beta

You're viewing our new website - find out more

Publication - Research Publication

Unconventional oil and gas: compatibility with Scottish greenhouse gas emissions targets

Published: 8 Nov 2016

Research into the compatibility of unconventional oil and gas with Scottish greenhouse gas emissions targets.

92 page PDF

1.8MB

92 page PDF

1.8MB

Contents
Unconventional oil and gas: compatibility with Scottish greenhouse gas emissions targets
Chapter 4: Impact of unconventional oil and gas extraction on meeting Scottish emissions targets

92 page PDF

1.8MB

Chapter 4: Impact of unconventional oil and gas extraction on meeting Scottish emissions targets

In this chapter, we bring together the outputs of the preceding chapters to assess the possible impact of unconventional oil and gas development on Scottish emissions, and what that means for meeting annual emissions targets and the 2050 target.

Even tightly regulated oil and gas production leads to some emissions. Domestic onshore production in place of imports would mean that production emissions occur in Scotland rather than overseas. This would therefore increase Scottish greenhouse gas emissions, even if it leads to no greater consumption of oil and gas in Scotland and even if the overall greenhouse gas footprint of Scottish production is lower than that of imported gas.

On the basis that Scottish unconventional oil and gas production should displace imports rather than increasing domestic consumption, the scale of the impact of domestic production on Scottish emissions depends on two main factors: the level of production ( Chapter 2) and the unit emissions associated with production ( Chapter 3).

The emissions impacts presented in this chapter use the 100-year Global Warming Potential ( GWP100). This metric is used as standard in international, UK and Scottish emissions accounting, including Scottish annual emissions targets, UK carbon budgets and the 2050 target, but it is important to understand how to interpret the results based on its use ( Chapter 1).

In this chapter, we set out our analysis of the impact of Scottish unconventional oil and gas on territorial emissions, how these could be accommodated under emissions targets and our conclusions and recommendations, in four sections:

1. Impact of domestic unconventional oil and gas production on Scottish territorial emissions
2. Emissions relating to additional economic activity within Scotland
3. Impact on meeting existing Scottish emissions targets
4. Conclusions and recommendations

1. Impact of domestic unconventional oil and gas production on Scottish territorial emissions

The implications for greenhouse gas emissions of unconventional oil and gas exploitation are subject to considerable uncertainties, both regarding the size of any future industry and the emissions footprint of production.

Tight regulation with a strong legal foundation can shift the estimated range for emissions downwards and also narrow this range. However, it is not possible to state with certainty the emissions impact of a given level of Scottish production. In considering the implications for meeting annual emissions targets, it is essential not only to look at central estimates but also to look at a range for possible production, and in particular the largest plausible production scenario and the upper end of the range impacts (Figure 4.1):

  • High-end estimates. The increase in Scottish territorial emissions due to domestic unconventional oil and gas extraction under the KPMG High production scenario could be up to 4.8 MtCO 2e/year in 2035, if production were unregulated. The measures in our 'Minimum necessary regulation' case ( i.e. monitoring, reduced emissions completion and addressing emissions from liquid unloading) reduces the upper end of the emissions range to about 2.6 Mt. The measures in our 'Fuller technical mitigation options' ( e.g. electrification of compressors) reduce the high-end estimate further, to about 1.6 Mt.
  • Central estimates. The impact of onshore production on emissions under central estimates is also affected significantly by the level of regulation. Our central estimate for unregulated production under the KPMG High production scenario is 2.6 Mt/year in 2035, falling to about 1.6 Mt under our 'Minimum necessary regulation' case and to about 1.1 Mt with fuller technical mitigation options.

Implementation of the measures in the 'Minimum necessary regulation' case is therefore essential. They make a significant reduction in the central estimate of the emissions impact of Scottish UOG production (36%-38% as against the No Regulation case, depending on the production scenario), but are also significant in risk mitigation terms by reducing the high-end estimate by a greater amount (43%-46% as against the No Regulation case).

The emissions relating to production grow over time, broadly in line with the growth in hydrocarbons produced, peaking slightly after 2035 under each scenario (Figure 4.2).

Figure 4.1. Scottish territorial emissions due to unconventional oil and gas production, depending on regulation (2035)

Figure 4.1. Scottish territorial emissions due to unconventional oil and gas production, depending on regulation (2035)

Source: CCC analysis.

Notes: Total emissions relating to Scottish unconventional oil and gas production, on a territorial ( i.e. gross) emissions basis. KPMG Low, Central and High refer to the production scenarios presented in Chapter 2. The ranges around the black dots reflect the uncertainty in our emissions estimates. The 'No regulation' case does not reflect the current or anticipated framework, but rather acts as a baseline for comparison purposes in order to show the emissions reductions availablethrough regulation.

Figure 4.2. Scottish territorial emissions due to unconventional oil and gas production under the 'Minimum necessary regulation' case (2022-2035)

Figure 4.2. Scottish territorial emissions due to unconventional oil and gas production under the 'Minimum necessary regulation' case (2022-2035)

Source: CCC analysis.

Notes: Total emissions relating to Scottish unconventional oil and gas production, on a territorial ( i.e. gross) emissions basis. KPMG Low, Central and High refer to the production scenarios presented in Chapter 2. Chart presents central estimates of emissions under the 'Minimum necessary regulation' case only.

2. Emissions relating to additional economic activity within Scotland

In order for Scottish greenhouse gas emissions to meet the limits set by the annual targets, unabated fossil fuel consumption must decline over time. Any domestic production of unconventional oil and gas should not result in greater consumption of fossil fuels than is implied by those targets. Indeed, emissions relating to UOG production would necessitate additional offsetting action to reduce emissions elsewhere, which may well imply lower fossil fuel consumption than in a case without UOG production.

In addition to emissions relating directly to UOG production, there are three other routes by which these activities potentially affect Scottish emissions:

  • Gas prices. As discussed in Chapter 2, the impact of Scottish UOG production on wholesale prices is likely to be very small, due to relatively small volumes anticipated and the degree of interconnectedness of international markets. Therefore we do not expect a significant impact on fossil fuel consumption from lower prices.
  • Direct supply of industry. It may be that local hydrocarbon supplies would be attractive to Scottish industry, enabling long-term contracts insulated from the volatility of international markets. If this leads to increased hydrocarbon consumption as a feedstock ( e.g. in the petrochemicals industry), there could be an impact on emissions. This was not examined quantitatively in the parallel study on economic impacts and scenario development. We have therefore been unable to assess this quantitatively.
  • Increased general economic activity. Producing fossil fuels domestically rather than importing them would have a direct effect on employment in Scotland, with potential knock- on effects in the wider economy. The parallel study on economic impacts and scenario development has quantitatively assessed the possible size of such an effect. As the annual emissions targets have been set allowing for growth in the Scottish economy, it is not anticipated that such an increase in the level of general economic activity would jeopardise meeting these targets.

These further effects are difficult to quantify and/or are anticipated to be small. In our assessment of the compatibility of Scottish UOG production, we therefore focus on emissions directly associated with the production activity.

3. Impact on meeting Scottish emissions targets

Meeting annual emissions targets

In accordance with the Climate Change (Scotland) Act, in 2010 and 2011 annual targets for greenhouse gas emissions were set in legislation covering the period to 2027. As required under the Act, in March this year we provided advice on the levels of annual targets out to 2032. In doing so, we recognised that changes in the greenhouse gas emissions inventory had made it extremely difficult to meet its targets, and therefore alongside recommending targets covering 2028 to 2032 we also recommended realigning existing targets to 2027. [73]

Subsequent to our March advice, further significant changes were made to the emissions inventory. As the process for legislating the annual targets had not yet taken place, in June the Scottish Government requested further advice regarding the implications for annual targets of these changes. [74] We responded in July with this advice, indicating that existing annual targets out to 2024 are now achievable, assuming strong actions consistent with our 'High Ambition' scenario, but those beyond 2025 go further than is achieved in our most ambitious scenarios.

In parallel with these developments, the Scottish Government has committed to bringing forward legislation to change the accounting basis for Scottish annual targets, to put them on a territorial (gross) emissions basis. [75] We will advise on the levels for these targets in due course.

Acknowledging this development, and that changing already-legislated targets under the existing Act is not straightforward, we outlined two possible ways forward in legislating annual targets under the existing Act ( i.e. on a net basis) (Figure 4.3):

  • Option 1: Keep existing legislated targets to 2024 and alter and align 2025 to 2032 to latest assessment of target levels. This option would bring the targets in line with the achievable target pathway to the 2050 target and be consistent with a steady rate of progress. They would give cumulative emissions of 1313 MtCO 2e (providing all future targets are met) from 1990 to 2050 and would limit the need for additional abatement beyond our high ambition scenario or credit purchase to 1.8 MtCO 2e per year between 2025 and 2032.
  • Option 2: Keep existing legislated targets to 2027 and then follow a 3% reduction per year to 2032. If continued after 2032 this would achieve an 81% reduction in 2050 and imply cumulative emissions of 1277 MtCO 2e (providing all future targets are met) from 1990 to 2050. These targets would only be achievable through additional abatement beyond our high ambition scenario or through the purchase of an average of 3.5 MtCO 2e/year of credits (from 2025 to 2032).

We further recommended that if the new legislation is likely to be delayed beyond around 18 months then Option 1is to be preferred, as it provides a stronger signal for emissions reduction at a sensible rate to 2032.

Figure 4.3. Legislated and proposed Scottish annual emissions targets (2010-32)

Figure 4.3. Legislated and proposed Scottish annual emissions targets (2010-32)

Source: CCC (2016) CCC response to request for updated advice on Scottish emissions targets.
Available at https://www.theccc.org.uk/publication/ccc-response-to-request-for-updated-advice-on-scottish-emissions-targets/

Under the existing accounting framework for Scottish emissions targets, the relevant measure of emissions is known as the net Scottish emissions account ( NSEA). Parts of the net Scottish emissions account are influenced by actual Scottish emissions, while other parts reflect a share of the EU-wide cap for the EU emissions trading system ( EU ETS). Under the planned change to the legislative basis of annual targets, this would change.

In practice for Scottish UOG production, the choice of accounting system is unlikely to make a significant difference to the size of the impact on meeting annual targets (Box 4.1).

While the emissions relating to production grow over time, broadly in line with the growth in hydrocarbons produced, allowed economy-wide emissions under Scottish annual emissions targets fall by at least 3% per year. Over time, it is therefore likely to become increasingly challenging to accommodate emissions relating to domestic UOG production.

The impact on total Scottish emissions under the 'Minimum necessary regulation' case in the KPMG High production scenario rises to between 0.7 and 1.8 MtCO 2e/year in 2032 (3% and 6% of allowed emissions in that year), with a central the estimate of around 1.0 Mt/year (4% of allowed emissions).

The compatibility of unconventional oil and gas extraction with emissions targets depends on whether these additional emissions can be offset by increased emissions reductions elsewhere in the economy. The annual targets we recommended for the period to 2032 already go at least as far as our High Ambition scenario for Scotland, which is at the limit of the quantitative scenarios we have developed.

While emissions reductions beyond this scenario may be possible, we do not have quantitative evidence to support this. Opportunities to go beyond our High Ambition scenario, in order to offset additional emissions from unconventional oil and gas production or from other sources aviation), should be considered as part of developing RPP3, the report in which the Scottish Government must set out its plans to meet the annual targets to 2032.

Box 4.1. Implications of different accounting approaches for emissions under annual targets

While a change in accounting approach will affect some aspects of meeting the annual targets, in the case of unconventional oil and gas production it is unlikely to make a significant difference:

  • Current annual targets. Under the existing accounting approach, the impact of unconventional oil and gas extraction on the net Scottish emissions account would consist of the non-traded sector portion of production emissions plus traded sector emissions eligible for free allocation of EU ETS allowances. A new onshore production industry is likely to receive free allowances as a new entrant.
  • New targets on a gross basis. Once annual targets are on a territorial or gross basis, the emissions impact of UOG production will comprise actual emissions in both the traded sector and non-traded sector.

Given that the allocation of free allowances under the EU ETS would be likely to be similar in magnitude to the actual territorial emissions in the traded sector, in practice this is unlikely to affect significantly the quantity of emissions counted under the annual targets.

Meeting the 2050 target

The Climate Change (Scotland) Act specifies a target to reduce emissions across all domestic sectors, plus a Scottish share of international aviation and international shipping, by at least 80% on 1990 levels by 2050. It is not clear that there will be much scope for international trading to meet this target, so it is sensible to plan to reduce emissions by at least 80% domestically. The Paris Agreement may imply that a more ambitious 2050 target would be appropriate; we will publish our analysis on this later in the year.

It is too early to estimate possible ranges for emissions that might be associated with unconventional oil and gas extraction in 2050. The Committee would make such estimates if the evidence base improves sufficiently.

It is also premature to attempt to identify with any confidence specific areas in which effort could be increased to offset new sources of emissions on that timetable. The 2050 target is very challenging to meet and requires major effort to reduce and limit emissions, so flexibility should not be taken as a given.

Should emissions in sectors excluding fossil fuel extraction be allowed to go well beyond our Central scenario in one or more areas ( e.g. uncontrolled expansion of aviation, little or no CCS, failure to decarbonise heat), then the 2050 target would be at risk and it is very unlikely that there would be scope for additional emissions from UOG exploitation consistent with meeting emissions targets or the 2050 target.

Should the emissions impact in 2050 be similar to that in 2032 it is likely to be considerably more difficult and expensive to find ways to offset this, due to the stretching nature of the 2050 target.

In a case in which CCS is not deployed at all by 2050, this challenge would be much greater. Even without additional emissions from UOG extraction, our analysis shows that the absence of CCS is likely to require near-full decarbonisation of surface transport and heat in buildings by 2050. It is difficult to see how significant further emissions reductions could be found to offset the impact of additional fossil fuel production.

4. Conclusions and recommendations

The prospects for a Scottish unconventional oil and gas industry are currently highly uncertain. It depends on the underlying economics of production, which in turn depend on the productivity of Scottish geology. This can only be resolved via exploratory drilling. But even if such exploration produces favourable results, other uncertainties remain, including whether public acceptability challenges can be overcome and the viability of Scottish onshore production in the context of developments in international fossil fuel markets.

Should an unconventional oil and gas industry be established in Scotland and grow quickly, this would have the potential for significant impact on Scottish emissions. In order to ensure that these are manageable within Scottish emissions targets, it is necessary that increased Scottish production does not feed through into increased unabated consumption of fossil energy; that emissions associated with production are strictly limited; and that the production emissions that do occur are offset by actions to reduce emissions elsewhere in the economy.

Our assessment is that exploiting unconventional oil and gas by fracking on a significant scale is not compatible with Scottish climate targets unless three tests are met:

  • Test 1: Well development, production and decommissioning emissions must be strictly limited. Emissions must be tightly regulated and closely monitored in order to ensure rapid action to address leaks.
    • Strengthening of the regulatory system is essential before production can commence. Much greater clarity is necessary over the respective roles of different actors in this system, entailing full coverage of greenhouse gas emissions ( i.e. including strict limiting of both CO 2 and methane from all sources, covering not just the production site but also associated infrastructure before the point of grid injection or delivery to end user);
    • A range of technologies and techniques to limit methane emissions should be required, including 'reduced emissions completions' (also known as 'green completions'), liquid unloading mitigation technologies ( e.g. plunger lift systems) and vapour recovery units should these be needed, as well as flaring of methane rather than venting it;
    • A monitoring regime that catches potentially significant methane releases early is essential in order to limit the impact of 'super-emitters';
    • Production should not be allowed in areas where it would entail significant CO 2 emissions resulting from the change in land use ( e.g. areas with deep peat soils);
    • The regulatory regime must require proper decommissioning of wells at the end of their lives. It must also ensure that the liability for emissions at this stage rests with the producer.
  • Test 2: Consumption - fossil fuel consumption must remain in line with the requirements of Scottish emissions targets. Scottish unabated fossil energy consumption must be reduced over time within levels we have previously advised to be consistent with the emissions targets. This means that Scottish unconventional oil and gas production must displace imported gas rather than increasing domestic consumption.
  • Test 3: Accommodating unconventional oil and gas production emissions within Scottish emissions targets. Additional production emissions from shale wells will need to be offset through reductions elsewhere in the Scottish economy, such that overall effort to reduce emissions is sufficient to meet emissions targets.

There are other issues linked to ongoing gas consumption and emissions targets, but not specific to shale gas production. These include methane emissions from the storage and transportation of gas and the future use of the gas grid. We will consider these issues separately in future reports.


Contact