Baroness Verma
Main Page: Baroness Verma (Conservative - Life peer)Infrastructure Bill [HL]
Baroness Verma Excerpts
Baroness Worthington (Lab)
My Lords, when you have had such a rich and excellent debate, you find yourself in the position where everything you were going to say has been said before you by very eminent and noble people. I thank everyone for their contributions to this debate.
We are very supportive of this amendment in principle. I look forward to hearing from the Minister some, I hope, positive words about how the Government will take this proposal forward in principle and introduce it into the Bill during its passage. It is clear that, when we look at the Infrastructure Bill as a whole, this area represents something of a missed opportunity under this Government. Of the pipeline of infrastructure projects in the UK that the Treasury has collated into its Excel spreadsheet, more than half are energy projects. It is the single biggest sector in terms of the value of projects in that list. Energy is central and fundamental to any infrastructure policy. Yet here we are with not very much in the energy part of this Bill to start with. A few amendments have been added but this is really a missed opportunity to set out a very strong and strategic direction.
I am sure that the Minister will point to the fact that we spent much of last year talking about energy in the energy market reform package but that is still being implemented. On Thursday, we meet to discuss some of the detail of the statutory instruments and there are still significant issues that were debated during the process that are unresolved. I would argue that energy efficiency is one of them.
I am delighted that the noble Lord, Lord Deben, raised the fact that today we saw the Government finally remove the question mark hanging over the fourth carbon budget. It was a recommendation from the Committee on Climate Change that was accepted but a rather insidious caveat was inserted that it would be subject to review. This has been hanging over the carbon budgeting process for some time. Today we saw final clarification that the fourth carbon budget will remain as drafted, as it is in law, and will not be subject to review. That is a very good thing. I particularly extend congratulations to the noble Lord for the work that I am sure he and his committee did in trying to ensure that the Government saw logic on this issue. I also commend the Government for listening to logic and ruling out any changes to that fourth carbon budget.
However, as the noble Lord pointed out, this now has quite serious implications for policy. The first implication is that we must—must—secure a 40% greenhouse gas reduction target in Europe if we are to have a chance of meeting our targets in the traded sector. In the non-traded sector, which means the heat market and the transport market, we will have to up our game significantly and improve the energy efficiency of our transport and heat networks. That is really the nub of this amendment. For too long, we have ignored those essential components of energy policy. How we heat our buildings, homes, offices and industries and our transportation have been sidelined in favour of big glamorous projects in the power sector. There has been—although I hope it is shifting—a perception in the department responsible for energy that real men build power stations. I have heard anecdotally that there have been posters to that effect in certain parts of the department. I hope that they have now been expunged. We have women in that department now, which is great, and a new member in the shape of Amber Rudd who I am sure will contribute greatly.
Energy is not just about cutting ribbons on large projects. It is much more complex than that. It involves massive amounts of infrastructure, which extends all the way to the buildings, housing, homes and roads that we use to transport ourselves and to live and work in. Those aspects of infrastructure should be front and centre in any infrastructure project. It will have escaped no one’s attention that energy security and reducing our reliance on imported energy are of huge importance, particularly in current times. The most sensible way to do that is to reduce the amount of energy you need to use in the first place. That is why energy efficiency is now receiving far greater attention at European level and why we in the UK should similarly up our game on this aspect in meeting our carbon budget and in helping people to occupy, live in and work in buildings that are fit for the 21st century. I see this as fundamental to the question of infrastructure. How we transport ourselves and what we live in is part of our infrastructure. It ought to be in the Bill.
There is another important point. My noble friend’s amendment covers existing infrastructure and new infrastructure. It is important that if we are embarking on this large programme of infrastructure spend, we do so wisely with energy efficiency front and centre in everything we do. This amendment is not simply about retrofitting existing infrastructure. It also requires us when we are embarking on infrastructure projects to think carefully about the energy efficiency of those projects.
People might be considering how we make this real and what energy efficiency looks like. I have three examples. I mentioned our housing stock: we have among the worst housing stock in Europe. It is appalling that a country of our wealth and history should have people living in fuel poverty in damp and unheatable homes. This has to be stopped. We have to make sure that our housing stock is upgraded to give us warm and healthy homes to live in. It is not just that. There are also large swathes of commercial and retail buildings that could be re-engineered to become smart buildings and upgraded so that they use energy wisely and minimise the amount they use.
There is also lighting. There is huge potential for reduction in emissions and energy demand from lighting from the new LED lighting that is coming on board. When we are building roads and extending infrastructure, we should be planning to have the most efficient and up-to-date technologies that will save us money in the long run.
I do not want to detain the Committee any longer. This has been an amazing debate—I thank all noble Lords for their contributions. I am very much looking forward to the Minister’s response. I hope that before the legislation reaches the statute book, we will see a positive response to these amendments.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I agree with the noble Baroness that this has been an excellent debate. Everybody has spoken with great passion. Each and every one of us shares a common approach to making sure that we deal with energy efficiency in the round, not just for people in fuel poverty but as a commitment from our country to our carbon targets. Before I respond to the amendment moved by the noble Lord, Lord Whitty, I shall put on record for my noble friend Lord Deben and the noble Baroness that some of us are not playing with boys’ toys and are not interested in them but have spent a lifetime making sure that the subject that we are so passionate about is properly addressed. For those who like wearing helmets, good luck to them. I am just not one of them.
Lord Deben
I am impressed by the Minister’s statements and very much support them, but I do not quite understand why it would not be satisfactory to include this in the Infrastructure Bill. If we are doing all these things, perhaps the Government will not find it too onerous to do so. Surely she would agree that it would mean that we would put it in the right context, with the other things being done on infrastructure. I hope that, despite her feelings before the debate, she will accept that the debate suggests that it would be worth while thinking about this again and putting something in the Bill. I cannot see that there is any down side to that; I see a lot of upside, but as yet I cannot detect a down side.
Baroness Verma
I thank my noble friend for his intervention. However, I would err on the side of caution: if we do not look at this in greater detail, we might inadvertently restrict ourselves from looking at other technologies that may come on stream by putting into legislation things that are going to be restricted because we have mandated it in the legislation, when we are already doing many things that meet what noble Lords are asking for. It would probably be much more constructive to be able to say that this would not be necessary, given that we are already doing it. However, as with all things, I am very happy to talk to noble Lords outside the Room to see where they feel that I am not fulfilling this condition.
I would like to respond to the noble Lord, Lord Cameron, about new build and RHI. I do not have the details for that here, but perhaps he would allow me to write to him and send copies to other Members of the Committee.
I hope that the noble Lord, Lord Whitty, will withdraw his amendment.
Lord Cameron of Dillington
My Lords, I, too, support the idea of community involvement in projects. As I said in my Second Reading speech, I support Amendment 94AA in view of the possibility of local opposition causing projects to fail. Fracking is very controversial. It seems to me that if you could involve the local community in a fracking project in the same way as the Government are trying to do with renewables, it would be very beneficial.
Baroness Verma
My Lords, I take this opportunity again to thank all noble Lords for their excellent contributions. In addressing this rather large group of amendments, I hope that I can respond to many of the points the noble Baroness raised. If I do not do so, I undertake to write to her.
Amendment 94AA seeks to extend the scope of the community electricity right to include all electricity generation facilities. While the Government strongly support community engagement in relation to the development of all energy projects, we are clear that these provisions should apply only to renewable electricity generation facilities. I would like to set out the reasons for this.
First, this measure is part of our broader approach for increasing community investment in renewables, as set out in the Community Energy Strategy. The policy was developed specifically to tackle the imbalance between national and local benefits that characterises renewable schemes. In general, there tends to be widespread support for renewable electricity developments at a national level, but this is not always reflected at a local level where the impacts are felt directly by communities. Enabling communities to invest in their local renewable electricity schemes will mean that they can gain a greater share of the financial benefits and, more importantly, feel a greater sense of ownership of schemes being developed on their doorstep. This will help to increase public engagement, acceptance and support for renewable projects at a local level. What is more, developers will also stand to gain. Experience in this country and abroad has shown that where communities have a financial stake in a local renewable development—the noble Baroness cited Germany in this regard—this often translates into less opposition and a quicker, cheaper development process.
There is already a voluntary approach that is currently developing a framework for increasing shared ownership. Only if this is not successful would we consider exercising the backstop powers. It would therefore make no sense to expand the scope to include all electricity generation projects when both the policy objective and the voluntary approach are focused solely on renewables.
On Amendment 94AB, I remind noble Lords of the importance of reporting on actions to reduce energy demand and carbon emissions. I recognise that there are many forms of community action that can make a difference to reducing our country’s carbon emissions and managing the demand of energy. The Community Energy Strategy that we published recognises the benefits of putting communities in control of the energy they use. Furthermore, it sets out how communities can get involved in reducing, generating, managing and purchasing energy.
In addition, through the Community Energy Call for Evidence, the department committed to commissioning an external research project specifically focused on energy demand and distributed energy. This research project has now concluded, and we will publish the findings shortly. While these are very important elements of growing the community energy sector and tackling climate change, they are not directly connected with the implementation of the community electricity right regulations.
Baroness Worthington
My Lords, I thank noble Lords who spoke on this amendment and the others in the group. I thank the Minister for her response. I cannot say it has done much to assuage my cynicism. I feel that this is more to be used in leaflets on doorsteps in Tory constituencies than anything else. That said, I understand and am grateful for the detailed responses.
This feels a slightly too restrictive interpretation of what we want to achieve with community engagement. I fear that it is slightly motivated by a desire to make renewables seem like a very special case and that there is something about them that is inherently difficult which you have to live with on your doorstep and therefore you will be given a special right which does not apply to any other type of energy project. I do not know that that is necessarily going to be a good thing.
The noble Lord, Lord Teverson, made a valid point about how far you go with this right to buy. I do not quite share his logic in saying that this might not be perfect but we should get on with it. This is so far from perfect that I am not sure that that logic applies.
I am very grateful for the responses. I will follow with interest whether charities end up being included on the list. I am sure that if they are not other people will be reading Hansard with great care and will follow up on that issue in particular. I do not follow the logic of the Government’s approach: “We have said it this way; therefore it has got to be this way”. There was a circular logic in some of the answers: “We have not included energy efficiency; therefore we cannot include energy efficiency” and “We do not think it should apply to offshore; therefore it does not apply to offshore”. Those are not principled responses because they just say, “This is what we are currently doing and therefore we are legislating to do what we are currently doing”. That is not necessarily the right approach.
Baroness Verma
My Lords, I have said that there will be times when formal consultations are held, so it will be useful to wait and see what the results of those formal consultations are.
Baroness Worthington
I thank the noble Baroness for that, and indeed it will be interesting to see what comes back from stakeholders and whether offshore generators will accept that this is a necessary provision. It feels like this is less about securing community engagement and more about trying to send a message along the lines of, “We know that renewables are really difficult and we are sorry. We will try to do something about them”. Anyway, I look forward to the debate on the next group of amendments.
Baroness Worthington
I thank the noble Lord for attempting to reject my cynicism. We know that there is an issue with the coalition Government. We know that one department is pushing renewables while another department is calling all the renewables projects in and objecting to them. I do not think that I am being paranoid in saying that there is a problem in the signals being sent to investors in renewable energy projects. It is quite apparent in the statements being made by different Ministers.
Baroness Verma
My Lords, I apologise. We should move on to the next group. However, I want to clarify that it is healthy to have these debates. The noble Baroness’s own party is also having them. To make this into a political debate is, I think, wrong, because the underlying premise of the noble Baroness’s amendment is what we are all trying to achieve—greater community engagement.
Baroness Worthington
I do not dispute that. I say again that I have nothing against community engagement—in fact, I positively encourage it for all the reasons the noble Lord, Lord Teverson, has outlined. As I said, it clearly helps people to move forward with renewable energy. I am simply saying that this approach is very narrow and that it inevitably puts an administrative burden on to a certain class of developers which does not apply to other developers. That is my concern. I am sure that we will talk about these issues in the next group of amendments. I do not think that I am wrong to express a healthy degree of cynicism and I am glad that I tabled these probing amendments so that we could have this debate. It is now on the record, so let us see how we get on. I am sure that it is something which will evolve over time. I beg leave to withdraw the amendment.
Baroness Worthington
I thank the noble Lord, Lord Jenkin, for a characteristically thorough, thoughtful and detailed speech on this very important issue. I hope that if I attain his high level of expertise, I will be able to make similar speeches during my time in the House of Lords. I look forward to the Minister’s response. Some very important points of principle have been raised. Indeed, we aired some of the same concerns when considering the previous group of amendments. I support the noble Lord, Lord Jenkin. He sought to point out that essentially this feels like a solution in search of a problem. There is a predetermined view which says, “This is what we want to do, so now let us do it”, on not a great deal of evidence and the potential to send a rather unfortunate message to an industry that should be encouraged to expand. Given the Government’s usual approach to regulation as reflected in their Red Tape Challenge, which insists that if a new regulatory burden is put on an industry another one should be taken away, can the Minister tell us which of the renewables industry’s current regulatory impediments is going to be removed in order for this to be introduced? This is an impediment on industry. I am very grateful to the noble Lord, Lord Jenkin, for quoting Ofgem. That confirmed the fears I had. How is this to be administered? Will it be able to be enforced? What are the costs involved in doing this? Is it justified by any evidence that there is a problem that is not being addressed through the much more flexible, creative and, I hope, successful voluntary approach?
I strongly support the noble Lord, Lord Jenkin, and his opposition to the clause, which I am sure is designed to elicit reassuring comments from the noble Baroness that this is not a straightjacket that the Government are rushing to introduce and that we can take some time to get this right.
Baroness Verma
My Lords, I am extremely grateful to my noble friends Lord Jenkin and the Duke of Montrose, and to the noble Baroness for her contribution. This debate on Clause 26 allows me to lay out why we consider that what the Government are doing is absolutely the right approach. At the same time, I will address the matter of my noble friend’s Amendment 98AB, which seeks to delay commencement of the provisions by two years.
As we all agree, shared ownership is a key way to galvanise support and acceptance from local communities. That is critical for the future of the renewables industry. I have said previously that this Government have set out a logical and sensible approach to achieving that, first, through a voluntary means. Then, only if that is not successful, would we consider bringing forward legislation—and that only following a formal consultation.
With that in mind, I will respond to the points that my noble Friend Lord Jenkin raised today. First, I do not agree that the Government do not trust industry to deliver the voluntary approach. As I said before, the Government have set up an industry-led task force to drive an increase in shared ownership. We hope and believe that shared ownership will be achieved in that way. If we do not trust industry, as my noble friend suggested, why would we have set up a task force in the first place? I welcome the fact that the Shared Ownership Taskforce is—
Lord Jenkin of Roding
I should have explained that the question of the Government giving the impression that they do not trust industry is something of which I was informed by RenewableUK. One of its senior officials is a chairman of the task force. I have to assume that she understands that lack of trust as well. Perhaps she did not put it in her report but nevertheless her organisation made it perfectly clear to me that that is how it interprets this threat of legislation.
Baroness Verma
I am grateful for my noble friend’s intervention but reiterate that we are working closely with industry. That work, through the Shared Ownership Taskforce, is going well. We commend the publication of its draft report. However, it would be naive to expect all those in industry to welcome this with open arms. Taking legislative powers has helped bring this matter to the forefront. The possibility of legislation has encouraged industry to take this matter seriously and provide the commitment necessary for the voluntary approach to succeed. The Government’s firm view is that the backstop powers are needed precisely in order for the voluntary approach to work. It is basically a call to action.
My noble friend made the point that there is nothing stopping Government legislating, even if the voluntary approach works. I would like to be absolutely clear that that is not our intention. The backstop powers would be exercised only if the voluntary approach does not succeed. In determining success, we will be guided by the task force and the outcome of its review in 2015. The Secretary of State for Energy and Climate Change addressed the task force to reassure it on that point. In addition, he provided further reassurance that, in order to give sufficient time for the voluntary process to take effect, there was no intention of exercising any power before 2016, if at all. In the Queen’s Speech debate in the other place, he reiterated this point:
“Since we are pursuing a voluntary approach, the power in the Bill is a back-stop. The community energy sector was clear that the voluntary approach should be given a chance to succeed, and I agree”.—[Official Report, Commons, 5/6/14; col. 139.]
Baroness Worthington
This reminds me of a debate that we had on the Energy Bill, where there was a similar backstop measure. On the decarbonisation target, for example, we were asked to accept a form of wording that said it could not be set until 2016. Perhaps something like that could be formulated for this Bill to give people reassurance that the intention is that it will not be done until 2016.
Baroness Verma
As with all things, I listen with great care and will, of course, having done that, discuss this with my officials. If we can improve the writing of legislation, I am always happy to look at that. However, I reiterate that this is basically a backstop power. We expect industry to deliver, but let us not be naive: there will be parts of industry that do not and will not, and we therefore need to have that measure in place. Finally, exercising this power would, of course, be subject to affirmative resolution procedures and would therefore require the consent of both Houses.
The Delegated Powers Committee’s view is that these provisions are not inappropriate, in particular since they provide for the affirmative parliamentary procedure to be used. The committee hoped that we would provide as much information as possible on the shape and content of secondary regulation, and we are currently considering what we can do to satisfy this. As I am sure my noble friend is aware, when I am asked by the Delegated Powers Committee, I try my level best to ensure that as much information is available to it as possible.
I have spoken previously about the importance of not prejudicing the models coming forward through the voluntary approach and the outcome of any formal consultation. It is for these key reasons that we have not set out the finer details of implementation within primary legislation. However, I take on board my noble friend’s concerns and hope that I can offer him some comfort. We are currently considering the recommendations of the committee and, in particular, whether we can provide further briefing on what any secondary legislation might look like. The Shared Ownership Taskforce is due to publish its final report in October. Following that, we could consider how its final approach influences the details of implementation, but going any further than this now could prejudice the outcome of the task force’s consultation, which we would be loath to do. I hope to provide an update to the Committee on this matter before Report.
The amendment proposed by my noble friend would introduce a two-year delay to the commencement of these provisions, which I do not believe is the right approach. I will set out a few reasons for that. First and foremost, the current timescales associated with the voluntary and mandatory approaches are aligned. The policy as a whole creates the right impetus and drive to achieve our objective of substantially increasing shared ownership from next year. The potential to introduce backstop powers is intended to nudge industry to ensure that the voluntary process is sufficiently robust, but it also sends a very clear signal that we want to see offers to communities being made on the ground from 2015.
By contrast, the approach proposed by my noble friend would mean that when the voluntary approach is reviewed in 2015, if it were found to be unsuccessful, it could be at least until the end of 2017 or early 2018 before the powers could come into force. This would follow a formal consultation and the development of secondary legislation which is inconsistent with the approach set out in the community energy strategy.
The Duke of Montrose
The reason I raised it is because renewable energy is a devolved matter and there is always this conflict in the energy area about whether it is a renewable energy question or a fossil fuel matter.
Baroness Worthington
Will there be any regulatory deregulation on the renewables industry to compensate for these new regulatory powers? What are the administrative and cost implications of this for how we are going to police and monitor it?
Baroness Verma
I apologise for not being able to respond to the noble Baroness. I had a note to say that I would be writing to her because it was a detailed question. I will ensure that Members of the Committee get a copy.
I hope that I have been able to reassure my noble friend Lord Jenkin as to why Clause 26 should stand part of the Bill and convince him that delaying commencement of these provisions is not the right approach.
Lord Jenkin of Roding
My Lords, I take some comfort from what my noble friend said in response to this short debate. She said she will do her best to see that we get some indication of what is going to be in the regulations, and I very much welcome that. I understand her argument about not wanting to tie herself down. The Government would tie themselves down by taking a legislative power or even indicating legislative powers some years before they have to become operative because there may be many lessons to be learnt before that time. It is quite clear that we are going to have return to this on Report.
I was slightly surprised and disappointed that my noble friend told the Committee that we are not going to get the final report from the task force until October. It is having a consultation phase—and I refer to the first page of the task force draft report—before publishing the final report in September, because the task force would like to seek wider views. The difference between September and October is quite crucial, because we will resume the sittings of this Committee in October, perhaps within a day of reassembling. That will be followed in due course by Report, at which stage we will presumably wish to come back to this, having moved beyond this part of the Bill. So this is really rather important. I hope that my noble friend might be able to convey this to the chairman of the task force. She said September, and there are people in the House who would like it to be September. It should not be like so much that the department has done and slip from month to month. That is not the right way in which to do things. If you say that you are going to publish on a certain day, that is the date on which you should publish. I find the readiness to accept slippage of that sort, sometimes running into many months, rather distressing—but there we are.
I had one representation this morning from a group or a firm that is anxious that the task force is laying down prescriptive models for community participation. It sees a whole range of other things that it could do, which would achieve exactly the same objective—namely, aligning the interests of the community with those of the investor—which do not appear to be considered at all. It would want to have at least what it calls “shared generation”, in which the commercial operator ensures a proportion of the energy generated from a project is discounted off the energy bills of the houses and businesses in a specified local area. As I said a few moments ago, they have been doing that in France for years with the big nuclear power stations, and it seems to work; it provides precisely the readiness of the local community to host what otherwise might be an unwelcome, large and intrusive investment. It would be entirely appropriate for something like that to be available in these circumstances, so this is a moving scene. The minute that we encompass it in statute, it needs primary legislation or at least amendments to subordinate legislation to widen the scope.
This is unfortunate, but I accept one point that the Minister made. She set out her stall and said that there is a backstop provision in the Bill, so I can now understand why, as she put it, it would send the wrong message if we were now to take it out. I can see that, but perhaps it would have been clever not to have gone down this path at all. We might have relied on the voluntary system to take the whole thing forward and then, if it was not successful, started talking about legislation. However, that is not what has happened. We cannot take this any further this afternoon, but I hope that I have made my views clear.
Lord Teverson
My Lords, perhaps I may respond to the noble Lord, Lord Cameron, who raised some valid points, but they were over individual shareholdings, which is a separate issue, as opposed to a total collective shareholding. Further regulations could be made around maximum individual shareholdings or defining the control of those shareholdings. That is a fairly regular way in which to do this—aggregating some of these things if they are, for example, vexatious. I accept fully that there is a risk of individual shareholder activism but that is a separate issue to the community being able to have a significant or noticeable stake, as opposed to one that is, in smaller schemes, almost token.
Baroness Verma
My Lords, I again thank all noble Lords for their interventions. I should like to respond to the amendments that relate to Schedule 5, in particular the concern over the maximum size of stake that can be mandated through regulations, which is currently set at 5% of the total capital costs of the renewable electricity facility. I tried carefully to follow my noble friend Lord Teverson’s first intervention. I got slightly lost, so I will go back and read it in Hansard tomorrow.
Baroness Verma
If I do not respond to him today, perhaps I may respond after reading Hansard.
I should like to take this opportunity to explain—and I hope address the noble Lord’s concerns—why we have set the 5% cap and why I am resisting the approaches proposed by both amendments. I am also grateful to the noble Lord, Lord Cameron, for his intervention, which—although the noble Lord, Lord Teverson, suggested an alternative—shows the serious possibility for communities, if so minded, to be able to stop a renewable project by trying to obtain a stake bigger than 5%. Let me develop my argument a little further.
The key reason why a 5% cap has been set in the Bill is to provide certainty to developers now on the maximum size of offer that can be legislated for in the future. While the Government wholeheartedly support community investment in renewable electricity and want to see a substantial increase in shared ownership, it cannot be at the expense of investment in renewables. The 5% cap provides absolute clarity to industry on the upper limit on the size of stake it may be required to offer to communities. Although of course we would welcome developers voluntarily offering more, by contrast the approach taken by my noble friend Lord Teverson who proposed a wide range of between 5% and 25% of the total capital costs of development does not provide any meaningful degree of certainty for industry. As such it could risk deterring future investors in the renewables industry. The alternative approach proposed by the noble Baroness, Lady Worthington, similarly does not provide certainty to industry on the maximum size of stake that could be legislated for in the future, since it leaves this to be defined in secondary legislation.
This takes me on to my second point which is about retaining flexibility. I recognise that the key benefit of providing a range, as proposed by my noble friend Lord Teverson, is to retain future flexibility on the maximum size of offer that can be legislated for in the future. However, the approach that we have taken also provides a sufficient degree of flexibility. The 5% cap represents the maximum that could be required, and the actual amount set in secondary legislation could vary by technology. This is important. We need to bear in mind that the scope of the powers covers a greater than 10-fold range in project size. So a 5% mandatory offer to communities might be appropriate for smaller schemes that have a lower capital cost. However, for schemes with a higher capital cost it might be more realistic to set a lower limit, for example at 1% of total project capital costs.
That takes me on to the size of the stake. It is important, when setting the cap on what may be legislated for, that the amount of investment which may be raised by the community is taken into consideration. Based on this, we consider it likely that if a multi-million pound community stake were mandated, there could be insufficient demand for this within the community even if the geographical area were quite large. That is why we have enabled a cap that would allow the offer of a mandatory stake to be set anywhere up to 5%. This approach ensures that the maximum size of stake required can be broadly aligned with the amount of investment that may be raised by the community. By contrast, the approach proposed by my noble friend Lord Teverson implies that a mandatory stake could not be set any lower than 5%. This would mean that developers could be required to offer a larger amount to the community than could plausibly be financed, particularly for larger schemes with a very high capital cost. In addition, raising the threshold to 25% may have a similar effect. Furthermore, under the Companies Act 2006 a level of 25% of shareholder equity ownership has the potential to block a special resolution. The purpose of these provisions is not to mandate that the community has a controlling stake.
That is not to say that we should not encourage developers to offer a stake greater than 5%. I would like to emphasise that this Government would fully support developers choosing to offer more in circumstances where that is appropriate. However, we do not feel that it is right to mandate this size of offer to communities since it could have such fundamental implications for project financing. The position on a 5% cap is supported by RenewableUK, the trade association for wind, which described it as an “ambitious objective”. In respect of setting a higher limit it states that this, “would simply delay a developer’s ability to secure investment from institutional and other investors”.
My noble friend Lord Teverson asked about the rules set by the Financial Conduct Authority. While developers will be required to comply with all Financial Conduct Authority rules as they are set, it would be inappropriate to change or relax those rules as they provide important safeguards for individual investors. Having introduced some clarity in this area, I hope that the noble Baroness will feel able to withdraw her amendment.
Baroness Verma
ScheduleThe licensing levyThe amount of the levy 1 Regulations may provide for the licensing levy payable in respect of a charging period to increase or decrease over that period.
Basis of amount2 Regulations may provide for an amount of licensing levy payable by a licence holder to be calculated by reference to the size of an area to which an energy industry licence held by that person relates.
Amounts payable by different categories of licence holders3 Regulations may provide for different categories of licence holders to pay—
(a) different amounts of licensing levy, or(b) amounts of licensing levy calculated, set or determined in different ways.Exemptions4 Regulations may provide for a category of licence holder to be exempt from payment of the licensing levy.
Unpaid levy5 (1) Regulations may provide for interest (at a rate specified in, or determined under, the regulations) to be charged in respect of unpaid amounts of licensing levy.
(2) Regulations may provide for unpaid amounts of licensing levy (together with any interest charged) to be recoverable as a civil debt.
Conferral of functions6 Regulations may confer a function (including a function involving the exercise of a discretion) on—
(a) the Secretary of State, or(b) any other person, apart from the Scottish Ministers or the Welsh Ministers.Categories of licence holders7 (1) Regulations (including regulations of the kinds mentioned in paragraphs 3 and 4) may provide for a category of licence holder to consist of persons who hold a kind of energy industry licence specified in the regulations.
(2) The regulations may (in particular) specify any of the following kinds of energy industry licence—
(a) licences granted under a particular enactment;(b) licences of a particular description granted under a particular enactment;(c) licences, or licences of a particular description (including a description falling within paragraph (a) or (b)), granted—(i) before a particular time,(ii) after a particular time, or(iii) during a particular period.Interpretation8 In this Schedule—
“energy industry licence” means a licence falling within section (Levy on holders of certain energy licences)(1);“licence holder” means a person who holds an energy industry licence (whether the person was granted it or has, after its grant, acquired it by assignment or other means);“regulations” means regulations under section (Levy on holders of certain energy licences)(1).”
Baroness Verma
My Lords, the UK oil and gas industry is of national importance: it makes a substantial contribution to the economy and supports around 450,000 jobs. Oil and gas will continue to play a vital part in the energy mix as we transition to a low-carbon economy and will still meet around 70% of our energy demand in 2030. Therefore, it is vital that we maximise our indigenous supply, to put downward pressure on prices, support jobs and maintain secure supplies.
The Government commissioned Sir Ian Wood in June 2013 to review the regulatory regime for the UKCS because, although investment levels are rising and near-term prospects are strong, there are new challenges for exploration and production, and the environment is very different from when production peaked approximately 15 years ago. Production and exploration levels have fallen, and production efficiency has declined.
Sir Ian’s final report was published in February 2014 and included four recommendations for the Government. His independent report estimates that full and rapid implementation of his recommendations will deliver the equivalent of at least 3 billion to 4 billion barrels of oil more than would otherwise be recovered over the next 20 years, bringing over £200 billion additional value to the UK economy.
The Government have accepted Sir Ian Wood’s recommendations and last week published a formal response setting out their plans for implementation. The government amendments before the Committee are the first vital step in implementing those recommendations and will send a clear signal of the changes required to industry practice and the role of the regulator to deliver the benefits he sets out in his review.
Amendment 95ZA seeks to put the overriding principle contained in Sir Ian Wood’s report into statute, which is maximising the economic recovery of offshore UK petroleum. This is to be achieved, in particular, through the development, construction and deployment of equipment used in the petroleum industry and through collaboration among holders of petroleum licences, operators under petroleum licences, owners of upstream petroleum infrastructure and those planning and carrying out the commissioning of upstream petroleum infrastructure.
The Government and industry should work together to maximise the economic recovery of offshore petroleum from the UK. Because of the continually changing nature of regulation, the developing needs of exploration and production in the North Sea, and changes in technology and approaches, we think that the concept of MER UK is something that itself is likely to change over time. We therefore do not think that setting out the meaning of “maximising economic recovery” in primary legislation is desirable, as greater flexibility is required.
We take the view that this is better achieved through a strategy which can adapt to new challenges and the evolving needs of oil and gas regulation in the North Sea. The clause therefore requires the Secretary of State to produce a strategy for enabling the principal objective to be met and places a duty on the Secretary of State to collaborate with industry and carry out his activities in accordance with the strategy. The clause also places duties on petroleum licence holders, operators, infrastructure owners and associates of those persons to comply with that strategy. There is also a duty on those planning and carrying out the commissioning of that infrastructure. The Secretary of State is under a duty to lay before Parliament a report at the end of each reporting period on the extent to which relevant persons have acted in accordance with the strategy.
The second main provision, set out in Amendments 94B and 95ZB, provides the Secretary of State with the power to raise a levy from industry to help fund the costs of regulating this sector. This is consistent with the user pays principle and the Government’s belief that those who benefit from a service should ultimately pay for it. The power is circumscribed in a number of respects. The total amount of the licensing levy payable cannot exceed the costs of the Secretary of State carrying out his relevant functions. The levy cannot be used to recover costs in respect of areas in which a charge is payable under the Gas and Petroleum (Consents) Charges Regulations 2013 as those regulations stand when this provision comes into force. To ensure the costs are proportionate, the clauses also allow for different amounts to be charged in respect of different licences.
Finally, the levy is subject to a three-year sunset clause, which will mean that the levy arrangements are reviewed over that timeframe to ensure the system put in place is fair, effective and efficient in terms of its administrative burden. As set out in the government response to the Wood review, published last week, the Government have committed to contribute £3 million per year to the running costs of the OGA from 2016-17 for five years. This is to demonstrate the Government’s commitment to the tripartite approach to delivering MER UK and a recognition of the importance to government that the OGA is well funded from the outset. The levy will, of course, be net of this funding received from government.
For the avoidance of doubt, noble Lords should note that in due course the Government intend to set up the regulator as an arm’s-length body in the form of a government company. However, in the interim, the body will be established as an executive agency. Therefore, for the present, the legislation refers to the Secretary of State.
The other government amendments in this grouping, Amendments 95ZC, 96ZB, 97A and 98AA, are technical in nature and I do not propose to spend too long on them. Suffice to say that these clauses deal with consequential provision, the parliamentary procedure in relation to regulations, territorial extent and commencement. Amendment 95ZC amends the scope of the power in Clause 28 so that it applies also to the clauses dealing with maximising the economic recovery of UK petroleum, the levy on holders of certain energy licences and the relevant schedule. Amendment 96ZB amends Clause 29 so that if we amend the reference to the Gas and Petroleum (Consents) Charges Regulations 2013 as set out in the primary legislation, we would have to use the affirmative procedure. Amendment 97A is required because the Wood review amendments are to have GB extent. It also contains an amendment in relation to the extent of the Extractive Industries Transparency Initiative. Amendment 98AA relates to commencement in respect of the Wood review provisions and the Extractive Industries Transparency Initiative.
The Government have worked at a furious pace to bring forward the measures for this Bill. However, in doing so, we have not yet been able to publish the regulatory impact assessment which normally, although unfortunately not always, would accompany the introduction of the relevant provisions. It is our firm intention to publish our assessment of the indicative range of potential costs and benefits of these powers prior to Report.
I hope it will comfort noble Lords that the industry is supportive of Sir Ian’s recommendations and has called on the Government to implement them timeously. The policy intent is to reduce regulatory burden, empower a stronger, more capable regulator that can mobilise and catalyse, and enhance the efficiency and co-ordination of activity in the UK continental shelf. The clauses we have put forward in the Bill are a key part of what is required to implement the recommendations. I beg to move.
Lord Jenkin of Roding
My Lords, I give an unreserved welcome to these new provisions. When Sir Ian Wood’s report was published last February, and the industry had had time to absorb its messages, there was almost universal support for his recommendations. I think my noble friend said that the Government have worked at a furious pace, and I recognise that. However, I wish to make two points. First, I am surprised to be told by the industry’s representative body that it was not consulted on the terms of these government amendments. It states that the industry,
“has not been consulted about the nature and format of these MER UK amendments”.
I stress as strongly as I can that in the next stages of carrying this forward—working out the strategy, dealing with the details and all the other matters which will flow from this—the Government simply must regularly consult the industry; otherwise, the good will that has been attracted by the evident swiftness in accepting a very complex and detailed report will evaporate if there is a feeling that somehow the Government are charging ahead and not taking account of what the industry wishes to say. I am sure that my noble friend will give me a very firm commitment that the Government will consult the industry on any further steps.
My other point is based to some extent on my experience as a long-standing member of various voluntary bodies and other organisations. Some years ago, I chaired an Anglo-Norwegian seminar for the Foundation for Science and Technology. The seminar was held at what was then the Institution of Electrical Engineers and was attended by the King of Norway, the Duke of Edinburgh, the managing director of BP—my noble friend Lord Browne of Madingley—and the chief executive of Statoil. A very high-level discussion took place between the British and the Norwegians on not just the North Sea but, of course, the Barents Sea. It was a fascinating morning and I certainly learnt a great deal. I chaired much of the meeting and the noble Lord, Lord Broers, chaired another part. At one point, one of my honourable friends from the other House asked the two chief executives—my noble friend Lord Browne and the Statoil CEO—what their highest priority was. The answer was, “fiscal and regulatory stability”. They make long-term investments and changes in the tax system or the regulatory system do enormous damage in undermining willingness to invest.
That event was followed, a week later, by the then Chancellor of the Exchequer, the right honourable Gordon Brown, imposing a substantial additional tax on the industry in the North Sea, which caused huge dismay. Other Governments have done the same in the past, so it was not unique, but it was a remarkable example. Having been told that the highest priority was stability, the Government made a significant change on that sort of thing, with no notice. It really was a very astonishing response.
Baroness Verma
My Lords, again we have had some excellent contributions. I do not agree with the amendments which have been tabled by the noble Baroness and I will respond to them in due course, but I thought it would be helpful to respond first to the questions posed by my noble friend Lord Jenkin. He said that the industry feels that it has not been consulted on the government amendments. I hope that I can reassure him that the Wood review itself was the subject of nine months’-worth of detailed consultation with the industry and interested stakeholders, which welcomed the recommendations and called on the Government to implement them rapidly. However, we plan to consult further on the additional regulatory powers that the body will have and on matters such as how to apply MER UK to the onshore industry and the cost recovery mechanism to pay for the new oil and gas authority. We will therefore continue to consult industry, and I hope that my noble friend can take that back, saying that industry representatives will be very much part of the discussion.
My noble friend also touched on the issue of taxation. Clearly any sensible approach to maximising economic recovery for oil and gas needs consistency between the regulatory and fiscal regimes. This was a central recommendation made by the Wood review. The Treasury, the industry and the oil and gas regulator should commit to a tripartite strategy to deliver MER UK. In Budget 2014, the Chancellor announced that the Government would conduct a review of the fiscal regime and on 14 July the Treasury launched that review. We will publish interim conclusions with the Autumn Statement. He also mentioned that the scope of the body should include onshore projects such as shale. Although the Wood review focused on actions to maximise economic recovery from the UK continental shelf offshore, Sir Ian did note that there was a strong rationale for extending the remit to the recovery of oil and gas onshore—for example, to shale. I hope that that satisfies my noble friend.
The noble Lord, Lord Whitty, asked about the second phase. It is likely that additional legislation will be required to implement the regulatory powers that were recommended by the Wood review for setting-up the new arm’s-length body. Primary legislation will be brought forward as necessary.
I turn to the amendments tabled by the noble Baroness, Lady Worthington. Amendment 95ZAA would extend the maximising economic recovery principle objective into the important area of enhanced oil recovery. It would also extend the principle of maximum economic recovery to carbon dioxide transport and storage. These are clearly important technologies that must be developed and deployed appropriately, and which will require a significant degree of co-ordination and collaboration between industry, government and the regulator. The EOR is a technique for increasing production from oil and gas reserves. As such, its exploration, development and co-ordination is intrinsic to maximising economic recovery and there is no need for specific provision on the face of the Bill.
The Wood review called for government, industry and the regulator to develop six sector strategies to underpin the delivery of the MER UK strategy. These include a technology strategy that would set out the key areas for progress and development of key technologies such as enhanced oil recovery to maximise economic recovery. The Government believe that the framework we propose is the best suitable means for doing so.
Baroness Verma
“The Extractive Industries Transparency Initiative
After section 8 of the Commissioners for Revenue and Customs Act 2005 insert—“8A The Extractive Industries Transparency Initiative
(1) The Commissioners may do anything which they think necessary or expedient in connection with the Extractive Industries Transparency Initiative in so far as it relates to taxes the collection and management of which is the responsibility of the Commissioners.
(2) In this section “the Extractive Industries Transparency Initiative” means the international initiative of that name which has the aim of promoting openness in the management of revenues from natural resources.””
Baroness Verma
My Lords, Amendment 95 will give HMRC a new function, allowing it to participate in the Extractive Industries Transparency Initiative, which I will now refer to as “EITI”. On 22 May 2013, the Prime Minister announced that the UK will sign up to EITI. This was a key announcement under the UK’s G8 presidency. EITI provides an assurance that companies will publish what they pay for extracting natural resources and that Governments will disclose the money that they receive from this. By joining EITI and encouraging other countries to join the UK will play its part to improve the way revenues from oil, gas and minerals are managed and to make sure that people across the world share in the economic benefits of the natural resources of the countries in which they live. The amendment will ensure that HMRC will be able to participate in this important initiative and is the minimum legislation required to meet the UK’s public commitment to EITI. I beg to move.
Baroness Whitaker (Lab)
My Lords, I must confess that I am rather puzzled by this amendment, as indeed I was by the Prime Minister’s announcement more than a year ago that he and Mr Hollande would both sign up to EITI. EITI was, of course, an initiative by the previous Government with the very commendable aim of ensuring, as the noble Baroness said, that oil industry companies are obliged to disclose their financial transactions and treasuries are obliged to disclose the revenue. It was very commendable because it was initiated for countries where the oil industry was extremely corrupt and made clandestine payments to the Government in exchange for concessions and where taxpayers—if indeed they paid much tax at all as they were too poor—had absolutely no sight of these financial transactions. Now, even the most extreme critic of British capitalism would not, I think, say that anything like that regime obtains here so I am curious as to why we need to sign up to this system, which was entirely meant for developing countries where their resources have proved inimical rather than helpful to their development. It is also my understanding that the revenue obtained from oil companies is easily available from the Treasury in any case, so why this amendment?
Lord McKenzie of Luton (Lab)
My Lords, I put one small question to the Minister. We discussed in the previous amendment a new levy that will be introduced as a consequence of the Bill. Is it envisaged that that levy would be includable in EITI reports and, if so, is it a tax for the purposes of the proposed new Section 8A of the Commissioners for Revenue and Customs Act 2005?
Baroness Verma
My Lords, I am very grateful to noble Lords for their intervention. I shall respond to the noble Baroness, Lady Whitaker, first. We are transparent, but we want to show clear leadership and be part of the growing group of countries signing up to the EITI, which sends a very clear message across the industry globally that we need to have transparency in the oil, gas and mineral sector. By being part of the growing group, we are indicating that UK companies based overseas are committed to the transparency that we expect on our shores here. I do not think that there is any other purpose than to be able to show clear leadership and that it is the right thing to do. We have always tried to be transparent but, as the noble Baroness said, there are countries that need nudges. Perhaps by showing leadership and being part of an ever-extending group of countries wishing to sign up to the EITI, we can show globally that this is a direction that countries that want to show transparency are taking.
I may need to write to the noble Lord, Lord McKenzie, with a more detailed response on his point.
Baroness Verma
“Maximising economic recovery of UK petroleum
After section 9 of the Petroleum Act 1998 insert—“Part 1AMaximising economic recovery of UK petroleum9A The principal objective and the strategy
(1) In this Part the “principal objective” is the objective of maximising the economic recovery of UK petroleum, in particular through—
(a) development, construction, deployment and use of equipment used in the petroleum industry (including upstream petroleum infrastructure), and(b) collaboration among the following persons—(i) holders of petroleum licences;(ii) operators under petroleum licences;(iii) owners of upstream petroleum infrastructure;(iv) persons planning and carrying out the commissioning of upstream petroleum infrastructure.(2) The Secretary of State must produce one or more strategies for enabling the principal objective to be met.
(3) A strategy may relate to matters other than those mentioned in subsection (1)(a) and (b).
(4) A strategy may not impose an obligation which relates to the powers of a person to make commercial arrangements unless—
(a) the strategy imposes the obligation on relevant participants in the petroleum industry, and(b) the Secretary of State considers that the obligation will—(i) stop commercial arrangements made by those relevant participants, or associates of those relevant participants, from having a significant adverse effect on the principal objective, or(ii) reduce the extent to which such arrangements have such an effect.(5) In this section—
“associate” has the meaning given in section 91 of the Energy Act 2011;
“relevant participant in the petroleum industry” means—
(a) the holder of a petroleum licence,(b) an operator under a petroleum licence, or(c) an owner of upstream petroleum infrastructure.(6) For provision about producing and revising a strategy, see sections 9F and 9G.
9B Exercise of certain functions of the Secretary of State
The Secretary of State must act in accordance with the current strategy or strategies when—(a) exercising functions under the other Parts of this Act (except Part 4),(b) exercising functions under Part 4 to the extent that they concern reduction of the costs of abandonment of offshore installations and submarine pipelines,(c) exercising functions under Chapter 3 of Part 2 of the Energy Act 2011 (upstream petroleum infrastructure),(d) exercising any function or using any power under a petroleum licence, and(e) exercising any other function or using any power—for the purpose of enabling the principal objective to be met.(i) to provide advice or assistance to another person, or(ii) to acquire, use or supply information,for the purpose of enabling the principal objective to be met.9C Carrying out of certain petroleum industry activities
(1) A person who is the holder of a petroleum licence must act in accordance with the current strategy or strategies when—
(a) planning and carrying out activities as the licence holder, and(b) making commercial arrangements which relate to the person’s activities as the licence holder (in so far as this does not fall within paragraph (a)). (2) A person who is an operator under a petroleum licence must act in accordance with the current strategy or strategies when—
(a) planning and carrying out activities as the operator under the licence, and(b) making commercial arrangements which relate to the person’s activities as the operator under the licence (in so far as this does not fall within paragraph (a)).(3) A person who is the owner of upstream petroleum infrastructure must act in accordance with the current strategy or strategies when—
(a) planning and carrying out the person’s activities as the owner of upstream petroleum infrastructure (including the development, construction, deployment and use of the infrastructure), and(b) making commercial arrangements which relate to the person’s activities as the owner of upstream petroleum infrastructure (in so far as this does not fall within paragraph (a)).(4) A person must act in accordance with the current strategy or strategies when planning and carrying out the commissioning of upstream petroleum infrastructure.
9D Reports by the Secretary of State
(1) As soon as practicable after the end of each reporting period, the Secretary of State must—
(a) consider the extent to which, during that period, these persons have followed section 9C by acting in accordance with the current strategy or strategies—(i) licence holders,(ii) operators under petroleum licences,(iii) owners of upstream petroleum infrastructure, and(iv) persons planning and carrying out the commissioning of upstream petroleum infrastructure; and(b) produce a report on the results of the consideration of that question.(2) The report may contain other material, including a statement of action which the Secretary of State has taken, or is proposing to take, in response to any matter included in the report (including changes to a strategy).
(3) The Secretary of State must publish, and lay before each House of Parliament, a copy of each report produced under this section.
(4) In this section “reporting period” means—
(a) the period of two years beginning with the day when this section comes into force, and(b) each subsequent period of one year beginning with the day after the end of a previous reporting period.9E Secretary of State’s security and resilience functions
(1) This Part does not limit the exercise of the Secretary of State’s security and resilience functions.
(2) This Part is subject to the exercise of the security and resilience functions by the Secretary of State.
(3) In this section “security and resilience function” means any function which relates to—
(a) the security of petroleum supplies, or(b) the resilience of the petroleum industry.9F Producing and revising a strategy
(1) The Secretary of State must produce the first strategy before the end of the period of one year beginning with the day on which this section comes into force.
(2) The Secretary of State may subsequently—
(a) produce a new strategy, or(b) revise a current strategy,whenever the Secretary of State thinks appropriate. (3) The Secretary of State must review each current strategy before the end of each relevant four year period.
(4) In reviewing a current strategy, the Secretary of State must (in particular) take account of the results of any consideration undertaken under section 9D in respect of reporting periods falling within the relevant four year period.
(5) In this section “relevant four year period”, in relation to a current strategy, means a period of four years beginning with—
(a) the date on which the strategy was issued, or(b) if later, the date on which the last review under subsection (3) was concluded.9G Procedure for producing and revising a strategy
(1) Before—
(a) producing the first strategy,(b) producing a new strategy, or(c) revising a current strategy,the Secretary of State must prepare a draft of the strategy or revised strategy.(2) The Secretary of State must—
(a) consult such persons as the Secretary of State thinks appropriate about the draft, and(b) consider any representations made by them.(3) If, after complying with that duty, the Secretary of State decides to proceed with the draft (in its original form or with modifications), the Secretary of State must lay a copy of the draft before each House of Parliament.
(4) The Secretary of State may not take any further steps in relation to the draft if, within the 40 day period, either House resolves not to approve the draft (a “negative resolution”).
(5) If neither House passes a negative resolution, the Secretary of State may issue the strategy or revised strategy in the form laid before Parliament.
(6) The strategy or revised strategy comes into force on the date specified by the Secretary of State (which must not be before the date when it is issued).
(7) Subsection (4) does not prevent a new draft of a strategy or revised strategy from being laid before Parliament.
(8) In this section “40 day period”, in relation to the draft of a strategy or revised strategy, means the period of 40 days beginning with the day on which the draft is laid before Parliament (or if the draft is not laid before each House on the same day, the later of the 2 days on which it is laid).
(9) For the purposes of calculating the 40 day period, no account is to be taken of any period during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days.
9H “Upstream petroleum infrastructure” and its owners
(1) In this Part “upstream petroleum infrastructure” means—
(a) a gas processing facility,(b) an oil processing facility, or(c) an upstream petroleum pipeline,if and in so far as it meets conditions A and B.(2) A facility or pipeline meets condition A if and in so far as it is situated in Great Britain or relevant UK waters.
(3) A facility or pipeline meets condition B if and in so far as it is used in relation to UK petroleum (including such petroleum after it has been got).
(4) But an upstream petroleum pipeline is not “upstream petroleum infrastructure” if it is a pipeline to which section 17GA applies (petroleum pipelines subject to Norwegian access system).
(5) In this section, the following expressions have the same meanings as in Chapter 3 of Part 2 of the Energy Act 2011 (see section 90 of that Act)—
(a) “gas processing facility”; (b) “oil processing facility”;(c) “upstream petroleum pipeline”.(6) In this Part, “owner”, in relation to upstream petroleum infrastructure, means—
(a) a person in whom the pipeline or facility is vested;(b) a lessee and any person occupying or controlling the pipeline or facility; and(c) a person who has the right to have things conveyed by the pipeline or processed by the facility.9I Other interpretation
In this Part—“current strategy”, in relation to any particular time, means a strategy under section 9A(2) in force at that time;
“operator under a petroleum licence” means a person who is responsible for organising or supervising any of the operations of searching for, boring for, or getting UK petroleum in pursuance of the petroleum licence;
“owner”, in relation to upstream petroleum infrastructure, has the meaning given in section 9H;
“petroleum” has meaning given in section 1;
“petroleum licence” means a licence granted under—
(a) section 3 of this Act, or(b) section 2 of the Petroleum (Production) Act 1934;“principal objective” has the meaning given in section 9A;
“relevant UK waters” means—
(a) the territorial sea adjacent to the United Kingdom, and(b) the sea in any area designated under section 1(7) of the Continental Shelf Act 1964;“UK petroleum” means petroleum which for the time being exists in its natural condition in strata beneath relevant UK waters;
“upstream petroleum infrastructure” has the meaning given in section 9H.””
Baroness Verma
“Levy on holders of certain energy industry licences
(1) The Secretary of State may, by regulations, provide for a levy to be imposed on, and be payable by, one or more of the following kinds of persons—
(a) persons who hold licences under section 2 of the Petroleum (Production) Act 1934 or licences under section 3 of the Petroleum Act 1998 (exploitation of petroleum);(b) persons who hold licences under section 4 of the Energy Act 2008 (unloading and storing gas);(c) persons who hold licences under section 18 of the Energy Act 2008 granted by the Secretary of State (storage of carbon dioxide).(2) No licensing levy is to be imposed in respect of a time which falls after the end of the period of 3 years beginning with the first day of the first charging period.
(3) The Secretary of State must exercise the power conferred by subsection (1) so as to secure—
(a) that the total amount of licensing levy which is payable in respect of a charging period does not exceed the costs incurred by the Secretary of State in exercising the relevant functions in respect of that period; and (b) that no levy is payable in respect of costs incurred in any exercise of relevant functions for which a charge is payable under the Gas and Petroleum (Consents) Charges Regulations 2013 (as those Regulations stand when this section comes into force).(4) In determining for the purposes of subsection (3)(a) the total amount of licensing levy payable in respect of a charging period, an amount of levy payable in respect of that period may be ignored if (during that period or subsequently)—
(a) having been paid, it is repaid or credit for it is given against other licensing levy that is payable; or(b) having not been paid, the requirement to pay it is cancelled.(5) The “relevant functions” referred to in subsection (3) are—
(a) functions under the following enactments—(i) the Pipe-lines Act 1962 (cross-country pipe-lines);(ii) section 3 and the other provisions of Part 1 of the Petroleum Act 1998 (exploitation of petroleum);(iii) Part 1A of the Petroleum Act 1998 (maximising economic recovery of UK petroleum);(iv) Part 3 of the Petroleum Act 1998 (submarine pipelines);(v) Part 4 of the Petroleum Act 1998, in so far as the functions concern reduction of the costs of abandonment of offshore installations and submarine pipelines;(vi) section 4 and the other provisions of Chapter 2 of Part 1 of the Energy Act 2008 (importation and storage of combustible gas);(vii) section 18 and the other provisions of Chapter 3 of Part 1 of the Energy Act 2008 (storage of carbon dioxide);(viii) Chapter 3 of Part 2 of the Energy Act 2011 (upstream petroleum infrastructure);(b) carrying out policy work on matters relating to UK petroleum and its recovery;(c) providing advice and assistance to the petroleum industry on matters relating to UK petroleum and its recovery;(d) collaborating with the petroleum industry on matters relating to UK petroleum and its recovery;(e) acquiring, using and supplying information on matters relating to UK petroleum and its recovery;(f) encouraging development of the petroleum industry in relation to the recovery of UK petroleum;(g) carrying out, or providing advice and assistance to those carrying out, research and development in relation to technology and products relevant to the recovery of UK petroleum;(h) functions which relate to— (i) the security of petroleum supplies, or(ii) the resilience of the petroleum industry;(i) international co-operation on matters relating to UK petroleum and its recovery, including—(i) resolution of disputes relating to the entitlements of different countries in relation to petroleum fields, and(ii) openness and accountability in the management of natural resources.(6) The matters relating to UK petroleum and its recovery which fall within paragraphs (b), (c), (d) and (e) of subsection (5) include—
(a) maximising the economic recovery of UK petroleum, and(b) improving the supply chain of UK petroleum. (7) The amount or amounts of licensing levy payable by licence holders must be—
(a) set out in the regulations, or(b) calculated in accordance with a method set out in the regulations.(8) The licensing levy is payable to the Secretary of State.
(9) Schedule (The licensing levy) (the licensing levy) has effect.
(10) Schedule (The licensing levy) does not limit the provision that may be made by regulations under this section.
(11) The Secretary of State may, by regulations, amend subsection (3)(b) by adding, removing or amending a reference to any regulations made under section 188 of the Energy Act 2004.
(12) In this section and Schedule (The licensing levy)—
“charging period” means a period in respect of which licensing levy is payable;
“licensing levy” means the levy provided for in regulations under this section;
“UK petroleum” means petroleum (within the meaning given in section 1 of the Petroleum Act 1998) which for the time being exists in its natural condition in strata beneath—
(a) the territorial sea adjacent to the United Kingdom, and(b) the sea in any area designated under section 1(7) of the Continental Shelf Act 1964.”
Baroness Worthington
My Lords, I am grateful to the noble Baroness for describing her amendment and will comment briefly on the group. Starting with the last point about making administrative changes to the way the RHI works through the negative process, I do not think that is necessary—we are not there yet and I would not support it. One of the benefits we have had over the last year or two as we have been talking about the RHI is that we have had regular opportunities to discuss the issue. It is definitely not the case that everything is hunky-dory and that we can just forget about it and let it all roll on. There are still some quite important issues, and we will need to return to them and have parliamentary scrutiny over them.
Having said that, it is also true that there are some issues with the RHI that we need to see streamlined. I do not wish to sustain a bureaucratic and complex jungle of regulations, but this is a complex piece of legislation and removing parliamentary scrutiny is not going to resolve that. It is fundamentally about improving the policy over time as we become more comfortable with what the RHI is delivering. The other reason for not supporting that element of the amendment is that, unlike the RO and the FITs, this is money from the public purse and therefore requires a higher degree of public scrutiny.
I was interested to see this amendment last night, but I am afraid that I did not get a chance to speak to the noble Baroness beforehand about the background to it. Not so long ago I was at a party when someone came up to me and said, “We have just installed a renewable heat boiler”. I will not reveal any names, but the person was concerned that in order to get it going, they had had to work around the regulations as they stood because of the restriction on who can receive payments and the fact that it is not the same as self-owned or self-installed renewable technologies. I would be interested to learn about the background to this amendment and certainly I will be interested to hear what the Minister has to say in response to it. It is about flexibility around the finances that are required for what are often quite capital-intensive projects. The funding has to be arranged in a flexible way so that people who do not have a lot of capital upfront are still able to engage with the RHI through arrangements that may not be standard. There is something here that I would strongly recommend the noble Baroness to look at and perhaps come back to us. As I say, it is a simply a coincidence that someone raised this issue with me personally.
On whether Ofgem is the right body to deal with this, well, if we have a Labour Government we will not have an Ofgem, so we can revisit that question then. We will certainly have a regulator, but we will look again at how these things are taken care of. Again, I thank the noble Baroness for tabling the amendment and I look forward to the Minister’s response.
Baroness Verma
My Lords, I thank my noble friend Lady Eaton for her amendment and I thank the noble Baroness for her comments. I know that we have discussed these issues on many an occasion in the Moses Room. Of course we want to make sure that the scheme is as efficient and cost-effective for the taxpayer as it possibly can be. It should deliver the benefits that have been so clearly outlined, which is something that the Government are strongly keen on pursuing.
Perhaps I may respond to my noble friend on using an alternative to Ofgem. We have seen Ofgem already successfully administering a number of schemes for the department through Ofgem E-Serve, including both the domestic and non-domestic RHI, the Renewables Obligation and feed-in tariffs. Ofgem has significant expertise in the area and has experience of running these programmes. It is also frequently evaluated to ensure that lessons are learnt both by the body and the department in order to improve the customer experience and value for money in policy administration. I think that Ofgem is the right body to be the administrator for these tools. The Government want the best kind of body to reach out to consumers. However, I take the points she raised and, listening to the noble Baroness, we have discussed on many occasions how we can improve the process. It is, of course, a complex tool so we need to ensure that it does not inadvertently exclude the very people who we are trying to assist and help.
As with all things, I must look at the upsides and the downsides of my noble friend’s amendment. What I would like to do is take it away and consider it. The amendment seems very sensible, but I would prefer to give it some thought first. Perhaps I may come back to her on Report with some further consideration.
Baroness Eaton
I thank the noble Baroness, Lady Worthington, for her comments and my noble friend for responding so carefully and thoughtfully to my amendment. I appreciate the fact that it will be considered and look forward to hearing her comments on Report. I beg leave to withdraw the amendment.