Energy Bill [HL]

Report stage
Tuesday 28th March 2023 Lords Chamber

Report (1st Day)

16:39

Relevant document: 4th Report from the Constitution Committee

Amendment 1

Moved by

[Lord Ravensdale]

1: Before Clause 1, insert the following new Clause—
“Principal purpose(1) The principal purpose of this Act is—(a) to increase the resilience and reliability of energy systems across the United Kingdom,(b) to support the delivery of the United Kingdom’s climate change commitments,(c) to reform the United Kingdom’s energy system while minimising costs to consumers and protecting them from unfair pricing, and(d) to improve the overall efficiency of the United Kingdom energy system and economy.(2) The Secretary of State must report to Parliament annually on—(a) how the resilience and reliability of energy systems across the United Kingdom are being increased;(b) how the United Kingdom’s climate change commitments in relation to energy are being delivered, including updates on—(i) the decarbonisation of existing electricity usage, and(ii) the electrification of processes in the United Kingdom so that they are powered by electricity rather than other primary energy sources;(c) how costs to consumers are being minimised and how unfair pricing is being avoided.(3) In performing functions under this Act, the Secretary of State and any public authority must have regard to the principal purpose set out in subsection (1).”

[Lord Ravensdale (CB)]

My Lords, the Bill has had a protracted journey through this House. I make it around eight months since Second Reading, and the global energy system and its impact on households has never been far from the top of the headlines over that whole tumultuous period. So although we may not see some of the passions we saw on display in the previous debate on the Public Order Bill, it underscores the vital importance of many of the issues we are going to talk about today. As Vaclav Smil said in his excellent work Energy and Civilisation:

“Energy is the only universal currency: one of its many forms must be transformed to get anything done.”


It is a pleasure to open the debate on Report and I look forward to this really important legislation making its way to the other place and, I hope, on to the statute book very soon.

I thank the noble Baroness, Lady Worthington, for her support of my Amendments 1 and 136 in this group and for her help in developing them. I declare my interests as an engineer and project director with Atkins, working on the energy system, and as a director of Peers for the Planet. Upfront, I thank the Minister and his team for meeting me and for all their engagement on these issues.

I was keen to come back to this issue on Report due to the number of developments in this area since Committee. Without repeating much of what I said then, back in September last year—again, it has been a long journey on the Bill—it is worth coming back to the headline concern I raised and that I want to progress with this amendment. Electrical generation and distribution is at the core of the net-zero energy system, being the enabler for ambitions in so many other areas.

We are not building electrical generating capacity or network capacity anywhere near quickly enough to meet the Government’s aspirations—and not just the 2035 decarbonisation target. Setting it aside for one moment: if we do not manage to vastly increase our generating and network capacity over the coming decade, all the other aspirations, in terms of energy security, decarbonising heating, the uptake of electric vehicles and hydrogen production, will simply not be possible at scale. That is why Amendment 1 places the electrical generating system at the core of what the Bill is trying to achieve by setting out its principal purpose.

What is missing as a first step to give industry direction is a clear delivery plan for how we are going to achieve targets for our power-generating system. Amendment 136 achieves this by requiring this plan to be produced and setting a clear, measurable pathway for what needs to be achieved each year to 2035. The need for such a plan has been set out clearly in two recent reports published since Committee: the NAO report, Decarbonising the Power Sector, and the CCC report, Delivering a Reliable Decarbonised Power System. Both of these starkly highlight the challenge the Government have in meeting that 2035 target. The CCC and previous BEIS analysis state that we need to get to approximately 250 gigawatts of installed capacity by 2035 from a current base of around 108 gigawatts. Imagine the huge complexity and scale of our current energy-generating system. We need to build it all over again, and more, in 12 years. We have not, historically, come close to the build rates that would be needed to achieve that.

If we look at all the risks in terms of achieving our energy security and decarbonisation ambitions, the one that should really be flashing red on the Government’s dashboard is the risk of not achieving sufficient low-carbon generating and network capacity by 2035. But the important point made in the NAO report is that we cannot even make an adequate assessment of that risk, because we do not have a coherent delivery plan to back up the Government’s ambitions. I know that BEIS and now DESNZ have perhaps had one or two distractions in terms of the energy system over the past year, so the position we are in is understandable. But now the Government need to come back to this issue with real urgency.

As the National Audit Office states:

“The longer DESNZ goes without a critical path bringing together different aspects of power decarbonisation, the higher the risk that it does not achieve its ambitions, or it does so at greater than necessary cost to taxpayers and consumers”.


The Government have individual targets for solar, wind and nuclear, but these need to be brought together into a coherent, system-level plan, the delivery of which will see so many attendant benefits for the country in economic growth, energy security, decarbonisation and the health and well-being of the population.

16:45

Our amendment offers a really good approach to setting a clear pathway and a plan for the electricity system to 2035, ensuring that it is recognised in the Bill that this is the linchpin of the net-zero system. However, if the Minister does not think that the Bill is the right place for it, I would like some reassurance on two things. First, can he confirm that work is under way in the department to produce a delivery plan for a 2035 energy system and what the scope of that plan will be? Secondly, can he give a timescale within which this will be issued?

I support the other amendments in this group on Ofgem and look forward to the upcoming speeches from noble Lords on them. I also look forward to hearing from the Minister and hope that he can provide the reassurance I am asking for. I beg to move.

[Baroness Hayman (CB)]

My Lords, I declare my interest as co-chair of Peers for the Planet. I will speak to my Amendment 133. I am grateful for the support of my co-signatories: the noble Lords, Lord Hollick and Lord Teverson, and the noble Baroness, Lady Altmann.

I also very much support the case for Amendment 1 made by the noble Lord, Lord Ravensdale. One phrase stuck out for me: his advocation of a “coherent, system- level plan”. In so many of the areas around energy efficiency that we will deal with later in the Bill, this is what we have been missing—not individual initiatives but a strategic approach, with time limits, timescales and targets to be met, so that we can see delivery.

I also support Amendment 130 from the noble Lord, Lord Teverson—which is a different approach to achieving the same goal as my Amendment 133—and Amendment 132 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake of Leeds, which would finally ensure that the long-awaited strategy and policy statement setting out the Government’s priorities would be published within six months. I very much hope that the Minister can respond positively to that and say that that statement is imminent.

Ofgem’s current remit pre-dates the 2050 net-zero target set by Parliament in 2019. Amendment 133 gives Ofgem a specific statutory net-zero objective linked to our climate change targets, in so doing mirroring the remit that the Government are giving the future systems operator. In Committee, the Minister said of similar amendments updating Ofgem’s remit that the Government “agreed with their intent” but did not consider them necessary because of the existing decarbonisation objective, referring to the 2010 change to Ofgem’s remit, which included a non-specific greenhouse gas reduction objective.

However, this existing duty is limited and related to the reduction of electricity and gas supply emissions of targeted greenhouse gases only—in other words, to reduce greenhouse gas emissions by an unspecified amount over an unspecified timescale. It does not link to our net-zero targets and as a result is less specific and ambitious than what the Government are legislating for the future systems operator.

The change advocated in Amendment 133 has broad support, as was recognised by the Government in their consultation on the future systems operator. The Government themselves noted that

“there were several strong calls for Ofgem’s remit to be reformed to focus on enabling net zero”.

The change was recommended in a report by your Lordships’ Industry and Regulators Committee, chaired by the noble Lord, Lord Hollick, and was also recommended this year by the Skidmore review and the Climate Change Committee. The latter argued that:

“Giving Ofgem a net zero responsibility”


will help it to

“think … strategically about the changes that lie ahead so that we can minimise the cost to the consumer in the long run.”

Just yesterday, the National Infrastructure Commission, in a fairly coruscating report on the Government’s progress towards reaching net zero, recommended the change in its Infrastructure Progress Review.

Support does not end there. The new duty is strongly endorsed by the main industry trade bodies: Energy UK, whose 100 members deliver nearly 80% of the UK’s power generation and over 95% of the energy supply; RenewableUK, which represents 1,000 businesses employing 250,000 people in the UK; and the Energy Networks Association, whose members include every major electricity and gas network operator in the UK and which employs 40,000 people in Great Britain.

This is not just a matter of semantics. The reason all these organisations and bodies support this change is that they believe it essential for increasing the pace and scale of investment in the UK’s electricity grid, which we were hearing about earlier, in order to deliver net zero and ensure that long-term planning happens at the pace needed. As the noble Lord, Lord Hollick, who cannot be with us today, said when we were debating a similar amendment in Committee:

“Many of our witnesses”


at the Select Committee

“told us that the net zero target should be included explicitly within Ofgem’s strategic duties … If there is no explicit reference to net zero, there is a danger that the decisions will be very short-term in nature, focusing on short-term costs for consumers and not the long-term costs of failing to achieve net zero and invest in the infrastructure necessary to achieve that.”—[Official Report, 16/1/23; col. GC 418.]

The trade bodies that represent the industry have been clear that they consider the lack of a clear duty that specifically refers to our net-zero targets as a reason why there has been historic underinvestment in the grid. Ofgem is not currently empowered to consider the benefit of long-term investments with sufficient weight, meaning that new renewable infrastructure is having to wait years to connect to the grid in some cases. This is not a case of it saving the consumer money, as it will cost more in the long term if we continually, but only slowly and incrementally, improve localised energy grid infrastructure. To put it colloquially, it will mean repeatedly digging up the road many times over, rather than digging it up once and for ever.

As RenewableUK has commented to us, at present

“grid development only takes place when there is overwhelming demand for it”,

rather than in future anticipation. That would make sense in a situation where there were uncertainties, but we are certain that we are going to have vastly increased demand for electricity in the near future and that the grid will be decarbonised. We know that every street in every town is going to need to be able to install EV charging points, and we hope that new developments will need to install solar panels and heat pumps, which will all need to connect to the grid. This is something we all know we need to do, but as things stand, by the time there is what is seen as overwhelming demand for grid expansion, it is very hard for grid development to catch up.

Responding to this amendment in Committee, the Minster also said that Ofgem would be keen to avoid any confusion over the need to balance decarbonisation, affordability and security of supply. I agree: Ofgem has repeatedly made it clear that it would welcome such clarification. My amendment does not alter those other aspects of Ofgem’s remit or weaken them in any way. It is for the Government to clarify to Ofgem how those various trade-offs can be balanced.

As I said, Amendment 132 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake of Leeds, would ensure that the long-awaited strategy and policy statement setting out the Government’s priorities is published within six months—something that is overdue and badly needed. But as all the committees and trade bodies I have cited make clear, doing this does not detract from the need for legislative change to reflect our 2050 targets.

We should not miss the opportunity given by the Bill to update the consumer interests that must be protected when Ofgem carries out its functions to include our statutory responsibilities to achieve net zero by 2050. I end by reminding the House of the contribution from the noble Lord, Lord Hollick, in Committee. He said that it would be ironic if the regulator most responsible for regulating the journey to net zero is one of the only regulators which does not have a specific responsibility in its remit. I hope we can persuade the Minister to agree.

[Baroness Altmann (Con)]

My Lords, I declare my interest as a member of Peers for the Planet. I am speaking specifically to Amendment 133—so excellently spoken to by the noble Baroness, Lady Hayman—to which I have added my name. I also support the other amendments in this group.

As the noble Baroness, Lady Hayman, has made clear, the future systems operator, which will regulate under the terms of the Bill in future, will have a statutory net-zero objective linked specifically to our climate change targets. Currently, Ofgem does not have that, and this amendment simply seeks to bring it into line. The consequences of an ill-defined and time-limited free objective to reduce greenhouse gas emissions is that Ofgem is not giving sufficient weight to net zero and focusing instead on near-term energy costs, which do not properly recognise the cost impacts for future consumers of delaying specific action to achieve net zero.

The network companies are therefore currently incentivised not to plan ahead. Instead, they are encouraged to defer investment to the last possible moment, and not to anticipate the increases in long-term demand that we are all aware are coming. This has discouraged future-proofing of our energy infrastructure and left us with an ageing network infrastructure that is not really fit for purpose now, let alone for 2050, with constraints and delayed reinforcements being a barrier to connections for housing developments and to the connection of low-carbon power, transport and heating. The reality is that we will need much more grid infrastructure due to the decarbonisation of heat—which is commendably legislated for in the Bill—and of transport through the increased take-up of electric vehicles.

The Financial Times reported last year that renewable energy developers are being told that they will have to wait six to 10 years to connect to regional distribution networks. RenewableUK has highlighted that, in Scotland, a significant number of offshore wind farms that were granted leases last year by the Crown Estate Scotland will not be able to get a grid connection until the mid-2030s. Clearly, there is not a sufficient sense of urgency. Indeed, part of this is likely to be due to the non-specificity of the timescale for achieving net zero that Ofgem currently has.

There is a specific example of a 3-gigawatt east coast offshore wind farm being developed by RWE. This will be instrumental in meeting the Government’s 2030 net-zero target, but it has a grid connection date of 2032.

17:00

I care as much as anyone about rising energy prices. I realise that consumers must be looked after. The cost of infrastructure is going to impact on bills. Nobody wants to pay more needlessly. If we look to the long run, it is worth being more specific and adding these kinds of targets to Ofgem’s remit now. The amendment will not upend Ofgem’s other duties. The interests of current and future consumers will still be considered as a whole. They will continue to include security of supply and fulfilment by the authority of its designated regulatory objectives. All this will do is to give a renewed, sharper focus.

I ask the Government to think again about these proposals. As the noble Baroness, Lady Hayman, said, they have industry-wide support. I will listen carefully to my noble friend’s response.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I am aware of the desire to get to votes, so I shall be brief. It is a great pleasure to follow the noble Baronesses, Lady Altmann and Lady Hayman. They have overwhelmingly made the case for Amendment 133 and the need for the systems operator to have that net-zero duty.

I shall briefly address Amendment 1, which sets the tone and direction of this debate in an important way. The noble Lord, Lord Ravensdale, and the noble Baroness, Lady Hayman, made the case for the need for an energy system to deliver for net zero. I want to focus on one word in Amendment 1—“resilience” and the need to increase it. We are now in the age of shocks. So many shocks have hit the world and our country, whether they be climatic, health or economic. There is a need for resilience. There is an idea that we can pick off these new, shiny technologies and say, “Great, we will chase after this or after that”. We should look at the basics, starting with an energy system which understands that the cleanest, greenest, cheapest, best possible energy is the one you do not need to use.

I am not sure that the report is out yet, but it is worth noting anecdotally the interesting experiments in energy demand that have happened during the winter. They will ensure that we can manage the peaks of demand and have less need for generation overall. I wanted to set out that focus on resilience because, in later amendments, we will get to the issue of community energy—local energy generation systems in local communities, spread around our islands. These will give us a real foundation of resilience and security that we desperately need for the future.

[Lord Teverson (LD)]

My Lords, perhaps for the purpose of the whole of Report, I should declare my interest at chair of Aldustria Ltd, which is concerned with battery storage.

I liked the speech by the noble Lord, Lord Ravensdale, today, as well as the speeches he gave on the levelling-up Bill debate yesterday evening. There is an important need for an understandable programme that moves us forward—a route map that works, rather than just targets and slogans. Of course, we will have Green Day on Thursday. When the Minister replies, could he give us a few clues as to what will be said then? The House would be all ears and grateful for the advance information. I thought that the net-zero report, commissioned by the Government and produced by his honourable colleague, Chris Skidmore MP, was an excellent document. I hope that the Government can say that we will be moving ahead in a comprehensive way in much of the area under discussion.

I will speak mainly about the three amendments that we have around Ofgem. It is just stark staringly obvious that Ofgem, our regulator for the energy industry, should have a net-zero objective. I cannot see how you can argue against that, for all the reasons that the noble Baronesses, Lady Hayman and Lady Altmann, have gone through so well. If there was one example of that to me, it is that Ofgem has clearly been very effective in its own mind at making decisions for customers of today but has been utterly unable to make decisions for customers of future generations. That area of the grid is now utterly incapable of delivering; whether it is offshore, onshore or developments on the residential side, those connections and that grid are unable to help us to move towards those net-zero objectives. On connection dates, I know one of 2035, which just happens to be the year when the Government’s target is to have finished decarbonising the electricity grid. Clearly we are not going to make that unless we move it forward very quickly, and I have concerns that we will already not be able to meet it.

The Minister and others in his position have said, all the time, “This is not necessary—it is already covered.” However, those examples already given by the noble Baronesses in the debate show that the directions and the objectives that the Government now have are not sufficient, and that this needs to change. We need to change it now, otherwise our decarbonisation of the grid by 2035, let alone net zero by 2050, will be missed. That cannot be allowed; these amendments must be part of the Bill.

[Lord Lennie (Lab)]

My Lords, my thanks to noble Lords who have spoken in the debate: the noble Lords, Lord Ravensdale and Lord Teverson, and the noble Baronesses, Lady Hayman, Lady Altmann and Lady Bennett. I will quickly review what I think they said and set out our amendment.

The noble Lord, Lord Ravensdale, set out the principal purpose for the Bill. Split in four ways, it will: increase energy systems’

“resilience and reliability … support the delivery of the UK’s climate change commitments … reform the UK’s energy system while minimising costs to consumers and protecting them from unfair pricing”,

and improve the overall efficiency of the UK energy system and economy. It also requires an annual report to Parliament on the above. The first three of those points are lifted directly from the opening paragraph of the Explanatory Notes, while the fourth is also an objective of the ISOP simply made wider.

Labour tabled an amendment in Committee, and I will remind noble Lords of its contents. The context of that was, at that time, the cost of living crisis; the energy price cap was going up to £3,549 per year. National Energy Action predicted that the number of UK households in fuel poverty would rise to 8.9 million. Tory leadership candidates at that time were vying for leadership to be Prime Minister but were running away from the issue of net zero; the High Court found that the net-zero climate strategy was inadequate, and the Climate Change Committee found that credible plans existed for only 39% of emissions, citing “major policy failures” and “scant evidence of delivery”. As regards energy security at that time, gas prices were expected to surge to record highs the week after the Nord Stream 1 pipeline was shut down, and European prices had risen by nearly 400% over the past year. The UK relies on gas for about 40% of its power generation, and even more on the coldest days when demand is high and wind generation tends to be low. In 2017, a BEIS report included a scenario for a complete cut-off of Russian gas and found that the UK could see “significant unmet demand” if the cut was prolonged and continental European countries paid whatever was necessary.

However, the Bill is a hotchpotch of things thrown together, lacking an overarching theme to tackle these issues. Our amendments would have set out a purpose for the Act, increasing resilience and reliability; supporting the delivery of UK’s climate change commitments; reforming energy systems; binding the Secretary of State and public authorities to these purposes; requiring the Secretary of State to designate a statement as a strategy and policy statement with regard to the purpose of the Act; and requiring the Secretary of State to review the strategy and policy statement on a five-year basis. That would have forced successive Governments into long-term thinking about the specific purpose, not limiting the impact and ambition of the Bill to what has been tacked together, which simply does not go far enough or tackle the immediate problems.

The amendment from the noble Lord, Lord Teverson, would place gas and electricity markets under a duty to assist in the delivery of net zero, and our amendment would require the Secretary of State to designate a statement giving GEMA a mandate for considering the role of energy in supporting government policy in achieving net zero. The amendment from the noble Baroness, Lady Hayman, would include in Ofgem’s general duties a specific requirement to have regard to meeting the UK’s net-zero emissions.

Briefing from RenewableUK sets out the argument for Ofgem remit reform. It states:

“Ofgem’s remit has not changed since its establishment in 2000, and does not prioritise electricity decarbonisation”—


in line with recent government legislation or stated ambitions. It has only a consideration of greenhouse reduction. It continues:

“As a result, Ofgem has been unable to substantially reform its working practices and regulatory frameworks in response to the 2008 Climate Change Act and the UK’s subsequent net zero ambition, to detriment of renewable energy investment and decarbonisation pace.”


It goes on to say that the Government have an opportunity to reform Ofgem’s remit in the Bill we are addressing today.

There is some key evidence for that. Mike Thompson, the Climate Change Committee’s chief economist, noted the integration of energy with transport and heat, including the potential for

“cars sitting on driveways acting as batteries and putting electricity back into the grid”.

He argued that there is a

“need for real integration and a regulator that can think from a systems perspective”,

suggesting that hydrogen and heat networks should be within Ofgem’s remit.

Jonathan Brearley, chief executive of Ofgem, said:

“Planning the system and setting how it evolves should not really be done by the regulator. The regulator’s job is to make sure that that is done efficiently and effectively by the companies concerned.”


We appreciate that argument.

A number of witnesses told the committee that the net-zero target should be included explicitly within Ofgem’s statutory duties. Dr Hardy said that he would

“put net zero up top”,

balancing out its other duties against the context of

“hitting that legislated carbon target”.

Professor Mitchell said that

“net zero has to be the raison d’être of Ofgem”

and argued that

“delivering on legally enshrined commitments to decarbonise”

should form part of Ofgem’s principal duty.

The committee concluded:

“To ensure that, on an enduring basis, the appropriate focus is given to net zero within its competing priorities, we recommend that Ofgem’s duties should be amended to include explicit reference to having due regard to the net zero target. While Ofgem maintains that net zero considerations already factor into its decision-making, adding net zero explicitly to its statutory duties will serve to make this clear.”


We feel that the UK needs not to be left behind but to show similar ambition in its plans for the future of the electricity industry, including Ofgem’s remit.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

First, I thank the noble Baroness, Lady Worthington, and the noble Lord, Lord Ravensdale, for bringing forward Amendments 1 and 136 and the noble Lord, Lord Teverson, for his contribution to the debate. As I set out in Committee, although the Government believe these amendments are well intentioned, ultimately, they are unnecessary. First, the Bill has a clear purpose, so I do not think any introductory clauses are necessary. Where appropriate, the Bill already sets out fairly clear objectives and general duties for the Secretary of State and other specified bodies in carrying out their functions under the relevant parts.

Secondly, in regard to an annual report, I assume noble Lords are aware that the Energy Act 2013 introduced the power for the designation of a strategy and policy statement that sets out the Government’s strategic priorities for energy policy, the roles and responsibilities of those implementing such policy, and the policy outcomes that we want to see achieved. We have committed to a second statutory consultation this spring. I therefore believe that an annual report to Parliament would cause unnecessary duplication of the existing strategy and policy statement.

17:15

Amendment 136 seeks a national electrification and power plan. I of course agree with the noble Lord that electrification plays an important role in energy security, affordable energy, and meeting net zero. That is why it is a core part of the net-zero strategy and British energy security strategy. I fear that I shall disappoint the noble Lord, Lord Teverson—I often seem to do that, but particularly on this occasion—by being able to go no further than saying that by the end of the week, the Government will publish more details about the approach to delivering energy security, consistent with achieving net zero by 2050. I am sure the noble Lord will understand that I cannot set out more details to this House before the other place has been informed, but he will not have long to wait before he receives further details. In some respects, this Report stage is slightly in advance of that, but by the second day of Report, the House will have a lot more information at its disposal. I hope the reassurance that I have been able to give is enough for what the noble Lord, Lord Ravensdale, is seeking, but the announcement later this week will also provide further details on the Government’s approach to transforming the electricity system.

I turn to Amendment 130, tabled by the noble Lords, Lord Teverson and Lord Lennie; Amendment 132, tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, and Amendment 133, tabled by the noble Lords, Lord Teverson and Lord Hollick, the noble Baroness, Lady Hayman, and my noble friend Lady Altmann, regarding Ofgem’s role in achieving net zero. Again, as I said in Committee, the Government agree with the intent of these amendments but, as we also discussed, we do not think they are necessary. The noble Lord, Lord Lennie, quoted Jonathan Brearley, the chief executive of Ofgem; I actually spoke to him earlier today and was able to receive the reassurance that both he and the Ofgem board have been clear that decarbonisation and the path to the UK’s net-zero goals are already a fundamental part of their duty to protect the interests of future consumers. They have stated that.

I have just mentioned the strategy and policy statement for energy policy in Britain. This document will offer strategic steers to Ofgem on how to deliver the Government’s energy priorities, which will include providing a strengthened focus on the Government’s net-zero goals to embolden Ofgem to take the challenging decisions that will help decarbonisation in Great Britain and ensure that the energy system is fit for the future.

Ultimately, we agree with the intent of the amendments and will continue to consider the matter during the Bill’s passage in the other place. However, I encourage Peers to reconsider them at this point and note that, for the strategy and policy statement to be designated, it must of course come before Parliament and be approved by a resolution of each House, so Members will get the opportunity to have their say on such a strategy in the future.

[Baroness Hayman (CB)]

Before the noble Lord sits down, I would be very grateful if he can tell me why he thinks so many other people disagree with him on this—so many people who are regulated by the regulator, and so many reports, from your Lordships’ House, the Skidmore report, and from the CCC. Why does the rest of the world not get it?

[Lord Callanan (Con)]

I think it is very easy for other people who are not directly engaged in the business of regulation to think that adding a statutory duty will be the magical cause of all the different elements of the energy system that they want to contribute to. But, of course, what we should also remember is that placing a duty in primary legislation also makes it justiciable.

I am sure there are plenty of lawyers in this House, and lots of litigation is already flying around on net-zero duties—the Government, indeed, need to respond to further litigation by the end of the week. If the House wants to give yet more work to their learned friends—of course, all the costs of that are ultimately borne by consumers—then the House is free to do that. We continue to keep the matter under review, but we are very clear, as is Ofgem, that Ofgem feels as though it already has this responsibility. I hope that Peers will think again.

[Baroness Altmann (Con)]

Before my noble friend sits down, is there any chance that the Government might reconsider this? Will he consider that the future system operator will have this remit? The FCA, the PRA under the current Financial Services and Markets Bill, the NHS, and the Advanced Research and Invention Agency will all have this specific remit written in. Why do the Government so reject putting it in the Bill for Ofgem?

[Lord Callanan (Con)]

Because the other bodies do not have the responsibility for regulating the energy system. I do not see why that is so difficult for my noble friend to understand.

[Lord Ravensdale (CB)]

My Lords, to sum up my Amendments 1 and 136, the important part of the whole Bill for me is to bring into being the future system operator, which will be a key enabler for much of what we have been talking about today. In the end, it will provide advice to the Government, and it is the responsibility of the DESNZ to own the development of a plan for our future electricity-generating system.

The amendments proposed by the noble Baroness, Lady Hayman, and the noble Lord, Lord Lennie, align with what I am talking about around linking up the duty for Ofgem. They pointed out the links between it and the future system operator, and talked about making sure that it is coherent and that we think more strategically to reduce costs to the consumer in the long term.

Another important point is tackling long-term under- investment in the grid, as brought out by the noble Lord, Lord Teverson, and the noble Baroness, Lady Altmann. Alongside the increase in generating capacity that we require, there is just as much of a challenge in our grid infrastructure and ensuring that the grid connections are there to make use of that.

The Minister gave me some reassurance with the announcements that he said were due later this week on the energy system and on the electricity system in particular. I look forward to that event with great interest and, for now, beg leave to withdraw my amendment.

Amendment 1 withdrawn.

Clause 1: Principal objectives and general duties of Secretary of State and economic regulator

Amendment 2

Moved by

[Baroness Liddell of Coatdyke]

2: Clause 1, page 2, line 7, at end insert—
“(d) assist the delivery of greenhouse gas emission targets as set out in the Climate Change Act 2008, including any carbon budgets set under that Act and climate targets specified in subsection (8).”Member's explanatory statement
This amendment places an equivalent principal duty on the Gas and Electricity Markets Authority to assist in the delivery of Net Zero, alongside protecting the interests of current and future transport and storage network users. This would enable Ofgem to better justify and evidence decisions enabling strategic anticipatory investment.

[Baroness Liddell of Coatdyke (Lab)]

Ironically, I am also going to talk about some of the responsibilities for Ofgem in among other issues. If noble Lords look at the Explanatory Statement, they will see that we are talking about how to put in place a setting within which Ofgem can better justify and evidence decisions enabling strategic anticipatory investment.

I make the point that I am the honorary president of the Carbon Capture and Storage Association. The CCSA has grown considerably in the past two years, because of all the interest in carbon capture. We have been marched up to the top of the hill more than once, but this time we hope that we will be able to deliver.

Amendment 2 talks about the importance of enabling rapid network expansion. For us to meet the emissions reduction targets, carbon capture and storage will need to be rolled out rapidly across the UK during the rest of the decade. One role of the CCSA that I find extremely interesting is its interchange with the industry. There are some big companies in it but there are also small, cutting-edge companies involved in the development of how we cope with carbon capture, storage and utilisation.

I ask the Minister to bear in mind that it is not just Ofgem that needs to understands its remit; we need to look further and ensure that, throughout the industry, there is confidence, consistency and certainty, because the amount of money that will have to be invested in this is very considerable. To capture and store 30 million tonnes a year by 2030, as per the net-zero strategy, we will need to go from absolutely nothing to building significant CO₂ infrastructure in a very short space of time, connecting capture projects continually throughout the 2020s. The industry wholeheartedly welcomes the Government’s recent commitment of £20 billion to build the industry up from scratch. It is therefore vital that Ofgem has updated duties that enable it to justify investment to allow for the rapid network expansion to connect more carbon sites to a growing suite of storage sites.

A lot of this is being done elsewhere. We have an opportunity to be leaders in carbon capture, utilisation and storage, but we need help from the Government, and signals need to be given out. Twenty billion pounds is a very large sum of money but it is not enough; it is estimated that around £50 billion will be needed. Some of that can come from private investment—indeed, it is important that it does—but there needs to be the degree of certainty that I spoke about a couple of seconds ago.

In Committee we debated Ofgem’s powers and whether its role in delivering net zero while protecting current and future users of the network is sufficiently clear. My noble friend Lord Foulkes, who is also a signatory to this amendment, stressed this time and again during those debates. The point was also made much more dramatically by the noble Baroness, Lady Hayman. How is it that so many people out there do not think that Ofgem has the right environment, role or powers to deal with the complexity of these issues?

Ofgem’s current set of duties makes it difficult to justify strategic investment in networks, as this would increase costs to current users in the short term. This is the dilemma that has to be got across. This has been an ongoing issue of concern, as raised in the National Infrastructure Commission’s 2019 regulation review, Strategic Investment and Public Confidence, which recommended that economic regulators’ duties be updated to facilitate long-term investment in networks, and, more recently—referred to by the noble Lord, Lord Teverson —in the Skidmore review.

While the Government should be commended—and I do commend them—for proposing that the duties of the economic regulator should include consideration of the needs of existing and future users, a principal duty to deliver net zero by 2050 would help the regulator to effectively balance these two equally important factors. However, it should be noted that, outside of the regulator’s core duties, the Bill includes a further requirement for the regulator to support the Secretary of State in having regard to the Climate Change Act 2008 and the new CCUS strategy and policy statement. That should go some way to addressing this.

However, it is not enough that these mechanisms are not as strong as the regulator’s own duties. This amendment is essential to give the regulator the necessary powers to make decisions that enable the required strategic anticipatory investment on the network. Ofgem will need to be empowered to make well-justified decisions, balancing the interests of current and future transport and storage network users with delivering net zero.

17:30

I move on to Amendment 3, which would add to the licensing regime to make it fit for the future. There is a global race on CCUS, with the US and Europe making significant progress in the past 12 months. This is not something that happened years ago; it is happening now. Ever since we submitted the first amendments to this Bill, other countries have got ahead of us. If we are to stay at the front, the industry will need to grow and develop at pace. This amendment will ensure it can do that.

Members may have noticed that the Danish Government made fast work of getting their first injection of CO₂ to the Greensand field recently. That was launched to much fanfare. Norway is planning infrastructure to connect its CO₂ stores to mainland Europe. I have always been in awe of the speed with which Norway can move on these issues. Like Norway, the UK has significant geological assets—many of them, I should say with my accent, are in Scotland—with a third of Europe’s entire offshore CO₂ storage potential at 7,000 million tonnes. That is a dramatic figure and equal to all the EU states combined. Only Norway, with 8,000 million tonnes, has more in Europe.

While the economic regulated model is essential for the initial monopoly networks that will enable domestic industrial decarbonisation, we need to future-proof the regulatory system by enabling private operators to develop merchant models to transport and store carbon dioxide in the longer term. That would be the kind of expenditure within that £50 billion I spoke about a couple of minutes ago. This amendment will enable cross-border transport and geological storage of carbon dioxide to develop over time without having to rely on exemptions being granted to allow private networks to develop.

The enormous potential to offer CO₂ storage services to European and other countries presents a terrific opportunity for the UK to become a global leader in CCUS and to accelerate global efforts to prevent CO₂ emissions. The legislative framework should avoid any future barriers to cross-border transportation of CO_2. The Government want a growth agenda—the Chancellor has repeatedly referred to it—but for us to develop that agenda we really need to make sure that we have the structures in place that would allow it to grow.

This amendment would ensure necessary consistency —which I mentioned at the beginning of my remarks—with the existing regulatory regime for the granting of geological storage licences by the Oil and Gas Authority, now the North Sea Transition Authority, under the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010. The Secretary of State is having regard to the Climate Change Act 2008, and the new CCUS strategy and policy statement should go some way to addressing this.

However, in practice these mechanisms are not as strong as the regulator’s own duties. This amendment is necessary to give the regulator the necessary powers to make decisions that enable the required strategic anticipatory investment on the network. Ofgem will need to be empowered to make well-justified decisions, balancing the interests of current and future transport and storage network users with delivering net zero.

I hope the Minister will take this seriously. If I have not convinced him, will he sit down and talk to the industry itself?

[Lord Teverson (LD)]

My Lords, I will speak to my Amendment 33, which is around the decommissioning costs of carbon capture and storage installations. First, I will read what is in Clause 85(1) about financing costs:

“The Secretary of State may by regulations make provision for requiring relevant persons to provide security for the performance of obligations relating to the future abandonment or decommissioning of carbon dioxide-related sites, pipelines or installations.”


It is not often that one is shocked in Grand Committee in the Moses Room. Normally it is a feeling of impotence when you are going through SIs, rather than some sort of greater emotion, but I was shocked when we discussed this. I asked the Minister how we protect the funds that are for decommissioning at some point way into the future. How are we sure that they are not like the dodgy builder who takes your deposit and then, when you ask him or her to decorate your house, the phone is no longer answered and the money has disappeared? How do we know, in this rather difficult area of energy, that those “relevant persons”, and more importantly their banks accounts, will still be there so that in some distant future, maybe decades ahead, this money is available?

If I am honest, when I had the answer from the Minister—which I cannot quote as I have not looked it up—I was shocked that there did not seem to be any provision for protection of the rather large sums that I expect to be there. That is why I have introduced this amendment. It is very simple and demands that when these payments are made they are effectively put into an escrow account, or at least a ring-fenced fund of some sort, so that they are there when these facilities need to be decommissioned. It is then up to the Secretary of State to agree when that money can be disbursed so that decommissioning can take place or disbursed because the funds are no longer needed.

It is as simple as that. It is about protecting that money that we as taxpayers and citizens of the UK are owed when that decommissioning happens and making sure that the money really is paid rather than having disappeared at the time. I see no guarantee within the three pages of other details about how these funds should work. I hope the Minister can come back to me and reassure me that, if he is not going to accept this amendment, the Government will ensure that this money is ring-fenced and is there for us and future generations when we reach that decommissioning point.

[Baroness Sheehan (LD)]

My Lords, I declare my interest in the register as a director of Peers for the Planet.

I shall speak to only one amendment in this group, Amendment 33, in the name of my noble friend Lord Teverson, to which I have added my name. It aims to ensure that decommissioning funds, as the noble Lord has explained, are available for decommissioning when the time comes. I support it not least because it complements Amendment 222A, which I tabled in Committee, on transparency of decommissioning, particularly with respect to future taxpayer liability for decommissioning relief deeds, which are agreements between the individual oil and gas companies and the Treasury. The National Audit Office and the Public Accounts Committee have both expressed concern about this public liability. I quote from the 2019 NAO report on decommissioning:

“With decommissioning activity increasing, the government is paying out more in tax reliefs for decommissioning at the same time as tax revenues have fallen due to a combination of lower production rates, a reduction in oil and gas prices and operators incurring high tax-deductible expenditure.”


That represents a triple whammy for UK taxpayers since, as the report says, for the first time ever, in 2016-17,

“the government paid out more to oil and gas operators in tax reliefs than it received from them.”

The scenario under which that public subsidy of oil and gas production took place in 2016-17—that is, the triple whammy of lower production rates, a reduction in oil and gas prices and operators incurring high tax-deductible expenditure—is the future outlook for the gas and oil sector as the world moves ever more rapidly towards decarbonisation. The USA’s inflation reduction Acts and the imminent EU response via the green deal industrial plan will turbocharge that transition, and rapid transformative change is very visible on the horizon.

While oil and gas expansion currently looks secure, it is only artificially so, given the very generous tax reliefs, subsidies and other support that the Government continue to provide, not least via decommissioning relief deeds. With over 100 new licences for exploration and production on offer, the risk of stranded assets is compounded hugely. Why do the Government persist in giving preferential treatment to fossil fuel producers? That is a question that I have put to the Minister before on several occasions, and I hope that this time there might be an answer.

It used to be that a ceiling of sorts was kept on the overall cost to the taxpayer by the fact that a firm could not claim back more in decommissioning tax relief than it had previously paid in tax. That makes sense but, since 2017, the Government have explicitly said that when firms default the partner firms that pick up the bill can claim back more in tax relief than they have ever paid. That certainly needs some digesting.

It cannot be right to put on life support an industry that has had its day—life support that is publicly funded. The amendment asks the Government to take precautions with the public purse, uphold the “polluter pays” principle and ensure that operators of new fields and buyers of existing ones accept that they cannot escape their responsibility to our planet, the one and only planet that we have.

[Baroness Blake of Leeds (Lab)]

My Lords, in speaking to the amendments in this group, I particularly thank my noble friend Lady Liddell for the well-informed and detailed explanation of why the amendments in her name and that of my noble friend Lord Foulkes are so important and relevant. What we heard was the crossover between the considerations within these amendments and the discussions that we had on the previous group regarding the work that we believe needs to be done to strengthen the hand of Ofgem, particularly to justify and evidence decisions, as we heard, enabling strategic anticipatory investment.

17:45

What we have to focus on here, running through all our discussions today, is the sense that we in the UK are falling behind. As described, Amendment 2 in particular speaks to how we can achieve the confidence of investors, and indeed the public, to make the case for the seemingly vast amounts of money that need to be invested—although we know that, in the scheme of what we need to do, the money identified does not come anywhere near the expenditure that we will have to bring forward.

The most important desire in the amendments, which has been eloquently expressed and I hope the Minister can address it, is, particularly in this case, to know how the steps forward will protect the current and future users of carbon dioxide transport and storage networks in particular. Running through all the discussions that we have to have on the Bill is the need to protect the interests of consumers as well as promoting the efficient economic development and operation of the transport and storage networks that we are discussing. The other area is ensuring that licence holders are indeed able to finance activities.

I want to reference the many government amendments; we all know there are many amendments throughout the Bill from the Government, which is worth a comment in itself. I too express frustration that throughout the narrative that is expressed there is ambition and a recognition of enormous potential, but unfortunately, as the noble Baroness, Lady Hayman, so eloquently put it, there is a growing sense from many key players that that ambition and potential have not been matched by action. I hope the Minister can give us confidence that by the end of this week we will get a sense of where that support, and the necessary link to action, will come from. It is an enormous missed opportunity for the whole country and its potential in terms of jobs and providing for our energy requirements that we now have this reputation of falling behind.

Protecting our assets is crucial. I want to add my comments about how the regulations will make access to the infrastructure more appropriate, and how they can amend the carbon dioxide regulations of 2011.

I recognise the comments made by the noble Lord, Lord Teverson, supported by Baroness Sheehan, and I very much look forward to hearing the answer. Protecting funds in this area has to be critical, but I am not sure that we yet know how that is going to be achieved.

[Lord Callanan (Con)]

I thank everyone who contributed to the debate. If the House will have a little patience, I will first take some time to set out and explain the government amendments in this group, before I come on to the non-government amendments.

Amendment 4 to Clause 9 ensures that, ahead of making any regulations under this power, there should first be consultation with the economic regulator and the appropriate devolved authorities.

Amendments 5 and 6 to Clause 19 preserve the independence of the economic regulator by removing the power for the Secretary of State to direct the economic regulator not to impose conditions in consenting to the transfer of a licence.

Amendment 7 clarifies that the requirement to provide information to the Secretary of State or the CMA under Clause 28 is in relation only to Ofgem’s functions under Part 1 of the Bill, not to any of its other functions.

Amendment 8 clarifies that, under Clause 29, disclosure of information to the economic regulator does not breach any obligation of confidence owed by the licence holder making the disclosure, or any other restriction on the disclosure of information. It also clarifies that this provision does not authorise a contravention of data protection legislation.

Amendment 9 provides updated definitions of a “final order” and “provisional order” in Clause 31—these are consequential on amendments made to Clause 32 in Committee, which inserted a new Schedule 3, setting out the enforcement measures in the Bill.

Amendments 10 to 12 and 15 concern the list of persons whom the Secretary of State must consult under Clause 46 before modifying the terms of a company’s licence in relation to a transport and storage administration order. These amendments make it clear that there should be consultation with the relevant storage licensing authority where a carbon storage licence is in place.

On Amendment 35, we must mitigate the risk that decommissioning liabilities fall to the taxpayer, given that the Government ultimately sit as the decommissioner of last resort. Section 29 of the Petroleum Act 1998 enables the Secretary of State to serve notices that require the recipient to submit a decommissioning programme for an installation or pipeline. The Section 29 regime is therefore a key lever in mitigating that risk.

Amendment 35 proposes amendments to Section 30 of the Energy Act 2008, which would enable modifications to Sections 30, 31 and 45 of the Petroleum Act 1998, in its application to the decommissioning of carbon storage installations. These modifications seek to ensure that the Secretary of State can issue a Section 29 decommissioning notice on entities with a licence for CCUS activities, under Section 18 of the Energy Act 2008. This will enable the Secretary of State to impose decommissioning obligations on CCUS licensees, among other persons.

Amendment 36 proposes an amendment to Section 29 of the Petroleum Act 1998. Under current legislation, a new Section 29 notice cannot be issued on assets that have already been included in a decommissioning programme, unless that programme is rejected or approval for it is withdrawn. This would mean that, if an oil and gas asset were subsequently repurposed for use in a CCUS network, the Secretary of State may not be able to serve a new Section 29 notice on the CCUS operators of that asset without first rejecting, or withdrawing approval for, the existing decommissioning programme. This could lead to a gap in liability for decommissioning a repurposed asset, which of course increases the risk to the taxpayer. The amendment seeks to ensure that the Secretary of State can issue a new Section 29 notice on assets that are already within an approved decommissioning programme, thus mitigating the risks.

Amendments 37 to 39 clarify the duties in Clause 92 for the Secretary of State and the economic regulator to carry out their respective functions with regard to considerations in a CCUS strategy and policy statement. The amendments clarify that these duties apply only to functions relevant to the strategic priorities set out in the statement, and related to carbon dioxide capture, usage and storage policy. The amendments seek to exclude other functions set out in Part 2, which relate to hydrogen production that may not rely on CCUS, such as hydrogen produced via electrolysis. They seek to expressly exclude hydrogen levy functions.

Amendments 41 to 47 to Clause 99 ensure that sufficient powers are available to the Secretary of State to be able to update or make new access to infrastructure regulations, should that be appropriate to ensure that access arrangements remain fit for purpose. In particular, updates to the existing regulations may be needed in light of the new economic licensing framework established in Part 1. These amendments are necessary because the existing regulations were made using the powers in Section 2(2) of the European Communities Act 1972, and there are currently no domestic powers to update, replace or make new access to infrastructure regulations.

Amendment 14 to Schedule 5 ensures that, where appeals are made to the Competition and Markets Authority in respect of a decision made by the economic regulator for carbon dioxide transport and storage, a “specialist utility” group is convened to hear such an appeal. This is consistent with provisions for licence modification appeals in the Gas Act 1986, the Electricity Act 1989 and the Water Industry Act 1991, as I am sure the House is aware.

I move to the non-government amendments. Amendment 33 requires CCUS decommissioning funds to be ring-fenced. I thank the noble Lord, Lord Teverson, for his contribution. The Government’s view is that the primary purpose of a funded decommissioning regime is to provide assurance that decommissioning liabilities for CCUS assets will be paid, mitigating the risk that these liabilities fall to the taxpayer—we share the noble Lord’s concern about this. The noble Lord asked me for reassurance that the funds will be ring-fenced. The Government agree that appropriate safeguards will need to be put in place to ensure that the funds carry out the desired function.

The Government’s 2021 consultation on establishing a funded CCUS decommissioning regime set out our proposals for access to the decommissioning funds and, in particular, the expectations for ring-fencing and regulatory authorisation for any withdrawals. The Government expect that the decommissioning funds will be overseen by the economic regulator, to ensure that the funds are accruing appropriately. In addition, the intention is that the Offshore Petroleum Regulator for Environment and Decommissioning will need to authorise any withdrawal requests made by the operator to ensure that use of the funds is restricted to decommissioning-related purposes.

The noble Lord will be pleased to know that the Government plan shortly to publish an update document, which will include further detail on regulatory oversight of the decommissioning funds, the holding arrangements and, crucially, the protection against insolvency. The Government intend to set out the requirements for appropriate restrictions and safeguards for the fund in regulations and guidance. These requirements will be essentially technical in nature, so it is the Government’s view that it would be more appropriate to set these out in secondary legislation.

I move to Amendment 2, from the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes, who is not in his place, sadly—I was looking forward to debating with him. It is the Government’s view that this amendment is not necessary. The Secretary of State is already bound by law under the Climate Change Act to ensure that targets to reduce greenhouse gas emissions are met. Under Clause 1(6), the economic regulator is required to have regard to the need to assist the Secretary of State in complying with his statutory duties under Sections 1 and 4 of the Climate Change Act 2008, and to have regard to the statutory emissions-reduction targets in each of the devolved Administrations.

Anticipatory investment will be essential to scale up CO₂ transport and storage networks to meet our CCUS ambitions and net-zero targets. However, this investment must be driven by the needs of the users of the network, both those already connected to a network and, of course, those wanting to connect.

18:00

The principal objective for the regulator to protect the interests of both current and future users will achieve this aim. Anticipatory investment decisions will need to be well evidenced, and network expansion and development should provide value for all network users. There is a risk that an additional net-zero principal objective could inadvertently delay network developments; for example, the more principal objectives the regulator has to balance, the greater the likelihood of tensions arising between these objectives, leading to protracted or heavily diluted decisions, and potentially adding further costs and delay to the essential delivery of this infrastructure. Fundamentally, decisions on strategic priorities for CCUS are policy decisions, and a strategy and policy statement for CCUS is the appropriate means of providing strategic direction for the regulator regarding policy considerations and the role and contributions of CCUS in achieving net-zero targets.

I turn now to Amendment 3 tabled by the noble Baroness, Lady Liddell of Coatdyke. The CO₂ transport and storage regulatory investment model has been designed to attract the investment needed to establish and scale up the transport and storage infrastructure crucial to establishing a CCUS industry across the UK. I am pleased to tell her that we are expecting to announce the outcome of the cluster sequencing process this week, with the track 1 project negotiation list. This is indeed a busy week. We will also provide an update on the expansion of the track 1 clusters and—this is crucial to her interests—our plans for track 2. At the end of her remarks, she asked me to sit down and talk to the industry, and I am pleased to tell her that I did exactly that on Monday. CCUS is now part of my ministerial portfolio, and I am co-chairman of the CCUS Council, which, coincidentally, met on Monday afternoon; we had a long discussion about many of these issues.

As carbon dioxide pipelines and storage assets have essential monopolistic characteristics, the economic regulation model also provides important and necessary protections for users of the networks from anti-competitive behaviour, including monopolistic pricing. I am afraid that the amendment does not offer that protection. The regulatory model is also designed to facilitate our long-term vision of a CO₂ transport and storage sector which, ultimately, is able to operate without subsidy. However, as I am sure the noble Baroness will accept, CCUS is currently a rather fledging industry, and government support is needed to enable the deployment of the first CCUS networks. To overcome the market barriers to investment which currently exist, there will be both capital and revenue support available for the initial networks, and the vast majority of industrial users connecting to the networks will be supported by either government funding or, in the case of CCUS-enabled power plants, consumer subsidies. It is essential, therefore, that transport and storage infrastructure development represents value for money to both taxpayers and consumers, and that charges for the use of transport and storage services are fair and proportionate. In our view, that is achieved through economic regulation and oversight by an independent economic regulator.

I share the noble Baroness’s desire to ensure sufficient flexibility in the regulatory framework to allow for future market expansion, and we have designed the legislative provisions with exactly that in mind. The power under Clause 8 to create different licence types, with different conditions, will enable the regulatory regime to respond to market developments and to facilitate a lighter-touch form of regulation for offshore activities in future, should that become appropriate. It is not the Government’s intention to inhibit market developments through a framework of economic regulation, but it is important that there are protections in place for users and consumers, and that we are able to respond to any anti-competitive behaviours, should they arise. It is the Government’s view that the alternative licensing framework that the noble Baroness refers to in her amendment does not provide for that.

I apologise for the long update but, reflecting on these points, I hope that the noble Baroness will withdraw her amendment.

[Baroness Sheehan (LD)]

Before the Minister sits down, I will ask him to clarify a couple of things. First, I welcome his statements on decommissioning, but can he confirm whether the safeguarding of decommissioning funds will include all fields, both existing and new? Secondly, can he confirm that it is the FCA that will provide the regulatory oversight for decommissioning funds?

[Lord Callanan (Con)]

It would depend on what the noble Baroness means by “decommissioning funds”. What would the decommissioning funds be for? In response to the noble Lord, Lord Teverson, I outlined our intention to ring-fence the CCUS decommissioning funds.

[Baroness Liddell of Coatdyke (Lab)]

I beg leave to withdraw my amendment.

Amendment 2 withdrawn.

Clause 2: Prohibition on unlicensed activities

Amendment 3 withdrawn.

Clause 9: Procedure for licence applications

Amendment 4

Moved by

[Lord Callanan]

4: Clause 9, page 9, line 31, after “(2)” insert “or (6)”
Member's explanatory statement
This amendment requires proposed regulations under subsection (6) to be consulted on in the same way as regulations under subsection (2).

Amendment 4 agreed.

Clause 19: Consenting to transfer

Amendments 5 and 6

Moved by

[Lord Callanan]

5: Clause 19, page 21, line 9, leave out from “transfer,” to end of line 11
Member's explanatory statement
This amendment removes a provision that would have authorised the Secretary of State to direct the economic regulator not to impose conditions on consent to the transfer of a licence. Lord Callanan’s amendment at page 21, line 19 is consequential on this amendment.

6: Clause 19, page 21, line 19, leave out sub-paragraph (ii)
Member's explanatory statement
See the explanatory statement for Lord Callanan’s amendment at page 21, line 9.

Amendments 5 and 6 agreed.

Clause 28: Monitoring, information gathering etc

Amendment 7

Moved by

[Lord Callanan]

7: Clause 28, page 27, line 27, at end insert “under this Part”
Member's explanatory statement
This amendment clarifies that the duties under subsection (3) relate only to functions under Part 1 of the Bill, not to other functions of the Gas and Electricity Markets Authority.

Amendment 7 agreed.

Clause 29: Power to require information for purposes of monitoring

Amendment 8

Moved by

[Lord Callanan]

8: Clause 29, page 28, line 12, at end insert—
“(5) Except as provided by subsection (6), the disclosure of information under this section does not breach—(a) any obligation of confidence owed by the person making the disclosure, or(b) any other restriction on the disclosure of information (however imposed).(6) This section does not authorise or require a disclosure of information if the disclosure would contravene the data protection legislation (but in determining whether a disclosure would do so, a requirement imposed by virtue of subsection (2) is to be taken into account).”Member's explanatory statement
In this amendment new subsection (5) clarifies that disclosure of information under the Clause would not amount to a breach of any other legal restrictions and new subsection (6) clarifies the relationship between the power to require information under the Clause and requirements in data protection legislation.

Amendment 8 agreed.

Clause 31: Reasons for decisions

Amendment 9

Moved by

[Lord Callanan]

9: Clause 31, page 30, line 20, leave out from second “order”” to end of line 22 and insert “have the same meaning as in Schedule 3 (see paragraph 1(12) of that Schedule).”
Member's explanatory statement
This amendment updates subsection (4) to take account of amendments made in Committee which affected the way “final order” and “provisional order” are defined in Part 1.

Amendment 9 agreed.

Clause 46: Modification of conditions of licences

Amendments 10 to 12

Moved by

[Lord Callanan]

10: Clause 46, page 42, line 29, after “licence” insert “(“the section 7 licence”)”
Member's explanatory statement
This amendment is supplementary to Lord Callanan’s amendment at page 43, line 4.

11: Clause 46, page 43, line 4, leave out paragraphs (b) and (c) and insert—
“(b) if the section 7 licence authorises activities within section 2(2)(a), the person who granted any associated licence under section 18 of the Energy Act 2008, and”Member's explanatory statement
This amendment, which is supplemented by Lord Callanan’s amendments at page 42 line 29, page 43 line 12 and page 49 line 27, amends the list of persons whom the Secretary of State must consult before exercising the powers under subsection (1).

12: Clause 46, page 43, line 12, leave out subsection (6) and insert—
“(6) For the purposes of this section, a licence under section 18 of the Energy Act 2008 (“the carbon storage licence”) is an “associated licence” in relation to the section 7 licence if—(a) the carbon storage licence is in respect of activities within section 17(2)(a) of that Act, and(b) any part of the site to which the section 7 licence relates is within any place to which the carbon storage licence relates.”Member's explanatory statement
See Lord Callanan’s amendment at page 43, line 4.

Amendments 10 to 12 agreed.

Schedule 5: Amendments related to Part 1

Amendment 13

Moved by

[Lord Callanan]

13: Schedule 5, page 262, line 2, leave out “Nuclear Energy (Financing)” and insert “Energy Prices”
Member's explanatory statement
This amendment takes account of the passing of the Energy Prices Act 2022, which inserted a reference to that Act in section 105(1)(a) of the Utilities Act 2000, since this Bill was introduced.

[Lord Callanan (Con)]

My Lords, in moving Amendment 13, I will also speak to Amendments 58, 63, 75, 78, 79, 95 and 143 in my name.

Turning first to Amendments 58 and 143, I thank the noble Lord, Lord Ravensdale, for bringing forward his original amendment on the classification of nuclear-derived fuels in Committee. While we believe that we should not categorise nuclear-derived fuels as renewable, I have welcomed the constructive discussion with noble Lords since Committee, and, in response to that, the Government are pleased to bring to forward these amendments.

Amendment 58 will enable the renewable transport fuel obligation and the forthcoming sustainable aviation fuel mandate to support two types of low-carbon fuel, helping the UK to decarbonise transport further, thereby achieving, I think, the noble Lord’s objective. First, it will enable the support of recycled carbon fuels. These are produced from otherwise unrecyclable waste plastics or industrial waste gases that cannot be avoided, reused or recycled. Secondly, it extends support to fuels derived from nuclear energy. Both fuel types have the potential to deliver significant carbon savings over traditional fossil fuels and are a vital replacement for sectors that are difficult to decarbonise, such as commercial aviation and heavy goods vehicles. Amendment 143 sets the timing on which the power comes into force at two months after Royal Assent.

I turn now to Amendment 95, which relates to Part 8 on the regulation of energy smart appliances, specifically under Clause 191, which deals with how energy smart regulations will be enforced. It will enable the regulator to agree an enforcement undertaking with an economic actor, where appropriate, and, if required, it will still issue a penalty on a separate non-compliance issue to the same economic actor. The ability to agree an enforcement undertaking with a business is a useful tool for a regulator. It allows it to work with a business to bring it into compliance without the need for potentially harsher penalties. This will be particularly important in the regulation of energy smart appliances, which is a nascent and evolving market at the moment. Should other, unrelated instances of non-compliance arise while an enforcement undertaking is in place, the regulator still has the power to issue a penalty. The amendment will put that ability beyond any doubt by clarifying that the regulator can issue a penalty against a business with which it has agreed an enforcement undertaking, providing that the two relate to separate issues. The amendment will help to enable the implementation of a consistent and fair enforcement regime for the energy smart appliances market.

Amendments 13 and 63 simply take account of the Energy Prices Act 2022, which has been passed since the Bill was introduced.

Amendments 75, 78 and 79 are minor and technical amendments relating to Schedule 16 on heat networks regulation. Amendment 75 corrects an error in relation to installation and maintenance licences for heat networks by removing the reference to Scotland, where the licensing regime will not apply. The licensing regime will apply in England and Wales, and the Northern Ireland Executive will have powers to introduce an equivalent regime. The regime will not apply in Scotland, as the Scottish Government, I am told, will introduce their own regime.

Amendment 78 simply corrects a typographical error in paragraph 40 of Schedule 16, replacing a reference to “a penalty” with “compensation”.

Finally, Part 9 of the schedule provides for regulations introducing a special administration regime for the heat network sector. It provides for the appropriate authority to modify existing legislation relating to the special administration regime for energy companies to allow for the equivalent introduction of an energy regime for heat networks. Amendment 79 provides a definition of the appropriate authority for paragraph 50 of the schedule, to match the definition in paragraph 61 of that schedule. The appropriate authority in this case is defined as the Secretary of State for England and Wales and Scotland, and the Department for the Economy in Northern Ireland. I beg to move.

[Lord Ravensdale (CB)]

My Lords, I shall speak to Amendment 58, to which I have added my name. First, I thank the Minister for his constructive approach, and for listening to my amendments in Committee and responding by introducing this amendment, which addresses all of the points in my Committee amendments. I am most grateful. I must also thank his officials for the work that they have put into drafting and finding an acceptable way forward, and for engaging with me throughout the process. I also thank the noble Baroness, Lady Worthington for her support throughout.

I break down the benefits of this amendment into three broad areas. First, it continues the work that the Government are doing to create a level playing field for low-carbon technologies. We heard the welcome news in the recent Budget Statement that nuclear will be considered as environmentally sustainable, or taxonomy aligned, under the UK green taxonomy. In a similar vein, the renewable transport fuels obligation amendment will allow nuclear to benefit from a subsidy scheme that is already available to renewable operators. This sends a clear message to investors that the Government sit squarely behind nuclear as an environmentally sustainable energy source. It also brings out the important principle of technological independence—to let the market do its job to find the most efficient solutions, but also because for net zero we need to throw the kitchen sink at the problem, if we are going to achieve it.

Secondly, the amendment directly enables a whole range of near-term projects that will help to kick-start the green hydrogen and recycled carbon fuel industries within the UK. With recycled carbon fuels, there are a number of industrial projects being scoped that will be enabled by this amendment—for example, Project Dragon, to use industrial waste gases from Port Talbot to produce ethanol from which recycled carbon fuels, including sustainable aviation fuels, can be derived. By setting strict rules for how to account for emissions, savings of around 70% can be generated when compared with the baseline of using fossil fuels. Those projects, enabled by this amendment, will be an important enabler for decarbonising transport fuels and moving towards a circular economy, saving significant amounts of greenhouse gas emissions in future.

For nuclear, there are near-term plans to produce hydrogen from Sizewell B for use in Sizewell C construction, and also in other nuclear projects, including SMRs and AMRs. Particular economic benefits may be gained through using nuclear power to produce hydrogen—for example, high temperature electrolysis, using heat from the nuclear reaction to produce hydrogen much more efficiently than cold electrolysis. Further down the line, using the heat from high temperature reactors to produce hydrogen directly through the sulfur-iodine cycle has the potential to increase efficiency further beyond traditional electrolysis techniques. If the Government are to meet their ambitious hydrogen production targets, nuclear needs to be part of the picture, which will be enabled by this amendment and help kick- start green, or pink, hydrogen production—I sometimes lose track of the colours—in the UK.

Thirdly, the amendment enables these fuel sources to be eligible for the sustainable aviation fuels, or SAF, mandate. Both recycled carbon fuels and nuclear will have a key role to play here. RCF has the potential to produce large volumes of SAF in the near term; in the longer term, the combination of direct air capture and hydrogen production from nuclear could allow power-to-liquid sustainable aviation fuel to be produced economically.

As I said, I am very grateful to the Minister and his officials for working together to make this important change to the Bill.

[Baroness Worthington (CB)]

I shall speak briefly to Amendment 58, which the noble Lord, Lord Ravensdale, has so eloquently spoken to. I definitely support the nuclear element of this amendment, and I am grateful to the noble Lord for bringing this to our attention, as well as to the Minister for taking it on proactively. However, I have a question around the inclusion of fossil-derived sources of energy in this approach. I am not one to rule things out, and I think that we need to use all the tools available to us, but there is a material difference when you are using a fuel derived from fossil fuels, in that once it is combusted the CO₂—the greenhouse gases—will be readmitted to the atmosphere. Can the Minister say a bit more about how something derived from nuclear electricity, which is intrinsically clean, to create a fuel, is different from the waste derived from a fossil source of energy? I just want clarification on that point.

18:15

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Worthington, and to partly agree and partly disagree with her comments. I speak in strong opposition to government Amendment 58, which is the substantive amendment in this group, buried in the depths of a whole lot of technical detail.

It is worth focusing on what Amendment 58 actually does. The Minister said this in his introduction, but it deserves to be highlighted. The Minister acknowledged that these are not renewable sources of energy, but what we are doing here is to treat them as though they are renewable. That is an important distinction, which clearly needs to be made. It is quite significant.

As the noble Lord, Lord Ravensdale, said earlier, we have been debating this Bill for eight months or so. The second element of the government amendment, referring to nuclear-derived fuels, reflects something that the noble Lord brought to Committee but, so far as I can recollect across those eight months, recycled carbon fuels have suddenly popped here at Report, without any previous debate at all. That is something that presents an issue when it comes to scrutiny and examination—an issue which the other place, when this Bill reaches it, may well need to look at and consider in some detail, given that your Lordships’ House has not had the opportunity to look at recycled carbon fuels along with some of the issues that the noble Baroness, Lady Worthington, raised and which I am going to expand on.

It is worth highlighting that nuclear-derived fuel is now an extremely hot political issue—no pun intended—in Europe. Germany, Spain and Denmark are among the countries opposed to nuclear-derived fuel being classed as a renewable there, in a debate that is going on this very week, as we are meeting now in your Lordships’ House. The opposition from those states says that nuclear energy does not belong within renewable targets and that there is a risk that treating it as though it was renewable will undermine the massive expansion of renewables that we need to hit our climate goals. So this is a replacement-type issue—and that raises a very important point.

When I speak in opposition to this amendment, I am not necessarily saying that we should not, in a limited way, be using recycled carbon fuel of the industrial waste type to which the noble Lord, Lord Ravensdale, referred, or even, while we have the nuclear plants, nuclear-derived fuel. The question is whether it receives treatment as though it was a renewable when it is not a renewable—that is the question that arises from this amendment.

On recycled carbon fuel, as the noble Baroness, Lady Worthington, said, there are some grave concerns about burning fossil fuel wastes, particularly plastics, in incinerators or hydrolysis processes to produce fuels. I can quote some figures on this. When municipal solid waste containing 65% of non-biogenic waste, which is usually mostly plastic, is turned into fuel, the emissions range between 52.6 and 124 grams of carbon dioxide equivalent per megajoule. When the waste is all non-renewable, the impact is actually worse than conventional diesel, petrol or kerosene. Even when there are some reductions, at best they are 1% to 14%.

We come to a broader issue, and here I mention the noble Lord, Lord Lansley, who I see is not in his place. Yesterday, on the levelling-up Bill, he was expounding the virtues of the circular economy. Of course, in a circular economy, and thinking about the waste pyramid, the best thing we can possibly do is reduce the amount of waste. There is a risk if we are providing a way out at the other end for plastics, subsidising them as though they were renewables: this could encourage the production of more plastics, which is absolutely the last thing this planet needs, both for climate reasons and for all the other reasons of human health and well-being, microplastics and all the issues we have on a planet that is choked with the stuff already.

There is also the problem, of course, that while recycling is the third-best option—a bad option but not as bad as the others on the waste pyramid—anything that encourages the production of more plastics is an issue. I am aware that the Minister, when we were debating methane earlier this month, complained that people keep quoting scientists at him. I am afraid I am going to do that again, and I make no apology for continuing to do so, because I believe that we should have evidence-based policy that relies on the science. A study was published in Energy in 2017, “The utilisation of oils produced from plastic waste at different pyrolysis temperatures in a DI diesel engine”. I apologise that that is a bit of a mouthful. To boil down the point of this study, there are different ways of doing pyrolysis with fuels made from plastic, but whichever way you do it the air pollution results are worse than diesel.

Many Members of your Lordships’ House will be aware that my noble friend Lady Jones of Moulsecoomb has taken the Clean Air (Human Rights) Bill right through the House and has received very wide backing. There is a real issue here: climate is only one of the many threats we face. Air pollution is a very serious issue. Essentially, we are in a position where it is very clear that we have to stop burning stuff and polluting our planet, whether that is carbon dioxide pollution or other pollutants that come from burning fossil fuels or organic materials. There is a very grave danger in this amendment, I suggest.

Given that we are where we are, I am not going to call for a vote on this; I do not think your Lordships’ House is ready. I do not think we have had sufficient debate on this issue to do that, but I very much hope that today’s debate—and others may contribute as well—will be taken on board when the Bill gets to the other place.

[Lord Teverson (LD)]

My Lords, I also have great concern about this amendment. It seems to me that, on renewable transport fuels, we have a government amendment, in a group of some 20 amendments or more, that changes the taxonomy in the UK, exactly as was said by the noble Baroness, Lady Bennett, and the definition of a renewable fuel. I do not think that is particularly good practice; it is the wrong way to do this. I hope that the Commons, when this goes down the other end, will debate it rather more, because it requires a lot more thought.

I can get my head around the nuclear bit with hydrogen, which has now been well explained to me. I was trying to understand this amendment, I must admit, before the noble Lord, Lord Ravensdale, spoke, but whether it is renewable or not is a debate to be had. I do not have quite such an issue over that, maybe, but it needs to be debated fully. What I have a problem with is more the carbon side, because what we are talking about is no different from energy from waste. Energy from waste is one of the dirtiest forms of energy that is produced. It has other benefits—it does not produce landfill and all that sort of side—but it is not, in any description, a renewable fuel. So I too have great reservations about this amendment. Clearly I am not going to oppose it here today, but I very much hope that the other end of the building will give this much greater scrutiny and see it as a major decision around the taxonomy of renewable fuels and renewable energy when the Bill reaches there.

[Lord Lennie (Lab)]

My Lords, this amendment would allow two other low-carbon fuels to be supported under the existing and forthcoming renewable transport fuel schemes. As we have heard, these are recycled carbon fuels and nuclear-derived fuels. While the noble Lord has created a degree of happiness with the noble Lord, Lord Ravensdale, some unhappiness still exists around the Chamber. These fuels can provide similar carbon emissions savings to the renewable fuels already considered under these schemes. Furthermore, these fuels are crucial for the production of sustainable aviation fuel, which is imperative to achieving the jet zero strategy and fulfilling the forthcoming sustainable aviation fuel mandate.

I will not speak for long on this, because we want to move on, but this amendment would insert a new clause in Chapter 3 of Part 3 of the Bill, providing for recycled carbon fuel and fuel derived from nuclear energy to be treated as renewable transport fuel. Amendment 74, in the name of my noble friend Lord Whitty, would make it clear that the regulator needs to ensure that consumers of heat networks have equivalent consumer protection to those of other suppliers. The Explanatory Notes say of Clause 166:

“This clause provides that GEMA will be the regulator for heat networks in England, Wales and Scotland. The Secretary of State may introduce regulations to appoint a different regulator by affirmative procedure. The regulator in Northern Ireland will be the Northern Ireland Authority for Utility Regulation (NIAUR) subject to a similar power to make changes by secondary legislation.”


I think that is something we can all agree with.

[Lord Callanan (Con)]

I thank all noble Lords who have taken part in this debate. Before I engage in the detail of the amendments, let me respond to the noble Baroness, Lady Bennett. I am sure I have never said that we should not listen to scientists; of course we should, but we should accept that there are sometimes different scientific opinions. I notice that the noble Baroness is very keen to listen to scientists on some occasions, but the Greens are totally opposed to listening to the vast majority of scientists who say that nuclear should provide an essential way of decarbonising the country’s economy.

By way of example, perhaps she would like to look at the mess her Green friends have got themselves into in Germany by their irrational objections to nuclear policy: they have ended up, now that they are in government, supporting the eradication of villages to open more lignite mines, the dirtiest form of coal production, because they got rid of all their nuclear capacity. Obviously they could not have predicted the gas shortages that would come along, but this is the problem you get yourself into with idealistic policies without any practical effect in the real world. Thankfully, I do not think there is any chance of the noble Baroness or her party being in government in the UK to make similar errors and mistakes.

[Baroness Bennett of Manor Castle (GP)]

I have to correct the noble Lord and point out that there are Green Ministers in government in the UK.

[Lord Callanan (Con)]

I accept the noble Baroness’s point—yes, that was an error on my behalf. Of course, Patrick Harvie is my opposite number in Scotland and I discuss these matters with him quite often, although we have never had a nuclear discussion yet.

Turning to the amendments, I thank the noble Lords, Lord Ravensdale, Lord Teverson and Lord Lennie, and the noble Baroness, Lady Worthington, for their contributions on Amendment 58. I thank the noble Lord, Lord Ravensdale, for his engagement and pay tribute to the excellent work of my officials in drafting the amendments. In response to the very appropriate request by the noble Baroness, Lady Worthington, for clarification on fossil fuel waste, both the renewable transport fuel obligation and the forthcoming sustainable aviation fuel mandate are underpinned by strict sustainability and eligibility criteria. This includes requiring qualifying fuels to provide minimum greenhouse gas savings when compared with the fossil fuels they displace.

Fuels produced from nuclear energy are considered to be zero carbon; however, it will be important that we do not incentivise the diversion of electricity generated by nuclear power stations from current uses. The RTFO already includes criteria to ensure that renewable energy—

18:30

[Baroness Bennett of Manor Castle (GP)]

Perhaps the Minister might wish to correct himself. He just referred to nuclear energy as zero carbon. It is of course, as under the Government’s own classification, low carbon.

[Lord Callanan (Con)]

I think I said fuels produced from nuclear energy, but never mind.

The RTFO already includes criteria to ensure that renewable energy used for fuel production is additional to that which would otherwise be supplied, and the same principles would be developed for nuclear power.

With regards to the waste hierarchy, this policy makes effective use of what otherwise would be difficult to manage waste. RCFs are non-recyclable fossil wastes. Utilising these types of wastes to synthesise fuel is a better end-of-life fate than landfill or incineration. It will be important to mitigate risks and ensure adherence to the UK waste hierarchy, so we are in the process of concluding a consultation on detailed policy proposals to ensure that RCFs contribute to and meet our wider objective of effectively reducing the greenhouse gas emissions of fuels. Sustainability criteria are being carefully formulated in consultation with a wide range of scientists, technical experts, other government departments, fuel suppliers and wider stakeholders to ensure that the risks are carefully managed and mitigated. I hope that provides appropriate reassurance to the noble Baroness.

Amendment 13 agreed.

Amendment 14

Moved by

[Lord Callanan]

14: Schedule 5, page 262, line 31, at end insert—
“Enterprise and Regulatory Reform Act 2013
9 In Schedule 4 to the Enterprise and Regulatory Reform Act 2013, in paragraph 35(3) (membership of CMA panel), in the definition of “specialist utility functions”, after paragraph (b) insert—“(ba) an appeal under section 20 of the Energy Act 2023;”Member's explanatory statement
This amendment provides for appeals under Clause 20 to be “specialist utility functions”. This will attract special provisions relating to the composition of groups constituted to carry out such functions.

Amendment 14 agreed.

Clause 55: Interpretation of Part 1

Amendment 15

Moved by

[Lord Callanan]

15: Clause 55, page 49, line 27, after ““licence”” insert “, except where the context otherwise requires,”
Member's explanatory statement
This amendment is consequential on Lord Callanan’s amendment at page 43, line 4.

Amendment 15 agreed.

Clause 57: Revenue Support Contracts

Amendment 16

Moved by

[Lord Callanan]

16: Clause 57, page 52, line 2, after “66,” insert “(Payments to relevant market participants),”
Member's explanatory statement
This amendment provides for the Parliamentary procedure to which regulations under new Clause (Payments to relevant market participants) are to be subject.

[Lord Callanan (Con)]

My Lords, in moving Amendment 16 I will speak also to Amendments 20, 21 and 30 standing in my name.

Amendment 30 further clarifies the scope of the modifications that the Secretary of State can make to certain licences for the purposes of facilitating or supporting the enforcement and/or administration of the hydrogen levy. Before making a proposed modification, the Secretary of State is required to consult the holder of any licence being modified. This will help to ensure that relevant bodies are engaged on proposed modifications. To ensure sufficient scrutiny of proposed modifications, the Secretary of State must also lay a draft of the modifications before Parliament, where they will be subject to a procedure similar to the draft negative resolution procedures used for statutory instruments.

I turn to Amendments 21, 20, and 16. I thank the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, again for their amendments in Committee. Having considered those amendments, the Government are introducing a new clause on the hydrogen levy provisions, which I hope noble Lords will find satisfying. The new clause will enable revenue support regulations to make provisions for amounts to be paid to levied market participants by a hydrogen production counterparty or hydrogen levy administrator. This includes the pass through of payments received by a hydrogen production counterparty from hydrogen producers under revenue support contracts, such as payments made to the counterparty when the market price of hydrogen is higher than the strike price. This will help to ensure that regulations can make provisions for fair and efficient payments and reconciliation arrangements.

Subsection (3) of this new clause was prompted specifically by consideration of Amendment 62 from the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, in Committee. This provision enables the Secretary of State to make regulations requiring that customers of levied market participants benefit in accordance with these regulations from payments made to levied market participants by a hydrogen production counterparty or levy administrator. I beg to move.

[Baroness Liddell of Coatdyke (Lab)]

My Lords, I will speak to Amendment 17. I will not take up much of the House’s time, because this is just about consistency.

The Government have defined a UK low-carbon hydrogen standard, which was updated in July this year, and it includes guidance and a calculator tool for hydrogen producers to use for greenhouse gas emissions reporting and sustainability criteria. It has been designed to demonstrate that low-carbon hydrogen production methods can meet a greenhouse gas emissions test and threshold, and this amendment would require the regulations to have regard to that standard when assessing the eligibility of low-carbon hydrogen production. Using the low-carbon hydrogen standard will ensure that there is consistency for the industry and its users, and will provide them with the degree of certainty that they are looking for when developing their projects.

[Baroness Worthington (CB)]

My Lords, I added my name to Amendment 18 in respect of who should be paying a hydrogen levy. I do not consider that hydrogen is going to play a large role in our broader economy. I think it will have specialised uses: it will be used where it is already used, in the production of fertilisers and in certain chemical processes, and it may well be used as a back-up fuel in extremis when we have no other forms of storage. I say that because it is going to be a relatively expensive commodity, it is not going to be easy to handle and it is not necessarily going to be very safe. For those reasons, I think we are overexcited about hydrogen in general, and the Bill is overexcited about hydrogen—and probably, as a result, about carbon capture and storage, which will also be quite expensive.

The reason I lent my name to this amendment is that it seems particularly egregious to expect electricity billpayers to be picking up the price of this expensive commodity, which is not very safe and quite unlikely to be very useful. Therefore, I think it is really important that the Government listen, and listen to everyone outside this Chamber who is saying that we should not be loading any more costs on to electricity consumers but should be doing the opposite. I am looking forward to the Government taking on this issue to redress the balance of how we are tackling climate change and who is paying. At the moment, the electricity consumer is paying nearly everything and the gas consumer almost nothing.

It is time that we started to recognise the value of electricity. It is hugely efficient, and it can be indigenously produced from our nuclear and homegrown renewables and offshore wind. It is that which we should be supporting, not necessarily this rather expensive alternative. Gas, oil and coal companies will continue to promote it, but it is not for the electricity billpayer to pick up the tab. So I fully support Amendment 18.

I would love to hear a little more from the Minister on new subsection (3) inserted by Amendment 20 in relation to the regulations. It is my understanding that that will enable payments to be made back to consumers, but could those regulations also decide not to impose any hydrogen levies on electricity consumers? I would like to understand the extent to which those regulations could solve this problem.

[Baroness Blake of Leeds (Lab)]

I make reference to the Minister’s amendments, particularly the issue he highlighted of including the new subsection that would allow regulations to make provisions requiring that energy consumers benefit. I want to ask just one question on that. While we welcome that provision, there is a concern. If we are allowing regulations to make this provision, what guarantee is there that they will actually be used? Are the Government committing to using them, if they use Clause 66 powers?

I support all of my noble friend Lady Liddell’s comments on her amendment. The main amendment for me is that just referenced by the noble Baroness, Lady Worthington. We spent a significant amount of time talking about this area in Committee, so I will not go through all the detail. However, as the noble Baroness mentioned, in the circumstances we are in, with the extra pressure on the cost of living from energy bills, why are we looking at a situation where we could be asking householders to pay more money? I acknowledge that there will be further consultation but I hope that, as well as it being done thoroughly, its conclusions will lead to the spirit of our amendment. As shown in our amendments, we believe that the Secretary of State could put a levy on gas shippers but not on gas and electricity suppliers, thus preventing responsibility for the levies falling on households.

We need to reflect on the spirit of the Bill—the whole idea is that, while reforming energy systems, we do everything we can to protect consumers and their ability to pay their bills. Every possible action should be taken to minimise the impact on consumers, focusing always on affordability. I am disappointed that the Minister has not gone further on this point. Unless he indicates a willingness to do so, due to the strong feelings surrounding the protection of consumers from inflated bills, I am minded to test the opinion of the House.

[Lord Callanan (Con)]

My Lords, I will start by addressing Amendments 18 and 19, which the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, have retabled from Committee. I thank the noble Baroness, Lady Worthington, for her contribution. She requested further detail; I will provide clarification in writing, if that is okay with her.

These amendments seek to ensure that funding for the hydrogen production business model can be provided through the Consolidated Fund. They also seek to restrict where a levy may be placed, removing the option for levying energy suppliers and requiring that a levy could be placed only on gas shippers. They are intended, I assume, to take responsibility for levies away from households.

The powers in the Bill already enable Exchequer funding of the hydrogen production business model, which will initially be Exchequer-funded. It is therefore unnecessary to include additional provisions that enable the business model to be funded through the Exchequer.

The proposal in these amendments to require that the levy could be placed only on gas shippers will limit options for the levy design, with possible implications for its costs and ultimate impact on consumers. There is no such thing as a free lunch. A gas shipper levy would be a completely novel scheme, with administration and set-up costs that could be considerably higher than those required to implement a supplier levy; this is well understood.

The Government have set out their intention not to levy gas shippers in the near term. Levies on energy suppliers have been used in the past to support the deployment of low-carbon electricity and increase the proportion of green gas in the gas grid. These levies are well understood by the private sector. By taking a similar approach with the hydrogen levy, we can help provide investors with the confidence they need to invest in low-carbon hydrogen production projects and support the delivery of our 10-gigawatt production capacity ambition.

By seeking to ensure that the levy could be placed only on gas shippers, these amendments appear to try to protect energy consumers from the costs of a levy. However, as I outlined when they were tabled previously, we anticipate that any costs associated with a levy on gas shippers would ultimately be passed on to energy consumers in a very similar way to levies on energy suppliers. As I say, there is no such thing as a free lunch. It is the opinion of all the policy analysts that it is unlikely that the amendments would have their intended effect.

18:45

I recognise the concerns about consumer energy bills, which the Government take extremely seriously. We have given an enormous amount of financial support throughout the winter to try to keep bills as low as possible and are committed to helping ensure that the costs of the UK’s energy transition are fair and affordable for all consumers. The Government continue to focus on providing robust support for energy consumers, including through the energy price guarantee, the energy bills support scheme, the energy bills relief scheme and the energy bills discount scheme. Alongside providing support for households and businesses, the Government are working to help ensure that energy bills remain affordable in the long term. Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown low-carbon energy sector—something this levy is directly aimed at achieving. I am disappointed that the Opposition seem to want to undermine that aim.

I remind noble Lords that the provisions in this Bill will not immediately introduce the levy and that any decision to do so will take into account all relevant considerations, including affordability of energy bills.

Finally, I turn to Amendment 17 from the noble Baroness, Lady Liddell, and the contributions from the noble Baroness, Lady Worthington. I again reassure noble Lords that the Government recognise the need for robust standards on producing low-carbon hydrogen to support the UK’s net-zero targets. The intention of the definition in Clause 61(8) is to ensure that support under hydrogen production revenue support contracts may be provided only in respect of low-carbon hydrogen production which contributes to our decarbonisation ambition.

Clause 61(3) places a duty on the Secretary of State to make provision in regulations for determining the meaning of “eligible” in relation to a low-carbon hydrogen producer. The Government plan to consult on our approach to these regulations shortly; I would very much welcome the contribution of the noble Baroness, alongside those of industry leaders.

The low-carbon hydrogen standard is set out in guidance. We expect it to be updated over time to ensure that it remains fit for purpose and reflects our growing understanding of how new technologies work in practice, including how hydrogen production interacts with the broader energy system. We therefore do not consider it to be the best approach to make express reference to that guidance in primary legislation.

With a focus on investor confidence, our current approach means that the primary legislation provides a clear direction of travel, regulations—which Parliament will of course have the opportunity to scrutinise—and a significant degree of certainty about eligibility, which will provide prospective investors and developers the clarity and transparency they need to bring projects forward. The approach currently set out in the Bill makes the best use of the primary legislation, regulations for setting eligibility, and guidance which can be more responsive to the evolving nature of the low-carbon hydrogen standard.

To respond to the question that the noble Baroness, Lady Worthington, asked me: these regulations are purely about passing on the benefit of payments made to levied market participants and to their customers, not about who is to be levied or exemptions. Decisions regarding the detailed levy design, including in relation to exemptions, will of course be made in due course.

Amendment 16 agreed.

Clause 61: Designation of hydrogen production counterparty

Amendment 17 not moved.

Clause 66: Obligations of relevant market participants

Amendment 18

Moved by

[Baroness Blake of Leeds]

18: Clause 66, page 57, line 25, leave out “relevant market participants (see subsection (8))” and insert “the Consolidated Fund or gas shippers”
Member's explanatory statement
This amendment means the Secretary of State may put a levy on gas shippers, but may not put it on gas or electricity suppliers, thus taking responsibility for levies away from households.

[Baroness Blake of Leeds (Lab)]

My Lords, on behalf of consumers I express my disappointment in the Minister’s response, and I would like to test the opinion of the House.

18:50

Division 2

Ayes: 170

---

Labour: 99
Liberal Democrat: 55
Crossbench: 11
Green Party: 2
Bishops: 2
Independent: 1

Noes: 160

---

Conservative: 149
Crossbench: 6
Independent: 3
Ulster Unionist Party: 1

19:01

Amendment 19 not moved.

Amendment 20

Moved by

[Lord Callanan]

20: After Clause 66, insert the following new Clause—
“Payments to relevant market participants(1) Revenue support regulations may make provision about amounts which must be paid—(a) by a hydrogen levy administrator to relevant market participants, or(b) by a hydrogen production counterparty—(i) to relevant market participants, or(ii) to a hydrogen levy administrator for the purpose of enabling payments to be made to relevant market participants.(2) Regulations by virtue of subsection (1) may make provision—(a) for a hydrogen levy administrator to calculate or determine, in accordance with such criteria as may be provided for by or under the regulations, amounts which are owed by—(i) the hydrogen levy administrator, or(ii) a hydrogen production counterparty;(b) for a hydrogen production counterparty to calculate or determine, in accordance with such criteria as may be provided for by or under the regulations, amounts which are owed by—(i) the hydrogen production counterparty, or(ii) a hydrogen levy administrator;(c) for the issuing of notices by a hydrogen levy administrator to require the payment by a hydrogen production counterparty of amounts calculated or determined by the hydrogen levy administrator in accordance with paragraph (a)(ii);(d) for the issuing of notices by a hydrogen production counterparty to require the payment by a hydrogen levy administrator of amounts calculated or determined by the hydrogen production counterparty in accordance with paragraph (b)(ii); (e) for the provision of copies of notices such as are mentioned in paragraph (c) or (d) to persons specified in the regulations, or the publication of such notices.(3) Revenue support regulations may make provision imposing on a relevant market participant who receives a payment from a hydrogen levy administrator or a hydrogen production counterparty a requirement to secure that customers of the relevant market participant receive, by a time specified in the regulations, such benefit from the payment as may be specified in or determined in accordance with the regulations.”Member's explanatory statement
This amendment enables regulations to require payments to be made to levy payers and to require benefits from such payments to be passed on to customers of levy payers. Lord Callanan’s amendments at page 52, line 2 and page 59, line 23 are consequential on this amendment.

Amendment 20 agreed.

Clause 67: Functions of hydrogen levy administrator

Amendment 21

Moved by

[Lord Callanan]

21: Clause 67, page 59, line 23, after “(9)” insert “or (Payments to relevant market participants) (2) or (3)”
Member's explanatory statement
See the explanatory statement for new Clause (Payments to relevant market participants).

Amendment 21 agreed.

Amendment 22

Moved by

[Baroness Bloomfield of Hinton Waldrist]

22: Clause 67, page 59, line 29, at end insert—
“(4A) Provision made by virtue of subsection (3)(d) for the imposition of a financial penalty must include provision for a right of appeal against the imposition of the penalty.”Member's explanatory statement
This amendment requires regulations under Clause 67(3)(d) (functions of hydrogen levy administrator) that make provision for the imposition of financial penalties to include provision for a right of appeal.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, I rise to speak to the amendments standing in the name of my noble friend, which address recommendations made by the Delegated Powers and Regulatory Reform Committee on the Energy Bill. We are grateful to the committee for its detailed scrutiny of the provisions in the Bill. The committee provided a range of comments and recommendations which the Government have carefully considered. The Minister was pleased to confirm in his response to the committee that the Government have accepted nine recommendations. He also provided further clarification, as requested, in response to the majority of the committee’s other comments. These amendments address the recommendations the Government have accepted, and I hope they will be welcomed by noble Lords.

Turning first to Amendments 22, 34, 48, 49, 50, 51, 52, 55, 64, 76, 77, 92, 93, 99 to 103, 105 and 106, the committee highlighted that certain clauses of the Bill confer powers to make provision for the imposition of civil penalties without mandating a requirement for the regulations to provide for a right of appeal. While it was absolutely the Government’s intention that regulations under such clauses would provide for a right to appeal, we have taken on board the committee’s comments.

These amendments clarify this point and ensure that regulations made under these clauses, which make provision for a civil or financial penalty, must also include provision for a right of appeal to a court or tribunal against the imposition of such a penalty. The committee’s recommendations referred to three specific instances in the Bill. To ensure consistency across the Bill, we have tabled similar amendments to a number of other clauses which make provision for a civil or financial penalty.

Amendments 73, 80 to 90, 96, 107 to 123 and 139 to 142 address the committee’s recommendations relating to changing the procedure to which regulations made under powers in the Bill are subject. The Government agree with the committee on the importance of parliamentary scrutiny. As such, we have tabled amendments to address the committee’s recommendations relating to changing the parliamentary procedure. These amendments will facilitate detailed scrutiny of the powers, when used.

Amendment 91 responds to the committee’s recommendation regarding subsections (3) and (4) of Clause 180, on heat network zoning. The committee had concerns that these provisions would confer powers allowing non-statutory documents to make requirements in relation to the methodology for identifying areas as potential heat network zones. We welcome the committee’s comments, and this amendment will ensure that any non-statutory documents do not have legislative effect. The amendment omits from Clause 180 subsection (3), which provides for the heat network zones authority to publish documents elaborating on one or more aspects of the zoning methodology. It also omits from the same clause subsection (4), which provides that regulations may require the authority and zone co-ordinators to comply with any requirements set out in these documents.

I reiterate my thanks to the Delegated Powers and Regulatory Reform Committee for its engagement and reports on the Bill, and I hope its members will be pleased with the amendments discussed today. I beg to move Amendment 22.

[Lord McLoughlin (Con)]

My Lords, on behalf of the committee, I thank the Government for responding favourably to the report. I hope this is something that other departments will follow through in their subsequent considerations.

[Lord Lennie (Lab)]

My Lords, as we have heard, these amendments relate to ensuring that regulations which make provision for a civil penalty must include the provision of a right of appeal to a court or tribunal against the imposition of such a penalty in a number of instances in the Bill, as recommended by the DPRRC. It is good news that the Government have accepted these recommendations. These amendments have been tabled to make changes to the procedure of regulations under several powers, as recommended by the committee, and to clarify that non-statutory documents do not have legislative effect in relation to heat network zoning methodology. We support these amendments.

Amendment 22 agreed.

Clause 68: Power to appoint allocation bodies

Amendments 23 and 24

Moved by

[Lord Callanan]

23: Clause 68, page 60, line 7, at end insert—
“(1A) The power under each paragraph of subsection (1) may be exercised so that more than one appointment has effect under that paragraph at the same time.”Member's explanatory statement
This amendment makes it clear that more than one appointment of a hydrogen production allocation body or carbon capture allocation body may have effect at the same time.

24: Clause 68, page 60, line 22, after “about” insert “the purposes for which,”
Member's explanatory statement
This amendment is about regulations that treat a person whose appointment as an allocation body has ceased as if they were still so appointed, and enables such regulations to specify for what purposes the body is to be so treated.

Amendments 23 and 24 agreed.

Amendment 25

Moved by

[Lord Callanan]

25: After Clause 74, insert the following new Clause—
“Licence conditions regarding functions of certain allocation bodies(1) In section 7B of the Gas Act 1986, after subsection (5) insert—“(5ZA) Without prejudice to the generality of paragraph (a) of subsection (4), conditions for or in connection with the purpose set out in subsection (5ZB) may be included in a licence under section 7AA by virtue of that paragraph.(5ZB) The purpose is to facilitate or ensure the effective performance (whether in relation to Northern Ireland or any other part of the United Kingdom), at relevant times, of functions of a hydrogen production allocation body under Chapter 1 of Part 2 of the Energy Act 2023.(5ZC) In subsection (5ZB) “relevant times” means times when the hydrogen production allocation body holds a licence under section 7AA.”(2) Where—(a) the GEMA proposes by a modification under section 23 of the Gas Act 1986 of a licence under section 7AA of that Act to add, remove or alter a condition such as is mentioned in section 7B(5ZA) of that Act, and(b) that condition relates to functions of a hydrogen production allocation body that are exercisable in relation to Northern Ireland,section 23 of that Act has effect as if the persons listed in subsection (4)(b) of that section included the Department for the Economy in Northern Ireland.”Member's explanatory statement
This new Clause makes it clear that licences under section 7AA of the Gas Act 1986 may include certain conditions relating to functions of certain bodies appointed under Part 2 of the Bill, and makes related provision about proposed licence modifications.

Amendment 25 agreed.

Clause 77: Information and advice

Amendment 26

Moved by

[Lord Callanan]

26: Clause 77, page 66, line 34, at end insert—
“(ca) for a revenue support counterparty to require a person specified, or of a description specified, in the regulations to provide information to it;”Member's explanatory statement
This amendment enables regulations to provide for a revenue support counterparty to require a person or description of persons to provide information to it.

Amendment 26 agreed.

Clause 78: Enforcement

Amendment 27

Moved by

[Lord Callanan]

27: Clause 78, page 67, line 41, at end insert—
“(3) Revenue support regulations may make provision for special allocation body requirements (or a subset of such requirements) to be enforceable by the GEMA as if they were relevant requirements within the meaning of sections 28 to 30O of the Gas Act 1986.(4) In this section “special allocation body requirements” means requirements imposed by or under revenue support regulations or regulations under section 68 on a hydrogen production allocation body, so far as the requirements relate to times when the body holds a licence under section 7AA of the Gas Act 1986 (including requirements in respect of functions of the body that relate to Northern Ireland).”Member's explanatory statement
This amendment provides for requirements imposed on a hydrogen production allocation body which holds a gas system planner licence to be able to be enforced by the application of provisions of the Gas Act 1986.

Amendment 27 agreed.

Clause 82: Shadow directors, etc

Amendments 28 and 29

Moved by

[Lord Callanan]

28: Clause 82, page 71, line 8, at end insert—
“(ba) a person in accordance with whose directions or instructions the members of a Chapter 1 entity which is a limited liability partnership are accustomed to act;”Member's explanatory statement
This amendment ensures that the Secretary of State will not, by virtue of exercising functions under Chapter 1 in relation to an entity which is a limited liability partnership, be treated (for the purposes of any relevant rule of law) as a person in accordance with whose directions etc the members of a limited liability partnership are accustomed to act.

29: Clause 82, page 71, line 16, at end insert—
“(ba) a person in accordance with whose directions or instructions the members of a revenue support counterparty which is a limited liability partnership are accustomed to act;”Member's explanatory statement
This amendment ensures that an allocation body will not, by virtue of exercising functions under Chapter 1 in relation to a revenue support counterparty which is a limited liability partnership, be treated (for the purposes of any relevant rule of law) as a person in accordance with whose directions etc the members of a limited liability partnership are accustomed to act.

Amendments 28 and 29 agreed.

Clause 83: Modifications of licences etc

Amendment 30

Moved by

[Lord Callanan]

30: Clause 83, page 72, line 26, at end insert—
“(6A) Provision included in a licence, or in a document or agreement relating to licences, by virtue of a power conferred by this section may do anything authorised for licences of that type by—(a) section 7(2A), (3), (4), (5) or (6A) of the Electricity Act 1989,(b) section 7B(5)(a), (6) or (7) of the Gas Act 1986,(c) Article 11(3), (4), (5), (6A) or (6B) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I. 1)), or(d) Article 10(3)(a) to (d), (4), (5) or (6A) of the Gas (Northern Ireland) Order 1996 (S.I. 1996/275 (N.I. 2)).(6B) For the purposes of subsection (6A)(c) and (d), the provisions referred to in those sub-paragraphs are to be read as if references to the Northern Ireland Authority for Utility Regulation included the Secretary of State.”Member's explanatory statement
This amendment further supplements the Secretary of State’s powers under clause 83 to modify certain licences and related documents.

Amendment 30 agreed.

Amendment 31

Moved by

[Lord Callanan]

31: After Clause 83, insert the following new Clause—
“Electricity system operator and gas system planner licences: modifications(1) The Secretary of State may, for the purpose of facilitating or ensuring the effective performance of functions specified in subsection (3), modify—(a) the conditions of a licence under section 6(1)(da) of the Electricity Act 1989 (electricity system operator licence);(b) a document maintained in accordance with the conditions of such a licence, or an agreement that gives effect to a document so maintained.(2) The Secretary of State may, for the purpose of facilitating or ensuring the effective performance of functions specified in subsection (3), modify—(a) the conditions of a licence under section 7AA of the Gas Act 1986 (gas system planner licence);(b) a document maintained in accordance with the conditions of such a licence, or an agreement that gives effect to a document so maintained.(3) The functions referred to in subsections (1) and (2) are—(a) functions of hydrogen production allocation bodies, and(b) other functions under this Chapter which are related to such functions.(4) Modifications under subsections (1) and (2) may only make provision in relation to times when the person holding the licence is a hydrogen production allocation body.(5) The provision referred to in subsection (4) includes consequential or transitional provision in relation to times when it is no longer the case that the person holding the licence is a hydrogen production allocation body. (6) Provision included in a licence, or in a document or agreement relating to licences, by virtue of a power under this section may in particular—(a) include provision of any kind that may be included in revenue support regulations or regulations under section 68;(b) do any of the things authorised for licences of that type by—(i) section 7B(5)(a), (5ZA), (6) or (7) of the Gas Act 1986, or(ii) section 7(3), (4), (5) or (6A) of the Electricity Act 1989.(7) Before making a modification under this section the Secretary of State must consult—(a) the holder of any licence being modified;(b) the GEMA;(c) such other persons as the Secretary of State considers it appropriate to consult.(8) Subsection (7) may be satisfied by consultation before, as well as by consultation after, the passing of this Act.”Member's explanatory statement
This amendment enables the Secretary of State to modify electricity system operator licences and gas system planner licences, and related codes etc, for the purpose of facilitating etc the effective performance of certain functions relating to hydrogen production allocation bodies.

Amendment 31 agreed.

Clause 84: Section 83: supplementary

Amendment 32

Moved by

[Lord Callanan]

32: Clause 84, page 73, line 7, at end insert “or
(b) section (Electricity system operator and gas system planner licences: modifications).”Member's explanatory statement
This amendment is supplementary to new Clause (Electricity system operator and gas system planner licences: modifications)

Amendment 32 agreed.

Clause 85: Financing of costs of decommissioning etc

Amendment 33

Tabled by

[Lord Teverson]

33: Clause 85, page 75, line 30, at end insert—
“(7A) Any decommissioning fund must be ring-fenced and held in an escrow account, or similarly ring- fenced fund.(7B) The funds may be released only when—(a) decommissioning work takes place;(b) it is determined by the Secretary of State that the funds are no longer required for the purpose of decommissioning.”Member's explanatory statement
This amendment ensures that funds for decommissioning are still available when required for decommissioning.

[Lord Teverson (LD)]

I am very happy with the Minister’s reply, and I will not move Amendment 33.

Amendment 33 not moved.

Clause 86: Section 85: supplementary

Amendment 34

Moved by

[Lord Callanan]

34: Clause 86, page 76, line 27, at end insert—
“(3A) Where regulations under section 85(1) provide for the imposition of a civil penalty, they must also provide for a right of appeal against the imposition of the penalty.”Member's explanatory statement
This amendment requires regulations under Clause 85(1) (financing costs of decommissioning etc) that make provision for the imposition of civil penalties to include provision for a right of appeal.

Amendment 34 agreed.

Clause 87: Application of Part 4 of Petroleum Act 1998 in relation to carbon storage installations

Amendments 35 and 36

Moved by

[Lord Callanan]

35: Clause 87, page 77, line 25, leave out subsection (1) and insert—
“(1) Section 30 of the Energy Act 2008 (abandonment of installations) is amended in accordance with subsections (1A) to (1D).(1A) In subsection (1), for “, (2)” substitute “to (2)”.(1B) After subsection (1A) insert—“(1AA) Part 4 of the 1998 Act, in its application in relation to carbon storage installations, has effect with the modifications set out in subsection (1AB).(1AB) The modifications are as follows—(a) in section 30 of the 1998 Act, for subsections (5) and (6) substitute—“(5) This subsection applies to a person in relation to a carbon storage installation if—(a) the person has the right—(i) to use a controlled place for the storage of carbon dioxide (with a view to its permanent disposal, or as an interim measure prior to its permanent disposal),(ii) to convert any natural feature in a controlled place for the purpose of storing carbon dioxide (with a view to its permanent disposal, or as an interim measure prior to its permanent disposal), or(iii) to explore a controlled place with a view to, or in connection with, the carrying on of the activities within sub-paragraph (i) or (ii), and(b) either—(i) any activity mentioned in subsection (6) is carried on from, by means of or on the installation, or(ii) the person intends to carry on an activity mentioned in that subsection from, by means of or on the installation,or if the person had such a right when any such activity was last so carried on.(6) The activities referred to in subsection (5) are—(a) the use of a controlled place for the storage of carbon dioxide (with a view to its permanent disposal, or as an interim measure prior to its permanent disposal) in the exercise of the right mentioned in subsection (5)(a);(b) the conversion of any natural feature in a controlled place for the purpose of storing carbon dioxide (with a view to its permanent disposal, or as an interim measure prior to its permanent disposal) in the exercise of the right mentioned in subsection (5)(a);(c) the exploration of a controlled place in the exercise of the right mentioned in subsection (5)(a) with a view to, or in connection with, the carrying on of activities within paragraph (a) or (b) of this subsection; (d) the conveyance in the controlled place mentioned in subsection (5)(a) of carbon dioxide by means of a pipe or system of pipes, in the exercise of the right mentioned in subsection (5)(a); and(e) the provision of accommodation for persons who work on or from an installation which is or has been maintained, or is intended to be established, for the carrying on of an activity falling within any of paragraphs (a) to (d) of this subsection.”(b) in section 30(7) of that Act, in the words before paragraph (a), for “(c)” substitute “(e)”;(c) in section 31 of that Act, for subsection (B1) substitute—“(B1) This subsection applies to an activity if—(a) where the activity is within paragraph (a), (b) or (c) of section 30(6), the controlled place mentioned in that paragraph is one for which the installation is, or is to be, established or maintained;(b) where the activity is within paragraph (d) of section 30(6), the conveyance of the carbon dioxide relates to a controlled place for which the installation is, or is to be, established;(c) where the activity is within paragraph (e) of section 30(6), the installation is in a controlled place in respect of which P has a licence under section 18 of the Energy Act 2008.”(d) in section 31 of that Act, omit subsection (C1);(e) in section 45 of that Act, in the appropriate place insert—““controlled place” has the same meaning as in section 17 of the Energy Act 2008;”.”(1C) After subsection (4A) insert—“(4B) The powers in subsections (2)(b) and (4) include power to amend or repeal subsections (1AA) and (1AB).”(1D) In subsection (5) for “established or maintained” substitute “or has been maintained, or is intended to be or has been established,”.”Member's explanatory statement
This amendment sets out modifications of Part 4 of the Petroleum Act 1998 as it applies to carbon storage installations and extends the definition of “carbon storage installation” in section 30 of the Energy Act 2008.

36: Clause 87, page 77, line 39, at end insert—
“(3A) In section 29 of the Petroleum Act 1998 (preparation of programmes), in subsection (6), for the words from “in question,” to the end substitute “in question if the Secretary of State has under section 32—(a) rejected that programme, or(b) approved it (whether or not the approval has been withdrawn).”Member's explanatory statement
This amendment abolishes the rule that where an abandonment programme has been approved in relation to an installation or pipe-line the Secretary of State may not serve a further notice under section 29 of the Petroleum Act 1998 in relation to the installation or pipeline unless the approval has been withdrawn.

Amendments 35 and 36 agreed.

Clause 92: Duties with regard to considerations in the statement

Amendments 37 to 39

Moved by

[Lord Callanan]

37: Clause 92, page 83, line 24, after “out” insert “CCUS-related”
Member's explanatory statement
This amendment and Lord Callanan’s amendments at page 83 line 27 and page 84 line 9 make it clear that the duties in subsections (1) and (2) of this Clause only affect functions related to carbon dioxide capture, usage and storage policy.

38: Clause 92, page 83, line 27, after “respective” insert “CCUS-related”
Member's explanatory statement
See Lord Callanan’s amendment at page 83, line 24.

39: Clause 92, page 84, line 9, leave out “subsection (3)” and insert “this section—
“CCUS-related functions” means functions to which the strategic priorities are relevant (not including functions under sections 65 to 67, 78(1) or (2) or 83, or other functions so far as carried out in connection with those functions);”Member's explanatory statement
See Lord Callanan’s amendment at page 83, line 24.

Amendments 37 to 39 agreed.

Amendment 40

Moved by

[Baroness Worthington]

40: After Clause 98, insert the following new Clause—
“Chapter 4ACarbon take back obligationClimate policy for fossil fuel extraction(1) No licence for exploration or extraction of oil, gas, coal or peat (“fossil fuels”) may be granted unless the condition in subsection (2) is met.(2) The condition is that the licensee must agree to produce certification to the economic regulator that the percentage of carbon dioxide which would be emitted when the fossil fuels are extracted and completely oxidised set out in subsection (4) has in each year of operation been captured and disposed of by way of permanent geological storage.(3) The carbon dioxide captured and disposed of under subsection (2) must be either—(a) carbon dioxide removed from the atmosphere, or(b) carbon dioxide that otherwise would have been emitted to the atmosphere under normal business practice.(4) The percentage referred to in subsection (2) is—(a) for years starting from 2025 and ending in 2034, prescribed in regulations;(b) 100 per cent for subsequent years.(5) Where the condition in subsection (2) is not met, the licensee must pay a penalty of £200 per tonne of the carbon dioxide which is not captured.(6) In relation to existing licences for extraction of fossil fuels, no new fossil fuels may be extracted from 2045 without certified evidence that 100 per cent of carbon dioxide emissions which would be emitted when the extracted fossil fuels are extracted and completely combusted are captured and disposed of by way of permanent geological storage.(7) In this section—“emissions” has the meaning set out in section 97 of the Climate Change Act 2008;“permanent geological storage” means storage of carbon dioxide in geological and chemical formations with a view to the permanent containment of carbon dioxide.”Member's explanatory statement
This amendment sets an escalating proportion of carbon dioxide for new fossil fuel extraction licences which must be permanently geologically stored, whilst setting a 2045 requirement for 100% geological storage in relation to existing fossil fuel extraction licences.

[Baroness Worthington (CB)]

My Lords, Amendment 40 relates to the carbon take-back obligation. We had an excellent debate towards the end of Committee about the question of what government policy is on the supply side of the equation of tackling climate change and environmental impact. On one hand, we had a group of Peers who were talking about the need to increase our extraction of fossil fuels and to move into fracking and other types of exotic extraction. On the other hand, we had an amendment which said, “Absolutely no more—turn off the licensing completely”.

It struck me that there needs to be a path through those two positions. We need to start making this industry responsible for the impact of its product. When we look back, we will wonder how we allowed ourselves to carry on extracting fossil fuels in an unlimited way and putting them into the market without the Government having a policy on that aspect of the problem.

This amendment is designed to introduce a policy that would make the extractors of fossil fuels—the oil, gas and coal producers—responsible for the greenhouse gas impact of their product. A requirement to bury back the greenhouse gases arising from those products would be phased in over time. If the industry cannot find sufficient carbon capture and storage opportunities to permanently store those greenhouse gases, it should be paying a buyout price of £200 per tonne of CO₂, representing what is expected to be the social impact price of carrying on this unlimited extraction.

Should the UK be seeking to do this in what is essentially a global market? The international dimensions are at the core of why we need to do it. At the moment, as individual countries and companies, we all tell ourselves that it is important to extract every last gram, ounce or therm of gas, oil and coal out of our economy because others are going to have not to use theirs. Everyone is incentivised to think that they will be the one burning the last therm and the last tonne. Continuing with that approach is a collective international suicide pact. If every country carries on extracting to the very last atom of carbon left in our oil and gas fields, we will go well beyond 1.5 or 2 degrees. In doing so, we will remain hooked on this commodity. It will remain cheap, affordable and available. We will not make the break from fossil fuels that we know we need to in order to address not just climate change but the security, resilience and efficiency of our energy systems.

It is important that we start the debate about government policy on the continued extraction of fossil fuels in this way. At the moment there is no policy. That is why it falls to the planning inspectors to decide whether we should have a new coal mine and to other regulators to keep exploiting the economic value of the North Sea for oil and gas without reference to its future unsustainability. It is not sustainable now. We need to signal a move and acknowledge that this industry needs to adapt. If it wants to pursue carbon capture and storage, let us oblige it to do so.

I am perfectly happy with the Government supporting the first carbon capture and storage projects to get them started and for cost discovery, but there should not be a continued subsidy of that solution. We should oblige the industry to do it. In making it responsible for the impact of its products, it will discover whether it is cost effective, whether it can be done cheaply and whether carbon capture and storage is real. Let us allow industry to discover that. If we give it the obligation, everyone will move forward together on an equal playing field. We could take the responsibility away from the taxpayer and the bill payer and give it to the industry. Quite frankly, at the moment it has more than enough resources and profits to be able to invest in that and to find the least-cost solutions.

Admittedly, Amendment 40 is a big thing to introduce on Report. I am simply seeking to start a debate about this. I hope that I receive some support and that it will be considered in the other place. I look forward to the Minister’s comments. I beg to move.

[Baroness Sheehan (LD)]

My Lords, I have added my name to Amendment 40 tabled by the noble Baroness, Lady Worthington—I hope I can refer to her as my noble friend. I have done so in solidarity with her and in acknowledgement of her dexterity and expertise in handling the excesses of the oil and gas sector, rather than from a steadfast conviction that the carbon take-back scheme is the deterrent needed to curtail the enthusiasm of the financial markets in their continuing and increasing support for the sector.

I want to find out more about the scheme and to raise some questions posed by it. I get that this novel scheme is cleverly devised, accounting for not just the carbon neutrality of the production of fossil fuels but their deployment, subsequent combustion and release into the atmosphere as greenhouse gases. I support that, but I also have concerns.

19:15

Hydrocarbons from fossil fuels are responsible not just for greenhouse gases but for the synthetic plastics that are poisoning our oceans and the for ever chemicals that accumulate even in the most pristine environments remaining to us. For ever chemicals are a class of chemicals known collectively as per and polyfluorinated alkyl substances or PFAS—a family of thousands of human-made substances that never break down in the environment. They are ubiquitous—in food packaging, cosmetics, cookware, waterproof clothing, carpets, mattresses, electronics, firefighting foam retardants, et cetera.

We talk about climate change and chemical exposure as two separate issues, but we really should start thinking about them together as one. The noble Baroness, Lady Bennett, raised this in another amendment. My concern is that, as we move away from fossil fuel combustion and towards renewable energy, the oil and gas industry will pivot even more towards turning its products into poisonous plastics and synthetic chemicals, which are very profitable. The industry has shown time and again how impervious it is to the fact that these products are toxic and do irreparable damage to the only planet we have.

My instinct says that the best place for fossil fuels is in the ground, out of harm’s way. Any system that perpetuates their production must also ensure that we bear down meaningfully on reducing their production. Only the hardest-to-abate residual emissions would be captured and locked away, and I hope the industry will pay for it. With that proviso, ultimately I support this amendment because I too want to see carbon capture and storage a reality. It may well be that DAC—direct air capture—will be necessary to stop runaway climate change. It seems right that storage facilities should be developed and paid for by the companies that made it necessary.

[Baroness Blake of Leeds (Lab)]

I will speak to Amendment 40 in the name of the noble Baroness, Lady Worthington. I acknowledge that this will be her last meeting for some time; I think I am allowed to say that. In my relatively short time here, I have come to value her passionate interjections and her incredible knowledge on the subjects on which she has spoken. I wish the noble Baroness well in her temporary visit overseas and look forward to when she is able to come back and join us. I hope that we can keep in contact in the meantime.

While we do not support new fossil fuel extraction licences, we have to be mindful of existing licences and renewals. We have to take these issues seriously.

It is fair to say that we do not want to turn off the taps, so there will be merit in reducing carbon emissions from those existing licences. To what extent are the Government considering geological storage as a solution? I am sure we have all received briefings giving us the background on how successfully CO₂ has been stored over many years. There is an opportunity, but how much can be stored, and can we make full potential of the opportunities that are presented to us off the shores of this island?

[Lord Callanan (Con)]

I also pay tribute to all the work that the noble Baroness, Lady Worthington, has done. It is indeed a great mystery to all of us why she seemingly wishes to swap the lovely, warm, calm weather of southern England for California, but I suppose that will become clearer over time. I thank her for the contribution she has made, and I am sure that we will hear a lot more from her in the future.

I am happy to contribute to this debate on Amendment 40 and the issue of the carbon take-back obligation for fossil fuel extraction. The concept of such an obligation is indeed worthy of debate, but the noble Baroness will understand when I say that its inclusion in the Bill is a little premature. Our primary instrument to decarbonise the UK economy is the emissions trading scheme, which provides a market price for emissions of carbon dioxide, incentivising investment in decarbonisation and ensuring that it happens wherever—and however—it is most cost effective to do so.

Introducing a carbon take-back obligation now, at such a pivotal time for the development of CCUS in the UK, could create uncertainty for industry and have a detrimental delaying effect on investment, resulting in investors looking to opportunities that exist in many other countries—perhaps even in California; one never knows. Such an obligation could also increase the costs of CCUS, making UK production of steel, chemicals, refinery products and other industrial products more expensive than that of their competitors, potentially impacting on our industrial competitiveness. All these issues need further detailed policy consideration before further legislation can be considered.

As I mentioned to the noble Baroness before the debate, the CCUS Council is the Government’s primary forum for engaging with representatives across the CCUS sector, and we have indeed asked the council to consider and provide advice on carbon take-back obligations. The concept indeed warrants further consideration, but I am sure the noble Baroness will accept that it is not for this Bill at this time. With that explanation, I hope she will feel able to withdraw her amendment.

[Baroness Worthington (CB)]

My Lords, I am grateful to noble Lords who have spoken in this debate, to the noble Baroness, Lady Sheehan, for adding her name, to the noble Baroness, Lady Blake, for her support, and to the Minister for his comments. This is indeed my last outing before I depart after recess. I want to say thank you to everyone who has made me feel so welcome in the 12 years I have been here on and off, intermittently, on different Benches. It has been a privilege and I will genuinely miss it. When things are coming to an end, often you value them even more. Hopefully, I will be back—in the words of Arnold Schwarzenegger.

On the amendment, I am encouraged that this idea is being picked up by the CCUS Council. It seems that it will be difficult for the oil, gas and coal sector to come forward with this as a united voice, but it would definitely be good for it. It would give it clarity and certainty and enable it to take back control of its choices of projects or investments. It would be able to do it from the private sector, knowing that it is obliged to do it, and it would create a market mechanism through which it could operate, which I believe would reduce costs overall to the consumer and to industrial customers. Industry is very good at finding solutions: give it an obligation, get the engineers on it and it will find solutions. It will determine whether the price will come down or whether indeed it will be better for it to pivot fully into a cleaner system based on electricity and clean electricity rather than continuing to take things out of the ground and burn them.

I have some sympathy with the belief that it is probably high time we stopped burning things and moved on, especially as we—Great Britain, the United Kingdom—have grown rich on the back of the industrial revolution that seems to be dragging on. However, we now know that there are alternatives. There is a cleaner, cheaper, more efficient system available to us using electricity wherever it is possible, and where it cannot be used, deriving clean fuels from that electricity. That is the future. The chemical industry and the chemical-based energy system will decline because it will not be able to compete with that manufactured clean alternative. We have to manage that decline and it is incumbent on Governments to help manage it fairly and transition us out of it. This sort of policy would do that, and the industry should embrace it. I hope that the other place will debate it and that a campaign will emerge around it. I look forward to watching that from sunny California, and I wish your Lordships all the best of luck with the end of the Bill. Thank you. I beg leave to withdraw my amendment.

Amendment 40 withdrawn.

Clause 99: Access to infrastructure

Amendments 41 to 47

Moved by

[Lord Callanan]

41: Clause 99, page 90, line 10, leave out from “use” to end of line 15 and insert “relevant infrastructure (whether existing or proposed)”
Member's explanatory statement
This amendment and Lord Callanan’s amendment at page 91 line 6 revise the definition of “relevant infrastructure” for the purposes of Clause 99.

42: Clause 99, page 90, line 19, leave out subsection (3)
Member's explanatory statement
This amendment and Lord Callanan’s amendment at page 90 line 21 and first amendment at page 90 line 25 revise and clarify the description of the power conferred by subsection (1).

43: Clause 99, page 90, leave out line 21 and insert “Without prejudice to the generality of subsection (1), regulations under that subsection may amend, revoke or replace or make provision similar or corresponding to—”
Member's explanatory statement
See the explanatory note for Lord Callanan’s amendment at page 90 line 19.

44: Clause 99, page 90, line 25, at end insert—
“(4A) Regulations under subsection (1)—(a) may confer functions (including discretions) on any person;(b) may confer jurisdiction on a court or tribunal;(c) may create criminal offences or impose civil penalties;(d) may make other provision about enforcement;(e) must provide for any offences created by the regulations to be triable —(i) only summarily, or(ii) either summarily or on indictment.”Member's explanatory statement
See the explanatory note for Lord Callanan’s amendment at page 90 line 19.

45: Clause 99, page 90, line 25, at end insert—
“(4B) Where regulations under subsection (1) impose a civil penalty, they must also provide for a right of appeal against the imposition of the penalty.”Member's explanatory statement
This amendment provides that regulations under Clause 99(1) that contain provision imposing a civil penalty must also include provision for a right of appeal against the imposition of the penalty.

46: Clause 99, page 90, line 28, leave out “economic regulator” and insert “GEMA”
Member's explanatory statement
This amendment ensures that the correct defined term is used for the Gas and Electricity Markets Authority.

47: Clause 99, page 91, line 6, at end insert—
“(7) In this section “relevant infrastructure” means—(a) a site for the geological storage of carbon dioxide that is situated in a regulated place, or(b) a pipeline, situated in a regulated place, which is used or intended to be used to convey carbon dioxide to a site falling within paragraph (a),and any associated installations, apparatus or works.(8) For the purposes of this section a site or pipeline is situated in a “regulated place” if it is situated—(a) in the United Kingdom, or (b) in, under or over—(i) the internal waters of the United Kingdom,(ii) the territorial sea adjacent to United Kingdom, or(iii) waters in a Gas Importation and Storage Zone (within the meaning given by section 1 of the Energy Act 2008).(9) In this section “geological storage” has the same meaning as in Part 1 (see section 55).”Member's explanatory statement
See Lord Callanan’s amendment at page 90, line 10.

Amendments 41 to 47 agreed.

Clause 108: Appeals

Amendments 48 to 52

Moved by

[Lord Callanan]

48: Clause 108, page 97, line 16, at end insert—
“(A1) Scheme regulations that, by virtue of section 106(3), provide that a person is liable to a financial penalty must also provide for a person to have a right of appeal to a court or tribunal against the imposition of the penalty.”Member's explanatory statement
This amendment requires regulations under Clause 101(1) (low-carbon heat schemes) that make provision for the imposition of financial penalties to include provision for a right of appeal.

49: Clause 108, page 97, line 19, leave out “civil”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 97, line 16, which makes provision about appeals against the imposition of a financial penalty.

50: Clause 108, page 97, line 19, after “imposed” insert “(other than financial penalties)”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 97, line 19, which makes provision about appeals against the imposition of a financial penalty.

51: Clause 108, page 97, line 22, leave out “The regulations” and insert “Scheme regulations that make provision by virtue of subsection (1)”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 97, line 16.

52: Clause 108, page 97, line 23, leave out “subsection (1)” and insert “that subsection”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 97, line 16.

Amendments 48 to 52 agreed.

Consideration on Report adjourned until not before 8.26 pm.