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UK moves to expand oil and gas drilling amid energy price crisis

A major obstacle to the expansion of oil and gas extraction in the North Sea has been cleared, but the move clashes with the U.K.’s self-proclaimed “climate leader” status and will likely have little effect on a cost-of-living crisis that is quickly consuming British politics.

(CN) — The United Kingdom's Committee on Climate Change said it would not object to the government issuing licenses for new oil and gas exploration in the North Sea, as Britain faces an escalating gas price crisis and the threat of long-term energy insecurity.

The committee’s chair, Lord Deben, wrote to Business Secretary Kwasi Kwarteng on Thursday, saying the decision “is inherently political," “goes beyond climate policy” and thus “sits rightly with government, not with my committee.” Lord Deben, formerly known as John Gummer, stopped short of approving the plans, however, qualifying his statement by saying that refusing the licenses “would send a clear signal to investors that the U.K. is committed to the [1.5 degrees Celsius] global temperature goal” and also “strengthen climate ambition internationally.”

The Climate Change Committee was set up on a statutory basis in 2008, and has the legal responsibility of determining whether the government’s actions are consistent with its plans to reduce carbon emissions to net zero by 2050. The government had previously committed to a move to issue new North Sea licenses, pending the committee’s decision on "climate compatibility."

Kwarteng is reported to be considering giving up to 10 new drilling projects the green light. In a deal arranged last May, the government offered 16 billion pounds ($21.4 billion) of support for the industry, in exchange for guarantees that extracting firms would halve their emissions by 2030. Offshore North Sea oil and gas projects account for more than 40,000 jobs in the U.K.

The potential for further oil and gas exploration in the North Sea has drawn extensive criticism from climate researchers and campaigners.

“The U.K. government must finally listen to the science and scrap their plans to dish out more licenses and approvals to the oil and gas companies," Ryan Morrison of Friends of the Earth said in a statement. “No credible climate test could ever allow the production of new oil and gas. To provide certainty for the industry and live up to our climate commitments, the U.K. government must … begin a managed phase out of existing fields."

The International Energy Agency has previously said that all new oil and gas exploration projects must conclude by 2021 in order to preserve current global climate goals, which include limiting global warming to 1.5 degrees Celsius above pre-industrial levels.

The U.K. currently holds the presidency of the United Nations' climate change process, having hosted last year’s Conference of the Parties, or COP, summit in Glasgow, Scotland. It has used the role to position itself as a "climate leader" – a term challenged by environmentalists. Just two months after the international conference, the government approved a license for a new oil field in the North Sea, with the regulator determining there would be “no significant effect on the environment” as a result of the move.

The push to license new oil and gas fields comes amid a growing energy price crisis in Britain. Average household energy bills are set to more than double this April, with regulator Ofgem lifting the annual price cap on energy bills by 693 pounds ($928) – a 54% increase – in response to rising gas prices. Combined with rapid inflation and tax increases, the rising bills are driving a cost-of-living crisis in the U.K. that poses a considerable political risk to the government.

The price crisis has also reeked havoc in the U.K.’s oligopolistic energy sector. Almost 40% of domestic energy suppliers in the U.K. have collapsed over the past six months, affecting more than 3 million consumers. The collapse of smaller, lower-cost energy providers has resulted in greater market concentration around the dominant "Big Six" suppliers, further reducing consumer choice.

The Resolution Foundation has estimated that the crisis will double the number of Brits living under so-called fuel stress – where more than 10% of their income is spent on energy – to 5 million people.

Last month, Chancellor of the Exchequer Rishi Sunak, the nation's finance minister, announced a program offering government loans and tax relief aimed at mitigating the rising cost of living. But he was criticized by opposition politicians for failing to implement a so-called windfall tax on the profits of fossil fuel multinationals. Quarterly reports have shown that major oil and gas companies have recorded huge profits as a result of the crisis, with Shell’s CEO describing a 14-fold increase in profits as representing a “momentous year” for the company.

Gas is the U.K.’s primary source of energy generation, accounting for roughly 40% of electricity production. U.K. households also burn more gas than most European countries for heating, in part because the British housing stock is poorly insulated. As a result, price rises have hit the U.K. harder than across most of Europe.

In addition, the U.K. is particularly vulnerable to gas price hikes due its lack of domestic storage facilities. Instead, Britain relies on a "just-in-time" approach for its supply of gas, rendering it highly dependent on foreign imports and thus more exposed to global shocks. During the 2000s, the U.K. was largely gas self-sufficient, but North Sea reserves are now heavily depleted, with production levels in permanent decline.

At the same time, the U.K. government has been hesitant to commit to public investment in the nuclear or renewable sectors, instead favoring an energy mix being determined by market forces. Recent announcements pledging increased capital expenditure for nuclear and renewables are likely to take a while to come on grid, prolonging the U.K.’s gas dependency.

European sanctions being implemented as a result of the Russian invasion of Ukraine are expected to intensify the situation. Although the U.K. is not as dependent on Russian gas as as other major European nations, all imports will be highly price sensitive to further supply shortages on the continent.

To ensure British energy security, ramping up North Sea production may seem an obvious choice. However, the Climate Change Committee was emphatic in its rejection of the North Sea as a solution to rising prices.

In his letter, Lord Deben was clear that “oil and gas prices faced in the U.K. are set internationally. The best way of reducing the U.K.’s exposure to these volatile prices is to cut fossil fuel consumption.”

“Any increases in U.K. extraction of oil and gas would have, at most, a marginal effect on the prices faced by U.K. consumers in the future,” he added.

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