Natural gas to be classed as ‘green’ investment to boost North Sea

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north sea natural gas energy crisis britain uk
north sea natural gas energy crisis britain uk

Natural gas is to be classed as a “green” investment by Kwasi Kwarteng as the Government scrambles to increase North Sea production in a move that risks inflaming tensions with climate campaigners.

Mr Kwarteng, the Business Secretary, is understood to be keen that drilling for the fossil fuel is listed as “environmentally sustainable” in a new classification of activities being drawn up by his department and the Treasury to guide investors.

It comes amid concerns that banks and pension funds are ditching natural gas projects because of the implications for climate change.

Producing and burning natural gas for power production and heating is a vast source of carbon dioxide emissions.

However, gas is touted by many experts as a “transition fuel” towards lower carbon economies as it emits less than coal and oil which it can replace.

The European Union classed certain natural gas projects as green investments last year on that basis, despite strong opposition from critics concerned about climate goals.

A Whitehall source said: “Kwasi considers natural gas a transition fuel, and he accepts the reality of the situation which is that we will need gas for decades to come and we need more developments in the North Sea.

“A lot of investors with ESG [environmental, social and governance] targets are divesting from fossil fuels - we don’t want that to be done at the detriment of natural gas.”

Rishi Sunak, the Chancellor, announced in November 2020 that the Government will establish a “Green Taxonomy”, to establish which sectors are contributing to the UK’s climate goals so that investors who want to invest in the green shift can spend accordingly.

Britain has mostly switched away from coal-fired power plants, with gas providing almost 40pc of annual electricity compared to less than 2pc from coal, and almost a quarter coming from wind turbines.

The UK has strict carbon emission reduction targets but natural gas is likely to have an ongoing role in electricity production when coupled with technology to strip out carbon emissions.

Gas-fired boilers that heat most UK homes are on course to be replaced, either with hydrogen - which can itself be produced from natural gas - or with heat pumps, which require electricity.

A global shortage of natural gas as countries re-opened from the pandemic last year helped push wholesale prices to record highs even before Russia’s war on Ukraine further disrupted markets.

The surge has already triggered a 54pc rise in the energy price cap, pushing up average British household energy bills to £1,971, with a further rise likely in October when the price cap is reset.

Plans for the new “green taxonomy” are expected to be finalised in autumn, with the exact criteria for natural gas projects still being discussed. Nuclear power developers are also pushing for inclusion, with the Government relying on greater investment in nuclear power as a key part of its energy security strategy.

The Government has introduced a new financing mechanism for nuclear power plants which it is hoped will encourage investment and bring down financing costs by allowing investors to recoup money earlier from consumer bills.

The Government said this may add less than £1 per month on average during the full construction phase of the project.

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