Incentivising change

To successfully decarbonise in a 'Net Zero' world, the downstream oil sector will need to make big changes to how it has traditionally operated, manufactured and marketed its products.

Much of what could achieve widespread decarbonisation in the sector as well as developing new low-carbon products will require substantial investments of time, personnel, capital and business leadership.

Governments - by setting regulatory standards and setting either a welcoming or hostile business environment - have a critical role in shaping how industry may make those investments and how companies balance their decisions between risk and opportunity in a global marketplace.

Working in partnership, industry and government can identify where changes to the existing policy framework could unlock the potential for decarbonisation across the downstream oil sector.

Low-carbon liquid fuels - Advanced liquid fuels have a critical role to play in a low-carbon economy, helping to contribute to the UK's emissions reduction goals. Policies with potential for change to support these ambitions include:

Considering emissions for vehicles

Responsible department/agency: Department for Transport
A technology neutral approach that incentivises a range of low-carbon technologies could offer the most efficient means to reduce carbon emissions across the UK. This could be achieved by linking together existing information on carbon emissions in vehicle manufacture to expected tailpipe emissions when considering policies that would come closer to assessing life-cycle emissions.

In the long-term, there may well be a carbon pricing mechanism that extends beyond the existing traded sectors that could deliver efficient and technology neutral decarbonisation for fuels both during their manufacture and use.

Developing new low-carbon fuels

Responsible department/agency: Department for Transport
Existing policies under the RTFO incentivises the development of advanced biofuels, but does so only for fuels that meet a very specific criteria. The current system could be more flexible, allowing individual companies to develop more of the low-carbon liquid fuel options available.

Future downstream oil sector infrastructure - The Refinery of the Future could be a low-carbon manufacturing hub - reducing its own emissions whilst producing high quality, low-carbon products. Policies with potential for change to support these ambitions include:

Improving efficiency with new technologies

Responsible department/agency: Department for Business, Energy and Industrial Strategy
Technologies developments could allow refineries to achieve even greater efficiency improvements through the increased use of digitalisation in the processes. R&D programmes will need to be incentivised to encourage them into the implementation phase. In terms of deploying technologies, Enhanced Capital Allowances are already available for specific technologies to decarbonise industry. However, ECA schemes could be extended so that industrial-scale projects can be considered eligible.

Allowing refineries to research and develop new solutions

Responsible department/agency: Competent Authorities
Positive working relationships between refinery operators and Competent Authorities are needed to achieve the scale of potential changes to create Refineries of the Future. CAs need to consider what changes to operations are in line with growth as well as environmental objectives.

Incentivising industrial decarbonisation in the UK

Responsible department/agency: Department for Business, Energy and Industrial Strategy
Incentivisation mechanisms to encourage companies to prioritise decarbonisation investment could include an increased carbon price, which could deliver a better business case for investment in abatement technologies to meet 'cap and trade' schemes. Should specific technologies (i.e. CCUS) be deemed vital to achieve decarbonisation then examples of international incentives, such as 45Q tax regime in the US, could be deployed in the UK.

Specific infrastructure to deliver industrial decarbonisation could benefit from further support, including capital lending for large projects or policies that reduce financial investment risk.

Clustering - The role of government in delivering industrial clusters need not only be legislative but could also involve government playing a leadership role to act as a champion at local, regional, devolved and central government levels. Policies with potential for change to support these ambitions inclue:

Clustering leadership

Responsible department/agency: Department for Business, Energy and Industrial Strategy
Support from government and local authorities, as well as a supportive legislative landscape, can give confidence that prospective clusters are developing in such a way that will retain long-term viability. Providing this leadership and legislative support could encourage a move from well-intentioned discussion to actual investment by cluster companies.

Evolution of clusters

Responsible department/agency: Department for Business, Energy and Industrial Strategy
It will be necessary to accept a modular approach to building membership and integrations that will best deliver successful UK clusters. Acknowledgement from government that businesses will need time to react to developments and that a cluster's membership may change over time will be important in enabling clusters to grow.

Developing skills

Responsible department/agency: Department for Education
Clusters will offer the potential for significant early training and upskilling of company workforces. Allowing government schemes, such as the Apprenticeship Levy, to be adapted to support co-located businesses to pool training resources and allow for secondments across sectors could be a welcome approach to help enable clusters.

Future of mobility and the forecourt - As transport evolves so will the forecourts that consumers interact with. Flexible new policies in this area are needed to enable changes to occur in response to consumers' needs and wider mobility trends. Policies with potential for change to support these ambitions include:

Planning and regulating forecourts

Responsible department/agency: Local Authorities, Competent Authorities
Planning of forecourts will need to be able to accomodate changing business models and emerging heatlh and safety considerations as consumer demands change. It is essential that planning authorities take a flexible approach, working with operators to manage sites in such a way that they can respond to new consumer needs.

Energy the forecourt delivers

Responsible department/agency: Department for Transport
Consumer demand should determine which filling/charging locations are most appropriate. To allow individual companies to respond to consumer demand, the removal or avoidance of any mandates for particular filling/charging infrastructure is key.