Industry Perspectives

UKCS Contribution to Delivering Environmental Targets

Figure 53: UK Energy Intensity 1970-2005

As the economy has shifted from reliance on manufacturing to services and energy efficiency has improved, less energy has been required per unit of output. Overall, the energy intensity of the UK’s output has halved since 1970, with reductions in coal (82%) and oil (63%) intensity leading the way. However, the use of natural gas has increased dramatically with the volume of gas consumed in the creation of every £1 of output having almost tripled since 1970. The use of renewables and hydro-electricity in output creation has more than quadrupled since 1970, but the starting point was so small that even in 2005 only 2% of energy used per £1 output was attributable to this type of energy.

The UK is committed under the Kyoto Protocol and the EU’s burden sharing agreement to reduce greenhouse gas emissions by 12.5% in 2008-12 (as an annual average) compared with its emissions in 1990. Furthermore, it has set its own target of reducing carbon dioxide (CO2) emissions by 20% between 1990 and 2010. As figure 54 below shows, the UK is already meeting the Kyoto objective for emissions (comprising a basket of six greenhouse gases).

Figure 54: UK Greenhouse Gas Emissions 1990-2006

Gas is much less carbon intense than coal or oil and it is also much more thermally efficient in power generation, so the switch to gas for electricity production since 1990 has enabled the UK to record a reduction in CO2 emissions despite a 10% increase in overall energy demand. This major contribution to efforts to reduce emissions of greenhouse gases is also reflected in the emissions intensity of energy consumption which fell by 23% between 1990 and 2006.

Although CO2 emissions have recently been seen to rise, this probably resulted, in the main, from greater use of coal fired power generation during 2005 and 2006, when higher gas prices made coal more economic. Now that gas prices have fallen sharply and with the closure of many coal fired power stations due between 2008 and 2015 on account of the Large Combustion Plant Directive, it is likely that gas will resume its previous growth as a fuel for power production. Its share of electricity generation is forecast to rise from 35% in 2005 to possibly as much as 60% in 2020, and so it can continue to help reduce the UK’s emissions of CO2, but depending on the mixture of gas, nuclear and, perhaps, “clean coal” generation capacity that is built to replace older coal fired and nuclear plant.

The EU’s Emissions Trading Scheme (EU ETS) is now in the third and final year of Phase I. This first phase was always intended as a trial, before the more important Phase II which lasts from 2008 until 2012, the same as the Kyoto period. It is clear that too many allowances were allocated by Member States in Phase I, although not in the UK, such that the traded price of a Phase I allowance has crashed (see Figure 55). However, the European Commission has been taking a much stricter line with Member States’ plans for Phase II (these plans limit the emissions of CO2 permitted by the industries participating in the EU ETS for all Member States). As a result, the traded value of a Phase II allowance, ahead of its commencement, has been in the range €15-20 per tonne.

Nonetheless, the UK would appear to be shouldering its full share of the burden of the scheme and, by comparing practices across the offshore oil and gas industry, it seems clear that the UK is implementing the requirements of the scheme in a more stringent manner than is to be found elsewhere in the EU.

Figure 55: EU Carbon Allowance Prices April 2005 – March 2007

The EU is now considering a third (and possibly further) phase(s) for the EU ETS starting in 2013. It is highly likely that this will proceed, whether there is another international agreement to follow the Kyoto protocol or not. Among the questions being considered in this review are the length of the phase(s), whether an overall EU limit should be set as the starting point for Member States (currently it is built upwards from Member States’ plans), methods for allocating allowances, harmonisation of implementation across Member States, whether other greenhouse gases should be brought into the scheme and the like. This should lead to legislative proposals to amend the Directive being tabled in the second half of 2007, with amendment taking place so that Member States may implement the changes during 2010 in readiness for 2013.

It will be essential that carbon capture and storage is recognised under Phase III, if it is to take its place as a means for managing carbon emissions.