is appropriate to end gas grid being built from 2025, in favour of 30,000 per year to 600,000 per year by 2028, supporting up to workplaces and develop plans for a possible pilot hydrogen town We will increase the proportion of biomethane in the gas grid. We will consult on the role of ‘hydrogen ready’ appliances in We are committing £122 million local authority zoning by 2025. By 2050, emissions from industry will need to fall by around 90 per cent from today’s levels.171 ` Create a sustainable future for UK manufacturing industry through improved energy efficiency and the adoption of clean energy technologies leader in the deployment of CCUS and clean hydrogen , supporting ` Ensure that the transformation of our industrial sectors supports jobs, higher skills and new business opportunities across the country the world’s first net zero emissions trading scheme, and will underpin the decarbonisation of energy in the UK

Manufacturing industry drives the UK economy. In 2018, the industrial sector contributed £170 billion to Gross Value Added (GVA), 42 per cent of British exports and employed 2.6 million people across the country.172 Almost all industry is located outside London and the South East and provides high value jobs across the four nations. 173 Investment in low-carbon technologies and renewing our industrial infrastructure will therefore help level up the UK and promote a green economic recovery. Manufacturing and refineries, which form the bulk of industrial emissions, still account for around 16 per cent of the UK’s greenhouse gas emissions.174 Although emissions from industrial activity have fallen by half since 2000,175 driven partially by greater energy efficiency in industrial processes, the sector will need to achieve significant decarbonisation over the next 30 years. About half of emissions from manufacturing and refining are concentrated in the UK’s These hubs are critical drivers of local and regional economic activity and a vital component of the UK’s national economy. Improved efficiency in the energy performance of buildings and industrial processes will lay the groundwork for the transformation of industrial energy. But we cannot rely on energy efficiency alone to reduce emissions in line with our 2050 goal. Manufacturing industry will need to capture their carbon for onward storage and switch from using fossil fuels to low-carbon alternatives. The successful decarbonisation of industry will mean overcoming a number of obstacles in manufacturing sectors which operate in highly competitive international markets and, in some cases, on tight profit margins. Lowering emissions and adopting clean energy technologies requires capital investment and could impact operating costs. It will be necessary to build additional infrastructure, such as the pipes and storage to transport captured carbon from industrial processes. Long lead-times to plan, design and install emissions- capture technologies, coupled with limited opportunities to undertake construction works, could present further barriers to businesses, even when they wish to act. We will work with businesses to overcome these challenges and deliver the successful transformation of our vital industrial base. Markets are best placed over the long run to implement the most cost- effective solutions which deliver net zero industrial emissions, supported by a long term carbon price signal. But, for now, we cannot rely on market forces alone to see industry through the transition. The UK’s industrial sectors need our continued support, particularly through the initial phase of decarbonisation, in which the risks and costs are highest. Our approach during the 2020s will be to stimulate action, investing in the critical infrastructure which enables the deployment of low-carbon technologies. We will support industry with the costs of improving energy performance and reducing emissions. We will maintain the ability of UK-based companies to compete and win in global markets and ultimately position them to capitalise on new commercial opportunities arising in a global net zero economy. The cost of energy impacts the competitiveness of UK-based industry. We have taken steps to protect the manufacturing sectors which are most exposed to the impact of the UK’s relatively higher electricity prices, compared to other major European markets. In 2019, we provided around £442 million to support qualifying energy intensive industries, including reductions in the policy costs of the transition to renewable electricity and compensation to partly offset the indirect impacts on electricity prices from the European Union Emissions Trading System (EU ETS) and the Carbon Price Support (CPS). In the 2030s, markets will be best efficient approach to decarbonising industrial emissions. Our actions in the 2020s will create the right conditions to enable this transition. `We will publish an Industrial Decarbonisation Strategy in spring 2021 to set out the details of how the government will support the decarbonisation of manufacturing Our strategy will set out a vision for a prosperous, low-carbon UK industrial sector in 2050. Working closely with our partners in the devolved administrations, we will establish how the transition to clean energy will support the UK’s industrial competitiveness and a resilient, green economic recovery, including opportunities to exploit new markets at home and abroad. A low-carbon and more resource efficient economy is not just about transforming existing industries and enabling a long- term sustainable future. It is the basis for new industrial sectors to flourish. It will catalyse innovation for new technologies, boost UK manufacturing and support thriving construction and operations sectors. It is a transformation which can help all the UK’s manufacturing regions to become centres for the production of low-carbon goods. It will enhance long- term regional competitiveness, support a green recovery and insulate businesses from the impacts of a rising carbon price. Domestic action is a platform for the UK’s global leadership on climate change. With our leading role in industrial decarbonisation, we will be able to export technology, know-how and skills to the rest of the world.
If global industry were to reduce emissions by around 70 per cent by 2050, relative to 2012 levels, UK exports of clean energy technologies in 2050 could support around £1.4 billion in annual GVA and support 18,000 jobs.177

`In line with the increased ambition set out in the Ten Point Plan we will increase the Industrial Clusters Mission to support the delivery of four low-carbon clusters by 2030 and at least one fully net zero cluster by 2040. We will start with a focus on the UK’s industrial clusters – centres where related industries have congregated and can benefit from utilising shared clean energy infrastructure, such as carbon capture utilisation and storage (CCUS) and low-carbon hydrogen production and distribution.
Decarbonisation in clusters will enable economies of scale, reducing the unit cost for each tonne of carbon abated. Clusters provide high quality jobs which tend to pay above the UK average wage.178 Transitioning to clean energy will bring opportunities to all four UK nations.
Many clusters are located in regions in need of economic revitalisation and decarbonising those clusters can act as a driver of prosperity for the surrounding areas. Investments in key technologies like hydrogen and CCUS, together with broader interventions, such as through helping people to retrain, will be crucial to enhancing local economic growth and creating jobs.
These actions will also deliver wider environmental benefits such as improved air quality. We will work with local government and businesses to consider how an integrated strategic approach can most effectively be developed to enable local places to capitalise on this opportunity to build back greener.
Supporting the delivery of four low-carbon clusters will enable greater decarbonisation, leading the way for a more sustainable industry. fundamental to the decarbonisation of energy intensive industries such as steel, cement, oil refining and chemicals.
CCUS can help secure industries and enable production `We will invest £1 billion up to 2025 to facilitate the deployment of CCUS in two industrial clusters by the mid- 2020s, and a further two clusters by 2030, supporting our ambition to capture 10MtCO2 per year by the end of The UK is in a strong position to become a global technology leader in CCUS. We have the opportunity to develop a domestic supply chain by utilising the expertise of our existing oil and gas industry.
Innovative start-up companies, spun out of the UK’s world-class academic institutions, are focused on driving cost reductions and creating new UK-based innovative carbon capture technologies. With the potential to store more than 78 billion tonnes of carbon dioxide,179 we can be a global leader in carbon storage services. Deployment of CCUS could create new markets for UK businesses, at home and abroad, as other countries look to meet their emissions reduction commitments. Action now can harness the UK’s strengths in engineering, procurement, construction, and management services, with export opportunities from CCUS estimated at £3.6 billion by 2030.180 The process of capturing carbon dioxide from industrial processes, power generation, certain hydrogen production methods and greenhouse as bioenergy with carbon capture and storage and direct air capture. The captured carbon dioxide is then either used, for example in chemical processes, or stored permanently in disused oil and gas fields or naturally occurring geological storage sites. Tata Chemicals Europe (TCE) are constructing, with the support of a £4.2 million grant from the Energy Innovation Programme, the UK’s first industrial- scale CCU demonstration plant at their site in Northwich, for the manufacture of high purity sodium bicarbonate. The plant will be commissioned in 2021 and will be capable of capturing up to 40,000tCO2e per year, and will reduce carbon emissions at the plant by 11 per cent. TCE exports 60 per cent of its sodium bicarbonate production in the UK to over 60 countries across the globe. The CCU project will be a springboard for TCE to unlock further expansion into its export markets.181

We have created the Carbon Capture and Storage (CCS) Infrastructure Fund to commit the investment needed to realise this opportunity. In his Budget of March 2020,182 the Chancellor committed at least £800 million through the Fund to support CCUS deployment. As announced in the Prime Minister’s Ten Point Plan, we are now raising our commitment to £1 billion up to 2025 to facilitate the UK’s deployment of operational CCUS in four industrial clusters by the end of the decade. This new carbon capture industry could support up to 50,000 jobs in the UK by 2030.183 Developing carbon transport and storage infrastructure will require large upfront capital expenditure, to construct offshore and onshore pipelines and develop storage sites and wells. We will help to put in place this critical network, as the foundation for the scaling up of CCUS across the UK. For the majority of industrial sectors, CCUS is not yet a viable investment. The market currently does not provide a sufficiently robust price signal to make industrial carbon capture viable. In addition, low- carbon products do not attract a price premium, making investment harder to justify without a support mechanism. It can be hard for early investors to fully reap the benefits of learning and innovation which is generated from backing this first-of-a-kind technology. This is why we are designing and implementing a business model to provide revenue support and improve companies’ confidence for investing in carbon capture solutions. We aim to finalise a new commercial framework by 2022. Representation of Tata Chemicals Europe’s Northwich CCU plant

The production and use of clean achieving net zero emissions by 2050. As a gas that can be used as a fuel without emitting harmful greenhouse gasses, hydrogen will be critical in reducing emissions from heavy industry, as well as in power, heat and transport. When heavy goods transport or a process such as steel production relies on fuel for energy, hydrogen can provide a crucial, low-carbon alternative to fossil fuels. `We will publish a dedicated Hydrogen Strategy in early 2021 which positions the UK as a world leader in the production and use of clean hydrogen. Around 95 per cent of global hydrogen production is fossil-fuel based.184 A complete switch to clean hydrogen is required, together with a major increase in production capacity. The UK currently makes up to 27TWh annually.185 The Climate Change Committee (CCC) suggest we may need a ten-fold increase by 2050, with the option to go further depending on the scale of hydrogen use in heat, transport and power. 186 Hydrogen that is produced with significantly lower greenhouse gas methods of production – methods include reacting methane with steam to form hydrogen and then capturing the carbon dioxide by-product (steam methane reformation with CCUS) or using renewable electricity to split water into hydrogen and oxygen (electrolysis). ITM Power are a manufacturer of PEM (proton exchange membrane) electrolysers, a technology which enables the generation of hydrogen from water. The company is based in Sheffield, UK. Coupled with a renewable energy supply, this production method is capable of producing zero carbon hydrogen. The Gigastack project explores the potential to scale up electrolyser size and integrate those units with offshore wind facilities. BEIS is currently supporting a consortium led by ITM Power along with Ørsted, Phillips 66, and Element Energy, funded as part of the £505 million

A variety of production technologies will be required to satisfy the level of anticipated demand for clean hydrogen in 2050. This is likely to include methane reformation with CCUS, biomass gasification with CCUS and electrolytic hydrogen using renewable or nuclear generated electricity. `Working with industry, our aim is for the UK to develop 5GW of low-carbon hydrogen production capacity by 2030. The exact mix of different end uses for clean hydrogen in 2050 will depend on a variety of factors including cost, availability and technical application. Action is needed now to enable hydrogen to be deployed flexibly in the future. We will need production at scale by the mid-2020s to provide assurance on safety, security, cost and the potential for emissions reduction, before we scale up even further during the 2030s. To put the UK on this pathway, we are aiming for 5GW of clean hydrogen production capacity in 2030, equating to 42TWh, and supporting up to 8,000 jobs by 2030 across our industrial heartlands and beyond.
187 We hope to see 1GW of hydrogen production capacity by 2025 on route to our 2030 goal. Action now to deploy hydrogen during the 2020s will stimulate domestic supply chains, enabling UK businesses to capture increasing international demand for hydrogen goods and services. Ensuring this happens will be an important part of our upcoming Hydrogen Strategy. `We will create a Net Zero Hydrogen Fund to support low-carbon hydrogen production, providing £240 million of capital co-investment out to 2024/25. The Net Zero Hydrogen Fund will deliver a major boost to production capacity, ensuring that clean hydrogen can be utilised for decarbonising industrial clusters and play its role delivering net zero. The Fund will help establish the technology and will ensure that existing mechanisms, such as the Renewable Transport Fuel Obligation, provide an appropriate level of support for renewable hydrogen. However, achieving our 2030 ambition for clean hydrogen will also require the right commercial frameworks which encourage sustained private sector investment. We will put the necessary building blocks in place now to provide confidence that clean hydrogen can be produced reliably and cost-effectively. We will introduce a commercial framework by 2022, which enables project sponsors of all types of clean hydrogen to finance their projects. We will consult on our preferred model in 2021.

market will be the foundation on which the UK achieves net zero `We will implement the world’s first net zero carbon cap and trade market, the UK Emissions Trading Scheme. The UK has been a pioneer of emissions trading since 2002. The European Union adopted our cap-and-trade approach to carbon pricing, and other countries around the world have followed our lead. There are now 28 trading systems operating across four continents.188 Having left the EU, we are ready to lead the world again. We will establish a UK Emissions Trading Scheme (ETS) to replace the UK’s participation in the EU ETS. The UK ETS will be a market-based measure which will provide continuity for businesses. A cap is set on the greenhouse gases that businesses can emit (via the total number of allowances in circulation), which will decrease over time. Businesses then buy and sell emissions allowances through government auctions or secondary markets. The UK ETS will initially apply to energy-intensive industries, electricity generation and aviation. This mechanism of carbon pricing supports businesses to decarbonise at the least cost. Businesses who can abate cheaply will do so, and those that cannot purchase additional allowances to cover their emissions. Knowing that the ceiling on emissions will lower transparently over time enables business to plan and invest to decarbonise, while at the same time protecting the competitiveness of businesses and minimising the risk of carbon leakage. Following the introduction of the UK ETS, we will consult in due course on how to align the cap with an appropriate net zero trajectory, meaning the system will significantly contribute to ensuring the UK meets our commitment to net zero emissions by 2050. The operation of the cap will provide certainty about the decarbonisation trajectory over the long term. It will deliver a robust carbon price signal; giving businesses the confidence to mobilise the scale of capital investment necessary to deploy clean energy technologies; and to capture new trade opportunities on the back of the energy transition. The UK ETS will also allow us to expand carbon pricing across the economy and encourage innovation in emerging decarbonisation technologies. We have committed to exploring expanding the UK ETS to the two thirds of uncovered emissions, and will set out our aspirations to continue to lead the world on carbon pricing in the run up to COP26. This will also include how the UK ETS could incentivise the deployment of greenhouse gas removal technologies. In addition to this, the UK is open to linking the UK ETS internationally in principle and we are considering a range of options, but no decision on our preferred linking partners has yet been made. A method of putting a price on emissions. A cap is set on the total amount of certain greenhouse gases that can be emitted by participants. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed. Our strategy includes providing capital support to help industry become more energy efficient and to bring down the costs and risks of key decarbonisation technologies. This investment will bring forward the date at which technologies such as CCUS and hydrogen can be commercially deployed in industry. However, we recognise that investors need revenue visibility of revenue, delivered by new business and commercial models, for the lifetime of a project, if they are to finance the upfront capital costs of decarbonisation projects. `We will bring forward details in 2021 of a revenue mechanism to bring through private sector investment into industrial carbon capture and hydrogen projects via our new business models to support The government is already providing capital support through a number of schemes for industry to decarbonise. The £18 million Industrial Heat Recovery Support programme is helping businesses reuse heat which would otherwise be wasted. The Climate Change Agreements Scheme reduces the amount of a tax that industry pays on energy, called the Climate Change Levy. It has supported industry with an estimated £200 million in tax discounts a year, in return for meeting agreed energy or carbon reduction targets and has now been extended by a further two years until March 2025.189 The Industrial Energy Transformation Fund (IETF) was launched this year, with funding worth £315 million, to help businesses with high energy use to cut their bills and reduce carbon emissions. Additionally, the £250 million Clean Steel Fund was announced in 2019 and is designed to support the resilience and longevity of the steel sector by supporting it onto a decarbonisation pathway consistent with net zero. We will also develop user- friendly digital services to improve access to funding for our stakeholders.
In addition, we intend to provide longer-term certainty to industry which goes beyond the need for time-bound support schemes dependent on direct government funding. Over the long term, cost reductions in low-carbon technologies, coupled with a robust carbon price signal and a thriving market for low-carbon products, will drive investment. In the near term, we will bring forward details of a revenue mechanism to bring through private sector investment in emerging technologies. Providing this visibility will enable industry to invest in new technologies, such as CCUS and clean hydrogen at scale, accelerating the decarbonisation of the sector and the economic opportunities which come with it. Recognising this, we will bring forward further details in 2021 on the revenue mechanism which will encourage private sector capital into the new business models we are creating to support deployment of industrial carbon capture and clean hydrogen. We will publish an Industrial Decarbonisation Strategy in spring 2021 to set out the details of how the government will support the decarbonisation of In line with the increased ambition set out in the Ten Point Plan we will increase the Industrial Clusters Mission to support the delivery of four low- carbon clusters by 2030 and at least one fully net zero cluster by 2040. We will invest £1 billion up to 2025 to facilitate the deployment of CCUS in two industrial clusters by the mid-2020s, and a further two clusters by 2030, supporting our ambition to capture 10MtCO 2 per year by the end of the decade. We will publish a dedicated Hydrogen Strategy in spring 2021 which positions the UK as a world leader in the production and use of clean hydrogen. Working with industry, our aim is for the UK to develop 5GW of low-carbon hydrogen production capacity by 2030. We will create a Net Zero Hydrogen Fund to support low-carbon hydrogen production, providing £240 million of capital co-investment out to 2024/25. We will implement the world’s first net zero carbon cap and trade market , the UK Emissions Trading Scheme. We will bring forward details in 2021 of a revenue mechanism to bring through private sector investment into industrial carbon capture and hydrogen projects via our new business models to support these projects. Delivering our net zero target by 2050 means transforming the oil and gas sector in the UK. ` Work with the sector to transform the UK Continental Shelf to be ` Provide opportunities for oil and gas companies to repurpose their operations away from unabated fossil fuels to abatement technologies such as carbon capture, utilisation and storage (CCUS) or clean energy production such as renewables and hydrogen ` Agree a transformational North Sea Transition Deal to deliver new business opportunities, jobs and skills as the sector, as well as protect the wider communities which rely on the oil and gas sector ` Ensure that the licensing of domestic oil and gas exploration and production continues to be compatible with

industry has a critical role in maintaining the country’s energy security and is a major contributor to Much of the crude oil from the North Sea basin is exported, with the UK making extensive use of strong trading links to meet domestic refinery demand. Domestic production still met 46 per cent of the country’s supply of gas in 2019, with the vast majority of this supplied from North Sea offshore production with a smaller proportion from the onshore oil and gas sector. 190

The offshore oil and gas sector contributed about 0.9 per cent to the UK’s GVA in 2019 and has paid around £350 billion in production taxes since 1970/71.191 The sector is a source of high-quality jobs, supporting directly or indirectly around 147 ,000 jobs in total across the UK in 2018.192 Many jobs supported by the sector are located in Scotland, particularly in Aberdeen, a global hub for the oil and gas industry. Critical supply chain clusters have grown in the North, East and South East of England. These jobs and the additional 113,000 induced by the sector help support the wider UK economy. While the Oil & Gas Authority (OGA) estimates that there are still around 10 to 20 billion barrels of oil equivalent remaining in the UK Continental Shelf,193 domestic production has more than halved since 2000.194 The Climate Change Committee (CCC) estimates that production of natural gas could drop by up to 80 per cent by 2050, compared to levels in 2017.195 However, the projections for demand for oil and gas, though much reduced, is forecast to continue for decades to come. The UK’s offshore oil and gas sector and the smaller onshore sector have both been severely affected by COVID-19. The pandemic led directly to the global collapse in demand for oil and resulted in a roughly 65 per cent drop in the price of Brent Crude between January and April 2020.196 Oil and Gas UK (OGUK) estimate that the UK sector will respond by cutting expected capital expenditure by around 30 to 40 per cent and operating expenditure by around 10 to 20 per cent compared with anticipated expenditure at the start of the year, while maintaining production levels.197 During the early months of the UK lockdown, staffing on offshore rigs was reduced by more than a third compared to early March.198 We have supported the oil and gas sector to bounce back from COVID-19 but a return to ‘business as usual’ is no longer an option. Government support is in the context of delivering our net zero target. The sector is already coming under significant pressure from investors and the public more widely to respond to the challenge. Shareholders, for example, are increasingly requiring listed companies to price carbon into their business models and demonstrate how they can reduce emissions from their operations or support the wider decarbonisation of the economy.199 Many oil and gas companies are now responding to the challenge.
Their investment decisions are beginning to anticipate a world without fossil fuels beyond 2050.200 There is great potential for the sector to play an important part in the energy transition and retain vital skills across key regional hubs around the country, supporting the CCUS and hydrogen “SuperPlaces” clusters announced in the Prime Minister’s Ten Point Plan. 201

There is great potential for traditional oil and gas businesses to take advantage of the opportunities provided by the energy transition and transform their operating model, whether they are exploration and development companies, service providers, supermajors or independent companies. Supermajors such as bp and Shell have set out major changes of strategy to achieve net zero by 2050, including addressing emissions that result of the use of their products. All have set aggressive emissions reductions targets. Other approaches include rebalancing their portfolios to increase their renewable energy holdings; investing in and partnering with renewable energy companies; investing in carbon dioxide sequestration, and expanding their consumer-facing offer, such as electric vehicle charging. Privately backed companies, such as Chrysaor, have also set out their emissions reductions targets, while investing in carbon capture and We will continue to push for a high level of ambition amongst oil and gas companies, challenging them to go further to reduce their emissions consistent with our net zero target, while transitioning their operations into emerging energy technologies. We expect to see the supply chain reflect Wood Plc has taken substantial steps to transform its business from a traditional oilfield services provider into broader engineering and consultancy work operating across the energy sector. In 2014, was derived from oil and gas work including 65 per cent from upstream activity compared with 2020 where upstream activity now accounts for just one third of its total revenue.202 consulting, projects and operations solutions including a fast-growing been involved in solar projects, increasing global wind capacity as well as CCUS studies and has an increased presence in the hydrogen market. In parallel, the company to the oil and gas sector through helping partners achieve their

A recent survey by OGUK revealed that more than half of its members had already diversified into other energy sectors, even as oil and gas remained their primary source of income.203 The UK Petroleum Industry Association has set out scenarios and the technology pathways for how the refining and downstream sector can play an active part in achieving net zero emissions.204 Many supply chain companies are diversifying into other energy sectors. Reducing emissions from oil and gas will need careful management to avoid disruption to our daily lives and minimise rising costs, as well as to mitigate wider economic impacts. It requires a policy and regulatory framework which continues to promote good environmental practice, alongside effective stewardship of the North Sea by both regulators and oil and gas operators. To achieve this, we expect industry to respond effectively to the net zero challenge but will encourage continued healthy levels of investment. Ensuring that the UK remains an attractive destination for global capital is the best way to secure an orderly and successful transition away from traditional fossil fuels. It is critical that the sector focuses on cutting the emissions associated with offshore oil and gas production. `Working with the regulators, we will drive the reduction of greenhouse gas emissions from all offshore oil and gas operations to make the UK continental shelf a net zero basin by 2050. In 2018, upstream oil and gas activities in the UK accounted for four per cent of UK greenhouse gas emissions. 205 According to OGUK, in order to meet net zero, the oil and gas sector will need to reduce its emissions from offshore production and operations to 0.5MtCO2e by 2050, from 19MtCO2e today.206 Methane will be a special focus, given its potency as a greenhouse gas. The industry has signed up to the OGUK- led ambition to achieve net zero emissions across all its upstream activities, as set out in the OGUK’s Roadmap 2035.207 It has already set itself the challenge of becoming a net zero basin by 2050, with a 50 per cent absolute emissions reduction by 2030 and 90 per cent by 2040.208 The sector was amongst the first industrial sectors in the UK to make such a commitment. We expect real and ambitious change from industry to deliver this commitment. We want the industry to go further and faster, wherever possible. The World Bank estimated that, in 2019, global levels of gas flaring had increased to approximately 150 billion cubic metres of natural gas, emitting about 400MtCO2e, in addition to the waste of the valuable resource. 209 `We will commit the UK to the World Bank’s ‘Zero Routine Flaring by 2030’ initiative and will work with regulators towards eliminating this practice as soon as possible in advance of this date. The World Bank’s ‘Zero Routine Flaring by 2030’ initiative invites governments and industry to put an end to the operational practice of routine flaring by 2030. Some UK Continental Shelf operators have reduced routine flaring but much more can be done to drive down the practice, notwithstanding the challenges posed by the maturity of the basin and its assets. The OGA will take a more robust stance to push for reductions in flaring and venting and the resulting greenhouse gas emissions, through its consents, field development process and project stewardship role.210 As part of our discussions with the sector on emissions reduction in the North Sea Transition Deal, we will seek to end this practice before 2030. We will also tackle regulatory and policy barriers to the use of clean electricity, such as offshore wind, to power offshore oil and gas facilities, as opposed to the current practice of using diesel or gas generators on platforms. In addition to reducing emissions from direct operations, known as Scope 1 and 2 emissions, we will challenge the sector to address embodied emissions from the consumption of their products or from supply chain activities, so-called Scope 3 emissions.
`Scope 1: emissions directly from `Scope 2: indirect emissions from the generation of purchased energy `Scope 3: indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream Many of the larger companies are already setting out plans for taking on this challenge. This will largely be achieved through changes to their corporate strategies to focus their business on abatement of emissions, and new low-carbon energy sources. The approach will vary according to the size and structure of individual companies. Any future government support is dependent on the sector adopting meaningful measures which reduce emissions and report transparently on progress, for example through adhering to the recommendations of the Taskforce on Climate-Related Financial Disclosures. decommissioning end-of-life oil and gas infrastructure in the UK Continental Shelf, we will take account of the potential to use existing infrastructure in CCUS transport and storage supporting carbon capture from industry, power generation and hydrogen production. This will require giving appropriate consideration to responsible management of decommissioning costs. `We will support the UK oil and gas sector to repurpose its existing infrastructure in support of clean Using oil and gas assets at the end of their existing commercial life could realise significant cost savings in the deployment of CCUS and prove instrumental in getting the technology operational by the mid- 2020s. Upfront capital cost savings for the developers of some CCUS projects could be in excess of £100 million, compared to the cost of building new offshore pipelines and associated infrastructure. 211 The re-use of existing assets can also lower the carbon footprint of the construction process. In August 2020, we published our response to a consultation on the re-use of oil and gas assets for CCUS projects. 212 Our review has identified assets which could have the greatest potential for re-use in CCUS. We will now work with industry and regulators to provide clarity on the regulations for re-purposing assets and to develop technical guidance on how this can be done safely and securely. It is vital that our regulators are well positioned to address the We will work closely with the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) and the Oil & Gas Authority, the principal offshore oil and gas regulators, to ensure that their roles, powers and priorities reflect the government’s policy for delivering net zero emissions, without imposing significant additional regulatory burdens. `We will undertake a review of the Offshore Petroleum Regulator for Environment and Decommissioning to ensure that it is fully equipped to drive up environmental standards in its regulatory role, as well as supporting the sector’s progress towards net zero OPRED is the environmental and decommissioning regulator for offshore oil and gas, gas storage and offshore carbon capture and storage activities. OPRED will increase its focus on the further reduction of greenhouse gas emissions from all offshore oil and gas operations and will put in place a regulatory framework to support emerging decarbonisation technologies. This will include OPRED utilising its existing data collection system to track progress on emissions reduction. The principal objective of the OGA, the upstream licensing regulator, is to maximise the economic recovery of petroleum from the UK Continental Shelf, a statutory goal established in the wake of the oil price crash in 2014. The OGA has supported the production of oil and gas in the most cost-effective way possible but its focus has been evolving. `We aim to lay a new strategy for the Oil & Gas Authority before the end of 2020 to bolster the regulator’s ability to focus the sector on helping deliver net The OGA consulted over the summer of 2020 about its intention to refresh its core aim, including a requirement for industry to take appropriate steps to support the delivery of the government’s net zero target.213 We agree with the OGA’s assessment that the sector must go considerably faster in reducing its own carbon footprint or risk losing its social licence to operate. The changes proposed in the OGA’s consultation have the potential to make a significant contribution to achieving our goal. output in 2019 stood at almost

The industry has the skills, technology and capital to unlock innovative solutions which could be instrumental in helping to deliver net zero emissions successfully for the whole economy. It can play a critical role in the deployment of CCUS, hydrogen production and renewable electricity generation, particularly offshore wind. The OGA is clear that consideration of the sector’s contribution to this goal is a proper part of Maximising Economic Recovery. The OGA will take wide ranging action to implement its revised strategy. This will include benchmarking greenhouse gas emissions to drive performance and creating a new asset stewardship expectation for net zero. The OGA will update its guidance and its economic assessments, which support regulatory decisions, to include full carbon costs. A new strategic approach will allow the OGA to take a much greater role in driving the sector’s contribution to the clean energy transition. It will further enhance the OGA’s role as an environmentally responsible steward. To respond to the changing landscape in which the UK oil and gas sector is operating, we are currently undertaking a review of policy on the future licensing of domestic offshore oil and gas exploration and production. This review seeks to ensure the continued compatibility of the UK’s licensing regime with our climate obligations and delivering our net zero target by 2050. This review is an opportunity for the UK to demonstrate that effective climate leadership can be compatible with maintaining a strong economy and robust energy security. `To ensure that licensing continues to be compatible with our climate change ambitions over the coming decades, we are considering formalising aspects As we develop our policy options, we believe that a sensible step for the UK may be to develop the existing checkpoints in our processes before proceeding with future licensing rounds.
Such a step could involve regularly seeking independent advice on how proceeding with future licensing would impact our climate and energy goals. This could serve to further formalise existing processes and provide an extra layer of assurance that oil and gas licensing remains consistent with our future policy objectives. We will assess what added benefit such a move would bring as part of our review. In addition to this measure, we are considering a spectrum of options to ensure that the regime continues to be consistent with our wider aims. We will assess all options against a range of factors, including our energy transition goals; emissions reductions; and impacts on the supply chain and jobs. We expect to publish our conclusions in early 2021. In our Manifesto, the government committed to agreeing a Sector Deal with the offshore oil and gas industry which secures the sector’s long-term future consistent with net zero. `We will agree a transformational North Sea Transition Deal with the industry during the first half of 2021, focused on the economic opportunities of net zero and providing support for the people and communities most affected by the move away from oil and gas The proposed North Sea Transition Deal represents a quid pro quo partnership between the government and industry for taking long-term action which transforms the sector and delivers the energy transition. We are negotiating the substance of the deal with the sector and aim to reach agreement by the first half of 2021. We will use the deal as a vehicle to create new jobs as well as trade and investment opportunities. The deal will also set out how we can retain existing skills and capabilities in the sector, many of which are of vital regional and national significance and which could give the UK first mover advantage in emerging low-carbon sectors. The Prime Minister’s Ten Point Plan included ambitious commitments on supporting the delivery of clean energy technologies such as hydrogen and CCUS. Given the proximity of UK oil and gas hubs – particularly Scotland and the North East of England, this presents a great opportunity for the sector to unlock additional funding through the North Sea Transition Deal. The sector can contribute meaningfully to the Green Industrial Revolution by providing essential skills across key regions of the UK economy. Through the UK’s international leadership on climate change action, we will seek new opportunities in overseas markets to export our expertise in subsea engineering, decommissioning and other supply `We will use our North Sea Transition Deal to support the UK-based oil and gas supply chain to secure new low- carbon export opportunities in overseas markets, capitalising on the global reach of the UK’s world-class trade promotion and diplomatic resources. The UK’s offshore oil and gas supply chain sells a range of products, services and expertise to domestic and world markets. With innovative providers of oil field services and capability across all sub-sectors, including marine and sub-sea operations, it had an estimated turnover in 2018 of £27 billion and employs around 116,000 people.214 Many of these capabilities are readily exportable to new markets, as the world decarbonises. The UK is forecast to become the largest decommissioning market globally over the next decade, with decommissioning expenditure forecast to be around £1.5 billion per year for the next ten years. 215 This will enable the UK supply chain to develop a world-leading decommissioning industry. If the sector can decommission our offshore infrastructure in a safe, efficient and environmentally responsible manner, while also meeting the OGA’s ambitious cost reduction targets, it will be well-positioned to service the global market, by one estimate worth around £80 billion in the next decade 216 and near £270 billion from 2022 onwards.217 Spending Review, we will commit Underwater Hub in Aberdeen with satellites in North East England And Southern England. This new economic development hub will take a strategic approach to growing our world-leading subsea engineering, technology and services sector as the global subsea market diversifies away from oil and gas and shifts growth sectors such as renewables. In parallel with this white paper, we will publish proposals for helping develop decommissioning opportunities, both domestically and in overseas markets. The UK’s world-leading subsea engineering industry is already positioned for global growth across a range of diversified sectors which make up the so-called ‘Blue Economy’, economic activities relating to the world’s oceans and coastlines. The total value of UK subsea output in 2018/19 stood at around £8 billion, with over 45,000 people employed in the sector. 218 The UK contributes less than one per cent to overall global greenhouse gas emissions219 so we must leverage our role as a world leader on climate change and ensure we use all available levers to support global clean growth opportunities. This is why in January 2020 the Prime Minister announced that the UK government will no longer provide any new direct support for thermal coal mining or coal power plants. To bolster our commitment to supporting a clean energy transition, The Prime Minister has now announced that the UK government will no longer provide direct financial or promotional support for the fossil fuel energy sector overseas. Both announcements extend to any new official development assistance, investment, export credit and trade promotion activity. For oil and gas activities there will be a few - tightly bound - exemptions allowed for activities that support health and safety improvements, form part of wider clean energy transitions, support decommissioning, or are associated with a humanitarian response. A public consultation process will take place on the implementation date for this policy and to help align government’s support for clean technologies. The consultation will close in February 2021 and its findings will help form the North Sea Transition Deal. Our ambition is to lead by example, working towards establishing the UK at the forefront of the global supply chain and capitalising on the skills of the UK sector while working in close partnership with those seeking to transition to a cleaner future.
We will identify the international clean growth projects and emerging clean technology sectors in the UK which can benefit from our export finance mechanisms, from innovation to export, with a particular focus on technologies where the UK has first mover advantage. We will also help UK based companies to diversify and take advantage of the opportunities in emerging energy technologies. The downstream oil sector provided 96 per cent of the energy used in the transport sector in 2019.220 It will continue to play a vital role in the transition to a net zero economy, delivering fuels to consumers. The sector is already actively exploring the potential for low-carbon liquid fuels, particularly in aviation, shipping and heavy goods vehicles, which are more challenging to decarbonise. We will work with industry to promote innovation and remove regulatory barriers which hinder the switch from fossil fuels. The Department for Transport will shortly publish a consultation over the use of fuels produced from non-biogenic waste, which is currently incinerated. It offers the potential to convert non-recyclable plastic and industrial waste gases to jet fuel or substitute for diesel and petrol in cars and vans. As we make the transition away from fossil fuels, we must maintain secure supplies of fuel to the people and businesses whose livelihoods depend upon it. `We will take powers to ensure we maintain a secure and resilient supply of fossil fuels during the transition to Our net zero future undoubtedly represents a challenge to the downstream oil sector, which has already been hit hard by falling demand and reduced refining margins resulting from the COVID-19 pandemic. We believe that it is necessary for government to have powers to monitor the resilience of the fuel supply market and, should it be necessary, to intervene to ensure there is an orderly transition to clean energy supplies. We will explore options for delivery and look to publish a draft Downstream Oil Resilience bill while we seek an opportunity to introduce these measures to Parliament

Working with the regulators, we will m ake the UK continental shelf a net We will commit the UK to the World Bank’s ‘Zero Routine Flaring by 2030’. We will support the UK oil and gas sector to repurpose its existing infrastructure in support of clean energy technologies. We will undertake a review of the Offshore Petroleum Regulator for Environment and Decommissioning to drive up environmental standards in its regulatory role, and support the sector’s progress towards net zero We aim to lay a new strategy for the Oil & Gas Authority before the end of 2020 to bolster the regulator’s ability to focus the sector on helping deliver net To ensure that licensing continues to be compatible with our climate change ambitions over the coming decades, we are considering formalising aspects of our existing process. We will agree a transformational North Sea Transition Deal with the industry during the first half of 2021. We will use our North Sea Transition Deal to support the UK-based oil and gas supply chain to secure new low-carbon export opportunities in We will take powers to ensure we maintain a secure and resilient supply of fossil fuels during the transition to net zero emissions. Advanced Nuclear Includes Small Modular and Advanced Modular Reactors. Reactors which use novel cooling systems or fuels and may offer new functionalities (such as industrial process heat). Balancing Matching supply with demand, which is important to keep the gas and electricity systems within safe operating limits. For electricity this needs to be done on a second-by-second basis. The tools and markets that are used to make sure it is possible to Refers to bioenergy processes (such as burning it for electricity) during which carbon is captured and stored. If carefully managed, using sustainable biomass, BECCS can generate ‘negative emissions’ because while providing energy it also it also captures and stores the atmospheric CO₂ that is absorbed by plants as they Bioenergy Refers to heat or electricity produced using biomass or gaseous and liquid fuels with a biological origin such as biomethane produced Biomass Refers to any material of biological origin used as a feedstock for products (e.g. wood in construction to make chemicals and materials, like bio-based plastics), or as a fuel for bioenergy (heat, electricity and gaseous fuels such as biomethane and hydrogen) or Biomethane A form of gas that is produced by processing biomass It can be used for the same purposes as natural gas, like producing electricity or heat, and can use the same infrastructure for transmission and Capacity market Is our primary policy mechanism for delivering security of electricity supply. It provides generators and flexibility providers with a payment for firm (reliable) capacity to ensure they deliver electricity generation or demand reduction, when required. Carbon intensity The amount of CO2 emitted when generating a unit of electricity, measured in gram of CO 2 per kWh of electricity produced. Is a requirement imposed on thermal plants (such as coal and gas plants) to enable future capturing and storing of carbon following a plant upgrade. Such plants currently emit CO 2 directly into the The process of capturing carbon dioxide from industrial processes, power generation, certain hydrogen production methods and greenhouse gas removal technologies such as bioenergy with carbon capture and storage and direct air capture. The captured carbon dioxide is then either used, for example in chemical processes, or stored permanently in disused oil and gas fields or naturally occurring geological storage sites. Carbon Leakage Refers to the situation that may occur if, for reasons of costs related to climate pricing policies, businesses were to transfer production or reallocate future investments to other countries with laxer emission constraints or carbon pricing. This could lead to an increase in total Carbon Price A cost applied to carbon pollution to encourage polluters to reduce the amount of greenhouse gases they emit into the atmosphere. Clean Electricity Types of electricity generating technologies that emit little or no fossil fuel derived greenhouse gas from generation.
A process inviting eligible organisations to compete to carry out work or supply services, with the winner decided by who can offer The main support mechanism for large scale low-carbon electricity generation projects. Successful projects are awarded a long-term contract which secures a price to which they will either be topped up if electricity prices are low, or pay back to if electricity prices are The competitive allocation process of CfD contracts. Participants bid the strike price they require to build their project with the cheapest ones winning on a pay-as-clear system. Data triage A logical step by step process to ensure energy data can be made openly available when it is secure and safe to do so. Decarbonisation A process of reducing the amount of carbon dioxide we release into

Is when consumers adjust their energy usage in response to an external signal. Examples include either reducing it, delaying it, or using on-site generation or storage. DSR was historically provided by large industrial and commercial consumers, but technology development is making it easier for smaller consumers to provide these services for example by charging their electric car with a Digitalisation Is the integration of digital technologies into a process, organisation, or system. For example, smart meters which automatically send meter readings to energy suppliers, meaning more accurate bills for Use of engineered processes to capture carbon dioxide (CO 2) directly from the atmosphere, for storage or use. Is electricity generation that can be turned on, off, up or down as Dispatch signals A pricing mechanism designed to encourage power stations to produce and send electricity to the grid when it is needed Regional networks that transport gas or electricity into homes and businesses and import electricity from small-scale generation. Technologies that can deliver flexibility (see flexibility) that are connected to the distribution network across the country. The duty that network owners have to provide the first 10 metres of a gas connection free of charge to customers. The industries and processes in which oil and gas are converted into The amount of electrical power a generator can produce when it is Is the total electrical energy created over a period of time. Electricity System A system consisting of generators, interconnectors, transmission and distribution networks, and storage that deliver electricity to the final consumer (businesses, industry, public sector and homes). As well as the markets and control infrastructure such as smart and digital technologies, that play a key role in making sure the system Electrification Switching from using fuels such as gas or petroleum, to using electricity. For example, switching from a petrol car to an electric car. A method of putting a price on emissions. A cap is set on the total amount of certain greenhouse gases that can be emitted by participants. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed. Energy codes The detailed technical and commercial rules of the energy system. Energy data Historical, current, and future information covering things such as how, where and when energy is generated, transported, used, and Energy efficiency When something performs better using the same amount of energy, or delivers the same performance for less. The principle of energy efficiency can be applied to many buildings, products, appliances, manufacturing processes, to name a few. Energy Performance Certificates (EPCs) are required in the UK to provide a prospective owner or tenant with information on the energy performance of a building and recommendations for improvement. EPCs use an A-G rating scale based on the modelled energy bill costs of running the building. The specifications to which the energy system is designed and Flaring The controlled burning of unwanted or excess natural gases. Flexibility The ability to change generation and/or demand in response to an external signal (e.g. price or contract terms). Flexibility enabling technologies include batteries, demand side response, interconnectors and fossil fuel generators. Fossil fuels Oil (and fuels derived from oil), coal and natural gas Fuel poverty The government definition of fuel poverty is where a household has fuel costs that are above average and, were they to pay that amount, would be left with a residual income below the official poverty line. Are rules to ensure that the gases we use, including natural gas, biogas and hydrogen, meet all of the specifications needed to be safe and effective as an energy source. Gas system A system consisting of gas producers, refineries, interconnectors, transmission and distribution networks that delivers gas from its original sources to the final consumer (businesses, industry, public sector and homes). As well as the physical infrastructure, markets play a key role in making sure the system balances supply and

Generation mix A mix of technologies designed to meet electricity demand. Addition to the atmosphere of gases that are a cause of global warming, including carbon dioxide, methane and others. Methods that actively remove greenhouse gases from the atmosphere, ranging from engineered to nature-based solutions. Gross value added is the value generated by any unit engaged in the production of goods and services. Heat network A heat network, sometimes called district heating, is a system of insulated pipes that takes heat or cooling generated from a central source and distributes it to a number of domestic and non-domestic Heat pump A device that extracts heat from the air, ground or water and concentrates it to a higher temperature and delivers it elsewhere, for example to a central heating system. It can replace traditional fossil fuel heating, such as a gas or oil boiler.
Heat pump systems are designed to extract a greater amount of heat energy from the surrounding environment than the energy they consume in doing so, therefore they can act as a more efficient source of heat than a conventional electric heater, producing two to three times (or more for very efficient systems) as much heat output as they consume in Projects that combine electricity generation with the ability to feed electricity to two (or more) different markets. For example, an offshore wind project that has multiple connections and is able to provide electricity to both the UK market and to European markets. Hydrogen for heat The combustion of hydrogen produces no long-lived greenhouse gas emissions at point of use, making it a possible low-carbon replacement for natural gas as a fuel source for heating homes and Clean hydrogen Hydrogen that is produced with significantly lower greenhouse gas emissions compared to current methods of production – methods include reacting methane with steam to form hydrogen and then capturing the carbon dioxide by-product (steam methane reformation with CCUS) or using renewable electricity to split water into hydrogen and oxygen (electrolysis). Industrial Sector Businesses and organisations involved in manufacturing, refining,

Interconnection Interconnectors are cables or pipes, that transport electricity or gas between different markets internationally. As Great Britain is an island our interconnectors tend to run underneath the sea. Types of electricity generating technologies that emit little or no carbon, which include renewables, nuclear, CCUS. Storage technologies capable of storing energy for days, weeks or Negative Emission Achieved by removing greenhouse gases from the atmosphere, for example, through direct air capture or bio-energy production with Net zero Refers to a point at which the amount of greenhouse gas being put into the atmosphere by human activity in the UK equals the amount of greenhouse gas that is being taken out of the atmosphere. Nuclear fusion Is the process that powers the the fusing of hydrogen atoms into helium, which releases large amounts of energy. Scientists are developing technology to use this process to provide fusion energy, which could be clean, safe and inexhaustible with no long-lived Ofgem The Office for Gas and Electricity Markets (Ofgem) is the independent GB energy regulator for gas and electricity. Its role is to protect consumers now and in the future by working to deliver a greener, fairer energy system. Peaking Capacity Electricity generators that don’t normally operate but are ready to do so when needed at times of peak demand or low generation. Policy costs Cost on energy bills of programmes to save energy, reduce emissions, and provide financial support to the fuel poor. Price signals Changes in market price that send messages to consumers and producers about whether to enter or leave a market. For example, rising prices give a signal to consumers to reduce demand, and at the same time they give a signal to potential producers to increase Real-time markets In the context of energy this is a market which has no, or very little, time between the finalisation of all trading activity and the physical delivery of energy to the customer. This is very difficult to achieve so the phrase “closer-to-real-time” is often used to indicate a direction

Refineries Industrial facilities which converts crude oil and gas into specific products such as jet fuel or diesel. Renewable Energy Energy that is collected from resources which are naturally replaced in human timescales such as sunlight, wind, rain, tides and waves. R&D Research and thinking up new ideas and applying A type of economic regulation typically used in the UK for monopoly infrastructure assets such as water, gas and electricity networks. The return on a RAB is regulated by an economic regulator. SMRs are usually based on proven water-cooled reactors similar to current Nuclear Power station reactors, but on a smaller scale. They use nuclear fission to generate low-carbon electricity. SMRs are called modular reactors as their components can be manufactured in factories using innovative techniques and then transported to site Smart charging Connecting an electric vehicle to the electricity grid using a charging device which includes a data connection. This allows electric vehicles that are plugged in using smart chargers to be charged when it is the most efficient, in terms of cost for the consumer and/ or from the point of view of balancing supply and demand across Smart meters The next generation of gas and electricity meters, which use a secure smart data network to automatically and wirelessly send meter readings to energy suppliers, enable remote topping up of balances for pre-payment customers and near real time energy consumption and expenditure to be visible to domestic energy consumers via an In-Home Display. Smart meters also enable innovations such as time of use tariffs which will help support delivery of our net zero objectives. Strike price The price a generator bids into a CfD allocation process. The strike price of the last successful project becomes the clearing price, which all successful generators are awarded in their contracts. Licensed companies that buy gas and electricity primarily in the wholesale market and sell it to energy users including domestic and System constraint A limit or restriction, which the current system does not have the ability to go beyond. For example, when electricity from a particular location is unable to be transported to the location of demand, due to restrictions on the network. System cost The annualised costs of building and operating the energy system, including generation, transmission and distribution, balancing and System operators Manage the whole energy system and keep it in balance so that gas and electricity are available when needed. National networks that transport gas and electricity long distances across Great Britain; the motorways of our energy network.
Electricity generation where carbon from burning natural gas is not The industries and processes involved in exploration and extraction Vehicle-to-grid Technologies that allow electric vehicles (and their charging equipment) to export energy back to the electricity grid in response to communications to and from the electricity network. Wholesale costs The amount energy companies pay to buy gas and electricity