What is a 'Just Transition'?
And does the British Government know how to achieve it?
Those of you who have read anything I have written before will know that I'm always banging on about the need for a 'just transition' from oil and gas to renewables.
But what exactly do I mean when I say that? Let me try and explain.
Fundamentally it is quite an easy concept. Put simply it is allowing those currently in the oil and gas industry the time and opportunity to develop their skills to enable them to transition to the renewables sector. Connected to this is the need to ensure the renewables industry expands at a rate which will ensure those moving from the oil and gas industry have jobs to go to (as opposed to vanishing from Aberdeen and the North-East to jobs elsewhere).
It sounds simple, but things never are, especially when you have a Government who seem so hell-bent on destroying the existing oil and gas industry before the renewables industry has been built to a sufficient level to create the jobs needed.
And there is the rub. A Government which proclaims the importance of Net Zero and how we need to move on from oil and gas. Which has put in place a punitive ‘Windfall Tax’. Which refuses to sanction new exploration licences. Which proclaims its support for renewables of all sorts. Which talks about how oil and gas will be part of the make-up of UK energy for years to come.
But which, at the end of the day, doesn’t want to make best use of the oil and gas reserves we still have. Which prefers to import (at greater climate and energy security cost) the oil and gas we need. And which simply isn’t making it easy or attractive enough for companies to invest in renewables to the extent needed.
Instead we have the Chancellor of the Exchequer, the Rt Hon Rachel Reeves, telling the Press & Journal on 01 August:
‘If you look at things like the Acorn investment, that money has to come from somewhere. We need carbon capture, one of the ways to pay for that is through the energy profits levy.’
So the Energy Profits Levy (or the Windfall Tax as it is more commonly known) is about punishing existing energy companies (some of whom are looking to move – or already have moved – into renewables) by making them pay the cost for renewables?
How much the Windfall Tax is bringing in is also under question. The Aberdeen and Grampian Chamber of Commerce (AGCC) reported on 24 July:
‘The UK Government is withholding key data on the North Sea windfall tax amid mounting speculation it has created another financial black hole for Chancellor Rachel Reeves … Historically published quarterly, the data has now been conspicuously absent from HMRC’s monthly tax receipts since April, with no official explanation for the delay.’
The cynic in me suggests this is because the figures show that revenue from the Windfall Tax is falling – at a perilous rate and is nowhere near as high as expected (or needed).
Meanwhile what is the cost of the plan to move the UK economy away from oil and gas? Well according to the July Fiscal Risks and Sustainability Report from the UK Office for Budget Responsibility:
‘Our latest central estimate of the fiscal cost of climate change mitigation through to 2050-51 is £803 billion (21 per cent of GDP), or £30 billion a year on average, of which two-thirds can be attributed to lost receipts.’
Yep, you read that right, although the number is so large I have a problem getting my head around it!
The OBR goes on to add:
‘Expenditure accounts for the bulk of the fiscal cost in the next decade, particularly public investment in residential buildings, removals and surface transport. Receipts losses – mainly from lost fuel duty receipts – rise steadily over the projection period.’
Finally, it says:
‘In our central scenario, we assume that government bears around 36 per cent of the CCC’s [Climate Change Committee’s] latest estimate of the whole-economy costs, which would amount to around £9.9 billion (0.3 per cent of GDP) per year between 2025 and 2050. The net zero investment spending for the next four years announced by the Government in the 2025 Spending Review is broadly in line with this assumption.’
Where is this money coming from? Well according to the Chancellor of the Exchequer from the Windfall Tax. But given receipts from that are dropping (with the most recent figures from 2024 showing a 29% drop between the same period in 2023) I very much doubt that will cover the cost.
The question is not that the renewables sector will not be able to provide the jobs. Indeed there has been good news on this recently with Aberdeen’s North Star shipping group saying on 05 August that it will be taking on 100 new workers after landing a deal to support RWE’s offshore North Sea wind farms for over 10 years.
Announcements like these are positive, but the number of jobs involved simply isn’t matching those lost. And that is on the Government’s shoulders. It has to ensure the renewables sector is an attractive option for investment, that there are opportunities, and that it is willing to put its money where its mouth is. Not simply rely, as the Chancellor implies, on the Windfall Tax.
The Government will also point to announcements made by the Secretary of State for Energy Security and Net Zero, Ed Miliband, in June when he committed £200m to progress the Acorn Carbon Capture and Storage (CCS) scheme in Aberdeenshire.
‘This government is putting its money where its mouth is and backing the trailblazing Acorn and Viking CCS projects.’
In addition future funding of about £1bn for offshore wind and some £500m for the UK Government’s Clean Industry Bonus has been announced.
But as SNP MP Stephen Flynn said on 17 June when responding to this funding announcement:
‘None of this is bad news, in fact investment is a good thing, but the harsh reality Ed Miliband can’t escape from is that these announcements aren’t creating jobs anywhere near fast enough to replace those that are being lost in the here and now.’
That is the crux of the matter.
A ‘Just Transition’ allows time for workers to move from jobs in the old energy sectors of oil and gas to new jobs in renewables. But you can’t close or run down the first before the second is ready to take those people on.
In reality that is what is happening. By pushing forward with policies that make the oil and gas industry less attractive job losses are greater than those being created. What is needed is a more nuanced approach. One which understands that the bridge to renewables will take time to build. That you have to keep people in jobs until then. And that abandoning one industry too quickly will do more harm than good. Norway provides a good model if anyone cares to look …
The just transition will have to deal with all of the 100,000 to 200,000 to 300,000 USD per year in the oil patch workers who are being offered work or being offered to retrain for work where they’re making a quarter of that not one of them will ever feel that it’s just and the trickle down effect from all of the lack of spending from the same, won’t help anybody either because if there’s no money going to the oil patch guys, there’s no money going to the baristas, the painter, the babysitter, the household nanny, or the auto dealer. That’s the real point which most of the just transition people don’t get is that the high earnings simply cannot be replaced by becoming good at installing in Asian solar panels and foreign made wind turbines.