained labour market, increased pressures on infrastructure and the need to ensure that the benefits are sufficiently distributed and experienced amongst communities. (42) Working closely with local governments and communities in these areas will be critical.
10. Can the UK learn lessons from international examples about how to effectively manage Scotland’s energy sector transition?
10.1 The Michelin Scotland Innovation Parc (MSIP) in Dundee offers interesting lessons around how a public/private partnership, international in scope, can support the transition of an area to support sustainable energy outcomes with potential economic and other benefits for the local community. The Parc includes the MSIP Skills Academy provides training for learners at all levels in green industry courses in collaboration with colleges and universities. (43)
10.2 Ensuring a skilled workforce will be a vital aspect to enabling an energy sector transition that is just and delivers sustainable and more equitable prosperity. There are several lessons that can be taken from other international contexts. For example, in terms of identifying and assessing skills needs, the European Centre for the Development of Vocational Training (Cedefop) has a tool, Skills OVATE which uses online job advertisements to monitor skills trends and labour data. In France, the National Observatory for Green Economy Jobs and Skills monitors the impact of green transitions on jobs and skills and enables matches between vacancies and job seekers. In Italy, environmental and social aspects are incorporate into analysis of local labour market needs, supporting the identification and integration of new skills into training programmes. There are also lessons from countries such as Denmark around the role of social security and welfare systems in supporting workers to reskill and upskill for roles in sustainable sectors. (44)
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44. idem
January 2025