Energy Bill [ Lords ] (Fourth sitting)
Andrew Bowie ExcerptsTuesday 6th June 2023
(1 year, 5 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 6 June 2023 - (6 Jun 2023)
The Chair
I am most grateful to the hon. Gentleman for that point of order and for giving me advance notice of it, which gave me the opportunity to discuss the matter —unofficially of course—with officials. They tell me that both new clauses will be tabled imminently—one today, I think, and one very shortly. I hope that satisfies him.
Clause 56
Chapter 1: interpretation
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
I beg to move amendment 23, in clause 56, page 50, line 15, at end insert—
“‘carbon dioxide transport and storage counterparty’ has the meaning given by section 59(3);
‘carbon dioxide transport and storage revenue support contract’ has the meaning given by section section 59(2);”.
This amendment and Amendment 28 substitute new labels for existing labels and are consequential on NC29 and NC31.
The Chair
With this it will be convenient to discuss the following:
Government amendments 25, 24 and 26 to 28.
Clause stand part.
Government amendments 29 to 35.
Clause 57 stand part.
Government amendments 36 to 54.
Amendment 111, in clause 61, page 55, line 6, leave out subsection (8).
Whether or not a producer is an eligible low carbon hydrogen producer should be determined solely by the revenue support regulations, which should reference, among other things, the Low Carbon Hydrogen Standard. If the producer meets the objective criteria to be set out in the regulations, it should not be open to the Secretary of State to determine that that producer will not contribute to a reduction in emissions.
Government amendment 55.
Amendment 112, in clause 62, page 55, line 28, leave out subsection (4).
Whether or not a producer is an eligible low carbon hydrogen producer should be determined solely by the revenue support regulations, which should reference, among other things, the Low Carbon Hydrogen Standard. If the producer meets the objective criteria to be set out in the regulations, it should not be open to the Secretary of State to determine that that producer will not contribute to a reduction in emissions.
Government amendments 56 to 58, 60 and 70 to 74.
Government new clause 29—Designation of hydrogen transport counterparty.
Government new clause 30—Direction to offer to contract with eligible hydrogen transport provider.
Government new clause 31—Designation of hydrogen storage counterparty.
Government new clause 32—Direction to offer to contract with eligible hydrogen storage provider.
Andrew Bowie
I confirm to the hon. Member for Southampton, Test that the new clause on energy-intensive industries will be tabled tomorrow, and the new clause on Great British Nuclear will be tabled early next week. It is a delight to return to the Committee and to serve under your chairmanship again, Mr Gray.
The amendments that I will outline are consequential on the amendments made to introduce hydrogen transport and hydrogen storage business models. Hydrogen business models are required to encourage investment in, and the development of, hydrogen transport and storage infra-structure, alongside the existing provisions in clauses 61 and 62 for hydrogen production business models. The development of hydrogen transport and storage infrastructure, such as pipelines and salt caverns, represents the next critical step in the growth of the hydrogen economy.
Government amendment 23 makes it clear that existing references in clause 59 to transport and storage relate to the transport and storage of carbon dioxide and not to hydrogen. New clauses are to be added to make specific provision for hydrogen transport and storage. Government amendments 28, 29, 36, 38, 40, 42 to 52, 60 and 73 are consequential on Government amendment 23. The amendments substitute new definitions for existing definitions to distinguish carbon dioxide transport and storage from hydrogen transport and storage. Clause 56 provides the meanings and definitions of various terms used in chapter 1.
Government amendment 30 supports the establishment and operation of revenue support contracts as part of the hydrogen transport and hydrogen storage business models. That amendment, alongside other amendments to chapter 1 of part 2 of the Bill, provide the Secretary of State with the power to make regulations to enable hydrogen transport and storage revenue support contracts to be put in place. Those revenue support contracts, as part of the business models, will remove market barriers, most notably high up-front costs and uncertain financial investment returns. The overcoming of those barriers should encourage investment in, and the development of, hydrogen transport and storage infrastructure.
Clause 57 provides the Secretary of State with a power to make regulations about revenue support contracts, which will be known as revenue support regulations. A number of provisions throughout the chapter set out matters that regulations made under the overarching power in clause 57(1) may cover. Revenue support regulations are intended to underpin relevant business model schemes and to help to ensure that revenue support contracts are allocated and managed effectively, and that stable funding flows are in place.
Government amendment 53 seeks to clarify that contracts can be offered only to eligible low-carbon hydrogen producers and that, after the point of contract signature, it is for the contracts to stand on their own two feet and to set the parameters of the ongoing support that they provide. That approach is similar to that of the contracts for difference for renewables, in respect of which it has worked to great success. The amendment ultimately helps to ensure that projects and their investors are absolutely clear on the terms of their support and should help to inspire significant confidence in the new regime. Government amendments 26, 32, 33, 54 and 55 are consequential on Government amendment 53.
Government amendment 56 seeks to clarify that contracts can be offered only to eligible carbon capture entities and that, after the point of contract signature, it is for the contracts to stand on their own two feet and to set the parameters of the ongoing support that they provide. That approach is similar to that of the contracts for difference for renewables, in respect of which, again, it has worked to great success. The amendment ultimately helps to ensure that projects and their investors are absolutely clear on the terms of their support and should help to inspire significant confidence in the new regime. Government amendments 25, 34, 35, 57 and 58 are consequential on Government amendment 56.
Government new clause 29 will enable the designation of a counterparty to administer hydrogen transport revenue support contracts. The delivery of the hydrogen transport revenue support contracts is intended to be via private law contracts between eligible hydrogen transport providers and a hydrogen transport counterparty. The counterparty, which is the subject of the new clause, will manage the contracts and act as a conduit for funding.
The proper functioning of a revenue support counter-party is fundamental to the stability of the revenue support contracts. As the counterparty will be responsible for managing large amount of funds to meet its payment obligations, it is essential for the Secretary of State to exercise a degree of control over how it operates. Government new clause 29 allows the Secretary of State to designate a consenting person to be a counterparty for hydrogen transport revenue support contracts.
Government new clause 30 confers powers on the Secretary of State to issue a direction to a hydrogen transport counterparty. The counterparty will offer a contract to a hydrogen transport provider with a proposed project that the Government wish to support. That will enable a hydrogen transport provider to receive revenue support, which will help to remove market barriers associated with its infrastructure project. In turn, this should see the deployment of hydrogen transport infrastructure in the UK, thereby further supporting the hydrogen economy.
Government new clause 30 will ensure that revenue support regulations can make further provision about a direction, such as the terms that may or must be specified in said direction. Those regulations must include the meaning of “eligible” in relation to hydrogen transport providers with whom the counterparty may enter into a contract. Additionally, the powers are expected to be exercised in relation to successful projects that apply for revenue support under the hydrogen transport business models.
Government new clause 31 will enable the designation of a counterparty to administer hydrogen storage revenue support contracts. The delivery of the hydrogen storage revenue support contracts is intended to be via private law contracts between eligible hydrogen storage providers and a hydrogen storage counterparty. The counterparty, which is the subject of the new clause, will manage the contracts and act as a conduit for funding.
The proper functioning of a revenue support counterparty is fundamental to the stability of the revenue support contracts. As the counterparty will be responsible for managing large amount of funds to meet its payment obligations, it is essential for the Secretary of State to exercise a degree of control over how it operates. Government new clause 31 allows the Secretary of State to designate a consenting person to be a counterparty for hydrogen storage revenue support contracts.
Government new clause 32 confers powers on the Secretary of State to issue a direction to a hydrogen storage counterparty. The counterparty will offer a contract to a hydrogen storage provider with a proposed project that Government wish to support. That will enable a hydrogen storage provider to receive revenue support, which will help to remove market barriers associated with its infrastructure project. In turn, this should see the deployment of hydrogen storage infra-structure in the UK, thereby further supporting our growing hydrogen economy.
Government new clause 32 will ensure that revenue support regulations can make further provision about a direction, such as the terms that may or must be specified in said direction. The regulations must include the meaning of “eligible” in relation to hydrogen storage providers with whom the counterparty may enter into a contract. Additionally, the powers are expected to be exercised in relation to successful projects that apply for revenue support under the hydrogen storage business models.
I commend to the Committee the Government amendments, Government new clauses 29 to 32 and clauses 56 and 57.
Dr Whitehead
Most of the provisions in this group deal with the establishment and terms of a hydrogen counterparty. The establishment of the counterparty is clearly important in the raising and distribution of the hydrogen levy, which we will discuss later. The raising of the levy goes through the counterparty—that is, the counterparty will be responsible for raising the demands of the levy upon whoever is liable to pay it. The counterparty has a substantial role in holding those amounts and distributing them to those who are developing, in this instance, hydrogen production. Of course, that is why it is called the hydrogen production counterparty.
It is a method similar to that adopted by the Low Carbon Contracts Company for arranging to levy charges on, in that instance, the electricity suppliers, and then distributing that to those in receipt of that levy. Those in receipt will primarily get money coming to them through the counterparty by means of the difference between the strike price for what it has been decided to levy on and the reference price—the general price for electricity after the strike price has been agreed. We do not yet have an indication of what the strike price for hydrogen production will be, but we have in front of us the experience of the likely reference price for electricity, which is likely to pertain over the years when the hydrogen levy will be administered by the hydrogen contracts counterparty.
The experience of the Low Carbon Contracts Company is that it is not always the case that money simply comes in and is then disbursed, because on occasions, and indeed on recent occasions, the LCCC has found itself in the position where the reference price and the strike price have inverted—that is, the organisations responsible for paying into the LCCC no longer get a payout from the LCCC because the relationship between the strike price and the reference price is positive. In this instance, then, the LCCC is actually accumulating amounts that it would normally not put into its funds because it would return them straight to the people who have contracted for a difference between the strike price and the reference price but at that point have an obligation to pay into, rather than expect to collect out of, those funds.
There has been some issue with the LCCC in terms of what happens to the money that goes into its funds but is not distributed out. Does that money accumulate in the funds of the LCCC perpetually? Or is it redistributed? If it is redistributed, to whom is it redistributed and on what terms? I do not see any provision for that sort of arrangement to take place, or, indeed, for it to take place in a secure way in the particular interests of consumers—we will talk about the interests of consumers later—in the Bill or in the Government amendments we have debated this morning.
It is important that as soon as the counterparty is in place, the full set of contingent and possible arrangements for the operation of that counterparty are clearly set out. Depending on how electricity prices change over the next few years, the hydrogen production counterparty may well, at a fairly early stage, be in the same sort of position of accumulating additional funds that the LCCC has been in recently. It is therefore important that there are clear provisions, preferably spelled out in the Bill, as to what the counterparty does under those circumstances. Have the Minister and his Department thought about that eventuality? If they have, how does the Minister envisage the hydrogen production counterparty operating under those circumstances? Why has he decided not to put anything in the Bill that gives us greater guidance as to how the counterparty will function?
Andrew Bowie
Let me clarify for the hon. Gentleman that later this morning we will come to clause 67, which specifically enables regulations to make provision for amounts to be paid to levied market participants by the relevant counterparty or hydrogen levy administrator. That includes the pass-through of payments received by the relevant counterparty under revenue support contracts, such as payments made by a hydrogen producer to a hydrogen production counterparty. I hope that answers the hon. Gentleman’s questions in more detail. We will return to this matter later this morning.
Amendment 23 agreed to.
Amendments made: 25, in clause 56, page 50, line 21, for “63(3)” substitute “64(4)”.
This amendment is consequential on Amendment 58.
Amendment 24, in clause 56, page 50, line 21, at end insert—
“‘eligible hydrogen storage provider’ is to be interpreted in accordance with section (Direction to offer to contract with eligible hydrogen storage provider)(4);
‘eligible hydrogen transport provider’ is to be interpreted in accordance with section (Direction to offer to contract with eligible hydrogen transport provider)(4)”.
This amendment adds definitions to the list in clause 56 in consequence of NC29 and NC31.
Amendment 26, in clause 56, page 50, line 23, for “61(3)” substitute “62(4)”.
This amendment is consequential on Amendment 55.
Amendment 27, in clause 56, page 50, line 36, at end insert—
“‘hydrogen storage counterparty’ has the meaning given by section (Designation of hydrogen storage counterparty)(3);
‘hydrogen storage provider’ has the meaning given by section (Designation of hydrogen storage counterparty)(7);
‘hydrogen storage revenue support contract’ has the meaning given by section (Designation of hydrogen storage counterparty)(2);
‘hydrogen transport counterparty’ has the meaning given by section (Designation of hydrogen transport counterparty)(3);
‘hydrogen transport provider’ has the meaning given by section (Designation of hydrogen transport counterparty)(7);
‘hydrogen transport revenue support contract’ has the meaning given by section (Designation of hydrogen transport counterparty)(2);”.
This amendment is supplementary to NC29 and NC31.
Amendment 28, in clause 56, page 51, leave out lines 3 to 6.—(Andrew Bowie.)
See the explanatory note relating to Amendment 23.
Clause 56, as amended, ordered to stand part of the Bill.
Clause 57
Revenue support contracts
Amendments made: 29, in clause 57, page 51, line 16, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 30, in clause 57, page 51, line 16, at end insert—
“( ) a hydrogen transport revenue support contract (see section (Designation of hydrogen transport counterparty)(2)),
( ) a hydrogen storage revenue support contract see section ((Designation of hydrogen storage counterparty)(2)),”.—(Andrew Bowie.)
This amendment adds hydrogen transport revenue support contracts (see NC29) and hydrogen storage revenue support contracts (see NC31) to the definition of “revenue support contract”.
Amendment 31, in clause 57, page 52, line 5, after “60(3),” insert
“(Direction to offer to contract with eligible hydrogen transport provider)(2) or (4), (Direction to offer to contract with eligible hydrogen storage provider)(2) or (4),”.
This amendment provides for regulations under the specified powers to be subject to affirmative procedure.
Amendment 32, in clause 57, page 52, line 5, leave out “61(3)”.
This amendment is consequential on Amendment 53.
Amendment 33, in clause 57, page 52, line 6, after “62(2)” insert “or (4)”.
This amendment is consequential on Amendment 53.
Amendment 34, in clause 57, page 52, line 6, leave out “63(3)”.
This amendment is consequential on Amendment 56.
Amendment 35, in clause 57, page 52, line 6, after “64(2)” insert “or (4)”.—(Andrew Bowie.)
This amendment is consequential on Amendment 56.
Clause 57, as amended, ordered to stand part of the Bill.
Clause 58
Duties of revenue support counterparty
Amendments made: 36, in clause 58, page 53, line 2, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 37, in clause 58, page 53, line 3, after “counterparty,” insert
“hydrogen transport counterparty, hydrogen storage counterparty,”.
This amendment and Amendment 39 make provision for ensuring that hydrogen transport counterparties and hydrogen storage counterparties can meet their liabilities under revenue support contracts.
Amendment 38, in clause 58, page 53, line 4, after “any” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 39, in clause 58, page 53, line 5, after second “contract,” insert
“hydrogen transport revenue support contract, hydrogen storage revenue support contract,”.
See the explanatory statement for Amendment 23.
Amendment 40, in clause 58, page 53, line 8, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 41, in clause 58, page 53, line 8, at end insert—
“(aa) a hydrogen transport counterparty (see section (Designation of hydrogen transport counterparty)(3));
(ab) a hydrogen storage counterparty (see section (Designation of hydrogen storage counterparty)(3));”—(Andrew Bowie.)
This amendment adds hydrogen transport counterparties and hydrogen storage counterparties to the definition of “revenue support counterparty”.
Question proposed, That the clause, as amended, stand part of the Bill.
Andrew Bowie
Clause 58 sets out the duties of a revenue support counterparty and the Secretary of State’s ability to exert control over the activities of a revenue support counterparty, given that its role is critical to the effectiveness of a revenue support contract. It includes, for example, a duty for a counterparty to act in accordance with revenue support regulations and a power for the Secretary of State to specify in regulations things that a counterparty must, can, or cannot do.
The proper functioning of a revenue support counterparty is fundamental to the stability of the revenue support contracts. The counterparty will be responsible for managing large amounts of funds to meet its payment obligations under a contract. It is therefore important for the Secretary of State to exercise a degree of control over how it operates. I therefore commend clause 58 to the Committee.
Dr Whitehead
The clause does indeed provide for a number of duties of the revenue support counterparty. I particularly note the requirement that it
“must exercise the functions”
conferred on it
“by virtue of this Chapter so as to ensure that it can meet its liabilities under any revenue support contract to which it is a party.”
In order to do that, as the Minister has said, the counterparty must be buoyantly funded—shall we say—both in terms of the money coming in and out and the money to enable it to perform its functions.
What regulation is there on the counterparty to ensure that it is carrying out its obligations with its funding, in such a way that there is not too much in the bank, and not too little in the bank to meet its liabilities? As the Minister has said, we will later debate on how that works in with the possible restitution of funds from the counterparty at particular junctures. Is the Minister satisfied that the regulation of the counterparty is sufficient to ensure that it actually operates in that economical way, as far as the use and disbursal of its funds is concerned?
Andrew Bowie
I thank the hon. Member for his question. Again, it is a very pertinent, sensible and serious question, and one on which I am happy to give more clarity. The Government anticipate that the LCCC, which is the existing counterparty for contracts for difference, will be the counterparty for the hydrogen production, industrial carbon capture and waste industrial carbon capture business models—subject to successful completion of administrative and legislative arrangements, obviously.
The LCCC already has experience in similar types of contract management from its role as counterparty to contracts for difference; it is already established in that respect. The LCCC is also anticipated to be the counterparty for the carbon dioxide transport and storage revenue support contracts—again, subject to successful completion of administrative and legislative arrangements.
To address the specific point, in taking the decision to proceed with LCCC as the counterparty, the Secretary of State considered, among other things, its ability to deliver the required functions, and its experience and track record in contract management. Those considerations would be made on any future decisions, which would also be subject to normal principles of public decision making.
The envisaged greenhouse gas removals business model would also require a counterparty to manage the contracts, and the Department for Energy Security and Net Zero is currently assessing options as to the most appropriate organisation to perform that function.
Question put and agreed to.
Clause 58, as amended, accordingly ordered to stand part of the Bill.
Clause 59
Designation of transport and storage counterparty
Amendments made: 42, in clause 59, page 53, line 14, after “for” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 43, in clause 59, page 53, line 15, leave out “‘transport” and insert “‘carbon dioxide transport”.
This amendment is consequential on Amendment 23.
Amendment 44, in clause 59, page 53, line 17, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 45, in clause 59, page 53, line 19, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 46, in clause 59, page 53, line 22, leave out “‘transport” and insert “‘carbon dioxide transport”.
This amendment is consequential on Amendment 23.
Amendment 47, in clause 59, page 53, line 28, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 48, in clause 59, page 53, line 30, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 49, in clause 59, page 53, line 32, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 50, in clause 59, page 53, line 36, after “any” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 51, in clause 59, page 53, line 38, after first “a” insert “carbon dioxide”.—(Andrew Bowie.)
This amendment is consequential on Amendment 23.
Question proposed, That the clause, as amended, stand part of the Bill.
Andrew Bowie
Initial licensed carbon dioxide transport and storage companies are expected to be supported by a revenue support agreement, which is a contractual arrangement to be entered into by a counterparty. The clause will enable the Secretary of State to designate a consenting person to be a counterparty for carbon dioxide transport and storage revenue support contracts. A counterparty will be responsible for managing the contracts and making payments to the contract holders, as well as collecting any necessary payments from contract holders, as set out in the contracts.
Clause 60 confers a power on the Secretary of State to issue a direction to a carbon dioxide transport and storage counterparty to offer to contract with an eligible person. It also ensures that revenue support regulations can make further provision about a direction—for example, the terms that may or must be specified in a direction. I commend the clauses to the Committee.
Dr Whitehead
The clause designates a transport and storage counterparty to perform a similar function to that of the hydrogen production counterparty or, indeed, to that of the LCCC. In the case of the hydrogen production counterparty, the Government’s intention is to roll the function in with the LCCC, so that the LCCC has an expanded role. I am not quite so clear about the Government’s intention for the carbon dioxide transport and storage counterparty. Is it the Government’s intention that that counterparty will also be rolled into the LCCC? If so, does the Minister not think that that will be a rather giant organisation responsible for different streams of funding in different ways? In such circumstances, are the Government satisfied that the streams could be sufficiently separate from each other to ensure the efficient running of all the different strands that will increasingly come under, in effect, one counterparty company?
Andrew Bowie
The hon. Gentleman is right to point out the inherent risks in the model. However, it is incumbent on the Secretary of State, the Department, the Government and indeed Parliament to assess and to keep watch continually on the arrangements to ensure that they are fit for purpose as we proceed and develop our hydrogen industry to the extent that we want to in future. The LCCC already does similar types of contract management in its existing role as the counterparty to the contracts for difference, so I do not envisage that as being as big a challenge as the hon. Gentleman sets out, but I accept the inherent risks, in particular in what we will be doing under the Bill, which is something completely new. Of course it is right for Parliament to have a role in scrutinising the Government to ensure that the model that we establish keeps pace and is fit for what we seek to do in future.
Question put and agreed to.
Clause 59, as amended, accordingly ordered to stand part of the Bill.
Clause 60
Direction to offer to contract
Amendment made: 52, in clause 60, page 54, line 3, after “a” insert “carbon dioxide”.—(Andrew Bowie.)
This amendment is consequential on Amendment 23.
Clause 60, as amended, ordered to stand part of the Bill.
Clause 61
Designation of hydrogen production counterparty
Amendments made: 53, in clause 61, page 54, line 18, leave out from second “contract” to “was” in line 22 and insert—
“to which a hydrogen production counterparty is a party and which”.
This amendment modifies the definition of “hydrogen production revenue support contract”.
Amendment 54, in clause 61, page 54, line 25, leave out subsection (3).—(Andrew Bowie.)
This amendment is consequential on Amendment 53.
Andrew Bowie
I beg to move amendment 3, in clause 61, page 55, line 8, after “on)” insert “in the United Kingdom”.
This amendment and Amendment 4 provide that activities by virtue of which a person qualifies as a “low carbon hydrogen producer” must be carried on in the United Kingdom (including the specified offshore areas).
The Chair
With this it will be convenient to discuss the following:
Government amendment 4.
Clause 61 stand part.
Clause 62 stand part.
Andrew Bowie
Government amendments 3 and 4 relate to the territorial application of chapter 1 of part 2 of the Bill. As drafted, the existing provisions do not expressly set out the territorial application of provisions establishing the framework for hydrogen production revenue support contracts and counterparty. Government amendment 3 makes it absolutely clear that a “low carbon hydrogen producer” must carry out activities in the UK, in line with Government intentions for the hydrogen production business model to be applied on a UK-wide basis.
Government amendment 4 operates in conjunction with amendment 3, and relates to the territorial application of chapter 1 of part 2 of the Bill. As drafted, these provisions do not expressly cover hydrogen production activities carried out in offshore areas. Although the low-carbon hydrogen industry is nascent, the Government are aware of the potential for low-carbon hydrogen production to be located offshore, for example, co-located with offshore wind farms.
Government amendment 4, therefore, makes it clear that a low-carbon hydrogen producer must carry out activities in the United Kingdom, which is to be defined in subsection (9) as including activities in, above or below: (a) the territorial sea adjacent to the United Kingdom; and (b) waters in a renewable energy zone, within the meaning of chapter 2 of part 2 of the Energy Act 2004.
Turning to clause 61, the delivery mechanism for the hydrogen production business model is intended to be private law contracts. Those contracts are intended to be between eligible low-carbon hydrogen producers and a hydrogen production counterparty. The clause will enable the Secretary of State to designate a consenting person to be a counterparty for hydrogen production revenue support contracts. A counterparty will be responsible for managing the contracts and making payments to the contract holders, as well as collecting any necessary payments from contract holders, as set out in the contracts.
Clause 62 confers a power on the Secretary of State to issue a direction to a hydrogen production counterparty to offer to contract with an eligible low-carbon hydrogen producer. It also ensures that revenue support regulations can make further provision about a direction, for example the terms that may or must be specified in a direction. Clause 62 also requires regulations to make provision for determining the meaning of “eligible” in relation to a low-carbon hydrogen producer. The powers under clause 62 are expected to be first exercised in relation to the successful projects coming through the ongoing electrolytic hydrogen allocation round and carbon capture, usage and storage cluster sequencing process. In future, the expectation is that hydrogen production revenue support contracts will be awarded by way of a more competitive allocation process. Provisions to achieve that are also provided for in the Bill.
Dr Whitehead
The Minister kindly wrote to me a little while ago about the questions raised in this Committee about the UK seabed, which is the subject of Government amendment 4. I was grateful that he wrote to me so quickly after that debate, but his letter did not entirely set my mind at rest about the problem we raised on that occasion, which is also pertinent to hydrogen production.
As the Minister stated, it is entirely possible and feasible that hydrogen production could take place at sea, either on energy islands, converted rigs or specific platforms set up for that purpose, in conjunction with offshore wind farms. A number of those wind farms and installations will be well beyond the limits of the territorial sea adjacent to the United Kingdom.
My question in the previous debate that prompted the Minister’s letter to me was: what is the jurisdiction in relation to what is in the UK economic zone up to 200 miles, but beyond the 12-mile territorial sea adjacent to the United Kingdom? In his letter, the Minister effectively repeated the idea that the territorial sea adjacent to the United Kingdom was indeed the 12-mile zone. Does the Minister have any further clarification this morning about the relationship of the two different zones, and how they interact in terms of effective jurisdiction for these activities?
Andrew Bowie
I do indeed have an answer for the hon. Gentleman. As the hon. Gentleman and I have set out in Committee and in the letter, the territorial sea adjacent to the United Kingdom is the sea that extends 12 nautical miles from the low-water line along the coast, as defined in section 1 of the Territorial Sea Act 1987. However, the renewable energy zone extends from the boundary of the territorial sea to an area within the UK’s exclusive economic zone.
Andrew Bowie
I beg to move amendment 7, in clause 63, page 55, line 33, after “be” insert “(a)”.
This amendment is supplementary to Amendment 9.
The Chair
With this it will be convenient to discuss the following:
Government amendments 8, 9, 5 and 10.
Amendment 84, in clause 63, page 56, line 26, leave out
“that has been produced by commercial or industrial activities”.
This amendment seeks to ensure that Direct Air Capture technologies and other engineered greenhouse gas removals are not excluded from these measures so that we leave open the option to include these technologies in revenue support contracts in the future.
Government amendment 6.
Clause stand part.
Clause 64 stand part.
Government amendment 11.
Andrew Bowie
Government amendment 5 relates to the territorial application of chapter 1 of part 2 of the Bill. As drafted, the provisions do not expressly set out the territorial application of provisions establishing the framework for carbon capture revenue support contracts for counterparties. Amendment 5 therefore makes it clear that a carbon capture entity must carry out activities in the UK in line with Government intentions to support the deployment of CCUS across the UK.
Government amendment 6 relates to the territorial application of chapter 1 of part 2 of the Bill and works in conjunction with amendment 5. As drafted, the provisions do not expressly cover carbon capture activities carried out in offshore areas. While the carbon capture industry is nascent, the Government are aware of the potential for carbon capture activities to be located offshore. Amendment 6 makes it clear that a carbon capture entity must carry out activities in the United Kingdom, to be defined in the subsection that it will insert—clause 63(9)—as including
“activities in, above or below”.
Greenhouse gas removal technologies will have an important role to play in reaching net zero to mitigate the impact of residual emissions from hard-to-abate sectors, and the Government have been very clear on their intention to capitalise on the economic benefits from that emerging sector. Government amendment 9 will enable the Government to assign the most appropriate counterparty to oversee contractual support to GGR developers over the coming decades as the technologies and their corresponding regulation evolve. That avoids the risk that the resignation of a single counterparty negatively impacts other carbon capture and business models choosing to remain with their originally designated counterparty. The amendment forms part of our broader approach to uphold our commitments and scale up engineered GGRs to deliver new export opportunities, unlocking high-quality green jobs across the UK.
Alongside other measures in the Bill, Government amendment 10 seeks to clarify the language used in the title section of the Bill to reflect that multiple forms of carbon capture, including greenhouse gas removals, can be enabled under the legislation. The amendment forms part of our broader approach to uphold our commitments and scale up engineered GGRs to deliver new export opportunities, unlocking high-quality green jobs across the UK. Government amendments 7 and 8 are consequential on amendment 10 and enable the appointment of a counterparty for any of the types of carbon capture revenue support contract.
Turning to clause 63, the delivery mechanism for the industrial carbon capture business models is intended to be private law contracts. The contracts are intended to be between eligible carbon capture entities and a carbon capture counterparty. Direct air carbon capture and storage—DACCS—is another form of carbon capture intended to fall under clause 63. The Government are minded to develop a GGR business model covering DACCS based on a revenue support contract model. The legislation is needed to ensure that we can facilitate a contractual arrangement to be entered into by a counterparty.
The clause will enable the Secretary of State to designate a consenting person as a counterparty for carbon capture revenue support contracts or for any one or more descriptions of carbon capture revenue support contract. A counterparty will be responsible for managing the contracts and for making payments to the contract holders, as well as for collecting any necessary payments from contract holders, as set out in the contracts.
Clause 64 will confer a power on the Secretary of State to issue a direction to a carbon capture counterparty to offer to contract with an eligible carbon capture entity. It will ensure that revenue support regulations can make further provision about a direction, such as the terms that may be specified in it. Clause 64 also requires regulations to make provision for determining the meaning of “eligible” in relation to a carbon capture entity
The powers under clause 64 are expected to be first exercised in relation to the successful projects coming through the ongoing CCUS cluster sequencing process. The current expectation is that, in future, industrial carbon capture business model revenue support contracts will be awarded by way of a more competitive allocation process, enabled by provisions that are also in the Bill.
I therefore beg to move that Government amendments 5, 6, 7, 8, 9, 10 and 11 be made and that clauses 63 and 64 stand part of the Bill.
The Chair
Order. I am sorry for nit-picking, but technically the Minister is only moving Government amendment 7. The other amendments will be moved once we get to the appropriate point.
Dr Whitehead
Thank you, Mr Gray.
Opposition amendment 84 would amend the definition of “carbon capture entity” in clause 63(8). We tabled it because we considered that definition insufficient to encapsulate what is now increasingly likely to be at least part of carbon capture and storage activity: DACCS, which involves carbon that has been captured from the air, or indeed from the sea. The DACCS process is up and running in the UK on an experimental basis and will undoubtedly become quite a substantial element of carbon capture in future, so we thought it important that direct air capture technologies should be included within the definition of “carbon capture entity”.
I thought we might have a bit of discussion about that point this morning, but I observe that, subsequent to our tabling amendment 84, the Government have tabled amendment 10, which results in similar wording. My first point is a positive one: well done to the Government on that. My second, slightly less positive point is, “Why couldn’t you have done that in the first place?”
My third point is one for the record: it may be that the Government and the Opposition’s thoughts were running along entirely parallel lines at precisely the same moment. Alternatively, it may be that the Government looked at our amendment and thought, “Oh, we haven’t done that—maybe we ought to, but of course we can’t accept an Opposition amendment, so we’ll have to use our own.” It might have been nice for the Government to say, “You’re absolutely right, so we’ll accept your amendment,” but I am fairly graciously saying that I am pleased that they have managed to table amendment 10. On that basis, it does not seem necessary to proceed with our amendment 84 this morning. We can rest satisfied that we maybe played a small part in the general progress of the Bill through the House.
Andrew Bowie
All I would say to the hon. Gentleman is that, of course, imitation is the most sincere form of flattery. While I do not deny that the Government and the Opposition were thinking along the same lines at exactly the same time, and therefore came to the same conclusion, I am glad that he is not going to press amendment 84 to a vote, and that he accepts that the definition in our amendment covers the definition of direct air capture and carbon storage. We share the view that greenhouse gas removal technologies will be essential to reach net zero, and I am glad that, as has so far been the case with most of the Bill, there is broad cross-party agreement about where we are headed, and definitions required to get there.
The Chair
The cliché that sprang to mind was, “Great minds think alike,” although I would not necessarily add the second part, which is, “though fools seldom differ.”
Amendment 7 agreed to.
Amendments made: 8, clause 63, page 55, line 33, at end insert—
“(b) a counterparty for any one or more descriptions of carbon capture revenue support contract.”
This amendment enables the Minister to designate a person to be a counterparty for particular descriptions of carbon capture revenue support contracts.
Amendment 56, clause 63, page 55, line 34, leave out from second “contract” to “was” in line 1 on page 56 and insert
“to which a carbon capture counterparty is a party and which”.
This amendment modifies the definition of “carbon capture revenue support contract”.
Amendment 57, clause 63, page 56, line 4, leave out subsection (3).
This amendment is consequential on Amendment 56.
Amendment 9, clause 63, page 56, line 10, leave out from “may” to end of line 17 and insert—
“(a) exercise the power under paragraph (a) of subsection (1) so that more than one designation has effect under that paragraph;
(b) exercise the power under paragraph (b) of that subsection so that more than one designation has effect in respect of any description of carbon capture revenue support contract.”
This amendment removes limitations on the Minister’s ability to designate more than one counterparty for carbon capture revenue support contracts, and supplements Amendment 8 by confirming that there may be, at the same time, more than one counterparty for a particular description of carbon capture revenue support contract.
Amendment 5, clause 63, page 56, line 25, after “on)” insert “in the United Kingdom”
This amendment and Amendment 6 provide that activities by virtue of which a person qualifies as a “carbon capture entity” must be carried on in the United Kingdom (including the specified offshore areas).
Amendment 10, clause 63, page 56, line 25, leave out from “on)” to end of line 27 and insert
“, with a view to the storage of carbon dioxide, activities of capturing carbon dioxide (or any substance consisting primarily of carbon dioxide) that—
(i) has been produced by commercial or industrial activities,
(ii) is in the atmosphere, or
(iii) has dissolved in sea water.”
This amendment widens the definition of “carbon capture entity” to bring within it capturing carbon dioxide from the atmosphere or from sea water.
Amendment 6, clause 63, page 56, line 29, at end insert—
“(9) In subsection (8) the reference to carrying on activities in the United Kingdom includes carrying on activities in, above or below—
(a) the territorial sea adjacent to the United Kingdom;
(b) waters in a Gas Importation and Storage Zone (within the meaning given by section 1 of the Energy Act 2008).”—(Andrew Bowie.)
See the explanatory statement relating to Amendment 5.
Clause 63, as amended, ordered to stand part of the Bill.
Clause 64
Direction to offer to contract
Amendment made: 58, clause 64, page 57, line 5, leave out subsection (4) and insert—
“(4) Revenue support regulations must make provision for determining the meaning of “eligible” in relation to a carbon capture entity.”—(Andrew Bowie.)
This amendment is consequential on Amendment 56.
Clause 64, as amended, ordered to stand part of the Bill.
Clause 65
Appointment of hydrogen levy administrator
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 12 and 59.
Amendment 117, clause 66, page 58, line 26, leave out from “regulations,” to end of line 27 and insert
“including but not limited to—”
This amendment seeks to define relevant market participants on a wider basis than purely gas suppliers, electricity suppliers and gas shippers.
Clause 66 stand part.
Government amendments 61 to 69.
Clauses 67 and 68 stand part.
Andrew Bowie
This group concerns clauses 65 to 68, regarding the hydrogen levy. Let me turn first to clause 66 and Government amendments 12 and 59.
Government amendment 12 will overturn the amendment to the levy provisions made on Report in the other place. The amendment would have ensured that the funding for the hydrogen production business model could be provided through the Consolidated Fund. However, the financial assistance power in part 2 already enables Exchequer funding of low-carbon hydrogen production. Indeed, I remind members of the Committee that the hydrogen production business model will initially be funded through the Exchequer.
The Lords amendment would also restrict where a hydrogen levy could be placed, thereby removing the option to levy gas and electricity suppliers and providing that a levy could be placed only on gas shippers. Investor confidence and developer confidence are critical to realising the potential benefits of the UK hydrogen economy, which could support more than 12,000 jobs and unlock up to £11 billion in private investment by 2030.
CCUS-enabled hydrogen projects are also expected to play a key role in the Government’s plans to deploy CCUS in four industrial clusters by 2030. Other countries are investing heavily in hydrogen and CCUS, and it is important that we do not miss this opportunity to deliver high-quality jobs and growth.
Government amendment 59 will expand the existing levy provisions to allow the Secretary of State to make regulations to establish a levy to fund hydrogen transport and hydrogen storage revenue support contracts, and associated costs, in addition to the hydrogen production business model.
The Government have not reached a decision on how the hydrogen transport and storage business models will be funded, but the powers in the Bill enable both Exchequer and levy funding options. That approach will ensure that there are robust, reliable options available to fund the business models. That will help to support investor and developer confidence in the future of the UK’s hydrogen infrastructure, encouraging private investment, which is critical to kick-starting and growing the hydrogen economy.
Andrew Bowie
I will start by speaking to amendment 117. I assure the hon. Member for Southampton, Test that the Government carefully considered the possible levy payers listed in the Bill when it was introduced in the other place. Levies on electricity and gas suppliers have been successfully used to support the deployment of low-carbon electricity and to increase the proportion of green gas in the gas grid. Those funding mechanisms are well understood by the private sector and can help to bolster investor confidence in the viability of funding for hydrogen.
Gas shippers were included as another possible option for the levy design, which allows for a greater range of options for a future levy design while appropriately narrowing the scope. The amendment in the other place was also intended to enable Exchequer funding of the hydrogen business model, but the powers in the Bill already provide for that arrangement. The hydrogen production business model will initially be Exchequer-funded. That aspect of the amendment would therefore introduce redundant provisions to the Bill.
Let me turn briefly to the thoughtful and serious comments made by the shadow Minister, the hon. Member for Southampton, Test, as well as my right hon. Friend the Member for Elmet and Rothwell and the hon. Members for Sheffield, Hallam and for Bristol East. I thank the hon. Member for Southampton, Test for bringing to the Committee’s attention the fact that the Government do care about and recognise the huge pressure that has been put on everyone in this country as a result of Vladimir Putin’s invasion of Ukraine, and the highly fluctuating gas markets and huge increase in energy bills that we have seen as a consequence. I thank him for reminding the Committee that this Government stepped up late last year to pay half of everybody’s energy bills—that is £1,500 per person. We consider very much the impact of any policy decision, any action taken by the Government and any action taken by forces outwith our control on people’s energy bills, particularly this year, when people across the country have been paying record amounts.
I recognise the experience that my right hon. Friend the Member for Elmet and Rothwell spoke so powerfully about; when knocking on people’s doors earlier last year, there was a genuine fear about the impact that the rise in energy bills would have on individual circumstances. That fear was not confined to those people who were sadly already worried—it was across the piece. We have got to pay close attention to that and bear it in mind when we reach any decision in Government that may affect those bills even further.
I say to all the Members who have expressed an opinion today, and to all those engaged in the debate outside this place, that the design of the hydrogen production levy is ongoing, and discussions as to what form that levy will take—or whether it will exist—continue. Those discussions will take into account all relevant considerations, including the affordability of energy bills, which I hope I have made clear the Government take incredibly seriously. We will continue to have discussions and consult on the future design of the said levy as we move forward.
Question put and agreed to.
Clause 65 accordingly ordered to stand part of the Bill.
Clause 66
Obligations of relevant market participants
Amendment proposed: 12, in clause 66, page 57, line 25, leave out “the Consolidated Fund or gas shippers” and insert “relevant market participants (see subsection (8))”.—(Andrew Bowie.)
This amendment reverses the amendment to clause 66 made at Report stage in the Lords, so that a levy may be imposed on gas suppliers or electricity suppliers as well as on gas shippers.
Question put, That the amendment be made.
Andrew Bowie
Clauses 69 to 76 concern the allocation of contracts. Clause 69 enables the Secretary of State to appoint one or more persons to act as allocation bodies. They will be responsible for administering competitive allocation processes for hydrogen production and carbon capture revenue support contracts. While initially, to support an emerging market, business model contracts are expected to be awarded bilaterally, it is the ambition of this Government to transition to more competitive allocation processes for hydrogen production and carbon capture revenue support contracts. For the hydrogen production business model, our ambition is to move to price-based competitive allocation from 2025, as soon as legislation and market conditions allow.
Clause 70 gives the Secretary of State the power to issue and revise standard terms of hydrogen production revenue support contracts and carbon capture revenue support contracts. The power also enables the Secretary of State to designate particular standard terms as terms that may not be modified under clause 74.
Clause 71 sets out how an allocation body can notify a hydrogen production or carbon capture counterparty of an allocation decision and enables the design of the allocation process to change over time. Clause 72 builds on clause 71, enabling the Secretary of State to make regulations setting out how hydrogen production and carbon capture revenue support contracts are to be allocated as part of a more competitive process. That includes allowing the Secretary of State to make regulations conferring a power on the Secretary of State to set the rules of allocation in an allocation framework. The expectation is that an allocation framework will be produced and published for allocation rounds and will act as a rulebook for how allocation rounds will operate.
Clause 73 sets out how a hydrogen production or carbon capture counterparty must act upon a notification from an allocation body under clause 71. Any offer to contract is required to be on the standard terms, or on the standard terms as modified in accordance with the procedure provided for in clause 74. This clause enables further regulations to be made that may include setting out the time in which the offer must be made or what happens if the eligible person does not enter into a contract as a result of the offer.
Clause 74 enables a hydrogen production or carbon capture counterparty to agree modifications to the standard terms with low-carbon hydrogen producers or carbon capture entities. These adjustments may be required because it is not possible for the standard terms to anticipate every technology or project-specific issue. Clause 75 clarifies that regulations made using powers in clauses 71 to 74 may include, for example, requirements for how allocation is to be determined competitively, as well as procedures that should be followed and consideration of specified matters and the opinions of specified persons when making any determinations under the regulations. For example, the clause could enable a counterparty to determine whether an applicant has provided sufficient information and evidence that a modification of standard terms is both minor and necessary.
Clause 76 makes clear that a gas system planner licence may include conditions aimed at facilitating or ensuring the effective performance by the independent system operator and planner of any hydrogen production allocation body functions. It also provides that where the Gas and Electricity Markets Authority proposes to add, remove or alter such a condition that relates to Northern Ireland, GEMA must notify the Department for the Economy in Northern Ireland. With those explanations, I beg to move that clauses 69 to 76—
The Chair
For clarity, I group various things together in one group when it is convenient to discuss them together. The Minister moves only the first clause in that group. Therefore, in this case the Minister moves only clause 69.
Dr Whitehead
These are all riveting clauses, which seem to be pretty well put together. We have nothing to say about them, other than that we trust they will be part of the Bill.
Question put and agreed to.
Clause 69 accordingly ordered to stand part of the Bill.
Clause 70 ordered to stand part of the Bill.
Clauses 71 to 76 ordered to stand part of the Bill.
Clause 77
Further provision about designations
Amendments made: 70, in clause 77, page 66, line 35, after “59,” insert “(Designation of hydrogen transport counterparty), (Designation of hydrogen storage counterparty),”.
This amendment together with Amendments 71, 72 and 74 make supplemental provision about designations under NC29 and NC31.
Amendment 71, in clause 77, page 67, line 3, after “59,” insert “(Designation of hydrogen transport counterparty), (Designation of hydrogen storage counterparty),”.
See the explanatory statement for Amendment 70.
Amendment 72, in clause 77, page 67, line 9, after “59(1),” insert “(Designation of hydrogen transport counterparty)(1), (Designation of hydrogen storage counterparty)(1),”
See the explanatory statement for Amendment 70.
Amendment 73, in clause 77, page 67, line 12, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 74, in clause 77, page 67, line 12, after “counterparty,” insert “hydrogen transport counterparty, hydrogen storage counterparty,”.—(Andrew Bowie.)
See the explanatory statement for Amendment 70.
Question proposed, That the clause, as amended, stand part of the Bill.
Andrew Bowie
Clause 77 enables the Secretary of State to revoke a counterparty designation by notice. A designation will also cease to have effect if the counterparty withdraws consent to the designation by giving not less than three months’ notice in writing to the Secretary of State. Subsection (4) enables the Secretary of State to make provision in regulations enabling a person who has ceased to be a revenue support counterparty to continue to be treated as such a counterparty, including provision about the circumstances in which, and the period for which, such a person may be so treated. I recommend that clause 77 stand part of the Bill.
Question put and agreed to.
Clause 77, as amended, accordingly ordered to stand part of the Bill.
Clause 78
Application of sums held by a revenue support counterparty
Dr Whitehead
I beg to move amendment 86, in clause 78, page 67, line 31, at end insert—
“(4A) Revenue support regulations may make provisions for the return of sums held by a revenue support counterparty that have been secured from gas shippers over and above necessary reserve levels to energy supply customers.”
This amendment would guarantee that, where shippers have above what is in reserve provision, the difference would be restored directly to customers from the shippers (in contrast to the way the LCCC works with retailers/customers now).
The amendment follows on from the discussion that we had earlier in Committee about the role of the hydrogen production counterparty in administering the sums that may come its way. We have already had some discussion about the counterparty, which will potentially be enormous in terms of its likely new duties both in hydrogen production and in carbon capture and storage. The counterparty will have a very large amount of money coming in and out, and possibly staying in its reserves and being allocated for the purposes of what the counterparty is being set up for—to develop hydrogen production in this instance, but also carbon capture and storage development.
What is the position at the moment with the LCCC, which, as we have agreed, is likely to be the designated body for the counterparty for various things? The position at the moment is that there is no position on what the LCCC does with sums over and above what is necessary for it to hold in reserve or as contingency for the pay-out of sums to hydrogen production bodies, which is an important omission, because there is no specific guidance or legislative certainty. In practice, the LCCC hands over money greater than its reserves where it has accumulated additional sums of money because of the periodic inversions of strike price and reference price—hence there is money coming into it, rather than being paid out of the LCCC. It does pay those sums out, but there is no certainty as to where they go. Indeed, there is no certainty that anything should be paid out. At the moment, it would be quite possible for the LCCC to say, “We need more reserves, so we’re not paying any money out,” or it could pay that money back to industry or to certain parts of industry. I understand that the LCCC pays out that money to energy suppliers, but, again, there is no certainty that even the money paid out by the LCCC to those energy suppliers ever reaches the customer.
For surpluses over and above what is necessary for reserves and operational costs of the LCCC—the counterparty—if the principle is that the customer pays the levy, which we sincerely hope it is not, but if it is, should there be surpluses within that levy, the customer should get the money back one way or another. Similarly, if the Consolidated Fund is the source of a levy, the Consolidated Fund should get that money back one way or another. It should not be used for other purposes or sit in a bank account somewhere. It should be actively used, either for restitution of customer bills or for further use via the Consolidated Fund for the future.
The amendment would ensure that the revenue support regulations provide for the return of sums held by a revenue support counterparty, which have been secured over and above necessary reserve levels, to energy supply customers. It makes a very specific directional instruction, as it were, in the Bill, about what the destination of those funds should be over and above the reserves for the counterparty. I think that is a useful addition to the Bill and a useful clarification of what levy money for the future we are contemplating entrusting this very large body with.
It is a clear instruction as to what that body should do. It is a clear instruction from the Committee of what it wants to ensure happens when the Bill becomes an Act of Parliament. That is why we have tabled this amendment. I think the Minister will agree that the situation at the moment with the LCCC is a little shadowy, although it works okay in practice. That allows us to be much clearer for the future about not only how these things will work in practice but how they should be directed in principle.
Andrew Bowie
I thank the hon. Member for his amendment. I probably would not use the same language and describe the LCCC as a shadowy organisation, but I understand the spirit in which he makes those comments. The Opposition are absolutely right to focus on ensuring that the Bill can make provision for fair and efficient payment and reconciliation arrangements. However, I would like to reassure the Opposition and anybody else following our proceedings today that the existing provisions in the Bill already enable regulations to provide for such arrangements.
As previously discussed, clause 67 explicitly enables regulators to make provision for the amount to be paid to levied market participants by a relevant counterparty or hydrogen levy administrator—in this case the not-shadowy LCCC. That includes the pass-through of payments received by a relevant counterparty under revenue support contracts, such as payments made by a hydrogen producer to a hydrogen production counterparty. We would expect that in such instances the levied market participants would pass these payments on to their customers.
However, to provide extra assurance on this matter, subsection (3) of clause 67 also enables the Secretary of State to make regulations requiring that the customers of levied market participants benefit in accordance with those regulations. I hope this provides the hon. Member for Southampton, Test with the assurance he requires to withdraw his amendment.
Dr Whitehead
I think it is incumbent on me to ask the Minister a question. Yes, the Minister will have the power to make regulations, but will he commit himself to making those regulations should the Bill pass? As he knows, making regulations is something Ministers may do, but they can sometimes sit on their hands and not make them. It is important to be clear on that.
Andrew Bowie
I am suggesting that the Secretary of State make regulations. I am not quite the Secretary of State, but maybe one day. The Government are committed to working to ensure that the design of the levy enables fair and efficient payment and reconciliation arrangements. Work on the detailed design of the levy, including decisions related to calculation, is ongoing. We will consult on the detailed design of the levy before laying the regulations that introduce it.
Energy Bill [ Lords ] (Third sitting)
Andrew Bowie ExcerptsThursday 25th May 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 May 2023 - (25 May 2023)
The Chair
With this it will be convenient to discuss that schedule 3 be the Third schedule to the Bill.
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
It is a pleasure to serve under your chairmanship, Dr Huq.
I rise to speak to clause 32. To ensure that the economic regulation framework operates as intended, the economic regulator requires appropriate powers of enforcement to ensure licence conditions are adhered to, and there must be appropriate redress for regulatory breaches. The clause gives effect to schedule 3, which enables the economic regulator to enforce the conditions of licences and other obligations on licence holders. These enforcement powers are equivalent to those available to the economic regulator in the enforcement of conditions of gas and electricity licences.
Schedule 3 sets out the procedural and other requirements relating to the conduct of licence enforcement in relation to the economic regulation of carbon dioxide transport and storage. It includes the procedure that Ofgem should follow when making an enforcement order; limits on the size of financial penalties that may be applied for breaches of licence conditions or other relevant requirements; the method by which penalties may be appealed; and, in the case of the non-payment of penalties, the use of civil proceedings to recover the penalty and any interest as a civil debt. I commend the clause to the Committee.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship, Dr Huq. Hopefully, the passage of the rest of the Bill will be pacific and friendly under your chairmanship and that of the other Chairmen. Members know how closely I was kept to order by the Chairman we had earlier this week, and I am sure you will do exactly the same, Dr Huq, although I do not intend to stray off today’s exciting business.
The clause and schedule are concerned with the enforcement of licence holders’ obligations. The schedule goes into greater detail about how that enforcement works. I do not have any particular objections to them, but I would like to know from the Minister what the process for a final order under the schedule will be. We talked in Committee previously about termination events, and the subject raises its head again this morning. As I understand it, a final order under this schedule may or may not precipitate a termination event. Is that right?
There is a process in the schedule for provisional orders and final orders. A final order is presumably where a termination event occurs. Perhaps the Minister can say something about whether there are any procedures beyond that final order for the persons to whom the order has been served. We will come to some of the reasons why orders may be made in the next clauses, but it is important to clarify at what point that final order is operational, what happens then and what happens up to a termination event. I would be grateful for the Minister’s clarification.
Andrew Bowie
I thank the hon. Member for his questions. It is important to get the definition absolutely right. When Ofgem is satisfied that a regulated person has contravened or is contravening any relevant condition or requirement, it may impose a financial penalty or, in the words of the Bill, issue a “final order”. In terms of the appeal process, before imposing that financial penalty or issuing the final order, the economic regulator must publish a note stating its intentions and the relevant condition of requirements to be imposed. The notice should also specify the act or omissions that, in the economic regulator’s opinion, justify the penalty, and there should be a period of at least 21 days from publication in which objections can be made. The economic regulator must consider any objections made before imposing the penalty.
Schedule 3 provides for regulated persons to be able to appeal to the courts against the imposition of a penalty by Ofgem, the amount of the penalty or the timeline within which any penalty is required to be paid. An appeal must be made within 42 days of the penalty notice.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 33
Making of false statements etc
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
To ensure that the Secretary of State and the economic regulator can secure the provision of information necessary to conduct their respective functions in relation to carbon dioxide transport and storage, the clause establishes an offence if a person, either knowingly or recklessly, provides false information. A criminal sanction ensures that there is suitable redress for the making of false statements and should act as a disincentive to doing so. This is important and necessary as falsifying information could conceal issues or concerns that would otherwise be material to the decision making of the economic regulator or Secretary of State. Without knowledge of such information, there could be less effective decisions and less effective protections for users of the networks.
Dr Whitehead
Yet again, the clause appears to be relatively straightforward, but I would like to unpack the meaning of “false statements”. The Minister has given a general outline of what it means, but as far as I can see it potentially concerns the making of false statements or declarations, or whatever, at all stages of the licensing process. Presumably, that could be where a false statement is made in order to receive a licence, and the false statement comes to light after the licence has been provided. In that case, I presume the licence would be terminated on the basis of the false statement. Alternatively, it could apply to false accounting or false statements during the carrying out of the licence. Does the clause concern false statements made at the commencement of a licence or the granting of a licence, or does it concern false statements made during the operation of the licence as well? What procedure does the Minister envisage for those false statements coming to light?
The clause states that a person who makes a statement that that person
“knows to be false in a material particular, or recklessly makes any statement which is false in a material particular, is guilty of an offence”,
and is liable on summary conviction to a fine. Presumably the question of whether a false statement is sufficient for a process leading to a conviction is in the hands of the regulator. That is, if the regulator is worried about a false statement, it presumably has some discretion about the extent to which that false statement invalidates the process of the licence. Is that the Minister’s understanding? Is the process on a conveyor belt, as it were, such that a statement that appears to be false leads absolutely to a conviction? Or are there shades of grey about what a false statement is, how false that statement might be and how material that is to the continuation of the licence?
Andrew Bowie
Again, I thank the hon. Member for his questions. On his question about when a false statement might be made, it can be throughout the entire licence. On when an offence might be deemed to have occurred, it would be at the point that the statement was made. Schedule 2(10)(4) establishes that it is an offence to wilfully alter, suppress or destroy a document that the Competition and Markets Authority has required a person to produce as part of considering an appeal against a licence qualification decision by Ofgem. I think that what we seek to define as an offence and when we expect that offence to have been determined to have been made are quite clear.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
Clause 34
Liability of officers of entities
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Part 1 establishes certain criminal offences in relation to the economic licensing of carbon dioxide transport and storage, where transport and storage activities can take place both onshore and offshore. Clause 34 clarifies that, where an offence is committed by a corporate entity with either the consent or collusion of an officer of the company, or as a result of neglect by an officer, that officer, as well as the company itself, is culpable of the offence. The clause defines a company officer as any director, manager, secretary or similar officer of the body corporate, or any person purporting to act in that capacity.
Clause 35 clarifies that proceedings under part 1 can be brought anywhere in the UK. That ensures that an offence arising by virtue of the provisions of this part that is committed in an offshore place may be prosecuted in the United Kingdom. Criminal proceedings in relation to offshore activities may be instituted only by the Secretary of State or by, or with the consent of, the Director of Public Prosecutions.
Dr Whitehead
This is another fairly straightforward clause about criminal proceedings, but we ought to focus on the statement at the end of clause 35 about the definition of “offshore place”. Obviously, in the context of carbon capture and storage, there will be considerable concern about offshore places as well as onshore places, because presumably criminal offences can be committed during the transportation and sequestration of the carbon dioxide. As we know, those offshore places may be in repositories that are fairly far offshore but within the UK zone as far as, in principle, jurisdiction is concerned. However, as the Minister will know, there are different definitions of the territorial waters of the United Kingdom. Indeed, the Bill describes them as
“the territorial sea adjacent to the United Kingdom”.
Andrew Bowie
I thank the hon. Member for his pertinent and important question. For the purposes of the Bill and the industry we are discussing, the territorial sea is up to 12 nautical miles. The Gas Importation and Storage Zone (Designation of Area) Order 2009 sets that out, which is why we have taken the step of disapplying, for the purposes of the Bill, section 3 of the Territorial Waters Jurisdiction Act 1878. That section requires the consent of a principal Secretary of State, or a Governor in the case of the dominions and overseas territories, to institute proceedings for criminal offences within scope of the Territorial Waters Jurisdiction Act 1878. Disapplying section 3 enables proceedings for an offence that is alleged to have been committed in an offshore place to be instituted without the consent requirement. As set out in the 2009 order, offshore waters are defined as up to 12 nautical miles.
Dr Whitehead
That is a bit of a worrying definition, because it suggests that outside the 12-mile zone, the offence would not be prosecutable. A lot of carbon capture and storage installations are in the UK economic zone but outside the territorial zone, so there appears to be a bit of dissonance between what the Bill says about offences that may occur at any stage of proceedings, and these provisions, which, as the Minister says, cover the territorial 12-mile zone. Of course, the 1878 Act did not take any account of economic zones. Territorial waters were closely defined under that Act, but since then, we have moved considerably on what we might regard as territorial waters for the purpose of economic activity; that might not be the same as territorial waters as defined by the 12-mile limit. Is there a gap there that needs filling?
Andrew Bowie
I thank the hon. Gentleman for his question. While I understand the concern, it is important to stress that the zone, which is up to 12 nautical miles from shore, is a continuation of the gas importation and storage zone as designated under the 2009 order. It would be outwith the scope of the Bill to change the 2009 definition, because that is the definition with which the industry has been working since then.
Dr Whitehead
That does not address the fact that carbon capture and storage, and the repositories for it, are way out to sea. Putting a pipe at the bottom of those repositories, and connecting it to an evacuated oil field or whatever, may mean that there is a platform at the head of the pipe on which offences could be committed. The Bill does not appear to get up to speed with where carbon capture and storage will take place, where the repositories will be, and what the jurisdiction of the UK will be in those circumstances. Is that not a problem? Does the definition require further amendment?
Andrew Bowie
It is important to stress that the definition in the Bill is not only a continuation of the definition in the 2009 order, but the same as that used for other gas activities in the North sea. It is important that we stick to the same definition.
Andrew Bowie
Yes.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clause 35 ordered to stand part of the Bill.
Clause 36
Functions under the Enterprise Act 2002
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Ofgem has the power, concurrently with the Competition and Markets Authority, to carry out market studies and make market investigation references in relation to the gas and electricity markets in Great Britain under part 4 of the Enterprise Act 2002. Other sectoral regulators have the same powers in relation to the sectors for which they are responsible. Under the Enterprise Act, the CMA and Ofgem may undertake market studies in relation to the gas and electricity markets in Great Britain, and may make market investigation references to the chair of the CMA for the constitution of a CMA group to conduct an in-depth market investigation of competition in the market or markets concerned. The purpose of those investigations is to examine the markets and implement appropriate remedies where competition problems are identified.
Clause 36 confers the same powers on Ofgem in its capacity as the economic regulator for carbon dioxide transport and storage. That will enable Ofgem to undertake market studies and make market investigation references to examine potential distortions that may give rise to restrictions in competition in relation to carbon dioxide transport and storage. As provided for in clause 38, neither the CMA nor Ofgem shall exercise functions under part 4 of the Enterprise Act in relation to any matter if such functions have been exercised in relation to that matter by the other. Clause 37 additionally provides for the economic regulator to exercise certain functions under the Competition Act 1998 concurrently with the CMA. Enabling the exercise of those Competition Act functions allows the economic regulator to deal with anti-competitive agreements or abuses of a dominant position in the carbon dioxide transport and storage sector.
To ensure that the powers are used efficiently, clause 38 requires the economic regulator and the CMA to consult each other before exercising the functions. Clause 38 is also clear that the power may be used only by either the economic regulator or the CMA in relation to a particular matter. If there is a question as to whether the economic regulator has concurrent powers under clauses 36 or 37 in relation to a particular case, this clause provides for the Secretary of State to make that determination.
Dr Whitehead
Try as I might, I cannot find much at fault with this chapter of the Bill. On the contrary, I actually think it is rather well drafted. I am happy to sit down, having said nothing about these clauses whatsoever, and allow business to proceed.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clauses 37 and 38 ordered to stand part of the Bill.
Clause 39
Forward work programmes
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
As these are significant clauses, I will speak for slightly longer than I have done thus far this morning. Clause 39 provides for the economic regulator to publish the transport and storage forward work programme before each financial year. This will generally contain a description and objectives of the relevant projects that the regulator intends to undertake. A forward work programme should include estimates of the expenditure that will be incurred in connection with the programme.
Before publishing the forward look programme for any year, the regulator must give notice containing a draft of the transport and storage forward programme, and must specify the time in which representations on the proposals may be made. The regulator must consider any representations or objections that are submitted.
Clause 40 provides for the economic regulator to publish a document setting out required information relating to the carbon capture, usage and storage strategy and policy statement. This document must include information about the strategy that the economic regulator intends to adopt to further the delivery of the policy outcomes in the statement, and how the strategy will be implemented. The clause also confirms the circumstances in which that duty does not apply, and the circumstances in which the economic regulator may choose not to include certain information in a forward work programme for a particular financial year. That includes circumstances in which the economic regulator does not think it is reasonably practicable to publish the document before the next required time, or circumstances in which the economic regulator has included that information in the forward work programme.
The Secretary of State may give notice to the economic regulator, Ofgem, that the statement’s designation will be or is expected to be withdrawn before the beginning of the year. That will exempt the economic regulator from the duty to publish information in relation to the CCUS strategy and policy statement.
Clause 41 provides for the economic regulator to make a report to the Secretary of State at the end of each financial year. This annual transport and storage report must include information on progress made during the year on the objectives in the forward work programme, and a summary of orders made and penalties imposed, and may cover any other matters that the Secretary of State may require. The economic regulator must also include an assessment of how it has contributed to the delivery of the policy outcomes set out in the CCUS strategy and policy statement, if such a statement has been designated.
If the economic regulator has failed to do anything that was set out in its forward work programme, it must explain why, and say how it intends to remedy that. The economic regulator must exclude, where necessary, any matters relating to the affairs of a particular individual or body of persons, in order to protect their interests.
The Secretary of State must lay a copy of each annual transport and storage report in each House of Parliament and share a copy of the report with Scottish Ministers, Welsh Ministers and the Department for the Economy in Northern Ireland. The report must also be published in a manner that the Secretary of State considers appropriate. I urge that clauses 39 to 41 stand part of the Bill.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Dr Huq. I will make only a few comments. I will not object to these clauses, which I realise are important, but I share the concerns expressed by the hon. Member for Southampton, Test. It is critical that we have confidence in proper parliamentary oversight, and in Parliament being able to hold the regulator and particularly the Secretary of State to account. I am slightly concerned that the clauses give the regulator too much power to decide what they report on, how they report and what information they bring forward. As the Minister described, it is up to the regulator to explain why they have not brought forward a statement, for example. We need more than that. It should not be at the whim of the regulator whether to bring forward a statement; if they do not bring one forward, they should say why. It is for the Secretary of State to make sure that these things happen, obviously with parliamentary oversight.
Subsection (2) says:
“That description must include the objectives of each relevant project.”
Clearly, we need a lot more than just the objectives; we need to know how the objectives are being met. I know that the Minister will not want to make the Bill too prescriptive about what goes in the report, but we need that to include, for example, details of the efficiency of the project. Cynics say that carbon capture does not capture enough of the emissions, whereas obviously the industry says that we can capture 95% of them. I want to see how efficient projects are, and how they contribute to meeting net zero.
There are concerns that carbon capture might lead to the burning of more fossil fuels, so we need to understand the level of extraction of fossil fuels, what the inputs and outputs are, the emissions from any extractions of fossil fuels, and where the fossil fuels come from, including whether they come from other countries; we need to know that when it comes to meeting that wider net zero objective. Those are the things that I would want set out, so that I could question the Secretary of State in Parliament on them and make sure that we have confidence in how these objectives will be met.
Andrew Bowie
I thank the hon. Members for Southampton, Test, and for Kilmarnock and Loudoun for their questions.
I am very glad that the hon. Member for Kilmarnock and Loudoun has spoken, because it gives me a chance to congratulate him on his team’s success last night, which probably staved off their relegation from the Scottish premier league. They are not quite making Europe, as some other teams did last night, but that is still quite good. On his questions about what should be in the annual report, that is already set out. It should be: progress on activities described in any forward work programme for that year; the extent to which activities proposed in the forward work programme for the previous year had not been delivered, and the reasons for that, as well as the proposals to remedy that; how the delivery of the programme’s functions have been contrary to any strategy and policy statement that has been designated; and any enforcement action pursued by the economic regulator.
Of course I share the concerns that both hon. Members expressed that any report laid before Parliament should be open, accessible and visible. Of course, there is precedent for this; reports are laid before Parliament by Government all the time. Of course, it is incumbent on Parliament to hold the Secretary of State to account once the report is laid before Parliament. It is in the gift of this Parliament to call any Secretary of State to the Floor of the House, as we have seen over the course of the past six years in particular, to explain in detail any reports that have been laid before Parliament and to take any questions from any Member of the House from any party. That process, which is well established in our Houses of Parliament, is the one by which we will proceed with this report.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Clauses 40 and 41 ordered to stand part of the Bill.
Clause 42
Transport and storage administration orders
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
I am happy to speak to clauses 42 to 49. Chapter 4 of the Bill provides for a special administration regime for licensed carbon dioxide transport and storage companies. In the unlikely event that a carbon dioxide transport and storage company becomes insolvent, the Secretary of State, or the economic regulator with the Secretary of State’s permission, may apply to the courts for the appointment of a special administrator. The objective of the administrator would be to ensure that services continue until it is unnecessary for the administration order to remain in force for that purpose.
Given the importance of carbon dioxide transport and storage networks to support carbon reduction from a range of emitters—many of which will be supported by Government—the importance of those networks in delivering net zero and the need to ensure that networks are maintained and decommissioned safely, in a company insolvency scenario the interests of creditors, which usually take priority in a normal administration, may not align with the public interest in keeping the network operating. The ability to apply a special administration regime in the event of a carbon dioxide transport and storage network company insolvency would enable services to continue for emitters connected to a network.
Clause 42 defines some of the relevant terms for this chapter that are necessary for the effective functioning of the legislation. It also requires that the relevant administrator must perform its functions as administrator to achieve the objectives set out in clause 43.
Clause 43 establishes that the objective of transport and storage administration is to secure that the activities authorised by the licence commence or continue in a manner that is efficient and economical, and that ensures the safety and security of the transport and storage network, or the part of the network to which the licence relates, until the company can be rescued as a going concern. The administrator also has the option to transfer all or parts of the undertaking to run as a going concern. Special administration is intended to act as an interim solution, rather than a long-term fix. If the ongoing operation of the transport and storage network is no longer viable in its form, the Secretary of State may wish the Government to take ownership and/or transfer the network assets to facilitate a restructuring or the safe decommissioning of the assets, using the statutory transfer scheme provided for in chapter 5 of this part of the Bill.
I turn to clause 44. Under the proposed special administration regime, if a carbon dioxide transport and storage company is running out of funds or likely to become insolvent, the Secretary of State, or the economic regulator with the consent of the Secretary of State, can apply to the High Court for a special administration order, which will allow a special administrator to be appointed. The Energy Act 2004 provides for special administration regimes in the energy sector. In order to establish the process and procedure for carbon dioxide transport and storage administration orders, the Bill extends the provisions of the Energy Act 2004 to transport and storage administration, with the appropriate modifications. As provided for by these amendments, the detailed procedural rules governing the establishment of a transport and storage administration will be set out in secondary legislation.
At present in the energy sector, section 159(3) of the Energy Act 2004 applies the power in section 411 of the Insolvency Act 1986 to make separate insolvency rules for each of the supply, network and smart meter communication device company special administration regimes. Clause 45 amends section 159(3) of the Energy Act 2004 to allow the Secretary of State additionally to make company insolvency rules for carbon dioxide transport and storage.
Clause 46 enables the Secretary of State to modify the conditions of a carbon dioxide transport and storage company’s economic licence while an administration order is in force. As the Secretary of State may provide financial support to a transport and storage company that is subject to an administration order to secure the objectives of the special administration regime, the power is intended to allow the Secretary of State to recover any financial support provided. Under that power, the Secretary of State may modify the licence to include conditions relating to the recovery of amounts owed to the Secretary of State in relation to financial assistance given while an administration order is in force, and the raising of funds for the purpose of meeting expenses arising in relation to the administration order. Before making any licence modifications, the Secretary of State must consult the economic regulator and any relevant carbon storage licensing authority.
The Enterprise Act 2004 conferred powers on the Secretary of State to make consequential amendments to insolvency legislation. As the special administration regime for carbon dioxide transport and storage companies contains several provisions from the ordinary administration and insolvency regimes, the use of those powers in the Act may affect the special administration regime in the Bill. Clause 47 therefore extends the power of modification or application conferred on the Secretary of State in sections 248, 254 and 277 of the Enterprise Act to make such consequential amendments to chapter 4 as the Secretary of State considers appropriate in connection with any other provision made under those sections of the Act. That will ensure that the special administration regime for carbon dioxide transport and storage is maintained as broader insolvency law evolves, and that it adopts the same approach taken in other recent special administration regime legislation. Not providing for such a power could have detrimental impacts on the operability of the special administration regime in the event of a relevant company’s insolvency.
Alan Brown
The Minister mentioned special admin-istration regime legislation. Given the Government’s review, I wondered how the special administration regime process worked for Bulb Energy, and what lessons had been learned? Has that had an impact on the legislation?
Andrew Bowie
I can confirm to the hon. Gentleman that it has had an impact. Obviously, we continue to assess the impact of the special administration regime in the instance that he refers to. Lessons learned from that process and procedure feed directly into how we have thought about and developed the process for the Bill.
Clause 48 grants the Secretary of State the power by regulations to apply or make modifications to existing insolvency legislation in relation to this chapter of the Bill. The power will help to ensure that the special administration regime for carbon dioxide transport and storage networks fulfils its purpose to protect users of the network.
The power enables the Secretary of State to make modifications to insolvency legislation should, for example, practical experience highlight difficulties in the application of the regime, or should a change in general insolvency law necessitate a change to the special administration regime. The ability to do that is important given the expected long operational lifetime of a licensed carbon dioxide transport and storage network, and the potential for changes to broader insolvency law during this time.
Clause 49 defines relevant terms for interpreting chapter 4 of part 1 of the Bill. The terms refer to definitions in relevant existing primary legislation where it is appropriate. I commend clauses 42 to 49 to the Committee.
Dr Whitehead
We are now dealing with orders that follow from material we have considered previously in relation to false statements, the insolvency of companies and various other things. Clause 42 provides for orders to be made through the court that effectively place the licence holder into administration.
Under what circumstances can a transport storage and administration order be made? In view of what we have discussed, I assume that in addition to the insolvency of a company, a number of offences could lead to such an order. Normally, if a company cannot meet its obligations under the licence and therefore has effectively wound itself up, or seeks to do so, an order will be made through the courts to set up the regime that the Minister has described.
However, I am not entirely clear about the triggering point at which an order will be applied for and put before the court, who does that or the criteria under which the order is put into action. There are a number of circumstances in which one might concede that an order may be appropriate, but it might not have been applied for yet. The question that needs some clarification is when one might think that such an order is appropriate. Under what criteria may an order be offered before the court?
It will be pretty straightforward when a company has completely gone bust and someone has to rescue it, its assets or its operations. However, other circumstances under which an order may be required are less clear. Although this chapter provides that an order may lead to the rescue of the company as a going concern, other provisions—particularly clause 42(3)—show that an order may be used to transfer the operation of that company to another company. That is reasonably standard in provisions concerning the administration of a company, but it is not entirely clear how the treatment of the company will be decided. The court will make an order, but a decision will have to be made about whether the company should be salvaged or its assets transferred to another company.
We had a similar debate in the Bill Committee for the Nuclear Energy (Financing) Act 2022. We discussed what happens when a company that is developing a nuclear reactor goes bust during development or operation, and how we may have to deal with different circumstances surrounding the transfer of assets and ongoing activities depending on which stage the company is at. That will be more complicated during a production and operation phase than in a development phase.
It is important to be clear about the decision making process for what is done with each company, and it does not seem to me that the Bill gives the courts a view. I presume it is more likely that the Secretary of State or the regulator will say, “It looks like the assets need to be transferred to another company, rather than the company being salvaged, and that is how we will proceed.”
That leads to a further issue. If a decision is made to transfer the licence to another company, or to two or more companies, who decides which companies will take it over? Is that done on a tender, or is it done administratively by the appointment of a company to take over the licence arrangement? If the latter, who takes the administrative decision to appoint that company, and what are the criteria by which it is appointed? The provisions do not quite run to a fit and proper persons test, but they constitute a test on the suitability of a company to take over. Presumably, the scrutiny of that is in the purview of the Secretary of State, but it may be for the regulator or a combination of both.
Finally, I echo the point that the hon. Member for Kilmarnock and Loudoun made in his intervention about the status of the special administration regime. Before I do that, it has been remiss of me not to congratulate him on the relative success of his team.
Dr Whitehead
I was about to say that. I can reveal that the hon. Member for Kilmarnock and Loudoun was seen in the Library yesterday evening wearing a Kilmarnock shirt, which attested to his slight nervousness and fervour for his cause. I would not have worn a Southampton shirt in the Library, bearing in mind our ignominious exit from the premier league this year, but we will let that pass.
I want to mention the lessons learned from the special administration regime as it applied to Bulb. The Minister was not in post then, but I spent a lot of time tabling successive written questions to try to get some clarity and transparency about the process. I appreciate that under those circumstances, and quite possibly under these, considerable matters of commercial confidentiality and various other things might be involved in an order, including a transfer to another company, but I found the special administration regime as it applied to Bulb to be completely non-transparent.
We did not know what the Government’s liabilities were for the special administration regime; we did not know when it was likely to come to an end; we did not know how the decisions on the assets and arrangements related to Bulb were going—that is important, in terms of transfer to another company—and I got pretty frustrated trying to get any light into the proceedings. I would not like to think that that is how these arrangements might be conducted if it were necessary to transfer assets to another company. Indeed, the opacity of the Bulb proceedings led to an unsuccessful High Court challenge from several companies that felt they had been excluded from the transfer of liabilities and assets.
A clear intention that these proceedings will operate with the utmost transparency would help the progress of the Bill. The lesson that may be learned from Bulb is that it is generally not a good idea to undertake proceedings as if they were a state secret. On the contrary, disclosure and transparency, within the limits of commercial confidentiality, should be the watchword for such proceedings. When the Minister undoubtedly enlightens us with comments on my previous points, will he also reflect on how the regime might work best?
Andrew Bowie
Let me answer the hon. Gentleman’s questions in order and, I hope, in enough detail to satisfy him and the Committee. The aim is for a special administration regime to be used only in the instance of an insolvency. As we all know, it allows for the protection of essential services in a company solvency scenario to ensure that those services continue.
It is worth reflecting on the fact that in the absence of such a regime, if a carbon dioxide transport and storage company were to become insolvent, an administrator or liquidator working under the standard objectives—they include achieving a better result for creditors than winding up—would not necessarily have cause to keep transport and storage services running, or to secure the ongoing safety and security of the network. That is why we believe an SAR is relevant, and it would only be used in the instance of insolvency.
The Chair
With this it will be convenient to discuss the following:
Clauses 51 and 52 stand part.
Schedule 4.
Andrew Bowie
The regulator will have the power, under clause 17 of the Bill, to terminate a carbon dioxide transport and storage licence in certain circumstances. The circumstances in which the economic regulator can terminate a licence will be set out in the licence itself. Those circumstances could include where a licence holder has contravened or failed to comply with enforcement orders made by the regulator, or by the courts where the licence holder has ceased to carry on as a transport and storage business or has become insolvent.
If a licence is being terminated due to company insolvency, the economic regulator or the Secretary of State have the option, under the provisions of chapter 4, to apply to the courts for a special administration order, as we have just discussed. Where a licence is to be terminated for non-insolvency reasons, clause 50 allows the Secretary of State the option to make a statutory transfer scheme. A transfer scheme would allow the Secretary of State to transfer relevant property, rights or liabilities of a licence holder either to another appropriate body or to the Secretary of State himself.
The aim of the transfer scheme is to secure the ongoing operation of the network, so that emitters that are attached to a network can continue to have their carbon dioxide emissions transported and stored in an economic, safe and secure manner. Where the ongoing operation is no longer viable, a transfer scheme would enable the Secretary of State to ensure that the safety and security of the network is maintained. As set out in clause 50, the Secretary of State cannot make a transfer scheme without the consent of the current licence holder and the persons to whom the licence and associated property, rights or liabilities are proposed to be transferred.
Clause 51 states that, before making a statutory transfer scheme under clause 50, the Secretary of State must consult both the licence holder—the transferor—and the person to whom the licence and associated assets are to be transferred—the transferee. If the proposed transferee is not a public authority, the Secretary of State must consult the economic regulator and other listed public bodies before making such a scheme, as well as the relevant carbon storage licensing authority. That is intended to ensure that the proposed transferee is able to meet the requirements of the licensing authorities.
Clause 52 gives effect to schedule 4, which makes further provision about transfer schemes made under clause 50. Schedule 4 sets out the scope and obligations for any statutory transfer that is made by the Secretary of State in relation to a carbon dioxide transport and storage licensed company. The schedule sets out that a scheme is capable of transferring property, rights and liabilities, including those that would not otherwise be capable of being transferred or assigned.
The provisions of the schedule enable transfers that are affected by the scheme to take effect as if there were no requirement to obtain a person’s consent under the relevant contract, licence or permit that is being transferred, and the transfer will not create any liability due to the apparent contravention of restrictions on transfer that would ordinarily apply. The exception to that is that the transferor and transferee company would be required to provide consent to a transfer. The intention is that, in effect, a transfer scheme is capable of seamlessly parachuting the transferee in the place of the transferor.
On the day on which a scheme comes into force, which would be the date appointed in the scheme, the transferee or transferees must pay to the transferor, or the transferor must pay to the transferee or transferees, such sums as may be agreed.
Dr Whitehead
Yet again, there are some sound provisions in the Bill on transfer schemes and how they might work. We have had the debate about how transfer schemes might follow from orders and how that all works through. As I have said, it is important, however, to think about the circumstances under which transfer schemes might arise. Normally, as the Minister has outlined, transfer schemes will come about because the company was unable to fulfil its obligations as the licensee because it did not exist any more or was in such a dire financial situation that it could not be seen as properly carrying out its licence obligations.
As I have said, there are other circumstances under which a transfer scheme could arise. Clause 51 sets out the question of consultation on transfers and that the company that is subject to having its assets and activities transferred has to be consulted. Obviously, if the company no longer exists, it might be difficult to consult that company. Clause 50 goes further and states in subsection (5):
“The Secretary of State may not make a scheme without the consent of…the licence holder”.
It appears that the licence holder—the company having the assets transferred from it—has a veto on whether the transfer scheme goes through.
If a company exists in reasonable working order, but it has contravened its licence for reasons that are not wholly to do with insolvency, that company might be pretty aggrieved about the process of the transfer. Under those circumstances, it might simply refuse to co-operate. The clause appears to confirm, in the way it is written, the potential non-co-operation of that company.
I do not know whether there is anything elsewhere in the Bill that modifies this statement, but it does look rather stark as it stands:
“The Secretary of State may not make a scheme without the consent of”
that company. I do not know whether that needs to be looked at, or whether there are circumstances—say a company is unreasonably refusing to co-operate or unreasonably withholding consent—in which that can then be overcome. I frankly do not know whether those circumstances or arrangements exist.
Deep in the recesses of schedule 4 is paragraph 10, on compensation for third parties. It deals with circumstances in which an innocent third party, as it were, has had dealings with the licensee that has gone bust or otherwise failed to carry out the terms of its licence, and is financially or otherwise inconvenienced—or has a loss attached to it—as a result of a transfer scheme.
For those who are desperate to read it, paragraph 10(1) on page 269 says that, under those circumstances,
“the third party is entitled to compensation in respect of the extinguishment of the third party’s entitlement.”
That means that when the third party had a reasonable expectation that something was going to happen as part of the licence arrangement, which has been extinguished because of a transfer scheme, and, I assume, it has not proved possible for the entitlements and expectations to be transferred to, say, another company that will undertake the licence activities, with all the procedures we have discussed, that third party is entitled to compensation.
Further down in the schedule, though, we see where that compensation comes from. Paragraph 10(3) states:
“A liability to pay compensation under this paragraph falls on the Secretary of State.”
Does it not in any way fall on the recovery of some of the assets of the company that failed to carry out its licence? Are there procedures whereby that might be done first, perhaps by the Secretary of State? Or is it an absolute requirement that if compensation is required, that is the end of the involvement of the company that is losing its licence and the Secretary of State must find that compensation, howsoever that has been arrived at? I do not know the answer to that—I am not asking the Minister a trick question—but it seems to me that a company that is losing its licence should be expected to provide at least some of the compensation to which the third party is entitled.
Andrew Bowie
I thank the hon. Gentleman for his questions, which again are pertinent and important to the Bill’s passage and implementation. I will answer them in turn.
When the Secretary of State considers making a transfer scheme, he may opt to do so when a network operator’s licence is expected to revoked. The purpose would be to transfer the ongoing operation of the transport and storage network to another operator. Pertinent to that is the hon. Gentleman’s question about the balance of power between the economic regulator and the Secretary of State. He asked whether they will both have the power to initiate a transfer scheme. Only the Secretary of State has the power to make a statutory transfer scheme under the provisions of chapter 5. Unless the Secretary of State is proposing to bring the assets within his own control, he must consult the economic regulator, Ofgem, when making a transfer scheme under the provisions of chapter 5.
On the question of whether the provisions go against the rights of a private company to which the assets belong, clause 50 confirms that the transfer scheme should take effect only with the consent of the transferor and the transferee. The consent of a licence holder to a statutory transfer scheme in the event of a licence termination, and the basis for the valuation of any compensation in the particular circumstances, is expected to be agreed to as part of the licence condition.
Dr Whitehead
With respect, that slightly misses the point about the question of the consent of the pre-existing licence holder. My question was: does the fact that the Bill says the Secretary of State
“may not make a scheme without the consent of”
the pre-existing licence holder mean that the pre-existing licence holder effectively has the whip hand as far as any subsequent scheme is concerned? In other words, if the licence holder simply says, “No, I’m not going to consent,” is that the end of the matter, or are do other things happen? I am not clear about that. If other things can happen, how can they?
Andrew Bowie
The hon. Gentleman asks another appropriate question. It is my understanding that, under the Bill, that would be the end of the matter. However, as he says, there is a more general point, and we will be working to add more detail to the procedure in future. I am happy to keep in touch with the hon. Gentleman as we do that over the next few months.
Andrew Bowie
I am terribly sorry; I missed the hon. Gentleman’s question about the schedule.
Dr Whitehead
I was getting so into the weeds that that is not surprising. My question concerns compensation for third parties and the extent to which the Secretary of State appears to be liable for that compensation, rather than at least attempting to involve the previous licence holder, who may have assets that could add to that compensation. Schedule 4 appears to provide that the previous licensee has no part in the proceedings. It states at paragraph 10(3):
“A liability to pay compensation under this paragraph falls on the Secretary of State.”
Are there circumstances in which the force of that particular statement may be mitigated? Alternatively, does the Minister regard it as good practice that, as far as the previous licensee is concerned, that is the end of it?
Andrew Bowie
As with my answer to the hon. Gentleman’s previous question, there are details that still need to be worked through. On his specific question, there will be mitigations in terms of the responsibility being wholly on the Secretary of State and in terms of whether the previous licence holder should be responsible for paying that compensation. I will keep in touch with the hon. Gentleman about the issue as we work up the specifics of the provision.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Clauses 51 and 52 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 53
Cooperation of storage licensing authority with economic regulator
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 53 inserts new sections into the Energy Act 2008 to provide for co-operation and information sharing between the economic regulator and a carbon dioxide storage licensing authority. As both an economic licence and a carbon storage licence will be required to operate a carbon storage site, the provision is intended to support the exercise of the functions of the economic regulator.
The clause ensures that a storage licensing authority must inform the economic regulator if it becomes aware of circumstances that have arisen, or are likely to arise, that may affect the activities carried out under the economic licence. In particular, it requires carbon storage licensing authorities to notify the economic regulator if a carbon storage licence, or a storage permit granted under the storage licence, that is held by a licensed transport and storage company may be terminated. That is important and necessary because a carbon storage licence or permit revocation would remove the right to operate a storage site.
The Chair
With this it will be convenient to discuss the following:
That schedule 5 be the Fifth schedule to the Bill.
Clause 55 stand part.
Andrew Bowie
Clause 54 gives effect to schedule 5, which makes amendments to other Acts that result from measures in part 1 of the Bill.
Schedule 5 makes consequential amendments to existing legislation to reflect the functions and powers conferred on Ofgem as the economic regulator of carbon dioxide transport and storage under part 1. They include amendments to the Utilities Act 2000 to make it clear that requirements in that Act relating to Ofgem’s work programming and annual reporting functions do not include the functions in relation to carbon dioxide transport and storage conferred on Ofgem by the Bill. That is necessary because the Bill makes separate provision for Ofgem to prepare a forward work programme and annual report on its transport and storage functions, as we discussed earlier.
The restriction on the disclosure of information in section 105 of the Utilities Act is amended to provide that the unauthorised disclosure of information obtained under the provisions of part 1 is a criminal offence, except where disclosure is for the purpose of facilitating the performance of Ofgem’s statutory functions under part 1. Amendments are also made to the Enterprise Act 2002 to reflect the market investigation powers being given to Ofgem in respect of the carbon dioxide transport and storage sector. The Enterprise and Regulatory Reform Act 2013 is amended to ensure that appeals to the CMA in relation to licence modification decisions are heard by a specialist panel. That will ensure that people with the most appropriate expertise are involved in an appeal.
Clause 55 sets out the definitions of terms used in part 1, including include technical definitions relating to the geological storage of carbon dioxide, which are consistent with definitions used in the existing carbon storage licensing legislation.
Dr Whitehead
We come to the part of the Bill where we go through all the definitions and talk about the various amendments that have been made to other pieces of legislation. I always worry slightly about that, in as much as that without actually referring to those bits of legislation, we do not quite know whether someone has smuggled through the revocation of our rights under Magna Carta or whatever in a small amendment to a Bill far away. As far as I can see, everything is in order and the Bill does the right thing to tidy up all the relevant ends, so I am very happy for it to proceed.
Andrew Bowie
I confirm that we are in no way revoking the hon. Gentleman’s rights under Magna Carta.
Question put and agreed to.
Clause 54 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 55 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Energy Bill [ Lords ] (Second sitting)
Andrew Bowie ExcerptsTuesday 23rd May 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 23 May 2023 - (23 May 2023)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
I thank the hon. Gentleman for his multiple questions. Given the number of them, I will write to him with greater detail, but the point at which the Secretary of State’s power to grant licences is transferred to Ofgem will depend on developments in the market in the early years of the operation and the evolution of carbon capture, usage and storage. We are in the nascent stages of this technology. It is standard practice for the Secretary of State to have a power over something like this before it is transferred across to Ofgem. As I said, the timing will depend on market forces as the technology develops and matures.
The hon. Gentleman asked when the first licences will be granted. Licences will be granted to transport and storage operators for track 1 CCS clusters for deployment in the mid-2020s, subject to the final decision of Ministers. The final decisions on any Government support will be taken only if a CCS cluster represents value for money for the consumer and the taxpayer. He referred to subsequent clauses that deal with these issues directly; we will come to his other questions when we debate those clauses, and I will be happy to engage in more detail then.
Alan Brown
What is going on when it comes to the Department and Ofgem building up and sharing expertise? They are both looking at licensing. As the Minister said, with this nascent technology, there is a whole ramping up, so we need to ensure that the right resource is allocated to the right place to move forward.
Andrew Bowie
I completely agree. We will share expertise with Ofgem as we move forward. This is a whole new technology being deployed in the United Kingdom, and the expertise being developed in the Department will of course be shared with Ofgem, so that when the regulator takes responsibility for licensing, it will have at its fingertips the ability to conduct the processes properly.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Power to create licence types
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause enables different types of carbon dioxide transport and storage licences to be granted. That will enable the economic licensing framework for carbon dioxide transport and storage to evolve as the market grows and matures.
For the first carbon dioxide transport and storage networks, a cluster-based approach is being taken. Under that approach, the licences for the first transport and storage networks are expected to cover the full network, which includes a set of onshore pipelines, the offshore pipeline and associated offshore storage facilities. As the market matures, however, we recognise that it may become desirable to licence separately constituent parts of a network, such as an onshore pipeline network or an offshore geological storage site. It may be appropriate for licence conditions to look quite different for different transport and storage activities. Providing for that will allow operators to specialise in provision of different transport and storage services. The delegated power under the clause enables the regulatory regime to respond to market developments by allowing different licence types to be created and granted for different types of transport and storage facility. I commend the clause to the Committee.
Dr Whitehead
My knees get worse as the afternoon goes on.
The clause is, as the Minister said, about the power to create a licence type. I appreciate that that is in the gift of the Secretary of State in the first instance; the power will be transferred subsequently, as we said when debating clause 7. This clause, however, appears to do two things, and possibly goes far wider than the Minister envisages. It allows for regulations so that
“different types of licence may be granted…in respect of different descriptions of activity falling within section 2(2).”
Clause 2(2), as we have discussed, defines activities that are prohibited if unlicensed. Those are:
“operating a site for the disposal of carbon dioxide by way of geological storage”;
and
“providing a service of transporting carbon dioxide by a licensable means of transportation”.
We mentioned the possibility of an amendment that would have covered carbon dioxide usage as well, as the Minister will be aware. The power under clause 8 would allow different licence types within that overall framework. As the Minister said, different activities may emerge. Various activities will fall well within clause 2(2), and others will be to the side of that.
As far as I can see, the power in clause 8 allows the Secretary of State to sweep up what is both central to and to the side of the activities in clause 2(2). That may be good for the Secretary of State, but it is not good for the companies developing carbon capture and storage, who are not sure whether this power will or will not sweep them up—they do not know. They are not sure whether the activity they are carrying out on the margins of the licensing arrangement is non-licensable, or will become licensable if and when the Secretary of State decides by regulation that different kinds of licences can be provided. A lot of that depends on what the regulations say. If they are broad, as this power to create licence types appears to be, companies will not have any assurances about what they are doing. When the regulations come out, they might prefer a menu of the different licence types in the Secretary of State’s mind.
I appreciate that we are in the realm of known knowns, known unknowns and unknown unknowns, but a menu of different licence types that are reasonably close to licensability in the mind of the Secretary of State would be very helpful for companies operating in this sphere. Will they be more or less likely to need to apply for a license? Would the licensing situation hold up their activities in any way, or could they go ahead with what they were doing on the margins, not within the new license type? Could the Minister comment on what is in his mind about the regulations? Will he provide that menu? If so, what might it consist of?
Andrew Bowie
I thank the hon. Member for his questions. I do not think the former Defence Secretary of the United States would have expected to be mentioned so much in the UK’s Energy Bill Committee—we have talked about known knowns, known unknowns and unknown unknowns. The hon. Member is correct: we are dealing with a lot of unknown unknowns when we talk about exactly how and when the industry and technology will develop. As they develop, a decision will be taken at an appropriate point about what will and will not be licensable, and what types of licence will and will not apply.
The hon. Member talks about the regulations and whether there will be a menu of options. Clarity is good for everyone, especially when developing a new technology and deciding whether to invest in carbon capture, usage and storage. We will be as clear as we can in regulations about what will and will not be licensable and what licences will apply. However, I would not like to be drawn at this stage on what will be in the regulations. That will be for Government and industry to work up together as we move toward the date when they will apply.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Procedure for licence applications
Dr Whitehead
I beg to move amendment 77, in clause 9, page 10, line 6, after “the Secretary of State” insert
“must ensure that licences are only granted to fit and proper persons, and”.
The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
Andrew Bowie
I thank the hon. Gentleman for his amendments. They seek to place responsibility on the Secretary of State to ensure that individuals obtaining a carbon dioxide transfer and storage licence are fit and proper. The amendments would affect the licence application, the licence transfer, the special administrative regime and transfer schemes.
It is clear that the Opposition and the Government share the same desire here, requiring the utmost standards for those wishing to engage in the transport and storage of carbon dioxide, in support of the Government’s ambitions to scale up the deployment of CCUS and its important role of achieving our net zero target. I therefore support the hon. Member for Southampton, Test’s aim; however, as addressed in the other place, the specific inclusion of “fit and proper” within the drafting of clauses across part 1 is actually unnecessary. That assurance is already inherent within the Secretary of State and the economic regulator’s role within the licensing regime. Despite sharing the desire, I ask for the amendment to be withdrawn because I believe that it is superfluous in this instance.
Amendments 82, 83 and 87, which were also tabled by the hon. Member for Southampton, Test, seek to make the Secretary of State responsible for ensuring that an individual designated as a hydrogen production counterparty is deemed “fit and proper”. The Government anticipate that the Low Carbon Contracts Company Ltd, or LCCC, which is the existing counterparty for contracts for difference and the planned counterparty for the dispatchable power agreement, will be the counterparty for the low-carbon hydrogen agreement, subject to its successful completion of administrative and legislative amendments.
In taking the decision to proceed with LCCC as the counterparty to the low-carbon hydrogen agreement, the Secretary of State considered, among other things, LCCC’s ability to deliver the required functions and its experience and track record in contract management. Those considerations would bear on any future decisions, which would also be subject to normal principles of public decision making. Again, I agree with and share the same aim and desire as the hon. Member for Southampton, Test, but the amendments are superfluous. I politely ask that he withdraw his amendment.
Dr Whitehead
Naturally, the fact that the Minister did not eagerly grasp and endorse the substance of the amendments and run off to the Table Office is disappointing, but I accept that he has perhaps looked in detail at how the legislation will work and is satisfied that an equivalent of the “fit and proper person” test can effectively be carried out under the provisions of the Bill. However, that has not been the judgment of other parts of Government, which have found that particular wording to be of great help in underlining what their responsibilities are. It also ensures that the judgments that they make in exercising their responsibilities are fairly bomb-proof: if the Secretary of State presses the “fit and proper person” button, there is not too much an aggrieved party can do about it. I appreciate that that is different for different licences.
The Government have effectively decided that the LCCC, which I think is a fit and proper person, will be the hydrogen counterparty, although that is still to come in legislation—so we are legislating for something that we think will happen later, but not right this minute. I leave that with the Minister. He has not agreed to amendment 77; he thinks it superfluous. I slightly disagree—I think it would be useful—but that is to some extent a matter of judgment. Perhaps in a few years’ time, when a Minister becomes seriously unstuck with a particular appointment, we will get together again and see what can be done about it. For now, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Andrew Bowie
I beg to move amendment 1, in clause 9, page 10, line 15, leave out subsection (10) and insert—
“(10) Section 10(6) (meaning of ‘appropriate devolved authorities’) applies for the purposes of subsection (3) of this section as it applies for the purposes of section 10(3).”
This amendment corrects a drafting error in the definition of “appropriate devolved authorities”.
Andrew Bowie
I thank the hon. Member for Southampton, Test and share his optimism that in a few years’ time we will be in a position to continue with appointments in relation to what we are legislating for today.
Amendment 1 corrects a drafting error in relation to the statutory basis on which the devolved Administrations are to be consulted in relation to regulations that may be made under the powers in part 1. The amendment ensures that the statutory basis for consultation is consistent across the drafting of the relevant clauses.
I turn to clause 9. The Government’s CCUS cluster sequencing programme is under way to identify the first CCUS clusters eligible for Government support. The first transport and storage licences will be granted through that process. The enduring regulatory regime will need a licence application process, and clause 9 provides for such a process to be set out in regulations. The process includes the procedure for licence applications, the conditions under which the applications may be made and the procedure for objecting to licence applications.
Kerry McCarthy (Bristol East) (Lab)
I was waiting for the Minister to mention the word “fee”, and he did not. I apologise for coming in right at the last moment, but clause 9 says that a fee would be payable. I know that the Minister spoke earlier about the need to avoid unnecessary burdens on some of the smaller companies that might come forwards. Does he envisage that the fee would be proportional to the size of the enterprise or would a fixed amount apply to everybody? Is that being considered?
Andrew Bowie
I can confirm that it is very much being considered. It will certainly be proportional to the size of the entity that might be applying for such a licence.
Amendment 1 agreed to.
Clause 9, as amended, ordered to stand part of the Bill.
Clause 10
Competitive tenders for licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 10 enables the future allocation of carbon dioxide transport and storage licences to be determined on a competitive basis. The Government’s current carbon capture, usage and storage cluster sequencing programme is a fair and transparent process. It determines which operators of carbon dioxide transport and storage projects are eligible to be granted a transport and storage licence and any associated Government support according to published criteria.
The future process for granting licences will need to balance a range of considerations and, depending on the evolution of the sector, it may be appropriate for it to be carried out according to competitive procedure. The power to make regulations in clause 10 enables that. It is a discretionary power; while a competitive approach may bring overall value for money and benefits for taxpayers and consumers—
Alan Brown
Can I ask about the overall sequencing? We have the track 1 costs at the moment, but we still do not have certainty on track 2. We are talking about future tenders and competitiveness. Clearly, at the moment only the ones in track 1 can effectively apply for licences. If we are looking for overall value for money, surely we need to completely open the field, as it were, so that we have more companies and projects competing and pushing each other on that competitive cost base as well.
Andrew Bowie
As the hon. Gentleman knows, we have launched a track 2 process; there will be an update on timings in the summer. Of course, we want to open up the process to as many companies and organisations seeking to get into this technology as possible, but it is really important that the appropriate steps are followed to get to that stage. That is why we are proceeding at pace with track 2 and why we will update everybody concerned with that in the summer.
Whether a competitive process is appropriate in the enduring regime will depend on how the CCUS market develops, including the anticipated number of market participants—that relates to the answer I just gave to the hon. Member for Kilmarnock and Loudoun. Any regulations that may be made under the power would first be subject to consultation with the economic regulator and the devolved Administrations, and they would be subject to the affirmative procedure.
Dr Whitehead
This is a bit unsatisfactory, to be honest. I appreciate that the Minister has very carefully said that this is a discretionary power for the future and the Department may, as the CCUS market develops, consider making—I presume—some licences viable on a competitive basis, and that the Government may do that by regulation; I am pleased to hear that the regulation will be subject to the affirmative procedure, should the Government do that. Nevertheless, that seems to leave huge gaps in the procedure by which competitive licences might be determined. Is the determination based on, for example, how much money a company gives for the licence, and would the competitive licence mean that the highest bidder won the licence regardless of their suitability for the purpose?
Would the judgment on the creation of the licence be subsumed in other factors such as finances, or would the competitive licence be tendered on the basis of who is geographically most able to do something in terms of the viability of the body or company complying with a licence? Would there be a financial test? Once a competition has been entered into and the terms are not carefully set, we may get to a situation of “Beware your wishes; they may come true.” What we get as an outcome of a competitive tender may not be what we wanted to happen, but if we set it in train through the competitive process and have not defined it carefully enough, there will be no going back at that point.
It will be necessary to think through this way of doing things very carefully before proceeding, even with discretion being exercised. I am concerned that there is not enough in the legislation to guide us on how that thinking process might be carried out. Perhaps the Minister will give us a little guidance on the sort of things that would be to the fore should the competitiveness process be undertaken, and indeed the things that he would not consider in such a process. I am delighted to see that he has received bit of guidance on the matter. That may well help us all.
Andrew Bowie
I thank the hon. Member, and completely understand his concerns and where he is coming from. Ultimately, however, the appropriateness of a competitive approach to licence allocation will be considered, taking into account the learning from both the track 1 and the ongoing track 2 licence allocation processes, as well as the wider developments in CCUS markets and technology. This is not without precedent. In gas and electricity, Ofgem runs different processes for allocating different licence types. Some are allocations that are run competitively, such as offshore transmission licences, and other licence types are not.
The power in clause 8 also enables consequential amendments to be made to the Bill should they be considered necessary to facilitate the making of different licence types, but as the hon. Member pointed out, and as I said, the power is discretionary, and it should be for the Secretary of State to choose whether to exercise such powers.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Conditions of licences: general
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 11 makes general provisions regarding the conditions of transport and storage economic licences. The licence allows an operator to charge network users for delivering and operating the network. The licence conditions will set out the allowed revenue that the licence holder is entitled to receive, which will reflect its efficient cost and a reasonable return on its capital investment. The conditions of the licence will also include requirements on the licence holder that they must comply with or consent to.
In order that the economic regulator may cover the cost of administering the licence, the clause additionally confirms that the licence may contain conditions requiring a payment to be made to the economic regulator during the term of the licence. Any money received by the economic regulator pursuant to the conditions must be paid into the consolidated fund.
Alan Brown
I thank the Minister for giving way; I noticed an eye-roll, though.
Alan Brown
The Minister referred to the regulator assessing the allowable rate of returns in a fair chance model. How does that square with the interim period when the Secretary of State will grant licences? How do you make that assessment of value for money and fair returns, and will there be any scope to revisit that? If we look at networks and transmission systems, Ofgem had to reduce the allowable rate of returns in the next investment period, because it had been allowing network companies to make too much money. What safeguards are there to ensure that there is a review following an initial assessment of what would be a fair rate of return?
Andrew Bowie
The hon. Gentleman makes reasonable and sensible points. He is right that we have to ensure that the same regulations that will apply to Ofgem when it administers the process in future apply also to the Secretary of State and the Department when administering it in the interim. He is right, too, that there need to be safeguards and that Parliament overall will have responsibility for holding the Department to account—as it does the Government, in every respect, when it comes to making such decisions. I commend the clause to the Committee.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Standard conditions of licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
A number of conditions will be appropriate to include as standard in all licences of the relevant type. The power in clause 12 enables the Secretary of State to specify what those standards are. The Secretary of State will be required to publish the standard conditions in an appropriate manner once they have been determined, and they will then be automatically included when a licence is granted.
To allow for the possibility that the standard conditions may need to be tailored to the circumstances of a particular licensee, the clause also enables standard conditions to be either excluded or amended in an individual licence. That can be done only if both the licence holder in question and other holders of the same licence type would not be unduly disadvantaged as a result.
Notice must be given of the intent to modify or exclude standard conditions in an individual licence, setting out the proposed modifications or omissions and the reasons for them, with sufficient opportunity for representations or objections to be made. Any objections or representations must be fully considered. I commend the clause to the Committee.
Dr Whitehead
The Minister has set out what the standard conditions of licences are likely to be and how they are going to be determined by the Secretary of State, but the clause goes a bit further than that. It says in subsection (2) that
“the Secretary of State must”
—that is a good thing—
“publish any standard conditions determined under subsection (1)”,
which says:
“The Secretary of State may determine the conditions that are to be the standard conditions of licences”,
and subsection (2) then says the Secretary of State must publish the conditions
“in whatever manner the Secretary of State considers appropriate.”
That is a bit of an odd formulation. I am more used to the idea that the Secretary of State must publish any standard conditions determined under subsection (1)—full stop.
The question of publication has always been important when conditions are to be published that licence applicants will be expected to look at and know about. The onus is, or should be, on the Department to publish those conditions as widely as possible, whereas this power appears to narrow that substantially. I am not suggesting that in any way the Minister would seek to restrict the public’s free access to information, but under this formulation it is possible that, just as publications are set up specifically for the purpose of obscuring the publication of various things from the general public, the Secretary of State could decide to publish the conditions in something like The Competitors Journal. Indeed, they could be published as—I don’t know—a TikTok video, as I mentioned earlier, or in some other way that is inappropriate to the circumstances under which their publication should appear, which should give those who apply for licences the maximum amount of, and ease of access to, the information that would be necessary to inform their application.
We have not moved an amendment to strike out the second part of subsection (2), but I would like from the Minister at least an assurance that he will place an emphasis on the first part, which requires the Secretary of State to publish the conditions, and that, in pretty much all circumstances, “publish” means that the publication is widespread and easily accessible in the public domain, so that it can be digested and read by all concerned.
Andrew Bowie
I am happy to give that assurance that the information will be published, widespread and easily accessible while that power resides with the Secretary of State. Of course, as has already been said, it will be up to Parliament—as is the case with every other piece of legislation—to hold the Government and the Secretary of State, whoever may be in that post at the time, to account when that time arises.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13
Modification of conditions of licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clauses 13 to 15 relate to the modification of licences for carbon dioxide transport and storage.
Clause 13 enables the economic regulator to modify the conditions of a licence after it has been granted. That is to ensure that licence conditions can keep pace with the evolution of the market. It also enables the economic regulator to undertake periodic reviews of the amount of allowed revenue an operator can receive, which will then be set out in the licence. In economically regulated sectors, price controls are a method of setting the amount of allowed revenue that can be earned by network companies over the length of a given period. Regulated companies then recover their allowed revenues through the charges they set.
Alec Shelbrooke (Elmet and Rothwell) (Con)
Does my hon. Friend agree that clause 13 is about precisely what I was touching on earlier? It is important to have the flexibility in the legislation to adapt as technology and innovation adapt too.
Andrew Bowie
Yes, I agree with my right hon. Friend. It is precisely about what he was touching on earlier: we are able to provide in the legislation the flexibility to allow the technologies for which we are legislating the space to grow, develop and become commercially viable. That is why it is essential to strike the balance between regulation and ensuring freedom for companies to operate. That is exactly why we would like the clause to stand part of the Bill.
As I was saying, allowed revenues must be set at a level that covers the companies’ costs and allows them to earn a reasonable return, subject to their delivering value for consumers, behaving efficiently and achieving their targets as set by the economic regulator. The amount of allowed revenue that an operator is able earn is set out in the licence conditions, which will need to be updated to reflect the outcomes of the periodic regulatory reviews and to keep pace with the evolution of the market more broadly. The power provides for the economic regulator to make such licence modifications, subject to an appropriate consultation process.
Before making any modifications to licence conditions, the economic regulator must give notice of the proposed modifications, the rationale for them, and an appropriate timeframe within which representations may be made. Any representations that are made must be duly considered. As Exchequer support will be available to certain users of the networks, the Secretary of State must be consulted on licence modification proposals and retains the power to direct that a modification may not be made.
Should the Secretary of State object to a particular modification, the economic regulator would need to consider whether to pursue the modification in an alternative form, which would require restarting the process of notifying and consulting on the new proposals. As is the case in other regulated sectors, licensees should have the right of appeal regarding modifications that are made to licences after they have been granted. The Bill provides for that later in chapter 1.
Clause 14 requires that, where the economic regulator has made a licence modification under clause 13 to a standard licence condition, the standard conditions of all future licences of that type should similarly be modified. That ensures a consistent approach to standard conditions across licences of the same type.
Clause 15 makes provisions for the Competition and Markets Authority or, as may be the case, the Secretary of State, to modify licence conditions in specific circumstances in relation to company mergers. Where there is a merger between licensed entities, that may necessitate licence modifications to ensure compliance with competition law. The power enables the CMA or the Secretary of State to modify licence conditions accordingly. I commend the clauses to the Committee.
Dr Whitehead
I have a question more than anything. Will the Minister state on the record this afternoon who the economic regulator actually is? The reason why I ask is that there does not seem to be any definition in the Bill of who the economic regulator is. It appears to be the CMA, but it might not be, because clause 20, on “Appeal to the CMA”, is under the heading “Appeal from decisions of the economic regulator”, so those do not appear to be the same thing in the Bill’s construction. It is not further defined, so perhaps the Minister will clarify that for us.
Andrew Bowie
I am happy to clarify that the economic regulator to which I and the Bill refer is of course Ofgem. Appeal to the CMA relates to what I have just discussed: occasions when there is a merger between two licensed entities, which may necessitate modifications. That is where the CMA comes into it. To be absolutely clear, Ofgem is the economic regulator.
Dr Whitehead
I point out, therefore, that there are inconsistent references to Ofgem, to the CMA and to the economic regulator. They are one and the same but referred to in different ways in different parts of the Bill. That might be a drafting issue more than anything else.
Andrew Bowie
I have just been reminded by my hon. Friend the Member for Beaconsfield that clause 1 sets out that the economic regulator to which we refer is Ofgem.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clauses 14 and 15 ordered to stand part of the Bill.
Clause 16
Interim power of Secretary of State to grant licences
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 2.
That schedule 1 be the First schedule to the Bill.
Andrew Bowie
The clause and schedule 1 provide the Secretary of State with the power to grant carbon dioxide transport and storage licences during an interim period, as has been discussed already this afternoon.
In the enduring regulatory regime, we expect the economic regulator to take decisions on who should be granted a carbon dioxide transport and storage licence. That is provided for by clause 7. However, it is the Secretary of State who will determine the first carbon dioxide transport and storage networks to be granted a licence—through the Government’s CCUS cluster sequencing programme—and the terms and conditions of those licences. That is appropriate given the Exchequer support available to the first CCUS clusters.
The CCUS cluster sequencing process is specifically designed for first-of-a-kind projects. The interim period during which the Secretary of State has the power to award licences will end on a date to be set in regulations, once the industry is sufficiently mature. After that interim period, the economic regulator will have sole power to grant licences.
Government amendment 2 corrects a cross-reference and renumbers a subsection in schedule 1 to ensure that the schedule is read correctly. Schedule 1 provides the Secretary of State with the power to grant carbon dioxide transport and storage licences during an interim period. The interim period during which the Secretary of State has the power to award licences will end on a date to be set in regulations made under schedule 1, once the industry is sufficiently mature. I think that answers some of the questions asked by the hon. Member for Kilmarnock and Loudoun earlier. After that interim period, the economic regulator, Ofgem, will have sole power to grant licences. I commend the clause and the schedule to the Committee.
Dr Whitehead
The clause itself is brief, but refers to schedule 1 and to the interim power of the Secretary to State to grant licences. As the Minister said, that power will come to an end on a date to be determined at a point when the industry is well established and the Secretary of State therefore no longer has to exercise the interim power. Who decides when the industry is well established? If that is the Secretary of State, is it not a rather circular way of bringing to an end the power of the Secretary of State to grant licences on an interim basis? If the Secretary of State decides that the industry is not that well established, he or she will presumably continue to grant interim licences forever.
Presumably, we want to reach a point when the Secretary of State does not grant licences in his or her own right and Ofgem or the economic regulator does, but we do not appear to have any mechanism in the Bill, other than something to be determined at a particular date, whereby the Secretary of State switches off his or her own power and switches on an Ofgem power. It would be helpful if the Minister could clarify that. There may be something in the legislation that I have not noticed, but it appears from schedule 1 and the clause that there is not a clear switch-off mechanism, other than the intention to do so when the market is mature.
Alan Brown
To follow on from that point, and the point that I made earlier, I know that the Minister said that he would write to us, but I am interested in how he envisages the sequencing and the interim period coming to an end. Although he said that in terms of value for money it is up to Parliament, and us as parliamentarians, to hold the Government to account, if the interim period goes on for a long while and individual licences are granted effectively on an ad hoc basis, it will be almost impossible for parliamentarians to hold the Secretary of State to account. We will continually be told that the information is commercially sensitive, so we will be unable to access it. I want a bit more clarity on how this will all come together in a more transparent manner.
Andrew Bowie
To address the points made by the hon. Members for Southampton, Test and for Kilmarnock and Loudoun, we recognise that visibility and clarity are of the utmost importance when talking to industry and, indeed, the wider country about where we are headed regarding CCUS. I can think of nothing that the Secretary of State, whoever that might be, would like more than to be able to give the power to Ofgem to determine licences. However, that depends on just how mature the sector is and the stage at which the Secretary of State determines it to be right.
The point about clarity, which I have just mentioned, is important. That is why my right hon. Friend the Member for Kingswood (Chris Skidmore) mentioned in his net zero review in March the need for a road map for CCUS. The Department agrees that that is important. We have committed to setting out a vision for the CCUS sector. That work is ongoing, and we will keep stakeholders and parliamentarians updated as we work up our road map and increase the clarity on where we are headed, and to what timescale, and when we expect such a transition period, during which the Secretary of State will hold that power, to come to end.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Schedule 1
Interim power of Secretary of State to grant licences
Amendment made: 2, in schedule 1, page 245, line 31, leave out from beginning to second “the” in line 32 and insert—
“(d) after subsection (10) insert—
‘(10A) For the purposes of subsection (5)’”.—(Andrew Bowie.)
This amendment corrects a cross-reference and renumbers a subsection.
Schedule 1, as amended, agreed to.
Clause 17
Termination of licence
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The terms and conditions of the economic licence will set out the circumstances in which the regulator would revoke or terminate a carbon dioxide transport and storage licence. Such circumstances may include those where a licence holder has contravened or failed to comply with enforcement orders, ceased to carry on as a transport and storage business, or sadly become insolvent.
The clause requires that where a licence termination scenario has arisen, or is likely to arise, the regulator must notify those who are most likely to be affected by a decision to terminate a licence. That will include notifying the relevant carbon storage licensing authority—which may be either the North Sea Transition Authority or Scottish Ministers, Welsh Ministers, or the Department for the Economy in Northern Ireland—where a storage licence is also in place.
It also includes notifying the Secretary of State who, depending on the circumstances, may consider it to be in the public interest to use the powers in chapters 4 or 5 of the Bill to secure the continued operation of the network. Those powers enable the Secretary of State to enact a statutory transfer scheme to transfer the licence and its associated property and rights to another operator to maintain ongoing operations.
If the licence is to be terminated due to company insolvency, the Secretary of State has the option to apply to the courts for a special administration order. I commend the clause to the Committee.
Dr Whitehead
The clause concerns termination events, stating:
“If the economic regulator considers that a termination event has arisen, or is likely to arise, the economic regulator must notify the persons mentioned in subsection (2) as soon as reasonably practicable.”
The Minister has given company insolvency as an example of a possible termination event, but I am sure he will agree that there are a number of others.
Subsection (5) says that a
“‘termination event’ means a state of affairs in which the economic regulator is authorised to revoke the licence.”
That explains precisely nothing; it does not give examples of termination events or explain the circumstances in which the economic regulator is authorised to revoke a licence. It does not take us very far.
Is there a roster of termination events? Is there a list of likely termination events that the Minister could put into a menu? Insolvency is one such event, but I can think of a number of other circumstances in which termination may take place either voluntarily or involuntarily. For example, a company may request that the regulator terminate its licence, stating that it cannot carry on with its licence arrangement for reasons other than insolvency.
The clause does not list any circumstances that could constitute a termination event. Is the Minister satisfied that the rather circular definition in the clause is sufficient? Or does he think that more clarity on what a termination event could constitute and how one might be dealt with is required?
Andrew Bowie
I understand the hon. Gentleman’s point. However, I think it is fairly well recognised and understood within the industry that the termination of a licence will come in the event that a licence holder ceases to carry on as a transport and storage business and therefore no longer requires a licence; if it becomes insolvent; or if it contravenes or fails to comply with enforcement orders made by the economic regulator or, in certain situations, the courts. I am not sure what would be added by setting that out in the Bill. I suspect that it is fairly well understood across the industry.
To answer the question of what would happen in the event of licence termination, the Bill provides certain step-in rights for the Secretary of State in a licence termination scenario to be able to transfer the ongoing operation of the transport and storage network to another operator or, where that is not possible, to ensure the safe decommissioning of the infrastructure. If a licence is terminated because of the insolvency of a transport and storage company, the Bill enables the application of a special administration regime to support the ongoing operation of the transport and storage network, prioritising its rescue as a going concern and securing the ongoing safety and security of the network. I reassure the hon. Gentleman that a great deal of consideration has gone into this specific element of the Bill, and we are happy that it is clear in its intent.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Transfer of licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
We are powering our way through this afternoon. Clause 18 enables carbon dioxide transport and storage licences to be transferred from one legal entity to another, subject to the consent of the economic regulator, Ofgem. Carbon dioxide transport and storage licences will be granted to a legal entity, and they cannot be bought or sold separate from that legal entity. Circumstances may arise in which it is appropriate or necessary to transfer a licence to another legal entity, and the clause provides for that. For example, a licence may need to be transferred as a result of a company merger or acquisition, or a company restructuring, where the legal entity that is proposed to carry on the licensable activity is not the same legal entity to which the licence was awarded. A transfer may relate to the whole or any part of the licence. The regulator’s consent is required for any licence transfer.
Clause 19 sets out the process that the economic regulator must follow before giving consent to any transfer. That includes public notice of the regulator’s intent to consent to a licence transfer, the reasons for it, any conditions to be attached to the consent to transfer, and a time period within which objections or representations can be made. The economic regulator must also notify the Secretary of State of an intended transfer, and the Secretary of State has the right to direct that a transfer may not be consented to. That is appropriate, as there may have been contractual financial support agreements in place between the Secretary of State and the current licence holder pursuant to the licence.
Dr Whitehead
The clauses deal with transfer of licences when, as mentioned in the previous clause, a termination event takes place. Subsequent to such an event, the licence will have to be put into action again and will be transferred. I am interested to see whether I can get the words “termination event” into common language, so that I can say to people, “That is a bit of a termination event”. However, I will not do that this afternoon.
The transfer of licences under such circumstances, as we have emphasised, needs to be put under the general heading of “fit and proper people”, whether we explicitly say that or not. A termination event may have occurred because someone has proven not to be a fit and proper person—for example, if they were gambling the company’s proceeds on local casinos—and therefore the company or person has been determined not to be able to carry out the term of the licence. The licence therefore needs to be transferred at least to a better kind of person.
Will the Minister expatiate briefly on the circumstances under which transfers will be judged? We need to be sure that when a licence needs to be transferred after a termination event, no one can say, “You over there—you will do. We are in a bit of a fix as far as the licence is concerned, so you get on with it.” I am sure that that is the last thing on the Minister’s mind, but it could conceivably happen if someone wished to cut corners and keep a licensed line of activity going. If the Minister could give an assurance about how licences will be transferred, that would be helpful.
Andrew Bowie
I am glad that we are not going to focus too much on termination or even extermination events during our debate. Indeed, it is to be hoped that we will not need to refer to this aspect of the Bill very much, if at all. However, we have to legislate in the expectation that at some point, there may be termination events for a licensed entity. That is why we have set out the provision for a licence transfer in the Bill.
The hon. Member for Southampton, Test referred to his earlier point regarding the inclusion of the phrase “fit and proper person”. As I said, we believe that the Bill sets out exactly how the Government will determine that a company or an individual is well placed to be a licence holder and carry out their duties as they relate to the Bill. However, let us say that they are not—we hope that that will not be the case—and a transfer takes place. A new licensee will be found, and if they intend to commence the licensable activity shortly after consent is granted, the regulator—Ofgem, in this case—may ask them to demonstrate, for example, that arrangements to accede to relevant codes by the proposed transfer date are in place. I understand why the hon. Member asks these questions, and it is right to do so. It is right that we state on the record today exactly what we expect in the event that a termination event takes place in regard to a licensed entity.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19 ordered to stand part of the Bill.
Clause 20
Appeal to the CMA
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 21 stand part.
That schedule 2 be the Second schedule to the Bill.
Clauses 22 to 25 stand part.
Andrew Bowie
I will now speak to clauses 20 to 25, which relate to appeals in relation to licence modification decisions made by the economic regulator for carbon dioxide transport and storage. I will start with clause 20. To ensure that sufficient safeguards for licensees are in place, this provision of the Bill provides for licence modification decisions to be appealable to the Competition and Markets Authority. That is consistent with the CMA’s role in appeals in other economically regulated sectors, including gas and electricity. The CMA’s permission is required to bring an appeal, and the specific grounds on which the CMA may refuse to allow an appeal are set out in the clause. They include, for example, grounds for appeal that are “trivial or vexatious”.
Clauses 21 to 25 and schedule 2 set out the process and procedures for appeals to the CMA. Schedule 2 sets out the detailed process by which appeals to the CMA regarding licence modification decisions must be made, including matters to be considered by the CMA and timeframes within which the CMA must determine outcomes. To ensure a fair process and in order that the CMA may make a fully informed decision, schedule 2 establishes a right for the CMA to require the production of documents and written statements, and for persons to attend to give oral evidence. It establishes an offence of failure to comply with a notice to provide information, and it allows the CMA to make a costs order relating to the appeal. The provisions of schedule 2 are consistent with the process and provisions for appeals to the CMA in relation to gas and electricity licence modification decisions made by Ofgem.
Clause 22 sets out the matters to which the CMA must have regard when determining an appeal against a licence modification decision. It also sets out the circumstances in which the CMA may allow an appeal. In determining an appeal, the CMA must have regard to the same matters to which the economic regulator must have regard in carrying out its principal objectives and statutory duties in relation to carbon dioxide transport and storage. The CMA may allow the appeal if it considers that the decision being appealed does not sufficiently have regard to, or give sufficient weight to, matters covered by the principal objectives and statutory duties set out in clause 1; is legally wrong; is based on a factual error; or does not achieve its stated objectives. If the CMA does not allow the appeal on any of those grounds, the original decision made by the economic regulator stands.
Clause 23 sets out the powers of the CMA to remedy a licence modification decision where an appeal has been allowed. Where an appeal has been allowed, the CMA can quash the decision or require the economic regulator to reconsider it. If the appeal relates to a price control decision, the CMA additionally has the option to substitute its own decision for the economic regulator’s decision. These powers mirror those that exist for the CMA in gas and electricity licence modification appeals.
Clause 24 sets out time limits within which an appeal to the CMA must be determined. An appeal against a licence modification decision must be determined by the CMA within a period of four months from the date on which permission to bring the appeal was given. For appeals against price control decisions, the CMA has a period of six months to make a determination. Where representations on timing are made and the CMA considers that there are special reasons why the time limits cannot be met, it may have an extra month for its decision. In such circumstances, the CMA must inform the parties of the time limit and publish it in such a manner as it considers appropriate to bring it to the attention of parties who may be affected by the determination.
Dr Whitehead
I was tempted to refer the hon. Member to the Energy Prices Act 2022, which was recently passed—I think, to paraphrase the Minister, not on his watch. The Act allows the Secretary of State to do pretty much anything that he or she wants in the energy sphere. I do not know whether that applies to the circumstances that the hon. Member for Hitchin and Harpenden suggested, but we are particularly concerned about the powers in that Act, and whether they need to be rowed back a little in this Bill.
I draw the Committee’s attention to the process of appeal from the economic regulator to the CMA. It appears to be a linear process. The appeal is set up by the CMA, effectively, and there is no going back afterwards. There is not a circumstance in which the economic regulator can say, “Actually, we think the CMA didn’t work as well it should in terms of casting that appeal. Can we appeal the appeal—not necessarily the substance of the appeal, but the way in which it has been carried out?”
What is apparent in terms of the CMA’s powers regarding appeals is that they give the CMA a lot of ability to misstep. Clause 20(4) states:
“The CMA may refuse permission to bring an appeal only on one of the following grounds”.
The CMA, actually on fairly wide grounds, can therefore refuse to bring an appeal. It appears to have pretty widespread powers to make a determination without any comeback. For example, clause 22(4) states:
“The CMA may allow the appeal only to the extent that it is satisfied that the decision appealed against was wrong on”
various grounds, including, among others,
“that the decision was based, wholly or partly, on an error of fact”.
Various things in the clauses emphasise the linear nature of the appeal process—that is, the CMA decides, and no one is looking at what the CMA is doing in terms of its appeal processes. I would like to hear whether the Minister thinks that that is adequate or whether a little more attention ought to be paid to what the CMA is doing in those circumstances, and whether the relationship between the CMA and the economic regulator under those circumstances is as good as it could be.
Andrew Bowie
Turning first to the points made by my hon. Friend the Member for Hitchin and Harpenden, who does treat both parts of his constituency with equal diligence—having visited, I have seen that at first hand—he is right: the Secretary of State does not have the power to directly modify licence conditions once they are granted, but he does have a veto over Ofgem decisions. That is set out in clause 13(6).
I genuinely understand the concerns of the hon. Member for Southampton, Test, but the provisions and procedures directly mirror the appeals process in respect of electricity and gas licence modification, set out in the Gas Act 1986 and the Electricity Act 1989. We believe that it will ensure consistency of approach for the economic regulator Ofgem and, indeed, the Competition and Markets Authority, which will provide confidence for the sector, and indeed sectors, as we move forward.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21 ordered to stand part of the Bill.
Schedule 2 agreed to.
Clauses 22 to 25 ordered to stand part of the Bill.
Clause 26
Provision of information to or by the economic regulator
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 26 allows the economic regulator to request information from, and provide information to, other bodies with carbon capture, usage and storage regulatory or statutory functions, in circumstances where the sharing of information may be appropriate to facilitate the effective functioning of the respective regulatory regimes.
The clause permits the sharing of information between the economic regulator and the relevant bodies with statutory functions in respect of CCUS listed at subsection (2). The clause also allows for sharing of information with any other person the economic regulator considers appropriate if they have statutory powers or duties that the economic regulator considers relevant to the exercise of its functions. That could include, for example, the counterparty to any contracts providing consumer or taxpayer support for associated carbon capture activities. The clause limits information requests to those that the economic regulator considers necessary to facilitate the exercise of its functions.
These information-sharing provisions are intended to enable information to be shared between relevant regulatory authorities, not to permit public disclosure. Information shared with the economic regulator will remain protected under the Data Protection Act.
Alan Brown
What happens if any of the bodies do not give information to the economic regulator in the requested timeframe?
Andrew Bowie
They would be subject to the same stringent actions as have been set out, and in the interim the Secretary of State would determine what action should be taken in that respect.
Clause 27 gives the Secretary of State a power to require information directly from a carbon dioxide transport and storage licence holder, to ensure that he has access to information needed to support the effective conduct of his CCUS functions. The clause does not enable the Secretary of State to share or publish the information. To ensure protection of sensitive information, information provided to the Secretary of State will remain protected under the Data Protection Act, and an information request cannot be made to obtain information protected by legal professional privilege or, in Scotland, confidentiality of communications.
Dr Whitehead
The Minister’s final few words appear to show—the hon. Member for Kilmarnock and Loudoun may have a few things to say about this—that there are different conditions for disclosure or production in legal proceedings in England and Wales and in Scotland. I am not a lawyer, so I do not know exactly what the difference is likely to be, but it appears that there is greater protection for the licence holder with respect to information provision in Scotland than in England and Wales. Perhaps I am reading that wrong. Is it the case that, in effect, the two conditions are the same and the wording of the Bill just bows in the direction of the formulation in Scotland, or is there a material difference?
Andrew Bowie
There is no material difference at all. As the hon. Member suggests, it is just a reference to the different regulations that apply in Scotland and in England and Wales, as a result of the devolved legislature in Edinburgh legislating slightly differently from the way that we have for the rest of the United Kingdom. That is the only difference. As this is a pan-UK Bill that affects each area of the United Kingdom, we have to make clear in the Bill the different regulations that will have to be conformed to. That is why the language of clause 27 is as it is.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 27 ordered to stand part of the Bill.
Clause 28
Monitoring, information gathering etc
Andrew Bowie
Thank you very much, Mr Gray. I fear that you will be hearing my voice in your sleep tonight.
Andrew Bowie
Clauses 28 to 31 relate to other functions of the economic regulator. Starting with clause 28, as I have already said, carbon capture, transport and storage are nascent industries in the UK and, indeed, globally.
The economic regulation framework for carbon dioxide transport and storage, established by part 1 of the Bill, is focused on the transport of carbon by pipeline for the purposes of geological storage. Through that framework, our aim is to both provide certainty for investors and protect user interests.
As the CCUS market becomes established, we may need to keep the framework under review—for example, on how it is applied to non-pipeline forms of carbon transportation and the most appropriate licensing structure for different types of onshore and offshore infrastructure. To help inform such considerations, clause 28 requires the economic regulator to keep the carbon dioxide transport and storage market under review.
The economic regulator may collect information for the carrying out of such monitoring functions. The regulator is also obliged to share relevant information with the Secretary of State or the CMA if requested to do so, to assist their competition and market functions. Clause 29 establishes the procedure for requesting such information and establishes a penalty if a licence holder does not comply with a request for relevant information.
Where the economic regulator is considering implementing proposals that may have a significant impact on licence holders, on others who are involved in related CCUS activities, on the general public or on the environment, clause 30 requires that the economic regulator carries out an impact assessment ahead of implementing the proposals. The economic regulator is required to carry out and publish an assessment of the likely impact of implementing the proposal or set out why it considers it unnecessary to carry out such an assessment.
An impact assessment for a proposal must be published in an appropriate manner and provide an opportunity for those who are likely to be significantly affected by the proposal’s implementation to make representations. In its annual report, the economic regulator must report on the impact assessments undertaken in the relevant financial year and the decisions taken as a result of those assessments.
Lastly, to ensure transparency of decision making, clause 31 establishes that, for certain decisions, the economic regulator and the Secretary of State must give reasons for the decisions taken. The reasons must be set out in the published notice and sent to the relevant licence holder. Before publishing a notice, the economic regulator or the Secretary of State must give regard to the need to exclude information that could seriously and prejudicially affect the interests of an individual or body.
Dr Whitehead
I must say that these passages are so dry that I may be hearing the Minister’s voice in my sleep this afternoon, rather than tonight. Having said that, I assure you, Mr Gray, that I am wide awake and listening to what is being said.
When considering any piece of legislation, I always think that the first thing we should look at is the impact assessments, because they have to tell the truth about what is going on. It is, therefore, always useful to have impact assessments. Indeed, it is important that an impact assessment is available as often as possible both for Bill Committees and for secondary legislation.
Clause 30, however, appears to be rather vague about whether impact assessments should actually be undertaken. On the duty to carry out impact assessment, it states that
“the economic regulator is proposing to do anything for the purposes of, or in connection with, the carrying out of any function exercisable by it under or by virtue of this Part, and…it appears to the economic regulator that the proposal is important”,
but the clause does not specify what is meant by “important”. It goes on to say:
“but this section does not apply if it appears to the economic regulator that the urgency of the matter makes it impracticable or inappropriate for the economic regulator to comply with the requirements of this section.”
In other words, if the economic regulator thinks that an issue has some significance—subjectively judged, I assume, by the economic regulator—it may carry out an impact assessment. On the other hand, if there is no time to do it or it does not appear to be terribly appropriate to the economic regulator, it does not have to do it anyway. Therefore, we might get an impact assessment, or we might not.
There are a number of grounds in the process under which the impact assessment can be voided or avoided. Although subsection (2) attempts to define what “important” means in connection with a proposal, it also states:
“A proposal is important for the purposes of this section only if its implementation would be likely to do one or more of the following”.
and thereby further downgrades the question of what is still a rather subjective view of what constitutes importance.
I assume that the Minister shares my view that impact assessments are really important not just for important subjects but for most things. Although we have not tabled an amendment, will the Minister consider tightening the wording so as to ensure that carrying out impact assessments is the norm and not something to be decided by the regulator? To use the word “important” again, it is important that we are clear about impact assessments. Indeed, that has been set out in guidance to Ministers, who should seek to undertake impact assessments at all times, where possible, and should not hide behind speed issues or other circumstances in order to avoid them. However, it appears that that is not the case for the economic regulator, and that is not satisfactory.
Andrew Bowie
The Government are always open to suggestions and ideas about how we can improve legislation. As I said earlier, it is important for the industry, nascent as it is, that there is as much clarity as possible about how it is governed and about the regulatory process that it must follow. We must also understand that, as the market and the technology grow, evolve and develop, we will need to keep that under review. However, I am happy to give a commitment to the hon. Member that we will consider whether it is possible to tighten up the language so that exactly what is meant is made clear to industry.
Kerry McCarthy
As we have heard, there could be subjective interpretations regarding the importance and urgency of an impact assessment, and questions raised over whether one is appropriate or impracticable. I think the Minister will share my concern that the broadly worded clause could result in people seeking judicial review if they feel that the economic regulator should have carried out an impact assessment. I do not know what the process would be for bringing such a review, but does he share my concern that the vaguer the language, the more open it is to challenge?
Andrew Bowie
I also do not know the exact procedure that would lead to a judicial review in this instance, but I agree that we need to be clear and give certainty to the industry. Where we can, we should look at what we can do to tidy up the language so as to ensure that we do not end up in that situation.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clauses 29 to 31 ordered to stand part of the Bill.
Energy Bill [ Lords ] (First sitting)
Andrew Bowie ExcerptsTuesday 23rd May 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 23 May 2023 - (23 May 2023)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
As ever, it is a pleasure to serve under your chairmanship, Mr Gray, and particularly for the first time as a Minister on a Public Bill Committee. I am sure you will keep me on the straight and narrow over the next few weeks. I look forward to working with you and members of the Committee as we scrutinise this landmark and, as you described it, mighty Energy Bill.
To begin, I want to remind Members of the purpose and background of the Bill. The Energy Bill will provide a clearer, more affordable and more secure energy system. It will liberate private investment in clean technology, reform our energy system so that it is fit for purpose, and ensure the safety, security and resilience of the energy system.
I turn first to amendments 75, 76 and 81, tabled by the hon. Members for Southampton, Test and for Bristol East. Amendment 75 seeks to expand the definition of a transport and storage network user in clause 1 to refer additionally to users who may seek to use carbon dioxide taken off a transport and storage network, not just those who are seeking to transport and store carbon dioxide for its permanent geological storage.
Although there are many uses for carbon dioxide across industrial sectors in the UK, including fertiliser production, cement, lime, and food and drink, as the hon. Member for Southampton, Test set out—indeed, there was little in what he said with which I found myself disagreeing—not all these applications result in the permanent abatement of carbon dioxide. For some of those products, the carbon dioxide is ultimately released back into the atmosphere.
The Government’s aim in prioritising support for the deployment of carbon capture and storage in the UK is to incentivise large-scale, permanent abatement of carbon dioxide and the establishment of a transport and storage infrastructure, which is essential to achieve net zero emissions. Carbon capture and usage technologies resulting in the permanent abatement of carbon dioxide could represent only a small abatement potential as compared with carbon capture when the carbon dioxide is disposed of by geological storage. For those seeking to use captured carbon dioxide, alternative options are likely to be available, such as off-taking carbon dioxide directly from an emitter before it enters a transport and storage network. For those reasons, the Government do not consider the amendment to be necessary or appropriate.
Clause 2 establishes a prohibition on operating at a geological carbon dioxide storage site or providing a service of transportation of carbon dioxide by pipeline without a licence. Amendment 76 seeks to expand the scope of this licensing requirement to include licensing the use of carbon dioxide that has been captured and transported. The licensing requirement in clause 2 is intended to establish a regulated investment model for the transport and storage of carbon. This is a “user pays” economic regulation model that involves the network users—power and industrial emitters—paying for the transport and geological storage of the carbon dioxide that they produce. Licensed transport and storage companies will be able to recover their investment in the transport and storage network through the fees charged for transport and storage services. This model provides long-term revenue certainty for investors to pool through the invested needed to establish and scale up carbon dioxide transport and storage infrastructure here in the UK.
As pipeline, transport and storage assets have monopolistic characteristics, oversight by Ofgem, the independent economic regulator of carbon dioxide transport and storage, will ensure that users are protected from anti-competitive behaviour and that costs are economic and efficient. A model of economic regulation for delivering carbon dioxide transport storage was identified as the preferred option following the Government’s 2019 consultation on business models for carbon capture, usage and storage.
Alan Brown (Kilmarnock and Loudoun) (SNP)
The Minister mentioned Ofgem. What discussions were had with Ofgem about its capability, expertise and resources to deal with what is going to be a whole new suite of competencies for Ofgem?
Andrew Bowie
Of course, none of this is without its challenges, and Ofgem recognises that. However, I have regular conversations with Ofgem and the Department is happy that it is indeed scaling up its capability, to enable it to deal with not only the new carbon capture utilisation and storage procedures that we are discussing but the whole range of areas in which Ofgem will have a role as we move towards a net zero future. Given the aims and purpose of the economic licensing framework that clause 2 establishes, I hope that the hon. Member for Southampton, Test will agree to withdraw his amendment.
Amendment 81 seeks explicitly to include within the scope of the term “revenue support contract” a contract for the use of carbon capture. We understand that to mean a contract to support carbon capture and usage. The carbon capture revenue support contracts are intended to support the deployment of carbon capture technologies. The Bill allows for carbon capture revenue support contracts to be entered into with eligible carbon capture entities. Broadly, a carbon capture entity is a person who, with a view to the storage of carbon dioxide, carries on activities of capturing carbon dioxide that has been produced by commercial or industrial activities, is in the atmosphere or has dissolved in seawater.
Storage of carbon dioxide is storage with a view to the permanent containment of carbon dioxide. It is important to emphasise that provisions in the Bill may therefore allow for a broad range of carbon capture applications, including those carbon capture entities that utilise the carbon dioxide, resulting in the storage of carbon dioxide with a view to its permanent containment. Decisions on which carbon capture entities will receive Government support are to be made on a case-by-case basis. Prioritising support for carbon storage is considered essential to help deliver our decarbonisation targets.
Alec Shelbrooke
Will my hon. Friend describe the actual mechanisms of the carbon dioxide storage, geologically? How will that be done—for instance, will that be out into the North sea, using old oil platforms?
Andrew Bowie
I thank my right hon. Friend for his intervention. I would be happy to give a thorough explanation of exactly how the carbon capture and storage will proceed; I am sure we will get to that in the course of our debate on the Bill, and in other places. However, I am not sure where that would fit within the context of this debate, other than to say that the technology being developed by companies, organisations and clusters around the UK is world leading. When it comes to being able to store in the future the carbon dioxide being produced in the UK now, the North Sea is of course the greatest asset that we have as a country. The oil and gas industry will be able to play a pivotal role in that development as we move forward.
Given the reasoning I have set out, I hope that the amendment tabled by the hon. Member for Southampton, Test will be withdrawn.
Dr Whitehead
I appreciate what the Minister has said this morning. Frankly, though, I am not wholly convinced that the processes have been fully accounted for. I emphasised the various uses of carbon dioxide. The Minister is right that not all those uses lead to eventual sequestration. However, most of the uses that do not lead to additional sequestration do, on occasions, sequester the carbon dioxide in the process itself.
For example, carbon dioxide used in horticulture is substantially sequestered during the process of growing the plants. There is potentially an important use of carbon dioxide in processing hydrogen and in producing sustainable aviation fuel. Those processes sort of sequester the carbon in producing a different product, which is itself then burned. We then have to sequester the whole lot again, but the product has been used in the meantime.
It is important to concentrate on aligning the processes within carbon dioxide use as closely as possible with the process of sequestration, not simply allowing the carbon dioxide to escape. One thing that concerns me is the use of carbon dioxide in the process of the enhanced recovery of oil, because unless that carbon dioxide can be sequestered at the point it is injected into a well, although it produces greater amounts of oil it leaks into the atmosphere again, so we have a net negative outcome. We have produced more oil, but arguably it should have been left where it was in many instances.
The Chair
With this it will be convenient to discuss the following:
New clause 33—Purposes—
“(1) The principal purpose of this Act is to increase the resilience and reliability of energy systems across the UK, support the delivery of the UK’s climate change commitments and reform the UK’s energy system while minimising costs to consumers and protecting them from unfair pricing.
(2) In performing functions under this Act, the relevant persons and bodies shall have regard to—
(a) the principal purpose set out in subsection (1);
(b) the Secretary of State’s duties under sections 1 and 4(1)(b) of the Climate Change Act 2008 (carbon targets and budgets) and international obligations contained within Article 2 of the Paris Agreement under the United Nations Framework Convention on Climate Change;
(c) the desirability of reducing costs to consumers and alleviating fuel poverty; and
(d) the desirability of securing a diverse and viable long-term energy supply.
(3) In this section “the relevant persons and bodies” means—
(a) the Secretary of State;
(b) any public authority.”
This new clause and NC34, NC35 and NC36 are intended as a suite of purpose and strategy clauses for this Bill.
New clause 34—Strategy and policy statement—
“(1) The Secretary of State may designate a statement as the strategy and policy statement for the purposes of this Act.
(2) The strategy and policy statement is a statement prepared by the Secretary of State that sets out—
(a) the strategic priorities, and other main considerations, of His Majesty’s Government in formulating its energy policy for Great Britain (“strategic priorities”);
(b) the particular outcomes to be achieved as a result of the implementation of that policy (“policy outcomes”); and
(c) the roles and responsibilities of persons (whether the Secretary of State, a relevant public authority or other persons) who are involved in implementing that policy or who have other functions that are affected by it.
(3) The strategy and policy statement must have regard to the considerations listed in subsection (2) of section [Purposes].
(4) The Secretary of State must publish the strategy and policy statement in such manner as the Secretary of State considers appropriate.
(5) For the purposes of this section, energy policy “for Great Britain” includes such policy for—
(a) the territorial sea adjacent to Great Britain, and
(b) areas designated under section 1(7) of the Continental Shelf Act 1964.
(6) A relevant public authority must have regard to the strategic priorities set out in the strategy and policy statement when carrying out regulatory functions.
(7) The Secretary of State and a relevant public authority must carry out their respective regulatory functions in the manner which the Secretary of State or the relevant public authority (as the case may be) considers is best calculated to further the delivery of the policy outcomes.
(8) A relevant public authority must give notice to the Secretary of State if at any time the relevant public authority concludes that a policy outcome contained in the strategy and policy statement is not realistically achievable.
(9) A notice under subsection (8) must include—
(a) the grounds on which the conclusion was reached; and
(b) what (if anything) the relevant public authority is doing, or proposes to do, for the purpose of furthering the delivery of the outcome so far as reasonably practicable.”
This new clause and NC33, NC35 and NC36 are intended as a suite of purpose and strategy clauses for this Bill.
New clause 35—Strategy and policy statement review—
“(1) The Secretary of State must review the strategy and policy statement if a period of 5 years has elapsed since the relevant time.
(2) The “relevant time”, in relation to the strategy and policy statement, means—
(a) the time when the statement was first designated under section [Strategy and policy statement], or
(b) if later, the time when a review of the statement under this section last took place.
(3) A review under subsection (1) must take place as soon as reasonably practicable after the end of the 5 year period.
(4) The Secretary of State may review the strategy and policy statement at any other time if—
(a) a Parliamentary general election has taken place since the relevant time;
(b) a relevant public authority has given notice to the Secretary of State under subsection (8) of section [Strategy and policy statement] since the relevant time;
(c) a significant change in the energy policy of His Majesty’s Government has occurred since the relevant time; or
(d) the Parliamentary approval requirement in relation to an amended statement was not met on the last review (see subsection (12)).
(5) The Secretary of State may determine that a significant change in His Majesty’s Government’s energy policy has occurred for the purposes of subsection (4)(c) only if—
(a) the change was not anticipated at the relevant time, and
(b) if the change had been so anticipated, it appears to the Secretary of State likely that the statement would have been different in a material way.
(6) On a review under this section the Secretary of State may—
(a) amend the statement (including by replacing the whole or part of the statement with new content),
(b) leave the statement as it is, or
(c) withdraw the statement’s designation as the strategy and policy statement.
(7) The amendment of a statement under subsection (6)(a) has effect only if the Secretary of State designates the amended statement as the strategy and policy statement under section [Strategy and policy statement].
(8) For the purposes of this section, corrections of clerical or typographical errors are not to be treated as amendments made to the statement.
(9) The designation of a statement as the strategy and policy statement ceases to have effect upon a subsequent designation of an amended statement as the strategy and policy statement in accordance with subsection (7).
(10) The Secretary of State must consult the following persons before proceeding under subsection (6)(b) or (c)—
(a) a relevant public authority,
(b) the Scottish Ministers,
(c) the Welsh Ministers, and
(d) such other persons as the Secretary of State considers appropriate.
(11) For the purposes of subsection (2)(b), a review of a statement takes place—
(a) in the case of a decision on the review to amend the statement under subsection (6)(a)—
(i) at the time when the amended statement is designated as the strategy and policy statement under the previous section, or
(ii) if the amended statement is not so designated, at the time when the amended statement was laid before Parliament for approval under subsection (7) of the next section;
(b) in the case of a decision on the review to leave the statement as it is under subsection (6)(b), at the time when that decision is taken.
(12) For the purposes of subsection (4)(d), the Parliamentary approval requirement in relation to an amended statement was not met on the last review if—
(a) on the last review of the strategy and policy statement to be held under this section, an amended statement was laid before Parliament for approval under subsection (7) of section [Strategy and policy statement: procedural requirements], but
(b) the amended statement was not designated because such approval was not given.”
This new clause and NC33, NC34 and NC36 are intended as a suite of purpose and strategy clauses for this Bill.
New clause 36—Strategy and policy statement: procedural requirements—
“(1) This section sets out the requirements that must be satisfied in relation to a statement before the Secretary of State may designate it as the strategy and policy statement.
(2) In this section references to a statement include references to a statement as amended following a review under subsection (6)(a) of section [Strategy and policy statement review].
(3) The Secretary of State must first—
(a) prepare a draft of the statement, and
(b) issue the draft to the required consultees for the purpose of consulting them about it.
(4) The “required consultees” are—
(a) the relevant public authority,
(b) the Scottish Ministers, and
(c) the Welsh Ministers.
(5) The Secretary of State must then—
(a) make such revisions to the draft as the Secretary of State considers appropriate as a result of responses to the consultation under subsection (3)(b), and
(b) issue the revised draft for the purposes of further consultation about it to the required consultees and to such other persons as the Secretary of State considers appropriate.
(6) The Secretary of State must then—
(a) make any further revisions to the draft that the Secretary of State considers appropriate as a result of responses to the consultation under subsection (5)(b), and
(b) prepare a report summarising those responses and the changes (if any) that the Secretary of State has made to the draft as a result.
(7) The Secretary of State must lay before Parliament—
(a) the statement as revised under subsection (6)(a), and
(b) the report prepared under subsection (6)(b).
(8) The statement as laid under subsection (7)(a) must have been approved by a resolution of each House of Parliament before the Secretary of State may designate it as the strategy and policy statement.
(9) The requirement under subsection (3)(a) to prepare a draft of a statement may be satisfied by preparation carried out before, as well as preparation carried out after, the passing of this Act.”
This new clause and NC33, NC34 and NC35 are intended as a suite of purpose and strategy clauses for this Bill.
Andrew Bowie
New clauses 33 to 36 would insert provisions for the review of the strategy and policy statement, and procedure requirements for the designation of such a statement.
The Bill already contains a number of measures to deliver a cleaner, more affordable and more secure energy system for the long term, as set out by the long title, so there seems to be little to be gained from the proposed new clause 33. The Government’s approach to these matters will be informed by the strategy and policy statement provided for under the Energy Act 2013, on which we are currently consulting.
I turn to new clauses 34, 35 and 36. The 2013 Act introduced a power to designate a strategy and policy statement setting out the Government’s strategic priorities for energy policy in Great Britain, the roles and responsibilities of those implementing such a policy and the policy outcomes to be achieved. The strategic priorities of the Government’s energy policy are to be taken as a whole. They include, but are not limited to, our targets under the Climate Change Act 2008, reducing costs for consumers, tackling fuel poverty, and securing a diverse and viable long-term energy supply. The strategy and policy statement power in the 2013 Act is not specific to the measures contained in any specific Act. The power is wider, and it enables the strategy and policy statement to cover any or all of the Government’s strategic energy priorities, wherever they are set out.
On 10 May 2023, the Government published their consultation on a draft strategy and policy statement for energy policy in Great Britain. We are seeking responses until 2 August, and we intend to designate a final strategy and policy statement by the end of this year. Designation of a strategy and policy statement will ultimately be a decision for Parliament, not for the Secretary of State. I hope that hon. Members are satisfied by those reassurances.
Alan Brown
Will that be a wider strategy and policy statement that goes to Ofgem? An overarching energy policy has long been outstanding.
Andrew Bowie
I believe that that was made clear. As I said earlier, we are working with Ofgem to ensure that it has the capabilities to deal with all of this. In terms of a national policy statement for Ofgem moving forwards, there will be a series of announcements over the next few months and, indeed, the year that will enable Ofgem and the future service operator to get into a position where they are able to deal with what we introduce through the Bill and other statements.
Clause 1 establishes Ofgem as the economic regulator for carbon dioxide transport and storage. It also establishes the principal objectives and statutory duties for both the Secretary of State and Ofgem in carrying out their functions under part 1 of the Bill. Transport and storage networks will act as the enabling infrastructure for carbon capture and storage from a range of sources, including power plants, industrial facilities, low-carbon hydrogen production and, potentially, direct air capture.
The economic regulation model provides long-term revenue certainty for network operators while protecting network users from monopolistic behaviours, as has already been described. The Government consider that Ofgem is the most appropriate body to act as the economic regulator for carbon dioxide transport and storage, due to its experience and expertise in the economic regulation of the overall energy sector. The selection of Ofgem as the regulator has received broad support from the industry. The principal objectives set out in clause 1 reflect the balance of considerations for a nascent carbon dioxide transport and storage sector.
Dr Whitehead
Clause 1 concerns the appointment of Ofgem as a regulator for these activities—in particular, carbon capture and storage. The new clauses that we have tabled seek to gather together what is in the Bill and provide it with a purpose clause, and to suggest to the Secretary of State that the Bill’s contents might be encapsulated, for future direction and use, in a strategy and purpose document.
Andrew Bowie
I thank the hon. Member for his careful and considered contribution, which reflected the careful and considered discussions that His Majesty’s loyal Opposition and the Government have been having on the Bill and on the wider issue of net zero and energy security over the past few months and years. He is absolutely right: this is not a partisan debate, and there is very little to distinguish the Opposition’s approach to this issue from that of the Government. We all agree that our overarching aims, though this Bill and through the other actions that we as a country are taking, are to reduce emissions, reduce bills, strengthen our energy security, and create and secure new British jobs in the process, which will be to the benefit of this country and help us to lead the way in the world.
The hon. Member spoke with great purpose. I find very little to disagree with in the substance of what he said about the purpose clause, but he also admitted that the Bill is stuffed full, to use his phrase, of clauses that explain exactly what we are striving to do. For that reason, I suggest that despite the good intentions behind this specific purpose clause, it would be superfluous to the Bill at this stage. However, it is something that we are willing to consider moving forward.
With regard to the hon. Member’s comments on the strategy and policy statement, the power of the 2013 Act was not specific to the measures contained in that Act but covered all of the Government’s strategic energy priorities. That is why we published the consultation on an SPS just 13 days ago.
Andrew Bowie
Well, we got around to it eventually. The hon. Member for Kilmarnock and Loudoun asked whether the strategy and policy statement covers Ofgem. Yes, it does, and Ofgem will have regard to the SPS consultation that we are working on right now.
As I said, we intend to designate a final strategy and policy statement by the end of this year. That will be a decision for Parliament, not the Secretary of State, whichever party the Secretary of State happens to be from at the time. The new clauses are therefore superfluous to the Bill, despite the fact that they are well intentioned and that there is very little in their contents that I can disagree with. That is why I ask the hon. Member for Southampton, Test not to press his new clauses.
The Chair
It would be difficult for him to do so, as they will be considered when we come to the relevant part of our discussion on the Bill. The question for now is that clause 1 stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Prohibition on unlicensed activities
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clauses 2 to 6 relate to the licensable activities for carbon dioxide transport and storage.
Clause 2 establishes the prohibition on the transport of carbon dioxide by pipeline and its geological storage without an economic license regulated by Ofgem. As carbon dioxide pipelines for storage and site infrastructure are likely to be operated as regional monopolies, a framework of economic licensing and regulation is designed to prevent anti-competitive behaviours. Licensable activities will initially include the transportation of carbon dioxide via onshore pipelines and offshore pipelines, and the operation of an associated geological storage facility. The clause enables other methods of transportation of carbon dioxide to become licensable activities, should that be considered appropriate as the carbon capture and storage market evolves.
Non-pipeline methods of transportation—shipping, road or rail—are expected to form part of wider carbon dioxide transport and storage networks. These methods of transport are particularly important for dispersed sites, where there are emitters who wish to have their carbon dioxide captured and transported for permanent storage, but are not suitably located to join a transport storage network by pipeline.
While non-pipeline methods of transport will have an important role in the development of carbon capture and storage networks, the Government consider that there is currently insufficient evidence to justify economically regulating non-pipeline methods of carbon dioxide transport. As those methods of transportation have differing characteristics from pipelines, with a potential lower cost of entry and an ability for multiple asset-running in parallel, competitive regional markets may emerge naturally for non-pipeline transportation of carbon dioxide. However, should competitive markets not emerge as anticipated, that may be rationale for future regulatory intervention. The ability of the Secretary of State to bring activities within the scope of the licensing framework is particularly important, given the financial support provided by the Exchequer to support carbon capture facilities and to ensure appropriate and effective protections can be put in place for users of the network.
I turn to clause 3. Any future use of the power established in clause 2 to extend the economic regulation framework to other methods of transporting carbon dioxide, should that be considered appropriate, would be subject to statutory consultation, as provided for in clause 3. Under the provisions of the clause, the Secretary of State is required to give notice of their intention to make regulations to extend the licensing framework to other methods of carbon dioxide transportation. That would include statutory consultation with the economic regulator to confirm the rationale for market intervention and consultation with the devolved Administrations.
Clause 4 sets out the territorial scope of the economic licensing framework for carbon dioxide transport and storage. The economic regulatory regime established by chapter 1 and part 1 of the Bill will extend to all parts of this United Kingdom. The licensing regime and economic regulation will also apply to transport and storage activities offshore, both in the UK’s territorial seas and in waters designated as a gas importation and storage zone under section 1(5) of the Energy Act 2008.
Clause 5 provides for the Secretary of State to grant exemptions from the requirement to hold a carbon dioxide transport and storage licence. That provision is important to ensure that the prohibition established by clause 2 operates effectively and as intended and does not, for example, impact or inhibit activities that it is not considered appropriate to economically regulate.
For example, exemptions are a means by which a small-scale operator would not be burdened by licensing costs and obligations that could be considered disproportionate to the scale of their operation. However, exemptions should not enable a competitive advantage over licensed operators. Exemptions will be set out in the way of regulations and may be granted either to a class of persons or to an individual person. A statutory consultation process is set out in the clause, to ensure that appropriate notice is given ahead of making exemption regulations and to allow for representations to be made.
Clause 6 provides for the Secretary of State, by way of regulations, to be able to vary, withdraw or revoke exemptions from the licensing requirements that have been granted under the provisions of clause 5. As market circumstances change, it is conceivable that certain activities, categories or classes of activity that are appropriately exempt from economic regulation in the early years of CCUS deployment may, as the sector matures, be considered more appropriate for licensing and regulation, or the particular activity that was subject to exemption may itself develop or change. That will ensure that any exemptions granted remain appropriate as the UK CCUS industry matures. I hope that the Committee will agree that clauses 2 to 6 should stand part of the Bill.
Andrew Bowie
I thank right hon. and hon. Members for their contributions. I agree completely with my right hon. Friend the Member for Elmet and Rothwell. Indeed, one example for an exemption would be to ensure that the regime is not overly burdensome—for example, smaller operators for whom a requirement to hold a licence, if operated, would be overly onerous. That is why the power is intended to allow exemptions from the requirement to hold a licence when an activity would otherwise fall into the prohibition that we do not think it would be technically or economically necessary to require a licence. That is not an original thought: it is the exact situation in the gas and electricity markets, as they stand right now. I cannot give any other specific examples, because we intend to engage with the market and with industry on potential classes of exemption before we bring forward the secondary legislation in that area. Under the provisions in the Bill, we will conduct a formal consultation process ahead of laying exemptions regulations.
On the consultation process, as the hon. Member for Kilmarnock and Loudoun pointed out, there is no timeframe for the Secretary of State to respond; however, he is obliged to consider any representation or objection made. I am sure that the Department—especially myself—will be keen to keep him updated on progress with any response to the consultation.
On consultation with Scottish Government and Welsh Government Ministers regarding the Bill, we will cover that in greater detail as we proceed through the Bill. I have already met my counterpart in Edinburgh and yesterday met virtually my counterpart in the Welsh Government. We are discussing how best to proceed with consulting on the nature of the Bill. As I referred to earlier, the differences between the UK Government and the devolved Administrations mirror the differences between the Opposition and Government, in that we are all very much in agreement on the broad scope of the Bill and on a huge majority of what we seek to do through it. I look forward to working constructively with Ministers and colleagues in Holyrood and Cardiff, so that we can get the balance right and move forward in a way that is good for the entire United Kingdom. That is why I recommend the Committee to agree that clauses 2 to 6 stand part of the Bill.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clauses 3 to 6 ordered to stand part of the Bill.
Clause 7
Power to grant licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 7 provides the economic regulator, Ofgem, with the power to grant licences that permit the carrying out of carbon dioxide transport and storage activities and charging for transport and storage activities. It is the Government’s intention that in the enduring regulatory regime, Ofgem is responsible for rewarding carbon dioxide transport and storage licences. The Government’s CCUS cluster sequencing process will identify the first CCUS clusters eligible for government support and the first transport and storage operators to be granted an economic licence.
Through clause 16 and schedule 1 the Bill provides for the Secretary of State to grant the first licences. That is appropriate, given that Exchequer support will be available to the first clusters. Although it will be the Secretary of State who makes the decision to grant the first licences, once a licence has been granted Ofgem will assume full regulatory oversight of the licences. Following the initial cluster sequencing process, our procedure for future licence applications is expected to be developed, taking into account learnings from the sequencing processes that have gone before. That is provided for in the next clause.
Ordered, That the debate be now adjourned.—(Joy Morrisey.)
Oral Answers to Questions
Andrew Bowie Excerpts(1 year, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Richard Thomson (Gordon) (SNP)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
We are supporting Scotland’s energy transition through the North sea transition deal. Additionally, 52 of the 178 projects awarded contracts for difference for renewable electricity are in Scotland. We are also supporting the clean technologies of the future with over £80 million-worth of funding through our net zero innovation portfolio to 81 locations within Scotland, including offshore wind, carbon capture, usage and storage, and hydrogen.
Richard Thomson
The SNP-led Scottish Government have continued to announce more support for energy transition in Scotland, this month pushing on with investment in green hydrogen that will deliver 5 GW of renewable and low-carbon hydrogen production by 2030. The Minister says that the UK Government are supporting that, but they are certainly not putting any money on the table up front as the Scottish Government have through their £500 million energy transition fund for the north-east of Scotland. When will the UK Government finally put their money where their mouth is and support the energy transition that Scotland desperately needs?
Andrew Bowie
I thank the hon. Member for his predictable question. He was obviously not listening to the answer I gave to his first question: 52 of the 178 projects awarded contracts for difference are in Scotland, and we are also supporting green technologies to the value of £80 million. The fact is, the SNP cannot be trusted on energy and cannot be trusted to give us the facts. It is playing politics with people’s bills while we are delivering to support households, having paid half of an average household’s energy bills this past winter.
Priti Patel (Witham) (Con)
Energy transition projects affect the entire United Kingdom. I thank the Minister for his engagement with MPs across the east of England on the impact of 100 miles of pylons to connect new offshore renewables to the grid. Will he give my constituents an assurance that the Government are doing everything possible to look at an offshore grid for the east of England? Of course, that would also benefit the entire United Kingdom, including parts of Scotland.
Andrew Bowie
I thank my right hon. Friend for her question. It was a great pleasure to be in East Anglia last week and to engage with community organisations and MPs from that part of the world. I confirm that all options are on the table as we look at what infrastructure we can and need to build to move us forward into our net zero future.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is nearly 10 years since a £1 billion carrot was dangled for Peterhead carbon capture and storage, which was then withdrawn post-referendum. We are now getting told that the UK Government have £20 billion to spend on carbon capture and storage, but the reality is that not one penny of that is ringfenced for Scotland, and indeed there is not even a budget line for that £20 billion. Instead of another jam tomorrow pledge focusing on nuclear, why does the Minister, who comes from the north-east of Scotland, not focus on getting the Scottish cluster track 2 status so that it can get up and moving?
Andrew Bowie
I thank the hon. Member for that question, but frankly I am fed up with the SNP talking Scotland down, and indeed talking the Acorn project down. The UK Government have already spent £40 million supporting the Acorn cluster, which is in a very good position as we proceed with track 2. It would be good if, for once, the SNP was to talk that up and work with us, rather than the opposite.
Alan Brown
It would be good if the Minister gave us certainty instead of just blustering.
Energy UK has confirmed that the Brexit trading arrangements are adding more than £1 billion a year to our energy bills and, last year, nearly £5 billion was paid in constraint payments. That is all money that could have been used to upgrade the grid. It could have paid for pumped storage hydro that could have procured a greater level of our world-leading tidal stream technology. It could have funded the Acorn CCS or green hydrogen. Instead of adding £6 billion to our bills, will the Minister tell us how many Scottish jobs have been held back by this lack of investment?
Andrew Bowie
When it comes to bluster, SNP Members are certainly subject matter experts. On support for Scottish billpayers, as I said, over the past winter this Government were paying half of everybody’s energy bills in this United Kingdom. [Interruption.] The hon. Member says that that is thanks to the North sea, but that is the very North sea industry that he and his partners in the Green party would close down tomorrow. This Government support the oil and gas industry for our whole UK moving forward.
Dan Jarvis (Barnsley Central) (Lab)
Jonathan Gullis (Stoke-on-Trent North) (Con)
Stoke-on-Trent North, Kidsgrove and Talke are proud to be home to one of the largest European deep coalmine sites at Chatterley Whitfield Colliery, which has huge potential in geothermal. That is already being explored at Etruria. Will my hon. Friend meet me, Chatterley Whitfield Colliery Friends, Historic England and Stoke-on-Trent City Council, to see what green jobs can be created at that former colliery site, to bring it back into use with a green future?
Graham Stuart
I am being barracked by my Front-Bench colleagues, which is unusual even for me. I would be delighted to accept my hon. Friend’s kind offer.
Helen Morgan (North Shropshire) (LD)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
The Government are working with Ofgem, network companies and others to increase network capacity. This includes Ofgem accelerating strategic transmission projects worth £20 billion and allowing £3.1 billion over the next five years for upgrades to the local distribution network.
Helen Morgan
I have been contacted by a number of businesses, mostly farms, that want to install renewable energy in the form of a solar array or a wind turbine, but have been advised that they will have to pay thousands of pounds to help to upgrade the grid in their area, making those projects unaffordable. Along with the commitment to phase out oil-fired boilers, that means that there will be huge demand on rural grid capacity. Will the Minister reassure me that he is taking steps to ensure rural networks will be able to cope with that surge in demand?
Andrew Bowie
I am very happy to give the hon. Member that assurance. We are doing everything we can, working with Ofgem, companies, providers and other organisations, to ensure that the grid across the United Kingdom, but in particular in rural locations, where there will be a huge surge in demand, is able to cope and that people have fair and equitable access to that.
Andrew Jones (Harrogate and Knaresborough) (Con)
A few weeks ago, Knaresborough-based Harmony Energy opened the largest battery farm in Europe. What steps are being taken to allow grid capacity and connections for renewables and storage to be made much more quickly, so that projects such as Harmony’s can come on stream, deliver energy resilience and cut carbon emissions?
Andrew Bowie
We will jointly publish a connections action plan with Ofgem in the summer, setting out actions by the Government, Ofgem and industry to accelerate connections and reform queue management systems. Network companies are already taking steps to free up network capacity and bring forward connections via shovel-ready renewable and storage projects, ahead of slower moving ones.
Dr Alan Whitehead (Southampton, Test) (Lab)
Will the Minister explain how, on his watch, things have got to such a wretched state with grid development? The grid apparently cannot now connect renewable energy plants to the system until after 2035, the date by which the Government say in the energy security strategy
“we will have decarbonised our electricity system”.
Presumably they envisage that system will be connected to the grid by that point. Has he been unaware that there is a serious problem, or was he aware, but did nothing about it?
Andrew Bowie
My watch began only in February. However, I believe the United Kingdom is a victim of its own success, as this is what happens when new renewable electricity production is developed at such scale and pace. We understand the challenges facing the country and the grid. That is why we are meeting with Ofgem and have commissioned the Winser review, which we will publish in the summer. We are determined that we will meet that 2035 target.
Dr Whitehead
The Minister says that some things are beginning to happen, but does he recognise in this context the figure of £30 billion, which is the investment the energy system operator considers is necessary to make the system fit for offshore wind and other renewables coming on to the system, not by 2035 but by 2030? Is he prepared to commit now to find that amount of investment, one way or another? If he cannot do that, how can we take his assurances on action at all seriously?
Andrew Bowie
This Government are determined to face up to the challenges that we have. We have moved forward at such pace, having inherited a disgraceful situation in terms of how much renewable electricity was being produced under the last Labour Government. That is why the grid is facing such challenges today and why we have commissioned Nick Winser to produce a review in the summer to see how we can move much faster to achieve our goals. I would welcome the hon. Gentleman and the Labour party being more supportive, talking up this country and our success in developing renewable electricity, and working with us to tackle the challenges that he so rightly brings to the Floor of the House today.
Jeff Smith (Manchester, Withington) (Lab)
Mr Alistair Carmichael (Orkney and Shetland) (LD)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
The Government have published a draft strategy and policy statement for energy policy that makes clear Ofgem’s role in promoting the UK’s net zero targets. However, we are considering the effect of an amendment made in the House of Lords to the Energy Bill currently going through this place on Ofgem’s statutory duties in relation to net zero.
Virginia Crosbie (Ynys Môn) (Con)
Does the Minister agree that the way to get cheaper nuclear projects and cheaper electricity overall is to build a fleet of new nuclear reactors, starting at Wylfa in my constituency of Ynys Môn?
Andrew Bowie
Yes, the Government agree that the way to cheaper energy bills and a more secure network is to build new nuclear projects. That is why we have launched Great British Nuclear, why we are working with communities and industry across the country, and why I would be delighted to visit Wylfa soon with my hon. Friend to see the potential that that site has to add to our energy security.
Carol Monaghan (Glasgow North West) (SNP)
Mike Amesbury (Weaver Vale) (Lab)
Andrew Bowie
I have already set out exactly what the Government are doing. We are working with Ofgem and others. We commissioned Nick Winser to provide a report on how we can speed up connection times and build our network to the position it needs to be in, but I am happy to meet the hon. Gentleman to speak about the specific project he has raised.
Priti Patel (Witham) (Con)
The House will be familiar with Wilkin & Sons in my constituency, which makes world-famous jam that I am sure everyone in the House has enjoyed. However, it faces significant increases in its energy costs because it is not eligible for the energy and trade intensive industries scheme, as its industry classification is not within the scope of the scheme. The code is 10.3, and it is for processing and preserving fruit and veg. Will the Minister look into that classification? There is an open invitation to come up to Wilkin & Sons.
Daniel Zeichner (Cambridge) (Lab)
In a few months’ time, there will be extra checks on food coming into the UK from Europe. That will require extra cold store capacity; it is being built, but the Cold Chain Federation tells me that there is a three-year to four-year wait for connection to the grid. What are the Government going to do to make sure those facilities are up and running in time?
Andrew Bowie
Years of world-leading green investment has meant we have connected the second highest amount of renewable electricity in Europe since 2010. That has, of course, put pressure on the electricity network, and reducing connection timescales is a high priority for the Government, as I have already set out multiple times this afternoon.
Mr Gregory Campbell (East Londonderry) (DUP)
A more rapid escalation towards net zero could be achieved by a significant increase in electric vehicle charging points, particularly in areas where there are very few, such as Portstewart and East Londonderry in my constituency. What meetings will the Minister have, and what pressure will he apply, to try to ensure that there is a significant increase between now and 2030?
Energy Bill [Lords]
Andrew Bowie ExcerptsTuesday 9th May 2023
(1 year, 6 months ago)
Commons ChamberRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 86-II Second marshalled list for Report - (13 Apr 2023)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
I begin by thanking Members for their considered contributions to the debate. It has been encouraging to hear broad support for the Bill—I hope it sets a precedent—and that reflects the meetings I have had with Members of this House and the other place and with the devolved Administrations over the past few months. I will try to address as many of the questions and issues raised as possible.
Let me remind the House why the Bill matters: it is a critical part of securing the clean, inexpensive energy that Britain needs to prosper. It will do that by leveraging investment in new technologies and by securing clean home-grown industries that can reduce our exposure to volatile gas prices in the long term. We are already world leaders. We have reduced emissions more than any other country in the G7, but this Bill will allow us to go further. It will enable reform of our energy system. It will protect consumers from unfair pricing, and it will make Britain an energy-secure net zero nation.
I turn to the points raised in the debate. Several Members asked how the Government are increasing investment in the grid and supporting grid capacity. I will make no bones about it—this is one of the biggest challenges our country faces. I get it; we get it. That is why, following the British energy security strategy, the Government worked with Ofgem on its work to accelerate strategic transmission investment. Following Ofgem’s decision on that in December, approximately £20 billion of investment across Britain has been accelerated by regulatory efficiencies. On grid capacity, increasing competition in networks is expected to encourage greater inward investment into those networks, ensuring sufficient network capacity for demand needs in Great Britain. Further work on that issue is ongoing as we speak.
My hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) and others raised issues about the independent system operator, or the future system operator. To be clear, the independent system operator and planner will be an expert, impartial body with responsibilities across both the electricity and gas systems to drive progress towards net zero while maintaining energy security and minimising costs for consumers. We are confident that we have struck the right balance on that issue.
The hon. Member for Ellesmere Port and Neston (Justin Madders) raised the issue of the hydrogen village trials—I was pleased to meet with him recently to discuss those trials. The Government have always been clear that the gas network delivering the trial must engage with residents to develop an attractive consumer offer for everyone in the trial area. This must include alternative options for consumers who do not wish to connect to hydrogen or cannot do so, such as for electric cookers and heating systems. We will not go ahead with a trial without demonstrable, strong, local support.
The hon. Member for Kilmarnock and Loudoun (Alan Brown), who I am sorry to see is not in his place just now, raised the issue of forced disconnections. All consumers will have the right to refuse trialling hydrogen. The powers of entry cannot be used to forcibly change the meter type for a consumer. Gas distribution networks will only ever use their extended powers of entry as a last resort—to ensure consumer safety, for example.
The right hon. Member for Doncaster North (Edward Miliband) and the hon. Member for Llanelli (Dame Nia Griffith) raised issues surrounding onshore wind. The UK already has almost 15 GW of onshore wind, the most of any renewable technology, with a strong pipeline of future projects incoming. The Government have consulted on making changes to the national policy planning framework in England so that local authorities can better respond to their communities when they wish to host onshore wind infrastructure. The Government will, of course, respond in due course.
My right hon. Friend the Member for Camborne and Redruth (George Eustice) raised the issue of renewable liquid heating fuel. Decarbonising off-gas-grid properties is a key priority for this Government. I was pleased to meet with my right hon. Friend recently to discuss this issue, and I look forward to working with him and others on ways to ensure that the transition to clean heat will be fair and affordable for all. As we must acknowledge, however, sustainable biomass is a limited resource. Policy decisions on the role of biomass in heat will need to reflect the outcomes of the forthcoming biomass strategy, which is due to launch later in 2023.
My right hon. Friend the Member for Basingstoke (Dame Maria Miller), as well as touching on the role of fusion—which will be critical in the decades ahead, and we are leading the world in that technology—raised concerns surrounding the planning, health and safety, and environmental issues involved in the development of lithium-ion battery storage. I was pleased to meet with her recently, along with colleagues from the Department for Levelling Up, Housing and Communities, and would like to reassure her that the Government are committed to working with her, the fire services and ministerial colleagues towards a suitable way forward on this important issue, which I know many people are concerned about.
My right hon. Friend the Member for Epsom and Ewell (Chris Grayling) raised the issue of sustainable aviation fuel. In October 2022, the Department for Transport commissioned Philip New to lead an independent evaluation to identify the conditions necessary to create a successful UK SAF industry. Last month, we published that report, alongside a Government response setting out what actions are already being taken to address many of the report’s recommendations. We are keen to continue making progress, and I would be delighted to meet with my right hon. Friend on that point as we move forward.
Henry Smith (Crawley) (Con)
May I have an assurance that the five sustainable aviation fuel plants that our right hon. Friend the Member for Welwyn Hatfield (Grant Shapps) previously announced will be going ahead in time for 2025? It is critical that the UK is in the forefront and leading in the SAF industry, because otherwise, we face being left behind by Europe and the United States.
Andrew Bowie
I will write to my hon. Friend on that specific issue immediately following the debate, once I have the answer from both the Department for Transport and the Department for Energy Security and Net Zero. However, we are committed to implementing the recommendations in the report. It is a policy of the Department for Transport, but I will discuss the matter with officials in that Department.
A number of Members raised the issue of the hydrogen levy. The purpose of the hydrogen levy is to provide long-term funding for the hydrogen production business model. I reiterate that the provisions in this Bill will not immediately introduce a levy. We will consult on the detailed levy design, and the decision to introduce a levy will take into account the affordability of energy bills.
Many Members raised community energy schemes, which I strongly agree have a role to play in tackling climate change. While it would not be appropriate to mandate suppliers to offer local tariffs, and this should not be a commercial decision for suppliers, I reassure the House that my officials are actively looking into what further support we can offer the sector. I have already met, and I am sure will meet again, my hon. Friend the Member for Wantage (David Johnston) to discuss how we can work together to move that forward.
Several hon. Members rose—
Andrew Bowie
I will not give way, due to time. Members expressed concerns about coal. I reassure Members that we are committed to ensuring that coal has no part to play in our future power generation, which is why we are planning on phasing it out of our electricity production by 2024. We are leading the world on this, and can be proud of the action we have taken on coal. On fracking, the Government have confirmed that we are adopting a presumption against issuing any further hydraulic fracturing consents.
On offshore wind, again where we are leading the world, the offshore wind environmental improvement package in the Bill will support accelerated offshore wind deployment and reduce consenting time while protecting the marine environment. A number of Members made broadly supportive comments on the UK’s nuclear sector, although, as is to be expected, not those on the SNP Benches. New nuclear has an important role to play in reducing greenhouse gas emissions to net zero in 2050, but we have always been clear that any technology must provide value for money for consumers and taxpayers. Great British Nuclear will address constraints in the nuclear market and support our new nuclear builds as the Government work to deliver our net zero commitments.
I could not finish without referring to my constituency neighbour but one, my hon. Friend the Member for Banff and Buchan (David Duguid). I agree with him on many issues, and he is absolutely right in his comments on oil and gas. The transition to non-fossil forms of energy cannot happen overnight, as recognised by the independent Climate Change Committee. While we are working to drive down demand for fossil fuels, there will continue to be UK demand for oil and gas, and we will be net importers of both.
I thank Members from all parts of the House who have contributed to today’s debate. I have tried to address all the points, and I apologise that I have not addressed every point. I will write and offer meetings to those to whom I have not responded. I am encouraged by the broad support for this Bill and look forward to continuing my engagement with Members in our many Committee sittings and beyond. The measures that this Bill contains will not only determine our future energy security, but will shape our environmental security, consumer security and economic security. As my right hon. Friend the Member for Ludlow (Philip Dunne) said at the beginning, we cannot ever be at the mercy of autocrats. That is why we now have a dedicated Department for Energy Security and Net Zero. It is why we will deliver the reliable, affordable and clean energy that are needed to power energy’s future under the next Conservative Government and beyond. I therefore commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Energy Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Energy Bill [Lords]:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 29 June 2023.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Julie Marson.)
Question agreed to.
Energy Bill [Lords] (Money)
King’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Energy Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:
(a) any expenditure incurred by the Secretary of State by virtue of the Act,
(b) any expenditure incurred by the Gas and Electricity Markets Authority by virtue of the Act,
(c) any expenditure incurred by the Competition and Markets Authority by virtue of the Act, and
(d) any increase attributable to the Act in the sums payable under any other Act out of money so provided. —(Julie Marson.)
Question agreed to.
Energy Bill [Lords] (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Energy Bill [Lords], it is expedient to authorise:
(1) provisions by virtue of which persons may be required—
(a) to make payments, or to provide financial collateral, to an administrator;
(b) as holders of licences issued under the Gas Act 1986 or the Electricity Act 1989, to make payments of sums relating to costs associated with heat networks;
(2) the imposition, by virtue of the Act, of charges under licences issued to T&S companies (as defined in Chapter 4 of Part 1 of the Bill);
(3) the imposition, by virtue of the Act, of charges for or in connection with the carrying out by the Secretary of State of functions under Part 4 of the Petroleum Act 1998; and
(4) the payment of sums into the Consolidated Fund.—(Julie Marson.)
Question agreed to.
Oral Answers to Questions
Andrew Bowie Excerpts(1 year, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Clive Lewis (Norwich South) (Lab)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
The Government have made very good progress: 47% of homes in England have now reached the Government’s 2035 target of achieving EPC C levels, up from 14% in 2010—a 133.7% increase. In 2010, the Government supported the installation of around 968,100 measures. In 2022, the Government supported the installation of around 204,000 energy efficiency measures in around 94,500 households. Around 1 million homes will be upgraded with improved energy efficiency between now and 2026 through our help to heat schemes.
Daniel Zeichner
That is a very partial account of the story, I have to say. The Minister will know that in 2010 the Government inherited a functioning scheme from the Labour Government that meant hundreds and hundreds of homes in my constituency, and possibly his, were being insulated. Come forward 10 years and what do we see: that scheme has absolutely crashed, so can the Minister tell us just how much that decade of Tory failure has cost our constituents?
Andrew Bowie
A decade of Tory failure? That is complete nonsense. We have had a 133.7% increase from 2010, when, by the way, we inherited a situation where only 14% of the country had EPC C levels. We are now at 47% and from 2010 to 2022 the Government supported the installation of around 8 million energy efficiency measures.
Clive Lewis
I know Front Benchers have already expressed their commitment to local communities and local people driving our economy forwards to a sustainable transition and future. With that in mind, may I point them to my own local authority, Norwich City Council, and its Goldsmith Street award-winning council housing—safe, secure, affordable homes that it has built on a shoestring budget after millions of pounds of cuts to its budget? What conversations have Ministers had with the Chancellor to ensure other councils can drive this programme forward to ensure every street is like Goldsmith Street?
Andrew Bowie
We in this party and this Government support community-led initiatives just like the one the hon. Gentleman referenced and we are consulting on how we can further support community projects. I would be delighted to discuss that particular project with him in more detail in due course.
Andrew Bridgen (North West Leicestershire) (Ind)
Will my hon. Friend outline how the energy efficiency taskforce will help support energy efficiency across the UK?
Andrew Bowie
The energy efficiency taskforce is committed to driving forward energy efficiency measures throughout the United Kingdom and, on that measure, I would be delighted to meet with him if he has any further ideas on how we can go even further and faster to drive forward energy efficiency measures across the country.
Mr Richard Bacon (South Norfolk) (Con)
I join my parliamentary neighbour, the hon. Member for Norwich South (Clive Lewis), in congratulating Norwich City Council on what it has done in Goldsmith Street. Is the Minister aware of what proportion of self-commissioned homes have the highest energy rating? Is he aware that triple glazing is almost standard in self-commissioned homes? What is he doing to encourage the Department for Levelling Up, Housing and Communities to have more self-commissioned homes?
Andrew Bowie
Before I go any further, I congratulate my hon. Friend on championing the self-build housing sector and that house building sector on doing what it can, moving so far and so fast, to improve energy efficiency measures across the buildings it has been producing over the past few years. Once again, as he is a subject matter expert, I would be delighted to meet him to discuss it in more detail in due course.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Anna McMorrin (Cardiff North) (Lab)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
Reducing connection timescales is a high priority for the Government. We will publish a connections action plan in the summer, which will articulate actions by Government, Ofgem and network companies to accelerate network connections for renewable energy and other projects.
Seema Malhotra
It is a disgrace that while energy prices rocket, huge delays to grid connections are holding back the supply of renewable energy to UK homes and businesses. Wind farms coming online today were approved when Gordon Brown was in power. Even now, energy companies are having to wait for 13 years, until 2036, for connections for some projects. How on earth did it get this bad? Is it not true that the Tories have taken their eye off the ball on the National Grid, and it is now costing British families and businesses dear?
Andrew Bowie
I thank the hon. Lady for her question. It is interesting that she references Gordon Brown, because it was under his Administration that the decision was taken not to invest in new nuclear, which, by the way, would have solved part of the problem we find ourselves in right now. However, I think everyone in the House would acknowledge that the situation regarding grid connection times is not acceptable. That is why we have commissioned the Electricity Networks Commissioner, Nick Winser, to submit recommendations to the Government on how we accelerate delivery of network infrastructure. He will publish his report in June.
Anna McMorrin
The Minister completely failed to answer the question. The CEO of Solar Energy UK has said that solar infrastructure projects are being delayed into the 2030s—15 years or more—meaning that operators will not connect them to the grid. Renewable energy is cheap and will help to bring down the current absurd energy prices. Are the Government purposely trying to keep energy prices high and at the mercy of fossil fuels, firmly leading us on the highway to climate hell?
Andrew Bowie
Frankly, that question is utterly ridiculous. It is because of the Government’s investment in new renewable technology that we are powering ahead and leading the world in reaching our net zero obligations. Half our energy now comes from renewable sources. I have already acknowledged that the delays to grid connections are completely unacceptable, which is precisely why we commissioned Nick Winser to develop his report. We will be publishing his recommendations in June.
Bim Afolami (Hitchin and Harpenden) (Con)
Just to bring down the temperature a little bit, the Minister referenced the Government’s consultation later this year on how the Government, with Ofgem, will drive forward investment in the grid. Is the Government’s vision for more investment in a system similar to what we have now? To what extent do they want to move towards a more decentralised system for renewable investment in the grid, so that local communities can invest their own efforts and resources in developing their own renewable energy?
Andrew Bowie
I thank my hon. Friend for his question. In March, we launched consultations on community benefits for transmission network infrastructure and on supporting the consenting process to revise energy national policy statements. We are also supporting a private Member’s Bill on alternative dispute resolution for compensation disputes over land.
Priti Patel (Witham) (Con)
The Minister will know that the east of England does a lot of heavy lifting when it comes to renewables; we are investing in turbines and offshore wind. But he will also know that local communities across the entire region are horrified by National Grid’s plans to build pylons across the entire region, which will connect and increase more energy supply. They favour an offshore grid. Can I ask the Minister directly: what is he doing to work with the local community to deliver that option?
Andrew Bowie
The east of England does do a lot of heavy lifting for renewables—almost as much as the north-east of Scotland—but this is not a competition. I am delighted to inform my right hon. Friend that I am visiting East Anglia next week to meet communities in the area. Indeed, I met producers and manufacturers yesterday to see what they can do to mitigate the impact on her local community and other communities in the region.
Dr Alan Whitehead (Southampton, Test) (Lab)
If we are prevented from building renewable power in the first place, connection times become rather a moot point. Will the Minister explain why he has failed to lift the ban on onshore wind, despite the Government saying that it would be lifted by the end of April?
Andrew Bowie
This Government are committed to onshore wind as a huge part of our renewable energy mix—14 GW, in fact. We are also committed to new renewables offshore and to new nuclear, which the Labour party opposed for such a long time. It will be a whole collection of those new technologies and infrastructure projects that will help us drive our way towards our net zero ambitions and the cleanest and cheapest electricity in Europe.
Dr Whitehead
That wasn’t very good, was it? The Government’s own offshore wind champion Tim Pick said last week that we will miss our 2030 offshore wind ambitions by more than 10 GW because of poor grid connections. Even with the lifting of the onshore ban—if we believe the Minister—developers will not invest given the prospect of a 13-year delay in grid connection. When will the Minister commit to a speedy programme of grid capacity building, to give onshore and offshore wind a good chance of success?
Andrew Bowie
As I said, this country is leading the way in investment in new renewable technology. We acknowledge that there are difficulties connecting to the grid, and we are investing in improving that. Nick Winser’s report is coming in June, which will give recommendations to Government on how to reduce the timescale for connecting those new projects to the grid. That is the focus of this Government, not playing politics. We are taking real decisions to benefit this country, to cut our carbon emissions and to reduce energy bills across the piece.
Stuart C. McDonald (Cumbernauld, Kilsyth and Kirkintilloch East) (SNP)
John Mc Nally (Falkirk) (SNP)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
We are supporting Scotland’s energy transition through the North sea transition deal. Additionally, 44 of the 161 projects awarded contracts for difference for renewable electricity are in Scotland. More recently, we have allocated £81.1 million of funding to 81 locations throughout Scotland—I have a list, but I will not go through them—as part of the £1 billion net zero innovation portfolio, from 2021 to 2025. Furthermore, we have committed to funding the Aberdeen energy transition zone by £27 million, and the global underwater hub aimed at diversification for the subsea sector by £6.5 million.
Stuart C. McDonald
There was a lot to take in there. Recent positive noises around the Acorn carbon capture project near Peterhead are obviously welcome, albeit with the caveat that we have heard a lot of this before. Can the Minister confirm what funds track 2 projects will get and when Acorn funding will be confirmed, or at least when such announcements will be made? Does he agree that track 2 projects must proceed much faster than track 1, both because of the climate emergency and so that we can seize the opportunity to be world leaders in that technology?
Andrew Bowie
The hon. Member is absolutely right that there was a lot to take in, because the UK Government are doing so much to support Scotland’s energy transition. On Acorn, he does not recognise that this Government have already invested £40 million of funding in the project—most notably, £31.3 million under the industrial decarbonisation challenge. I have the breakdown of the funding, if Mr Speaker will allow me: £31.3 million from the industrial decarbonisation challenge for onshore and offshore front-end engineering design studies; £9.3 million of innovation funding for CCS innovation and advancing CCS technology and hydro supply programmes; and £250,000 for the development of Storegga’s Dreamcatcher direct air capture plant. Track 2 has been announced—
John Mc Nally
I wish the Minister would slow his answers down—that was a bit of a blur. Just last week, Harbour Energy announced that it is cutting 350 highly skilled and valued jobs in Aberdeen, directly linking that to the poorly implemented energy profit levy. We warned many times that it would disproportionately affect Aberdeen and Scotland and, unfortunately, we have been proven right. Will the UK Government commit to matching the Scottish Government’s £500 million just transition fund, and protect our energy workers?
Andrew Bowie
I am afraid I have to take all that with a massive pinch of salt. Now it turns out that the SNP is against a windfall tax on the oil and gas industry, when it had been campaigning for such a tax for weeks and weeks, months and months. We have introduced the energy profits levy to deal with the immediate crisis regarding energy bills, but we have built into that investment opportunities for companies to continue to innovate, create jobs and develop our offshore oil and gas fields, because we will be reliant on them as a transition fuel for many months to come. This Government are committed to jobs and opportunities in north-east Scotland, unlike the Scottish National party that would close it down tomorrow.
David Mundell (Dumfriesshire, Clydesdale and Tweeddale) (Con)
I am sure the Minister will be able to give me a short answer to this question. Does he agree with me that what transition in Scotland definitely does not involve is some knee-jerk shutting down of the oil and gas industry, especially given that liquid gas supplied by tankers has two and a half times the emissions of gas produced in the North sea?
Andrew Bowie
Yes, I completely agree with my right hon. Friend. He is absolutely right on this issue. Indeed, shamefully, Scottish Government Minister Patrick Harvie, a member of the SNP’s partner in Government, the Green party, said that oil and gas workers in Aberdeen should simply get on their bikes and look for other jobs, instead of investing in the industry, which this Government are doing.
Alan Brown (Kilmarnock and Loudoun) (SNP)
If we want a proper just transition and greater supply chain security, we need new manufacturing facilities for renewable energy components. Which suppliers and manufacturers has the Minister spoken to about creating new manufacturing facilities in Scotland? How many new Scottish manufacturing and renewable energy jobs do this Government intend to create?
Andrew Bowie
We are absolutely committed to building a UK-based supply chain, and that includes, of course, new jobs in Scotland. I would be delighted to meet my Scottish Government counterparts and the hon. Gentleman to discuss how we can progress that further and faster. If we are going to have an even more successful renewable energy industry in this country, it is essential that we have a UK-based supply chain. That is what this Government are committed to achieving and, moving forward, I would be happy to work with anybody so that we can do that.
Alan Brown
Obviously, I am happy to meet the Minister and work with him, but what I heard right there was that there is no plan for manufacturing jobs in Scotland, no plan to match fund the just transition fund, no answer to the job losses at Harbour Energy and no firm commitments on timescales for Acorn, and that the tidal stream funding has been halved. There is nothing happening to match the Inflation Reduction Act in the United States and the EU support packages. Is it not the case that at the moment just transition are simply warm words for this Government and that much more needs to be done?
Andrew Bowie
Absolutely not. I have gone through in detail exactly what we are doing in Scotland. Indeed, his colleague, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Stuart C. McDonald) suggested that there was far too much in my initial answer to demonstrate what we are doing to support transition in Scotland. We will continue to do that, while championing jobs and opportunities across the whole United Kingdom, including in Scotland. That means investing in new technologies and renewables, and supporting our oil and gas industry as it transitions. All of that is possible because Scotland remains in the United Kingdom, which would not be the case if the hon. Gentleman had his way.
Sir Alok Sharma (Reading West) (Con)
Dame Maria Miller (Basingstoke) (Con)
I have already met the Minister for Energy Security and Net Zero to discuss the National Fire Chiefs Council’s concerns about the use of lithium-ion storage facilities to get renewable energy to the grid. Will the Government review existing fire and environment regulations to ensure they reflect these deep concerns and risks, and help to ensure that renewable energy can get to the grid smoothly and in a timely manner?
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
Grid-scale lithium-ion battery energy storage systems are covered by a robust regulatory framework, which requires manufacturers to ensure that products are safe before they are placed on the market, that they are installed correctly and that any safety issues found after products are on the market are dealt with. I am meeting my right hon. Friend this week to discuss this in more detail and I look forward to that very much.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
Andrew Bowie
I am very glad to hear about the successful funding bids in my hon. Friend’s constituency. These schemes will improve homes up and down the country, improving their energy efficiency and lowering energy bills. I am delighted to accept the invitation to visit the Darlington economic campus, although I can confirm that I have already visited it and was incredibly impressed by the calibre of the individuals working there to drive forward our ambition—
Mr Speaker
Minister, that is the last time you do that to me. Seriously, you are taking advantage of this Chamber too much. You were enjoying yourself earlier, which was fine, but I am not consistently having you dictate to the Chair. Do we understand each other?
Energy Efficiency of Buildings: Funding
Andrew Bowie Excerpts(1 year, 8 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
My noble friend the Parliamentary Under Secretary of State (Lord Callanan) made the following statement on 22 March: Region PSDS HUG SHDF East Midlands £18,112,366 £3,291,300** £74,715,671 East of England £14,677,719 £23,577,300 £83,628,477 London £44,280,137 £12,006,000 £131,724,938 North East £7,636,389 £28,576,000 £29,355,551 North West £44,555,899 £83,885,000 £105,371,309 South East £108,324,556 £161,237,898 £128,906,218 South West £33,450,968 £77,514,032 £80,236,981 West Midlands £88,371,731 £152,745,310 £93,593,216 Yorkshire and the Humber £21,737,561 £41,144,920 £ 50,053,929 Across regions £26,688,898 - - Scotland* £1,221,871 - -
Today the Government are announcing £1.8 billion of funding to cut the emissions and boost the energy efficiency of homes and public buildings across England.
The investment will further reduce energy bills for householders and businesses, as part of the Prime Minister’s pledge to halve inflation and ease the cost of living. Altogether, 115,000 homes will benefit from energy efficiency and low carbon heating upgrades, along with 144 public sector organisations responsible for hospitals, schools, leisure centres, museums, universities and other buildings.
It is being delivered through the Home Upgrade Grant (HUG), Social Housing Decarbonisation Fund (SHDF) and Public Sector Decarbonisation Scheme (PSDS).
In 2019, the UK became the first major economy in the world to legally commit to end our contribution to global warming by 2050. This is a huge challenge. But it is also an unprecedented opportunity.
The UK has already shown that environmental action can go hand-in-hand with economic success, having grown our economy by more than three-quarters while cutting emissions by over 40% since 1990.
The effort will be shared across many sectors, and decarbonising the energy used in buildings, and increasing energy efficiency will be a vital component.
The UK is home to around 30 million buildings which are responsible for 31% of UK emissions. We have some of the oldest housing stock in Europe, over 80% of buildings still rely on high carbon fossil fuels for heating and have low levels of thermal efficiency.
To reach our net zero target by 2050 we need to decarbonise the way we heat and cool our homes and workplaces, and to ensure that in the near term we meet our fuel poverty targets and emissions reduction targets.
This £1.8 billion investment will be critical in supporting our commitment made in 2022 to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030 against 2021 levels.
The Social Housing Decarbonisation Fund and Home Upgrade Grant
Through the SHDF Wave 2.1 and HUG 2 the Government are awarding a significant injection of funding worth £1.4 billion to local authorities and providers of social housing.
An additional £1.1 billion in match funding for social housing is being provided by local authorities and providers of social housing, bringing the total investment to £2.5 billion to upgrade social and private homes in England.
The grant funding will be invested from April 2023 to March 2025, although delivery on the SHDF can continue with the use of match funding until September 2025.
The money will go towards improvements to social households and private, low income, off-gas grid households with an EPC rating of D or below and could save homes occupants between £220 and £400 a year on energy bills.
Energy cutting and cost saving measures provided through the schemes include external wall insulation, cavity wall insulation, loft insulation, new windows and doors and draft proofing measures, as well as heat pumps and solar panel installation.
These schemes will also support around 20,000 jobs in the construction and home retrofit sectors, helping to deliver on our promise to grow the economy and create better paid jobs, whilst supporting families across the country.
The funding awarded through these schemes continues the investment through “Help to Heat” Schemes which has already seen:
Over £240 million already awarded to the SHDF Demonstrator and SHFD Wave 1 projects, indicating the Governments continued support to the £3.8 billion manifesto commitment between now and 2030 to deliver energy efficiency improvements in social housing.
Over 37,000 households have seen energy efficiency upgrades as part of the first two phases of the local authority delivery scheme, with a further 20,000-28,000 homes expected as part of the sustainable warmth competition.
In addition to the SHDF and HUG, the Department for Energy Security and Net Zero will also use EC04 and ECO+ to accelerate our efforts to improve homes to meet fuel poverty targets and the Government have committed to a four-year, £4 billion extension and expansion of ECO with EC04. We have announced a further £1 billon extension of the scheme through ECO+ to start in Spring 2023.
Public sector decarbonisation scheme
Over £409 million of grant funding has also been awarded through the Government’s public sector decarbonisation scheme. This Phase 3b of the scheme will support 144 public sector organisations across 171 projects to undertake low carbon heating and energy efficiency measures across hundreds of buildings.
These projects will not only help reduce the carbon emissions of these public buildings but save them money on their energy bills and ultimately, save the taxpayer hundreds of millions of pounds in the long-term.
Hospitals, schools, leisure centres, universities and other vital public service buildings across England are set to benefit from the scheme.
£2 billion has now been awarded across over 900 projects to decarbonise the public sector across all phases of the scheme to date, and even more funding through Phase 3b is to come as applications are assessed and approved.
Today’s £409 million is part of the wider £2.5 billion package that this Government have committed to spending on upgrading public sector buildings between 2020 and 2025, supporting this Government’s commitment to reducing carbon emissions from public sector buildings by 75% by 2037.
Funding through the schemes will be allocated across England based on the following allocations:
* The Public Sector Decarbonisation Scheme was open to applications from public sector bodies in England and areas of reserved public services across the UK.
** Further funding is available to the region via the Midlands Net Zero Hub which represents £138 million of grant funding across the Midlands
The Department for Energy Security and Net Zero has also partnered with the energy systems catapult to launch a freely accessible suite of tools, templates, and guidance to support the public sector in further decarbonising their sites.
This support will help public sector bodies through the entire decarbonisation lifecycle, from the first stages of developing a strategy, through funding, installation, and completion, to help make achieving net zero sites and energy savings simpler.
Energy efficiency taskforce
The Government have launched an energy efficiency taskforce to support a step change in the reduction of energy demand through accelerated delivery of energy efficiency across the economy. It will help to support the Government’s ambition to reduce total UK energy demand by 15% from 2021 levels by 2030 across domestic and commercial buildings and industrial processes.
Future funding
£6 billion of new Government funding will be made available from 2025 to 2028, in addition to the £6.6 billion allocated in this Parliament. This provides long-term funding certainty, supporting the growth of supply chains, and ensuring we can scale up our delivery over time.
[HCWS669]
Energy Support for Farms
Andrew Bowie Excerpts(1 year, 8 months ago)
Westminster HallRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
It is an absolute pleasure to serve under your chairmanship, Mr Robertson. I thank all hon. Members for joining us in Westminster Hall for this debate. All of us—especially those of us who represent rural constituencies—are aware of the challenges that farmers are facing at the minute. I wish to express my gratitude to the hon. Member for Upper Bann (Carla Lockhart) for bringing forward this debate and for her dedicated campaign to back British farming.
The Government have implemented several comprehensive support schemes across the UK to assist farmers in coping with energy costs. In particular, I wish to address the support being provided in Northern Ireland, given the vital contribution of farming and agriculture to the economy there.
I understand how fundamental agriculture and the wider agrifood industry is to Northern Ireland, employing more than 50,000 people across 26,000 farms. Northern Ireland is renowned at home for the quality of its produce. Farms are at the heart of the agrifood industry, which contributes £4.5 billion in turnover every year, helping to deliver a stronger, more secure economy in Northern Ireland. Before I go any further, let me say that I would be delighted to take the hon. Lady up on her invitation to visit Upper Bann and see farms operating in her constituency.
Given the industry’s importance, it is right that the Government’s energy schemes have offered much-needed support to farmers over the winter in the face of high and rising energy costs. On 1 October, we introduced the energy bill relief scheme, which will continue to run until the end of this month. It provides a discount on the wholesale component of gas and electricity bills and has provided protection to farmers from excessively high energy costs over the winter period. Support offered by this package is worth £7.3 billion and it is available across the entire United Kingdom.
Although energy prices are coming down, and it is right that we balance continued support with energy costs with our duty to the taxpayer, we also recognise that prices remain far above historical levels. For that reason, although the energy bill relief scheme is coming to an end, we have pledged to provide further support to non-domestic customers, including our farming industry, from April onwards through the energy bills discount scheme. The EBDS will continue to provide support to eligible non-domestic customers with their energy bills from April this year until the end of March 2024.
It is true that the EBDS baseline support is significantly reduced compared with that of the current energy bill relief scheme. That is to reflect the welcome reduction in wholesale energy prices. The Government make no apology for ensuring that the taxpayer is protected; we need to focus our support where it is most needed. Under the support package, energy and trade-intensive industries will receive a higher level of support than the baseline element. That is essential if those industries are to maintain their competitive edge against their international counterparts as they are less able to pass on increased costs to their consumers.
Before I move on, I wish to address the specific points that were raised. It is a great pleasure to see the hon. Member for Strangford (Jim Shannon) back in the Chamber for the second time today. I am delighted to address his points, although I take issue with his assertion that the Comber spud is the greatest potato in the world. I think a tattie howked from the Howe o’ the Mearns is the far superior potato when it comes to international comparisons. None the less, I do take on board all of what he said. I know that, as a diligent Member of Parliament for an incredibly rural constituency, like me, he speaks from his heart when he talks about representing his farming constituents. I associate myself entirely with his comments on the socially isolated nature of farming in the 21st century. We must do all that we can to support farmers in the incredibly important work that they do to support this country and, indeed, to export great British produce around the world.
The shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), raised eminently sensible and pertinent points. I commit to looking at the definition of an energy-intensive industry, and specifically at his point about how the less carbon-intensive elements of farming may reduce the overall burden of carbon intensity.
Let me turn to the hon. Member for North Ayrshire and Arran (Patricia Gibson), the spokesperson for the Scottish National party. I will not take any lectures from the SNP on supporting Scottish farmers. It is not the Conservative Government, but the SNP Government who have been accused by the National Farmers Union Scotland of leaving farmers to operate in an information void, given the lack of progress on the Scottish post-Brexit farming Bill.
If the hon. Lady really is as passionate as she says she is about supporting domestic food production in Scotland, perhaps she will make the case within the SNP Government that they should get on board and extend the Genetic Technology (Precision Breeding) Bill to Scotland, just as the NFUS has asked them to. That could be a great fillip and a great boost for Scottish farming, given that so much of the technology in that field is being developed in Scotland. Other than that, the hon. Lady did make some important points regarding supporting Scottish farmers, which, of course, I take on board.
I thank the hon. Member for Upper Bann for raising the issue of farms not being eligible for the additional targeted support of the energy and trade-intensive industries scheme. I am aware that the National Farmers Union and the Ulster Farmers Union have raised similar concerns. I want to stress that the energy and trade-intensive industries eligible sectors list is targeted and comprehensive. It was developed to support sectors in the top 20th percentile for energy intensity and the top 40th percentile for trade intensity in the UK, notwithstanding what I said in reply to the hon. Member for Southampton, Test about the carbon intensity of some elements of farming.
Sadly, the farming sector does not meet the ETII eligibility criteria at the minute and is therefore not eligible to receive the targeted support. Although I recognise that the hon. Member for Upper Bann would wish us to go further, I hope she will understand that we have sought to be fair in applying the criteria rigorously and objectively. We do not have plans to extend the scope of eligible sectors to include farms, as confirmed by the Chancellor at the Budget. However, the non-domestic alternative fuel payment offers one-time support of £150 to approximately 76,000 customers in Northern Ireland and 315,000 non-domestic customers without access to mains gas, including some farms, throughout Great Britain. High users of heating oil can apply for a top-up payment based on their usage over the past year.
It is essential that we look at energy bills support for farms and farmers in the round. Although farms will benefit from the EBDS at its base support level, rather than at the enhanced level for energy and trade-intensive industries, they will also benefit from funding available to domestic customers. That includes the energy price guarantee, the alternative fuel payment and the energy bills support scheme. The energy price guarantee reduces electricity and gas costs for domestic customers, aiming to lower annual bills, combat fuel poverty and maintain supplier market stability. The scheme covers approximately 29 million households.
In Northern Ireland, all households are receiving a combined payment of £400 from the energy bills support scheme and a £200 alternative fuel payment, regardless of whether they use alternative fuels or mains gas to heat their homes. That payment has been provided by electricity suppliers to all households with a domestic meter and a contract. That will include farmhouses with a domestic meter. Farms in Northern Ireland with a combined meter are covered by the alternative funding, to which I will turn shortly. Suppliers began making payments on 16 January and have confirmed that all first attempts to reach all customers have been made. Efforts are now ongoing to reach those who encountered challenges in the first pass, such as vouchers addressed to the wrong individual or failed bank transfers. Those who have not yet received their vouchers or a payment into their bank account should immediately contact their electricity supplier.
In Great Britain, the energy bills support scheme is being delivered as a discount on energy bills and provided by suppliers in monthly instalments from October 2022 to March 2023. As we are now approaching the end of the scheme’s final month, I urge all hon. Members to join the Government in highlighting to their constituents who use traditional prepayment meters the importance of acting now to redeem their energy bills support scheme vouchers.
Jim Shannon
Over the weekend, it was indicated in a newspaper that 20,000 households in Northern Ireland have not received their benefit. Is there any way that the Minister can ascertain who those 20,000 households are? Are some of them farmers? We suspect that they are. There was certainly an issue early on, with some farmhouses not receiving the benefit. Would the Minister be so generous as to find out the answer to that question?
Andrew Bowie
Across the entire United Kingdom, 1.9 million vouchers remain unused, which is why I ask all hon. Members to encourage people who have not received their vouchers, or who are not receiving the discount that they should be, to contact their electricity supplier, either directly or through their Member of Parliament. I will find out the fuller answer to the hon. Gentleman’s specific question on where those people are.
For those without a domestic energy supply, who were not eligible for automatic support, we have introduced the energy bills support scheme alternative funding in Great Britain and its Northern Ireland counterpart, the energy bills support scheme alternative funding for Northern Ireland. They offer one-off, non-repayable payments of £400 and £600 respectively. In Northern Ireland, applications are processed by our contracted delivery partner, with Government support. The £600 payment in Northern Ireland comprises £400 for energy bills, as in Great Britain, and £200 for alternative fuels, mirroring the payments under the main energy bills support scheme in Northern Ireland.
The Government are committed to providing assistance to farmers, households and businesses affected by high energy costs. The comprehensive schemes that I have outlined have been designed to offer support when it is most needed and alleviate the burden on our citizens and businesses during these challenging times.
I congratulate the hon. Member for Upper Bann on securing this debate on a subject of great importance to many farms, businesses and households. I commit to taking away all that she and others have raised about the high intensity of those businesses. I would be delighted not just to visit her constituency but to work further with her if my Department can provide further assistance to ensure that support reaches all those who need it as swiftly as possible.
Energy Charter Treaty
Andrew Bowie Excerpts(1 year, 8 months ago)
Westminster HallRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
It is a pleasure to serve under your chairmanship, Mr Gray, and to respond to my right hon. Friend the Member for Kingswood (Chris Skidmore) on such an important and pertinent topic. Thanks to his work in passing net zero legislation into law, and through his work on the review, the UK is committed to tackling climate change at home and internationally through our ambitious net zero targets and our international climate agreements, including the Paris agreement. I want to assure him of my personal commitment to achieving those goals, which I hope he knows already.
In an earlier intervention, the hon. Member for Strangford (Jim Shannon) raised energy security in Northern Ireland. I urge him to hotfoot it back to this Chamber at 2.30 this afternoon when the hon. Member for Upper Bann (Carla Lockhart) has a debate very much focused on Northern Ireland and energy security for farmers. I look forward to seeing him there and we can continue our discussion.
The energy charter treaty was signed in 1994. It was originally designed to provide stability and certainty for those participating in cross-border trade and investment in the energy sector, particularly for investors operating in states with a less stable rule of law. It currently applies to more than 50 contracting parties. As my right hon. Friend the Member for Kingswood rightly says, the world and the energy sector have changed significantly since 1994, and there is wide recognition that the energy charter treaty has not kept pace.
Britain has long accepted that to remain relevant the energy charter treaty needs to be updated to reflect the current energy landscape. In its unmodernised form, it is focused on trade and investment in fossil fuels. Although renewables are in scope, it does not cover modern energy technologies such as hydrogen or carbon capture and storage. That is exactly why His Majesty’s Government have been such keen supporters of modernising the treaty; I dispute the characterisation from the hon. Member for Brighton, Pavilion (Caroline Lucas) that we are in any way complacent.
We have spent two years negotiating to align the treaty with today’s changing energy priorities and investment treaty practices, as well as international climate commitments, such as the Paris agreement. We took a leading role in pushing for additional safeguards for the sovereign right to introduce measures such as net zero and a flexible mechanism to allow parties to phase out investment protection for fossil fuels. To be clear, there were challenges to overcome in the renegotiation. It is a multilateral treaty across more than 50 states, each with different priorities on energy and climate. The UK was able to secure coverage for modern technologies, and provisions to ensure a stronger environmental, labour and climate focus.
Chris Skidmore
This is a factual question: who is the Minister going to negotiate with in a modernisation programme, when none of the European countries, including Germany, France, Spain, the Netherlands and Italy, will be in the room? Logically, there is no opportunity to discuss modernisation, because no one wants to discuss it. The Minister’s speech may have been written before the decisions taken by the EU last week or the week before were made public, but it is simply not logically possible to follow the pathway that the Minister is suggesting. It might have been possible last year, but it is certainly not anymore.
Andrew Bowie
I was not suggesting a pathway forward; I was giving a brief history of how we have got to the stage we are at. If my right hon. Friend hangs fire for two seconds, I will explain where we are going next.
Despite efforts to update the treaty, which the EU had supported us on, when it came to the final moment the European Union and its member states were unable to endorse adoption of the modernisation at the energy charter conference in November. That was unexpected and a great disappointment to those, including member states and the UK, that were championing modernisation. As such, several EU member states have now announced their intention to withdraw. We expect a decision on modernisation to be rescheduled when enough contracting parties are in a position for a vote to take place.
We must carefully assess the impact of the evolving situation to understand how best to take forward our priorities in relation to the treaty. Since the conference in November, the Government have monitored the public positions of other contracting parties, engaged with official-level negotiators from those parties, conducted further assessment and considered the views from stakeholders across business, civil society and Parliament. We are building all that information, engagement and analysis into an assessment, underway right now, of how the UK should respond to the current situation in the energy charter treaty. We will keep the House informed of any relevant developments as soon as we are able.
Whatever the final decision on our membership or the future of the treaty, the UK remains committed to addressing the urgent need for climate action at home and abroad. As such, I sincerely thank my right hon. Friend the Member for Kingswood for raising the issue.
Caroline Lucas
I wonder whether the Minister recognises that there is an urgency to this. I appreciate that he is listening to lots of different voices, but if we are left on our own because all like-minded countries have left, we risk becoming stranded and unable to leave with the protection that would have come from a co-ordinated departure with our EU colleagues. Will the Minister consider that as he plots the way forward?
Andrew Bowie
I thank the hon. Lady for her intervention; of course, that is being considered. As I said, an assessment of the UK’s position in regard to the treaty is being undertaken right now, and as soon as a decision has been taken we will update the House. The issue is important and pertinent, and I thank my right hon. Friend the Member for Kingswood for bringing it to the Chamber today.
Question put and agreed to.