Introduction

The privately owned, for-profit fossil fuel industry is incapable of safely and fairly winding down oil and gas extraction in the North Sea. This should not come as a surprise. Oil and gas companies own and exploit their resources in pursuit of one overriding goal: the maximisation of profit. Given this, they are fundamentally ill-equipped to deliver what is required to keep the planet liveable: an orderly phaseout of a still hugely profitable industry as part of a just transition for workers, frontline communities and the shift to a secure and clean energy system. As such, it would be reckless in the extreme to trust the fair and orderly managed wind down of the sector to a combination of market coordination and for-profit privately owned corporation. The stakes are too high and the price of failure too great.  

By contrast, public coordination of North Sea fossil fuel assets — while no guarantee of success — is the best institutional form to secure a fair decommissioning of the sector in line with social and climate justice while maintaining energy security. This is because it is a more flexible ownership form, capable of pursuing a variety of different objectives: it enables production (and its decline) to be organised for goals beyond profit; it is more purposeful: it enables forms of non-market coordination and public planning that can synchronise an orderly and fair transition to a clean energy system in ways market competition falls short; and it is fairer: the state can better balance the risks, costs and benefits of the wind down of production, socialising potential losses while using fiscal measures to distribute these costs and benefits fairly across society, instead of workers and frontline communities bearing the brunt. A better institutional form is not enough, though, the content matters too: public ownership is not for its own sake but because, relative to market coordination it is the best guarantee of a more equitable, sustainable and democratic energy transition.  

For this reason, this paper argues that the state is best placed to undertake a managed phaseout of fossil assets in the North Sea. This is because it can undertake activity and bear assets without the hinderance of the profit imperative. And because it wields significant and singular risk-bearing capacity. Such a programme would begin from the public acquisition of existing assets under North Sea Transition Authority (NSTA) licenses so as to empower the NSTA to plan and undertake the phasedown of production. Assets could be legally held on the state’s balance sheet through a holding company, commonly referred to as a “bad bank”. Meanwhile the NSTA would coordinate the phasing out of production with other public and stakeholder institutions, such as trade unions, a National Wealth Fund charged with managing a Just Transition Fund for workers, and local authorities.

Public ownership is the best route to delivering an energy transition that is based on principles of justice, fairness and democracy.^[5] Our argument is premised on four key priorities:

• Bending the emissions curve: the oil and gas industry is critical contributor of emissions. This will not change if the future of the industry is determined by for-profit actors. As Common Wealth analysis showed,^[6] investment is guided by expected profitability; so long as oil and gas remain profitable, and generate higher returns than renewables, then fossil fuel companies will continue to invest in extraction and production, regardless of the impact on overall emissions. By contrast, public ownership can enable prioritising other goals — for example, the managed phaseout of production in line with 1.5 degrees future, where workers and frontline communities are economically protected. This in turn enables investment and disinvestment to be undertaken based on what most rapidly secures a transition to a secure, non-polluting energy system, rather than what makes the most money.
• Justice for workers and frontline communities: a disorderly market-coordinated transition is likely to lead to the highly uneven distribution of costs. By contrast, public ownership can better facilitate a fair and equitable transition through providing support and resources for affected workers and communities and providing the space for workers to help design the transition for their industry.  
• Better value for public money: The NSTA’s latest projection of total industry decommissioning costs is £43 billion (in 2023 prices) between 2023 and 2061. The expected cost to the Exchequer is £10.8 billion in both reduced future tax revenues and repayment of past tax revenues (expressed as a discounted nominal value). In addition, existing measures attempt to ensure that liability for decommissioning costs sits in the first instance with licensees but are inexhaustive; ultimate liability resides with the state. (This cost does not include the cost of managing labour market fallout from wind-down.) At the same time, revenue generated from fossil fuel production in the North Sea — gross operating surplus net of capital expenditure and decommissioning costs were £14.2 billion in 2023, down from a peak of £36.9 billion in 2022, according to NSTA data — can be reinvested in new renewable energy infrastructure, rather than diverted to shareholders.  
• Expanding democratic control: oil and gas companies make decisions that determine the health of people and planet and our economic wellbeing. Yet they are decision-making spheres in which collective authority is weak to non-existent. As such, public ownership gives the public a far greater say in determining how such critical economic decisions are made and how investment is allocated.

[.green]1[.green] Why and What Managed Transition

Phasing out North Sea production in compliance with climate targets

The International Energy Agency has stressed that global aggregate compliance with a net zero by 2050 pathway precludes any investment in new fossil fuel supply and implies “a huge decline in the use of fossil fuels.”^[7] Fossil fuel phaseout in compliance with net zero pathways and international climate commitments such as the Paris Agreement also implies that in global context real capital assets already producing or in development must be retired out of sync with their “natural” capital depreciation cycles.^[8] This means assets must be retired before maximum potential revenues are captured. The UK has a climate justice responsibility to begin its wind-down of production among the earliest and to retire assets early to support global carbon budget compliance. This is because, as Figure 2 shows, the UK is not dependent upon oil and gas rents for fiscal revenues, even in 2022/23 when tax revenues on a cash basis barely reached 0.36 per cent of GDP, with the help of 0.1 per cent from the reluctantly imposed Energy Profits Levy. Figures 3 and 4 beneath give a sense of the macroeconomic scale of North Sea in terms of overall income and expenditures, upstream of HMRC’s take.^[9]

[.fig][.fig-title]Figure 2: Tax Revenues Remain Historically Low, Despite Windfall Tax[.fig-title][.fig-subtitle]Tax Revenues from North Sea Oil and Gas, Share of GDP and Nominal, 1974/75-2022/23[.fig-subtitle][.fig]

[.notes]Common Wealth based on HMRC, ONS.[.notes]

[.fig][.fig-title]Figure 3: Income from North Sea Oil and Gas has Waned Since 2010[.fig-title][.fig-subtitle]UK Continental Shelf Income and Expenditure, Share of GDP, 1970-2023[.fig-subtitle][.fig]

[.notes]Source: Common Wealth based on HMRC, ONS.[.notes]

[.fig][.fig-title]Figure 4: Decommissioning Costs are a Small but Growing Share of Expenditure[.fig-title][.fig-subtitle]UK Continental Shelf Capital and Other Expenditures, 1970-2023, Share of GDP[.fig-subtitle][.fig]

[.notes]Source: Common Wealth based on NSTA, ONS.[.notes]

The UK also has a responsibility to proactively phase down production early because it has amassed a relative monopoly of economic wealth, capacity, and power in global context through its historical carbon emissions and former imperial control over the fossil fuel industry. Today, meanwhile, although the UK is the second largest producer in Europe, its production only accounts for one per cent of global output of oil and fossil gas. This means that curtailment of North Sea production would not pose significant global energy systems and macro-financial stability risks nor affect domestic petroleum prices.  

Moreover, contrary to suggestions that further production is vital to the UK’s energy security,^[10] much of UK oil and gas production is exported.^[11] And, in the grip of the UK’s energy crisis, fossil gas exports in 2022 more than tripled compared to 2021 in response to spiking global gas prices, with producers selling to the highest bidders rather than allocating gas for domestic use.^[12]  

Figure Z below depicts the North Sea’s remaining reserves and contingent resources, broken down by field type and by estimated probability of recovery.^[13] Remaining reserves in the UK North Sea are predominantly oil (70 per cent) rather than fossil gas (30 per cent) viable for use in heating and electricity generation.^[14] As Figure 5 shows, an estimated probability that much of contingent resources of either oil or gas are commercially recoverable is very low. These contingent resources also skew heavily towards marginal discoveries (3 billion BOE) and away from fields that are already producing or where new developments have so far been proposed. Unlicensed acreage accounts for two thirds of contingent resources (2C) within these marginal discoveries meanwhile. In any case, the NSTA expects the largest part of future gas production to come from gas condensate fields, which tend to be produced at relatively constant rates over time and are therefore less amenable than dry gas fields — “where production rates can be higher during periods of peak demand… and lower during periods of low demand” — to the kind of price smoothing techniques that crises such as 2022 made necessary.^[15] Furthermore, emissions intensity tends to increase with asset maturity.^[16] That is, the more we exhaust existing reserves, the greater the carbon we emit per unit of fossil fuel, sharpening the carbon cost of our extraction as the economic and energy security benefits also subside. Carbon Tracker estimates that “70 per cent of 2022 production was from assets in their most carbon intensive phase of operations”, that is, from assets whose reserves are more than 75 per cent recovered.^[17] The Norwegian Environmental Agency estimates that such assets are (often much) more than 2.5 times as carbon-intensive as those with reserves less than half recovered.^[18]

[.fig][.fig-title]Figure 5: Potential Additional Reserves Skew Towards Undeveloped Sites[.fig-title][.fig-subtitle]O&G Reserves and Contingent Resources by Field Type and Confidence Level, 2023 (BOE billion)[.fig-subtitle][.fig]

[.notes]Source: NSTA.[.notes]

Indeed, planned phaseout of fossil gas production would — through public coordination — support managed phaseout of fossil gas as a domestic energy and heating source, which the UK must do anyway to comply with domestic decarbonisation targets; the question is whether this is disorderly and unfair or managed in a way that works for communities and the sector’s workers. Early signs suggest that a disorderly phaseout is already on the cards, as investors take fright at the combination of a Energy Profits Levy on recent windfalls, the Labour Government’s stated position against new licences, and further policy uncertainty.^[19] Production of oil and fossil gas from the UK’s territorial seabed is in terminal decline, having peaked in 1999 and 2000 respectively. However, research from 2021 suggests that even if no further licenses are awarded, the CO2 emissions implied by the oil and gas in fields already in operation or under development exceed fair share 1.5-degree pathway compliance.^[20]

Corporate ownership forfeits control over the transition

The governance of the North Sea is characterised by private profit maximisation and a deficit of public control over production. This hinders oil and gas production phaseout in general but also impedes a managed and just transition. Although the UK maintains mineral rights over its territorial waters, the North Sea Transition Authority (NSTA) licenses and regulates extraction activity in the North Sea which is undertaken — and related assets owned — by private actors. The Petroleum Act of 1998 confers a legal obligation on the NSTA to ensure a twin goal of maximising economic recovery of oil and gas resources while supporting the UK’s net zero target. Through its licensing, the NSTA confers exclusive rights to equity holders to “search and bore for and get” petroleum in a defined area, with some conditions that companies must meet to maintain their license. Although the NSTA is mandated to support the UK’s net zero target, this is only focused on upstream production-linked emissions, such as methane leaks, not downstream consumption such as through direct production wind down, which is where the vast majority of emissions are actually generated. Moreover, the NTSA’s obligation to maximise production and the private ownership of assets in general means that this governance arrangement works primarily to ensure for-profit license owners maximise extraction of reserves associated with their license.

Only public ownership can facilitate managed phaseout and avert the risks of disorderly divestment

So, why can the transition simply not be left in the hand of private companies but led by government, or indeed, left to the market alone? The NTSA could halt the extension of new licenses and its legal obligation could be reformed — away from maximisation of extraction and towards supporting the UK’s net zero target including through targeting downstream consumption. However, this does not solve the fundamental problem of for-profit ownership. Regardless of whether they are publicly-listed, privately-held, or foreign state owned, corporate enterprise and ownership of assets constitutively must maximise profits; such asset owners will not curtail profitable activity unless forced to by the state. Moreover, for-profit asset ownership is incompatible with the needs of orderly divestment and just transition even if production were to be curbed through regulation.

In terms of the state forcing the wind-down of production, the imperative is to actively curtail fossil fuel production in exact and simultaneous alignment with managed decarbonisation and just transition needs. Regulation or withdrawal of currently significant public subsidy to curb production as the primary mechanism (i.e., absent proactive public acquisition of assets) will likely induce disorderly divestment, that is unsynchronised divestment. This is because curbs on long-term profitability will affect financial valuations of capital assets, relationships with money and capital markets, and other such considerations that shape the maintenance and utilisation of capital assets as well as the employment of labour by capital. For example, should the UK impose regulations to guide a gradual phaseout in production, we can expect to see for-profit asset owners in the North Sea halt production and divest from assets out of sync with the legislated plan, fire or otherwise precariatise workers, and make political claims for compensation and reactive asset acquisition by the state — discussed further in the next section.  

Market-led private divestment guided by the profit motive would also lead to disorderly divestment. For example, the UK still produces 42 per cent of its fossil gas supply domestically through the North Sea^[21] and, as Common Wealth has discussed elsewhere, in the context of fossil gas production and consumption infrastructure there are three possibilities for private divestment.^[22] Either private actors drop assets before replacement green capacity is online, such as in the face of regulation or uncertainty of demand; or private actors continue to expand currently profitable fossil fuel investment beyond carbon budgets; or private actors sweat their assets, profiting from price increases that can threaten price stability and physical economic functioning in other sectors. None can guarantee precise alignment of capacity maintenance and retirement with economic and just transition needs.  

Such needs include a just transition for workers and frontline communities, delivering a secure and most cost-effective energy transition, appropriate decommissioning of assets, and environmental repair, maintenance, and resilience building in the region — the costs of which are discussed further in the next section. Such needs also include democratic coordination on several fronts: coordination of the decline of North Sea production among existing assets licensed by the NSTA; across domestic sectors, such as coordinating the decline of fossil gas production with divestment from fossil gas infrastructure, and investment to change energy consumption patterns; and with other fossil fuel producing states to plan phaseout in line with global real economy and global climate justice needs. Private divestment, even if imposed through state regulation, cannot meet these needs. Therefore, both regulation to curb production through existing licenses and market coordination guided by profitability imperatives would be insufficient to deliver phasedown of production in compliance with a 1.5-degree pathway nor managed phaseout of the assets more generally.  

Only the state can undertake managed phaseout of fossil assets in the North Sea. This is because it can undertake activity and bear assets without the hinderance of the profit imperative and because it wields unparalleled risk-bearing capacity. Such a programme would begin from the public acquisition of existing assets under NSTA licenses so as to empower the NSTA to plan and undertake the phasedown of production. In terms of the balance sheet implications of such a move, assets could be legally held through a holding company, often referred to as a “bad bank,” while the NSTA could be charged with the policy authority to coordinate the decline of production with other public and stakeholder institutions, such as trade unions, a National Wealth Fund charged with managing a Just Transition Fund for workers, and local authorities. It would also coordinate with other fossil fuel producers in international context.  

[.green]2[.green] The Costs and Complexities of Transition: On the Necessity of Public Coordination via Ownership

Private capital requires the state

The state balance sheet is already highly involved in the production of fossil fuels in the North Sea and is already slated to significantly assume the costs of decommissioning production. In the worst-case scenario of reacting to disorderly divestment, the state might bear the entirety of the cost and absorb the losses posed by asset stranding through bailouts and asset holder of last resort programmes when profitability and financial stability begin to bite asset owners — which will be well after 1.5-degree pathway compliant production budgets are breached. Public acquisition of these assets is not, therefore, a “yes, no” question, it is a “when, how and for what” question.  

The state is always fundamental to constituting the corporation and private ownership of any asset. The corporation and private ownership of capital assets cannot exist without the architectural resourcing of law and its backing by state power, which gives legal form and claims to both economic coordination rights and ownership of the asset against the world. Simply through incorporation, the state gifts private corporations and asset owners with extraordinary legal privileges without which corporations and assets could not function and be investible by private investors: limited liability, the rights to perpetual existence and the ability to acquire debt in the corporate name. As a general principle, these gifts by the public to capital should not be maintained if against the public’s interest — as is clearly the case with the prospects of unmanaged phaseout of fossil fuel production and failure to curb production in compliance with existential carbon budgets.

Ongoing corporate ownership of the North Sea relies on heavy state subsidisation; divestment will too  

The UK state provides significant gifts to the fossil fuel industry and is set to provide substantially more under existing policy. The Crown (and by extension the government) retains the ownership of and mineral rights pertaining to its continental shelf (that is, the region of the North Sea from which oil and gas are extracted), meaning that it owns all rights to exploit the oil and gas in the shelf. These rights are then gifted to for-profit asset owners through the licensing process, managed by the North Sea Transition Authority, which cedes full control rights for the duration of the license as well as the wealth to be generated from exploiting the resources falling under that license. While this arrangement is taken as a given, it should be understood as an astonishing gift by the public to the firms that receive licenses and to their shareholders. In addition, the UK grants several further gifts to licensees through tax relief and additional subsidies.

As research by Green Alliance has demonstrated, for-profit license holders “are being paid by the UK to operate in the North Sea” through a highly generous tax regime that has intentionally subsidised production and paid for capital and infrastructure investments since 2014.^[23] This policy of intentional subsidisation through the tax regime came after an oil price crash in the mid-2010s that drove a market exodus.^[24] Between 2016 and 2020, oil and gas companies received almost £10 billion in tax relief for new exploration and production, and a further £3.7 billion in tax relief for decommissioning costs.^[25] However, tax relief for producers is not the only route through which fossil fuels are subsidised in the UK. Indeed, fossil fuels also enjoy a suite of consumer-targeted reliefs such as reduced VAT on fossil gas for use in domestic heating. As a percentage of GDP, these combined support measures for fossil fuels are relatively high compared with European peers such as France and Germany, reaching 0.6 per cent of GDP in 2019.^[26] Previous Common Wealth and NEF research has shown that the value of the full suite of the government’s support to fossil fuels amounted to about £12 billion annually on average.^[27] As Figure 6 shows, in the years running up to the gas crisis of 2022, roughly half of HMRC’s North Sea oil and gas tax revenues were going straight back out the door in the form of repayments.  

[.fig][.fig-title]Figure 6: Prior to the Gas Crisis, O&G Tax Repayments Equalled About Half of Revenues[.fig-title][.fig-subtitle]O&G-Related Tax Repayments Relative to Same Year Revenues, 2018/19-2023/24[.fig-subtitle][.fig]

[.notes]Source: Common Wealth based on HMRC.[.notes]

The state faces a bill of tens of billions in potential relief and supports for the fossil fuel industry and costs associated with supporting a just transition. Recent estimates of state support for decommissioning by the NSTA placing the figure for the total costs for decommissioning for the period 2023-2062 at £43 billion, in 2023 prices. £10.8 billion — expressed as a discounted nominal amount — will be supported by the Exchequer under current policy in the form of £5.7 billion in tax repayments and £5.1 billion in foregone Offshore Corporation Tax, as Figure 7 illustrates.^[28] There is reason, however, to expect that this could under-estimate the true fiscal cost due to favourable valuation parameters, restricted scope, and potential limitations of the chosen model scenarios underpinning it.

[.fig][.fig-title]Figure 7: Exchequer Exposure to Decommissioning Costs Varies Heavily[.fig-title][.fig-subtitle]Exchequer Exposure to Decommissioning Costs by Category, versus Total Industry Costs[.fig-subtitle][.fig]

[.notes]Note:*Total industry costs are stated in real terms, in the prices of the latest years respectively (e.g. 2023 prices in the last instance). All other values are stated in nominal discounted terms. Source: NSTA.[.notes]

The estimated cost to the Exchequer is heavily dependent not only on the cost actual decommissioning costs but also on how it interacts with past and future profitability to determine the tax base.^[29] As a result, factors such as lower fossil fuel demand, lower prices, a lower discount rate, a depreciation in the dollar could all lead to a higher net present value of the cost to the Exchequer. This is why the NSTA’s estimate two years ago — prior to the extraordinary crisis windfall of 2022 and the ensuing rate hike cycle — was twice as large (a combined £21.8 billion, comprising £11.4 in lower future revenues and £10.4 in expected repayments), despite the expected total industry cost of decommissioning having fallen only 20 per cent from £54 billion to £43 billion (both expressed 2023 prices).^[30] Relative to the baseline forecast, a ten per cent deviation in decommissioning costs, fossil fuel prices, or the dollar exchange rate could each swing the valuation of HMRC’s tax liability by between four to nine percentage points. Similarly, a 50 basis point movement in the discount rate could revalue the liability by three to six percentage points. For context, the Bank of England base rate rose by 510 basis points between November 2021 and August 2023. The discount rate matters enormously not just because of the huge impact of the rate hike cycle, but also because it reduces current estimated cost to the Exchequer of pushing decommissioning into the future, sharpening the conflict between climate goals and fiscal management.  

The £10.8 billion figure cited above should thus be explicitly understood as nearer to a baseline estimate, as we should expect the state to assume further fiscal costs for decommissioning as well as bailouts and reactive public acquisition of assets in reasonable scenarios of both market-led and regulatory-driven constraints on the profitability of such assets.

Additionally, while there is not currently a robust policy framework in place to support a just transition for workers in the industry, research suggests this will require fiscal support between £320 million-£1.1 billion across the UK, including £192 million to £662 million in Scotland for job retraining^[31] and a further £2.2 billion for local jobs programmes.^[32]

Public coordination preferable to market coordination

Market coordination is unlikely to deliver global aggregate phasedown of fossil fuel production in compliance with net zero by 2050. According to the most recent UN Environment Programme Production Gap Report, global aggregate production of fossil fuels is currently on track to be 120 per cent more than would be compliant with a 1.5-degree pathway.^[33] Aggregate phasedown of fossil fuel consumption would require systemic non-market coordination to deliver the public and private investment necessary to transform the capital and infrastructure stocks that dictate consumption, which has yet to be instantiated as necessary scope and scale. But even absent more robust public coordination in domestic and global contexts, demand for oil and fossil gas is subject to uncertainty. Should public policies affecting downstream consumption and market coordination lead to a decrease in demand, and thus profitability of maintaining and operating assets, for profit owners will make political claims for fiscal support and bailouts, which can include both fiscal backstopping and reactive acquisition of assets with the state serving as holder of last resort on its balance sheet — the only entity capable of holding them at a loss. We can expect these claims in a greater extent in the face of regulatory attempts to curb to production in compliance with a (globally-just) net zero by 2050 pathway.  

Moreover, the current gradual transition — depicted in Figure 8 beneath —  from for profit ownership through public markets to that of private markets could increase the fiscal cost for decommissioning likely even if early retirement of assets is not imposed by the state. Private equity players have entered the market since the mid-2010s, enticed by rock bottom oil prices and low interest rates. Their business model involves realising highly leveraged returns via a prompt market exit. This strategy, however, increase their financial exposure to stranded asset risk; more ambitious climate policy could not only damage returns through lower fossil fuel demand, but can also accelerate asset retirement and thus decommissioning costs. Meanwhile exit opportunities may evaporate as investor appetite for North Sea assets wanes. All of this is amplified by high leverage and rising interest rates. This cocktail is a danger to private equity in all industries, but the latter especially so in this case by magnifying the present value of the accelerated decommissioning costs. Modelling by Carbon Tracker suggests that even a “moderate” — compared to slow — transition could see a cash flow decline of over 60 per cent among all of the existing projects in the sample they model.^[34] Financial fragility on the part of asset owners could thus redound upon the Exchequer.  

[.fig][.fig-title]Figure 8: Publicly Listed Companies’ Share of the North Sea Has Narrowed[.fig-title][.fig-subtitle]Share of North Sea Production by operator type, 2005-2024[.fig-subtitle][.fig]

[.notes]Source: Common Wealth analysis based on NSTA.[.notes]

Figure 9 provides a static, more granular decomposition from NSTA itself of the North Sea’s weighted ownership composition, as of 2021.^[35]

[.fig][.fig-title]Figure 9: The NSTA Attributes One Sixth of North Sea Production to Private Equity[.fig-title][.fig-subtitle]Production by Operator Type (BOE billions)[.fig-subtitle][.fig]

[.notes]Source: NSTA.[.notes]

Moreover, only the state’s fiscal and coordination capacity can orchestrate a just transition for workers in the industry and related domestic economic networks. As of 2019, extraction in the North Sea employed 30,000 workers directly and over 70,000 more in the domestic supply chain.^[36] A 2021 study found that in a scenario of managed phaseout of North Sea production, 12,500-15,500 offshore workers and 10,000-16,000 onshore workers in the oil and gas industry and its supply chains would require government supported retraining and reemployment support, including workers’ salaries during retraining period, and which would cost £320 million to £1.1 billion across the UK, including £192 million to £662 million in Scotland.^[37] Although this study noted this cost could be split in half by government fiscal outlays and a new skills levy on the industry, the possibility of this split depends upon the stability of firms and the industry as a whole, as opposed to a likely scenario of disorderly divestment.^[38] This study also stressed the importance of a jobs guarantee programme for oil and gas industry workers in the regions most dependent on the oil and gas industry, such as Aberdeen and Aberdeenshire, Shetland, Dundee, Fife, the Tees and Tyne river areas and Norfolk. This would cost £2.2 billion.^[39] Given these fiscal outlays, public ownership of assets offers a more coherent and effective foundation for coordinating retraining and redeployment of labour in the region, and one with lower risk of workers slipping through the cracks. For example, the NSTA could facilitate a jobs guarantee programme that redeploys workers for coastal resilience, environmental repair and offshore wind development projects in tandem with its production decline plans.

[.green]3[.green] Ownership Futures: Always, Eventually, the State

The ultimate horizon of ownership and fiscal responsibility for (ending) fossil fuel production in the North Sea is the state. The political question is how long we put off the inevitable and what we sacrifice the longer we cede control to the profit motive: stability, justice, and democratic wealth building. Assertion of public control over our shared future is not only the indispensable means to an end concerning orderly and effective decarbonisation. It could be an end in itself: by reclaiming social wealth and democratic control over inherently social production, we can lay the foundations for shared post-carbon prosperity beyond the practical project of decarbonisation. As we democratically coordinate the transition from fossil fuels, we can instantiate communal stewardship of shared resources, purposeful planning and undertaking of production, and democratisation and decommodification of economic life. This democratic future will always be available to us; but the longer we wait the more human life, precious carbon budgets, and experience of collective freedom and democracy we sacrifice.  

Next steps

This briefing has explored the case for public ownership of assets in the North Sea as the best route to synchronise the investment and disinvestment strategies required to smoothly transfer to a green and secure energy system while ensuring the sector’s workers and frontline communities have the resources and voice to thrive during that transition. However, much work remains to set out how to bring currently privately owned and operated oil and gas licenses into public ownership to coordinate their safe and planned wind-down. Three immediate areas stand out for further work:  

First, acquisition. The existing assets under North Sea Transition Authority (NSTA) licenses should be publicly acquired to empower the NSTA to plan and undertake the phasedown of production. A critical question is the cost of acquisition, which in turn depends on the valuation agreed. There are two main approaches that can be taken: “equity book value”, which is based on the principle of compensating the current owners for what they have invested, and “market value”, which is based on current share prices — which incorporate markets’ expectations of future profits.^[40]    

Second, the potential legal implications, including the risk of action by oil and gas companies under the Energy Charter Treaty (ECT) and bilateral investment treaties, and how best to respond to any such claims. However, with the UK’s exit from the ECT, the risk of this potentially complicating factor has most likely been reduced.

Third, institutionalising public transition planning. Along with public acquisition of existing assets, the North Sea Transition Authority’s legal obligation should be updated to be charged with coordinating the planned phaseout of production. Phaseout should be planned by the NSTA in coordination with key stakeholders such as the industry’s unions as well as other public institutions such as a National Wealth Fund. This should seek to plan beyond the profit motive, instead incorporating core goals into investment and operational decisions such as: a secure and phased winding down of production within safe climate limits, ensuring security for workers and frontline communities, and synchronisation with the rapid scaling up of domestic renewable energy generation.