Lord Whitty
“National Infrastructure Plan: energy efficiency
The National Infrastructure Plan shall be altered to include investment in measures in the domestic and commercial sectors delivering reductions in energy use through increased energy efficiency and investment in such areas shall be subject to the same criteria as other items for inclusion in the Plan.”
Lord Whitty (Lab)
My Lords, in moving Amendment 94 I will speak also to Amendment 94A. The first amendment is in my name and that of my noble friend Lord Judd while the second is solely in my name. Both deal, essentially, with the same issue. The first is a general statement of principle—that energy efficiency should be considered alongside other options for the delivery of infrastructure improvements and dealt with on the same basis. The second goes into rather more detail and sets various conditions, in that any proposals would have to meet carbon targets, contribute to the reduction of fuel poverty and be compatible with and considered alongside other investments in energy infrastructure. I do not mind which of these two amendments the noble Baroness accepts. I would be quite happy with either or both, or perhaps even a better one from her, but the essential point here is that energy efficiency is underregarded when we look at the programme for national infrastructure.
The Government have produced a lot of papers on infrastructure. The one in June 2013, which was not the first, has effectively nothing about energy efficiency. There is a brief obtuse reference at one point to the Green Investment Bank but nothing else. The National Infrastructure Plan itself, which came in December 2013, had a whole chunk on energy going through all the different aspects of energy, from the heat programme through to all the different bits of generation. It mentioned the strategy for fuel poverty; the noble Baroness answered a Question from the noble Lord, Lord Ezra, a few days ago, saying it was going to be published in spring 2014, so we are slipping on that. It waits until right to the very end of the provisions on energy before it mentions smart meter rollout, the only aspect of energy efficiency which is mentioned therein. There was then another document, a finance update for the infrastructure plan, which was delivered in March this year. Again, that did not mention energy efficiency.
It is important that investment in energy efficiency is seen alongside “big bucks” investment in generation and improvements in the energy system itself. Delivering energy efficiency improvements has the best return, pound for pound, of any investment in energy in terms of carbon saving, of cost saving to the consumer and of energy saved. A relatively recent Cambridge Econometrics study showed that very clearly. It also is more labour-intensive and therefore creates more skilled and semi-skilled jobs. It benefits the whole of the country rather than part of the country, as some of the infrastructure projects do on the transport side and some of the energy ones on the employment side. Hinkley Point will be great for west Somerset, and I very much approve of it being there, but it does not benefit employment much anywhere else in the country.
I mean a range of things by energy efficiency investment. My principal concern, as noble Lords will recall, has largely been on investment in the housing stock, both in terms of retrofit and of future build. However, that is only one part of it. There are other parts of investment in infrastructure and retrofitting investment that the Government have not touched at all, which relate to commercial buildings and to the use of energy more generally in our economy and on the industrial side.
The very latest document, which the Minister was kind enough to send us last Friday, Delivering UK Energy Investment, is a superb publication. It is possibly a bit glossy, given the history of DECC in this regard, but it has obviously decided that it has to present itself effectively. The last section of the document contains a lot of information on energy efficiency, although some of it is subject to some rather specious claims. In fact, it starts out by saying that, in terms of energy intensiveness, the UK is the “least energy intensive” of all G7 economies. That, however, reflects the structure of the economy and is not a like-for-like comparison, certainly as regards our housing stock, which is universally recognised as being one of the least efficient in Europe.
The energy system itself is subject to some outmoded forms of transmission and distribution which will require attention. That is, indeed, mentioned in the document, but only in the context of the electricity demand reduction dimension of the capacity mechanism, on which we had a lot of discussion during the passage of the Energy Bill. I think Members on this side of the Committee, and many other noble Lords, find this somewhat lacking in precision as yet, but we should be grateful that it is there. However, the broader concept of energy efficiency is referred to in relation to smart meters, investment under the Green Deal and money spent under the ECO. In my opinion it gives a slightly exaggerated view of how effective that is going to be. I am in favour of the ECO. However, the provisions introduced by the Government in the last few months in response to the Prime Minister’s attack on “green crap”, which was presumably an organic predecessor of the “green blob”, means that we now have the ECO spread out over a much longer time period. It is therefore less rapid and less of an investment than was the case as it was originally conceived. Meanwhile, of course, a lot of the predecessor schemes have disappeared. Although the Government are putting some money into that provision, it is relatively low level.
Although these things are going on, they are not considered in the same light as the investment in large-scale generation, the whole of ERM or, indeed, the capacity mechanism, and they are not assessed on the same basis. As I said at the beginning of my remarks, the return on energy efficiency measures, as analysed by countless economists, is much greater than the return on generation investment, whatever the form of generation we are talking about—offshore wind, nuclear, or, indeed, gas or coal—and in carbon- saving terms it is also greater. It seems to me therefore that there is a gap in our approach to national infrastructure on the energy side, although some of this applies also to the transport side because improvements in transport energy efficiency ought to be considered in the same light. If we are looking at how public and private money is spent and directed on infrastructure, investment in energy efficiency should be considered on the same basis, at the same time, with the same degree of urgency and with the same degree of government backing. That is not the case at the moment. These amendments are directed at ensuring that the widest aspects of energy efficiency are reflected in that strategy—a strategy to which the Government rightly give priority in terms of public spending on a public policy, but also one which will directly benefit the consumer and businesses operating within the UK. It will also benefit them early whereas many other investments will take five or 10 years to pay off in terms of energy supply. Therefore it will improve the economics of British industry and business in general.
So the arguments for energy efficiency in all its forms being up there as part of the infrastructure programme are pretty irrefutable. I am not saying that the Government have done nothing on this front but the failure to consider energy efficiency in the same light has meant that such programmes are regarded as lower priority and less exciting, and they are not given the same degree of importance. My amendments attempt to begin to change that. The next version of the National Infrastructure Plan, due at the end of this year or the beginning or next, should reflect this very explicitly with a whole section on energy efficiency rather that it being regulated and only partially covered in the documents. I believe that DECC recognises this but it needs wider recognition across government as a whole so that we are not dependent solely on a glossy DECC publication—welcome though that is. Right in the heart of Treasury thinking on industrial policy, energy efficiency should be up there and treated in the same way as the other infrastructure priorities. I beg to move.
Lord Jenkin of Roding (Con)
My Lords, this is an important amendment. I was glad that the noble Lord, Lord Whitty, gave the Government credit for what has been done. A good deal has been done. I am sure that the noble Lord will have studied, as I have, the paper produced last month on the Energy Savings Opportunities Scheme. It now has its own acronym—ESOS. One can read quite a lot about ESOS.
I was very encouraged the other day by reading of a meeting attended by my noble friend Lord Deighton, the Commercial Secretary to the Treasury. To quote from a press release, my noble friend,
“today said he is ‘extremely attracted’ to the idea of reframing home energy efficiency as one of the UK’s top 40 infrastructure priorities”.
The noble Lord, Lord Whitty, may well be pushing at an open door. My noble friend has very considerable influence on these matters and comes to this House and his job with a very great reputation for what he succeeded in doing in the case of the Olympic Games. As most noble Lords will recognise, he is a figure to be regarded with considerable respect not only in this House but outside it, too.
My noble friend was asked by the Green Building Council chief executive, Paul King,
“whether the Government needed to change the mindset on home retrofit from thinking about 26 million small problems to one major infrastructure opportunity. Lord Deighton said he was ‘seduced’ by the idea of reframing the debate on energy efficiency and that ‘Government should lead’ on the agenda”.
Coming from that source, I hope my noble friend on the Front Bench will sing from the same hymn sheet. It is perfectly clear—as the noble Lord, Lord Whitty, eloquently put it—that this policy has no down side and very considerable upside attractions if one can reach the point where one needs to invest less in production because one is saving more and using energy a great deal more efficiently. That seems to be highly desirable.
It is very interesting that an organisation called the Energy Bill Revolution, which sent me a brief on this recently, quotes research from Cambridge Econometrics showing that energy efficiency schemes,
“outstripped all other investments and tax breaks by creating over 70,000 jobs by 2015, and the boosting of GDP by 0.2%”.
It goes on to say that the key reason for those figures is that the high level of job creation is because it is much more labour-intensive than many other forms of energy investment and much less material-intensive than most construction projects.
Lord Judd (Lab)
My Lords, I often find myself in agreement with my noble friend. Not infrequently, I find myself in strong agreement. On this occasion, I find myself in particularly strong agreement with his amendment and was very glad to see it.
I am delighted that the noble Lord, Lord Jenkin, for whom I have tremendous respect, although I do not spend a lot of my time agreeing with him on political matters, spoke on this amendment. It is one of the nice things about this House. I like him and have come to respect him tremendously over the years. It is good to have a word of good wishes from him on the subject matter of the amendment.
This is an incredibly important amendment. We want to have the energy necessary to enable Britain to be an effective economic power. We also, I hope by now, have central to our strategy a concern for the well-being of our children and grandchildren and of future generations in terms of climate change. There is therefore a tension between the demand for more energy and the demand to make sure that the well-being of future generations is protected.
When we are discussing climate change, all the right things are often said, but when we come to legislation that is highly relevant to delivering the goods in terms of what is necessary in policy, it gets to the bottom of the pile or gets forgotten altogether. I am very glad that my noble friend drew attention to some of the publications in which this was true.
I shall give one personal experience which rather disturbed me. A couple of years ago, I was at a gathering of businessmen not far from where I live. They were discussing energy and the contribution our part of the world could make to the energy production that is necessary. In a good way, the discussion began to be quite personal, and people started talking about their ambitions for their children. One person after another was saying how they would love to see their son or daughter going into engineering as a career and how in Britain we need to take this more seriously. They talked about engineering this and engineering that, but not one said, “I would love to see my son or daughter working as an engineer in the sphere of energy conservation and energy efficiency”. It is something to do with our culture.
I know that I go home with a sense of anxiety that we are saying the right things about climate change and the rest of it, but so much energy is still wasted at night here in our building. It is better than it used to be, but it is still going on—and that profoundly disturbs me, in the context of leadership. We want to get into the strategic planning and the context in which everything is taking place—firmly there, at the head of the stated principles—the fact that energy conservation is a priority that must be given pride of place.
I am very glad that my noble friend has introduced this amendment. I am looking at the clock. If we have not completed our consideration of this amendment by 4.30 pm I hope that I will be forgiven by the Committee for leaving. The Ecclesiastical Committee is meeting at that time for a particularly important matter—to approve the Synod’s recommendation on the ordination of women bishops—and I really feel that on such an historic occasion those on all sides of the Committee will forgive me if I have to leave before the end of the debate on the amendment.
Baroness Maddock (LD)
My Lords, I add my support to the noble Lord, Lord Whitty, in trying to get energy efficiency as part of our infrastructure plans. I am also very pleased to support my noble friend Lord Jenkin. Interestingly, I also knew of the quote from the noble Lord, Lord Deighton, and, if he had not used it, I would have done.
I realise that it is always difficult for a Minister to accept anything and I am not really expecting the noble Baroness to do that today, but in the light of what has been said it is important that she can confirm that she will talk very seriously about this to her colleagues. It is clear that she has other ministerial support—it is not just coming from the people talking here in Committee. So I hope that she can do that.
I am particularly concerned, coming from the north-east, for the job creation opportunities of energy efficiency. We have already seen it happening there. One problem is that the economy may be booming in the south-east but it has not been booming quite so much in the north-east. This is one area in which we do quite well and, if the Government take this seriously, we can do even better.
I have one little point to make on a comment made by the noble Lord, Lord Judd, about the energy efficiency of this building. In the Royal Gallery there is a display about the works that they are doing in the Houses of Parliament. I noticed just this morning that in renewing the iron roofs they are putting in insulation.
I support what has been said in general and urge the Minister to take this seriously and perhaps come back on Report with something that we can all support.
Lord Deben (Con)
My Lords, I apologise for missing the first minute of the speech of the noble Lord, Lord Whitty. I support the amendment. It has always seemed to me that there is a need to find a way in which to make energy efficiency more attractive to politicians, and I think that the noble Lord may have discovered that mechanism. The trouble with politicians is that they like boys’ toys, and it is always better to build something big that you can point to, so that in your dotage—which of course none of us is anywhere near—you can say to your great-grandchildren, “I built that great monstrosity there; it was one of the reasons why I felt that I had done something”. I fear that that is quite deep in the psyche of politicians. It is always easier to build or make something and then to have something to point to. Very often, those are important activities, but it always means that energy efficiency is at the bottom of the pile.
When I was the Minister responsible in the Department of the Environment, there was a tendency to ensure that those who dealt with energy efficiency were perhaps not the most exciting of people—not perhaps as thrusting or pressing as those who dealt with the big projects. I am sure that that is no longer true and that now we have people of immense thrust, but it is important to give them some help and support. This amendment does that.
We have had today the welcome decision by the Government that the Committee on Climate Change was indeed right to say that there is no basis for changing the fourth carbon budget. So we know what we have to meet. In that circumstance, energy efficiency is a crucial part. Members of the Committee should refer to the document that the climate change committee presented to Parliament only last week—I declare an interest as its chairman. It is interesting that when we produced our review of climate change action over the past five years—it also looks forward—no one from the global warming body that opposes these things was present. Nobody was there to find out the facts. Nobody bothered to turn up. It is worth saying as often as possible that those who deny climate change or dismiss its importance rarely appear to listen to the facts. In that document we make it clear that in fact the Government have so far, with their partners, met their targets. That of course has been helped, if that is the right word, by the recession. Again, we should congratulate the Government on saying that they are not going to take advantage of that additional success by reducing the requirement in successive carbon budgets.
It is a good idea to say when Governments get things right, particularly if one is going to say something about getting it wrong. The bit they have got wrong is that we have not got the energy efficiency operation anywhere near where it has to be if we are to meet our budget. As my noble friend Lady Maddock rightly said, the Minister will find it difficult to accept this amendment here and now. However, perhaps I may end by saying why I hope she will make sure that it is accepted before the Bill is passed. By making the amendment part of our infrastructure programme, we give to it precisely that attraction—the big picture—which it lacks if we are talking about a whole series of small things, which is the point that my noble friend Lord Jenkin made and which the noble Lord, Lord Deighton, himself made in his recent intervention.
I very much hope, therefore, that my noble friend will accept that this issue is crucial to meeting our carbon budgets. Those budgets have been reaffirmed today. Would it not be a good thing to celebrate that reaffirmation by accepting in principle, if not in practice at this moment, that the amendment should be part of the Bill?
Lord Teverson (LD)
My Lords, my noble friend Lord Deben will be delighted to know that last week I quoted his report several times in this Grand Committee in relation to zero-carbon homes. There were some useful data there. Also in this Grand Committee last week I welcomed the report by DECC on energy investment. The DCLG Minister at that time, though helpful, was not so interested in it. However, I congratulate DECC on its work on this issue, together with the £45 billion in investment. As the noble Lord, Lord Whitty, said, there is a whole section about energy efficiency in the report. It is the final section, and it would be nice if it moved up to the top, but it is indicative that recognition of the importance of this area is increasing.
The report, whose language I really like, states:
“There are £45-£60 billion worth of … investment opportunities”
still to be had. That looks good and we think, “Great, we can do more”, but what it means is that there is still some £65 billion-worth of work yet to be done on energy efficiency in the UK.
I can see that the Government are going in the right direction on this, but it is important to hardwire these issues into the decision-making process. This amendment provides one of the ways of starting to do that.
Lord Cameron of Dillington (CB)
My Lords, in rising to support this amendment, I should first declare my interests as a farmer and landowner with renewable schemes on my property which I am involved with financially. I try to encourage others to get involved in such schemes as well. I want to talk in particular about the future of our housing infrastructure. I hope that a lot of new houses are going to be built over the next few years and it is therefore important to think about these issues at this stage. I want to take a particularly narrow line, which I hope the Committee will excuse.
It may be that my remarks would be better targeted at Amendment 95ZBB tabled by the noble Baroness, Lady Eaton, but I have only just come across it so I am not quite sure what it is all about. The difference between some of the continental housing developments I have seen in recent years and ours is the much greater frequency of community heating schemes in both rural areas and new build housing estates in towns. For some reason our developers seem to shy away from community schemes, preferring individual gas-fired boilers or, in rural areas, oil-fired boilers fitted in each and every house. That must be very inefficient. I know that we have the renewable heat incentive, but clearly it is not quite enough and it tends to be used in community buildings such as churches and village halls, as well as on farms and in factories so that the heating system can be linked to one or two houses. These are quite small schemes. Plugging a new estate of 400 or 500 houses into a community heat source is really quite rare.
Lord Teverson
It may be useful if I tell the noble Lord that the RHI is not applicable to new builds, and there is a distortion because of that. We do not see community heating systems in new builds because the RHI does not apply to them.
Lord Cameron of Dillington
I thank the noble Lord for that explanation, which certainly underlines the point I am trying to make. As I have said, I hope that lots of new housing estates are built over the next few years, so DECC and DCLG ought to look very carefully at this issue and consider how community heating schemes might be improved. The advantages are huge. For a start, they are much more efficient and thus would justify proper investment either in the new type of boiler that is required or in the overall management of the heat. In rural areas, for instance, it is often hard to justify piping gas into villages, which is obviously the cheapest form of heat, but it could be much more worth while in cases where there is a major community heating unit so that gas can be brought in to provide fuel for that one particular source of heat. That is certainly better for climate change than putting oil boilers into each and every house because that involves a huge waste of oil and energy.
Lord Deben
Does the noble Lord also agree that the ideal use of pumps, both air and earth pumps, is in new build? And yet, as my noble friend has pointed out, that is precisely the area which is not covered by the present arrangements. It would make a huge difference if that were to happen and it would certainly help towards achieving really eco-friendly new homes.
Lord Cameron of Dillington
I thank the noble Lord for his intervention and I am glad that my remarks are invoking a certain amount of support. I totally agree with him: ground source or air source heat pumps, particularly on a large scale, are very efficient in climate change terms due to the reduction in the emission of greenhouse gases. Obviously one of the disadvantages is that you have to cost in the piping of hot water. Even with photovoltaics, the cost of those come down by something like 24% every time the number is doubled. There is a huge advantage in encouraging this because I am sure that the cost of pipes would come down, too.
Another advantage is that, as technology changes and sources of heat and efficiency go up and down, it takes only one change to get the whole community on to the most efficient fuel, burner or heat source. That is much more likely to happen than changing all the heat sources in all the houses. As I say, as our housing infrastructure catches up with the nation’s needs over the next few years—as I really hope it will, particularly in terms of affordable housing—DECC and DCLG ought to get together and ensure that these sorts of scheme are encouraged in new-build houses.
Baroness Maddock
My Lords, I support the noble Lord, Lord Cameron, in looking at community heating. I recommend that he looks at the district heating scheme in Southampton set up many years ago. I was a councillor at the time. Alan Whitehead, the MP there, and I set that up together. Barratt Homes put a new block of flats on to that scheme. We are going back nearly 20 years, but those schemes work.
There is a housing estate in Pimlico that still has a district heating scheme. I live in a flat in Dolphin Square when I am here and am really sorry that the owners of the square came off that scheme. Ever since, we have had gas boilers. Sometimes we do not have hot water. That never happened under the district heating scheme. Those are two schemes that have been successful. I wish the Government would use some of these examples to encourage other people to take this scheme up, as it works. People used to say that it was very difficult for the reason the noble Lord gave—they want their own boiler. However, it has been done successfully and where people have it, they are very satisfied.
Baroness Worthington (Lab)
My Lords, when you have had such a rich and excellent debate, you find yourself in the position where everything you were going to say has been said before you by very eminent and noble people. I thank everyone for their contributions to this debate.
We are very supportive of this amendment in principle. I look forward to hearing from the Minister some, I hope, positive words about how the Government will take this proposal forward in principle and introduce it into the Bill during its passage. It is clear that, when we look at the Infrastructure Bill as a whole, this area represents something of a missed opportunity under this Government. Of the pipeline of infrastructure projects in the UK that the Treasury has collated into its Excel spreadsheet, more than half are energy projects. It is the single biggest sector in terms of the value of projects in that list. Energy is central and fundamental to any infrastructure policy. Yet here we are with not very much in the energy part of this Bill to start with. A few amendments have been added but this is really a missed opportunity to set out a very strong and strategic direction.
I am sure that the Minister will point to the fact that we spent much of last year talking about energy in the energy market reform package but that is still being implemented. On Thursday, we meet to discuss some of the detail of the statutory instruments and there are still significant issues that were debated during the process that are unresolved. I would argue that energy efficiency is one of them.
I am delighted that the noble Lord, Lord Deben, raised the fact that today we saw the Government finally remove the question mark hanging over the fourth carbon budget. It was a recommendation from the Committee on Climate Change that was accepted but a rather insidious caveat was inserted that it would be subject to review. This has been hanging over the carbon budgeting process for some time. Today we saw final clarification that the fourth carbon budget will remain as drafted, as it is in law, and will not be subject to review. That is a very good thing. I particularly extend congratulations to the noble Lord for the work that I am sure he and his committee did in trying to ensure that the Government saw logic on this issue. I also commend the Government for listening to logic and ruling out any changes to that fourth carbon budget.
However, as the noble Lord pointed out, this now has quite serious implications for policy. The first implication is that we must—must—secure a 40% greenhouse gas reduction target in Europe if we are to have a chance of meeting our targets in the traded sector. In the non-traded sector, which means the heat market and the transport market, we will have to up our game significantly and improve the energy efficiency of our transport and heat networks. That is really the nub of this amendment. For too long, we have ignored those essential components of energy policy. How we heat our buildings, homes, offices and industries and our transportation have been sidelined in favour of big glamorous projects in the power sector. There has been—although I hope it is shifting—a perception in the department responsible for energy that real men build power stations. I have heard anecdotally that there have been posters to that effect in certain parts of the department. I hope that they have now been expunged. We have women in that department now, which is great, and a new member in the shape of Amber Rudd who I am sure will contribute greatly.
Energy is not just about cutting ribbons on large projects. It is much more complex than that. It involves massive amounts of infrastructure, which extends all the way to the buildings, housing, homes and roads that we use to transport ourselves and to live and work in. Those aspects of infrastructure should be front and centre in any infrastructure project. It will have escaped no one’s attention that energy security and reducing our reliance on imported energy are of huge importance, particularly in current times. The most sensible way to do that is to reduce the amount of energy you need to use in the first place. That is why energy efficiency is now receiving far greater attention at European level and why we in the UK should similarly up our game on this aspect in meeting our carbon budget and in helping people to occupy, live in and work in buildings that are fit for the 21st century. I see this as fundamental to the question of infrastructure. How we transport ourselves and what we live in is part of our infrastructure. It ought to be in the Bill.
There is another important point. My noble friend’s amendment covers existing infrastructure and new infrastructure. It is important that if we are embarking on this large programme of infrastructure spend, we do so wisely with energy efficiency front and centre in everything we do. This amendment is not simply about retrofitting existing infrastructure. It also requires us when we are embarking on infrastructure projects to think carefully about the energy efficiency of those projects.
People might be considering how we make this real and what energy efficiency looks like. I have three examples. I mentioned our housing stock: we have among the worst housing stock in Europe. It is appalling that a country of our wealth and history should have people living in fuel poverty in damp and unheatable homes. This has to be stopped. We have to make sure that our housing stock is upgraded to give us warm and healthy homes to live in. It is not just that. There are also large swathes of commercial and retail buildings that could be re-engineered to become smart buildings and upgraded so that they use energy wisely and minimise the amount they use.
There is also lighting. There is huge potential for reduction in emissions and energy demand from lighting from the new LED lighting that is coming on board. When we are building roads and extending infrastructure, we should be planning to have the most efficient and up-to-date technologies that will save us money in the long run.
I do not want to detain the Committee any longer. This has been an amazing debate—I thank all noble Lords for their contributions. I am very much looking forward to the Minister’s response. I hope that before the legislation reaches the statute book, we will see a positive response to these amendments.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I agree with the noble Baroness that this has been an excellent debate. Everybody has spoken with great passion. Each and every one of us shares a common approach to making sure that we deal with energy efficiency in the round, not just for people in fuel poverty but as a commitment from our country to our carbon targets. Before I respond to the amendment moved by the noble Lord, Lord Whitty, I shall put on record for my noble friend Lord Deben and the noble Baroness that some of us are not playing with boys’ toys and are not interested in them but have spent a lifetime making sure that the subject that we are so passionate about is properly addressed. For those who like wearing helmets, good luck to them. I am just not one of them.
Lord Deben
I am impressed by the Minister’s statements and very much support them, but I do not quite understand why it would not be satisfactory to include this in the Infrastructure Bill. If we are doing all these things, perhaps the Government will not find it too onerous to do so. Surely she would agree that it would mean that we would put it in the right context, with the other things being done on infrastructure. I hope that, despite her feelings before the debate, she will accept that the debate suggests that it would be worth while thinking about this again and putting something in the Bill. I cannot see that there is any down side to that; I see a lot of upside, but as yet I cannot detect a down side.
Baroness Verma
I thank my noble friend for his intervention. However, I would err on the side of caution: if we do not look at this in greater detail, we might inadvertently restrict ourselves from looking at other technologies that may come on stream by putting into legislation things that are going to be restricted because we have mandated it in the legislation, when we are already doing many things that meet what noble Lords are asking for. It would probably be much more constructive to be able to say that this would not be necessary, given that we are already doing it. However, as with all things, I am very happy to talk to noble Lords outside the Room to see where they feel that I am not fulfilling this condition.
I would like to respond to the noble Lord, Lord Cameron, about new build and RHI. I do not have the details for that here, but perhaps he would allow me to write to him and send copies to other Members of the Committee.
I hope that the noble Lord, Lord Whitty, will withdraw his amendment.
Lord Whitty
My Lords, I thank the Minister for that reply. I am very appreciative for all the support from noble Lords around the Committee on the principle of these amendments and, perhaps, even more delighted that in his absence the noble Lord, Lord Deighton, appears to have pre-empted me and got into the heart of the Treasury the precise intention of the amendment—that whatever else we do with energy efficiency, it needs to be considered on the same level, at the same time and on the same criteria as other infrastructure projects.
There is a lot of experience around this Room, but there is an essential truth in what the noble Lord, Lord Deben, said and what my noble friend Lady Worthington said in a rather sharper tone—that infrastructure projects narrowly conceived have an attraction to Ministers that pushes out priorities that might be given to projects that are slightly more mundane but equally effective and important for the future of our economy and society.
It goes a long way back. As a very junior civil servant in the late 1960s, I was in the Ministry of Technology. It and the NRDC, as it then was, had energy efficiency as one of their objectives, but it was pretty low down the list. We had all sorts of sexy and exciting things such as Concorde and nuclear power stations to deal with, and it rarely rose above the surface. Subsequent departments, although they quite often had quite a lot of people working on energy efficiency, did not really improve that status. I become Minister for Energy Efficiency in 2001, and it was a very frustrating job, partly because it was isolated in a different department from other energy issues, but whatever the structure of Whitehall, all Ministers who have had that responsibility have found it frustrating.
In my opening remarks, I spoke about importance and priority, but status is also important. I hope that now we have energy located in one department—it has taken a few years to put it together—that the civil servants dealing with this issue are accorded status equal to that of those who are dealing with big power stations and other infrastructure projects and that that is reflected in the way in which the department operates with other departments around Whitehall, and in particular with the Treasury, which, until I heard the remarks of the noble Lord, Lord Deighton, repeated by the noble Lord, Lord Jenkin, and the noble Baroness, Lady Maddock, I had thought was still going to be an inhibition. It appears that it is now going to be a fairly substantial supporter of the intention of these amendments. I would have thought that that might carry some weight with Ministers at DECC.
We can argue about how much is being done, and a lot is being done. We can argue about its efficacy and balance, but that is a separate argument. We are saying that we have a national infrastructure plan that is revised every year or two—I hope that will continue—and that the projects within it gain status by their inclusion in terms of capital expenditure and political attention which other projects do not have. If we are to bring together all the different aspects of energy efficiency and put it on the same basis as other infrastructure projects, it should be explicit. Indeed, in the energy section, it is arguable that it should be at the top because the degree to which you are successful at energy conservation and energy efficiency defines the degree to which you have to have new generation projects and speed up distribution and transmission.
I do not accept the Minister’s view that because a lot of things are being done and are reflected in important reports from the Government, the department, the Committee on Climate Change and other bodies we should ignore what lies behind this. Infrastructure is the word of the moment as all political parties approach the general election. I hope that whoever are the Government after the general election, infrastructure improvement remains up there in lights and if other things are up there in lights—“lights” is probably the wrong word to use in an energy debate—energy efficiency needs to be there as well. Whoever produces the next national infrastructure plan should include energy efficiency in an important place within that programme. At the moment, it is not there.
All this is not technologically specific. It is simply saying that whatever programmes there are for energy efficiency, they need to be up there in parallel and justified on the same cost-benefit or whatever analysis applies to other infrastructure projects. I do not think that on reflection the Minister would have any real difficulty with that. It appears she has the support of the Treasury. She has two or three months to think about it before we come back after the Summer Recess. I would have thought that that was ample time. If she does not like my phraseology or we need to make it more clear, defined and acceptable to her colleagues, I am quite happy with that, but the burden of argument in the Committee is that she must come back with something and that the next infrastructure plan must reflect that. I beg leave to withdraw the amendment.
Baroness Worthington
Baroness Worthington
The amendments in this group are essentially probing in nature to allow us to debate in more detail the one part of the Infrastructure Bill that touches on energy. It is worth reiterating that I find it curious that there is not more interest in the energy aspect of infrastructure and energy efficiency when more than half of the projects in HM Treasury’s pipeline are energy related; the biggest sector by value is energy. Even so, when this Bill was published it had only a few clauses related to what is in reality only a small aspect of policy, which is the community right to buy. The next business tabled by the noble Lord, Lord Jenkin, will allow us to have a slightly more principled debate about whether this is the right approach, while these amendments seek to elicit from the Government a little more clarity on what the thinking is.
It is clear that other countries have pursued the community ownership of energy far more effectively than we have. We need only look to Germany where there has been a huge uptake of renewable energy projects across all parts of the economy; a large proportion of them are community owned and backed. The Germans have had a far more successful experience of deployment of renewables as a result, and it is clear that this is something which needs to be explored. I am sure that other noble Lords have received various briefings on this aspect which make it clear that there are lots of different ways of securing community involvement ranging all the way from sole community ownership, whereby a community forms a co-operative or group of which it is the operator and investor, to the other end of the spectrum, which might be some kind of mandated share or stake being sold to the community. It seems that with these enabling regulations, the Government have decided in their wisdom to select just one of those options, and that is the right to a stake in renewable projects.
The first amendment, Amendment 94AA, is clearly probing in nature. We understand that if it were to be accepted, a great many consequential amendments would be necessary. The reason we tabled it was to explore with the Government why it is that community renewable projects are being singled out for this measure. In the future, renewable energy will cease to be a term because it will be integrated into energy as we know it today. A whole host of technologies are hidden behind the term “renewables”, but renewables themselves are no different from other forms of energy: they produce heat that keeps our businesses and homes running by providing power for our communities. Over time, renewables will need to stand on their own two feet and be integrated as a normal part of how we produce electricity and heat. Yet here we have a set of provisions that single renewables out as some kind of special element which needs to be governed in a certain way under a series of quite complex procedures. I find it deeply regrettable that this is not about making community energy work. It is more about providing Tory MPs and candidates with a nice soundbite to use on the doorstep: “Don’t worry. If there is a renewables project you don’t like, we will force them to sell some of it to you”. This feels like a rather cynical and quite narrow way of tackling a hugely important issue.
I do not want my speech to be interpreted in any way as being against community ownership or community involvement in renewables, and certainly I do not want it to be seen as being against renewables, but I am slightly disappointed and curious as to why the Government have selected such a narrow piece of legislation to push forward in this Bill. Amendment 94AA asks why renewables are being singled out. There will be other forms of community energy that are not from renewable sources, and this provision could apply to those as well. Why does it apply only to renewables?
The second amendment, Amendment 94AB—this touches on the debate that has just gone—opens up to community ownership projects that will reduce our demand for energy and our carbon emissions through energy efficiency, demand reduction and demand management. We have just had a lengthy debate about how the demand side of this always gets overlooked. However, here we are again, with precisely the same thing happening and renewables being singled out, but with a complete blind spot when it comes to community involvement in the infrastructure of our community and how our houses, buildings and communities are made more energy efficient. This is a huge oversight because, in reality, those energy efficiency projects will be far more successful, stand on their own and give payback periods that are probably shorter. That would excite a community and get it involved. They are also likely to need the involvement of the community because they might involve multiple sites. I can see no reason why Amendment 94AB should not be part of government thinking on this. I will be very interested to hear what the Minister will say in response.
Amendment 94AC has a similar theme. Here, we are just probing to find out why the Government’s guidelines initially indicate that the technologies classed as renewable in this case are solar and onshore wind. We do not see why offshore projects and offshore renewable projects could not be included if they are near to coastal communities. If coastal communities look out on to a wind farm, why should they not also be part of it? They could also be involved in wave and tidal projects. Is offshore not considered to be part of that and, if not, why not? We strongly suggest that it should be as inclusive as possible on all projects.
Amendment 94AD is another probing amendment to find out the Government’s view on whether facilities can be exempted and on what would be accepted as an exempted facility. I would just like clarification about what circumstances would mean that a facility would be exempted. Amendment 94AE is about the age qualification for this right—again, simply to probe and receive more information. It is quite an enabling set of regulations and we would like a bit more detail.
Similarly, the final amendment, Amendment 94AF, is to just test whether charities—I think it is fair to say that, under this Government, charities have felt slightly hard done by in recent times—are eligible to be part of this and whether they are classed as a community group and to ask for clarification on that. There are a whole range of amendments here, and I would like responses from the Minister on all of them. If she is unable to give them now, perhaps she will be kind enough to write.
The most important point I want to get across is that we have a massive opportunity here to move towards a much greater degree of community involvement in renewable energy and, indeed, in energy in general. That way, people will appreciate more what goes into creating energy, where it comes from and how they can make money from their involvement, thereby generating excitement. There is a whole raft of things that the Government could have done to make that happen. We want to see it happen because we want to see how we can match what Germany has done in terms of community engagement and up the rate of acceptance and deployment. This part of the Bill does not do the job, and we have serious concerns about it. I think we will be able to go on to debate that in a little more detail in the next group, but I look forward to the response to this group of amendments. I beg to move.
Lord Teverson
This is a major step forward. It is a very positive step. I have sympathy with the amendment, but at least this enables us to get on and start down this road. If we find out how to make it work, we have opportunities to broaden it out. However, there is a question about why we are restricting it to the energy field. What about putting up a housing estate or a multiple retail store next door? The same argument applies.
Baroness Worthington
The difference is that we are going through something of a transformation from a situation where we have a limited number of generators dotted around the country, often in the most far-flung places, so that people do not have to engage with energy, and are shifting to a much more diverse, devolved and distributed system. Therefore, we have, as is widely acknowledged, political issues about managing that transition. That is the difference.
Lord Teverson
As I said, I am sympathetic and understand that. However, that is also true of other parts of the economy. and I am just making the point about how far one could extend the argument. I hope that we can prove that this works, although there is still quite a challenge, and I have an amendment on some bits of it later on. At this point, I just want to say that it is an excellent initiative and that at least we are on the first few steps of this process, even if we do not get perfection straightaway. I fully understand the points made by the noble Baroness, but this is a great start and we should get on with this, prove that it works and move on after that point.
Lord Cameron of Dillington
My Lords, I, too, support the idea of community involvement in projects. As I said in my Second Reading speech, I support Amendment 94AA in view of the possibility of local opposition causing projects to fail. Fracking is very controversial. It seems to me that if you could involve the local community in a fracking project in the same way as the Government are trying to do with renewables, it would be very beneficial.
Baroness Verma
My Lords, I take this opportunity again to thank all noble Lords for their excellent contributions. In addressing this rather large group of amendments, I hope that I can respond to many of the points the noble Baroness raised. If I do not do so, I undertake to write to her.
Amendment 94AA seeks to extend the scope of the community electricity right to include all electricity generation facilities. While the Government strongly support community engagement in relation to the development of all energy projects, we are clear that these provisions should apply only to renewable electricity generation facilities. I would like to set out the reasons for this.
First, this measure is part of our broader approach for increasing community investment in renewables, as set out in the Community Energy Strategy. The policy was developed specifically to tackle the imbalance between national and local benefits that characterises renewable schemes. In general, there tends to be widespread support for renewable electricity developments at a national level, but this is not always reflected at a local level where the impacts are felt directly by communities. Enabling communities to invest in their local renewable electricity schemes will mean that they can gain a greater share of the financial benefits and, more importantly, feel a greater sense of ownership of schemes being developed on their doorstep. This will help to increase public engagement, acceptance and support for renewable projects at a local level. What is more, developers will also stand to gain. Experience in this country and abroad has shown that where communities have a financial stake in a local renewable development—the noble Baroness cited Germany in this regard—this often translates into less opposition and a quicker, cheaper development process.
There is already a voluntary approach that is currently developing a framework for increasing shared ownership. Only if this is not successful would we consider exercising the backstop powers. It would therefore make no sense to expand the scope to include all electricity generation projects when both the policy objective and the voluntary approach are focused solely on renewables.
On Amendment 94AB, I remind noble Lords of the importance of reporting on actions to reduce energy demand and carbon emissions. I recognise that there are many forms of community action that can make a difference to reducing our country’s carbon emissions and managing the demand of energy. The Community Energy Strategy that we published recognises the benefits of putting communities in control of the energy they use. Furthermore, it sets out how communities can get involved in reducing, generating, managing and purchasing energy.
In addition, through the Community Energy Call for Evidence, the department committed to commissioning an external research project specifically focused on energy demand and distributed energy. This research project has now concluded, and we will publish the findings shortly. While these are very important elements of growing the community energy sector and tackling climate change, they are not directly connected with the implementation of the community electricity right regulations.
Baroness Worthington
My Lords, I thank noble Lords who spoke on this amendment and the others in the group. I thank the Minister for her response. I cannot say it has done much to assuage my cynicism. I feel that this is more to be used in leaflets on doorsteps in Tory constituencies than anything else. That said, I understand and am grateful for the detailed responses.
This feels a slightly too restrictive interpretation of what we want to achieve with community engagement. I fear that it is slightly motivated by a desire to make renewables seem like a very special case and that there is something about them that is inherently difficult which you have to live with on your doorstep and therefore you will be given a special right which does not apply to any other type of energy project. I do not know that that is necessarily going to be a good thing.
The noble Lord, Lord Teverson, made a valid point about how far you go with this right to buy. I do not quite share his logic in saying that this might not be perfect but we should get on with it. This is so far from perfect that I am not sure that that logic applies.
I am very grateful for the responses. I will follow with interest whether charities end up being included on the list. I am sure that if they are not other people will be reading Hansard with great care and will follow up on that issue in particular. I do not follow the logic of the Government’s approach: “We have said it this way; therefore it has got to be this way”. There was a circular logic in some of the answers: “We have not included energy efficiency; therefore we cannot include energy efficiency” and “We do not think it should apply to offshore; therefore it does not apply to offshore”. Those are not principled responses because they just say, “This is what we are currently doing and therefore we are legislating to do what we are currently doing”. That is not necessarily the right approach.
Baroness Verma
My Lords, I have said that there will be times when formal consultations are held, so it will be useful to wait and see what the results of those formal consultations are.
Baroness Worthington
I thank the noble Baroness for that, and indeed it will be interesting to see what comes back from stakeholders and whether offshore generators will accept that this is a necessary provision. It feels like this is less about securing community engagement and more about trying to send a message along the lines of, “We know that renewables are really difficult and we are sorry. We will try to do something about them”. Anyway, I look forward to the debate on the next group of amendments.
Lord Teverson
I am absolutely fascinated by the political analysis because I see this as something completely different. I do not know whether what the noble Baroness is saying suggests that this is good or it is bad. I do not think that it is some sort of Conservative move to persuade electors. Let us be quite clear: certain parts of the coalition want to stop onshore wind in its tracks. That is not the case for the whole of the coalition, but for some, and this is not an answer to that. This is a way of making it a positive thing and moving forward the programme of changing some of the ways that it works. This does not seek to give up, it tries to make it something far more workable. There is no greater advocate of wind power in the countryside than I. I revel in the fact that I can see at least 50 turbines from my house, which luckily for me is on the top of a hill where it is windy—but without a turbine.
We know that certain people and communities are quite legitimately concerned about these issues, so this is a way of involving them and giving them part of the benefit of the schemes. I do not think that it is at all cynical. If we could push things further, I would do that as well, but even so the political analysis is wrong. It is a positive development and if it is successful, it will inevitably be rolled out more widely. I agree that there probably are issues around shale, possibly more around exploration than production, but again there is something cynical in this political analysis. We all understand where cynicism comes from, but in this instance it is absolutely wrong. I am not talking about the dynamics of the two political parties which make up the coalition, but the dynamics of the coalitions between different government departments, along with other things. As is the case in all of politics, it is a broad church. This is a solution that will start things off. I want to reject all this cynicism.
Baroness Worthington
I thank the noble Lord for attempting to reject my cynicism. We know that there is an issue with the coalition Government. We know that one department is pushing renewables while another department is calling all the renewables projects in and objecting to them. I do not think that I am being paranoid in saying that there is a problem in the signals being sent to investors in renewable energy projects. It is quite apparent in the statements being made by different Ministers.
Baroness Verma
My Lords, I apologise. We should move on to the next group. However, I want to clarify that it is healthy to have these debates. The noble Baroness’s own party is also having them. To make this into a political debate is, I think, wrong, because the underlying premise of the noble Baroness’s amendment is what we are all trying to achieve—greater community engagement.
Baroness Worthington
I do not dispute that. I say again that I have nothing against community engagement—in fact, I positively encourage it for all the reasons the noble Lord, Lord Teverson, has outlined. As I said, it clearly helps people to move forward with renewable energy. I am simply saying that this approach is very narrow and that it inevitably puts an administrative burden on to a certain class of developers which does not apply to other developers. That is my concern. I am sure that we will talk about these issues in the next group of amendments. I do not think that I am wrong to express a healthy degree of cynicism and I am glad that I tabled these probing amendments so that we could have this debate. It is now on the record, so let us see how we get on. I am sure that it is something which will evolve over time. I beg leave to withdraw the amendment.
Lord Jenkin of Roding
My Lords, I apologise to my noble friend the Minister, the noble Viscount, Lord Simon, and to officials for having put down notice of my intention to oppose the Question that Clause 26 stand part so late, but after I studied the amendments that had been tabled it seemed that this gave an opportunity for a wider debate on the whole question of community involvement. I am very grateful to the noble Baroness, Lady Worthington, for recognising that when she moved the previous amendment.
At Second Reading on 18 June, I expressed my worries about the rush to a statutory scheme when the voluntary approach seems already to produce a very good result. Since then, I have read the draft report of the Shared Ownership Taskforce, which was published a week later. One thing is abundantly clear, no doubt because of the terms of reference the task force was given by Ministers: it is wholly based on the voluntary approach to community involvement. There is no mention in the report of legislation or even the threat of it.
Yes, there was at one time pressure from some voluntary organisations to say that this would work only if the Government forced firms to give community involvement, but those organisations are not saying that now. I have had representations from some of them to say no, they are wholly in favour of the voluntary approach which seems to be working. Therefore, why do we need this so-called backstop? The Government’s argument—no doubt, we will hear this again this evening from my noble friend—is that we want the voluntary approach to work. However, to quote the words of the noble Baroness from a few moments ago, only if that approach is not successful would the Government introduce the backstop. I have a number of questions on that.
Before I come to them, I draw the attention of the Committee to the letter written by the Secretary of State last April to the chairman of the task force, Maria McCaffery, and to the task force vice-chairman, Rebecca Willis from Co-operatives UK. The Secretary of State set this out with complete clarity. He wrote:
“It is my view that shared ownership is better achieved through the flexibility and adaptability of a voluntary process and I welcome your efforts to make this a reality”.
Lower down he wrote:
“It is therefore my intention that the backstop powers will not be overly prescriptive. Regarding the timescales … I would like to reassure you that there is no intention that these powers would be exercised before 2016, if they are exercised at all”.
That is the Secretary of State’s letter, and I attach some importance to it because it is clearly what he meant. However, I fear that the reference to “before 2016” rather gives the game away. The Bill will, I hope, be law before the end of this Parliament—probably early in 2015. So what is that reassurance actually worth? It means that the Government really want to introduce this as soon as possible. That is really very bad psychology.
My first question to the Minister is: where is the evidence that the voluntary approach is not working? All the evidence that I have received suggests that it is actually working rather well. The task force itself gives examples of various models of share ownership in Annexe A of the draft report. They include: split ownership schemes, such as the Baywind Energy Co-operative in Cumbria and the Fens Co-op/EDF scheme near Spalding in Lincolnshire; shared revenue schemes, such as the Falck-Energy4All schemes, with many sites across the country, and Drumlin, with several sites in Northern Ireland; and joint ventures, such as the Neilstan Development Trust-Carbon Free Developments wind farm in East Renfrewshire. This may not be a comprehensive list but it shows that there is a good deal going on.
The question I therefore ask my noble friend is: do the Government keep a register of shared ownership schemes that are being planned, introduced and operated? Can she give me the names of any schemes where shared ownership has been refused? Is there any evidence of that? It may well be that there is, but no one has put that to me. I will be interested in her reply.
The task force’s draft report lays huge importance on the value of flexibility: different solutions for differing circumstances. I have quoted what the Secretary of State said—he did not want to be “overly prescriptive”—but is it not absolutely inevitable that statutory regulations are bound by their very nature to be prescriptive? Examples of this are already in the Bill, such as limits on the size of a scheme, limits on the size of the voluntary share, limits on the kinds of organisation that can represent the community and limits on the nature of the stake that may be held. One only has to read subsequent amendments to realise that these proposals are already causing considerable concern. So the Bill is bound to be prescriptive. The simple fact is that a voluntary system can embrace a wide range of possibilities. Indeed, the noble Baroness, Lady Worthington, and my noble friend a moment ago indicated that there would be a wide range of possibilities for voluntary community involvement.
A statutory system is bound to force future developments into a legislative straitjacket. I cannot believe that that is the right approach. Furthermore, it sends a very clear message—this point has been made to me forcefully by the industry—that, despite all their reassuring words, Ministers simply do not trust the industry to deliver. My noble friend was quite right when she talked about the main motivation for a voluntary approach being to smooth the path to local support and reduce opposition, and there is plenty of evidence for that. That is the main attraction of a voluntary approach for firms and the local community. Yet only a few hours ago I received a note from Ofgem. It made the following point:
“However, we believe there is a question about whether community energy will necessarily provide a positive outcome for consumers”.
For that we wait to see. The note continues:
“We are watching with interest around what happens with the taskforce on community energy (which we do not sit on). We may have concerns about using our enforcement powers around this if the voluntary approach does not work”.
Coming from the main regulator, those are powerful words. I hope that my noble friend will respond to that.
Ministers then say, “Don’t worry. We are going to make this very flexible in all the regulations”, but when are we going to have sight of those regulations? At Second Reading, I asked that we should see the regulations before Report. Since then, we have had the report of the Delegated Powers and Regulatory Reform Committee, which examined the Bill, but not the regulations, of course, because we do not have them yet. It is encouraging to note that paragraph 7 of that report states:
“We accordingly do not find … the arrangements for Parliamentary scrutiny of the exercise of the powers, to be inappropriate. But we are conscious that, even with the amplified outline of the regulatory framework that Schedule 5 affords, the House will not begin to get a clear idea of the real shape and content of what would be a novel statutory regime until the Government provide details of the provision that would appear in instruments made under clause 26. We therefore express the hope that the Government will make available to the House, preferably before Report Stage, as much as possible of the provision that would be included in the regulations”.
That is a pretty strong recommendation from the committee.
What have we had since then? We were all working very hard on Sunday. I was talking to some of the Minister’s officials about this, and about what I was going to say, and the Minister sent me a letter, also dated Sunday last, in which she answered some of the points that we have made. Under the heading, Future details on the regulations, she writes:
“In terms of providing further details on the regulations, as my officials explained, we are strongly supportive of the voluntary approach to shared ownership and would not want to prejudice the models and approaches coming forward by drafting any secondary legislation now. The provisions as they stand retain the future flexibility in order to allow us to respond to changing circumstances, and in particular to take on board any lessons from the voluntary approach”.
I think that means we are not going to see any regulations before Report. If I may say so with great kindness to my noble friend, I do not think that she is going to get away with that. The House will want to know the details of the regulations that the Government are taking powers in the Bill to introduce. I find this a very difficult situation. So, my next question to my noble friend is: does that response mean that we are not going to see the regulations before Report? I would be grateful if she would give a very clear answer to that.
My Amendment 98AB is grouped with the provision we are discussing. There is to be a framework document but, again, we have not seen it. The draft task force report sets out the timetable for monitoring and review. I will not weary the Committee with that because I am sure that many noble Lords will have seen it already, but it is clear that there is to be a significant process of review before there is any question of introducing the backstop provision. The task force draft report states:
“Six and twelve months after the publication of the Shared Ownership Taskforce’s recommendations”—
that will be this September—
“the Taskforce will conduct reviews of commercial renewable energy developers covered by the voluntary Framework”.
Then, as the noble Baroness has told us, there will be a period of consultation, which will take time, and then there will be a period after the consultation is complete before the Government can possibly produce a response, so there will have to be a period of at least a year, but I would suggest probably two years, before there is any question of introducing a statutory scheme. However, the Bill states that the Government want to have the power within two months of it becoming law. Why on earth do they feel that that is necessary? Two years is plenty of time, and psychologically it would be right for the industry. It would feel that this really is a backstop provision and not something that the department is bent on introducing as quickly as possible.
Indeed, I would go further than that. To threaten the industry that there will be statutory powers—a narrow statutory straitjacket—when it will be pursuing a wide variety of voluntary participation schemes by local communities seems to be a very dangerous psychological error. I do not think that the Government understand how businesses react to that sort of thing, but they want to do it, and therefore they have taken the powers to do so within two months of the Bill becoming law. I cannot believe that that is the right approach.
Let me make it clear that I totally support the concept of community involvement in schemes of this sort, and indeed I have some sympathy with those who were asking in the last amendment why it was being limited to onshore renewables. We have heard that it may be extended to offshore later. In France, local communities are incentivised for major nuclear developments by being given cheap electricity. It is provided for the whole of the surrounding area. That is an extremely effective form of community involvement. It does not mean ownership, but it is something that provides a considerable community benefit. I am not suggesting that we should necessarily imitate that here, but again I totally support the notion of getting communities involved, as it were, emotionally rather than politically or financially, in the success of local energy schemes. Indeed, as noble Lords have suggested, this might even go wider than energy. However, to hang over the head of industry the threat that if it does not, it will be subject to a legislative straitjacket, is a deplorable misjudgment of the way industry behaves. I look forward to hearing my noble friend’s response.
The Duke of Montrose (Con)
My Lords, I have considerable sympathy with what my noble friend Lord Jenkin has said, but I wonder if I might be allowed to introduce a small element. This is the first clause we have considered on the question of energy generation, and it also happens to be the main clause in the legislation that will apply to Scotland. Moreover, I always keep an eye open for this particular subject. Can the government ministerial team tell us at what stage it expects the legislative consent Motion to be dealt with in the Scottish Parliament to make sure that what we are passing here will apply to all parts of the United Kingdom?
Baroness Worthington
I thank the noble Lord, Lord Jenkin, for a characteristically thorough, thoughtful and detailed speech on this very important issue. I hope that if I attain his high level of expertise, I will be able to make similar speeches during my time in the House of Lords. I look forward to the Minister’s response. Some very important points of principle have been raised. Indeed, we aired some of the same concerns when considering the previous group of amendments. I support the noble Lord, Lord Jenkin. He sought to point out that essentially this feels like a solution in search of a problem. There is a predetermined view which says, “This is what we want to do, so now let us do it”, on not a great deal of evidence and the potential to send a rather unfortunate message to an industry that should be encouraged to expand. Given the Government’s usual approach to regulation as reflected in their Red Tape Challenge, which insists that if a new regulatory burden is put on an industry another one should be taken away, can the Minister tell us which of the renewables industry’s current regulatory impediments is going to be removed in order for this to be introduced? This is an impediment on industry. I am very grateful to the noble Lord, Lord Jenkin, for quoting Ofgem. That confirmed the fears I had. How is this to be administered? Will it be able to be enforced? What are the costs involved in doing this? Is it justified by any evidence that there is a problem that is not being addressed through the much more flexible, creative and, I hope, successful voluntary approach?
I strongly support the noble Lord, Lord Jenkin, and his opposition to the clause, which I am sure is designed to elicit reassuring comments from the noble Baroness that this is not a straightjacket that the Government are rushing to introduce and that we can take some time to get this right.
Baroness Verma
My Lords, I am extremely grateful to my noble friends Lord Jenkin and the Duke of Montrose, and to the noble Baroness for her contribution. This debate on Clause 26 allows me to lay out why we consider that what the Government are doing is absolutely the right approach. At the same time, I will address the matter of my noble friend’s Amendment 98AB, which seeks to delay commencement of the provisions by two years.
As we all agree, shared ownership is a key way to galvanise support and acceptance from local communities. That is critical for the future of the renewables industry. I have said previously that this Government have set out a logical and sensible approach to achieving that, first, through a voluntary means. Then, only if that is not successful, would we consider bringing forward legislation—and that only following a formal consultation.
With that in mind, I will respond to the points that my noble Friend Lord Jenkin raised today. First, I do not agree that the Government do not trust industry to deliver the voluntary approach. As I said before, the Government have set up an industry-led task force to drive an increase in shared ownership. We hope and believe that shared ownership will be achieved in that way. If we do not trust industry, as my noble friend suggested, why would we have set up a task force in the first place? I welcome the fact that the Shared Ownership Taskforce is—
Lord Jenkin of Roding
I should have explained that the question of the Government giving the impression that they do not trust industry is something of which I was informed by RenewableUK. One of its senior officials is a chairman of the task force. I have to assume that she understands that lack of trust as well. Perhaps she did not put it in her report but nevertheless her organisation made it perfectly clear to me that that is how it interprets this threat of legislation.
Baroness Verma
I am grateful for my noble friend’s intervention but reiterate that we are working closely with industry. That work, through the Shared Ownership Taskforce, is going well. We commend the publication of its draft report. However, it would be naive to expect all those in industry to welcome this with open arms. Taking legislative powers has helped bring this matter to the forefront. The possibility of legislation has encouraged industry to take this matter seriously and provide the commitment necessary for the voluntary approach to succeed. The Government’s firm view is that the backstop powers are needed precisely in order for the voluntary approach to work. It is basically a call to action.
My noble friend made the point that there is nothing stopping Government legislating, even if the voluntary approach works. I would like to be absolutely clear that that is not our intention. The backstop powers would be exercised only if the voluntary approach does not succeed. In determining success, we will be guided by the task force and the outcome of its review in 2015. The Secretary of State for Energy and Climate Change addressed the task force to reassure it on that point. In addition, he provided further reassurance that, in order to give sufficient time for the voluntary process to take effect, there was no intention of exercising any power before 2016, if at all. In the Queen’s Speech debate in the other place, he reiterated this point:
“Since we are pursuing a voluntary approach, the power in the Bill is a back-stop. The community energy sector was clear that the voluntary approach should be given a chance to succeed, and I agree”.—[Official Report, Commons, 5/6/14; col. 139.]
Baroness Worthington
This reminds me of a debate that we had on the Energy Bill, where there was a similar backstop measure. On the decarbonisation target, for example, we were asked to accept a form of wording that said it could not be set until 2016. Perhaps something like that could be formulated for this Bill to give people reassurance that the intention is that it will not be done until 2016.
Baroness Verma
As with all things, I listen with great care and will, of course, having done that, discuss this with my officials. If we can improve the writing of legislation, I am always happy to look at that. However, I reiterate that this is basically a backstop power. We expect industry to deliver, but let us not be naive: there will be parts of industry that do not and will not, and we therefore need to have that measure in place. Finally, exercising this power would, of course, be subject to affirmative resolution procedures and would therefore require the consent of both Houses.
The Delegated Powers Committee’s view is that these provisions are not inappropriate, in particular since they provide for the affirmative parliamentary procedure to be used. The committee hoped that we would provide as much information as possible on the shape and content of secondary regulation, and we are currently considering what we can do to satisfy this. As I am sure my noble friend is aware, when I am asked by the Delegated Powers Committee, I try my level best to ensure that as much information is available to it as possible.
I have spoken previously about the importance of not prejudicing the models coming forward through the voluntary approach and the outcome of any formal consultation. It is for these key reasons that we have not set out the finer details of implementation within primary legislation. However, I take on board my noble friend’s concerns and hope that I can offer him some comfort. We are currently considering the recommendations of the committee and, in particular, whether we can provide further briefing on what any secondary legislation might look like. The Shared Ownership Taskforce is due to publish its final report in October. Following that, we could consider how its final approach influences the details of implementation, but going any further than this now could prejudice the outcome of the task force’s consultation, which we would be loath to do. I hope to provide an update to the Committee on this matter before Report.
The amendment proposed by my noble friend would introduce a two-year delay to the commencement of these provisions, which I do not believe is the right approach. I will set out a few reasons for that. First and foremost, the current timescales associated with the voluntary and mandatory approaches are aligned. The policy as a whole creates the right impetus and drive to achieve our objective of substantially increasing shared ownership from next year. The potential to introduce backstop powers is intended to nudge industry to ensure that the voluntary process is sufficiently robust, but it also sends a very clear signal that we want to see offers to communities being made on the ground from 2015.
By contrast, the approach proposed by my noble friend would mean that when the voluntary approach is reviewed in 2015, if it were found to be unsuccessful, it could be at least until the end of 2017 or early 2018 before the powers could come into force. This would follow a formal consultation and the development of secondary legislation which is inconsistent with the approach set out in the community energy strategy.
The Duke of Montrose
The reason I raised it is because renewable energy is a devolved matter and there is always this conflict in the energy area about whether it is a renewable energy question or a fossil fuel matter.
Baroness Worthington
Will there be any regulatory deregulation on the renewables industry to compensate for these new regulatory powers? What are the administrative and cost implications of this for how we are going to police and monitor it?
Baroness Verma
I apologise for not being able to respond to the noble Baroness. I had a note to say that I would be writing to her because it was a detailed question. I will ensure that Members of the Committee get a copy.
I hope that I have been able to reassure my noble friend Lord Jenkin as to why Clause 26 should stand part of the Bill and convince him that delaying commencement of these provisions is not the right approach.
Lord Jenkin of Roding
My Lords, I take some comfort from what my noble friend said in response to this short debate. She said she will do her best to see that we get some indication of what is going to be in the regulations, and I very much welcome that. I understand her argument about not wanting to tie herself down. The Government would tie themselves down by taking a legislative power or even indicating legislative powers some years before they have to become operative because there may be many lessons to be learnt before that time. It is quite clear that we are going to have return to this on Report.
I was slightly surprised and disappointed that my noble friend told the Committee that we are not going to get the final report from the task force until October. It is having a consultation phase—and I refer to the first page of the task force draft report—before publishing the final report in September, because the task force would like to seek wider views. The difference between September and October is quite crucial, because we will resume the sittings of this Committee in October, perhaps within a day of reassembling. That will be followed in due course by Report, at which stage we will presumably wish to come back to this, having moved beyond this part of the Bill. So this is really rather important. I hope that my noble friend might be able to convey this to the chairman of the task force. She said September, and there are people in the House who would like it to be September. It should not be like so much that the department has done and slip from month to month. That is not the right way in which to do things. If you say that you are going to publish on a certain day, that is the date on which you should publish. I find the readiness to accept slippage of that sort, sometimes running into many months, rather distressing—but there we are.
I had one representation this morning from a group or a firm that is anxious that the task force is laying down prescriptive models for community participation. It sees a whole range of other things that it could do, which would achieve exactly the same objective—namely, aligning the interests of the community with those of the investor—which do not appear to be considered at all. It would want to have at least what it calls “shared generation”, in which the commercial operator ensures a proportion of the energy generated from a project is discounted off the energy bills of the houses and businesses in a specified local area. As I said a few moments ago, they have been doing that in France for years with the big nuclear power stations, and it seems to work; it provides precisely the readiness of the local community to host what otherwise might be an unwelcome, large and intrusive investment. It would be entirely appropriate for something like that to be available in these circumstances, so this is a moving scene. The minute that we encompass it in statute, it needs primary legislation or at least amendments to subordinate legislation to widen the scope.
This is unfortunate, but I accept one point that the Minister made. She set out her stall and said that there is a backstop provision in the Bill, so I can now understand why, as she put it, it would send the wrong message if we were now to take it out. I can see that, but perhaps it would have been clever not to have gone down this path at all. We might have relied on the voluntary system to take the whole thing forward and then, if it was not successful, started talking about legislation. However, that is not what has happened. We cannot take this any further this afternoon, but I hope that I have made my views clear.
Baroness Worthington
Baroness Worthington
My Lords, this has been grouped with a similar amendment from the noble Lord, Lord Teverson. It concerns the one and only bit of finer detail that we see in these clauses. The Minister has just said that the Government did not want to do anything that prejudiced the findings of the task force and that they were having a consultation. A lot of helpful information has been provided, but if we are intent on not prejudicing the voluntary approach, the outcomes of the task force or the consultation and do not wish to bind ourselves with finer details, why do we see in this Bill a figure of 5% for the stake being taken in these projects? This amendment asks that question. I beg to move.
Lord Teverson
My Lords, I am rather encouraged that there has been some detail from the Government on this point, and I welcome it. However, I want to understand a little better why this particular percentage has been chosen. My noble friend the Minister held an excellent meeting with us to go through the principles of this part of the Bill. I thought that the figure of 5% must be a minimum amount, but it actually means that it cannot be exceeded. Once you work your way around the language in which the Bill is written, you see that it means the exact opposite of what you might have thought; that is, when the regulations are produced, the minimum percentage that a company must offer should be no more than 5%.
Amendment 94AH is a probing amendment and I am not saying that my suggestion is right, but what concerns me is that if we adopt the attitude—which I do—that it is essentially to put a backstop around the hope that the voluntary schemes work, as my noble friend Lord Jenkin has so strongly advocated, in the end we must make sure that if they do not work, there is a way of ensuring that this style of ownership of these projects can move forward. Yet what we have here, or at least as far I can see in theory, is a provision which will allow the regulations to provide that the minimum should be 0% or 1%. It seems to have the potential to undermine a scheme in that companies could offer very small amounts. I have tried to change the provision by suggesting some more sensible language for it. There should be a straightforward minimum of something like 5% and possibly a maximum of 25% in terms of what the Government’s recommendation should be. Again, I say this within the context that if the public do not want to take up the offer, they will not do so and the whole amount will not be taken up, so the percentage would not be so high.
On the other hand, I can see that allowing too high a percentage as a maximum, if it were taken up for certain kinds of renewable scheme, could involve a very large sum of money—well beyond the ability of a community to meet it. I think that this should be written down in a much more positive way so that we do not have something that must not exceed a minimum. We should have a minimum and a maximum. I have explained this incredibly badly and I should have worked it out before I started to speak, but I think that that is illustrative of how this part of the Bill is written. I apologise to the Committee.
It may not be possible for the Minister to respond to my next point in detail, but I shall ask her about it anyway. There are very strict rules indeed covering the ability of companies to sell shares in their organisation to unsophisticated investors. The Financial Conduct Authority has all sorts of rules around it. I would like to understand how the Government see that important financial legislation working in this instance so that it does not become too burdensome for the energy companies to offer such financial investment opportunities and high barriers are not put in place that would prevent members of the community from actually signing up. I am myself a member of a community energy scheme and it is terribly straightforward. I presume that there may be limits on this and I am interested in understanding how we are going to make sure that it will be something of which individual members of a community can take advantage. The regulatory burden should not be too burdensome on renewable energy companies; it should help them not to transgress against the various rules of financial conduct.
Lord Cameron of Dillington
I oppose these amendments. There are dangers involved. I believe in community involvement in local energy schemes whether voluntary or, if need be, statutory, and on the whole this clause is a good proposal. As I said at Second Reading, financial involvement means that the local community does not get in knee-jerk opposition to a scheme, which is good. However, I have chaired or been on the board of several unquoted companies, and I am very much aware of the power that shareholders owning as little as 10% of the equity can have. They would probably rightly be able to claim a place on the board and by judicious use of their block of shares they can have, if so minded, a fairly negative effect on the progress of the company in question. I have experienced an instance of this where a minority shareholder on the board had an agenda different from that of the rest of the board. It is very difficult to drive forward a company under those circumstances. The shareholder can look for opportunities to block and do deals with other shareholders in a negative way.
We are trying to encourage these energy projects to get off the ground and overcome all the obstacles. Those obstacles are not only planners but energy companies, connection problems, landowner problems and certainly community problems. They all have to be focused upon. If the business involved does not remain totally focused on driving the project and overcoming all these obstacles, it can easily falter and the project will get delayed or, worse still, fold altogether. If a group could compulsorily buy in to 10% or, worse still, 20% of a local energy project, that would easily open the door to spoiling tactics by antis, whether they are anti-fracking, anti-wind, anti-PV or just BANANAs —BANANA, as your Lordships will know, stands for “build absolutely nothing anywhere near anything”. In my view, 5% would be a safe upper limit for community involvement, particularly if it is compulsory, 10% would be risky and 20% would be extremely dangerous for our renewable energy industry.
Lord Jenkin of Roding
I promise I am not going to try the patience of the Committee anything like as long as I did a few minutes ago. If one reads the passages in the draft report of the task force, it recommends a number of different methods by which financing could be organised. One is crowdfunding. That might be quite a good way to raise sufficient money to get the community involved. Perhaps it would not be the whole community or the BANANAs that the noble Lord, Lord Cameron, referred to, and we are all very familiar with them, but enough people for them to turn around and say “For heaven’s sake, shut up because we want this to go ahead”.
That report is quite interesting because financial circles see some difficulty of the sort that the noble Lord, Lord Cameron, has been describing, but this is particularly a case where the widest possible flexibility is needed. We want to see community involvement in infrastructure schemes of this sort, but we should not attempt to prescribe how that should happen. The noble Lord, Lord Cameron, clearly indicated that raising the percentage might offer considerable difficulties. It should be entirely free for a local community or investor to decide how it should be done. That can really only be done under a voluntary system.
Lord Teverson
My Lords, perhaps I may respond to the noble Lord, Lord Cameron, who raised some valid points, but they were over individual shareholdings, which is a separate issue, as opposed to a total collective shareholding. Further regulations could be made around maximum individual shareholdings or defining the control of those shareholdings. That is a fairly regular way in which to do this—aggregating some of these things if they are, for example, vexatious. I accept fully that there is a risk of individual shareholder activism but that is a separate issue to the community being able to have a significant or noticeable stake, as opposed to one that is, in smaller schemes, almost token.
Baroness Verma
My Lords, I again thank all noble Lords for their interventions. I should like to respond to the amendments that relate to Schedule 5, in particular the concern over the maximum size of stake that can be mandated through regulations, which is currently set at 5% of the total capital costs of the renewable electricity facility. I tried carefully to follow my noble friend Lord Teverson’s first intervention. I got slightly lost, so I will go back and read it in Hansard tomorrow.
Baroness Verma
If I do not respond to him today, perhaps I may respond after reading Hansard.
I should like to take this opportunity to explain—and I hope address the noble Lord’s concerns—why we have set the 5% cap and why I am resisting the approaches proposed by both amendments. I am also grateful to the noble Lord, Lord Cameron, for his intervention, which—although the noble Lord, Lord Teverson, suggested an alternative—shows the serious possibility for communities, if so minded, to be able to stop a renewable project by trying to obtain a stake bigger than 5%. Let me develop my argument a little further.
The key reason why a 5% cap has been set in the Bill is to provide certainty to developers now on the maximum size of offer that can be legislated for in the future. While the Government wholeheartedly support community investment in renewable electricity and want to see a substantial increase in shared ownership, it cannot be at the expense of investment in renewables. The 5% cap provides absolute clarity to industry on the upper limit on the size of stake it may be required to offer to communities. Although of course we would welcome developers voluntarily offering more, by contrast the approach taken by my noble friend Lord Teverson who proposed a wide range of between 5% and 25% of the total capital costs of development does not provide any meaningful degree of certainty for industry. As such it could risk deterring future investors in the renewables industry. The alternative approach proposed by the noble Baroness, Lady Worthington, similarly does not provide certainty to industry on the maximum size of stake that could be legislated for in the future, since it leaves this to be defined in secondary legislation.
This takes me on to my second point which is about retaining flexibility. I recognise that the key benefit of providing a range, as proposed by my noble friend Lord Teverson, is to retain future flexibility on the maximum size of offer that can be legislated for in the future. However, the approach that we have taken also provides a sufficient degree of flexibility. The 5% cap represents the maximum that could be required, and the actual amount set in secondary legislation could vary by technology. This is important. We need to bear in mind that the scope of the powers covers a greater than 10-fold range in project size. So a 5% mandatory offer to communities might be appropriate for smaller schemes that have a lower capital cost. However, for schemes with a higher capital cost it might be more realistic to set a lower limit, for example at 1% of total project capital costs.
That takes me on to the size of the stake. It is important, when setting the cap on what may be legislated for, that the amount of investment which may be raised by the community is taken into consideration. Based on this, we consider it likely that if a multi-million pound community stake were mandated, there could be insufficient demand for this within the community even if the geographical area were quite large. That is why we have enabled a cap that would allow the offer of a mandatory stake to be set anywhere up to 5%. This approach ensures that the maximum size of stake required can be broadly aligned with the amount of investment that may be raised by the community. By contrast, the approach proposed by my noble friend Lord Teverson implies that a mandatory stake could not be set any lower than 5%. This would mean that developers could be required to offer a larger amount to the community than could plausibly be financed, particularly for larger schemes with a very high capital cost. In addition, raising the threshold to 25% may have a similar effect. Furthermore, under the Companies Act 2006 a level of 25% of shareholder equity ownership has the potential to block a special resolution. The purpose of these provisions is not to mandate that the community has a controlling stake.
That is not to say that we should not encourage developers to offer a stake greater than 5%. I would like to emphasise that this Government would fully support developers choosing to offer more in circumstances where that is appropriate. However, we do not feel that it is right to mandate this size of offer to communities since it could have such fundamental implications for project financing. The position on a 5% cap is supported by RenewableUK, the trade association for wind, which described it as an “ambitious objective”. In respect of setting a higher limit it states that this, “would simply delay a developer’s ability to secure investment from institutional and other investors”.
My noble friend Lord Teverson asked about the rules set by the Financial Conduct Authority. While developers will be required to comply with all Financial Conduct Authority rules as they are set, it would be inappropriate to change or relax those rules as they provide important safeguards for individual investors. Having introduced some clarity in this area, I hope that the noble Baroness will feel able to withdraw her amendment.
Lord Teverson
I thank the Minister for that reply. Again, I apologise for having explained my amendment quite so badly. I accept the point about a special resolution within company law but that would require a block vote and I just do not see that happening. I think that it can be responded to by perhaps having in regulations a maximum individual shareholding. Also, it is not as if this is an IPO. If a certain number of shares are offered, it is not death for the company if they are not all taken up. They can be taken up by other investors, such as perhaps institutional investors. I do not see that as being a problem in this particular case. However, I understand that the numbers I have suggested are not exactly right, and indeed I welcome the fact that we are bringing this forward in any case. I will not press my amendment.
Baroness Worthington
I thank the noble Baroness for her response and all noble Lords who have contributed to the debate. Obviously the schedule to which these amendments apply provides quite a wide range of what a stake equals. It does not always mean that someone is taking shares in a company. It is not always going to be the case of a company owning the individual project. In fact, I am sure that what will be more common is very large companies having to create new instruments for individual projects, which will then enable the community to take part in them. I hope that the fears expressed by the noble Lord, Lord Cameron, would not be an issue of great concern in practice.
I still think that it is quite odd that in such an enabling piece of legislation which is meant to be a backstop for a voluntary approach, we have quite a prescriptive definition of the level of the stake. It is clear from the schedule that many other aspects of what that stake is are completely open and flexible on what might be included, and yet here we have the figure of 5%.
I am always nervous when I see numbers like that in primary legislation and I just hope that there will be sufficient flexibility so that it can be reviewed if necessary.
I do not want to reopen the debate, but the very fact that you need to create comfort and certainty for this class of investors in infrastructure indicates that this is not something that they are embracing with open arms—not because they do not want community involvement but because they fear that the Government’s approach is too limited and inflexible to give them the range of possibilities that they want. However, I am very happy, on the basis of the Minister’s response, to withdraw my amendment.
Baroness Verma
ScheduleThe licensing levyThe amount of the levy 1 Regulations may provide for the licensing levy payable in respect of a charging period to increase or decrease over that period.
Basis of amount2 Regulations may provide for an amount of licensing levy payable by a licence holder to be calculated by reference to the size of an area to which an energy industry licence held by that person relates.
Amounts payable by different categories of licence holders3 Regulations may provide for different categories of licence holders to pay—
(a) different amounts of licensing levy, or(b) amounts of licensing levy calculated, set or determined in different ways.Exemptions4 Regulations may provide for a category of licence holder to be exempt from payment of the licensing levy.
Unpaid levy5 (1) Regulations may provide for interest (at a rate specified in, or determined under, the regulations) to be charged in respect of unpaid amounts of licensing levy.
(2) Regulations may provide for unpaid amounts of licensing levy (together with any interest charged) to be recoverable as a civil debt.
Conferral of functions6 Regulations may confer a function (including a function involving the exercise of a discretion) on—
(a) the Secretary of State, or(b) any other person, apart from the Scottish Ministers or the Welsh Ministers.Categories of licence holders7 (1) Regulations (including regulations of the kinds mentioned in paragraphs 3 and 4) may provide for a category of licence holder to consist of persons who hold a kind of energy industry licence specified in the regulations.
(2) The regulations may (in particular) specify any of the following kinds of energy industry licence—
(a) licences granted under a particular enactment;(b) licences of a particular description granted under a particular enactment;(c) licences, or licences of a particular description (including a description falling within paragraph (a) or (b)), granted—(i) before a particular time,(ii) after a particular time, or(iii) during a particular period.Interpretation8 In this Schedule—
“energy industry licence” means a licence falling within section (Levy on holders of certain energy licences)(1);“licence holder” means a person who holds an energy industry licence (whether the person was granted it or has, after its grant, acquired it by assignment or other means);“regulations” means regulations under section (Levy on holders of certain energy licences)(1).”
Baroness Verma
My Lords, the UK oil and gas industry is of national importance: it makes a substantial contribution to the economy and supports around 450,000 jobs. Oil and gas will continue to play a vital part in the energy mix as we transition to a low-carbon economy and will still meet around 70% of our energy demand in 2030. Therefore, it is vital that we maximise our indigenous supply, to put downward pressure on prices, support jobs and maintain secure supplies.
The Government commissioned Sir Ian Wood in June 2013 to review the regulatory regime for the UKCS because, although investment levels are rising and near-term prospects are strong, there are new challenges for exploration and production, and the environment is very different from when production peaked approximately 15 years ago. Production and exploration levels have fallen, and production efficiency has declined.
Sir Ian’s final report was published in February 2014 and included four recommendations for the Government. His independent report estimates that full and rapid implementation of his recommendations will deliver the equivalent of at least 3 billion to 4 billion barrels of oil more than would otherwise be recovered over the next 20 years, bringing over £200 billion additional value to the UK economy.
The Government have accepted Sir Ian Wood’s recommendations and last week published a formal response setting out their plans for implementation. The government amendments before the Committee are the first vital step in implementing those recommendations and will send a clear signal of the changes required to industry practice and the role of the regulator to deliver the benefits he sets out in his review.
Amendment 95ZA seeks to put the overriding principle contained in Sir Ian Wood’s report into statute, which is maximising the economic recovery of offshore UK petroleum. This is to be achieved, in particular, through the development, construction and deployment of equipment used in the petroleum industry and through collaboration among holders of petroleum licences, operators under petroleum licences, owners of upstream petroleum infrastructure and those planning and carrying out the commissioning of upstream petroleum infrastructure.
The Government and industry should work together to maximise the economic recovery of offshore petroleum from the UK. Because of the continually changing nature of regulation, the developing needs of exploration and production in the North Sea, and changes in technology and approaches, we think that the concept of MER UK is something that itself is likely to change over time. We therefore do not think that setting out the meaning of “maximising economic recovery” in primary legislation is desirable, as greater flexibility is required.
We take the view that this is better achieved through a strategy which can adapt to new challenges and the evolving needs of oil and gas regulation in the North Sea. The clause therefore requires the Secretary of State to produce a strategy for enabling the principal objective to be met and places a duty on the Secretary of State to collaborate with industry and carry out his activities in accordance with the strategy. The clause also places duties on petroleum licence holders, operators, infrastructure owners and associates of those persons to comply with that strategy. There is also a duty on those planning and carrying out the commissioning of that infrastructure. The Secretary of State is under a duty to lay before Parliament a report at the end of each reporting period on the extent to which relevant persons have acted in accordance with the strategy.
The second main provision, set out in Amendments 94B and 95ZB, provides the Secretary of State with the power to raise a levy from industry to help fund the costs of regulating this sector. This is consistent with the user pays principle and the Government’s belief that those who benefit from a service should ultimately pay for it. The power is circumscribed in a number of respects. The total amount of the licensing levy payable cannot exceed the costs of the Secretary of State carrying out his relevant functions. The levy cannot be used to recover costs in respect of areas in which a charge is payable under the Gas and Petroleum (Consents) Charges Regulations 2013 as those regulations stand when this provision comes into force. To ensure the costs are proportionate, the clauses also allow for different amounts to be charged in respect of different licences.
Finally, the levy is subject to a three-year sunset clause, which will mean that the levy arrangements are reviewed over that timeframe to ensure the system put in place is fair, effective and efficient in terms of its administrative burden. As set out in the government response to the Wood review, published last week, the Government have committed to contribute £3 million per year to the running costs of the OGA from 2016-17 for five years. This is to demonstrate the Government’s commitment to the tripartite approach to delivering MER UK and a recognition of the importance to government that the OGA is well funded from the outset. The levy will, of course, be net of this funding received from government.
For the avoidance of doubt, noble Lords should note that in due course the Government intend to set up the regulator as an arm’s-length body in the form of a government company. However, in the interim, the body will be established as an executive agency. Therefore, for the present, the legislation refers to the Secretary of State.
The other government amendments in this grouping, Amendments 95ZC, 96ZB, 97A and 98AA, are technical in nature and I do not propose to spend too long on them. Suffice to say that these clauses deal with consequential provision, the parliamentary procedure in relation to regulations, territorial extent and commencement. Amendment 95ZC amends the scope of the power in Clause 28 so that it applies also to the clauses dealing with maximising the economic recovery of UK petroleum, the levy on holders of certain energy licences and the relevant schedule. Amendment 96ZB amends Clause 29 so that if we amend the reference to the Gas and Petroleum (Consents) Charges Regulations 2013 as set out in the primary legislation, we would have to use the affirmative procedure. Amendment 97A is required because the Wood review amendments are to have GB extent. It also contains an amendment in relation to the extent of the Extractive Industries Transparency Initiative. Amendment 98AA relates to commencement in respect of the Wood review provisions and the Extractive Industries Transparency Initiative.
The Government have worked at a furious pace to bring forward the measures for this Bill. However, in doing so, we have not yet been able to publish the regulatory impact assessment which normally, although unfortunately not always, would accompany the introduction of the relevant provisions. It is our firm intention to publish our assessment of the indicative range of potential costs and benefits of these powers prior to Report.
I hope it will comfort noble Lords that the industry is supportive of Sir Ian’s recommendations and has called on the Government to implement them timeously. The policy intent is to reduce regulatory burden, empower a stronger, more capable regulator that can mobilise and catalyse, and enhance the efficiency and co-ordination of activity in the UK continental shelf. The clauses we have put forward in the Bill are a key part of what is required to implement the recommendations. I beg to move.
Lord Jenkin of Roding
My Lords, I give an unreserved welcome to these new provisions. When Sir Ian Wood’s report was published last February, and the industry had had time to absorb its messages, there was almost universal support for his recommendations. I think my noble friend said that the Government have worked at a furious pace, and I recognise that. However, I wish to make two points. First, I am surprised to be told by the industry’s representative body that it was not consulted on the terms of these government amendments. It states that the industry,
“has not been consulted about the nature and format of these MER UK amendments”.
I stress as strongly as I can that in the next stages of carrying this forward—working out the strategy, dealing with the details and all the other matters which will flow from this—the Government simply must regularly consult the industry; otherwise, the good will that has been attracted by the evident swiftness in accepting a very complex and detailed report will evaporate if there is a feeling that somehow the Government are charging ahead and not taking account of what the industry wishes to say. I am sure that my noble friend will give me a very firm commitment that the Government will consult the industry on any further steps.
My other point is based to some extent on my experience as a long-standing member of various voluntary bodies and other organisations. Some years ago, I chaired an Anglo-Norwegian seminar for the Foundation for Science and Technology. The seminar was held at what was then the Institution of Electrical Engineers and was attended by the King of Norway, the Duke of Edinburgh, the managing director of BP—my noble friend Lord Browne of Madingley—and the chief executive of Statoil. A very high-level discussion took place between the British and the Norwegians on not just the North Sea but, of course, the Barents Sea. It was a fascinating morning and I certainly learnt a great deal. I chaired much of the meeting and the noble Lord, Lord Broers, chaired another part. At one point, one of my honourable friends from the other House asked the two chief executives—my noble friend Lord Browne and the Statoil CEO—what their highest priority was. The answer was, “fiscal and regulatory stability”. They make long-term investments and changes in the tax system or the regulatory system do enormous damage in undermining willingness to invest.
That event was followed, a week later, by the then Chancellor of the Exchequer, the right honourable Gordon Brown, imposing a substantial additional tax on the industry in the North Sea, which caused huge dismay. Other Governments have done the same in the past, so it was not unique, but it was a remarkable example. Having been told that the highest priority was stability, the Government made a significant change on that sort of thing, with no notice. It really was a very astonishing response.
Baroness Worthington
My Lords, I thank the noble Baroness for her introduction to the government amendments before us. I shall speak to Amendment 95ZAA tabled in my name and the other amendments grouped with it. The Wood review was a very interesting document. I think that the noble Lord, Lord Jenkin, has alluded to the fact that we are now in the endgame of a 40-year period during which we have been very blessed with an industry that has been able to deliver in a safe and secure way the volumes of oil and gas that have powered our industries and made our way of living possible. It has underpinned everything we do. However, let us be in no doubt that we are coming to the end of that golden era and obviously a lot needs to be decided about what to do next.
We have the Wood review, which is a great report and to be massively commended for having only four recommendations; that is always easy to get your head around. However, the executive summary tells us the story. We have had the equivalent of 42 billion barrels of oil from the North Sea. There are now possibly only another 12 to 24 billion barrels of oil equivalent left. It is clearly a depleting resource. It is common knowledge that it peaked 15 years ago. As a result, we now see our economy being affected. Our ability to raise tax has been severely impacted by this and it has changed the revenues that we see. In fact, the Wood review makes clear that in 2013 the steep decline in productivity of this resource led to £6 billion less in tax receipts. That is not a small amount of money to try to make up. I can see perfectly why there would be a desire to extract the last barrel in order to get every drop out. This is a problem which faces us all as a community. As UK plc, it has been such a big part of our tax receipts over the past 30 to 40 years.
In the context of the Infrastructure Bill, does the implementation of the Wood review’s recommendations give us a strategic direction? Does it show that the Government understand the nature of the problem and are preparing us for the future? I would argue: not yet. There is clearly a need to implement these findings. I should state that being able to provide our own oil and gas as opposed to importing it from far-flung places is obviously of benefit in terms of security of supply, broader geopolitical stability and carbon emissions. Carbon emissions have been well regulated. Indigenous production of the fossil fuels that we still need to use will emit lower levels of carbon than importing over long distances from different parts of the world where the regulations are not governed by us and we cannot be certain of the carbon footprint.
None of that is to say that we should not do this, but because of where we are today, we need to think of the future of the continental shelf and what it will deliver for us in the next 40 years. It is quite clear that if we are to benefit from a new industry, it will be carbon capture and storage. In fact, it is mentioned in the Wood review. The purpose of tabling Amendment 95ZAA is simply to put in the Bill the recognition that we are in transition and moving to a new era where no matter how much we skirt around it, the oil and gas are running out. That problem is not explicitly stated or put front and centre of the Wood review, for probably good reasons. However, the issue is not that it is a fractured and small industry with 300 wells and a number of different companies. It is just that the resource is dwindling. We can make ourselves more efficient and increase the rate of extraction, but it will not be around for ever.
It is important that the Government of the day should realise that we need to start investing now in what will be the future industry. Carbon capture and storage provides us with a potential source of revenue and a very important tool in the armoury of the low-carbon economy. We know the Government are committed to that, but we would like to see more emphasis being placed on it. In government, we certainly would put that emphasis on it because it is fundamental to our industrial strategy for the UK. There are many ways to produce low-carbon electricity, such as nuclear or renewables. There are not that many way to produce steel, chemicals or cement if you exclude carbon capture and storage. It offers the potential to enable us to fully decarbonise our economy without at the same time de-industrialising and losing those heavy industries to other parts of the world. The key to that is ensuring that we have the infrastructure in place that enables us to build carbon capture and storage technology. I have tabled Amendment 95ZAA merely to raise the issue and ensure that government thinking is in line with this analysis and that there is a recognition that carbon capture, transportation and storage will be a big part of our infrastructure going forward.
The other two amendments are very much probing in nature and relate to the broader question of whether maximising economic recovery is compatible with our climate change commitments. As I said at the start, I am absolutely clear that there are carbon benefits to indigenous supply, and this is not intended to go against that. However, it is also of concern to people that we often hear rhetoric such as, “Well, if we don’t develop it, we’ll be buying it from somewhere else and that will be a negative thing”. That is only true in so far as the carbon footprint of extracting the asset is lower than if it comes from overseas or other sources. There is nothing inherently lower carbon about extracting the last drop of oil from the North Sea. It may well be the case at the moment, but it might not be in the future. We want to make sure that we are not ignorant of the fact that we are going to have to shift to a low-carbon economy and that there will come a point where oil and gas have to be left in the ground.
We know from the Intergovernmental Panel on Climate Change that we have roughly a 3 trillion tonne international or global carbon budget and that around half of that has already been emitted. At the rate we are going, the remaining half of the budget will be fully emitted before 2040, which is not that far away—and that is to have a safe chance of staying within a 2-degree increase in terms of global warming. At some point the oil and gas industry will have either to commit to full carbon capture and storage of all its emissions or accept that a large proportion of the oil and gas will have to stay in the ground. The reason for tabling these amendments, which as I say are very much probing amendments, is to elicit some comments from the Minister about the longer-term vision and whether we accept and acknowledge that there will come a point when our global carbon budget is exceeded and we need to do things very differently.
Amendment 95ZAC is designed to try to tease out some of the recommendations of the Wood review in a bit more detail. We understand that this is enabling legislation but we felt that it would be good to be provided with a little more detail and some assurances that the Wood review’s recommendations will be introduced.
The last amendment in my name in this group is Amendment 95ZBA, which relates to an aspect of these clauses that the noble Baroness has touched on; namely, the payment of the new regulator. We fully support the idea that this should be an arm’s-length regulator in due course and that it should be funded from receipts from industry. We have tabled this amendment simply to require the Secretary of State to report on when the regulatory body will be fully funded by that levy.
These amendments explore an area which is now the subject of a very important debate. As I have said, we have had 40 years of access to an amazing resource that has led to countless millions and billions of pounds being ploughed into our economy, many thousands of jobs being created and various successful industries being born off the back of it. Those days, I fear, are drawing to a close. There are new ways we can use the continental shelf and what it offers us, and there is infrastructure there which can be reused. Let us be under no illusion: the Wood review was needed because we are in a process of change, and I am sure there will be more changes in the future. I would like to see the Infrastructure Bill, before it leaves this House, fully acknowledge that we are in this transition and put an emphasis on new technologies, new uses of our assets, and the new infrastructure that we will need.
Lord Whitty
My Lords, I want to make just a few remarks on this. I do not quite share my noble friend’s rosy picture of the effect of the oil and gas industry on the British economy. Although benefits were derived from the period during which Britain was an oil producer, it distorted the rest of the economy. That need not necessarily have been the case, had we had a plan to use the proceeds from North Sea gas and oil in a way which developed the rest of the economy. Instead, large sections of the manufacturing sector disappeared. We did not have a clear strategic plan for the totality of the economy although there was a fairly clear strategic plan as regards the exploitation of North Sea gas and oil itself.
I do not wish to prolong that situation during the decline of North Sea gas and oil. We now need to plan for the transition. That is, in a sense, what the Wood report is saying. The mechanism for doing that is in part reflected in these government amendments. They are, however, slightly odd amendments because they effectively propose the basis for a new regulator. As that regulator is not yet in being, reference is made to the Secretary of State. Presumably, the Minister will be able to confirm that at some point down the line we will have new primary legislation which sets up the structure, governance, powers and responsibilities of the new regulator, in which case some of these measures will have to be rewritten not very far down the line. I am not necessarily against that but it means that how the measure is written in relation to the Secretary of State will be different when we have a fully fledged regulator. There will be different parliamentary oversight apart from anything else.
My next point follows that made by my noble friend on carbon capture and storage. It is important to recognise that the continuing use of fossil-based fuels will not be compatible with our carbon targets unless there is some form of carbon capture and storage. Moreover, the North Sea has bequeathed us a significant natural facility for storing that carbon. The whole issue of enhanced oil recovery and the use of that storage for carbon dioxide storage in the future is vital. Indeed, in the whole of Europe, and possibly the world, there is no more obvious place where we could store the carbon produced through the continuing use of fossil fuels, with, I suspect, relatively little local opposition.
When the noble Lord, Lord Cameron, and I were involved in the Select Committee report on European energy, we found that Germany and other central European countries were very opposed to carbon capture and storage taking place among their population and on their territory. However, in Britain we have a real opportunity to offer the totality of the European energy and industrial network the use of those North Sea facilities, which would last a long time. I once asked someone to put a timescale on that but it will certainly see us out and will probably be longer than the period during which we have extracted North Sea oil and gas. It is therefore important that the carbon capture and storage element is written into the strategy and the legislation paving the way to set up a new regulator, as my noble friend’s amendment would do. Therefore, I hope that the Government will accept it.
My last point is tangential and requires the Minister to talk to her colleague, the noble Baroness, Lady Kramer. Amendment 94B and the subsequent amendments seek to establish the provisions of a licence. Some noble Lords may remember that when we started to discuss this Bill a few weeks ago, we talked about a licence for a new highways company. The noble Baroness, Lady Kramer, said that that would all be dealt with in the licence. However, in relation to energy, primary legislation is required to set down what the licence will cover. I think that we need a reply from the Department for Transport at some point as to why we do not need the equivalent in relation to the corporatisation of the Highways Agency into a body that will itself require a licence. The questions that I and others have raised on the nature of this new body have been brushed off by it being said that it will all be in the licence. When we come back to the front end of this Bill, I may start asking those questions again. I do not expect the Minister to answer that now, but perhaps she or her officials could convey that to their opposite numbers in the Department for Transport.
Lord Jenkin of Roding
I shall make a few observations on the speeches that we have heard from the noble Baroness, Lady Worthington, and the noble Lord, Lord Whitty. The Government are pursuing carbon capture and storage. They have put up £1 billion, which will probably not be necessary, and have identified projects that will be supported, one of which is the project at Peterhead, which will use the storage available in the offshore oil field. That is exactly right. I have asked questions in the past about the perfectly good saline caps onshore and why they could not similarly be used; they have exactly the same provision to be able to keep material indefinitely over millennia. Some of them are now being used for gas storage. I was pleased to hear today that there has been quite a significant increase in gas storage in recent years—something for which I and others have been arguing. It is entirely right, as the Secretary of State said in his Written Statement that,
“the principles will apply to offshore activity, however Government intend that the OGA’s remit should extend to onshore—as well as to the licensing activity for natural gas storage and unloading and carbon dioxide storage—and so, working with the respective industry stakeholders and trade groups, we will look to extend the principles accordingly”.—[Official Report, Commons, 16/7/14; col. 74WS.]
I am sure that that is right, but it prompts the question of whether these principles apply to the extraction of natural gas from shale. Different conditions may need to apply. Noble Lords have already referred to the idea of progressively replacing inevitably declining oil and gas resources with the apparently huge availability of shale gas in this country. I do not want to anticipate the debates that we will have in the autumn after the consultation on access to shale gas. However, the fact of the matter is that there are very large quantities indeed. It is interesting that the Bowland shale basin, which has been surveyed quite substantially by the British Geological Survey, is many hundreds of feet in thickness, quite apart from being two kilometres down, or whatever it is. Much of what was being extracted in America has been from comparatively slender deposits of shale. In that respect, we are sitting on a huge potential resource, which will need to be very carefully managed from all sorts of angles—environmental, and everything else. What we hope that OGA will do for the offshore oil and gas industry is to gain knowledge that will be applicable to these onshore developments, to which the Secretary of State referred in column 68 of his Written Statement. Of course he also said:
“Government will work closely with industry and other interested parties in the months ahead to undertake this work and ensure we are ready to put legislation on the additional powers before the House in the first Session of the new Parliament”.—[Official Report, Commons 16/7/14; col. 75WS.]
That is keeping up with the tradition of having a new Energy Bill every Session.
This is so important, and one has to get this right. Perhaps with the addition of the amendments that the Government have tabled, this is a very important step forward. One has to recognise that this is not inevitable; it has to be very carefully managed, and with the co-operation of the industry, government and eventually the OGA, which is a key player in this, there is no reason why it should not be achieved. I look forward to this with considerable optimism. It is a very good and attractive part of the Bill, and I hope that we accept the Government’s amendments.
Baroness Verma
My Lords, again we have had some excellent contributions. I do not agree with the amendments which have been tabled by the noble Baroness and I will respond to them in due course, but I thought it would be helpful to respond first to the questions posed by my noble friend Lord Jenkin. He said that the industry feels that it has not been consulted on the government amendments. I hope that I can reassure him that the Wood review itself was the subject of nine months’-worth of detailed consultation with the industry and interested stakeholders, which welcomed the recommendations and called on the Government to implement them rapidly. However, we plan to consult further on the additional regulatory powers that the body will have and on matters such as how to apply MER UK to the onshore industry and the cost recovery mechanism to pay for the new oil and gas authority. We will therefore continue to consult industry, and I hope that my noble friend can take that back, saying that industry representatives will be very much part of the discussion.
My noble friend also touched on the issue of taxation. Clearly any sensible approach to maximising economic recovery for oil and gas needs consistency between the regulatory and fiscal regimes. This was a central recommendation made by the Wood review. The Treasury, the industry and the oil and gas regulator should commit to a tripartite strategy to deliver MER UK. In Budget 2014, the Chancellor announced that the Government would conduct a review of the fiscal regime and on 14 July the Treasury launched that review. We will publish interim conclusions with the Autumn Statement. He also mentioned that the scope of the body should include onshore projects such as shale. Although the Wood review focused on actions to maximise economic recovery from the UK continental shelf offshore, Sir Ian did note that there was a strong rationale for extending the remit to the recovery of oil and gas onshore—for example, to shale. I hope that that satisfies my noble friend.
The noble Lord, Lord Whitty, asked about the second phase. It is likely that additional legislation will be required to implement the regulatory powers that were recommended by the Wood review for setting-up the new arm’s-length body. Primary legislation will be brought forward as necessary.
I turn to the amendments tabled by the noble Baroness, Lady Worthington. Amendment 95ZAA would extend the maximising economic recovery principle objective into the important area of enhanced oil recovery. It would also extend the principle of maximum economic recovery to carbon dioxide transport and storage. These are clearly important technologies that must be developed and deployed appropriately, and which will require a significant degree of co-ordination and collaboration between industry, government and the regulator. The EOR is a technique for increasing production from oil and gas reserves. As such, its exploration, development and co-ordination is intrinsic to maximising economic recovery and there is no need for specific provision on the face of the Bill.
The Wood review called for government, industry and the regulator to develop six sector strategies to underpin the delivery of the MER UK strategy. These include a technology strategy that would set out the key areas for progress and development of key technologies such as enhanced oil recovery to maximise economic recovery. The Government believe that the framework we propose is the best suitable means for doing so.
Baroness Verma
“The Extractive Industries Transparency Initiative
After section 8 of the Commissioners for Revenue and Customs Act 2005 insert—“8A The Extractive Industries Transparency Initiative
(1) The Commissioners may do anything which they think necessary or expedient in connection with the Extractive Industries Transparency Initiative in so far as it relates to taxes the collection and management of which is the responsibility of the Commissioners.
(2) In this section “the Extractive Industries Transparency Initiative” means the international initiative of that name which has the aim of promoting openness in the management of revenues from natural resources.””
Baroness Verma
My Lords, Amendment 95 will give HMRC a new function, allowing it to participate in the Extractive Industries Transparency Initiative, which I will now refer to as “EITI”. On 22 May 2013, the Prime Minister announced that the UK will sign up to EITI. This was a key announcement under the UK’s G8 presidency. EITI provides an assurance that companies will publish what they pay for extracting natural resources and that Governments will disclose the money that they receive from this. By joining EITI and encouraging other countries to join the UK will play its part to improve the way revenues from oil, gas and minerals are managed and to make sure that people across the world share in the economic benefits of the natural resources of the countries in which they live. The amendment will ensure that HMRC will be able to participate in this important initiative and is the minimum legislation required to meet the UK’s public commitment to EITI. I beg to move.
Baroness Whitaker (Lab)
My Lords, I must confess that I am rather puzzled by this amendment, as indeed I was by the Prime Minister’s announcement more than a year ago that he and Mr Hollande would both sign up to EITI. EITI was, of course, an initiative by the previous Government with the very commendable aim of ensuring, as the noble Baroness said, that oil industry companies are obliged to disclose their financial transactions and treasuries are obliged to disclose the revenue. It was very commendable because it was initiated for countries where the oil industry was extremely corrupt and made clandestine payments to the Government in exchange for concessions and where taxpayers—if indeed they paid much tax at all as they were too poor—had absolutely no sight of these financial transactions. Now, even the most extreme critic of British capitalism would not, I think, say that anything like that regime obtains here so I am curious as to why we need to sign up to this system, which was entirely meant for developing countries where their resources have proved inimical rather than helpful to their development. It is also my understanding that the revenue obtained from oil companies is easily available from the Treasury in any case, so why this amendment?
Lord McKenzie of Luton (Lab)
My Lords, I put one small question to the Minister. We discussed in the previous amendment a new levy that will be introduced as a consequence of the Bill. Is it envisaged that that levy would be includable in EITI reports and, if so, is it a tax for the purposes of the proposed new Section 8A of the Commissioners for Revenue and Customs Act 2005?
Baroness Verma
My Lords, I am very grateful to noble Lords for their intervention. I shall respond to the noble Baroness, Lady Whitaker, first. We are transparent, but we want to show clear leadership and be part of the growing group of countries signing up to the EITI, which sends a very clear message across the industry globally that we need to have transparency in the oil, gas and mineral sector. By being part of the growing group, we are indicating that UK companies based overseas are committed to the transparency that we expect on our shores here. I do not think that there is any other purpose than to be able to show clear leadership and that it is the right thing to do. We have always tried to be transparent but, as the noble Baroness said, there are countries that need nudges. Perhaps by showing leadership and being part of an ever-extending group of countries wishing to sign up to the EITI, we can show globally that this is a direction that countries that want to show transparency are taking.
I may need to write to the noble Lord, Lord McKenzie, with a more detailed response on his point.
Baroness Verma
“Maximising economic recovery of UK petroleum
After section 9 of the Petroleum Act 1998 insert—“Part 1AMaximising economic recovery of UK petroleum9A The principal objective and the strategy
(1) In this Part the “principal objective” is the objective of maximising the economic recovery of UK petroleum, in particular through—
(a) development, construction, deployment and use of equipment used in the petroleum industry (including upstream petroleum infrastructure), and(b) collaboration among the following persons—(i) holders of petroleum licences;(ii) operators under petroleum licences;(iii) owners of upstream petroleum infrastructure;(iv) persons planning and carrying out the commissioning of upstream petroleum infrastructure.(2) The Secretary of State must produce one or more strategies for enabling the principal objective to be met.
(3) A strategy may relate to matters other than those mentioned in subsection (1)(a) and (b).
(4) A strategy may not impose an obligation which relates to the powers of a person to make commercial arrangements unless—
(a) the strategy imposes the obligation on relevant participants in the petroleum industry, and(b) the Secretary of State considers that the obligation will—(i) stop commercial arrangements made by those relevant participants, or associates of those relevant participants, from having a significant adverse effect on the principal objective, or(ii) reduce the extent to which such arrangements have such an effect.(5) In this section—
“associate” has the meaning given in section 91 of the Energy Act 2011;
“relevant participant in the petroleum industry” means—
(a) the holder of a petroleum licence,(b) an operator under a petroleum licence, or(c) an owner of upstream petroleum infrastructure.(6) For provision about producing and revising a strategy, see sections 9F and 9G.
9B Exercise of certain functions of the Secretary of State
The Secretary of State must act in accordance with the current strategy or strategies when—(a) exercising functions under the other Parts of this Act (except Part 4),(b) exercising functions under Part 4 to the extent that they concern reduction of the costs of abandonment of offshore installations and submarine pipelines,(c) exercising functions under Chapter 3 of Part 2 of the Energy Act 2011 (upstream petroleum infrastructure),(d) exercising any function or using any power under a petroleum licence, and(e) exercising any other function or using any power—for the purpose of enabling the principal objective to be met.(i) to provide advice or assistance to another person, or(ii) to acquire, use or supply information,for the purpose of enabling the principal objective to be met.9C Carrying out of certain petroleum industry activities
(1) A person who is the holder of a petroleum licence must act in accordance with the current strategy or strategies when—
(a) planning and carrying out activities as the licence holder, and(b) making commercial arrangements which relate to the person’s activities as the licence holder (in so far as this does not fall within paragraph (a)). (2) A person who is an operator under a petroleum licence must act in accordance with the current strategy or strategies when—
(a) planning and carrying out activities as the operator under the licence, and(b) making commercial arrangements which relate to the person’s activities as the operator under the licence (in so far as this does not fall within paragraph (a)).(3) A person who is the owner of upstream petroleum infrastructure must act in accordance with the current strategy or strategies when—
(a) planning and carrying out the person’s activities as the owner of upstream petroleum infrastructure (including the development, construction, deployment and use of the infrastructure), and(b) making commercial arrangements which relate to the person’s activities as the owner of upstream petroleum infrastructure (in so far as this does not fall within paragraph (a)).(4) A person must act in accordance with the current strategy or strategies when planning and carrying out the commissioning of upstream petroleum infrastructure.
9D Reports by the Secretary of State
(1) As soon as practicable after the end of each reporting period, the Secretary of State must—
(a) consider the extent to which, during that period, these persons have followed section 9C by acting in accordance with the current strategy or strategies—(i) licence holders,(ii) operators under petroleum licences,(iii) owners of upstream petroleum infrastructure, and(iv) persons planning and carrying out the commissioning of upstream petroleum infrastructure; and(b) produce a report on the results of the consideration of that question.(2) The report may contain other material, including a statement of action which the Secretary of State has taken, or is proposing to take, in response to any matter included in the report (including changes to a strategy).
(3) The Secretary of State must publish, and lay before each House of Parliament, a copy of each report produced under this section.
(4) In this section “reporting period” means—
(a) the period of two years beginning with the day when this section comes into force, and(b) each subsequent period of one year beginning with the day after the end of a previous reporting period.9E Secretary of State’s security and resilience functions
(1) This Part does not limit the exercise of the Secretary of State’s security and resilience functions.
(2) This Part is subject to the exercise of the security and resilience functions by the Secretary of State.
(3) In this section “security and resilience function” means any function which relates to—
(a) the security of petroleum supplies, or(b) the resilience of the petroleum industry.9F Producing and revising a strategy
(1) The Secretary of State must produce the first strategy before the end of the period of one year beginning with the day on which this section comes into force.
(2) The Secretary of State may subsequently—
(a) produce a new strategy, or(b) revise a current strategy,whenever the Secretary of State thinks appropriate. (3) The Secretary of State must review each current strategy before the end of each relevant four year period.
(4) In reviewing a current strategy, the Secretary of State must (in particular) take account of the results of any consideration undertaken under section 9D in respect of reporting periods falling within the relevant four year period.
(5) In this section “relevant four year period”, in relation to a current strategy, means a period of four years beginning with—
(a) the date on which the strategy was issued, or(b) if later, the date on which the last review under subsection (3) was concluded.9G Procedure for producing and revising a strategy
(1) Before—
(a) producing the first strategy,(b) producing a new strategy, or(c) revising a current strategy,the Secretary of State must prepare a draft of the strategy or revised strategy.(2) The Secretary of State must—
(a) consult such persons as the Secretary of State thinks appropriate about the draft, and(b) consider any representations made by them.(3) If, after complying with that duty, the Secretary of State decides to proceed with the draft (in its original form or with modifications), the Secretary of State must lay a copy of the draft before each House of Parliament.
(4) The Secretary of State may not take any further steps in relation to the draft if, within the 40 day period, either House resolves not to approve the draft (a “negative resolution”).
(5) If neither House passes a negative resolution, the Secretary of State may issue the strategy or revised strategy in the form laid before Parliament.
(6) The strategy or revised strategy comes into force on the date specified by the Secretary of State (which must not be before the date when it is issued).
(7) Subsection (4) does not prevent a new draft of a strategy or revised strategy from being laid before Parliament.
(8) In this section “40 day period”, in relation to the draft of a strategy or revised strategy, means the period of 40 days beginning with the day on which the draft is laid before Parliament (or if the draft is not laid before each House on the same day, the later of the 2 days on which it is laid).
(9) For the purposes of calculating the 40 day period, no account is to be taken of any period during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days.
9H “Upstream petroleum infrastructure” and its owners
(1) In this Part “upstream petroleum infrastructure” means—
(a) a gas processing facility,(b) an oil processing facility, or(c) an upstream petroleum pipeline,if and in so far as it meets conditions A and B.(2) A facility or pipeline meets condition A if and in so far as it is situated in Great Britain or relevant UK waters.
(3) A facility or pipeline meets condition B if and in so far as it is used in relation to UK petroleum (including such petroleum after it has been got).
(4) But an upstream petroleum pipeline is not “upstream petroleum infrastructure” if it is a pipeline to which section 17GA applies (petroleum pipelines subject to Norwegian access system).
(5) In this section, the following expressions have the same meanings as in Chapter 3 of Part 2 of the Energy Act 2011 (see section 90 of that Act)—
(a) “gas processing facility”; (b) “oil processing facility”;(c) “upstream petroleum pipeline”.(6) In this Part, “owner”, in relation to upstream petroleum infrastructure, means—
(a) a person in whom the pipeline or facility is vested;(b) a lessee and any person occupying or controlling the pipeline or facility; and(c) a person who has the right to have things conveyed by the pipeline or processed by the facility.9I Other interpretation
In this Part—“current strategy”, in relation to any particular time, means a strategy under section 9A(2) in force at that time;
“operator under a petroleum licence” means a person who is responsible for organising or supervising any of the operations of searching for, boring for, or getting UK petroleum in pursuance of the petroleum licence;
“owner”, in relation to upstream petroleum infrastructure, has the meaning given in section 9H;
“petroleum” has meaning given in section 1;
“petroleum licence” means a licence granted under—
(a) section 3 of this Act, or(b) section 2 of the Petroleum (Production) Act 1934;“principal objective” has the meaning given in section 9A;
“relevant UK waters” means—
(a) the territorial sea adjacent to the United Kingdom, and(b) the sea in any area designated under section 1(7) of the Continental Shelf Act 1964;“UK petroleum” means petroleum which for the time being exists in its natural condition in strata beneath relevant UK waters;
“upstream petroleum infrastructure” has the meaning given in section 9H.””
Baroness Verma
“Levy on holders of certain energy industry licences
(1) The Secretary of State may, by regulations, provide for a levy to be imposed on, and be payable by, one or more of the following kinds of persons—
(a) persons who hold licences under section 2 of the Petroleum (Production) Act 1934 or licences under section 3 of the Petroleum Act 1998 (exploitation of petroleum);(b) persons who hold licences under section 4 of the Energy Act 2008 (unloading and storing gas);(c) persons who hold licences under section 18 of the Energy Act 2008 granted by the Secretary of State (storage of carbon dioxide).(2) No licensing levy is to be imposed in respect of a time which falls after the end of the period of 3 years beginning with the first day of the first charging period.
(3) The Secretary of State must exercise the power conferred by subsection (1) so as to secure—
(a) that the total amount of licensing levy which is payable in respect of a charging period does not exceed the costs incurred by the Secretary of State in exercising the relevant functions in respect of that period; and (b) that no levy is payable in respect of costs incurred in any exercise of relevant functions for which a charge is payable under the Gas and Petroleum (Consents) Charges Regulations 2013 (as those Regulations stand when this section comes into force).(4) In determining for the purposes of subsection (3)(a) the total amount of licensing levy payable in respect of a charging period, an amount of levy payable in respect of that period may be ignored if (during that period or subsequently)—
(a) having been paid, it is repaid or credit for it is given against other licensing levy that is payable; or(b) having not been paid, the requirement to pay it is cancelled.(5) The “relevant functions” referred to in subsection (3) are—
(a) functions under the following enactments—(i) the Pipe-lines Act 1962 (cross-country pipe-lines);(ii) section 3 and the other provisions of Part 1 of the Petroleum Act 1998 (exploitation of petroleum);(iii) Part 1A of the Petroleum Act 1998 (maximising economic recovery of UK petroleum);(iv) Part 3 of the Petroleum Act 1998 (submarine pipelines);(v) Part 4 of the Petroleum Act 1998, in so far as the functions concern reduction of the costs of abandonment of offshore installations and submarine pipelines;(vi) section 4 and the other provisions of Chapter 2 of Part 1 of the Energy Act 2008 (importation and storage of combustible gas);(vii) section 18 and the other provisions of Chapter 3 of Part 1 of the Energy Act 2008 (storage of carbon dioxide);(viii) Chapter 3 of Part 2 of the Energy Act 2011 (upstream petroleum infrastructure);(b) carrying out policy work on matters relating to UK petroleum and its recovery;(c) providing advice and assistance to the petroleum industry on matters relating to UK petroleum and its recovery;(d) collaborating with the petroleum industry on matters relating to UK petroleum and its recovery;(e) acquiring, using and supplying information on matters relating to UK petroleum and its recovery;(f) encouraging development of the petroleum industry in relation to the recovery of UK petroleum;(g) carrying out, or providing advice and assistance to those carrying out, research and development in relation to technology and products relevant to the recovery of UK petroleum;(h) functions which relate to— (i) the security of petroleum supplies, or(ii) the resilience of the petroleum industry;(i) international co-operation on matters relating to UK petroleum and its recovery, including—(i) resolution of disputes relating to the entitlements of different countries in relation to petroleum fields, and(ii) openness and accountability in the management of natural resources.(6) The matters relating to UK petroleum and its recovery which fall within paragraphs (b), (c), (d) and (e) of subsection (5) include—
(a) maximising the economic recovery of UK petroleum, and(b) improving the supply chain of UK petroleum. (7) The amount or amounts of licensing levy payable by licence holders must be—
(a) set out in the regulations, or(b) calculated in accordance with a method set out in the regulations.(8) The licensing levy is payable to the Secretary of State.
(9) Schedule (The licensing levy) (the licensing levy) has effect.
(10) Schedule (The licensing levy) does not limit the provision that may be made by regulations under this section.
(11) The Secretary of State may, by regulations, amend subsection (3)(b) by adding, removing or amending a reference to any regulations made under section 188 of the Energy Act 2004.
(12) In this section and Schedule (The licensing levy)—
“charging period” means a period in respect of which licensing levy is payable;
“licensing levy” means the levy provided for in regulations under this section;
“UK petroleum” means petroleum (within the meaning given in section 1 of the Petroleum Act 1998) which for the time being exists in its natural condition in strata beneath—
(a) the territorial sea adjacent to the United Kingdom, and(b) the sea in any area designated under section 1(7) of the Continental Shelf Act 1964.”
Baroness Eaton
“Renewable heat incentives
(1) Section 100 of the Energy Act 2008 is amended as follows—
(a) in subsection (2)(a)(i), after “operate the plant” insert “, or any person nominated by the owner”;(b) in subsection (2), for “the Secretary of State or the Authority” substitute “the Administrator” where it appears in paragraphs (a), (d), (e), (h) and (i);(c) in subsection (2), after paragraph (i) insert—“(j) make provision about appeals.”;(d) in subsection (3), before the definition of Authority, insert—““the Administrator” means—
(a) the Secretary of State;(b) the Authority; or(c) if the regulations so provide, a specified person other than the Secretary of State or the Authority;”;(2) Omit section 105(2)(a)(vi) of the Energy Act 2008.”
Baroness Eaton (Con)
My Lords, efficiency has been mentioned rather a lot during the proceedings in this Committee today, and I propose a brief amendment that would improve efficiency and increase the opportunity for all to benefit from the government scheme to introduce renewable heat, which will improve the UK’s most important infrastructure—mentioned earlier by the noble Lord, Lord Whitty—our buildings.
The legislation set out in the Energy Act 2008 does not allow for the assignment of renewable heating incentive payments to a third party as is permitted for feed-in tariffs. Indeed, under current powers, only the owner of the renewable heating system can receive payments for the scheme. The result is that while those with access to finance can benefit from the government scheme, those without such access will not be so fortunate. Many of them are hard-working rural families who, by living off the gas grid, have higher energy bills and a greater tendency to be fuel poor. My amendment would give the Government options on how to open the scheme most efficiently and effectively to wider funding. It would allow the renewable heat incentive to replicate the successes that have been seen with the Solar PV that has been installed so widely.
Baroness Worthington
My Lords, I am grateful to the noble Baroness for describing her amendment and will comment briefly on the group. Starting with the last point about making administrative changes to the way the RHI works through the negative process, I do not think that is necessary—we are not there yet and I would not support it. One of the benefits we have had over the last year or two as we have been talking about the RHI is that we have had regular opportunities to discuss the issue. It is definitely not the case that everything is hunky-dory and that we can just forget about it and let it all roll on. There are still some quite important issues, and we will need to return to them and have parliamentary scrutiny over them.
Having said that, it is also true that there are some issues with the RHI that we need to see streamlined. I do not wish to sustain a bureaucratic and complex jungle of regulations, but this is a complex piece of legislation and removing parliamentary scrutiny is not going to resolve that. It is fundamentally about improving the policy over time as we become more comfortable with what the RHI is delivering. The other reason for not supporting that element of the amendment is that, unlike the RO and the FITs, this is money from the public purse and therefore requires a higher degree of public scrutiny.
I was interested to see this amendment last night, but I am afraid that I did not get a chance to speak to the noble Baroness beforehand about the background to it. Not so long ago I was at a party when someone came up to me and said, “We have just installed a renewable heat boiler”. I will not reveal any names, but the person was concerned that in order to get it going, they had had to work around the regulations as they stood because of the restriction on who can receive payments and the fact that it is not the same as self-owned or self-installed renewable technologies. I would be interested to learn about the background to this amendment and certainly I will be interested to hear what the Minister has to say in response to it. It is about flexibility around the finances that are required for what are often quite capital-intensive projects. The funding has to be arranged in a flexible way so that people who do not have a lot of capital upfront are still able to engage with the RHI through arrangements that may not be standard. There is something here that I would strongly recommend the noble Baroness to look at and perhaps come back to us. As I say, it is a simply a coincidence that someone raised this issue with me personally.
On whether Ofgem is the right body to deal with this, well, if we have a Labour Government we will not have an Ofgem, so we can revisit that question then. We will certainly have a regulator, but we will look again at how these things are taken care of. Again, I thank the noble Baroness for tabling the amendment and I look forward to the Minister’s response.
Baroness Verma
My Lords, I thank my noble friend Lady Eaton for her amendment and I thank the noble Baroness for her comments. I know that we have discussed these issues on many an occasion in the Moses Room. Of course we want to make sure that the scheme is as efficient and cost-effective for the taxpayer as it possibly can be. It should deliver the benefits that have been so clearly outlined, which is something that the Government are strongly keen on pursuing.
Perhaps I may respond to my noble friend on using an alternative to Ofgem. We have seen Ofgem already successfully administering a number of schemes for the department through Ofgem E-Serve, including both the domestic and non-domestic RHI, the Renewables Obligation and feed-in tariffs. Ofgem has significant expertise in the area and has experience of running these programmes. It is also frequently evaluated to ensure that lessons are learnt both by the body and the department in order to improve the customer experience and value for money in policy administration. I think that Ofgem is the right body to be the administrator for these tools. The Government want the best kind of body to reach out to consumers. However, I take the points she raised and, listening to the noble Baroness, we have discussed on many occasions how we can improve the process. It is, of course, a complex tool so we need to ensure that it does not inadvertently exclude the very people who we are trying to assist and help.
As with all things, I must look at the upsides and the downsides of my noble friend’s amendment. What I would like to do is take it away and consider it. The amendment seems very sensible, but I would prefer to give it some thought first. Perhaps I may come back to her on Report with some further consideration.
Baroness Eaton
I thank the noble Baroness, Lady Worthington, for her comments and my noble friend for responding so carefully and thoughtfully to my amendment. I appreciate the fact that it will be considered and look forward to hearing her comments on Report. I beg leave to withdraw the amendment.