Fixing a paradoxical twist in the EU carbon market

IOGP is a supporter of the European Union’s carbon market, the Emissions Trading Scheme. A market-based mechanism is the most cost-effective way to reduce emissions and address the climate challenge. That’s why we have been closely following the reform of the ETS, which is being discussed as I write. The idea is good: build a strong system, getting rid of the flaws of the past. Indeed, a balanced market which protects the competitiveness of the European industry must continue to be the backbone of the strategy to combat climate change.

To make sure that we build such a solid system, we have to take into account its potential side effects and address them. One of such side effects might undermine our own industry’s move toward a more efficient – and cleaner – energy use.

Our industry has been working hard, for years now, on ways to improve energy efficiency and reduce its emissions. The use of more electricity on offshore oil and gas platforms is a perfect example. Because of their distance from the shore, they cannot connect to the regular power grid, and have to produce their own electricity, for their own use. But they have seized the opportunity to improve the platforms’ energy efficiency and lower their emissions. They have for example, substituted gas-powered pump drivers with electrical ones.

Now, the developments in the ETS might halt such a positive trend. With the price of carbon expected to rise over the next decades, the use of electricity on offshore platforms will become more expensive, de facto discouraging a wider use. In a paradoxical twist, a more expensive carbon price would actually discourage more efficiency to reduce emissions.

This is why IOGP is pleading the case for free carbon permits to cover the electricity generated on offshore oil and gas platforms. Free allowances would encourage operators to push further with energy efficiency, promoting cleaner activities and limiting emissions.

With the discussion on the reform of the ETS well under way in the European Parliament and among Member States, we hope that policy makers will make the best choices. Such an arrangement would be positive for EU security of supply, a worthy initiative for reducing emissions and a boost for EU industrial competitiveness.

 About Roland

Roland Festor is IOGP’s Director of European Union Affairs. Prior to joining IOGP, Roland worked with Total, where he led the company’s operations in the United Kingdom, Indonesia and Angola.

A long-time proponent of upstream safety, Roland served on the board of Oil & Gas UK until 2011 and was part of its “Step Change for Safety” leadership team. He is a non-executive director of Oil Spill Response Limited, the cross-industry body set up to quickly respond to spill emergencies.

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