Economic Report 2011

Energy Policy, Security of Supply and the Low Carbon Economy

figure 26 300w jpgThe change of government in Britain which occurred in May 2010 has not in any way detracted from the importance of energy policy and the national (and international) efforts to move towards a low carbon economy, even if in the international arena little, if any, progress has been made. If anything, the coalition government has not simply inherited its predecessor’s policies, but it has built upon them with a series of new initiatives and measures relating to reforming the electricity market and supporting the price of carbon. With the Budget of March 2011, the Treasury published its final proposals for underpinning the price of carbon and, in July, DECC published “Planning our Electric Future: a White Paper for secure, affordable and low carbon electricity”, containing reforms of the electricity market and related energy policy matters.

Currently, oil and gas comprise 75% of the country’s primary energy supplies and this is forecast to decline only slowly during the next 20 years (e.g. to about 70% in 2020). In 2010, production from the UKCS accounted for some 90% of oil and 60% of gas demand by volume, i.e. after netting imports and exports. While UKCS production will continue to decline slowly (it peaked in 1999 for oil and 2000 for gas), with the right investment climate we would expect that it could still satisfy about 60% of our oil and gas demand in 2020 and that production should continue into the 2040s. Therefore, we believe that the UKCS has the potential to sustain its major contribution to the future security of Britain’s energy supplies. The tax measures announced in the Budget 2011 cast some doubt on the extent of this role, although the industry is currently working with Government on mitigating measures.

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