A new body independent of government should be set up to oversee UK energy security and the transition to net zero, according to a new report.
Aberdeen & Grampian Chamber of Commerce says the energy industry is being used as a “political football” and wants to see the establishment of a non-partisan organisation to bring long-term thinking and policy stability to the sector.
Like the Bank of England – which has maintaining monetary and fiscal stability as its central mission – the new body should be charged with developing recommendations which could command cross-party consensus and insulate the sector from political policy shocks in the future.
The call is the central policy recommendation contained with the 38th edition of the Chamber’s Energy Transition Survey, a biannual barometer of confidence in the UK’s energy sector which has been running for almost 20 years.
The business group is also repeating its call for the Energy Profits Levy – which has already resulted in the cancellation of deals, billions of lost investment and cost several hundred jobs in the North-east of Scotland – to be scrapped or reformed with a meaningful price floor.
Published today, the report – which is sponsored by KPMG and ETZ Ltd – shows that government policy remains the biggest factor determining future activity in the UK energy sector, and that over half believe that no party currently has the right policies to support a successful energy transition.
The 38th edition also finds:
- Historically low levels of optimism around the business outlook in the North Sea over the short term remain.
- 30% of the work being carried out by firms in the sector is already outside oil and gas, with the figure expected to rise to 50% within seven years.
- Profitability and return on investment (ROI) remain the biggest barrier to diversification for firms, followed closely by the political and regulatory environment.
- Reducing access to investment capital and funding is negatively impacting activity, specifically internationally.
- Nearly all respondents believe that Aberdeen and the North-east will play a leading role in providing the UK with energy security and lead the energy transition
- Around two thirds of respondents reported that they expect headcount to grow over the next three years to enable them to deliver on their plans.
- However, a growing skills shortage is being exacerbated by staff leaving the sector and high levels of early retirement with around half of respondents reporting these trends.
Russell Borthwick, Chief Executive at Aberdeen & Grampian Chamber of Commerce, said: “The evidence of ET38, and that of previous editions of this survey, point to real and pressing need to find a solution to political and regulatory uncertainty. Adverse government policy, political narrative and the perception of a worsening regulatory environment, is resulting in a sustained lack of confidence in the future viability of doing business in the UKCS.
“That degree of uncertainty in the future, which has had a significant knock-on impact on investment decisions and is already costing jobs, is unlikely to dissipate in the months leading up to a UK General Election or in the early months of a new government being formed. And time is of the essence.
“The recent King’s Speech announcement of annual licencing rounds provides a vital confidence boost for the sector and the firms supporting it but with the caveat that if activity in the North Sea remains financially unattractive, it will be an empty gesture. So we urgently need to see the EPL super tax ended- or meaningfully changed- to incentivise the necessary investment.
“However, to be truly effective these matters should be administered by an independent body, developing recommendations which could command cross-party consensus and insulate the sector from the upset and uncertainty of major policy switches according to short-term political cycles. A kind of Bank of England for energy policy.”
Rob Aitken, Director, KPMG Transaction Services, Aberdeen, said: “How we transition from oil and gas to renewables in the coming years will have a huge impact for supply chains, workforces, the environment, and the economy both locally and nationally.
“The North-east has huge potential to be a driving force in the transition to a lower-carbon economy and a Net Zero future. However, with lots of questions over the political situation in the short term, and recent policy announcements favouring North Sea exploration, it would be worrying to see businesses moving their focus away from the transition. Because ultimately, Net Zero is the only destination and it is where new opportunities will come from.”
Maggie McGinlay, Chief Executive of ETZ Ltd, said: “Progress continues to be made on realising the significant opportunities presented to the North-east of Scotland by the shift towards low carbon energy.
“The most encouraging indicators from the latest findings are that the vast majority of respondents consider our region as being very important in terms of delivering domestic energy security. And this is backed up by increasing levels of confidence in the Aberdeen region becoming a globally recognised renewable energy hub, leading on our national energy transition ambitions.
“This is, of course, the central focus of ETZ Ltd; to reposition the region as a globally recognised energy cluster focussed on the delivery of net zero. Our reputation as an innovative and productive region is both hard won and well deserved, and with continued resilience and optimism, we will secure our position as one of most attractive locations anywhere in the UK, and indeed across the world, for investment in low carbon technologies.”
