Creating oil and gas policy for our times

The government is looking to reconsider the key goal underpinning UK oil and gas policy.

For the past decade, UK oil and gas policy has been legally bound to maximise economic recovery (MER) of oil and gas. In other words, to extract as many economically viable barrels as possible from the North Sea. 

MER was an attempt by previous governments to give the ageing North Sea a shot in the arm. It was seeded by a 2014 review headed by oil tycoon Sir Ian Wood. The result was a new overarching legal objective: MER, alongside the creation of a new arm’s length regulator that could work closely with industry to deliver this goal. 

What MER means in practice is that all oil and gas decisions have to be made in a way that prioritises extraction. It underpins energy policy decisions made by the Department for Energy Security and Net Zero, and it underpins decisions made by the Treasury and HMRC about taxation, including the generous tax breaks offered to industry to develop new fields. 

At a time when governments are planning to produce more than double the amount of fossil fuels in 2030 than would be consistent with limiting warming to 1.5°C, MER is clearly out of step with ensuring a safe climate.

Nor has it served the UK public or protected energy workers. In the decade MER has been around, UK jobs supported by the oil and gas industry have more than halved as production in the mature North Sea basin continues to decline.

MER’s primary beneficiaries have been the oil and gas companies that want to squeeze every last bit of profit from the North Sea. 

This is a policy designed for a different era. The costs of remaining dependent on oil and gas, whether that's locking in years of unaffordable energy bills or the impacts of our changing climate, are much more apparent today. So too are the benefits of the clean energy alternative.  

It makes sense that the government would reconsider MER as it pursues its clean energy mission. A legal obligation to maximise extraction holds the government back and limits its ability to manage the transition in the public interest. North Sea policy needs to be aligned around renewable energy production, which will provide jobs, secure energy supplies, and protect our climate into the future, rather than an industry on its way out.

Removing the contradictory aim of MER, as Labour pushed for in opposition, would make sure that the government, regulator, and business are all facing the same way and real progress with the energy transition can be made. 

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