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NEWS & INSIGHTS | article

Spring Budget should seize energy sector’s sustainable growth opportunity 

04 March 2024 4 minute read

The UK Government’s Budget Statement next week is expected to set out a political and economic platform for this year’s General Election. Given that the UK slipped into technical recession at the tail end of last year in the face of difficult economic headwinds, some will consider that the Chancellor has a daunting task ahead of him.

Energy-related issues might be expected to be higher up the political agenda this time around, not least because of global insecurities and concerns about climate change. But really, we should be paying attention to the potential of the energy sector to deliver sustainable economic growth, boost the UK’s sluggish productivity, and create well paid jobs.  The UK could maximise its recovery by harnessing the combined benefits of its enviable renewable energy potential, its world leading research institutions, and its highly skilled workforce. Those should be key ingredients in a recipe for a thriving economy, accelerated progress towards net zero, and improved energy security.

This is why support for research and innovation needs to be at the heart of the UK’s economic strategy. We must also be mindful that the starting gun has been fired in the global race, with the USA pouring billions into clean energy through the Inflation Reduction Act and the EU raising its sights with its own Green Deal. While the UK Government has already committed £4.2bn for net zero research and innovation through to 2025, but it now needs to extend its horizons and increase investment levels to meet the scale of opportunity. Nuancing its approach in order to play to its own home-grown strengths in a competitive global environment could help deliver quicker economic returns and increase the pace of progress in reducing emissions.   

One of the best ways to secure quick wins in these areas would be to increase investment in ‘closer to market’ innovation, which could play a key role in driving economic growth as part of a longer-term strategy for increased R&D investment. At present, a lot of innovation funding is directed at emerging technology that may well have great application at some undefined point in the future but may not have much impact on emissions or the economy in the short or medium term. That longer-term investment is important, but if we want to speed up progress towards net zero while supporting the economy through the transition, we also need to invest in scaling up the technologies that will drive down emissions from our current energy production.

Reducing the carbon intensity of our existing oil and gas production is an obvious area in which innovation funding could have a sizeable and relatively swift impact. Such investment makes a lot of sense given that we will continue to be reliant on hydrocarbons for some time to come, until renewables reach scale. We know that bringing large renewables projects to fruition doesn’t happen overnight, especially offshore, and that they will require significant upgrades of onshore and port infrastructure, as well as substantial investment in future skills development. In the meantime, innovation that helps drive down emissions could also help keep the economy buoyant and protect jobs in the energy supply chain.

Likewise, greater support for late-stage technology development that adapts proven and readily transferrable technology from the oil and gas sector to the needs of new types of production could deliver emissions reductions in the short term whilst enhancing productivity and bolstering energy security.

In an earlier era of the North Sea’s development, support for home-grown research and innovation was a major factor in the growth of a world class supply chain for the oil and gas sector; with enhanced levels of investment, that success could be replicated in the journey to net zero. Experience also shows us that public investment in research and innovation is an effective way to pull in the additional private capital that will drive progress and help the economy thrive. Specialist hubs like NZTC have a crucial role to play in helping create conditions that foster growth and will enable a successful energy transition. Putting a greater emphasis on ‘closer to market’ solutions would push the UK further and faster along the road to net zero and help get the UK economy back to track.

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