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The prime minister has announced an expansion of oil and gas drilling in the North Sea amid ongoing rows in his party over the future of its climate commitments.

Number 10 said hundreds of new oil and gas licences will be granted off the coast of Scotland to “boost British energy independence” and “reduce reliance on hostile states”.

The move puts down a marker between the government and Labour, which has proposed a block on all domestic new oil and gas drilling as part of its strategy to achieve zero-carbon electricity by 2030.

Shadow climate change secretary Ed Miliband accused Rishi Sunak of lurching towards “a culture war on climate” to make up for “13 years of failed Tory energy policy”.

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But Mr Sunak and his ministers have stressed the need to use North Sea fossil fuel resources, especially since the Russian invasion of Ukraine.

The North Sea Transition Authority (NSTA), which is responsible for regulating the oil, gas and carbon storage industries, is currently running the 33rd offshore oil and gas licensing round, and they expect to award more than 100 new licenses in the autumn.

But such moves have prompted alarm from climate campaigners, with the government already facing opposition to any development of Rosebank, 80 miles northwest of Shetland.

The head of Oxfam Scotland, Jamie Livingstone, called the new licensing rounds a “short-sighted and selfish decision by the UK government” which “flies in the face of climate science and common sense”.

He added: “The UN has made clear that we must end our global addiction to fossil fuels, so this decision sends a wrecking ball through the UK’s climate commitments.”

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Government needs to pursue net zero targets – Lord Deben

The prime minister has also confirmed locations for two new carbon capture usage and storage clusters ahead of a visit to Aberdeenshire today – where he is expected to announce multi-million pound funding for the schemes.

Carbon capture sees polluting fumes collected to either be used elsewhere or stored underground instead of going into the air, and is seen as an increasingly important tool in achieving net zero.

The Acorn carbon capture project in North East Scotland – a joint venture between Shell and other firms – and the Viking project in the Humber will be “vital to driving forward and investing in clean technologies that we need to realise our net zero target”, Downing Street said.

But while ministers predict the move could support up to 50,000 jobs, the target for the two new sites to be up and running isn’t until 2030.

‘We’re choosing to power up Britain’

Ahead of his visit to Scotland, Mr Sunak said: “We have all witnessed how Putin has manipulated and weaponised energy – disrupting supply and stalling growth in countries around the world.

“Now more than ever, it’s vital that we bolster our energy security and capitalise on that independence to deliver more affordable, clean energy to British homes and businesses.

“Even when we’ve reached net zero in 2050, a quarter of our energy needs will come from oil and gas.

“But there are those who would rather that it come from hostile states than from the supplies we have here at home.

“We’re choosing to power up Britain from Britain and invest in crucial industries such as carbon capture and storage, rather than depend on more carbon-intensive gas imports from overseas – which will support thousands of skilled jobs, unlock further opportunities for green technologies and grow the economy.”

Rishi Sunak will meet leaders from the energy industry during Monday's trip. Pic: No 10
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Mr Sunak will meet energy industry leaders during Monday’s trip. Pic: No 10

SNP Westminster leader Stephen Flynn said it was right to be “conscious of energy security” and keeping the large oil and gas workforce in Scotland employed, calling it a “silly position” to end all drilling.

But speaking to Sky News, he did not give his full support to the new licenses, saying Tory plans to “take every single drop” from the North Sea was “a little bit morally bankrupt”.

He added: “We need to be conscious of the fact that every single drop of oil or indeed a molecule of gas that we take out of the North Sea will have a concurrent impact on climate change.”

Mr Flynn called for “robust climate compatibility checkpoints” to be put in place for any new licenses.

Meanwhile, Labour’s Mr Miliband questioned whether the prime minister was the right person to make the decisions over future energy security.

“Every family and business is paying the price, in higher energy bills,” he said. “It is absurd that having left this country so exposed, the Conservative Party is asking the public to believe they can fix it.

“And it’s telling that while Labour focuses on lower bills and good jobs, Rishi Sunak lurches desperately towards a culture war on climate to appease his split party, losing track of what he believes from day to day, depending on which faction he’s met with.

“It’s no way to govern and it’s costing working people.”

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A new green dividing line in politics?

The move comes as both main parties continue to argue over their commitment to key net zero policies and environmental promises.

The Conservatives’ narrow victory in the Uxbridge and South Ruislip by-election opened a can of worms within Labour over London Mayor Sadiq Khan’s plan to expand the Ultra Low Emission Zone (ULEZ) to outer boroughs – something Sir Keir Starmer blamed for the loss.

The Labour leader and Mr Khan are continuing to hold discussions over the extension, with Sir Keir calling on his colleague to “reflect” on the impact on voters.

But Mr Khan has stood by the decision on the basis it will improve air quality for five million people in London.

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Sadiq Khan: ULEZ decision ‘good news for London’

Meanwhile, MPs on the right of the Conservative Party are appealing to the PM to rethink the government’s net zero commitments in light of the win, with calls for delays to a number of targets – including putting back the ban on the sale of petrol and diesel cars from 2030 to 2035.

Former Tory leader Sir Iain Duncan Smith – who was among 43 signatories to a letter urging Mr Sunak to look again at the plan – told Sky News the date was “plucked out of nowhere”, adding: “If you want to get them to clean emissions, you’ve got to do it in a way that still keeps our industry going in the UK.”

The prime minister insisted on Sunday the 2030 deadline would remain, but did announce plans for a review of low traffic neighbourhoods (LTNs), saying he was on the side of drivers.

Downing Street has confirmed ministers are scrutinising existing pledges “in light of some of the cost of living challenges”, as the prime minister promised a “proportionate and pragmatic” approach to net zero.

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The prime minister is also set to meet industry leaders and workers while in Scotland.

The government pledged that, along with energy authorities, it would “go further than before in announcing continued decisive action to boost the capability of the North Sea industry to transition towards net zero, strengthen the foundations of the UK’s future energy mix and create the next generation of highly skilled green jobs”.

Grant Shapps, the energy security secretary, is also expected to meet figures from the oil and gas, renewable and nuclear industries over the coming week as the Conservatives focus their campaign on the topic.

Mr Shapps said: “In the wake of Putin’s barbaric invasion of Ukraine, our energy security is more important than ever.

“The North Sea is at the heart of our plan to power up Britain from Britain so that tyrants like Putin can never again use energy as a weapon to blackmail us.

“Today’s commitment to power ahead with new oil and gas licences will drive forward our energy independence and our economy for generations.”

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Shrinking herds and rising costs: The beef market is in turmoil – and inflation is spiralling

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Shrinking herds and rising costs: The beef market is in turmoil - and inflation is spiralling

If you eat beef, and ever stop to wonder where and how it’s produced, Jonathan Chapman’s farm in the Chiltern Hills west of London is what you might imagine. 

A small native herd, eating only the pasture beneath their hooves in a meadow fringed by beech trees, their leaves turning to match the copper coats of the Ruby Red Devons, selected for slaughter only after fattening naturally during a contented if short existence.

But this bucolic scene belies the turmoil in the beef market, where herds are shrinking, costs are rising, and even the promise of the highest prices in years, driven by the steepest price increase of any foodstuff, is not enough to tempt many farmers to invest.

For centuries, a symbolic staple of the British lunch table, beef now tells us a story about spiralling inflation and structural decline in agriculture.

Mr Chapman has been raising beef for just over a decade. A former champion eventing rider with a livery yard near Chalfont St Giles, the main challenge when he shifted his attention from horses to cows was that prices were too low.

“Ten years ago, the deadweight carcass price for beef was £3.60 a kilo. We might clear £60 a head of cattle,” he says. “The only way we could make the sums add up was to process and sell the meat ourselves.”

Processing a carcass doubles the revenue, from around £2,000 at today’s prices to £4,000. That insight saw his farm sprout a butchery and farm shop under the Native Beef brand. Today, they process two animals a week and sell or store every cut on site, from fillet to dripping.

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Today, farmgate prices are nearly double what they were in 2015 at £6.50 a kilo, down slightly from the April peak of almost £7, but still up around 25% in a year.

For consumers that has made paying more than £5 for a pack of mince the norm. For farmers, rising prices reflect rising costs, long-term trends, and structural changes to the subsidy regime since Brexit.

“Supply and demand is the short answer,” says Mr Chapman.

“Cow numbers have been falling roughly 3% a year for the last decade, probably in this country. Since Brexit, there is virtually no direct support for food in this country. Well over 50% of the beef supply would have come from the dairy herd, but that’s been reducing because farmers just couldn’t make money.”

Political, environmental and economic forces

Beef farmers also face the same costs of trading as every other business. The rise in employers’ national insurance and the minimum wage have increased labour costs, and energy prices remain above the long-term average.

Then there is the weather, the inescapable variable in agriculture that this year delivered a historically dry summer, leaving pastures dormant, reducing hay and silage yields and forcing up feed costs.

Native Beef is not immune to these forces. Mr Chapman has reduced his suckler herd from 110 to 90, culling older cows to reduce costs this winter. If repeated nationally, the full impact of that reduction will only be fully clear in three years’ time, when fewer calves will reach maturity for sale, potentially keeping prices high.

That lag demonstrates one of the challenges in bringing prices down.

Basic economics says high prices ought to provide an opportunity and prompt increased supply, but there is no quick fix. Calves take nine months to gestate and another 20 to 24 months to reach maturity, and without certainty about price, there is greater risk.

There is another long-term issue weighing on farmers of all kinds: inheritance tax. The ending of the exemption for agriculture, announced in the last budget and due to be imposed from next April, has undermined confidence.

Neil Shand of the National Beef Association cites farmers who are spending what available capital they have on expensive life insurance to protect their estates, rather than expanding their herds.

“The farmgate price is such that we should be in an environment that we should be in a great place to expand, there is a market there that wants the product,” he says. “But the inheritance tax challenge has made everyone terrified to invest in something that will be more heavily taxed in the future.”

While some of the issues are domestic, the UK is not alone.

Beef prices are rising in the US and Europe too, but that is small consolation to the consumer, and none at all to the cow.

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Chancellor looking at cutting energy bills in budget

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Chancellor looking at cutting energy bills in budget

Rachel Reeves will tell Cabinet colleagues she is considering measures to reduce household energy bills as part of her budget response to rising inflation, expected to reach 4% when official figures are announced on Wednesday.

Economists forecast that consumer price inflation (CPI) will have reached double the Bank of England’s target in September, driven up from the 3.8% recorded in August by rising fuel and food inflation.

Speaking ahead of publication of the figures by the Office for National Statistics, a Treasury spokesman said that bringing down inflation was a priority, and the chancellor would convene a meeting of key cabinet colleagues on Thursday to stress its importance across government.

The spokesman specified that action to bring down energy prices was among the options being considered, the strongest indication yet that action on soaring consumer bills will feature in next month’s budget.

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Has Rachel Reeves changed her tone on budget?

The chancellor is understood to be considering cutting the 5% VAT rate on bills to zero, a move that would save billpayers around £80 a year and cost £2.5bn to implement.

Labour’s manifesto promised it would cut bills by £300 a year, but the last Ofgem price review saw a small increase driven by policy costs, leaving the government under pressure to reduce the impact of domestic energy rates that are the second-highest in Europe.

The spokesman said: “The chancellor’s view is that tackling the cost of living is urgent, and everything is on the table – including measures to bring down energy bills. She’s getting the whole of government to play its part, it’s her number one focus.”

Chancellor Rachel Reeves. Pic: PA
Image:
Chancellor Rachel Reeves. Pic: PA

The chancellor’s actions are a tacit acknowledgement that Wednesday’s inflation figures will be a difficult moment for a government that came to power promising to bring down the cost of living.

After peaking at more than 11% in October 2022, CPI returned to the Bank’s target of 2% in May last year, two months before Labour took office.

After briefly falling below 2% in September 2024 as higher energy prices from a year earlier dropped out of the calculation, it has marched steadily upwards, largely driven by energy and food prices.

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The Bank of England has forecast that this September’s figures will mark the peak of this inflation cycle for the same reason, with the Ofgem energy cap rising less this October than a year ago.

That underlines the importance of gas and electricity bills to household finances, the official figures and the government’s energy policy.

Campaigners and some energy companies have urged the government to bring down electricity bills by shifting levies for renewables and funding for social programs to general taxation, a move estimated to cost £6bn.

The Conservatives have said they would cut levies that currently pay for carbon taxes and older forms of renewable power subsidy, cutting bills by £165 a year.

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Inside ‘data centre alley’ – the biggest story in economics right now

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Inside 'data centre alley' - the biggest story in economics right now

If you ever fly to Washington DC, look out of the window as you land at Dulles Airport – and you might snatch a glimpse of the single biggest story in economics right now.

There below you, you will see scattered around the fields and woods of the local area a set of vast warehouses that might to the untrained eye look like supermarkets or distribution centres. But no: these are in fact data centres – the biggest concentration of data centres anywhere in the world.

For this area surrounding Dulles Airport has more of these buildings, housing computer servers that do the calculations to train and run artificial intelligence (AI), than anywhere else. And since AI accounts for the vast majority of economic growth in the US so far this year, that makes this place an enormous deal.

Down at ground level you can see the hallmarks as you drive around what is known as “data centre alley”. There are enormous power lines everywhere – a reminder that running these plants is an incredibly energy-intensive task.

This tiny area alone, Loudoun County, consumes roughly 4.9 gigawatts of power – more than the entire consumption of Denmark. That number has already tripled in the past six years, and is due to be catapulted ever higher in the coming years.

Inside ‘data centre alley’

We know as much because we have gained rare access into the heart of “data centre alley”, into two sites run by Digital Realty, one of the biggest datacentre companies in the world. It runs servers that power nearly all the major AI and cloud services in the world. If you send a request to one of those models or search engines there’s a good chance you’ve unknowingly used their machines yourself.

Inside a site run by Digital Realty
Image:
Inside a site run by Digital Realty

Their Digital Dulles site, under construction right now, is due to consume up to a gigawatt in power all told, with six substations to help provide that power. Indeed, it consumes about the same amount of power as a large nuclear power plant.

Walking through the site, a series of large warehouses, some already equipped with rows and rows of backup generators, there to ensure the silicon chips whirring away inside never lose power, is a striking experience – a reminder of the physical underpinnings of the AI age. For all that this technology feels weightless, it has enormous physical demands. It entails the construction of these massive concrete buildings, each of which needs enormous amounts of power and water to keep the servers cool.

Sky's Ed Conway at the data centre
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Sky’s Ed Conway at the data centre

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We were given access inside one of the company’s existing server centres – behind multiple security cordons into rooms only accessible with fingerprint identification. And there we saw the infrastructure necessary to keep those AI chips running. We saw an Nvidia DGX H100 running away, in a server rack capable of sucking in more power than a small village. We saw the cooling pipes running in and out of the building, as well as the ones which feed coolant into the GPUs (graphic processing units) themselves.

Such things underline that to the extent that AI has brainpower, it is provided not out of thin air, but via very physical amenities and infrastructure. And the availability of that infrastructure is one of the main limiting factors for this economic boom in the coming years.

According to economist Jason Furman, once you subtract AI and related technologies, the US economy barely grew at all in the first half of this year. So much is riding on this. But there are some who question whether the US is going to be able to construct power plants quickly enough to fuel this boom.

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For years, American power consumption remained more or less flat. That has changed rapidly in the past couple of years. Now, AI companies have made grand promises about future computing power, but that depends on being able to plug those chips into the grid.

Last week the International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, warned AI could indeed be a financial bubble.

He said: “There are echoes in the current tech investment surge of the dot-com boom of the late 1990s. It was the internet then… it is AI now. We’re seeing surging valuations, booming investment and strong consumption on the back of solid capital gains. The risk is that with stronger investment and consumption, a tighter monetary policy will be needed to contain price pressures. This is what happened in the late 1990s.”

‘The terrifying thing is…’

For those inside the AI world, this also feels like uncharted territory.

Helen Toner, executive director of Georgetown’s Center for Security and Emerging Technology, and formerly on the OpenAI board, said: “The terrifying thing is: no one knows how much further AI is going to go, and no one really knows how much economic growth is going to come out of it.

“The trends have certainly been that the AI systems we are developing get more and more sophisticated over time, and I don’t see signs of that stopping. I think they’ll keep getting more advanced. But the question of how much productivity growth will that create? How will that compare to the absolutely gobsmacking investments that are being made today?”

Whether it’s a new industrial revolution or a bubble – or both – there’s no denying AI is a massive economic story with massive implications.

For energy. For materials. For jobs. We just don’t know how massive yet.

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