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My understanding is that all the emissions that the oil and gas industry produces are measured. They have to do that by law.

Yes and no—it is listening in part. There were warnings from the oil and gas sector that a lot of people would pull out of the North Sea if certain fiscal penalties were put in place around tax, but that did not come to pass in the budget.

However, the extension of producer liability—EPL—has had an impact. For example, we have seen Apache deciding to pull out of the North Sea as a result. Those are existing fields, not new ones. That takes us into the energy space in general. There is still demand in the UK for natural gas, which we still use in the majority of heating. The oil and gas sector still employs 58,000 people, so anything that has a precarious drop-off point because of the fiscal regime is problematic.

As I said, we need a just transition. We know for sure that the amount of oil and gas available in the UK continental shelf is reducing, but we need a managed transition. Any cliff edge in production will mean that we have to import more gas from elsewhere to meet demand and will also lead to a cliff edge for workers. ScotWind has not been built out yet and we do not yet have the jobs to replace those that will be lost. We will have those jobs in the future if we manage the transition well, and the fiscal regime for oil and gas is an important part of that.

I do not have them in front of me, but we can ask for them. They would probably be held centrally by the UK Government; we can certainly look into that.

Good morning to you, convener, and to the rest of the committee. I am pleased to give evidence supporting the draft instrument to amend the Greenhouse Gas Emissions Trading Scheme Order 2020.

The emissions trading scheme authority, formed by the four UK nations, is implementing changes to strengthen the ETS’s climate ambition. In June last year, the authority published a response to the consultation on developing the UK ETS. It included the following commitments, which are being implemented through the instrument: amending the cap trajectory so that it is better aligned with net zero targets; covering additional emissions in the upstream oil and gas sector; and improving the penalties process, on which we delivered an additional consultation earlier this year.

On the new cap trajectory, in 2023, the authority committed to reduce the ETS cap by 30 per cent by 1 January 2024. That amendment needed approval by the four UK legislatures. Northern Ireland did not have a sitting Assembly at the time, so the authority used powers reserved to His Majesty’s Treasury as a temporary measure to amend the number of allowances to be auctioned from 2024. That ensured that the number of allowances in the market was aligned with the agreed 30 per cent cap reduction. Ms McAllan sent a letter in July 2023 explaining that decision.

Now that Northern Ireland has a functioning Assembly, we are looking to amend the cap through the Climate Change Act 2008, which gives the committee the opportunity to scrutinise the new net zero cap-aligned trajectory. We are also amending the industry cap, which limits the number of free allocations and creates a flexible share on the back of the changes to the cap trajectory.

The instrument also expands the ETS to cover emissions from CO₂ venting in the upstream oil and gas sector. CO₂ venting—releasing emissions through pipes or vents—was not previously included as an ETS-regulated activity. In contrast, the flaring of CO₂—burning the gases before releasing them into the atmosphere—is an ETS-regulated activity. The inclusion of venting in the ETS aims to remove any perverse incentives for operators to vent gas containing CO₂ that, if flared, would be exposed to the ETS carbon price.

We are also extending to Northern Ireland legislative changes that were implemented in Scotland, England and Wales during 2023 to ensure that the ETS is consistent across the whole of the UK.

Finally, the instrument will introduce two penalties and amend existing penalties to improve the consistency, proportionality and fairness of the penalty process. I am happy to answer any questions.

It would be difficult to quantify the cost at the moment. However, basically, not having a carbon capture and storage scheme available in Scotland will have an impact on emitters.

I am happy to leave it as it is.

Motion agreed to.

Other things are also happening in order to incentivise decarbonisation. For example, there has been a reduction in the amount of free allocations.

In relation to aviation across the UK, for example, we will have no more free allocations after 2026. That has been loudly trumpeted, and people are building up to it. Some of the larger emitters in that area—particularly in aviation, where there is not much danger of carbon leakage—are preparing for the fact that they will not have any free allocations.

It is about a real tightening up and really aligning the ETS with the net zero ambitions and targets of all four nations of the UK.

Effectively, it means that there will be no loophole for getting rid of CO₂. At the moment, if you were to flare off any gas, you would have the ETS to cover that. We do not want a situation in which CO₂ is being vented into the atmosphere, because that essentially has the same effect as flaring. It means that operations will have to be consistent with not venting CO₂. The order is really closing a loophole.

It is my understanding that such venting is not exactly a practice that goes on an awful lot, but the order will remove that loophole in case, as I think that I mentioned in my statement, there is a perverse decision to vent without flaring, to avoid impacting ETS allocations.

Only a north-easter could ask such an intricate question, which I am pleased to answer. There are a couple of things in there.

Our position is that there must be a fiscal regime in place that allows the oil and gas industry to support its workforce and be instrumental in the transition to net zero. Quite a lot of oil and gas producers are involved in ScotWind licence options, and they support a vast supply chain. There is a well-rehearsed argument that we must ensure that we do not discourage activity in that area because, if we do, the workforce will relocate to other parts of the world, leaving Scotland without the expertise that we need in both the supply chain and the workforce to build out ScotWind and the other industries that will keep us as an energy-producing nation.

Scotland has a good story to tell about decarbonisation, because we have the innovation and targeted oil and gas licensing route. The first licences that have been given through the consenting unit have been for the INTOG scheme, which is about allowing the build-out of floating offshore wind to provide power to existing oil and gas-producing platforms. That means that they can use electricity, rather than diesel, in their production processes, which will markedly reduce production emissions in that area. We are the only part of the UK that has done that, and there are quite a lot of lessons for other oil and gas-producing countries to learn if they are looking to decarbonise their emissions from oil and gas production.

I do not think that I said that, because I do not have the numbers on how much CO₂ venting is going on in Scotland. I am sorry if I misspoke. I was just saying that the instrument will put the venting of CO₂ on the list of actions that will be part of the ETS.

To come back on your ScotWind comment, ScotWind was designed for four reasons: to decarbonise the electricity that we supply to the whole of the UK; to provide an opportunity for Scotland to have a thriving energy sector; to fund net zero work, which I wish it to do—however, I will not pre-empt anything in the budget—and to encourage investment in Scotland, which it is absolutely doing.

My comments about anything that is done on funding from big emitters apply to the whole UK. That is certainly my view of what should happen. However, it is also my view that ScotWind should address those four aspirations. However, I do not want to pre-empt anything that is said in the budget.