Oil and Gas: Subsidies and Licensing

Thursday 20th January 2022

(5 months, 1 week ago)

Grand Committee
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Question for Short Debate
15:00
Asked by
Baroness Jones of Moulsecoomb Portrait Baroness Jones of Moulsecoomb
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To ask Her Majesty’s Government what steps they have taken to ensure that (1) subsidies, and (2) licensing decisions, related to the oil and gas industry are not subject to undue influence from outside interests.

Baroness Jones of Moulsecoomb Portrait Baroness Jones of Moulsecoomb (GP)
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First, I apologise for speaking seated; it is because I sprained my knee. Secondly, I welcome the noble Lord, Lord Offord, to his first outing as a Minister, and I look forward very much to his maiden speech later.

Between July 2019 and March last year, government Ministers had 63 meetings with fossil fuel and biomass producers. That is nine times the number of meetings they had with renewable energy companies. That strikes me as slightly odd: a Government who chaired COP 26 and are meant to be switching to renewables very fast are meeting fossil fuel and biomass companies nine times more than the companies they are meant to be relying on to deliver the sustainable future they promise.

As well as the small private meetings, Ministers also attended hundreds of other larger group meetings with fossil fuel companies and their representatives. Fossil fuel producers were present at 309 of these, compared with 60 for renewable energy generators. Again, I do not understand why Ministers are focusing on a polluting industry that we need to shut down rather than renewables—with all the new job opportunities —which we need to grow very rapidly. But there is a clue, because the Conservative Party under Boris Johnson has taken almost £1.5 million in donations from the energy industry since 2019.

I mention this slightly disturbing fact because my intention in this debate is to draw attention to the fact that we live in a corrupt country run by autocratic Ministers who facilitate their friends pocketing large amounts of public money either directly, via government contracts, or indirectly, through putting holes in the regulatory system. We have seen this recently with the fast-track scheme for PPE contracts, the second-jobs scandal involving MPs, and all sorts of lobbying, such as David Cameron on behalf of Greensill. Money buys access, and access gives you everything from subsidies to licences.

The point I am making is that corruption has real-world impacts on government policy and the lives of ordinary people. If you are in the development industry, it might give you changes to planning red tape. If you are in the energy business, it might buy you another decade of profitable polluting while the planet burns.

We have a Government who are keen to support a polluting industry that is equally keen to support the Government. That might be excused if the oil and gas industry was filling the coffers of the Treasury as well as the Conservative Party, but surprisingly that is not always the case. In a recent court case brought by some climate campaigners, the judge acknowledged that in some years oil and gas companies had paid less in taxes than they received in tax breaks. The judge wrote:

“The claimants point to clear evidence of negative taxation flows in particular years; specifically negative tax flows overall in 2015-16 and 2016-17 of £2 million and £359 million respectively.”


The judge quite rightly said that focusing on single years ignored the fact that

“the tax position over the life of the concession is at worst neutral”.

We know that the UK is one of the most profitable countries for the oil and gas industry in the world, but we cannot even be sure that it pays its own way in tax.

The Government will claim that there is no subsidy for oil and gas, as they define fossil fuel subsidies as

“measures that reduce the effective price of fossil fuels below world market prices.”

In other words, the Government are giving the industry millions of pounds in tax breaks, but this is not a subsidy because it does not result in lower prices for consumers—well, that is obviously absolutely brilliant. But if the Government do not like “subsidy”, we could just call it “fossil fuel support”. Our Government do not deny the tax breaks; they just make it clear that this does not lower prices—it just enables the companies to make more profit. In fact, it is so profitable that those making money out of this polluting industry have enough spare cash to give it to the Conservative Party. That is obviously something we need to be concerned about.

Of course, if a previous Prime Minister, Cameron, had not cut what he called the “green crap”, our energy bills would be £40 lower each. Imagine how much lower they would be if he had been serious about insulating homes and expanding cheap renewable electricity, reducing our current reliance on foreign gas.

I will not go into all the details of the donations made by the industry, directly and indirectly, as we would need far longer than the hour that we have just to list them. Our self-regulatory system of government does not stop people buying influence. Civil servants are not around to take notes when a Minister attends a party fundraiser where oil executives have paid £12,000 for a seat at the table. Civil servants cannot know what conversations go on when an MP gets a huge donation to the private office a few months before they are appointed as a Minister in charge of projects that the donor wants to push through. It has happened in the past few years and, to be fair, the Minister I am thinking about stepped aside from a major decision—but only after the media contacted them.

The National Audit Office cannot even get access to Ministers’ WhatsApp conversations with party donors about favoured projects, unless the Minister self-declares that they regard the messages as relevant. Even when Ministers have been taken to court to get those messages, suddenly the phone is broken or lost—or they do a Boris, who claimed that messages were lost when he changed his phone number. It is not very nice, is it, quite honestly? It is shameful.

Last year, we chaired COP 26, but the Government are now dishing out a large number of licences for North Sea exploration. I really do not see how that can be compatible with reducing our greenhouse gas emissions. Generic conditions have to be met, but only on new submissions; as I understand it, projects already in the pipeline get a licence without reference to climate change. How is that possible?

Individuals and companies linked to the oil and gas industries have donated more than £400,000 to the Conservative Party in the past year, while the Government mulled over these new licences. There might be parliamentary rules that stop Peers like me from asking Written Questions about the influence that such donations have on the Ministers making the decisions—which I have tried to do, but was stopped—but it is clear and obvious that the influences is there.

We have an acknowledgement that corruption is rife, the negative impacts on our environment are clear, and I really want to hear from the Minister today how we are going to junk the broken system of self-regulation in favour of a more robust legal system that involves either the police or an end to large-scale donations. The days of having a Ministerial Code enforced by someone appointed by the Prime Minister really should be gone. It does not work when Ministers do not play by the rules.

15:07
Baroness Sheehan Portrait Baroness Sheehan (LD)
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My Lords, I start by welcoming the Minister to his post—it may be a baptism by fire—and thanking the noble Baroness, Lady Jones, for introducing this debate. My views will be pretty similar to hers on this topic.

The compelling scientific evidence tells us that we must act now to curb greenhouse gas emissions from fossil fuels, but we seem to have an oil and gas industry which is resisting the science—not in words, because it is too clever for that, but in deeds. It is an industry that seems to have the various arms of government firmly tucked into its elbow and is leading them astray.

The OGA regulates and licenses petroleum exploration and production in the UK. Three of its 13 board members are shareholders in oil companies, and eight members of the board previously worked in the industry. There are no voices on the OGA board to put the view of climate scientists, workers or NGOs; it is not a balanced board. The Government seem to be similarly tainted. According to the Library briefing, £812,000 was donated to the Conservative Party between 2019 and 2020 by climate sceptics and fossil fuel interests.

Against this background, we must look at subsidies enjoyed by the sector. Of course, the Government insist that they do not give subsidies to fossil fuels, yet the UK’s tax regime makes it the most profitable country in the world for oil and gas companies, according to a report by Rystad Energy in January 2021. Since signing the Paris agreement, the UK has given £4 billion to oil and gas companies—and I thank the NGOs UPLIFT and Paid to Pollute for the figures. In the tax years 2015-16 and 2016-17, the Treasury gave more money to oil companies than it took from them in taxes. Here is a mind-boggling figure: in 2019, the UK received $1.72 in taxes for each barrel of oil, while at the same time and under the same conditions, Norway received $21.35 per barrel of oil. Here is another mind-boggling fact: Shell paid $1.8 billion in tax to Norway in 2020 but received from the UK Government £99.1 million, according to the company’s own annual report on payments to Governments. There are other examples, but time is short and the list is long, so I will move on.

I will quickly mention decommissioning. The UK taxpayer, not the polluters, pays the decommissioning costs of abandoned oil structures. The UK Government call this a tax rebate, but this process meets the WTO, International Energy Agency and IMF definitions of a subsidy. HMRC estimates that the cost to the UK taxpayer will be £18.3 billion—I think that is a gross underestimate. No wonder the risks of stranded assets are not a deterrent to the shameless companies pushing for new licences, because they are a licence to print money. The Government subsidise exploration, shareholders pocket dividends, and when the game is up, the company ups sticks and leaves it to the good old British taxpayer to pick up the tab. Shame on the Government for letting this continue. With vested interests whispering in their ear, it stinks of corruption. None of that tax relief is benefiting workers in the industry or you and me. We do not see the impact on our living costs, our energy bills or at the pump. The RMT union estimates that 12,000 jobs were lost in the industry in 2020. Compare that to Shell receiving £99.1 million in tax from the UK in 2020. The company went on to increase its dividend in 2021, just weeks after announcing plans to cut 330 North Sea jobs, and CEO Ben van Beurden took home $7 million in 2020. The system is rotten to the core.

The Minister will say that we have to protect the sector or we will be dependent on imports of Saudi or Russian oil and gas, but that is just not so. Most of our oil and gas imports come from Norway, and even if more was pumped from the ground, it would have to be placed on global markets and would not benefit UK citizens with lower prices. To reduce volatility and energy costs, the only solution is to produce more home-grown renewables. Put a halt to this madness and help our citizens lower their energy bills and reduce greenhouse gas emissions. Invest in the green transition, get job security for oil and gas workers, and get energy security for the country by moving away from dependency on geopolitically unstable areas.

In ending, I want to go back to the science. The Mauna Loa observatory in Hawaii recorded the highest-ever concentration of carbon dioxide in May 2021. At 419 parts per million, this is the highest since records began. We are in uncharted territory, and the rate of increase of carbon dioxide in the atmosphere is accelerating. The time for arguing and prevaricating is over—we have to stop burning fossil fuels.

15:14
Baroness Worthington Portrait Baroness Worthington (CB)
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My Lords, I congratulate the noble Baroness, Lady Jones, on securing this debate and look forward to the Minister’s maiden speech later.

We can point to donations or meetings, but I would like to spend a couple of minutes focusing on whether the structures of government are perhaps out of kilter with our modern goals for energy. It appears that there are legacy structures and conflicting goals within government that at times are not joined up.

In 2014, the Wood review was published and made a number of recommendations focused squarely on increasing the efficiency of the UK continental shelf in the extraction of hydrocarbons. The review then informed the Energy Act 2016 and ushered in the Oil and Gas Authority, a government-owned company that has taken over a range of responsibilities from government in relation to overseeing developments in the UK continental shelf. This body’s primary objective is maximising the economic recovery of hydrocarbons. It is therefore not necessarily a question of external influence. Rather, we have created a statutory obligation and a body single-mindedly pursuing a very narrow set of goals within our energy policy. It may be occluding the real energy agenda that we should be pursuing.

At the time of the Energy Bill in 2016, we argued that to create a new body with such a narrow remit represented a missed opportunity. It was clear even then that UK plc’s pursuit of barrels of oil and, to a lesser degree, therms of gas from the North Sea was unlikely to be the biggest priority. It is an old, mature field, and the biggest discoveries were all found decades ago. What remain are very risky and expensive fields, which the bigger operators are now finding it is not in their interests to exploit. When we think about energy security and climate considerations in the round, is it correct and right that we should have this body and this statutory obligation that skew our focus, and potentially the focus of Ministers?

The UK is rightly considered a leader on climate change, thanks to both its domestic actions and its role in international negotiations. It does not sit well for a country such as the UK, a very mature economy that has arguably benefited from the exploration of oil and gas over decades, to be seen to be trying to extract the very last drop of oil and gas out of the North Sea without a real economic case for doing so. We have had decades of relatively stable and secure energy provision. We have managed to provide a secure and affordable lowering of our carbon footprint at the same time, which has benefited businesses and consumers. Our oil and gas efforts in the North Sea and the UK continental shelf have not contributed to those goals; other sources in our energy policy do that job far more effectively. We need only look at the sudden spike in gas prices now to see how a policy based on fossil fuels can undermine our ability to deliver affordable energy.

I turn to the international case. The case will always be stated that we need to extract our oil and gas, otherwise we will be importing from other places. But in reality we do not use the majority of the oil production from the North Sea domestically, because our refineries are not fit for the refining of those oils; most of it is traded. On an economic basis, it does not matter where it is extracted—we will all face the global price set in the traded market—so that argument does not really hold water.

Another often-cited advantage to the UK is the jobs. The jobs in the North Sea oil and gas sector are very limited—around 30,000 direct jobs. Just the low-carbon economy today employs 200,000 employees, so clearly there should be a much greater focus on the low-carbon future sources of energy, rather than pursuing this very narrow goal.

We have not really addressed the problem of how a Government can develop a balanced policy fit for UK plc in terms of a large, rather than a narrow, set of interests. The risk is that, given these high prices, there will yet again be a temptation to invite in the fossil fuel experts. We will probably hear, even today, a call for a return to “drill, drill, drill”, and the idea that finding more resources will be the way out.

I argue that that would distort the reality, which is that we have a vast array of opportunities to exploit energy, which go beyond fossil fuels. We have a huge offshore wind industry and, as we have recently seen, we are granting very large licences to that sector. That is where our future lies, and it would be a mistake to invite in a narrow band of experts, yet again, to dictate to us what our energy policy should be in response to the current energy crisis.

I believe that there needs to be another Wood review—an updated opportunity to look again at what our focus should be for our own indigenous energy sources. It is clear that there are huge challenges ahead of us. From my perspective, climate is the largest of them, but equally there is energy security, and there are economic concerns that we have to address. We have huge potential to secure investment in a range of zero-emissions technologies, but we need to focus on that and make it our priority.

We should see the hydrocarbons in the North Sea in that context. They are no longer our greatest asset; if anything, they will be a net drain on the public purse in coming years. We receive very little in taxation. Let us start a review to assess whether the Government have the right bodies and the right powers in place—and if we are to have an energy Bill, let us look again at the OGA and whether the obligation it was given is correct for 2022.

15:21
Lord Lilley Portrait Lord Lilley (Con)
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My Lords, I apologise for missing the first few seconds of the debate; foolishly, I was sitting in the Chamber instead of here. I congratulate the noble Baroness, Lady Jones, on securing the debate. I have always longed to agree with her, since I like her so much, and I do agree with her on the two objectives of the debate. I am against subsidies for the oil and gas industry, as I am against subsidies for renewables. I am also against undue influence being brought to bear on government.

The oil and gas resources with which this nation has been endowed by a beneficent providence are, essentially, the property of the people. It is right that the economic rent and value of those resources should be extracted for the benefit of the people and not given away. I first made myself an enemy of the oil industry when I published a document called North Sea Giveaway, advocating that licences should be not allocated but sold to the highest bidder, so as to extract the economic rent. For a while, it actually changed the Government’s policy. That was before I was ever a Member of Parliament; I had more influence then than I do now. Sadly, it did not continue for ever, and eventually Governments and officials went back to allocating, rather than selling, auction blocks.

Instead of extracting the money that way, they tried to do so by imposing a whole range of taxes—the royalty, the petroleum revenue tax and the supplementary corporation tax, all on top of the basic corporation tax that other industries pay. Since 1975, when oil first began to be extracted from the North Sea—I was then an energy analyst in the City—the oil industry has paid over £186 billion in those taxes to the Government.

Beyond the folly of giving away the licences rather than selling them, the idea that the UK subsidises the oil and gas industry is a nonsensical myth. The £4 billion that the noble Baroness mentioned is not a subsidy. Every industry is allowed to offset the costs it incurs to produce revenues against the revenues that those costs generate. The oil industry is no exception, but in that industry some of the costs are incurred after the revenues have been generated—in particular, the decommissioning costs. It is absolutely normal and acceptable for companies to be able to offset those costs against revenues in previous years. They get back tax that they paid on those revenues that were in excess of their costs. That is normal, and to describe it as a subsidy is, frankly, an abuse of language.

Baroness Worthington Portrait Baroness Worthington (CB)
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I am enjoying this very much, but can the noble Lord comment on the rules that now underwrite those decommissioning costs with taxpayers’ money? As I understand it, that will cost us in the region of £20 billion over the coming years, because we are now underwriting some of those decommissioning costs. Is that not a subsidy?

Lord Lilley Portrait Lord Lilley (Con)
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It could well be but, as I understand it, that is not the £4 billion to which the noble Baroness referred.

Baroness Worthington Portrait Baroness Worthington (CB)
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I am saying the wrong thing?

Lord Lilley Portrait Lord Lilley (Con)
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Maybe. It seems unwise to have got into a position in which the oil companies are required to do something that they cannot and have not been financing, and to take it to the taxpayer. I think that the noble Baroness will agree with me that up to now there has not been a subsidy. If we did not allow the costs of decommissioning to be offset against the revenues that the oilfields generate, we would effectively be taxing rather than supporting the most ecological activity that we require of oil companies; namely, the removal of what they have constructed in the North Sea.

The second thing that the noble Baroness is against is undue influence on licensing. One of the arguments in my pamphlet about the North Sea giveaway was that giving away those huge resources means that the civil servants who decide on it will be open to corruption. Amazingly, in the ensuing years, I found no evidence of that micro-corruption; nor is there any evidence of macro-corruption, in the sense of the oil and gas industries exercising undue influence. On the contrary, the offshore fields are not being developed—Cambo and the other one whose name I forget—and, onshore, hugely valuable shale resources are not being exploited. It is clearly not the oil industry that is exercising undue influence; somebody else must be. It is not those who want to reduce carbon emissions who are exercising undue influence because, by and large, particularly in the case of shale, if we import gas instead of producing our own—that is the consequence of not allowing shale exploration—we incur greater emissions, not just in transport but in liquefying and then deliquefying gas, which is an energy-intensive process.

There are two ways in which we can meet the net-zero target. One is to reduce demand, and the other is to reduce supply. The sensible way is to reduce demand. If you reduce supply ahead of reducing demand, the price goes up, as we are seeing now; the oil and gas companies make undue profits, which will upset you all greatly, and I do not particularly want to see them make undue profits either; and it will cause difficulties to households in the short term, which is what we are experiencing. I hope that we will see more realistic analysis than we have heard so far.

Baroness Sheehan Portrait Baroness Sheehan (LD)
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I want to ask the noble Lord something before he sits down. I bow to his greater understanding of the finances behind pricing of oil. Maybe he can explain why, in 2019, for each barrel of oil the UK received so much less—$1.72 in tax—than Norway’s more than $21 per barrel of oil. On the supply and demand side, would he not say that it is not one or the other? We need to do both if we are to get to net zero in the timeframes that we have set ourselves.

Lord Lilley Portrait Lord Lilley (Con)
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I have not looked at the profitability per barrel and the tax paid per barrel, but I used to do that every day 40 years ago. I assume that it is because our fields are now running down, whereas the Norwegian fields are still far from fully mature. As far as I know, Norway’s tax regime is not hugely different from our own; it was not then. On the question of whether we have to restrict supply as well as restricting demand, no, we do not. If you reduce demand and anyone has supply available and no market for it, they lose money—that is their problem—but if you reduce supply without reducing demand, you raise prices, increase profits to the industry and increase costs to ordinary households.

Baroness Jones of Moulsecoomb Portrait Baroness Jones of Moulsecoomb (GP)
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Before the noble Lord sits down, can I ask him how he thinks demand could be reduced?

Lord Lilley Portrait Lord Lilley (Con)
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You could do all sorts of things to reduce demand for oil and gas—requiring people to spend thousands of pounds on shifting from gas to electric heat pumps, that sort of thing. The noble Baroness knows the answer to her own question.

Viscount Younger of Leckie Portrait Viscount Younger of Leckie (Con)
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My Lords, can we have a little order? Also, I need to remind future speakers that the Minister needs to be speaking by 3.47 pm.

Lord Oates Portrait Lord Oates (LD)
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My Lords, I welcome the noble Lord, Lord Offord, to his place and look forward to hearing his—

15:29
Baroness Boycott Portrait Baroness Boycott (CB)
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Sorry, I thought you were just interrupting the noble Lord, Lord Lilley, to make a point. I, also, welcome the new Minister and look forward to his maiden speech. I much enjoyed the exchange just now. It is worth pointing out that the largest single group at the climate talks was the 503 oil executives, spending the most amount of money to show off their wares.

I shall lay out a few facts. We are, undoubtedly, one of the most profitable countries in the world for oil and gas companies, as the noble Baroness, Lady Sheehan, pointed out. Since the Paris agreement, the UK has granted tax relief of £10 billion. I know that the noble Lord, Lord Lilley, would say that that is just par for the course, but we are trying to aim for a zero-carbon world.

During an exchange last week, the noble Lord, Lord Callanan, posed the question about where we get our oil and gas from, and he asked

“do we use oil and gas products we generate … or do we get them from Russia or Saudi Arabia?”.—[Official Report, 11/1/2022; col. 964.]

The facts are that, in 2020, 54% of the demand for natural gas was met by domestic production, 32% from pipeline flows from Norway and the remainder met mainly by LNG cargoes from Qatar at 12%, the US at 7% and Russia only 3%.

On the climate compatibility checkpoint, according to E3G, the UK continental shelf is a mature, high-cost basin with declining reserves. The basin is oil weighted, with gas making up only 30% of remaining reserves. Even if those reserves could be brought online at speed, the UK would still be exposed to international gas markets and their inherent price volatility. To be clear, we do not need to drill anymore for our domestic consumption. The reason why the gas price is currently so high is because of how the global markets work. Companies that extract it just sell it to the highest bidder, and a lot of the gas extracted from our sites is sold to Europe, rather than being used domestically, even if we have a need for it. The argument that, if we drill more, we will have more, is an oversimplification of the issue. It will mean only that producers sell more and, due to the low domestic tax rates, there will be negligible difference to the Treasury. Our Government would have to directly intervene to ensure that domestically produced gas is used in the UK, and to date we have made no signals that that is something we are willing to do.

On the other part of this question, lobbying and licensing, the Times reported that Kwasi Kwarteng met industry officials in the days after COP to urge them to keep drilling in the North Sea, despite what was actually said in Glasgow. How is that compatible with our goal? Afterwards, on 20 December, the Government published a consultation on a new climate compatibility checkpoint, which will govern our new licensing rounds. Did the Government meet oil and gas executives to discuss this consultation before it went public? Surely, they should see that at the same time, everyone should be allowed to feed into the general discussion. For example, the document states that, for the purpose of licensing, it is not practical to separate oil from gas and that

“we understand that, for many fields, a mix of hydrocarbons (both gas and oil) is usually found, and it can be difficult to predict which reservoir fluids will be encountered at licensing stage. For that reason, we have rejected the idea that oil and gas could be licensed separately”.

However, it is not clear how or why the Government have reached that decision. We know that Cambo, for example, is—or, one hopes, was, in the past tense—going to be drilled for oil. So how have the Government got there?

This is an important point because, although we can expect continued domestic demand for gas during any transition, we already export 80% of our oil, so further extraction is just adding to global supply rather than quenching domestic needs. If that was discussed before the checkpoint was published, there is a clear conflict of interest. Oil and gas companies would obviously be in favour of tying them together, as to separate them would affect their profits. So while it is welcome that we have a consultation proposing consideration of production gaps, other parts of it raise suspicion that this is a tick-box in green-washing. “Consideration” is a really weak word.

Finally, on the current energy costs and the cost-of-living crisis, it is likely to become dire without government intervention, but I challenge the argument that this is because we do not have enough fossil fuels to burn. It is because we do not have enough renewable energy. If there had not been an effective moratorium on onshore wind since 2015, for example, our bills would now be lower. Bills are not high because of the green levies; they have been decreasing, and account for about 3% of gas bills. They are high because, as other noble Lords have mentioned, we have uninsulated homes. If the green homes grant had been better implemented, people would have lower bills. It is easy to see high bills and think that we need more of the product that is causing it but, actually, we need to quicken our transition away from it. Fossil fuels have always been volatile, whereas renewables have consistently become cheaper as well as better.

15:35
Lord Oates Portrait Lord Oates (LD)
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My Lords, I apologise to the noble Baroness, Lady Boycott, for stepping in. I welcome the noble Lord, Lord Offord, to his place and look forward to his maiden speech. I cannot help noting, although I am very pleased we heard his point of view, that the noble Lord, Lord Lilley, was allowed to speak having arrived about three minutes late, when only recently in a debate on the nuclear industry, the noble Baroness, Lady Bennett of Manor Castle, was refused the opportunity to speak despite arriving at almost exactly the same time. There cannot be one rule for members of the governing party and another for members of the Opposition. I hope the Government Whips will take note of that. However, I am glad we heard from the noble Lord.

The urgent need for the North Sea industry is not further subsidies or contradictory policy-making by a Government who on the one hand say that they are in favour of net zero and on the other continue to endorse the maximum economic recovery policy. The urgent need for the North Sea industry is transition. If there are tax breaks and subsidies, they must be directed at transitioning that skilled workforce out of the oil and gas industry, because that fossil fuel industry is coming to an end. That is what will happen. It is the reality, and those who think they are standing up for workers in the industry by backing further drilling are simply sending people down a blind alley.

As I mentioned during debate on the Financial Services Bill, the last part of my title—Lord Oates of Denby Grange—is taken from a colliery in Yorkshire where my grandfather and uncles all worked as coal miners. I have great respect for the people who work in the fossil fuel industry; they powered our industry and heated our homes, often working in very dangerous circumstances. However, we know what happened to the coal industry: it came to a dead stop. There was no proper transition and, as a result, communities were stranded and suffered massive social and economic deprivation that remains to this day.

Let us not pretend we are doing any favours if we go down this maximum economic recovery route and keep going until the dead stop happens. It will happen; as the International Energy Agency has stated, we cannot burn all the reserves we have already identified if we are to have any hope of keeping to 1.5 degrees. We cannot do it. The argument of the noble Lord, Lord Lilley, is that we have this stuff so let us burn it. If everybody else takes the same view, we will get nowhere near even 2 degrees but go far beyond it. That is not a problem for the noble Lord, because these things do not matter to him. He thinks the whole net-zero thing is ridiculous and absurd, and he calls anyone who stands against that an eco-fanatic. But, for those of us who care about it, there must be a logical policy.

The Government have set ambitious targets for net zero which the Liberal Democrats welcome. However, it is no good having those targets if your policy tools contradict them. Maximum economic recovery in the North Sea, and the tax subsidies, absolutely do that. The noble Lord, Lord Lilley, said that the reserves in the North Sea should be used for the benefit of the people. The benefit of the people would be to keep those reserves where they are, not to burn them. It would certainly be to the benefit of future generations.

Lord Lilley Portrait Lord Lilley (Con)
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How long—or how shortly—does the noble Lord think it will be before we cease to use gas, both to heat homes and as the natural source of power to deal with the intermittency from renewables? Most people think we will still be using it in 30 years’ time.

Lord Oates Portrait Lord Oates (LD)
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We have to transition away from using it by 2050, or at least without abatement of it. Exploiting the North Sea resources when we are trying to lead the world is not going to work. It is rank hypocrisy, and it is deeply damaging.

Let me just pick up on the point that the noble Baroness, Lady Boycott, made about energy costs. It is a complete fallacy that the way to reduce energy costs is by scrapping all the green levies, as the GWPF and other people want to do. If you look at what happened to energy costs between 2010 and 2020, in terms of the bills that people paid, you see that total household expenditure on energy fell. It did not rise. One of the reasons it fell was because the levies funded insulation of properties and measures to reduce consumption. Consumption of gas and electricity fell significantly during that time. In fact, the eco levies save people money.

I understand the position of the noble Lord, Lord Lilley, of not worrying about net zero. I do not understand the Government’s position, because they claim to worry about net zero but take actions that show the exact opposite.

15:41
Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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I take this opportunity to welcome the noble Lord, Lord Offord, and to wish him all the best with his maiden speech. As a fairly new Member, a maiden speech being made in these circumstances is a first for me. It feels as though he is jumping in at the deep end here, but I look forward to hearing his contribution. I thank the noble Baroness, Lady Jones, for securing the debate.

Time is extraordinarily limited. We have so much to discuss in this hour and we are not going to do it, so I do not want to cover too many of the points that have already been made, other than to recognise the seriousness of the examples that the noble Baroness, Lady Jones, and others gave of where things are going seriously wrong in the whole debate about what a subsidy is. The Government might have a technical definition of a subsidy, but there are certainly other means of getting money where it needs to be which distort the market, lower the price and make fossil fuels a much more positive option than they need to be.

In the limited time I have, I want to turn first to the very nature of the debate. Running through all this is transparency. We have so many examples of where undue influence is being brought to bear, and that lack of transparency in so many areas of public life now is becoming a real scandal. This debate fits very well into that area.

The other important area I want to dwell on is the whole issue of the plan that we need to get to net zero. It is all very well talking about where we will be in 2050 and what it will look like, but we need to know what it will look like in 2022 or 2025. The year 2030 is obviously recognised as a critical date, but the plan really is missing. For example, I took part in the debate on the Subsidy Control Bill last night. Where is the plan which says that if we are investing and giving subsidies to any range of interests, the recipients have to demonstrate that they are joining the collective effort towards net zero? I am afraid that the absence of this in government policy and the lack of costing of what it is actually going to take gives me deep cause for concern.

This is against the backdrop of the impact not only on the planet but on individual households and families, the cost of living crisis, the choices that people are making on whether they heat their homes or feed their kids, and the crisis we saw with the break in deliveries from the shortage of drivers. It is that lack of resilience and forward planning, and the whole issue of security that is wrapped around it, that I do not believe the Government are really taking seriously enough.

The other issue is the obligations that we came to from COP 26, and there is another dimension to this. Although the outcomes were lauded as some degree of success, there was watering down from other countries across the world. While we must look at local imperatives, we need also to look at the global imperatives. We have some really important discussions about trade deals coming up. Are we making sure that those countries that failed to sign up fully to COP 26 will receive our full influence?

We can talk about government action, but the Government need to empower those out there who can actually make the difference. I draw your Lordships’ attention, if they have not already seen it, to the letter from the CBI, the TUC and different green groups to the Government suggesting a really practical way forward. Until almost a year ago, I was the leader of the second largest local authority in the country, and there is a lack of powers going down to local level, where the differences can be made by reducing energy consumption and through planning and transport powers—all the things that can really make the difference and reduce our dependency on fossil fuels.

I highlight one of the asks from the letter, which is that the Government establish a cross-government initiative to review all those policy areas. Is the Minister aware that such a cross-government initiative has been set up? Do different departments of government talk to each other and say, “If this department does that, the knock-on impact will be something else”? Those are the collective actions that everyone at local level has been charged with taking for many years, but the Government are falling down.

I urge real focus to go to those areas that can assist this agenda. The clock is well and truly ticking. As the noble Baroness said, the debate about corruption is absolutely at the top of the agenda. What is being done to address what we collectively are doing to enable our dependency on fossil fuels, and all the corruption to which it leads? When will we see a real road map to achieving net zero by, at the very latest, 2050?

15:48
Lord Offord of Garvel Portrait The Parliamentary Under-Secretary of State, Scotland Office (Lord Offord of Garvel) (Con) (Maiden Speech)
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My Lords, it is a great honour to be here to make the final contribution to this short debate today. As a newly appointed Parliamentary Under-Secretary of State for Scotland, here I am making my maiden speech in this House.

Allow me to start by thanking noble Lords for the great welcome you have given me in this place, my supporters—my noble friends Lord Kirkham and Lord Forsyth of Drumlean—Black Rod, the Clerk and, especially, the doorkeepers, who look with great amusement at me as I wander around the place in circles. I should also give special thanks to my mentor and noble friend Lord Leigh of Hurley, and to my Whip and noble friend Lord Younger of Leckie, for sharing their invaluable knowledge of the workings of your Lordships’ House. We have an important debate to discuss this afternoon, but just before I do, I think it is customary on these occasions to spend a little moment on some personal matters, so let me get those out of the way now.

I was born in a modest but homely tenement at 33 Bank Street in Greenock, an industrial town west of Glasgow on the Firth of Clyde. I was educated at my local schools, Ardgowan Primary and Greenock Academy, and I got a first-class education for free. I am not the first alumnus of that school to be associated with this House; my noble friend Lady Goldie of Bishopton was a distinguished head girl of Greenock Academy, as indeed was the wife of my noble friend Lord Leigh of Hurley. I was dismayed when my old school was closed in 2011, having been founded in 1855. It was determined by the local council that, with Inverclyde depopulating post industrialisation, the schools needed to go down from eight to six, and it was decided that it conferred too great an advantage on the students who went to that school to study there, so it was closed. Surely that is an egregious example of levelling down in Scotland, and it was a personal motivator for me in joining this Government to support the levelling-up agenda.

So, why Lord Offord of Garvel? If you walk down Bank Street, where I was born, past the Wellpark to my local parish church, the mighty Mid Kirk, and cross the road past the magnificent Georgian Custom House on the Clyde, and then turn right along the river, you will come to Garvel Point. Garvel has long been a landmark in Greenock because it is where the deep water is located, and it was originally a safe harbour for the fishing fleets before the first industrial revolution transformed the town into a thriving trading port and shipbuilding hub. Greenock’s most famous son is the inventor and engineer James Watt, and the dock which bears his name today remains in use at Garvel Point. In fact, two of the three dry docks on the Clyde were located at Garvel, and a recent renovation project has repurposed one into the award-winning Beacon theatre.

That brings me neatly to the Question before the Committee today. One of my first ministerial duties was to participate in COP 26 in Glasgow—how fitting that the world came back to the Clyde to seek new solutions to this climate emergency. What a tremendous achievement of the UK’s two-year presidency it was to increase the global commitment to net zero from 30% to 90% of world emissions. Some say that the UK has a limited role to play in climate change as we account for only 1% of world emissions. Yet COP 26 proves that our leadership still counts, because we can demonstrate that it is possible simultaneously to grow our economy while cutting our emissions.

This is what I learned at COP 26: we have the capital, the brains and the political will to meet the climate challenge. Participating in the Net Zero Technology Centre forum—funded by the Aberdeen City Region Deal—I was so encouraged to hear technologists from the oil and gas sector in Aberdeen collaborating with Houston, Calgary, Perth and Canberra as they repurposed their assets and people into low-carbon energy sources.

How gratifying it is that Scotland has such a prominent and world-leading role to play in rebalancing the UK’s energy programme to net zero by 2050. We have all the natural resources and the existing infrastructure, plus the scientists, engineers and skilled workforce required to build a balanced scorecard in energy. Scotland contributes 60% of UK wind and 40% of the 160,000 highly skilled jobs already working in energy across the UK. This is called punching above our weight in a UK where we contribute just 8% of the population but 33% of the geography.

However, we must remember that a key word in this climate debate, already mentioned by the noble Lord, Lord Oates, is “transition”, and that it is to net zero, not to zero carbon. Some 35% of our energy needs in 2050 will still come from carbon; today it is 75%, so that will be a massive reduction—more than halved. It would be foolhardy and irresponsible to ditch our world-class oil and gas sector in the North Sea to increase our carbon footprint by importing, whether from Russia—bad—or Qatar: good.

The North Sea Transition Deal is an exemplar in the G7 of a domestic oil and gas industry working in partnership with government to ensure that net zero is met by 2050. The noble Baroness asked what milestones we have along the way. By 2030, the cash flow generated in oil and gas will contribute £15 billion of long-term investment into new energy technologies. On the transition of jobs, by 2030 the UK offshore energy sector in total will increase from 160,000 to 200,000 jobs, of which two-thirds will be in low-carbon energy sources.

One of my new responsibilities is the North Sea Transition Deal, and in the last forum we had there were presentations from oil and gas companies, talking about how their target for 2025 is 50:50 investment of capex and renewables to get a return on capital in the region of 12%. Speaking as a businessman, I asked what percentage return on capital you get on each side of the scorecard. There was a certain amount of silence, because it emerged that renewables on their own do not return on capital at this point. Therefore, it is essential for the cash flow made in oil and gas to be reinvested to produce renewables. We will get transition to renewables only if it is a managed transition, using cash flow from carbon as it reduces to invest in renewables. That is absolutely essential. The two go hand in hand; you cannot have one without the other.

I will directly answer some of the questions posed in this debate, turning first to the noble Baroness, Lady Jones. I must say, this is a baptism of fire. I do not recognise the country she mentioned as corrupt. Maybe if I am here long enough that will emerge for me, but I do not recognise that to be the case where we are today. The financing of parties seems to be a whole new debate and perhaps can be done another time. I am on the record as saying that parties should not be financed by taxpayers. However they are financed, as long as it is transparent and legal I suggest that it is fine, but perhaps we should park that for another debate at another time.

The key thing that has come through here is the use of language and the fact that the word “subsidy” is so misused. My noble friend Lord Lilley made it very clear that as a matter of business practice, whichever industry you are in, it is entirely legitimate to off-set costs against revenues. In this sector, because the lead times are so long there is quite often a mismatch, and therefore money flows back and forwards. Since the oil and gas industry began in this country, total tax revenues of £360 billion have been received, and £33 billion in the last 10 years alone, but along the way you will see ebb and flow: money in, money back.

Tax relief is a normal part of the corporate tax system. Genuine costs and injuries such as the safe removal of infrastructure at the end of a field’s life are not a subsidy but a tax deduction and quite often, in certain cases, money flows back to the Treasury. Therefore, it is just inaccurate—perhaps self-serving—to use an emotive word such as “subsidy” when something is regulated by our own accountancy businesses, as is the case for all sectors. I push back firmly on the idea that we subsidise. We are against subsidies in this country and generally want to have free trade.

As I said before, on the point raised by the noble Baroness, Lady Worthington, it is essential that we transition jobs to renewables if we are to have two-thirds of jobs in low-carbon renewables. We have discovered from a study at Robert Gordon University that the onshore and offshore skills we currently have in carbon are absolutely essential to the new world. For example, when it comes to carbon storage, floating oil fields, et cetera, we currently have very transferable skills in the oil and gas industry and will transition them into renewables.

The noble Lord, Lord Oates, talked about his heritage in coal mining. We know exactly how that feels in Scotland; 40 years ago we closed the mines and started importing coal. What on earth is the point of that? Are we really going to make the same mistake again 40 years later, when we have a vibrant industry with 160,000 workers?

We are talking about a new Britain here, are we not? This is a new global Britain—a high-production, high-wage economy, with highly skilled jobs. This is an exemplar of highly skilled jobs in this country that we should be very proud of. Certainly, from a Scottish perspective, this is our second biggest industry, after fisheries, food and drink. It is one of our five exemplars in the UK, and we need to protect it.

Before I come to the end of my piece, the answer to the Question—for Hansard—is that the Government do not give subsidies to fossil fuel companies. The licences are awarded by an independent regulator, the Oil and Gas Authority, within the framework of achieving net zero. In fact, on Tuesday the High Court dismissed a case brought by climate activists that the regulator was giving unlawful subsidies.

The OGA is an independent regulator. Its staff are classified as public servants and are subject to rigorous standards and codes. Therefore I would say that the oil and gas industry is subject to a robust, multilayered regulatory system, which is independent and transparent, and there is no

“undue influence from outside interests”.

In closing this debate, let me be quite clear that the Government do not believe that decarbonising our economy means shutting the oil and gas industry, as has been said in this Room. We certainly do not believe in demonising a world-leading industry with the sort of intemperate language used by Patrick Harvie, Green Minister in the Scottish Government, who recently said that only those on the “hard right” would support oil and gas extraction. What an insult to the 160,000 workers in this vital sector. A broad range of stakeholders, from entrepreneur Sir Ian Wood to the GMB trade union, have warned politicians against creating an adverse investment environment for this vital sector. There is nothing just or fair about that, and it would set us back on the road to net zero.

Lord Lilley Portrait Lord Lilley (Con)
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May I intervene, on behalf of the Committee, to congratulate the Minister on his maiden speech? It was an eloquent, fascinating account of his background. His is a welcome Scottish voice in this House, and he will bring his experience of developing industries and business to our debates. We look forward eagerly to hearing his future contributions to our debates.

Lord Offord of Garvel Portrait Lord Offord of Garvel (Con)
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I thank the noble Lord for those kind words.