Policy and Targets
Background and the Role of Reductions in Meeting Environmental and Economic Objectives
Between 2012 and 2021, oil production in the United Kingdom fluctuated by about 15 percent from the mean, ending slightly lower in 2021 than in 2012. The volume of gas flared and the flaring intensity in the United Kingdom fell by about one-third during this period. The total volume flared remained largely steady from 2012 to 2017, after which it began to fall. The flaring intensity was on a declining trend since 2014. There were 76 individual flare sites in the last flare count, conducted in 2019.
Gas flaring volume and intensity in the United Kingdom, 2012–21
The United Kingdom endorsed the World Bank’s Zero Routine Flaring by 2030 initiative in 2020 (World Bank, n.d.). It also participates in the Global Methane Initiative (n.d.) and the Climate and Clean Air Coalition (n.d.0). In December 2020, the United Kingdom submitted an updated NDC to the UNFCCC, in which the government committed to reducing economy-wide GHG emissions from the 1990 level by at least 68 percent by 2030. In June 2019, the government amended the Climate Change Act, 2008, to increase the reduction in the “net UK carbon account” below the 1990 baseline by 2050 from 80 percent to at least 100 percent. The updated NDC is intended to be consistent with the government’s new net-zero policy.
Flaring and venting have been subject to the secretary of state’s consent for decades, per Section 12 of the Energy Act, 1976. Over the years, other legislation has been enacted that also covers flaring or venting. Between 2008 and 2016, the Department of Energy and Climate Change (now the Department of Business, Energy, and Industrial Strategy) provided flaring and venting consents on behalf of the secretary of state. The Energy Act, 2016, transferred certain powers from the secretary of state, including the issuance of consents for flaring and venting, to the Oil and Gas Authority (OGA), which was formed in 2015 within the Department of Energy and Climate Change. With the passage of the Energy Act, the OGA became an independent regulator. It is a government company, limited by shares under the Companies Act 2006, with the secretary of state for business, energy, and industrial strategy the sole shareholder.
Since its creation, the main objective of the OGA—its so-called Central Obligation—has been maximizing the economic recovery of oil and gas resources on the UK continental shelf (UKCS). This objective, known as MER UK, was established as a government priority in 2015 and was the driver for creating the OGA. MER UK became legally binding with the Infrastructure Act, 2015. The Energy Act, 2016, charged the OGA with pursuing MER UK.
In February 2021, after a review by Parliament, the OGA’s new strategy became legally binding for oil and gas companies licensed to operate in the United Kingdom. The new strategy expands the OGA’s Central Obligation and adds assistance to the secretary of state in meeting the net-zero target by reducing GHG emissions as far as possible from sources that include flaring and venting.
The North Sea Transition Deal, published in March 2021, illustrates how the OGA’s 2021 strategy is guiding the offshore oil and gas sector. One of the pillars of this deal is decarbonization targeting a 50 percent reduction in GHG emissions from oil and gas production by 2030. This White Paper, a co-product of the “tripartite partnership” (government, the OGA, and industry), is not legally binding.
The compatibility of the original and the new components of the OGA’s new Central Obligation—maximization of oil and gas production and decarbonization—is not readily apparent. However, an analysis by the Committee on Climate Change identified reducing flaring and venting as well as methane leakage by means of better leak detection and repair as the lowest-cost options for reducing GHG emissions within the oil and gas industry. Historically, although flaring and venting have accounted for less than 1 percent of total GHG emissions in the United Kingdom, they have accounted for nearly 25 percent of oil and gas industry emissions, mostly from flaring. The rest of the emissions in the oil and gas industry are primarily from captive generation of electricity for the industry’s own use. The OGA’s data suggest that flaring intensity is high for a relatively small group of facilities. This information is used in benchmarking to improve their performance. The OGA’s data suggest that the flaring intensity is high for a relatively small group of facilities. This information is used in benchmarking to improve their performance.
The North Sea Transition Deal commits to developing a methane action plan. The Methane Action Plan 2021 was subsequently published. It has six actions, the fourth of which aims to meet the goal of the World Bank’s Zero Routine Flaring before 2030 initiative with individual assets seeking to accelerate compliance where possible before 2030. The action includes a commitment to comply with zero routine flaring and include gas recovery in all newly built facilities installed on the UKCS after 2025. In March 2021, the OGA released Net Zero Stewardship Expectation 11, reflecting these and other priorities. In June 2021, the OGA released updated guidance on flaring and venting, consolidating and replacing previous guidance, tightening rules for issuing and monitoring consents, and aligning source categories with the Zero Routine Flaring by 2030 initiative.
Targets and Limits
The OGA Flaring and Venting Guidance, 2021, requires that flaring and venting be reduced to the lowest possible level under the circumstances, mirroring the previous criteria of a technically and economically justified minimum for safe and efficient commissioning and operations. The new guidance also requires that existing facilities engage in zero routine flaring and venting by 2030 and that all new developments be based on zero routine flaring and venting. Earlier guidance stated that the OGA would not examine in detail applications for consents with flare levels less than 40 tonnes (1.6 million cubic feet [mmcf]) a day or vent levels less than 4 tonnes a day from a single facility during production. According to the new guidance, the OGA will consider in detail all consent requests regardless of quantity.
In response to assisting the government with its net-zero emissions target, including zero routine flaring by or before 2030, the primary industry association, Oil & Gas UK, released decarbonization targets, which the OGA incorporated in its tracking of flaring and venting. The current industry methane intensity commitment is 0.25 percent by 2025, with an ambition to reduce it to 0.20 percent (North Sea Transition Deal 2021). Net Zero Stewardship Expectation 11 states that “zero routine flaring and venting and the use of the lowest-GHG-emission fuels should be the base case for power generation and GHG emissions targets.”
Legal, Regulatory Framework, and Contractual rights
Primary and Secondary Legislation and Regulation
The Energy Act, 2016 amends both the Energy Act, 1976 and the Petroleum Act, 1998, and empowers the OGA to provide consent for flaring and venting. Building on the Petroleum Act, Petroleum (Current Model Clauses) Order 1999 was issued, outlining the restrictions on flaring and conditions when applying for consent to flare or vent. These clauses are included in offshore licensing regulations.
The environmental regulation relating to UKCS oil and gas activities is under the purview of the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED), which is part of the Department for Business, Energy and Industrial Strategy. OPRED has enforcement powers for all relevant environmental regulations, including those that apply to flaring and venting (see the Monitoring and Enforcement section of this case study).
Most relevant for flaring is OPRED’s responsibility in overseeing the compliance of the oil and gas industry with Greenhouse Gas Emissions Trading System Regulations, 2012. These regulations—which follow from the Climate Change Act, 2008 and the EU ETS Directive 2003/87/EC, 2003—establish the trading of GHG emissions allowances that affect flaring because of associated CO2 emissions. The UK ETS replaced the EU ETS following the United Kingdom’s exit from the European Union, but the UK ETS follows the same approach as EU ETS Phase IV, which the United Kingdom played an important role in developing. Greenhouse Gas Trading Scheme Order 2020 supplemented the 2012 regulations to reflect the net-zero target of the government better. The Offshore Combustion Installations (Pollution Prevention and Control) Regulations, 2018, amended the 2013 version to introduce consistency with EU Directive 2015/2193/EU.
For venting, the National Emission Ceilings Regulations, 2018, which implement EC Directive 2016/2284, have a bearing, because the OGA considers both inert gases and hydrocarbons produced in the licensed area in consenting to vent under the Energy Act, 1976. Vented gas may contain nitrogen, carbon dioxide, water vapor, hydrocarbons, and possibly traces of sulfur compounds in the consent application to the OGA.
National laws and regulations govern flaring and venting. However, environmental agencies in Scotland, Wales, and Northern Ireland play regulatory roles, especially with respect to GHG emissions. These agencies oversaw compliance with the EU ETS. To ensure a smooth transition, the UK ETS follows EU ETS practices closely; a link between the two is desirable to many entities covered under the UK ETS. The same regulators oversee compliance with the UK ETS.
Associated Gas Ownership
Oil and gas resources are owned by the Crown and offered to companies under a concession regime with taxes but no royalty. Operators the OGA licenses to explore, develop, and produce petroleum onshore and offshore own all the oil and gas they extract.
Regulatory Governance and Organization
The OGA issues consents for flaring and venting under the Energy Act, 2016. Environmental regulation of the oil and gas industry, including compliance with flaring and venting consents, remains with OPRED for offshore operations and the Environment Agency for onshore operations. The Scottish Environment Protection Agency; Natural Resources Wales; the Northern Ireland Environment Agency within the Department of Agriculture, Environment and Rural Affairs; and the Environment Agency regulate GHG emissions from flaring at onshore oil and gas facilities. Each agency manages and monitors the GHG permits and emissions plans of industrial facilities and aviation covered under the UK ETS in its jurisdiction. The Health and Safety Executive remains the safety regulator and takes the lead on offshore gas leaks.
Regulatory Mandates and Responsibilities
Section 12A of the Energy Act, 1976 as amended by the Energy Act, 2016, outlines the OGA’s functions and states that the OGA’s consent is required for flaring and venting. Historically, the OGA’s primary responsibility has been MER UK. Following the government’s announcement in June 2019 of a net-zero target, the OGA increased its focus on flaring and venting among the material sources of GHG emissions. Its 2021 strategy does not clarify how much GHG emissions from oil and gas operations must be reduced, instead referring to of reducing GHG emissions “as far as reasonable in the circumstances.” The OGA Flaring and Venting Guidance, 2021 uses the same language but also targets zero routine flaring and venting in all new facilities and all existing facilities by 2030.
Monitoring and Enforcement
The OGA is authorized to sanction operators for failing to comply with any of the licenses under Chapter 5 of the Energy Act, 2016. However, the OGA does not inspect facilities for compliance with flaring or venting consents. In the past, inspectors from the Offshore Environmental Inspectorate, a department of the OGA’s predecessor, the Department of Energy and Climate Change, could conduct inspections, routine or as needed, of facilities for any licensed operation, including flaring and venting. The Offshore Environmental Inspectorate has since been moved to OPRED and carries out inspections.
Flaring or Venting without Prior Approval
The Energy Act, 2016 amended the Energy Act, 1976. Under its Section 12A, approval for flaring or venting is not required if it is necessary to reduce or avoid the risk of personal injury, the risk could not reasonably have been foreseen in time to reduce or avoid it other than by flaring or venting, or it was not reasonably practicable to obtain consent in the time available.
Authorized Flaring or Venting
Under Section 12A of the amended Energy Act, 1976, consent from the OGA is required to flare or vent gas from upstream oil or gas and processing facilities. Operators must apply for these consents via the UK Energy Portal. The OGA used to provide separate guidance with regard to applications for flaring or venting consents during commissioning and production. The OGA Flaring and Venting Guidance, 2021 replaced these two guidance documents, but most requirements for authorization of flaring and venting remained the same.
The procedure for commissioning new facilities is summarized as follows:
- The OGA issues flaring or venting consents valid for about one month (up to three months) during the commissioning of new facilities.
- The amount of gas flared and vented is fixed and subject to an auditable program and should be at the lowest level possible for safe and efficient commissioning.
- Consents are not issued until the OGA is satisfied that the gas-processing plant is ready to receive gas (construction complete, fully tested).
- If the gas-processing plant cannot handle all gas within two weeks of first oil, the OGA may limit production.
- Supporting documentation should be submitted to the OGA six months before the expected start-up.
- A formal written application should be made about two weeks before first oil.
The procedure for production is as follows:
- Consents for flaring or venting during production operations are issued after commissioning of the gas-processing plant is completed.
- Consents are annual, and leftover allowances cannot be carried forward.
- The operator must submit a new application every year (usually in October). One objective of the OGA is to use these applications to develop a realistic forecast against which to track performance.
- The OGA may issue consents of shorter duration if, for example, the level of flaring or venting raises concerns o more investigation or data are necessary.
- Flare (vent) consents are for a field, which may have multiple installations that flare (vent).
- Composite or group consents can be issued for several fields tied to common facilities when equity partners are the same or operators of fields and common facilities submit their agreement for a group consent.
- A new field connecting to an existing facility may obtain a new consent or may be added to the existing consent via a new application.
- Possible breaches must be reported to the OGA promptly, and a technical case must be made if a revision is required.
Commissioning consent documentation may differ depending on the facility size and complexity. At a minimum it should include the following:
- a brief overview of the field and associated main facilities
- a detailed description of the plant commissioning philosophy and procedure, including gas export line commissioning, should it be applicable
- the commissioning schedule
- a summary of the main flaring and venting assumptions and GHG profiles under different commissioning strategies
- forecasts of daily and total quantities of gas flared or vented
- sketches and figures containing a high-level field layout, process flow diagram, and systems for gas compression, dehydration, gas export, and fuel gas.
The OGA Flaring and Venting Guidance, 2021, also covers flaring and venting at terminals and other onshore facilities that serve offshore operations. However, consent applications for onshore facilities are submitted via email and not through the Energy Portal.
The OGA guidance on offshore field development plans must “demonstrate a commitment to preventing the unnecessary and wasteful flaring of associated gas and carrying out commissioning operations in an efficient and timely manner.” Paragraphs 49–51 of the OGA requirements for UKCS field development plans ask for “a detailed technical and economic assessment” to justify flaring. Licensees are also required to design facilities for “less wasteful alternatives should the economic or technical circumstances change.” Onshore guidance reflects the same principle of avoiding “unnecessary wastage” via flaring and venting.
Net Zero Stewardship Expectation 11 asks the oil and gas industry to reduce GHG emissions from all aspects of its upstream operations “as far as reasonable in the circumstances.” Development plans for greenfield projects need to demonstrate “consideration and economic assessment of GHG Emissions Reduction Action Plans.” These plans include “zero routine non-safety-related flaring/venting” and “gas recovery systems” in addition to low-carbon electricity options, better GHG measurements, new technologies to reduce emissions, and coordination with others to create energy hubs to avoid duplication of infrastructure. The OGA Flaring and Venting Guidance, 2021, requires a Flaring and Venting Management Plan, which can be incorporated in the GHG Emissions Reduction Action Plan.
Net Zero Stewardship Expectation 11 lists various expectations as applicable across the exploration, appraisal, development, production, late-life, and decommissioning phases of an oil and gas asset. Opportunities to reduce GHG emissions, including from flaring and venting, include improved measuring, reporting, tracking, and incorporating of net-zero targets in corporate decision making across all lifecycle phases of an asset.
Some design considerations for greenfield projects are relevant to flaring and venting (see the previous section). Both Net Zero Stewardship Expectation 11 and the North Sea Transition Deal call for a sharper focus on energy hubs, the sharing of facilities, and long-term planning for infrastructure repurposing.
Improved measurement and tracking of emissions are key requirements for better economic assessment by operators the OGA asks to develop reduction strategies for flaring and venting. The OGA benchmarking analysis for flaring shows that some facilities have much lower flaring intensities than others. More accurate and detailed data are expected to improve the understanding of the lowest-cost approaches to reducing volumes of flared gas. The OGA is also developing a database for methane emissions, in order to replicate the benchmarking exercise for venting.
The OGA Flaring and Venting Guidance, 2021, formalizes these expectations. Operators are expected to demonstrate that they evaluated all options to reduce flaring and venting when applying for consents and when developing credible plans to reach zero routine flaring and venting.
Measurement and Reporting
Measurement and Reporting Requirements
According to the OGA Flaring and Venting Guidance, 2021, the flaring or venting consent granted during commissioning is intended to cover the period from first oil production to the achievement of stable operations (one to three months). The operator must provide weekly reports to the OGA detailing the activities from the previous week, including daily rates of oil and gas production and gas exported, flared, vented, or used as a fuel; cumulative plots of production, flaring, and venting compared with consented quantities and of associated emissions; and the status of gas compressors and gas-processing plants, highlighting anything that affected equipment or plant performance.
During production, unless specified otherwise in the consent, flaring volumes are included in routine reporting via the OGA Petroleum Production Reporting System via the Energy Portal. Under the Petroleum Act, 1998, only the gas flared from the licensed area requires consent, but the OGA requires that the content of inert gases in the flare be provided for information.
The OGA Flaring and Venting Guidance, 2021, lists several reporting requirements. Flaring and venting must be allocated by source category. New in the OGA Flaring and Venting Guidance, 2021, source categories are made consistent with the World Bank’s Zero Routine Flaring by 2030 initiative. They include the following:
- Category A: Routine flares under normal safe and efficient operating conditions
- Category B: Nonroutine flares that occur during normal operations beyond optimal levels for the facility
- Category C: Safety flaring during emergency conditions.
Operators also report flaring and venting data and emissions from these activities via the Environmental and Emissions Monitoring System, the environmental database of the UK oil and gas industry maintained by OPRED.
Measurement Frequency and Methods
The OGA collects monthly data from onshore and offshore operators for fields and terminals via the Petroleum Production Reporting System. In July 2017, it started requiring data on associated gas, including flared and vented volumes. It uses the data to track compliance with flaring and venting consents.
There is currently no specific metering requirement. According to the OGA’s first UKCS Flaring & Venting Report, “metering of flaring poses challenges due to the large range of operating conditions associated with the process.” The metering of vented gas volumes is extremely rare. The report uses “operators’ best estimates” of flared and vented gas volumes, as reported to the Petroleum Production Reporting System and Environmental and Emissions Monitoring System and associated GHG emissions based on the latter system’s and ETS guidance (see next section). In the future, as highlighted in the OGA Flaring and Venting Guidance, 2021, the OGA expects operators to “meter, monitor and manage their ﬂare gas composition and ﬂare combustion efficiency” and to use “best available technology to quantify, measure and monitor vent gas.”
The OGA Flaring and Venting Guidance, 2021, requires flare and vent volumes to be reported in mass units. OPRED’s Environmental and Emissions Monitoring System requires operators to report all emissions from all facilities involved in offshore oil and gas production in mass units. There are two main options:
- Report total masses of emissions without component breakdown. The Environmental and Emissions Monitoring System then uses standard default factors to calculate emission gases and halogenated compounds.
- Report total and component emissions data from in-house systems (approved by the Department of Energy and Climate Change and, since 2016, by the OGA). This option enables operators to report data that are more representative of their facilities than those based on the standard factors used by the Environmental and Emissions Monitoring System.
The mass units used in reporting are usually tonnes, following guidance in the Atmospheric Emissions Calculations document. GHG emissions associated with flaring are calculated using emissions factors, gas composition, and combustion efficiency assumptions from EU Regulation No. 601/2012. The EU ETS regulations require all operators subject to the directive to submit monitoring plans to regulators for approval. Historically, there has been an uncertainty range of ±7.5 percent for flare measurements submitted to regulators under the EU ETS scheme. In 2021, the UK ETS replaced the EU ETS, but in many respects, including measurements, the UK ETS mirrors Phase IV of the EU ETS to ensure a smooth transition.
No explicit record-keeping requirement was identified from the sources consulted. The OGA strategy is to “influence” operator action through performance benchmarking and collaboration. Operators are urged to provide data on various aspects of their operations, as outlined in the OGA Stewardship Expectations, a series of documents developed in consultation with the industry. The OGA collects the data through the Petroleum Production Reporting System. Operators may opt to maintain data, including data on flaring and venting volumes, in-house to assess economically viable options to reduce flaring and venting to match the best performers identified in the OGA’s benchmarking exercise.
Data Compilation and Publishing
A large amount of data can be downloaded from the OGA’s Open Data service. In September 2020, the OGA published the UKCS Flaring and Venting Report, its first benchmarking report on flaring and venting using data submitted by oil and gas companies via the Petroleum Production Reporting System and Environmental and Emissions Monitoring System. According to the report, 0.05 percent of all produced gas in 2019 was vented, about 3 percent was flared, about 88 percent was exported, and the rest was used in operations, mainly for power generation. These shares remained fairly constant through the 2010s. About 60 percent of flare volumes were from baseloads, 30 percent from operational changes, and 10 percent from emergency shutdowns (see the Authorized Flaring or Venting section of this case study). Separately, the OGA is expected to publish an annual flaring and venting benchmarking report.
Fines, Penalties, and Sanctions
The OGA is authorized to sanction operators for noncompliance with any of the licenses it issues, including consents for flaring and venting. Chapter 5 of the Energy Act, 2016 on sanctions, details OGA’s disciplinary powers. Sanction notices can cover enforcement of “petroleum-related requirements,” financial penalties, revocation of licenses, and operator removal. Section 42 of Chapter 5 defines petroleum-related requirements, which include responsibilities imposed under Section 9C and 9A of the Petroleum Act, 1998, requirements under the Energy Act, 2016 (including flaring and venting consents issued by the OGA), and any term of offshore licenses issued by the OGA.
According to Sections 44–46 of Chapter 5, financial penalties are limited to £1 million (about US$1,400,000 as of October 2021), although the secretary of state can increase them up to £5 million (about US$ 6,800,000 as of October 2021). If a financial penalty notice is given to two or more parties, they are jointly and severally liable. The payment is recoverable as a civil debt if it is not paid before the deadline in the notice. Penalties must be paid into the Consolidated Fund. However, exact penalties must be defined in the guidance to be issued by the OGA. The most recent guidance from the OGA provides principles of best regulatory practices based on other regulators. Given its lack of experience with assigning financial penalties, the OGA will assess penalties for each violation according to the principles outlined in its guidance. It has not sanctioned any operator for violations of flaring or venting consents.
Civil penalties for flaring or venting range from £500 to £50,000 (about US$680–US$68,000 as of October 2021) and can be issued by OPRED under the Offshore Environmental Civil Sanctions Regulations 2018. In addition, OPRED, the Environment Agency, the Scottish Environment Protection Agency, and the Scottish Environment Protection Agency can impose civil penalties for breaches of the UK ETS under the Greenhouse Gas Trading Scheme Order 2020. This last penalty has become more pertinent, as flaring is no longer eligible for free allowances under the EU ETS Phase IV, which started in 2021. The UK ETS is expected to align with the EU ETS Phase IV.
Under Chapter 5 of the Energy Act, 2016, nonmonetary penalties can increase in severity as follows:
- an enforcement notice informs an operator of its failure to comply with a petroleum-related requirement and may include directions for compliance (Section 43).
- a revocation notice declares that the license will be revoked by a certain date for failure to comply with a license requirement (Section 47).
- an operator removal notice announces the date of removal of an operator that had failed to comply with a license requirement (Section 48).
The OGA follows a “measured escalation” process before deciding whether to pursue sanctions. Before pursuing sanctions for violations, the OGA may require regulatory-compliance plans and more frequent reporting of, for example, volumes of gas flared. The OGA requires that operators conduct ”lessons learned exercises” following consent breaches to avoid similar breaches in the future. As part of the OGA’s progressively more proactive approach to using its powers in the future, the OGA Flaring and Venting Guidance, 2021 suggests a more stringent approach than in the past to sanctions in case of failure to comply with flare or vent consents.
OPRED also has enforcement powers associated with its environmental regulation of offshore oil and gas operations. Although the specifics may change according to individual regulations, inspectors from the Offshore Environmental Inspectorate can board offshore installations with any equipment necessary to conduct investigations into compliance, interview staff, and collect relevant data. If inspectors find noncompliance, enforcement actions can range from written notices to operators to ensure compliance for relatively minor violations to civil sanctions, revocation of permits, and prosecution for more serious or persistent noncompliance. Enforcement must be proportional to the violation, related to specific violations, consistent, transparent, and accountable.
Specific performance requirements on flaring or venting could not be identified in the official documents reviewed. The OGA implemented a benchmarking process based on the flaring and venting data it started collecting in July 2017. The data can be used to identify facilities that are performing worse than the industry average. The OGA anticipates that this benchmarking exercise will allow operators to learn best practices from others and to help them reduce their flaring and venting at the least cost. The OGA has had success with benchmarking in raising performance levels in production efficiency, unit operating costs, recovery factor, and decommissioning.
Fiscal and Emission Reduction Incentives
There is no carbon tax on GHG emissions associated with oil and gas activities, but emissions are covered under the UK ETS regime. There is a climate change levy on electricity, gas, LPG, and other energy sources derived from fossil fuels at the end-user level.
In 2016, the Petroleum Revenue Tax was permanently eliminated; before the reform, it had been 50 percent. The supplementary charge was reduced to 10 percent, down from 20 percent under the Corporation Tax Act, 2010. These fiscal reforms were intended to facilitate MER UK. Despite industry expectations, the government did not offer any fiscal incentives for investments to mitigate environmental impacts, including flaring and venting.
Use of Market-Based Principles
All UKCS oil and gas facilities have been subject to EU ETS requirements. Following Annex I of the EU ETS Directive 2003/87/EC, 2003, these requirements cover offshore installations that emit CO2 from combustion installations with a maximum thermal input exceeding 20 MW, including flares. Operations were provided free allocations if their compliance with the EU ETS put them at a competitive disadvantage in the global market (that is, if they were not able to reflect the cost of compliance in the price of their goods and services and lost market share as a result), a situation known as carbon leakage. As such, the EU ETS did not affect GHG emissions from flaring or most other oil and gas industry activities until recently.
In 2021, Phase IV of the EU ETS started. The changes in Phase IV exclude installations associated with gas extraction, including flaring, from the carbon leakage list. Accordingly, flare installations will receive only 30 percent of their emissions allocations free until 2026, after which the free allocation will decline to 0 percent by 2030. The United Kingdom played an integral role in the development of Phase IV, and the UK ETS is expected to follow the EU ETS closely. However, the cap is 5 percent lower than the United Kingdom’s share of Phase IV cap to support the net-zero target of the government. It is also possible that the two trading schemes will be linked in the future, although changes to the way the United Kingdom implements the ETS are possible.
Negotiated Agreements between the Public and the Private Sector
The 2021 North Sea Transition Deal is the most recent demonstration of the “tripartite partnership” between the government, the OGA, and the offshore oil and gas industry (as represented by Oil & Gas UK). This public-private partnership has been gaining prominence since MER UK became a legal objective of the UK government in 2015 and the net-zero target became a legal obligation in 2019. Although not legally binding, the North Sea Transition Deal aims to develop strategies for making the offshore oil and gas industry net-zero carbon by 2050, in line with the government target. Although GHG emissions from flaring and venting account for only about a quarter of UKCS Scope 1 emissions, the deal targets them as part of a holistic approach to reducing emissions.
Interplay with Midstream and Downstream Regulatory Framework
Liberalization of the UK natural gas market began in the mid-1980s. There is wholesale and retail competition in this highly liquid market. Natural gas suppliers have regulated open access to midstream and downstream infrastructure. Timely development of this infrastructure is necessary to avoid delays in upstream production or flaring. If there is a need for new capacity, suppliers can develop new infrastructure or transact with independent midstream companies to develop the needed infrastructure. Companies operating in the natural gas midstream and downstream need a license from the independent regulator Ofgem.
Offshore producers need to develop infrastructure to deliver their associated gas to the national gas system. This infrastructure includes pipelines, terminals, processing plants, and storage facilities, some of which are located onshore. If relevant, the OGA issues flaring and venting consents for these facilities. Environmental regulators have jurisdiction over these facilities as well as the rest of the national gas system.