Political instability has become the biggest obstacle to the UK’s energy transition, according to a new report published today.
Half of companies (50%) surveyed for Energy Transition 36 said that the current political and regulatory environment was now a barrier to diversification, up from 24% a year ago.
It follows a summer of chaos at Westminster which saw four chancellors and three prime ministers oversee two major tax U-turns for the energy sector.
As a result, the industry has been left paying one of the highest levels of corporation tax of any sector anywhere in the world, with reports it could rise further in Thursday’s Autumn Budget.
And with tax breaks ring-fenced for oil and gas investment rather than low carbon technologies, there is concern that the opportunity to accelerate the energy transition is being missed.
The Energy Transition Survey – produced by Aberdeen & Grampian Chamber of Commerce alongside KPMG
and ETZ Ltd – is a biannual barometer of confidence in the UK’s energy sector.
The 36th
edition finds:
- UK energy companies believe 47% of their work will be outwith oil and gas by 2030;
- 44% of firms believe they will be more involved in offshore wind within five years;
- 70% of firms are actively diversifying outwith oil and gas at present;
- 61% say access to skills will be one of the defining issues in the year ahead;
- There has been a surge in recruitment concerns across all disciplines; and
- A quarter of companies (25%) will be net zero by 2030, but 34% have yet to commit to a strategy at all.
The long-running survey – which is now in its 19th year – makes four recommendations to government. It seeks a stable fiscal regime for the North Sea, with no expansion of the windfall tax, alongside an extension of the investment allowance to include low carbon technologies.
It also calls for measures to accelerate business transition to net zero, and for the UK Government to progress the Scottish carbon capture cluster.
Ryan Crighton, Policy Director at Aberdeen & Grampian Chamber of Commerce, said: “Half of the companies surveyed for Energy Transition 36 said that the current political environment was a barrier to their diversification into new low carbon energies. And it is easy to see why after a summer of Machiavellian manoeuvres at Westminster, and further anti-oil and gas rhetoric from the Scottish Government
“Since the last edition of this report in May, we’ve had three different prime ministers and four different chancellors. And in that time, the UK Government’s stance on a windfall tax has shifted several times.
“The result is we now have an energy sector paying some of the highest corporate taxes in the world, while trying to operate in one of the globe’s most mature and challenging basins, while also trying to invest in the new low carbon energies of the future.
“The clamour for windfall taxes is understandable, but the whole debate has been driven by politicians unwilling to listen the hard truths which lie behind this populist policy. The energy transition is going to cost tens of billions of pounds. And it is becoming abundantly clear that the UK’s public finances are not in a position to share that bill.
“At a time when oil and gas producers are being asked to invest more to help ensure the UK’s energy security and make longer-term investments in renewables, additional taxes risk undermining their ability to do either.”
Martin Findlay – Office Senior Partner of KPMG UK in Aberdeen, said: “Net zero remains a non-negotiable for the country, for business and for society. The journey of the offshore oil & gas sector towards a greener future isn’t a new one, and with oil & gas likely to remain a vital part of our energy mix for decades to come, we still have some distance to go.
“The direction of travel is clear amongst oil & gas firms. They are expecting their businesses to transform substantially and at pace across the next decade. What companies do now across the three ESG strands of environmental, social and governance will determine the talent they attract, the customers they serve, the profits they make, and ultimately the impact they will have on society.”
Maggie McGinlay, Chief Executive of ETZ Ltd, said: "ETZ Ltd is proud to partner with KPMG and AGCC once again in support of the ET36 survey, the publication of which comes at crucial juncture in North East of Scotland’s transformation to capitalise on the opportunities that energy transition provide.
"The ongoing crisis in Ukraine and unprecedent cost crisis has precipitated significant debate around the structural weaknesses in our economy and how to address them. As a result, our policymakers are now firmly focussed on achieving greater energy security and supply for the long term as one of the solutions to this volatility.
"The results of this survey reflect this very context and reaffirms that the delivery of energy transition will require investment in strategic infrastructure, technology innovation, supply chain development and skills. That is exactly what ETZ Ltd has been set up to do and, working with partners in government and industry, we are witnessing the active acceleration to new energies and a net zero future."
Click here to download the full report.