Creating Mechanisms to Manage the Longterm Effects of Development Within the Energy Industry: A Case Study of Liability in Perpetuity on the UKCS

Past industrial development has often created unplanned wasteful legacies that are, ultimately, socialised. Where these have not been adequately provided for during revenue generating operations, the costs of managing these residual liabilities are passed onto future generations, creating intergenerational inequities that are in conflict with the concept of sustainable development that underpins government domestic policy and international law. This research explores the UK Government’s current decommissioning policy that seeks to avoid the creation of residual liabilities by the UK’s offshore oil and gas industry through an interpretation of the Precautionary Principle that aims to achieve a ‘clear seabed’. By compiling an inventory of residual liability it was found that 41% of all material initially installed on the UKCS (by weight) will be left in situ that not only suggests decommissioning policy has failed, but creating a new problem of how to manage a legacy whose existence is accepted as being at least 1,000 years – far beyond the lifespan of the companies policy expects to provide for it. From this starting point the thesis addresses three questions: (1) is the policy deterrent of ‘liability in perpetuity’ placed upon licence holders adequate to ensure the polluter pays the full cost of decommissioning; (2) is the Secretary of State’s (SoS) interpretation of the precautionary principle (i.e. achieving a clear seabed) flawed, resulting in a wasteful, expensive and harmful outcome, and (3) is there a better way? The case study starts by identifying where residual liability rests through a comparison of current government decommissioning policy versus the legal regime. This is followed by a technical analysis of the risks and uncertainties associated with the legacy left on an beneath the seabed to allow the compilation of what is believed to be the first publicly available inventory of the UK’s offshore oil and gas industry residual liability. Using this comprehensive inventory, the first publicly available cost estimate has been developed. This cost estimate is then compared with the £300 million allocated for post-decommissioning monitoring in the Government’s decommissioning estimate - the detail of which, to the public, is opaque due to it being treated as commercial sensitivity. Next the research explores the concept of ‘Rigs-to-Reefs’ as a potential ‘win-win’ opportunity. In this case the material left in situ that otherwise bears considerable similarities to waste, could be turned into a more positive environmental legacy through its re-purposing as artificial reefs, whilst at the same time realising savings on the decommissioning estimate that government policy has evolved to prioritise. Finally, the research explores how the establishment of a fund to manage the unplanned residual liability created could provide a more equitable and just outcome. Nine scenarios are developed as potential options to provide the basis for future negotiation amongst the stakeholders to resolve the ‘wicked problem’ that post-decommissioning residual liability of the UK’s offshore oil and gas industry has become. The research concludes that current decommissioning policy has failed because it neither leaves a clear seabed nor amply provides for the full cost due to the externalisation of much of the scope of residual liability. It also finds that rather than the oil and gas companies having a ‘liability in perpetuity’, the legal regime provides for the transfer of the inadequately provided for responsibility to the State upon surrender of the licence – an inequitable outcome. The solution proposed is based on the Secretary of State re-interpreting their definition of the Precautionary Principle from the arbitrary ‘clear seabed’ policy to the science-based definition used elsewhere in the domestic regime and international law, and then be willing to leverage their statutory powers to reject decommissioning programmes, to enable negotiation amongst stakeholders to achieve a consensus over a more equitable and sustainable outcome.