Longship carbon capture and storage in Norway’s North Sea

Introduction

Longship is envisioned to be a network of carbon capture and storage projects that could serve as one of Europe’s first large-scale initiatives to tackle industrial decarbonization, facilitating emissions reductions from heavy industries that are not able to fuel-switch or electrify. The megaproject has received considerable technical, operational, and financial support from Norway’s public sector, with the government expected to cover some two-thirds of total phase-one project costs, valued at over C$3.5 billion.

The Longship network will initially link two sub-projects that capture carbon dioxide from cement and waste-to-energy plants, with a storage plant in the North Sea. Norway’s state-led oil and gas company Equinor, along with oil majors Shell and Total, are partners to the Northern Lights portion of the project, the transport and storage facility, bringing significant experience in carbon dioxide storage in depleted offshore gas reservoirs. Construction of the Northern Lights terminal began in 2021, with the first phase expected to be complete by mid-2024, offering an initial storage capacity of 1.5 megatonnes of carbon dioxide per year over 25 years. The aim of phase two is to increase storage capacity to 5-7 megatonnes per year by 2026.

Longship’s first sub-project is a carbon capture plant at a cement factory located in Brevik, owned by Norcem-Heldelberg, a subsidiary of Germany’s HeidelbergCement. The project aims to use surplus heat to capture 400,000 tonnes of carbon dioxide per year, a third of the emissions caused from producing 1.2 megatonnes of cement per year. The second sub-project is a waste-to-energy plant located in the capital Oslo, the Hafslund Oslo Celsio (formerly named the Fortum Oslo Varme). The sub-project aims to match its sister’s capture rate at 400,000 tonnes of carbon dioxide per year, with emissions captured from the waste combustion process. This sub-project tried but failed to obtain additional financial support from the European Union’s Innovation Fund, meaning that the Norwegian government had to commit additional financing to cover the investment gap.

Captured carbon dioxide from the two plants will be transported by ship to the Northern Lights reception terminal in Øygarden municipality, and then by pipeline to the injection well where storage will take place beneath the seabed. This portion of the project—the transport and storage infrastructure—aims to eventually become commercially profitable based on a tariff paid by emitting firms to transport and store their captured carbon dioxide.

Figure 1: Longship includes the full carbon capture chain through sub-projects linking captured carbon dioxide with storage

Captured carbon dioxide from the Oslo and Brevik's plants is be transported by ship to the Northern Lights reception terminal in Øygarden municipality, and then by pipeline to the injection well where storage will take place beneath the seabed.
Source: Regulatory Lessons Learned from Longship.

Longship provides an example of hands-on, targeted support for a large-scale emissions-abatement initiative, where the government works directly with its private-sector partners on project design, construction, implementation, and marketing. While subsidizing the lion’s share of phase one of the project, the government has said that phase two of the project, or any additional expansions, will need to be privately funded. The consortium of partners has already promoted the Northern Lights sub-project as commercially viable, aiming to become a storage provider for carbon captured from industrial sites across Europe.

Description of the policy

Norway has a long history of state ownership and other stakes in strategic industries, and this economic model has propelled the nation to one of the top-10 richest countries in the world. At the same time, Norway is known for its successful wealth distribution policies—including intergenerationally—made possible through its sovereign oil fund that manages revenue contributions from its petroleum sector. This reliance on its fossil fuel resource abundance, coupled with strong climate commitments (currently to cut emissions by at least half by 2030 compared to 1990 levels), has driven considerable interest in carbon capture and storage technology over the last two decades. Norway is now mobilizing its existing expertise, its ready access to North Sea storage, and a belief that a carbon capture and storage market will emerge as regional carbon pricing and other climate policies accelerate.

The Norwegian government launched the project through a white paper in September 2020, committing NOK 16.8 billion (C$2.32 billion) out of the total planned investment of NOK 25.1 billion (C$3.47 billion). Parliament approved the proposal at the end of that year, with the funding to roll out between 2021 and 2034, covering both capital and operational costs. This represents the Norwegian government’s largest ever investment in a single climate project. But the government’s support stretches beyond a financing role, to addressing other potential barriers to development, such as regulatory challenges.

State enterprise Gassnova was specifically established in 2005 to advance research and development into carbon capture and storage, and is now acting as the technical advisor to the government for Longship. This includes conducting the pre-feasibility study, leading in overall planning activities, and managing contracts with industry partners. Gassnova is also responsible for communicating results, and has committed to providing lessons learned from the regulatory and development processes to facilitate demonstration. Several other Norwegian public sector bodies are also heavily involved in the development of Longship, with several state agencies and directorates handling regulatory roles in addition to municipalities and county governors. The government is also involved as a project integrator, coordinating various public and private partners.

While phase one of Longship will connect only two plants capturing carbon dioxide in Norway with the Northern Lights facility, the network is envisioned to expand in later years. For the second phase, Northern Lights is offering commercial carbon storage services to companies across Europe, where emitting firms would pay a service charge for carbon dioxide handling and storage. European industrial sites that choose to capture carbon dioxide will be able to pipe or haul its liquified form onto ships that transport it to a facility on the Norwegian continental shelf before it is injected into permanent storage sites 2,600 metres below the seabed. Northern Lights has identified over 90 suitable capture sites, and there is already interest from industrial plants in eight countries, spanning sectors such as steel, biomass, and hydrogen.

Norway is promoting the project as a way to jumpstart a European carbon capture and storage market. While withdrawing its financial support in this commercial phase of the project, the government remains involved in bilateral relations, making agreements between participating governments a prerequisite for Northern Lights’ carbon dioxide storage agreements. The Ministry of Petroleum and Energy is already in consultations with several governments, and has signed memorandums of understanding with Belgium and the Netherlands. This has paved the way for the first cross-border commercial agreement, signed in September 2022, that by 2025 will see up to 800,000 tonnes of carbon dioxide per year transported from Yara Sluiskil, an ammonia and fertilizer plant in the Netherlands, and stored.

While the Norwegian government is essentially designing and subsidizing a significant share of the project, it is simultaneously working to drive long-term demand for carbon capture. This includes a rising carbon price applied to fossil energy products such as petrol, diesel, and natural gas, currently slated to reach NOK 2000 (C$275) per tonne in 2030, up from NOK 590 (C$81) in 2021. The carbon price applies to sectors that are covered, as well as those that are not covered, by the European Emissions Trading System, with a pricing top-up currently applied to the former to reach the national benchmark.

While this strong carbon pricing trajectory will incentivize domestic industry to consider capturing their emissions, the carbon price applied within the European Union remains insufficient to do so. The targeted capacity at Northern Lights of 5-7 megatonnes per year by 2026 is a fraction of what is needed to help Europe decarbonize: a study by the University College London Energy Institute estimated it would require 230-430 megatonnes of carbon dioxide storage per year by 2030, increasing to 930-1,200 megatonnes of carbon dioxide storage per year by 2050 under a 1.5C-compatible scenario. For this reason, support-based policies are building in popularity under the European Commission, which has approved more state aid for carbon capture activities and also funds its own carbon capture and storage projects through its Innovation Fund.

Policy strengths and limitations

As the first large-scale carbon capture and storage project in the region, the Longship project has been called a “demonstration project,” helping to legitimize government support to test the technology as a climate change solution, including functionality, efficiency, and potential to scale. These types of public expenditures into clean technologies may help realize public benefits from innovation, including by building knowledge and related skills (the so-called “knowledge spillover” effect). The first-mover advantage—from being the first in Europe to enable cross-border carbon trade for storage—has also enabled the company to establish early partnerships and build a strong reputation in the market. Lessons learned may also bring down costs or remove other barriers that benefit future project proponents.

Many of the celebrated achievements of Longship thus far surround its success in overcoming financial and non-financial barriers to project implementation. While the large upfront capital costs of the project were identified as a significant barrier to development, the government has also helped to overcome other barriers to private-sector carbon capture development, such as regional red tape. This has meant trailblazing new public-private partnership models, and navigating a path to a more efficient regulatory process.

Strengths

  1. The project represents a strategic and specific investment with measurable results.

Unlike government policies that provide blanket support to industry, such as tax breaks or energy rebates, Longship is an example of a government targeting a specific project with measurable results and a potential revenue stream. These results include carbon capture as a key component of regional decarbonization, as well as tapping into the commercial opportunities of carbon dioxide storage across the region. As a public project, Longship defies market failures that prevented it from being realized by private actors, including high upfront capital costs, insufficient carbon price levels, and risks associated with the technology. In so doing, it targets a specific type, and volume, of climate change mitigation (i.e., 1.5 megatonnes of carbon dioxide captured per year), and supports clean technology innovation. It also relies on a science-based approach to target which technology type to support, with carbon capture present in all globally recognized scenarios consistent with limiting global temperature rise to 1.5C-2C.

  1. The government’s participation includes funding, designing, and managing the project through the full carbon capture and storage chain.

Recognizing that the concept of carbon capture does not work without a reliable storage option, the project has been designed to grow the entire carbon capture and storage chain in unison. Each component of the initiative is being considered as a separate sub-project, with the government establishing separate agreements with each industry player, thus helping to avoid cross-chain risk for private partners. While the model means that the government bears additional cross-chain risks related to the interface between the sub-projects, it protects private partners from weaknesses in other links of the chain. For example, if one of the capture projects were to fail, Northern Lights could find other carbon dioxide suppliers, or if Northern Lights were to fail, the capture projects could likely find a different storage provider without facing catastrophic loss.

  1. The project addresses a specific barrier to scale carbon capture and storage as a climate change solution: the availability of supporting infrastructure.

One of the identified barriers to carbon capture project development in Europe is uncertainty around transport costs and long-term storage options. Longship aims to address this well-known chicken-and-egg problem, where no industry emitter will invest in a capture project without the existence of a storage solution, and no company will develop a storage site without knowing that there is carbon dioxide to be stored. Longship will allow emitting firms to develop carbon-capture projects with the security of knowing there will be a reliable transport-and-storage option. The project has already mustered considerable interest from industrial emitters across Northern Europe.

  1. The project recognizes climate change as a global challenge, offering neighbouring countries a climate solution while also tapping into a emerging market.

As of 2021, there are over 50 carbon capture projects announced across Europe, offering an abatement potential of over 80 megatonnes of carbon dioxide per year. Many of these projects are considering Northern Lights for their storage requirements, particularly as the endeavour is several years ahead of other storage projects under development in Europe, such as the Port of Rotterdam Porthos Project. As a result, the project’s initial storage capacity is already oversubscribed if all agreements come to fruition. Longship also paves the way for blue hydrogen, where carbon is captured from the burning of natural gas in the production process. Equinor, for example, is already producing blue hydrogen in Hull, England as part of the Zero Carbon Humber carbon capture and storage project, and Northern Lights will provide a viable storage option for these types of endeavours. It should be noted that competition in the region is ramping up, with the U.K. investing £1 billion (C$1.66 billion) through a carbon capture infrastructure fund that is looking to develop two “hub and cluster” projects as early as 2025.

  1. The project helps address regulatory barriers.

Immature regulatory frameworks have been highlighted as a barrier to carbon capture project development worldwide. Working in lockstep with the federal government has allowed the project priority access through the regulatory process, and the government has demonstrated agility in shaping the system to facilitate project success—something that will help the next wave of carbon capture projects. Gassnova’s role in sharing lessons learned from the regulatory process has helped demystify the steps and shed light on potential hurdles in the Norwegian context. The importance of involving local authorities early in the process, for example, was highlighted as a key lesson learned due to the complexity and the sheer size of the carbon capture and storage projects. The Longship process has also helped shed light, and address hurdles such as zoning-plan permitting, consent for pipelines, and quay-to-offshore licensing. As a learning-by-doing model, the Longship project has already led to the development of a new licensing system for carbon dioxide storage. In addition, the government has now clarified reporting obligations for carbon capture to facilitate its international climate change reporting obligations.

Limitations

  1. The subsidy-based project relies on finite public capital to fund a technology with a mixed level of public support.

Longship has drawn criticism from some stakeholders who see public funding for the project as a form of fossil-fuel subsidy because it is an oil and gas consortium that hopes to benefit commercially from the storage and transport terminal. They note that the oil and gas sector has seen recent record profits and should not be given a share of finite resources from the public purse. Those critics also say that emissions-intensive companies should face regulations or carbon prices that incentivize carbon capture adoption—rather than relying on public funds. Some stakeholders also slam carbon capture as an inefficient or ineffective way of reaching net zero, believing that emissions should instead be reduced at source. While the government has doubled-down on carbon capture as “absolutely necessary” to reaching climate goals, they have also admitted that there is “no guarantee” that Longship will be a success from a climate change perspective.

  1. The ultimate success of the project hinges on the shape that domestic and international climate policy take.

Because the carbon price signal is currently insufficient to incentivize carbon capture development in Europe, additional government support is currently needed. The ultimate commercial success of the Longship project will hinge on the regulatory stringency and/or subsidy envelopes from other governments. This means that both ongoing and accelerating carbon price levels and government support are needed to see the carbon capture market take off. There are promising trends here, with four of the seven large-scale projects that were awarded funding in 2021 under the EU-level Innovation Fund considering carbon dioxide storage through Northern Lights, and seven out of seventeen winners from the 2022 Innovation Fund round including a carbon capture component. The upcoming third call will see a significant increase in funding, with the European Commission aiming to invest €3 billion (C$4.3 billion) towards clean tech projects.

Lessons for Canada

Canada’s oil and gas sector has been an early mover in carbon capture, and over three megatonnes of carbon dioxide are already being captured each year from Shell’s Quest Project, Alberta Carbon Trunk Line, and the SaskPower Boundary Dam Project. The Canadian federal government’s Emissions Reduction Plan set a target of capturing at least 15 additional megatonnes of carbon dioxide annually by 2030, including through a generous investment tax credit slated to be applied from the 2022 tax year onward.

Nevertheless, the Longship initiative provides policy lessons that span beyond carbon capture and storage, with several of these lessons applying to any large-scale project that the government directly supports.

  1. Target the most cost-effective projects to deliver public support.

The most cost-effective publicly funded projects will leverage private sector investment. Norway’s partnership with private industry helps cover a third of project costs, while project operation and expansion will be handed over to the private sector after phase one. Norway has also coupled its carbon capture investment with a commitment to a sharp rise in the carbon price. This will help drive down the required levels of support for carbon capture moving forward, complementing the initial investment by driving demand for carbon dioxide storage. The government also points to long-term economic gains through Longship’s potential to create jobs, and also provide a source of foreign capital as a cross-border carbon dioxide storage service provider.

  1. Target all barriers to project development, not just financial barriers.

Longship demonstrates that non-financial barriers are equally important to address as financial barriers. The Northern Lights consortium of oil majors already had the capital for carbon capture ventures, but they cited the partnership with the Norwegian government as fundamental to the project, in part because it would help overcome regulatory hurdles. While looking to develop the carbon capture industry in Canada, the government should identify and remedy non-financial barriers to implementation. These include hurdles related to supporting infrastructure, such as carbon dioxide transport.

  1. Leverage Canada’s comparative advantages and existing talent, skills, and experience.

While Longship is often labelled a demonstration project, it leverages over 20 years of experience in carbon capture and storage. Norway started capturing carbon dioxide and storing it under the continental seabed using depleted offshore gas reservoirs as early as 1996. Norway had already built up much of what was needed for project success, including technical expertise and industry know-how. Canada also has considerable experience and expertise in carbon capture technology, but our country also has considerable advantages in other areas, including an abundance of clean hydro power, preferential access to the United States market, and a wealth of natural resources that include critical minerals. These natural advantages should factor into any large-scale publicly funded project.

  1. Facilitate capture from across Canada’s heavy industries, not just the oil and gas sector.

Phase one of the Longship project includes carbon dioxide captured from a domestic waste-to-energy and cement plant, recognizing carbon capture and storage as the only currently viable solution for those plants to remain in operation in a decarbonizing economy. Northern Lights is targeting a European market that will provide a storage service to customers capturing carbon from a variety of facilities. Therefore, although Norway is utilizing the strengths and expertise of the oil and gas sector to build Northern Lights, the project broadens the scope of impact across the country’s—and region’s—industries beyond oil and gas. The oil and gas sector nevertheless continues to be a significant contributor to Norway’s emissions, accounting for around a quarter of the country’s greenhouse gas emissions. Norway is in the process of strategizing how to cut emissions from the oil and gas sector, which it said will include a combination of shutting down certain oil fields, carbon capture and storage, and electrifying operations where possible.

Conclusion

Longship offers an example of a government providing holistic, tailored, large-scale support to a particular climate project, where the public sector works directly with its private-sector partners on project design, construction, implementation, and marketing. The public ownership stake is seen as a strategic investment, tapping into Norway’s existing skills and advantages, leveraging over 20 years of experience in carbon capture and storage. The investment places a bet on the government’s expectation that the market for carbon capture will grow as domestic and regional carbon pricing continues to strengthen, and the European Union offers increasing levels of financial support to its member states for carbon capture and storage projects.

Given lessons learned in the Norwegian context, Canada should optimize its comparative advantages when making strategic investments in climate-related and carbon capture projects. It should also consider its existing policy landscape when making decisions about the level of support to offer a project, given that regulations and carbon pricing policies will already be pushing emitters to invest in clean-technology solutions, taking care to avoid crowding out private-sector investment. Ultimately, the scope and scale of complementary climate policies will set the pace of the Canadian and global clean energy transition, shaping related market opportunities.

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Managing a just transition in Denmark

Denmark is the world’s largest oil producer to commit to ending oil and gas extraction. In December 2020, a broad majority of parliamentary parties passed a binding law for climate-neutrality by 2050, and the planned phase out of its oil and gas sector is central to meeting these commitments. With more than 55 platforms in 19 oil and gas fields in the North Sea, Denmark has cancelled all future oil and gas extraction tender rounds. As the agreement notes: “if our children and grandchildren are to live in a world that lives up to the common obligations under the Paris Agreement, fossil fuels must be phased out … It’s not a choice we face, it is a bound task” (Nordsøen 2020, 1). A just transition is central to this transformation. Denmark is committed to helping workers transition to new and well-paying jobs and supporting those regions and communities that are most impacted. (Nordsøen 2020).

Context

Denmark, with a population of roughly six million people, is showing global leadership in reducing greenhouse gas emissions and phasing out oil and gas production both at home and abroad. As a member of the European Union (EU), its frameworks for energy and climate policy are influenced by common European objectives. However, its greenhouse gas emissions reduction targets have gone above and beyond those adopted under European Climate Law1. Denmark has committed to reducing its greenhouse gas emissions by 70 per cent by 2030 as opposed to the EU-wide target of 55 per cent. At the international level, Denmark, together with Costa Rica, launched the Beyond Oil & Gas Alliance (BOGA) in 2021, for which signatory governments set an end date for their oil and gas exploration and extraction2. To date, Denmark is the only country with a large oil and gas sector to make such clear phase-out commitments across its entire economy. There has been an effective dialogue between Danish employers, unions, and government since the 1970s on industrial and climate policy and transitioning the power sector from coal to wind. The most recent climate commitments build on that momentum and social solidarity. 

Oil rigs in Esbjerg Denmark

The oil and gas sector in Denmark dates back to the oil embargo crisis in the early 1970s. Denmark started producing oil and gas in 1972 and became a net exporter in 1997. Oil production peaked in 2004, and in 2018 Denmark once again became a net oil importer (Sperling et al. 2021). Today, Denmark is a relatively small oil producer with around 0.1 per cent of the global market (Statistical Review of World Energy 2021). In 2020 Denmark produced around 77,000 barrels per day of crude oil equivalent; in the same year the United Kingdom and Norway produced around one million and two million barrels per day, respectively (US EIA 2020). While oil and gas remain important to the Danish economy, over the past 20 years, crude oil production has declined by 41 per cent and natural gas by 57 per cent, while renewable energy production has increased by around 300 per cent (Energistyrelsen 2022). Denmark is presently considering increasing natural gas production in order to reduce its dependence on Russia energy. However, if adopted, this will be a temporary measure.

The declining productivity and economics of its oil and gas reservoirs has accelerated Denmark’s oil and gas transition. Its last oil and gas tender round (the eighth) saw very little interest from energy firms, indicating a lack of long-term viability for the sector (Sperling et al. 2021). Given these conditions, there has been political and industry support for a planned phase out of oil and gas in the Danish North Sea, and government support for investments in CCUS, offshore wind power, and alternatives to fossil fuels. This support has been building for some time. The target to phase out oil and gas by 2050 was announced as early as 2006, and then strengthened with a 100 per cent renewable energy strategy in 2011 under a conservative-led government. The 2020 binding law for climate-neutrality (Danish Climate Act) cements these commitments across a broad political coalition (left and centre-right), providing a degree of policy durability that is uncommon in many other jurisdictions. This robust foundation also sends strong signals to the industry and provides a consistent framework for investment. 

In each of these decisions, governments were not acting alone. A coalition of NGO, union and civil society organizations were instrumental in pushing for the phase out of oil. Their collective 2020 campaign “Stop looking for more oil NOW” intensified pressure to end Denmark’s eighth oil and gas tender. Many advocates argued that the planned oil and gas phase out was too far off and needed a shorter timeframe; however, the government assessed that the cost of contractual buyouts was too high. 

Phasing out oil and gas activities will have important fiscal and employment implications for the country. Oil and gas extraction in the Danish North Sea generated over C$100 billion in state revenues between 1972 and 2019 (DKK 541 billion). Cancelling future tenders and imposing an oil and gas end-date in 2050 is estimated to cost C$2.45 billion (DKK 13 billion) in foregone government revenue (Energistyrelsen 2022)3. Beyond this, the impact to employment in the oil and gas sector is another major concern. An estimated 10,000 people are directly employed in oil and gas extraction with another 16,000 indirect jobs, representing around one per cent of total Danish employment (Sperling et al. 2021)4. The majority of oil and gas jobs are located in Esbjerg—Denmark’s energy centre on the west coast of the Jutland peninsula in southwest Denmark.

Policy response and transitions management 

Denmark’s 2020 climate-neutrality law included a commitment to a just transition initiative in and around the Danish west coast seaport of Esbjerg, where energy industries are concentrated. There is political consensus that the North Sea will remain the key energy producer, but instead of oil and gas, will focus on wind energy and other renewable energy activities. Therefore, Denmark’s just transition is being managed in place; new economic activities are in sectors that require similar skills and expertise as the oil and gas sector. Although the Esbjerg community and surrounding areas are changing their      economic orientation, they will retain and strengthen their energy economy, maintaining their identity. The strong growth and proven effectiveness of the renewable energy sector reduces risks for both workers, industry, and the community. 

Within this context, Denmark’s approach has focused on securing major investments in sustainable energy research and innovation, and in creating an effective regulatory environment for sustainable energy investments alongside transmission infrastructure for export. Close connections with industry and unions have been at the forefront of this approach. Denmark has both a Ministry of Environment and a Ministry of Climate, Energy, and Supply. Together, they coordinate Denmark’s just transition policies. As part of the Danish climate effort, the government has established 14 climate partnerships with the business community and, in 2019, established a Green Business Forum. Their purpose is to strengthen the dialogue between the government, business, and the trade union movement on opportunities and barriers in the green transition of business (Klima Energi-og Forsyningsministeriet 2022b).

The Ministry of Climate, Energy, and Supply is also involved in North Sea co-operation with 10 European countries to reduce the cost of offshore wind development and to develop a European offshore wind market5. The European Commission has estimated that wind energy from the North Sea will be able to cover up to 12 per cent of the electricity consumption in the EU in 2030 and up to 20 per cent in 2040; it is being called the “Silicon Valley” for offshore wind and could potentially become a power plant for the whole of Europe (Klima Energi-og Forsyningsministeriet 2022a). Danish companies are world leaders in offshore wind, and the wind turbine industry employs more than 31,000 people in Denmark (Klima Energi-og Forsyningsministeriet 2022a). The 2020 gas phase out agreement included a commitment to invest C$17 million (DKK 90 million) by 2025, to support the expansion of the Port of Esbjerg as a hub for large-scale offshore wind. While wind energy sector support is important, Denmark is planning the first offshore wind farms in Europe without subsidies and it is expected to be the cheapest energy source in Europe—surpassed only by onshore wind power (Klima Energi-og Forsyningsministeriet 2022a).

Part of the existing oil and gas offshore workforce are close to retirement and early pensions are being offered as part of the transition. However, new businesses in offshore energy are expected to be the major source of transition employment and growth (Sperling et al. 2021). An influential 2015 assessment of Denmark’s potential to meet 100 per cent of its renewable energy needs by 2050, estimates an additional 50,000 additional jobs per year will be created by 2050 (Vad Mathiesen et al. 2015)6. The analysis finds that “renewable energy systems create more domestic employment compared to the fossil reference, and that the earlier the investments are made, the earlier will the employment effect appear” (Vad Mathiesen et al. 2015). It further notes that innovation and export potential may spur additional economic and employment gains. They have the potential to be the most important long-term contributors to Danish employment with an annual export potential of €20 billion which would generate up to 150,000 jobs by 2050 (Vad Mathiesen et al. 2015)7. More recent assessments by key labour unions echo the economic and employment potential of green energy investments. There has also been strong growth in the renewables-related machinery sector.8

Denmark’s strong social welfare state, with among the lowest income inequality of any OECD country, is also helping to smooth the transition. Their renowned “flexicurity” model makes it easy to hire and fire workers while safeguarding their financial security by providing a robust system of social and employment supports. Active labour market and education policies ensure that individuals have the skills they need to transition to new employment. As one example, the municipally owned port authority, Port Esbjerg, in co-operation with the United Federation of Workers in Denmark is introducing an “Offshore Academy” to support education and training in renewable energy and related industries. Esbjerg’s port is an international, multimodal transport centre, employing around 10,000 people across 200 companies and plays a key role in transition efforts. The municipality is the fifth largest municipality in Denmark with a total population of around 116,000. 

Denmark has set out to become a leader in proactively managing the transition for workers by leveraging new opportunities. For example, Denmark’s Prime Minister Mette Frederiksen leads the International Energy Agency’s new global commission on people-centred clean energy transitions. Danish climate, energy, and business ministries all include international engagement and leadership among their priorities. One key effort in this regard is Denmark’s Green Future Fund (est. 2020), which focuses on the development and dissemination of technologies, the conversion of energy systems to renewable energy, storage and efficient use of energy, and the global export of green technology, especially wind energy. The fund has a total capital commitment of C$4.7 billion (DKK 25 billion). Denmark’s approach to decarbonisation is both inward and outward facing—focusing on enhancing the innovation and productivity of domestic industries and sharing expertise abroad, reinforcing its comparative and competitive advantage.

Progress to date

Denmark’s phase out of oil and gas comes alongside ambitious climate objectives. In announcing the phase out, the Danish government has expressed the importance of this being a just transition for workers and communities, most notably in Esbjerg, where oil and gas employment is concentrated. However, in contrast to other countries with such initiatives, the use of the term “just transition” is far less prevalent in public sector reporting and there is no formal just transition process to monitor and report back on implementation. Denmark has a Council on Climate Change—an independent body of experts—that provides suggestions for cost-effective climate policy solutions. But its reports do not specifically address aspects of justice in the transition (see for example, Klimaraadet 2022). 

Industrial area in Copenhagen with large silos, concrete, chimneys, and a wind generator.

However, Denmark’s robust social systems are helping to strengthen the distributional elements of justice in terms of how costs and benefits are experienced between groups and the nature of compensation mechanisms (Bennett et al. 2019). The idea of just transition is also not new in the Danish context. There are long-standing relationships between government, industry, and unions to proactively manage transitions. Public trust and dialogue strengthen the recognitional and procedural elements of justice in terms of how stakeholders are acknowledged and whether the right processes are in place to plan and manage transitions. There is also a sensitivity to socio-economic disparities and inequalities in policy design. Denmark’s climate change commitments are expected to lead to increased prices on electricity, heating, and transportation because of new taxes and investments. While these are expected to be offset by energy efficiency improvements and renewable energy in the medium and longer terms, the government has established programs to subsidize high energy costs for the country’s poorest households. 

Is Denmark achieving its objectives? Employment and investments in renewable energy have grown significantly over two decades and there is little reason to expect this momentum to change. The new Viking Link power cable connection to the U.K. and an extension of the power grid between Holstebro and the Danish-German border further strengthens the wind power economy. Early signals also suggest that Russia’s war in Ukraine is bolstering the European Union’s commitments to renewable energies. The limited pushback to Denmark’s approach to date—based on a broad parliamentary and societal consensus—also reflects a high level of acceptance and buy-in. 

Lessons for Canada

Overall, Denmark’s approach has focused on investing in renewable energy and collaborating with industry and unions to spur a new green energy economy. Oil production in the state was already declining and represented a small portion of Danish economic production and about one per cent of the workforce. (This is similar to Canada which also has about one per cent of its workforce in the oil and gas sector.) This context, along with Denmark’s centralised and unitary government structure, created the environment for establishing solid commitments and pan-parliamentary consensus, which in turn provided the market and industry with clear signals to invest in renewable energy. Public sector energy investments and supports are spurring the renewable economy, while Denmark’s growing global leadership is solidifying its expertise in the global low-carbon transition. 

A critical component in planning and managing the global low-carbon transition is determining what new opportunities workers and communities can transition toward. For Denmark, the answer has been clear: renewable energies, specifically wind power. In this sense, a few key lessons stand out for Canada:     

  • Implement regulatory certainty and consistency: Denmark’s multi-party climate commitments make its decarbonisation objectives clear in the short, medium, and longer term. Denmark’s regulatory framework supports this process. This helps to create a strong investment climate for the green economy. 
  • Build on competitive strengths: Canadian jurisdictions could learn from Denmark by developing a clear vision of comparative strengths and capabilities, investing in those strengths, and communicating those to the world. Global connections and knowledge-sharing are a key part of Denmark’s just transition strategy. 
  • Engagement and dialogue: The Danish case highlights the importance of dialogue with key stakeholders and Indigenous rights holders. Denmark has a long tradition of engagement between union, industry, and government to manage transitions. This made it easier to establish consensus for the oil and gas phase out among different groups as there are established relationships to manage the transition process.       

Conclusion     

Denmark’s Minister of the Environment and Climate, Per Bolund, has remarked that “the use of fossil fuels must be a parenthesis in history” (United Nations Regional Information Centre for Western Europe 2021). Denmark’s energy transition is well underway. As a relatively small nation, Denmark is showing outsized leadership to meet that goal. In the Danish case there is a clear picture of what the energy sector is transitioning to. Wind energy investments are a proven winner, and employment in this sector involves many compatible skills to that of oil and gas workers. But beyond this, the robustness of the Danish social welfare state reduces the riskiness and exposure of workers (direct and indirect) to the energy transition. Social and employment supports help reduce injustices in the transition and lessen inequalities.

All opinions, errors, and omissions are the sole responsibility of the author.

References

Bennett, Nathan J. et al. 2019. “Just Transformations to Sustainability.” Sustainability 11(14): 3881. doi:10.3390/su11143881 

Energistyrelsen. 2022. “Danish Energy Agency.” The Danish Government. https://ens.dk/en

Klima, Energi-og Forsyningsministeriet. 2022a. “North Seas Energy Cooperation.” The Danish Government. https://kefm.dk/globale-samarbejder/nordsoesamarbejdet 

———. 2022b. “Regeringens Klimapartnerskaber.” The Danish Government. https://kefm.dk/klima-og-vejr/regeringens-klimapartnerskaber-og-groent-erhvervsforum

Klimaraadet. 2022. “Statusrapport 2022: Danmarks Nationale Klimamål Og Internationale Forpligtelser.” February 25. https://klimaraadet.dk/sites/default/files/downloads/statusrapport_2022_webpdf_final.pdf  

Mathiesen, Ken. 2021. “Olieindustrien Glæder Sig over Aftale Om CO2-Lagring i Nordsøen: Grønt Lys Til Nyt Eventyr Med Flere Tusinde Job.” Jydske Vestkysten. December 15. https://jv.dk/artikel/olieindustrien-glæder-sig-over-aftale-om-co2-lagring-i-nordsøen-grønt-lys-til-nyt-eventyr-med-flere-tusinde-job 

Nicolas, Elena Sanchez. 2020. “Denmark to Stop North Sea Oil Drilling in 2050.” EU Observer. December 7. https://euobserver.com/nordic/150287

Nordsøen. 2020. “Aftale Mellem Regeringen (Socialdemokratiet), Venstre, Dansk Folkeparti, Radikale Venstre, Socialistisk Folkeparti Og Det Konservative Folkeparti Om Fremtiden for Olie- Og Gasindvinding i Nordsøen Af 3. December 2020.” https://kefm.dk/Media/0/3/Nordsøaftale.pdf 

Sperling, Karl et al. 2021. “Denmark without Oil and Gas Production: Opportunities and Challenges.” Aalborg University: 1-35.   https://vbn.aau.dk/en/publications/denmark-without-oil-and-gas-production-opportunities-and-challeng 

Statistical Review of World Energy. 2021. “Full Report – Statistical Review of World Energy 2021.” British Petroleum. https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-full-report.pdf

United Nations Regional Information Centre for Western Europe. 2021. “Denmark,  Sweden and Greenland in a new global alliance to seek an end to oil and gas production.” November 12. https://unric.org/en/denmark-sweden-and-greenland-in-a-new-global-alliance-to-seek-an-end-to-oil-and-gas-production/ Vad Mathiesen, Brian et al. 2015. “Aalborg Universitet IDA’s Energy Vision 2050 A Smart Energy System Strategy for 100% Renewable Denmark.” Aalborg University: 1-159. https://vbn.aau.dk/en/publications/idas-energy-vision-2050-a-smart-energy-system-strategy-for-100-re

1 In June 2021, the EU adopted a European Climate Law, establishing the aim of reaching net zero greenhouse gas emissions in the EU by 2050. The law sets an intermediate target of reducing greenhouse gas emissions by at least 55 per cent by 2030 compared to 1990 levels.

2 The alliance, which was presented at COP26, also includes Sweden and Greenland from the Nordic countries, as well as France, Ireland, Quebec, and Wales.

3 On the estimate of daily production averaging 83,000 barrels of crude oil and 21,000 barrels of oil equivalent in 2020 (Energistyrelsen 2022).

4 Note that these figures are from Oil & Gas Denmark, the branch organisation for the Danish upstream gas and oil sector and have been contested by NGOs who believe that the employment figures are in fact smaller (Sperling et al. 2021).

5 The North Sea Cooperation is a cooperation on offshore wind and electricity networks in the North Sea between Belgium, the Netherlands, Luxembourg, Ireland, the United Kingdom, France, Norway, Sweden, Germany, and Denmark with the participation of the European Commission.

6 This is based on an assessment of the implementation of the IDA Energy Vision 2050. This contribution is the net-effect compared to the fossil reference (Vad Mathiesen et al. 2015)

7 Assuming an import share of 50 per cent (see Vad Mathiesen et al. 2015 for reference scenario).

8 See for example, analysis from the trade union Dansk Metal which anticipates an estimated 3,000 new jobs related to CCUS in the Esbjerg area in the near future (Mathiesen 2021).

Managing a just transition in Scotland

Scotland has a significant oil and gas sector in the North Sea. It is a major employer, contributing around five per cent of total Scottish GDP (2019), and accounts for around 90 per cent of the country’s total primary energy (2015) (Scottish Government 2022c). It also has some of the most ambitious greenhouse gas reduction commitments among advanced economies. The Scottish government’s planning for a just transition started in 2019, and it is now ramping up a national strategy for economic transformation, with specific plans for high-emitting industries. The energy sector is the first to be tackled. Swift progress on these plans will be critical for Scotland to meet its ambitious climate commitments and build a just transition.

Context

In 2019, the United Kingdom (U.K.) became the first major economy to establish and pass a legally binding target of net zero emissions by 2050. Scotland—a devolved regional government under the U.K.’s Westminster government—has made even more ambitious commitments: a 75 per cent reduction in greenhouse gas emissions by 2030 (relative to base year 1990), and net zero greenhouse gas      emissions by 2045. Just transition principles are baked into these targets. Scotland’s climate change plan calls for a rapid transformation across all sectors of the economy and society while “ensuring the journey is fair and creates a better future for everyone—regardless of where they live, what they do, and who they are” (Scottish Government 2022b). However, there is no planned phase out of oil and gas, but rather a commitment to continued exploration and production with the hope that investments in sustainable energy and carbon capture, utilization and storage (CCUS) technologies reduce sectoral emissions. 

Major industrial transitions are not a new phenomenon in Scotland. Poorly managed transitions in the coal sector in the 1980s led to entrenched inequalities in those regions decades on. The North Sea oil sector has experienced intermittent declines since the 1990s and jobs connected to the oil and gas industry have fallen nearly 40 per cent over the last five years alone (Oil and Gas U.K. 2021), further entrenching those inequalities. In 2017, the Just Transitions Partnership (JTP)—a coalition of unions and environmental NGOs—formed to advocate for a long-term, independent, focused commission with statutory authority to track and monitor the government’s Climate Bill and ensure its alignment with just transition principles. In response, the Scottish Government established a Just Transition Commission in 2019 for a two-year term to provide “practical, affordable, actionable” recommendations to Scottish ministers on how to achieve those principles. It also mandated that climate action targets align with just transition principles. 

Over their two-year term, the Just Transition Commission engaged the public and key stakeholders in meetings, town hall events, and site visits across Scotland. These were overarching conversations related to the whole of the economy and society. The Commission’s final report to the Scottish government was submitted in 2021 with four main recommendations:

  1. Pursue an orderly, managed transition to net zero that creates benefits and opportunities for people across Scotland.
  2. Equip people with the skills and education they need to benefit from Scotland’s transition to net      zero.
  3. Empower and invigorate communities and strengthen local economies.
  4. Share the benefits of climate action widely and ensure costs are distributed on the basis of ability to pay (Just Transition Commission 2021).

The Scottish government accepted the recommendations of the Commission in full and will create a national Just Transition Planning Framework to set out how it will transition to a net zero economy. The framework will include detailed plans for specific industries. A junior ministerial post—Minister for Just Transition, Employment, and Fair Work—has been created to coordinate these actions. A new, permanent, statutory Just Transition Commission will advise, monitor, and evaluate progress on key targets1.

Policy response and transitions management

Developing a transition plan for the energy sector was the first priority. Like many jurisdictions, Canada included, Scotland’s target of reaching a net zero economy by 2045 exists alongside a commitment to “maximise oil and gas recovery” for the foreseeable future. Government financial support for oil and gas exploration and production is conditional on sustainable energy transition investments. It supports sequestration (CCUS technologies), alternative energy (hydrogen and hydrogen fuel cells), decommissioning oil and gas capacity, and helping workers transition to new jobs. 

A U.K.-wide Oil and Gas Industry Leadership Group (ILG) convenes private and public sector leaders to coordinate on these matters. The U.K.’s oil and gas industry group has created their own greenhouse gas reductions roadmap to 2035 with key actions in areas such as skills development, technology, and innovation and emissions reductions (Oil and Gas U.K. 2022). Scotland’s Just Transition Commission has noted that while these efforts are valuable, it is important that they are consistent with statutory emissions reductions targets (Just Transition Commission 2020). Devolved and reserved responsibilities make accountability challenging. For example, licensing for offshore oil and gas is a reserved matter for the UK government while onshore licensing and extraction was devolved to Scotland in 20162. There are also concerns that the industry-led plan does not adequately address workers. 

While these initiatives continue to ramp up, the sector is already transitioning. Declines in the price of crude oil from 2015-2020 have spurred employment losses; these have in turn been compounded by economic contraction due to the COVID-19 pandemic. Even when gas prices recovered in 2022 employment has not recovered to previous levels. There are some ongoing initiatives to address these shifts. The U.K. Government’s Oil and Gas Workforce Plan (2016) supports displaced workers through online jobs platforms that help them find work in other sectors that require similar skillsets3. Scotland’s recent (2020) climate change commitments include a C$165 million (£100 million) Green Jobs Fund, to support investment in low-carbon businesses, and a Green Workforce Academy—a hub for job seekers in green industries.

The largest wind farm installation vessel in the world and wind turbine installed off the coast of Aberdeen. Balmedie, Aberdeenshire, Scotland, UK. April 11, 2018

There are also high hopes that sustainable energy investments will support the labour transition. A recent report from Robert Gordon University estimates around 200,000 people will be needed in 2030 to develop the offshore wind, hydrogen, and CCUS industries, alongside existing oil and gas activities. However, investments in skills development and retraining have been limited to date and the focus on online services may have limited reach as not all employees are comfortable using them. 

Regional development is also critical to Scotland’s just transition response. Employment declines have disproportionately hit certain regions, such as Aberdeenshire in the northeast, where employment is highly concentrated in the offshore oil and gas sector. Post-Brexit, the U.K. and Scotland have needed to reinvent their regional development approaches. To date, Scotland has established a C$827 million (£500 million) regional development fund to support the energy transition in the northeast and Moray regions. This includes investment guarantees and loans to small- to-mid-sized firms. 

All Scottish regions now have city region and regional growth deals—agreements between the Scottish and U.K. Governments and local governments to support long-term economic growth. Some of these agreements also support just transition objectives. For example, under the Aberdeen City Region Deal (now in its fifth year), the Oil and Gas Technology Centre has been rebranded as a Net Zero Technology Centre and is shifting its focus to develop tools that can speed up the North Sea oil industry’s transition to net zero (Invest Aberdeen 2022). However, as city and regional deals have been developed separately from the Just Transition Planning Framework process, they do not all necessarily correspond to just transition objectives.      

Other initiatives that could be used to meet just transition objectives include expanding the U.K.’s “levelling up” agenda to Scotland—an approach that aims to boost investment in lagging regions and reduce territorial inequalities. Finally, the Scottish government plans to create “green freeports.” These are large, zoned areas with rail, sea, or airport links where operators and businesses benefit from tax and other incentives. To qualify, they need to support the “just transition to net zero emissions by 2045 and the creation of high-quality employment opportunities with good salaries and conditions” (Scottish Government 2022a). It represents an attempt to bake just transition concepts into business investment zones and to develop competitive clusters of manufacturing excellence in green technologies.

Progress to date

Scotland is only now implementing a Just Transition Framework and it is too soon to assess its impact. The new national framework approach, with ministerial accountability and an independent commission to advise and evaluate progress, appears to be a robust structure for such a complex and encompassing challenge. Already, there has been nation-wide engagements to facilitate dialogue, and stakeholders and rights holders were identified by the first Just Transition Commission. The Scottish government has also committed to this engagement and defines the just transition as both an outcome—a fairer, greener future for all—and a process that must be undertaken in partnership (Scottish Government 2021). It will be important that the new framework expands and strengthens the engagement of the first Just Transition Commission as it develops new sectoral just transition plans.

The U.K. has made considerable progress in reducing its greenhouse gas emissions. The Climate Action Tracker rates the U.K.’s overall progress as “almost sufficient”—with commitments that are consistent with keeping the average global temperature rise to below 2 degrees Celsius (Climate Action Tracker 2021). Scotland has decarbonised faster than the U.K. average, and the speed and scale of electricity sector decarbonisation has been the main reason for its progress (U.K. Climate Change Committee 2021). The Climate Change (Scotland) Act 2009 and the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 set annual emissions targets to ensure Scotland is on track to reach its net zero greenhouse gas emissions goal; there are independent annual reports from the U.K.’s Climate Change Committee tracking its progress. And, while Scotland is making progress, the committee’s latest (2021) assessment finds that Scotland is not doing enough on adaptation, which plays an important role in just transition processes (U.K. Climate Change Committee 2022).  

There are also contradictions in Scotland’s approach to transitioning the oil and gas sector, even though this is critical in meeting net zero targets. As previously mentioned, there is no timeline to end oil and gas exploration and production, creating significant uncertainty on the timing of the sector’s phase-out, which does not support a just transition approach. External factors, like the Russian invasion of Ukraine and the cancellation of the Nordstream 2 pipeline, could continue to put upward pressure on global oil and gas prices making new investments in the sector more attractive. 

It is also unclear how local community plans will be developed and whether they will align with broader sectoral reforms. Community-driven just transition plans that identify local assets and opportunities, and establish coalitions for action have yet to be developed. However, there is a framework that Scotland could use for this process. Regional Economic Partnerships are collaborations between local government, the private sector, education and skills providers, enterprise and skills agencies, NGOs, and civil society. The government has supported several to date and this format could be used to support regional just transition planning. The new permanent Just Transition Commission will likely play a role in monitoring distributional elements of justice—looking at how different groups benefit or experience impacts from the transition—to hold government to account.      

While initiatives are ongoing, the Just Transition Partnership that spurred the creation of Scotland’s first Just Transition Commission has expressed skepticism that the government’s approach is sufficient. In fact, they have described the lack of regional investment or local jobs in the renewables industry as “unjust” (Mercier 2020, 125). Their 2021 Manifesto called on the government to provide immediate support, through a Green Public Works program, to workers facing redundancy. This program would ensure that any government support to the private sector would include requirements for emissions reductions and job creation and establish clear targets for decarbonisation, investment, and job creation. It remains to be seen how these demands will be met (Just Transition Partnership 2020).

National trade unions and the Just Transition Partnership have both called for greater state intervention. The Partnership would like to see “state-led economic planning, and public ownership of energy and state investment in industrial policy such as manufacturing” (Mercier 2020, 125). The North Sea oil fields are geographically and equally divided between the U.K. and Norway, offering a study in contrasts of how to manage oil assets for a just transition4. On the U.K. side, Scotland’s North Sea state revenues stood at C$33.74 million (£22 million) in 2021, while Norway’s revenues were C$14.74 billion (£9 billion) for roughly the same production (McKay 2021). Norway’s oil industry is state-owned while the U.K.’s is privatised. Norway’s world-renowned sovereign wealth fund today stands at around C$1.69 trillion. The U.K. has no such Sovereign Wealth Fund, which could have been used to support a just transition5. The union and Partnership members view this as a missed opportunity and a setback to transition management. They advocate for much stronger public sector involvement, and even ownership in sustainable energy, to accelerate a just transition and ensure new high-quality jobs (Just Transition Partnership 2020, Prospect 2022). For example, the Scottish Trades Union Congress has argued that the recent private sector offshore wind development (17 ScotWind projects) would have delivered thousands more jobs had it been set up as a national Scottish energy company (Williams 2022).

Lessons for Canada

Scotland’s calls for a rapid transformation across all sectors of the economy and society are ambitious.  While outcomes largely remain to be seen, Scotland’s just transitions planning framework offers three      lessons for Canadian governments:       

  • Define the scope and parameters of “just transition.” Just transition is a contested concept. The word means different things to different communities, stakeholders, and rights holders. The first Just Transition Commission’s national engagement efforts unpacked what “just transition” meant to different groups in order to reflect a wide range of views back to the Scottish government on the main priorities for action. This brings clarity to what is often an amorphous concept and can help establish common priorities.
  • Concrete commitments relating to job retention, quality, and pay can help reduce the risks to transitioning workers. Key stakeholders are often looking for clear commitments from the public sector and industry to mediate the risk and potential harm associated with transition. For example, the Scottish government has indicated that public funding for climate action will be conditional on fair work terms, and is looking to apply real living wage criteria to non-departmental public bodies alongside fair work standards as a condition of public sector heat and energy efficiency contracts (Scottish Government 2021). A major concern of many energy workers is that the jobs that they may transition to will be of a lower quality and pay. Fair work and living pay standards are one way of addressing this. 
  • Frameworks and accountability are necessary. Scotland set up a process to deliver on its just transition commitments. The national Just Transition Planning Framework will set out the objectives; sectoral plans will provide the details; the Minister for Just Transition will provide accountability; and the Just Transition Commission will advise, monitor, and evaluate. How “justice” is interpreted and applied in these contexts will be important, as will co-ordination between sectoral plans and regional development. How these groups ultimately work together is still developing, and their coordination will be critical for its success.

Conclusion

As a devolved government within the U.K., just transition initiatives in Scotland must be coordinated between levels of government. Scotland’s sectoral plans set a strong signal to the U.K. government on their priorities for investment. As sectoral plans roll out, the robustness and inclusivity of the government’s framework will be put to the test. This will continue to be an important country to watch. 

All opinions, errors, and omissions are the sole responsibility of the author.

References

Climate Action Tracker. 2021. “United Kingdom | Climate Action Tracker.” November 16. https://climateactiontracker.org/countries/uk/ 

Invest Aberdeen. 2022. “Aberdeen City Regional Deal.” https://investaberdeen.co.uk/abz-deal 

Just Transition Commission. 2020. “Just Transition Commission: Interim Report.” February 27. https://www.gov.scot/publications/transition-commission-interim-report/ 

———. 2021. “Just Transition Commission: A National Mission for a Fairer, Greener Scotland .” March 23.  https://www.gov.scot/publications/transition-commission-national-mission-fairer-greener-scotland/documents/ 

Just Transition Partnership. 2020. “Just Transition Partnership 2021 Manifesto.” Friends of the Earth Scotland. September 25. https://foe.scot/resource/just-transition-partnership-manifesto/ 

McKay, Ron. 2021. “What Actually Happened to Scotland’s Trillions in North Sea Oil Boom?.” The Herald Scotland. November 14. https://www.heraldscotland.com/politics/19716393.actually-happened-scotlands-trillions-north-sea-oil-boom/ 

Mercier, Sinéad. 2020. “Four Case Studies on Just Transition: Lessons for Ireland.” National Economic and Social Council Research Series Paper 15: 1-165. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3694643 

Oil and Gas U.K. 2021. “Workforce Insight Report 2021.” https://oeuk.org.uk/wp-content/uploads/woocommerce_uploads/2021/08/OGUK_Workforce-Employment-Insight-2021-z07os0.pdf 

———. 2022. “Roadmap 2035: A blueprint for net-zero.” https://roadmap2035.co.uk/roadmap-2035/ 

Prospect. 2022. “Scottish Govt Response to Just Transition Commission Lacks a Clear Strategy for Job Creation.” September 7. https://prospect.org.uk/news/scottish-govt-response-to-just-transition-commission-lacks-a-clear-strategy-for-job-creation/ 

Scottish Government. 2021. “Just Transition – A Fairer, Greener Scotland: Scottish Government Response.” September 7. https://www.gov.scot/publications/transition-fairer-greener-scotland/ 

———. 2022a. “Cities and Regions: Green Freeports.” https://www.gov.scot/policies/cities-regions/green-ports/ 

———. 2022b. “Climate Change.” https://www.gov.scot/policies/climate-change/ 

———. 2022c. “Oil and Gas.” https://www.gov.scot/policies/oil-and-gas/ 

U.K. Climate Change Committee. 2021. “Progress in Reducing Emissions 2021 Report to Parliament.” December 7. https://www.theccc.org.uk/publication/progress-reducing-emissions-in-scotland-2021-report-to-parliament/  

———. 2022. “Is Scotland Climate Ready?-Recommendations.” March 15. https://www.theccc.org.uk/publication/is-scotland-climate-ready-2022-report-to-scottish-parliament/ Williams, Martin. 2022. “Unions Call for Nicola Sturgeon Intervention to Ensure Scotland Properly Profits from ScotWind.” The Herald Scotland. January 25. https://www.heraldscotland.com/news/homenews/19873646.unions-call-nicola-sturgeon-intervention-ensure-scotland-properly-profits-scotwind/

1 Among devolved U.K. governments, the Welsh Government has also created a new cabinet position, Minister for Climate Change, with responsibilities for decarbonising transport, the housing sector, and energy generation in 2021.

2 Licensing of offshore oil and gas extraction is a reserved matter for the U.K. government as is the legislative competence for health and safety. The 2016 Scotland Act devolves the regime for licensing onshore exploration and extraction of oil and gas to Scotland (exploration).

3 The “Talent Retention Solution” U.K. web-based platform, puts skilled individuals looking for work and companies searching for new employees in direct contact with each other. A “Skills Connect” web-based tool supports the oil and gas sector experiencing skills shortages.

4 Norway has committed to reduce net emissions by 55 per cent by 2030, but the current government aims to continue oil and gas developments.

5 Arguably Norway is not doing this as their current government uses revenue from the fund for general purpose revenue; the country also aims to continue oil and gas developments.

Managing a just transition in New Zealand’s Taranaki Region

In April 2018, the Government of New Zealand announced that no further offshore oil and gas exploration permits would be granted. This decision has the greatest impact on the Taranaki region in the west of New Zealand’s North Island. From the outset, the government has communicated a desire for a just transition–that is, a way to manage the process to support workers, maintain employment, and diversify and strengthen the economy to create a sustainable future for the whole region. This is a proactive approach in the sense that there is ample lead time to anticipate and plan for the transition. Key stakeholders at the regional and local levels have identified a roadmap to a low-emissions future. With support from the national government, they are working to implement transition action plans to determine how Taranaki can make a just transition to a low-carbon economy.

Context

The Government of New Zealand’s decision to stop issuing new permits for offshore oil and gas affects around a third of the country’s total active exploration permits1. The oil and gas transition in New Zealand is phased: Existing offshore oil and gas exploration permits that have already been approved may operate until 2030 and existing producing fields can operate until 2050 (Government of New Zealand 2018b). There is no wholesale shift in the industry, and therefore time to plan for the transition ahead.

The phase out of new gas developments has the greatest impact in the Taranaki region where the majority of New Zealand’s offshore oil and gas investments are concentrated. Often called the “Texas of New Zealand,” Taranaki is a mountainous coastal region with a population of around 126,000 people. While the oil and gas sector directly employs only 750 people in the region (just over one per cent of total employment), the sector contributes an estimated 30 per cent of regional gross domestic product, which is why the region has the highest GDP per capita in the country (Ministry of Business, Innovation and Employment 2020; Parliamentary Commissioner for the Environment 2020)2. As global demand for oil and gas declines in the low-carbon transition, the Taranaki region—its workers, communities, and economy—will be increasingly exposed to market volatility.

A view of the port of New Plymouth New Zealand with a container ship docking and one at the dock.
A view of the port of New Plymouth New Zealand with a container ship docking and one at the dock.

The decision to phase out oil and gas permits is part of the government’s broader climate commitments. In line with the 2015 Paris Agreement, New Zealand has committed to reducing net emissions by 50 per cent below gross 2005 levels by 20303. Three sectoral shifts are important to realising these goals:

  • electrifying end-uses (vehicles, buildings, industry) that currently burn fossil fuels across the economy;
  • changing the structure and methods of agriculture production; and 
  • reforestation (New Zealand Productivity Commission 2018).

The Cabinet has adopted a whole-of-government approach to climate change programs and just transition concepts are being incorporated into domestic legislation and policy (New Zealand Ministry for the Environment 2022a). For example, under the Climate Change Response Act (first published in 2002; updated in 2019), the government must take “into account the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities” (Government of New Zealand 2019). 

Independent Commissions such as the Productivity Commission and the He Pou a Rangi Climate Change Commission have provided recommendations to government on implementing and monitoring a just transition (Climate Change Commission 2022; New Zealand Productivity Commission 2018). New Zealand is also one of eight countries worldwide to have established a just transition commission or unit (Heffron 2021). In short, there is broad support for a just transition approach—the question is how to achieve it.

Policy response and transitions management

Having announced the oil and gas exploration phase out, the Government of New Zealand established a Just Transitions Unit (JTU) within the Ministry of Business, Innovation, and Employment in 2018 to support the transition process in the Taranaki region. The JTU has evolved over time, and presently has two teams—one focused on just transition partnerships for regional planning and another on understanding and modelling economy-wide transitions (e.g. transitions to a low-emissions economy and the future of work). The JTU forms a centre of expertise in government for managing transitions and forming partnerships.

The government also established a C$2.47 billion Provincial Growth Fund to support economic diversification and transition (Government of New Zealand 2018a) after announcing the phase out of oil and gas exploration. The Just Transitions Partnerships team helps coordinate with other government ministries to identify funding opportunities and fill in gaps where there are no other alternatives. They work on a case-by-case basis as needed to coordinate across the public service. 

Leading practices on just transition emphasize the importance of public engagement and social dialogue (Krawchenko 2020). The JTU approach was broadly consistent with this approach—facilitating a wide-ranging dialogue on how the region could manage the just transition to a low-carbon economy. The resulting Taranaki Roadmap 2050 was produced by Venture Taranaki, the local economic development agency, and was co-created with communities, iwi (Māori nation/peoples), local and central government, businesses, educators, unions, and workers. It was developed with input from 29 workshops on 12 transition topics, surveys and community outreach, a creative challenge, and youth engagement. Public consultation on the draft report included visits to more than 40 locations with over 1,000 people. Twenty volunteers led the process, and the final report was released in 2019. This process was more than engagement—it sought social consensus to galvanise action on implementation. 

The Roadmap identifies 12 Transition Pathways to diversify and strengthen the local/regional economy. Some pathways relate to sectors (e.g. tourism); some are enablers (e.g. the regulatory environment); and some are both (e.g. energy, infrastructure, and transport). The development of the Māori economy is one of the most significant and impactful pathways. There is an Action Plan for each Transition Pathway. The Roadmap and Action Plans were developed by volunteers and funded by the national government and the private sector. 

The Taranaki region’s just transition process is not without its detractors, however. While new offshore oil and gas exploration permits have been shelved, there remains an active on-shore industry. The Climate Action Tracker rates New Zealand’s actions so far as “highly insufficient”–on track for a greater than 4 Celsius world (Climate Action Tracker 2022). New Zealand continues to grant onshore oil and gas permits which make up two-thirds of their oil industry (Ministry of Business, Innovation and Employment 2022).

How will this broad regional dialogue on a just transition translate into implementation? This is yet to be seen as the implementation process is in its early stages. However, each Action Plan identifies a coordination network, the requisite resources, and specific projects for implementation. It includes corresponding budgetary requests to the central government for resources as it is supporting the Taranaki Roadmap through the Provincial Growth Fund. There is also an understanding that private sector funding will be leveraged.  

The Roadmap also identifies employee-oriented supports as being important, one of the most common elements of just transition policies in advanced economies (T. A. Krawchenko and Gordon 2021). While the overall just transition response to the oil and gas phase out in Taranaki has focused on economic diversification and regional development, there are specific supports for workers such as active labour market policies, particularly skills retraining programs. Some supports are funded through demand-led government services such as the tertiary education system, as well as active labour market programs, funded through the Ministry of Social Development. However, there have not yet been any substantial employment losses in the Taranaki region in the sector, so how this aspect of the transition will be managed and supported remains to be seen. The government, Business New Zealand (the national business association), and the New Zealand Council of Trade Unions (CTU) are jointly designing a Social Unemployment Insurance scheme that would support workers to retain about 80 per cent of their income for a period after they lose their jobs (Government of New Zealand 2022a). This is a possible pathway for support in the future. The approach is to strengthen and diversify the economy so that      displaced workers will find good employment and be able to maintain quality of life after the transition. 

Trade unions have been actively involved in just transition planning—both in the region and nationally.  For example, in the “People and Talent” pathway Action Plan, labour unions “have secured a focus on the support and empowerment of workers during transition, including job clustering, analysis of retraining opportunities and skills audits of the workforce” (International Trade Union Confederation 2021). The labour union E Tū is negotiating roles and responsibilities between government, employers, and employees for such supports and they are establishing multi-employer redeployment schemes (International Trade Union Confederation 2021).

Investments in energy development are also a central part of Taranaki’s future transformation and linked to a just transition. New developments in this sector have the potential to provide employment to former oil and gas workers and generate new employment opportunities for the region. Taranaki’s Energy Action Plan envisions a mix of renewable sources (Venture Taranaki 2019). At present, the Patea Hydro development is the largest renewable energy project in the Taranaki region, but there is limited potential for hydro expansion. Wind technology is commercially viable in New Zealand and two onshore wind farms are in development, but there are no offshore wind farms in New Zealand. There is limited use of small scale solar and grid-scale solar with some potential to scale these up alongside potential for wave, bioenergy, and geothermal energy. Unlike Denmark, which has focused solely on developing a wind industry, there is no single or clear direction for clean energy investments for Taranaki, rather, a range of technologies are being considered. Given this energy landscape, it is challenging to understand the employment and skills training needs of the future. 

To help develop and scale renewable energy investments, a centre for future energy development, Ara Ake, was established in 2020. The impetus for its creation stems from Taranaki’s regional development strategy (Tapuae Roa Strategy 2017) and the Taranaki Roadmap 2050. With NZ$27 million (C$23 million) in funding from the national government, the centre is leading research and the development of clean energy technologies such as wind and wave power, and geothermal and hydrogen-based energy, which will then be co-funded with the private sector and central government. It also forms a centre of expertise on diversifying land use to grow more crops, such as quinoa, and support reforestation. These actions align with national climate commitments and help the region to envision the economy of the future.

Progress to date

Taranaki is still in the early stages of phasing out offshore oil and gas. Yet the Action Plans lay out several principles for monitoring progress that align with the broader academic literature on just transition. It defines justice in distributional, recognitional, and procedural terms. Distributional justice is concerned with how different groups benefit or experience impacts from the transition; recognitional justice identifies stakeholders and rights holders who may be implicated; and procedural justice is concerned with elements of governance—who is included and how (Stevis and Felli 2014). The Taranaki Roadmap process has been careful to include recognitional and procedural elements of justice from the onset, and these will continue to be important for implementation. Distributional elements of justice can be challenging to capture and have a longer time frame. The Taranaki Roadmap’s robust monitoring and evaluation approach should help to understand and track distributional justice outcomes.

In addition, metrics and evaluation are baked into the Taranaki Roadmap process. They form the 12th Transition Pathway Action Plan and as such, have been a part of the same engagement and design processes. This is novel in the sense that the indicators of success have been designed upfront and from a variety of perspectives. Māori worldviews of well-being and success are integrated into the Taranaki 2050 metrics framework. Outcomes are assessed in annual public-facing updates and reviewed every two years, with a detailed review every five years. 

What has been achieved to date? Having been adopted in 2019, implementation of the Roadmap is in the early stages. A 2021 progress report showed that 85 actions are complete or underway, 38 are partly underway, and 43 actions remain (Tapuae Roa 2021). For example, on the energy front, a wind-to-hydrogen and green ammonia project has been developed as well as hydrogen production and refuelling stations at existing truck stops. On training and innovation, an iwi Trust (Te Kāhui Maru Trust) is creating an environmental workforce development training program, and the local technology institute is establishing new flexible courses to support workers in transition and programs on Māori enterprise. A wide range of actions related to diversifying and decarbonising the economy and preparing workers are underway. Of those that have been completed to date, the majority relate to tourism and infrastructure and transport. Longer term, there is a framework in place to measure and report on outcomes through specific metrics, well-being indicators, and alternate metrics such as self-reported job satisfaction. 

It is also unclear whether local and regional organizations are resourced well enough to implement the ambitious Action Plans. As the process moves on from consensus building, it increasingly needs to address costs and trade-offs, and will need public and private sector funding to accelerate actions. New Zealand is in the process of developing a National Emissions Reduction Plan and National Adaptation Plan which will include an Equitable Transitions Strategy (Government of New Zealand 2022b; New Zealand Ministry for the Environment 2022b). This process will expand the just transition approach across the national economy. 

Lessons for Canada

New Zealand is a unitary state (i.e. a centralized government) and often referred to as the world’s quickest legislators, with its single legislative body and elections every three years. Although the scale of the energy transition in New Zealand is, to date, relatively small, and it differs in many ways from Canada, there are leading practices relevant for our own oil and gas economies. 

  • Proactive planning. Global transitions in the fossil fuel sector have often been reactive—with initiatives being put in place once an industry is already in decline. New Zealand’s phase out of oil and gas activities has been proactive and has a long lead time. There is also a dedicated government unit to support the process and co-ordinate across government, an approach that leads to the development of robust strategies.            
  • Regional development. A key question in any region is what it will transition toward as global demand for fossil fuels declines. The place-based approach in Taranaki, grounded in understanding the local/regional economy, identifies assets and opportunities, and supports coalition-building for implementation. 
  • Inclusive by design. Justice is about how rights holders and stakeholders are included and impacted by transitions. The Taranaki Roadmap’s seven “Pou” (pillars) framework engages communities, iwi (Māori tribes), local and central government, businesses, educators, unions and workers. Like Canada, New Zealand’s First Peoples—the Māori—are key rights holders for a just transition. Both the national government and labour unions recognise this. Active involvement of iwi and hapū (clan) is the first principle for a just transition in the various labour unions (New Zealand Council of Trade Unions 2017). While engagement with local iwi and the Māori economy were both key priorities in Taranaki’s transition, the process was not perfect—in particular, some of the early engagement needed deeper cultural competency. This is a learning that the New Zealand Government has taken on and is working to address (Ministry of Business, Innovation and Employment 2021). As iwi, hapū, and Māori organisations are regularly asked to contribute and engage, they need to be adequately resourced to take on this work. Many Māori-owned businesses are in transition-vulnerable sectors and more research is needed on Māori land, land use change, and social and cultural impacts (Whetu 2020).

Conclusion

The Taranaki region’s just transition planning process embraces many of the leading practices in the literature. It is consensus-seeking, grounded in the regional economy, inclusive, and future-oriented. The question remains, however, will it be enough? Will the initiatives deliver a diversified economy and good jobs, and will they effectively decarbonise the economy? Is the pace of the transition fast enough if global demand for oil and gas declines faster than expected? Delivering on the Taranaki Framework depends to a large extent on the network of regional organizations—local and regional governments, unions, businesses, educational institutions, non-profit organisations, and civil society more broadly. The national government is providing important supports, but local networks and people are leading actions and implementation and will collectively determine the region’s future. To date, the government’s commitments to phasing out oil and gas only pertain to the offshore oil and gas industry; onshore oil and gas production represents around two thirds of the industry. Concrete plans are needed to address onshore oil and gas phase outs in order to meet climate commitments and support a just transition. 

The author gratefully acknowledges Isabella Crawford and Nick Montague, Just Transitions Partnerships, and the New Zealand Ministry of Business, Innovation, and Employment, for providing content and review. All opinions, errors, and omissions are the sole responsibility of the author.

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1 71 per cent or 22 out of a total of 31 oil and gas permits.

2 In total, around 4,700 people are directly employed by the oil and gas sector in New Zealand and it provides around $170 million in royalties to the government each year (Government of New Zealand 2018a).

3 This equates to a 41 per cent reduction on 2005 levels using what is known as an “emissions budget”      approach.

A whole-of-government approach to climate adaptation

Assessing progress on climate adaptation in Canada