Environment Report 2019

EU ETS The EU ETS is the central pillar of Europe’s decarbonisation policy. In recent years, the EU has moved to address an oversupply of carbon allowances and has seen an increase in price since 2016, from approximately €6 to around €25 per tonne at the end of 2018 — a 200 per cent rise, as shown in Figure 10.

Prices in 2018 averaged €16.15 and are anticipated to remain relatively high in future, with prices reaching €27/tonne in 2019.

Improving energy efficiency and/or switching to low-carbon energy supply will result in lower carbon compliance costs for offshore installations and may help make such projects more economic. Phase IV of the ETS starting in 2021 includes proposals for free allocation of allowances relating to energy efficiency improvements.

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Figure 10: Carbon Allowance Price Under EU ETS

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EU ETS Carbon Price (€/Tonne)

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2019

Source: ICIS Heren

Almost all of the UK’s upstream industry, comprising offshore installations and onshore terminals, falls within the scope of EU ETS. Installations responsible for any CO 2 emissions are required to monitor and verify such emissions and surrender allowances to cover all their emissions each year. Since the industry is deemed to be at risk of carbon leakage, installations receive some free allowances based on historical performance relative to an industry benchmark. However, there are no free allowances allocated for emissions from electricity generation, and as offshore installations are not able to connect to the onshore national grid, they must generate their own electricity using produced fuel gas or diesel for all operational needs. emissions from UK offshore installations. The effect of the ineligibility of emissions from electricity generation is that, uniquely among the six largest industrial sectors in the ETS, upstream oil and gas is short of allowances and must purchase them in the market each year to meet their ETS obligations. Such energy generation accounts for more than half the total CO 2

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