Denmark, Norway and the UK have all committed to achieving ambitious carbon neutrality targets aligned with limiting global temperature increase to 1.5°C above pre-industrial levels. Yet they are some of the top oil and gas producing nations in Europe. The North Sea countries face some barriers to an orderly phase-out, some of which have been exacerbated by Russia’s invasion of Ukraine; however, they remain well placed to be first movers to achieve an orderly and just transition as they have the necessary finance, economic diversity, technical knowledge and ample renewable energy potential to break their dependency on oil and gas industries.
Our most recent research within the Climate Strategies and SEI-led Oil and Gas Transitions project looked at the state of transition in Denmark, Norway and the UK to evaluate their just transition policies. You can read more and find the detailed assessment here. Despite them being at different stages of transition, the three countries face some similar opportunities and challenges and share a common understanding that a just and managed transition can reduce resistance to change. However, there is still an ambition gap between countries’ climate targets and oil and gas policies and activities. Closing that gap may be challenging in the short-term, but would prove beneficial in the long-term, especially considering all the work that the North Sea countries have already done towards transition.
Global demand and high trade value for oil and gas has always been one of the main challenges to curbing oil and gas production, as it creates resistance to change within companies and among politicians. This challenge is especially pronounced now as oil and gas companies are reporting record profits and continue investing in new fossil fuel developments in the North Sea while the EU has recently released a joint statement with Norway, supporting its “continued exploration and investments to bring oil and gas to the European market”.
The EU depends heavily on imports of both oil and gas, which account for almost 67% and 27% of energy imports respectively, making it a significant driver of demand for oil globally and gas from neighbouring countries, with Norway and the UK being important trading partners. Therefore, EU policies are crucial when it comes to the transition away from oil and gas in the North Sea. Even though the EU is under pressure to make up for the lower gas supply, further investments in new fossil fuel exploration has the potential to lead to lock-in effects that could make the necessary weaning off fossil fuels more difficult in the near future.
Despite the current momentum for new developments in old sources of energy, global demand for oil and gas will have to decrease markedly in order to realize global climate ambitions as nations move to low carbon alternatives in the transport, industry and heat sectors and as CO2 prices are increasingly applied to the full value chains of fossil fuels, especially in advanced economies. Therefore lock-in effects of new oil and gas infrastructure could lead to waste of resources if the infrastructure must be decommissioned before its technical lifetime. This would lead to stranded assets or could prolong the phase-out of oil and gas.
While acting now to continue to phase out oil and gas might result in short-term losses, not acting would cost much more in the long-term and not only in terms of stranded assets, loss of new low-carbon industries and lock-in of labour force, but also in terms of political costs. Previous transitions in North Sea countries provide sobering lessons on the political costs of unmanaged transitions. These are particularly stark in the UK, where deprivation left by unmanaged transitions in the steel, shipbuilding and coal mining industries is still felt.
There are benefits to being a first mover. It is predicted that jobs in the energy supply sector as a whole will increase by 20% by 2030, driven by more jobs in renewable energy. These jobs would not necessarily be in the same regions or require similar skills as the ones lost, therefore those countries that take the lead could benefit most from a managed and orderly transition. Furthermore, first movers are more likely to benefit from economies of scale, because climate innovation is likely to attract a critical mass of companies and countries leading to a speedy decrease in technology costs, as new global markets emerge.
In fact, all North Sea countries are already investing heavily in offshore wind power, carbon capture and storage, and hydrogen. A large part of these investments is in regions where the oil and gas industry play an important role today. Many skills required for these low-carbon technologies are similar to those within the oil and gas industry, especially in terms of offshore oil and gas engineers typically having similar competences and safety training as those needed in the offshore wind power industry. This is an important opportunity for workers and regions to transition into new high-quality jobs.
Our country case studies also demonstrate the opportunity presented by the momentum that is building for a just transition among political parties and stakeholders. Today many policymakers and other stakeholders understand that emissions from oil and gas activities need to decrease rapidly to achieve net-zero targets and are willing to explore pathways to achieve it. Our upcoming reports within the Oil and Gas Transitions project will present exactly such pathways, developed in a multi-stakeholder setting and co-produced together with researchers, policymakers, the energy industry, and civil society organizations.
Another opportunity and advantage that the North Sea countries share are their social safety nets. National unemployment benefits and job search support schemes, especially in Norway and Denmark, offer greater support to vulnerable groups in the sector compared to countries without such benefits. Furthermore, higher education is free in Denmark and Norway, which can help certain workers fill education gaps to make necessary career changes. This is an opportunity to plan ahead for a just transition without deep structural changes in the governance of employment and education schemes, but there is still room for targeted reskilling programmes fit for the needs of diverse groups of employees.
When we look at the financial ability to deliver a just transition, Norway is especially well placed, since from the first years of oil and gas production, it created a fund to support the country when oil begins to run out. The Sovereign Wealth Fund (officially called the Government Pension Fund Global) is the largest sovereign wealth fund in the world, with over €1.1 trillion in assets. This is an unparalleled opportunity to invest in a just transition, through investments in renewable energy technologies, diversification of the economy, infrastructure development, reskilling programmes, and just compensation schemes, among others. Both Denmark and the UK also have strategies and funds available that support a just transition.
While at present there is not a single example of a successful and widely accepted transition to a fully low-carbon economy, examples of both past and recent energy transitions offer evidence on the advantages of being a first mover in such transitions. For instance, Denmark, Germany and Spain have all found success by moving early on renewable energy technologies, especially in the wind power industry.
Even though at first sight the three countries are quite similar (rich developed countries in the same production region), they differ significantly in terms of the importance of oil and gas in their economy, political governance structures and sociopolitical culture in general, resulting in the differences in stages of transition. These differences have important implications for actual implementation of phase-out and will become ever the more important as the scope of phase-out discussion broadens to countries and regions with even more substantial heterogeneity.
Our country evaluation shows that, despite having many of the right conditions for transition so far, Denmark, Norway and the UK all have gaps between climate ambitions and policy actions. When it comes to oil and gas transitions, all countries except Scotland – which we scored only on areas in which it has devolved powers – rank poorly on support for regions, workers, their families and communities, as well as on transparency in planning processes. However, given the opportunities and the work that has already been and is being done to transition away from oil and gas, still leaves the North Sea countries in a favourable position to become first movers.
Closing the ambition gap to achieve a successful oil and gas transition depends not only on decisions made by governments and companies, but also requires a radical transformation in the way we consume and use energy across all sectors of the economy at an unprecedented scale, cost and speed. To enable this transition, greater international cooperation is essential for creating credible pathways to scale up renewable energy production, and to accelerate innovation, climate finance and just transition mechanisms.
A successful transition can only be achieved through greater policy coherence and dialogue involving all stakeholders. Our Denmark case study shows that Denmark is a good example of that. Dialogue and consultation among stakeholders were fundamental to overcoming resistance towards oil and gas phase out, resulting in a widespread buy-in. Our analysis suggests that in the UK and Norway the transitions have been less progressive and more politically divisive than in Denmark. Both Norway and the UK case studies acknowledge that although policymakers have the power to set the direction of transition in the short- to mid-term, no single group has the leverage to steer the transition. This amplifies the importance of co-producing policies and measures for just transitions, which is what the Oil and Gas Transitions project aims to facilitate in the upcoming co-produced phase-out scenarios.