Economy and Fair Work Committee

Meeting date: Wednesday, May 10, 2023

Official Report 685KB pdf

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Just Transition (Grangemouth Area)

Our third item of business is an additional evidence session for the committee’s inquiry into a just transition for the Grangemouth area.

I welcome Graham Stuart, the UK Government Minister for Energy Security and Net Zero. He is joined by Kathryn Aggarwal, who is head of the track 2 team, carbon capture, usage and storage, and Jonathan Hoare, who is deputy director in the clean growth directorate. As always, it will be helpful if members and witnesses keep their contributions as concise and focused as possible. I invite the minister to make a short opening statement.

Thank you, convener and committee members, for inviting me and my officials to join you to talk about our net zero ambitions and our powering up Great Britain announcements in the context of your inquiry into the decarbonisation and just transition of the Grangemouth area.

The UK Government continues to engage positively with Scotland and the other devolved Administrations across various policy priorities to support energy security and net zero. Committee members are fully aware of issues around carbon capture, usage and storage, hydrogen and nuclear energy, floating offshore wind generation and, of course, the UK emissions trading scheme, in which we are all equal partners. I am grateful for the engagement, and I look forward to it continuing.

For too long, this country has taken cheap and plentiful energy for granted, but Putin’s illegal war in Ukraine and decades of overreliance on fossil fuels from abroad, despite the UK’s having very little exposure to Russian gas, have combined to push up energy prices. That is why the UK Government stepped in this winter to pay around half—half—the typical household energy bill and why support has now been extended for domestic and business consumers alike.

Our longer-term challenge—and opportunity—is to bolster our energy resilience as a nation so that a tyrant such as Putin can never again hit the pockets of every family and business in Britain. The path is clear: we must diversify our sources of supply, decarbonise and move towards greater energy independence, so that we have the cheap and clean energy that Britain needs to prosper in the future. That is why, in March this year, we published a suite of documents, including our net zero growth plan, under the “Powering Up Britain” banner.

Our transition to a green and sustainable future will provide new opportunities. As Chris Skidmore said, following his review, it is probably the greatest opportunity that Britain has at the moment to grow and level up the UK economy and support hundreds of thousands of green high-skilled jobs, while ensuring that the environment is in a better state for the next generation.

The policies and ambitions that we set out will help to leverage about £100 billion of private investment as we develop new industries and innovative low-carbon technologies, with ambitions to support up to around 500,000 jobs by 2030.

Of course, the UK has already made tremendous progress on decarbonising its economy and decoupling emissions from economic growth. Between 1990 and 2021, we cut emissions by 48 per cent while nonetheless growing the economy by 65 per cent. We truly are the world leader among major economies, and the path to net zero that is outlined in the net zero strategy is, we believe, still the right one. In the net zero growth plan—our update—we are bolstering our delivery further.

The proposals and policies that we have set out reach far into the future, with plans set out to the end of carbon budget 6 in 2037. That means that the current package represents one of a series of steps to full decarbonisation of the economy by 2050.

Given our success in decarbonisation to date, we are confident in our approach, but the plan does not intend to predict the exact shape of the British economy in 2037 or later, and neither should it.

The Prime Minister’s decision to create the Department for Energy Security and Net Zero was a clear statement of intent that the UK Government is prioritising those two important issues, and, in our comprehensive “Powering Up Britain” document, which was published just 50 days after the establishment of the new department, we have demonstrated that we are driving real progress to deliver energy security, meet net zero targets and lower our energy costs in the long term so that we have among the most competitive electricity prices in Europe by 2035 and secure economic benefits that will be felt throughout the UK.

Thank you, minister. Our inquiry focuses particularly on the Grangemouth area. As you will know, Ineos is based in Grangemouth, and it is described as the biggest polluter in Scotland. Its emissions are greater than those of any other site or company that is based in Scotland. If the UK Government is serious about cutting emissions, it will recognise the importance of taking action at Ineos and in the Grangemouth area.

The Scottish Government is working on a draft just transition plan for the Grangemouth area. What discussions are you having with it about the plan? Which of the measures that you have outlined are relevant to the Grangemouth area and will assist in the delivery of its just transition?

Thank you for your question. There are a number of components in the net zero journey. Decarbonisation of the electricity supply by 2035 is an ambition, but we also have to move to net zero in land use and agriculture. We have transport to deal with, and we have to decarbonise industry—and that part is most relevant to Grangemouth. That is why, as set out in the “Powering Up Britain” document, we are moving forward with intent on two technologies that are absolutely fundamental to delivering the decarbonisation of industry, and those that are hard to decarbonise, in particular.

In addition to increased electrification and the greening of our electricity supply is carbon capture, usage and storage, and that is why we moved forward with track 1, which involves the east coast cluster and the HyNet project in the north-west of England.

We highlighted that we were launching track 2, and we said that the Acorn project—part of the Scottish cluster—and the Viking storage project off Lincolnshire are in pole position for that, because they are the most advanced. We opened track 2 so that we could have expressions of interest for being included in it. We also said that we would look for an extension of track 1, because, if we are going to decarbonise industry and industrial areas—whether in the Humber, the north-west of England, Scotland or Wales—we will need carbon capture, usage and storage.

Hydrogen—perhaps blue hydrogen—is the other fundamental technology, initially. We set out ambitions for 10GW of hydrogen production capacity by 2030, of which at least half should be green hydrogen, which is electrolytic hydrogen. We have made announcements on that front, as well, with various awards in Scotland.

Scotland has a really exciting opportunity as we roll those technologies out, because, if we can lead the world in cutting emissions—as we have—we can lead the world in developing genuine net zero industrial clusters. Not only is that big business in its own right but it will unlock the reindustrialisation of and massive inward investment into those areas, given the environmental, social and governance and other environmental obligations that companies have entered into. The UK has an opportunity in Scotland, in particular, and, if we get it right, perhaps the Grangemouth area has a huge opportunity to unlock development in not just energy but more broadly.

Okay, thank you. Colin Smyth is next.

Good morning, minister. You touched on the issue of carbon capture and the committee has heard how vital the Scottish cluster carbon capture project is to supporting the transition of Scotland’s industries, especially in the central belt of Scotland.

You said that the Acorn project is one of two projects in pole position in the track 2 process, but we have had few details on what that actually means at a time when Ineos has said that it is committed to investing £1 billion to decarbonise Grangemouth and support the cluster.

Will you tell us more about the track 2 process? Will the planned update in the summer set out once and for all whether the UK Government is committed to ensuring that the Acorn project is taken forward?

We are grateful to the Scottish cluster for its continued engagement, and, as I have just said and as you reflected in your remarks, we recognise the maturity of the proposals. We have stated our view that, based on engagement to date and the track 1 process, Acorn meets the track 2 eligibility criteria and does not need to submit an expression of interest.

My colleague Lord Callanan, who is the minister responsible for CCUS, has previously engaged with the Acorn project, including by speaking at the recent Acorn reception in the Parliament. At a working level, there has been regular dialogue with the Scottish Government, and we are always happy to facilitate further engagement if it is thought to be fruitful.

We are working to deliver the track 2 process as quickly as possible, ensuring that we learn the lessons of track 1 while ensuring competitive tension and value for money. However, as you will be aware, there are risks associated with all infrastructure projects, and the Scottish cluster is still working through questions. Allowing all eligible transport and storage systems an opportunity to express an interest in the track 2 process is in line with our objectives of ensuring that track 2 optimises delivery and represents value for money.

There is a lot of work going on beneath the surface, and I am pleased to say that the Government has invested around £40 million, I think, into Acorn to date.

As you will be aware, if we are to meet our legal obligations to deliver net zero, we need to move at pace and we need to decarbonise not just major clusters such as the Scottish cluster but industry right across the country. We are seeking to move at pace, and I think that there is a positive future for Acorn in CCUS.

I agree, minister, that we need to move at pace, but the Acorn project has been under development for more than a decade, and I am sure that you appreciate that there is considerable frustration among potential developers.

Will you tell us why there has been what appears to be such a lack of progress in supporting that project? Also, to go back to my first question, will we get a clear announcement in the summer on whether the UK Government supports taking forward the Acorn project?

As I say, we are moving as quickly—[Inaudible.]—due diligence on that. I am not trying to be deliberately evasive, but I am trying to avoid giving you a definite date if we might not be able to deliver it. That work is under way, we are moving at speed and I hope that the date will be sooner rather than later. I am afraid that that is the best I can give you today, unless my officials scribble down something else for me. However, I do not think that they are going to because we are moving at speed and, if I give you a date and we miss it, that is unhelpful all round.

I will give the officials more time to scribble, if you wish, minister. Do you accept that, without the Acorn project, we will not decarbonise Grangemouth and we will not have a just transition in that area?

As I have said, we need to decarbonise all our industries across the UK, so we are seeking to move in a methodical manner. As you will be aware, other people around the world are looking at this, and it is a tough challenge to get it right. However, we are blessed with industrial geographies coupled with the geology that make it possible for us to lead the world in developing those technologies. If we cannot decarbonise Grangemouth, we will not be able to deliver the net zero targets that are set in law in both Scotland and the United Kingdom.

10:45  

Do you accept that, without the Acorn project, we cannot decarbonise Grangemouth on the scale that is required?

I do not have any alternative ideas, so we have to have a project to do that. As the Government has set out, Acorn is in pole position, it has met the track 2 criteria and further announcements will be made in due course. I do not think that I can give you any more than that. We have to do it, Acorn is in pole position and it has met the criteria—it is looking pretty good, is it not?

I hope so, minister.

Gordon MacDonald might try to get more on that.

Good morning, minister. To continue on Colin Smyth’s theme, I am aware that Andrew Bowie, who is the Parliamentary Under-Secretary of State for Energy Security and Net Zero, told our Net Zero, Energy and Transport Committee on 27 April that he

“would be overwhelmingly delighted should Acorn be successful through the track 2 process.”

He also said that

“it is vital to Scotland’s 2045 net zero ambition ... that we get more carbon capture and storage on stream across the whole of the United Kingdom.”—[Official Report, Net Zero, Energy and Transport Committee, 27 April 2023; c 10.]

Do you agree?

Yes.

Why is it then that we are still seeing delays to funding in the project? It is inexplicable to many observers that Acorn was excluded from track 1 status. I know that you have responded to questions from Colin Smyth on that point, but can you add more detail about why Acorn is considered secondary to the clusters that the UK Government selected to receive track 1 status?

Acorn has met the eligibility criteria for the track 1 process and performed to a good standard against the evaluation criteria. However, during the competitive and rigorous application and evaluation process, the HyNet and east coast clusters were selected as the track 1 clusters. The sequencing decision was made following a robust specialist-led assessment and was not subject to political intervention at any stage. Ensuring that the result reflected that assessment was crucial in upholding key principles of transparency and value for money, and we have as dispassionate a framework as we possibly can to ensure that we do that in the right way.

As we deliver the work and get it out there, we will cover the whole country in due course. We are moving methodically at a scale that has never been seen and in a way that has never been done in the world previously. That is why we are working in that fashion; why the right way to do so is in that layered manner, with a fair competition and neutrally determined outcomes in place; and why Acorn did very well and made the reserve but did not make it into track 1, on competitive and dispassionate grounds.

You have mentioned the east coast cluster a couple of times, which was announced for track 1 funding from November 2021. However, in recent weeks, the National Grid has withdrawn, as has Shell, indicating that it would focus on the Acorn project in Scotland. Drax has recently paused its investment in the project, too. What does that do to the viability of the east coast project? Does that give you an opportunity to review funding and bring Acorn closer to getting UK Government funding?

Our CCUS targets remain on track, as does the delivery of the east coast cluster, with the world-leading capabilities of BP, Equinor and TotalEnergies driving the project through the northern endurance partnership. Shell has made clear that it is committed to the technology, with a focus on other projects in the UK. The Government will continue to work with the industry on our ambition for four CCUS clusters by 2030.

As I have said, Acorn remains the reserve cluster for track 1. Naming a reserve cluster allows the Government to retain the option of elevating the Scottish cluster into track 1 in place of either HyNet or the east coast cluster in the event that material barriers to delivery should arise.

When would the first opportunity come around for a review to take place and possible elevation of the Acorn project?

That would be in the event of material barriers to delivery arising.

You have had three major players either withdraw from or pause investment in the east coast project. Does that not cause you to review the east coast project?

We are confident that the east coast cluster is progressing right now. If that were to change, in light of the circumstances that you refer to or others, we would be in a position to review it. However, at the moment we are confident that it is on track.

I very much appreciate your joining us today, minister. The issue of the Acorn cluster is critical, not only to Grangemouth, which is the subject of our inquiry, but to a just transition in the north of Scotland. You refer to maturity and infrastructure being key factors in your decision making. This project is the most mature and the most developed and it uses existing infrastructure. You make the argument that we cannot decarbonise Grangemouth without having the Acorn project and that, if we do not decarbonise Grangemouth, we will not meet our net zero targets. The third leg of that is that the Climate Change Committee has said that the UK and Scotland will not meet our net zero targets unless we have CCUS. That all leads to one place.

The issue then is the timescale, and you have talked about 2030. For Scotland to meet its targets, we need to start sooner than that. Will you be cognisant of the timing of this when talking to your colleague Lord Callanan about any final decisions?

I did not quite understand the question at the end—apologies.

The issue is around net zero targets for the UK, and you talked about 2030. For Scotland to meet its targets, we need to start on our carbon capture, utilisation and storage journey sooner than that. If that is the imperative, and the logic of your argument is that the Acorn project is well placed, will you, in your discussions with Lord Callanan—whom you said is the lead minister on this—emphasise that the timescale is critical to Scotland, and probably more so than to the rest of the UK, although it is critical to the UK as well?

The Scottish Government makes its own determinations of targets. The Climate Change Committee has remarked on Scotland’s pathway towards those targets and specifically on the 2030 target and how realistic it is. I will leave that to the Climate Change Committee and the Scottish Government to worry about.

We are delivering the UK Government’s policies that are aimed at delivering net zero by 2050. Given that we set the national framework, it would be sensible for areas of the country, including the devolved Government in Scotland, to ensure that their policies are compatible with ours, perhaps, rather than the other way around.

However, as a UK minister, you are responsible for all the United Kingdom, and it is clear that, on energy policy, the UK Government has a key power in relation to carbon capture, utilisation and storage. Is that the case?

Indeed, and we have set out the strategy to have four clusters by 2030. Whether that fits with the Scottish Government’s targets is a matter for the Scottish Government to deal with.

We are clear about doing it, and we do it while listening closely to the independent Climate Change Committee. We are making sure that we deliver. We are leading the world in this. There is a danger of coming up with impractical targets that cannot be met. We have to work in a coherent manner, which we do everything possible to do, while we engage with the Scottish and other devolved Governments to ensure that we are working in an aligned manner.

As I said, there is a tremendous opportunity not only to protect the jobs that we have but to create the foundation for a much more successful Grangemouth area, if we get it right. We will continue to implement our policies as set out in successive policy statements from the UK Government.

I refer the minister to the report that the Scottish Parliament’s Net Zero, Energy and Transport Committee produced last year on carbon capture, utilisation and storage. It had all-party support and it perhaps sets out the case in a stronger way than we have time to do today.

I will move on to the wider hydrogen economy. Clearly, Scotland and the UK have significant ambitions in that regard. We have heard that, to advance on the broader hydrogen economy, we will need further work on developing credible business cases to help to draw in the private investment that you talked about and to bring to market the various technologies that we require.

What is your view on that? What can be done and what is the UK doing to support the technology for hydrogen to reach maturity and attract the significant investment that is needed? There is an element of risk, so I suppose the question is: what is the UK prepared to do to help to move that market on?

We have just published the list of successful applicants for strands 1 and 2 of the net zero hydrogen fund, which will support the development and deployment of new low-carbon hydrogen production, exactly as you suggest. The announcement confirmed the first projects to be offered grant funding through the NZHF, with a total of £37.9 million for 15 new hydrogen production projects across England, Scotland, Wales and Northern Ireland. From memory, four of those projects are in Scotland.

We intend to launch a second competition round for strands 1 and 2 of the NZHF in the spring, which will be delivered by UK Research and Innovation. The second competition round will support the development of a diverse and secure hydrogen economy that is fit for meeting the UK’s ambition, which I have already mentioned, of having up to 10GW of low-carbon hydrogen production by 2030.

In addition, five Scottish companies have been shortlisted to proceed to the next stage of the process for the first electrolytic hydrogen allocation round, or HAR1—I always say that my department is particularly bad at naming things, but there we are—to kickstart the low-carbon hydrogen economy across the UK and meet our wider net zero targets. Those are ERM Dolphyn, Pale Blue Dot Energy, SSE Renewables, RES and Octopus Hydrogen, and Scottish Power. In addition to the net zero hydrogen fund, we have that electrolytic hydrogen allocation round, and Scotland is playing a full part in both.

Picking one of those at random, I note that Octopus Hydrogen’s Lanarkshire green hydrogen project plans to deploy 15MW of electrolysis that is directly connected to an onshore wind farm with the aim of producing over 3.5 tonnes of green hydrogen per day. When I was at the European Marine Energy Centre in Orkney not long ago, I was delighted to see that it is one of the first producers of green hydrogen. I was told that it powered the first Royal Air Force flight with sustainable aviation fuel—[Inaudible.]

Convener, I think that the minister’s connection has frozen again.

Minister, you froze for a moment, but you are back.

I have finished my answer.

Green hydrogen represents a considerable opportunity, not least because of the extensive renewable energy that can be released from ScotWind and so on. You talked about energy security, which is obviously important not just for the UK, but more widely in Europe. We have been told by industry that the export of green hydrogen represents a real opportunity. How seriously is the UK Government taking the opportunity to export green hydrogen to meet the demand from our colleagues in Europe?

That is a great question. The UK’s primary ambition is to have 10GW of low-carbon hydrogen production capacity by 2030 to decarbonise our UK sectors and contribute to our legally binding carbon budget. That is at the top of our hierarchy. However, that increased ambition, as set out in the British energy security strategy, also opens up the opportunity for exports.

If we look at a map of Europe and the British isles, we can see that we have a remarkable and special opportunity. We are not only world leaders in fixed-bed offshore wind but in developing floating offshore wind, which also has enormous global potential. If we can capture all that wind power in an economically sensible way, we can deliver among the lowest-cost electricity systems in Europe by 2035, which is our aim and, as you rightly highlight with the example of what is going on in Orkney and elsewhere, we can harness all that and convert it into highly competitive green hydrogen that will decarbonise our industry and trigger additional investment in the UK, including Scotland.

11:00  

I do not know about you, but I can imagine a future in which we might have pipelines going into Europe. We have gas and electricity interconnectors at the moment and they make both sides more resilient as a result. In future, we could have CO₂ pipelines bringing in CO₂ for us to store. After all, we have 78 gigatonnes of capacity for carbon storage in the North Sea. It gave us wealth when we emptied those wells of oil and gas and it would be fantastic to get further value by using them to store carbon. We could also have hydrogen flowing in the other direction.

I share your enthusiasm. If we get this right, we can create the foundation for economic prosperity in the 2030s and beyond so that we could lead the world in tackling the environmental challenge. If we get it right, we could also come out as a more economically competitive and richer nation with better jobs and greater energy security. That is the golden prize that we are after and, of course, Scotland has an outsized role to play in delivering that.

Hydrogen offers a way of producing energy, converting it and creating industrial jobs in Scotland while making sure that Scotland benefits from its unique position and ability to generate energy and contribute to not only the UK’s energy security but Europe’s.

Thank you for setting out Scotland’s strength in our energy now and in the future. With that, convener, I pass back to you.

Graham Simpson is next, to be followed by Maggie Chapman.

Good morning, minister. We have dealt with hydrogen, so we will move on to sustainable aviation fuel.

Last July, the UK Government produced a jet zero strategy in which you said that by 2025—just three years away at the time—at least five UK SAF plants would be under construction and an SAF mandate would be in place with a target of at least 10 per cent SAF by 2030. That is of relevance to us, because we want Grangemouth to be one of those plants. What are you doing to ensure that you get those five plants in place?

As you have said, last July we made a commitment in “Jet Zero Strategy: Delivering net zero aviation by 2050” to make the UK a world leader in the development, production and use of sustainable aviation fuel. Since then, we have made excellent progress; indeed, we recently announced a series of big steps forward. We published our second consultation on the SAF mandate, which provides a strong incentive to use SAF and offers price support for it. We have launched the second application window of the advanced fuels fund, making a further £56 million available to support UK SAF projects through to construction and to accelerate novel SAF production pathways to market. We are also setting up a UK clearing house to support testing and certification, with the University of Sheffield announced as the delivery partner.

In parallel, the Government has been considering what longer-term actions might need to be taken to stimulate SAF investment in the UK in addition to the SAF mandate and the grant funding for SAF plants. Last October, we commissioned Philip New to lead an independent evaluation of the development of a UK SAF industry, to identify the conditions necessary to create a successful UK SAF industry and to make supporting recommendations. We published his report alongside our Government response, which sets out the actions that we are already taking to address many of his recommendations, including, for instance, working with industry on stabilising the UK feedstock market for low-carbon fuels. Our response recognises that revenue certainty remains a barrier to investment, and it commits to working with industry on options to overcome that particular barrier so that those fuels become investable.

While noting the leading role that industry can play, we have committed to working on options to provide additional revenue certainty in order to deliver the investment that is needed. If required, we will, following that work, launch a formal consultation this summer.

So there will be a consultation this summer, but you said previously that, in three years, you wanted to be in the position of having five SAF plants under construction. It sounds as though we are nowhere near that at the moment. Is that correct?

The UK’s SAF programme is one of the most comprehensive in the world, with, as you have said, a highly ambitious mandate for 2025. That provides a long-term signal that now is the time to invest. We have made £165 million available from the advanced fuels fund to deliver the five plants—or, at least, to have them under construction—in the UK by 2025, and we are helping to establish a UK clearing house that will support the testing and certification of innovative fuels. Together with the SAF mandate, which, of course, drives an awful lot of this, we have measures that both support the supply and create the demand for SAF.

We are confident that that framework of measures puts the UK in a leading position to reduce aviation emissions and to start a UK SAF industry. We recognise that there are calls to go even further by building a long-term supply industry in the UK, and we are working in partnership with industry and investors to determine what further actions industry or Government might be able to take.

Thanks, but you have basically just repeated your first answer and have still not answered the question. You set a target of having five plants under construction within three years. From what I am hearing, however, you are doing some stuff but, as far as timescales are concerned, we are not yet at the point at which any of those plants is under construction. Is my analysis correct?

As far as I am aware, there is none in construction right now. As you have rightly said, Mr Simpson, the calendar for getting this done is challenging, but we are working flat out to make it happen. Of course, carbon capture has a part to play in SAF production. Getting that in place and making sure that it can be delivered, which we are interested in doing, involves a lot of moving parts.

The sustainable aviation fuel programme is led by the Department for Transport. We can certainly get you some more detail on the level of progress being made against the five-plants target, but the £165 million from the advanced fuels fund, which the minister has already mentioned, is the key thing that is supporting plants through to development.

This is a market, so it is all about where Government can stimulate, provide grant support and provide the market certainty that enables investors to make the decisions to do those things. It is not His Majesty’s Government’s SAF plants that we are putting in place, but quite a lot of support is going into SAF and a lot of progress has been made on it this year.

Yes, it is market certainty that we need.

Finally, minister, you talked about seeing the importance of Grangemouth, as we do. Have you visited it yet? If not, do you plan to?

I have not visited yet, but yes, I do plan to. I do not have it in my diary as yet, but Grangemouth is clearly a very important plant. I have specific responsibility not only for renewables but for oil and gas, and Grangemouth is very important as we move forward.

We have had some discussion about the different timescales and the pace of change required. It is clear that, globally, transition is taking place at a fast pace, with competition for skills, labour, finance and investment. The United States and the European Union have announced significant investment in renewable energy, and you have outlined that that is a key sector for Scotland and the wider UK economy. How can we ensure that projects, companies and workers in Scotland benefit from the investment that will be available? How can we ensure that we are best able to compete and have access to equivalent financial incentives, particularly for renewables?

We have made tremendous progress. As I have said, we have decarbonised more than any other major economy in the world. The cross-party consensus on the need for action and the ability to convert that into action has been a significant feature of Conservative-led Governments since 2010.

You will be aware that, in 2010, just 7 per cent of our electricity came from renewables; that figure is now more than 40 per cent and is heading towards 50 per cent and beyond. We have set up the contracts for difference scheme, which, because it has been extremely successful, is now being widely copied. It has helped to bring scale to things such as offshore wind, the viability of the economics of which was not obvious when we went out into the North Sea. We went from £120 a megawatt hour—or whatever it was—in the first auction in 2015 as a guaranteed revenue requirement to build to just £39.50 two auctions later, in 2019.

However, we should not be complacent just because of prior success. We are looking at issues such as non-financial criteria, and I am working closely with industry on that and on how we create incentives in a way that meets our international obligations but which strengthens the UK supply chain.

We have built an enormous amount of business and prosperity in the UK through supporting our renewables development, but I would like us to have done better. Going forward, I want us to do better not only in offshore fixed-bed and floating offshore wind but in CCUS hydrogen, too. I want to make sure that we, as you have suggested, really sweat how we create the frameworks in order to make it more likely that sustainable long-term jobs in Scotland and the rest of the United Kingdom will be built around our world leadership in this area.

You mentioned the competitive environment. On the one hand, we have commented that the Inflation Reduction Act in the US, with its “buy American” facets, is unwelcome in that particular way. However, to have the United States investing heavily in renewables and green technologies is tremendous, because it will help to drive down cost, and I am actually confident that, notwithstanding that, they should—[Inaudible.] Issues such as CCUS hydrogen and renewables offer an opportunity for us to deliver the kind of low-cost system that we want.

However, we have competition, because the rest of the world is playing catch-up with us. We have led the world in cutting emissions, but our frameworks for renewables, and indeed carbon capture and hydrogen, are pretty strong, too. We are still seen as world leaders; indeed, we have moved from the biennial auctions that we used to have for contracts for difference to having, this year for the first time, an annual auction. We will see how that goes. These things are always commercially sensitive until we close everything out, but in the past, we have been tremendously successful in getting investments, and I am pretty confident that we will continue to be so.

There are new technologies, too, such as tidal, where we are the world leader. Allocation round 4—that is, last year’s CFD round—was the first time that tidal technology had been included, and we have retained a specific pot for it this year, too. When I was in Orkney, I saw Orbital’s O2 tidal energy production unit, around 80 per cent of which has come from suppliers in the UK. I am determined to do everything that I can, including through the development of non-financial criteria in partnership with industry, to increase and strengthen the UK supply chain, and that will have a big impact in Scotland.

11:15  

Thanks for that. I appreciate what you said about our having achieved significant changes in recent years. However, we know from the Intergovernmental Panel on Climate Change report that the pace of change that we will need to achieve in the coming 15 to 20 years is actually even greater than the pace of change that we have seen to date, given the climate emergency that we face.

I want to ask about the investment that, as you have said, you are certain that we can continue to attract. Is it your intention—or the UK Government’s intention—to ensure that that investment comes with conditions attached with regard to how it is delivered in Scotland? We have heard from people in and around Grangemouth that previous energy transitions have not been as just as they might have been and that, as a consequence, there have been widening inequalities. Indeed, we are seeing that elsewhere in Scotland. How do you intend to ensure that the investments that we get drive a just transition and do not create or enable the development of two-speed or multiple-speed economies such as those that we have seen in the north-east of Scotland?

Before I invite you to respond, minister, I understand that you need to leave by 11:30 and I still have two members who wish to ask questions. I am going to allow Michelle Thomson to ask her question on the back of Maggie Chapman’s, as I believe that they are connected and so that you can address both together. I hope that I can then bring in Jamie Halcro Johnston before you have to leave.

Good morning. The questions are somewhat loosely connected, but I hope that you will be able to pick up Ms Chapman’s question, too.

I want to probe the issue of capital requirements. Globally, hundreds of trillions of dollars of investment are required to meet what we need to do. My colleague Gordon MacDonald touched earlier on the withdrawal of National Grid and Shell from the east coast cluster. That will have been noted by international investors, and a view will have been reached on whether that was about competence or other reasons. However, it will have influenced the appetite for investment. In general terms, what specific risks do you have in your risk register for attracting international investors? What risks do you have that you are therefore seeking to mitigate to get to the scale of investment that we need?

I will deal with both questions. On the just transition front, before I went to Orkney, I went to Port of Nigg and Aberdeen, and what I saw was that the support businesses—practically all the ones that I talked to—were working in oil, gas and renewables, because the subsea skills, fabrication, engineering and the rest of it are all allied.

It is important that we recognise that we are in a transition, and I find it unhelpful that the Scottish Government appears to be so opposed to managing a naturally declining basin in the North Sea. Over time, we expect that the amount of business that some of the businesses, including the ones that I met, get from renewables will grow and that the oil and gas business will reduce.

However, it is so important that we do not seek to abandon North Sea oil and gas or we will not have that just transition. Worse than that, we would, for instance, end up importing additional liquefied natural gas, which has two and a half times the production emissions of Scotland-produced gas. Oil and gas production is falling at around 9 per cent a year—we could, with new licences, arrest the rate at 7 per cent—which is faster than our demand is reducing. We have to recognise that, in Scotland, oil, gas and renewables are now one supply chain. If you want a just transition, you do not play to the gallery—you have to recognise that, in order to produce power in Britain, for Britain, you need oil and gas, during the transition, while we ramp up renewables, as one way of delivering that.

On Ms Thomson’s questions about capital requirements and what is on my risk register, the key qualities that we should have are stability, certainty and continuity, as well as being open to innovation. The Climate Change Act 2008, which we amended in 2019 to change the target from 80 per cent to net zero, gives us legal certainty. My secretary of state is legally obliged to ensure that we are on track to deliver net zero.

We are not quite in a unique situation, but we were the first major economy to legislate in that way, including on things such as the independent Climate Change Committee and five-year carbon budgets. That creates a certainty that we are legally obliged to go in that direction, and the cross-party consensus that supports it helps to give investors confidence, as does the fact that we have always been, I would say—I used to be the investment minister—possibly the most investible country in the world because of our stability and the rule of law, and because people know that, no matter where they are from, they will be treated fairly by our systems.

That combination of solid regulatory and legal systems coupled with legal, statutory certainty about the direction of travel is how we have been able to attract so much investment so far, and it is why I am confident—I do not think that I ever said that I was certain, but I am confident—that we will be able to continue to do so in the future.

Thank you for that—you have certainly set out what you see as some opportunities. My specific question, however, was about risks. Given the significant international competition for the funding that is required, can you give me more of a flavour, or set out more detail, as to what you think are the risks that external investors see in investing in the UK at the scale that is required, and what mitigations you are putting in place?

One of the risks would be a refusal to grant any new licences for oil and gas in the North Sea, even though—

We are talking specifically about investing in renewables.

Well, exactly. As I said, oil, gas and renewables now tend to overlap completely in one supply chain. In order to deliver the transformation at Grangemouth, and to deliver CCUS and hydrogen, you need the engineering, the balance sheet and the supply chain of existing oil and gas companies. One of the big risks to the transition, therefore, is the removal of support for the on-going development and production of oil and gas in the North Sea. That might sound ironic, but you asked me what is on my risk register, and that is right up there.

Otherwise, with regard to the risks, there is clearly competition, but we welcome that. In my experience previously as the investment minister, and now as the Minister for Energy Security and Net Zero, there is an enormous appetite to invest in the UK. That is building up rather big challenges for my department, and we work with the Scottish Government and others to build the regulatory and legal certainties to allow investment. No one has done what we are doing. For example, no one had done what we did in offshore wind, but we found a solution, and I pay tribute to the brilliant officials in my department who helped to deliver that.

Looking forward, it is important that we get in place the transport and storage regulations and standards around hydrogen, green hydrogen and carbon capture. That is another risk; I was challenged earlier on the speed with which we can get SAF up and running, and whether we can get those three plants going by 2025. We are running at 100mph and trying to be more coherent and joined up than ever before.

Another key issue is the grid and connections. All this generation is great, but, if we cannot get the electricity to where the demand is, we have a problem. That is why we now have a minister for nuclear and networks in the form of Andrew Bowie, who is focused on working with the grid, regulators and others.

We have a complex set of regulations, and we have to be able to deliver programmes and projects in a timely manner. If we do not do that, we will not be able to meet our targets, and we will put off investment.

You are absolutely—

I am sorry, Ms Thomson, but we are running out of time and Jamie Halcro Johnston is waiting.

I will finish with one final point. If you ask what is in international companies’ risk registers in terms of investing in the UK, it is going straight after the Acorn carbon capture and storage project, which represents the most commoditisable investment for those companies. I am therefore rather surprised that that is not on your risk register.

I will now allow Jamie Halcro Johnston to ask a question before we finish up.

Minister, you talked about Orkney, and I am dialling in from there today. I want to get an idea of how the UK Government is supporting developments in more remote and island communities. You have talked about networks. How is that investment happening?

That is a good question. I do not claim to be an expert but, having visited Orkney, it is fascinating to see what is going on up there with the potential for offshore wind and continuing oil and gas to ever-higher environmental standards. The North Sea transition deal commits the industry to reducing emissions from production by 50 per cent by 2030 voluntarily and in a world-leading way. For that, Orkney needs to facilitate, encourage and incentivise investment to electrify, for example.

There is also tidal energy and, while I was there, I heard that there are plans for major port investment and investment in looking at harnessing the huge energy production potential in the islands.

Orkney is, by definition, an awfully long way from the core English demand centres, and we have to get our locational pricing signals right. Some of the biggest potential is in Scotland, but, if we do not reflect the economic cost and political challenges of delivering network reinforcements, we are going to get ourselves in trouble. We are wrestling with that as part of our electricity markets arrangement review.

When I was there and hearing about the opportunity to work on the ports and develop greater green hydrogen production in the islands, on the one hand if we have a system that properly reflects the costs of reinforcement for connection, and if that creates an incentive to do more with the energy in the islands—[Inaudible.]

Every time I start to explain that the minister’s connection has frozen, it starts up again.

Minister, before you leave us, I realised that I cut Michelle Thomson off when she was asking a question. Would you return to that? If there is time, Maggie Chapman would also like to briefly come in before we close.

Michelle, do you want to repeat your final question?

I suspect that the minister has got the gist about Acorn. The point was probably well made.

After the 26th United Nations climate change conference of the parties—COP26—there was a great deal of optimism among investors. However, in giving evidence to this inquiry, the Association of British Insurers noted that there was still a shortage of packages that its investors could crowdfund. That speaks to risk, appetite, packages and so on. Are you able to give a bit more flavour on that? There is clearly a huge appetite for it, but we need things that people can invest in. Will you tell us more about your thinking on that, because we are not getting to the scale that we need to, at the moment?

11:30  

In March and April, we published updated net zero investment road maps for hydrogen and CCUS, as well as two new road maps for offshore wind and heat pumps. That addresses your point about trying to make it as easy as possible for people to understand the landscape and opportunities.

Those road maps articulate investment needs and opportunities alongside relevant Government policy and the funding support that is available to investors, and we plan to publish further road maps later this year to support the net zero transitions. We will refresh them as necessary when there are significant developments.

I will ask a very brief question. Minister, how do you intend to ensure that any investment that we get is conditional on it being key to delivering a just transition so that we do not get a two-speed economy, as we have seen in previous situations—such as in the north-east of Scotland? A just transition for communities is very important.

I am not entirely clear what you are getting at. A market economy is a market economy. If we can bring investment in, with people competing for workers and colleges training people up for jobs, we will, I hope, have good and sustainable long-term jobs. I am not sure that there is some magical government framework that risks standing in the way of investment—that makes it overcomplicated.

How will you ensure that people and communities do not get left behind? Some people and communities have been left behind in previous energy transitions.

Okay. Forgive me for not really picking up on the reference.

The most important thing that we can do is get investment, lead the world on the environmental challenge and make doing so an economic opportunity. If we do that, there will be more and more jobs and opportunities, and, if we work closely together, as we are doing—it is great to appear before the committee today—with the Scottish Government and educational institutions, we can ensure that we have people with skills ready for when the demand for those skills arrives and that people get good and well-paid long-term sustainable jobs.

I agree with you that we do not need to have a revolution going on in which lots of people feel marginalised and sidelined. We have to ensure that there is something in it for local people when major infrastructure is put in place. I co-chair the green jobs delivery group, and we try to make sure that we have the right apprenticeship frameworks and other programmes in place so that, when the jobs appear, they do not just all go to people who come in from outside. There is an opportunity for good jobs—not only low-paid jobs—for local people, but that takes a certain amount of co-ordination.

I am trying to ensure that we get signals from the market and that we ask business to give us the data, so that I can work with the Department for Education, in England, to ensure that the right educational and skills development—whether it is T-levels, apprenticeship frameworks or short courses—is in place to avoid people sitting and watching outsiders come in and take jobs that they could have had if only they had known about them and had been able to train for them.

I thank the minister and his officials for their contributions this morning and for their contribution to the inquiry that we are carrying out into the Grangemouth area.

11:33 Meeting suspended.  

11:34 On resuming—