Should Andy Burnham allow more North Sea drilling?

One of the first significant choices facing Andy Burnham's government concerns the future of North Sea oil and gas. Initial reports suggested a broad change of direction, which now seems to have been softened to a promised “pragmatic” approach.

Decisions remain outstanding on particular developments and on the treatment of fields connected to existing infrastructure: approval for the nearly completed Jackdaw gas field, whose developer says it could begin producing this autumn, is a different decision from approval for the predominantly oil-producing Rosebank field; and both differ again from issuing licences for fresh exploration that may produce nothing for years.

In this blog I will leave employment, tax revenue, and the distribution of the gains to one side, and consider the case for and against drilling purely through the lens of climate. There are five climate and transition arguments worth taking seriously: one is plainly bad; two provide a genuine case for limited additional production; and two strengthen the case against it.

The stupid case: improving the carbon accounts

The bad argument begins with a correct observation. Producing and transporting a unit of gas from different sources creates different quantities of greenhouse gases. The North Sea Transition Authority estimates that, in 2024, producing and delivering UK gas emitted 28 kgCO₂e per barrel of oil equivalent. The corresponding figure was 85 kg for imported liquefied natural gas (LNG). Liquefaction, shipping and regasification are energy intensive, and methane can leak along the supply chain.

Therefore, using domestically produced gas is “cleaner” and will reduce emissions?

Domestic gas production relative to imports may reduce UK emissions, but the atmosphere is indifferent to the national column of a global emissions spreadsheet in which an emission appears. The relevant question is how a production decision changes total world emissions.

Additional UK supply lowers the market price of gas or oil. Consumers then use more, while some higher-cost production elsewhere is displaced. The split depends on demand and supply elasticities. And while it is perhaps too strong to claim that every additional North Sea barrel becomes an additional barrel of world consumption, it is equally wrong to assume that it displaces an imported barrel one for one. Unless producers elsewhere withdraw their output fully, world fossil-fuel consumption rises.

This is the central insight of the economics of supply-side climate policy. Harstad’s Buy Coal! showed why a climate coalition is likely to need to constrain fossil-fuel supply as well as demand. Fæhn and co-authors found, in a quantitative application to Norway, that supply-side restrictions could form most of a cost-effective unilateral climate policy. More recent empirical work reaches a similar qualitative conclusion while allowing for leakage. Prest and co-authors estimate that permanently curtailing an oil barrel reduces global lifecycle emissions by roughly 40–50% of that barrel’s gross emissions; other producers replace part of the lost supply, but far from all of it. Ahlvik’s estimates likewise show substantial leakage from an OECD-only oil-production tax, alongside a remaining reduction in global emissions.

These estimates dispose of the idea that supply is environmentally irrelevant because demand is fixed. From a climate-only perspective, this creates a strong presumption against expanding production.

The first serious case: the transition itself uses resources

Net zero is an enormous investment programme. It requires renewable generation, networks, storage, new industrial equipment, building renovation, heat pumps and changes to the transport fleet. Producing all that equipment requires labour, materials, capital and energy. During the build-out, resources devoted to investment are unavailable for current consumption.

This trade-off is familiar in growth economics, although it sometimes disappears from political accounts of the transition. In a recent macroeconomic model of net zero, Neil Mehrotra shows how the replacement of fossil capital with clean capital can reduce consumption along the transition path even where the eventual cost of clean energy is small. Premature retirement of usable fossil capital adds another temporary loss. The International Energy Agency’s net-zero scenarios similarly require a rapid increase in energy investment. Comerford and Spiganti show how a negative energy or economic shock can intensify this problem: consumption smoothing reduces aggregate investment and shifts the composition of the remaining investment towards shorter-duration, lower-upfront-cost fossil projects, delaying the clean-energy transition.

Energy itself can therefore be a binding transitional input. If Britain tries simultaneously to construct a new energy system and to contract its available dispatchable supply too quickly, the result may be lower consumption, higher prices or slower construction. Additional gas could ease that constraint and make a rapid transition more tolerable.

This is a genuine argument for production, although it is much narrower than a general case for reopening the North Sea. Three conditions must hold. The energy must arrive while the constraint is binding; it must improve the availability or resilience of energy used in Britain; and the clean investment programme must proceed faster as a result. A generic exploration licence satisfies none of these conditions automatically. The UK is a small participant in integrated European and world markets, so extra North Sea output will have little effect on the market price.

Jackdaw is the strongest possible example for this argument because the project is unusually advanced. Its developer says it could begin production on 1 October and supply around 6% of UK gas at peak. Those are company claims and the appropriate counterfactual still needs independent assessment. Even so, a field capable of producing within months deserves a different analysis from a new licence with a multi-year lead time. Rosebank, which is principally an oil project, cannot borrow an argument about a gas shortage this winter.

There is also an implementation problem. Unconditional additional supply may support extra ordinary consumption rather than construction of the clean system. A government relying on the transition-resource argument should be able to identify the bottleneck being relieved and the extra clean investment thereby enabled. Linking any temporary production rents to grids, storage, efficiency and renewable capacity would make the claim more credible.

The second serious case: net zero has a political constraint

Climate policy must survive elections, price shocks and cold winters. Its costs can be immediate and highly visible, while much of its benefit is global and arrives over decades. That asymmetry creates an obvious political vulnerability.

The evidence from carbon taxation is sobering. Douenne and Fabre find that, after the French Yellow Vests protests, voters greatly overestimated their losses from a carbon-tax-and-dividend proposal, perceived it as regressive and doubted its environmental effectiveness. Providing correct information improved support only partially. More broadly, the literature on climate-policy sequencing argues that early clean investment can lower later abatement costs and create constituencies with an economic interest in stronger policy.

Imagine, then, a serious gas shortage this winter after the government has rejected Jackdaw. Opponents of net zero would have an easy story: climate policy left Britain short of energy. The story might be economically false—the shortage could have arisen from international disruption, storage failure or weather—but political attribution rarely waits for a clean counterfactual.

The reverse mechanism is also possible: if Jackdaw is approved and a shortage occurs anyway, the limits of drilling become visible; continued exposure to gas could then be blamed, creating impetus for faster electrification, efficiency and renewable deployment. Europe’s response to the 2022 gas shock illustrates the possibility: governments secured emergency fossil supplies while also cutting gas demand and accelerating parts of the clean-energy programme.

Unfortunately, a crisis arrives without an agreed interpretation. The fossil-fuel industry can use the same shortage to demand another field after the first. Climate advocates can use it to demand release from gas dependence. Political outcomes depend on framing, and the economic interests that policy has already created. Approving drilling may insure the government against one line of attack, while strengthening a constituency that will resist the eventual phase-out.

The political-economy case is therefore real but indeterminate. It supports a transparent energy-security plan, explicit contingency analysis and protection for vulnerable households. It does not, by itself, select a drilling decision.

A weaker case against drilling: crowding out finance

Another concern is that money invested in North Sea projects becomes unavailable for the net-zero build-out. At the level of an individual project, this sounds unconvincing. The investors financing an offshore gas field are unlikely to be choosing between that field and a Scottish heat-pump programme. Britain is also open to international capital, so national saving is not a fixed pot that must be divided mechanically between brown and green investment.

The aggregate cost-of-capital version of the argument is possible, but it needs evidence. Renewable energy is capital intensive and unusually sensitive to financing costs. Work by Calcaterra and co-authors shows that high and unequal costs of capital can materially impede renewable deployment. Yet it does not follow that one additional UK fossil project appreciably raises the financing cost of clean projects. Indeed, Mehrotra’s transition model finds that expected lower consumption growth can lower the equilibrium real interest rate even as clean investment rises.

More specific bottlenecks offer a stronger version of the argument. Banks and developers can have limited risk-bearing capacity. Public guarantees, tax allowances and fiscal headroom are scarce. Offshore engineers, installation vessels, ports, planning expertise and management attention cannot move instantly between sectors. Fossil investment can bid up the price of these inputs and delay clean projects even if the global supply of financial capital is elastic.

So this argument should be quantified rather than asserted. For each proposed field, the government should ask which financing capacity, public support and specialist resources it will use, and what those resources would otherwise have done. Purely private finance with genuinely additional labour and equipment creates little direct crowding out. Subsidised finance or competition for an already constrained offshore supply chain creates much more.

The stronger case against drilling: capital creates its own future

Capital is durable, and investments are often complementary. A gas field raises the value of pipelines and processing hubs. Reliable gas supply raises the prospective value of gas-fired generation and other gas-using equipment. Once those assets exist, their owners have an incentive to resist policies that would strand them. Today’s investment therefore changes tomorrow’s technology, prices, and politics.

This is the economic core of carbon lock-in. Acemoglu and co-authors show how innovation can become path dependent: a larger market for dirty technologies attracts further research towards them, while clean innovation needs policy support to escape the inherited advantage. Rozenberg, Vogt-Schilb and Hallegatte show how irreversible investment in polluting capital creates stranded assets during a later transition and alters the costs and politics of climate instruments.

Harstad and Holtsmark’s new Journal of Political Economy paper, The Gas Trap, applies the point directly to natural gas. Extra gas can displace coal in the short run because existing renewable capacity cannot respond immediately. Once future gas supply is anticipated, however, investors build less renewable capacity. Over the longer run gas then displaces renewables, and emissions can rise. A policy that appears helpful in the immediate energy market changes the capital stock that will govern the next one.

For a single UK field, the effect on the European gas price may be small. The local infrastructure and political effects can still be important. Adura explicitly argues that Jackdaw would keep the Shearwater gas hub operating into the 2030s. That is an economic benefit to the project, and it is also the lock-in mechanism: extending the hub makes nearby tiebacks more valuable and gives workers, firms and asset owners a stake in further production.

Some complementarities could run in the other direction. Offshore skills, ports and pipelines may support wind, carbon storage or hydrogen. Existing infrastructure could be repurposed. These possibilities reduce lock-in only where conversion is technically realistic and backed by enforceable plans. The mere possibility of later repurposing cannot be counted as a delivered climate benefit.

So what should Burnham do?

The five arguments do not carry equal weight.

The higher imported emissions case fails by ignoring the effect of supply on the world market. The transitional-resource and political-economy cases are serious, particularly for gas that can arrive quickly during a genuine security constraint. Financial crowding out is plausible through specific bottlenecks, although the broad claim about a fixed pool of capital is weak. Path dependence is the strongest additional reason for caution because it affects future investment and future political choices.

The conclusion must be against a general return to North Sea exploration or an open-ended programme of new drilling. But the possible case for Jackdaw is much closer and should be judged separately: its near-completion gives it a credible short-run security value that Rosebank and new exploration do not share. Approval would nevertheless carry a global emissions cost and extend the life of gas infrastructure.

If Burnham approves a narrowly transitional gas project, the word “transitional” needs policy follow-through: a binding production horizon or cumulative cap; no expectation of repeated follow-on approvals; a climate royalty reflecting the carbon released when the gas is eventually burned; no public subsidy; and a specified clean-investment programme large enough to relax the constraint used to justify the gas. Prest and Stock show how such a royalty can incorporate downstream climate damages into a supply-side fiscal instrument. Without those commitments, the bridge has no defined destination and every temporary exception becomes the argument for the next one.

References and further reading

• Acemoglu, D., Aghion, P., Bursztyn, L. and Hémous, D. (2012), “The Environment and Directed Technical Change”, American Economic Review, 102(1), 131–166.
• Ahlvik, L. (2026), “Quantifying Supply-Side Climate Policies”, Review of Economic Studies.
• Calcaterra, M. et al. (2024), “Reducing the cost of capital to finance the energy transition in developing countries”, Nature Energy, 9, 1241–1251.
• Comerford, D. and Spiganti, A. (2025), “Energy Shocks and the Climate Transition”, Strathclyde Discussion Papers in Economics, No. 25–4.
• Douenne, T. and Fabre, A. (2022), “Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion”, American Economic Journal: Economic Policy, 14(1), 81–110.
• Fæhn, T., Hagem, C., Lindholt, L., Mæland, S. and Rosendahl, K. E. (2017), “Climate Policies in a Fossil Fuel Producing Country: Demand versus Supply Side Policies”, The Energy Journal, 38(1), 77–102.
• Harstad, B. (2012), “Buy Coal! A Case for Supply-Side Environmental Policy”, Journal of Political Economy, 120(1), 77–115.
• Harstad, B. and Holtsmark, K. (2026), “The Gas Trap: Outcompeting Coal versus Renewables”, Journal of Political Economy, 134(7), 2166–2214.
• Meckling, J., Sterner, T. and Wagner, G. (2017), “Policy sequencing towards decarbonization”, Nature Energy, 2, 918–922.
• Mehrotra, N. R. (2025), “The Macroeconomics of Net Zero”, working paper.
• Prest, B. C., Fell, H., Gordon, D. and Conway, T. J. (2024), “Estimating the emissions reductions from supply-side fossil fuel interventions”, Energy Economics, 136, 107720.
• Prest, B. C. and Stock, J. H. (2023), “Climate royalty surcharges”, Journal of Environmental Economics and Management, 120, 102844.
• Rozenberg, J., Vogt-Schilb, A. and Hallegatte, S. (2020), “Instrument choice and stranded assets in the transition to clean capital”, Journal of Environmental Economics and Management, 100, 102183.

Data and context: BBC reporting on Burnham’s proposed North Sea plans; Office for National Statistics guide to UK emissions measures; North Sea Transition Authority gas-emissions factsheet; Carbon Brief’s lifecycle comparison of North Sea gas and LNG; the International Energy Agency’s net-zero pathway; and Adura’s description of the Jackdaw project.