Infrastructure Bill [HL]

Baroness Verma Excerpts

Tuesday 14th October 2014 Grand Committee

Moved by

[Baroness Verma]

95ZBC: Before Clause 28, insert the following new Clause—
“Petroleum and geothermal energy: right to use deep-level land
(1) A person has the right to use deep-level land in any way for the purposes of exploiting petroleum or deep geothermal energy.
(2) Land is subject to the right of use (whether for the purposes of exploiting petroleum or deep geothermal energy) only if it is—
(a) deep-level land, and(b) within a landward area.(3) But that does not prevent deep-level land that is within a landward area from being used for the purposes of exploiting petroleum or deep geothermal energy outside a landward area.
(4) Deep-level land is any land at a depth of at least 300 metres below surface level.
(5) This section confers the right to use Scottish deep-level land for the purposes of exploiting deep geothermal energy only in cases where the sole, or main, use of that energy is to be, or is, the generation of electricity.”

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, in the UK, gas provides around three-quarters of our heating needs and a third of our electricity. However, North Sea gas is declining. By 2025 we expect to be importing close to 70% of the gas we consume. Natural gas from shale could play a crucial role in supporting UK energy security, building on our 50-year history of onshore oil and gas exploitation. I ask noble Lords to bear that in mind when weighing up the amendments we lay before the House today. I know some will, rightly, raise concerns about the impact of shale gas development on our climate goals. I see shale as a part of the transition to a low-carbon economy.

Shale gas has a role to play in this. The carbon footprint of UK-produced shale gas would likely be significantly less than coal and also lower than imported liquefied natural gas. As the Committee on Climate Change said last year, for flexible power supply and for heating and industrial use, the UK will,

“continue to use considerable, albeit declining, amounts of gas well into the 2030s”,

which will leave,

“a considerable gap between production of North Sea gas and our total demand”.

It argues that this demand,

“can either be met through imports or UK production of shale gas”,

and concludes that,

“if anything, using well-regulated UK shale gas to fill this gap could lead to lower overall lifecycle greenhouse gas emissions than continuing to import LNG. It would also increase the proportion of energy produced within the UK, improving our energy sovereignty”.

So the benefit to the UK of using home-grown shale gas is clear. It can displace a proportion of gas and oil imports. We have to face it: North Sea gas production is falling and we are becoming increasingly reliant on gas imports. Domestic shale gas could increase our energy security by cutting those imports. It can benefit the UK in terms of jobs, tax revenues and growth, mitigating some of the falling revenues from the North Sea. Ernst & Young’s recent supply chain report found that the industry could support around 64,000 direct and induced jobs. It can support the UK’s transition to a low-carbon economy by helping balance the intermittent supply of renewable energy.

The Government therefore support the development of shale gas and oil. However, it has become clear that difficulties in obtaining underground access pose a barrier to exploring this new industry. The same problem also applies to the deep geothermal industry, which is likewise at an early stage of development in the UK. There is growing interest in the role that geothermal district heating networks could play as part of the transition to low-carbon heating.

Currently, petroleum and deep geothermal energy companies must attempt to negotiate an access agreement with each landowner through whose land activities pass, no matter how deep the works. For new lateral drilling methods which can cover much larger areas underground, existing means of obtaining underground access can be disproportionately costly and time-consuming in relation to the potential benefits. Where a single landowner, or a group of landowners, refuses access, this can create significant delay and in the case of geothermal is likely to stop the project entirely. This is despite the fact that allowing underground access at depths below 300 metres is unlikely to affect the landowners’ use of their land.

These amendments therefore seek to simplify the current process by granting use of land below 300 metres in order to access petroleum and geothermal resources. Let me be crystal clear: we are not proposing any changes to surface access or to the regulatory system that deals with the potential risks associated with drilling and hydraulic fracturing. These regimes will remain the same. The Government have been clear that shale development must be safe and environmentally sound. A company looking to develop shale or geothermal would still need to obtain all the necessary permissions, such as planning and environmental permits. In addition, the onshore oil and gas industry has committed to engage with communities early at each stage of operations, as well as consulting through the planning application process. I reassure noble Lords that there are robust regulations in place to ensure on-site safety, prevent water contamination, mitigate seismic activity and minimise air emissions, and the Government are not proposing to change them.

The government amendment before the Committee follows a 12-week public consultation on our proposals. The consultation attracted a large number of responses and provided an opportunity for the public to voice their concerns. The majority of respondents included campaign text opposing hydraulic fracturing or the proposed change to underground access legislation but did not specifically address the questions to the consultation. Surveys have shown higher public support. For instance, a recent University of Nottingham survey shows that among people who are aware of shale gas, support is more than 50% and more people support its extraction than oppose it. Support for the consultation proposals among stakeholder organisations that provided detailed responses on specific issues was considerably higher than the individual responses. Stakeholder responses from the petroleum and geothermal industry unanimously supported the legislation, as did wider industry, such as manufacturing, the steel industry and engineering associations. There were diverse views among local authorities and land and farmers’ associations, with a majority of local authorities and consultancies in favour of the proposal. Most public institutions and law societies remained neutral to the proposal, often agreeing with the proposal’s rationale, but raising specific issues. Environmental groups and various civil society organisations opposed legislation. Having carefully considered the various issues raised within the consultation responses and whether any compelling new arguments had been presented, we firmly believe that the proposed policy is the right approach. The full government response has been published on our consultation website.

I will now outline our proposals, as set out in these clauses. The first new clause seeks to introduce a right to use land at least 300 metres below the surface for the purpose of exploiting petroleum or deep geothermal energy. The right is limited to these purposes. For deep geothermal energy, the right to use Scottish deep-level land is limited to cases where the sole, or main, use of that energy is the generation of electricity.

The second new clause provides details on the scope of the right of use, and further clarifies the types of ways in which the right may be exercised and the sorts of purposes for which it may be exercised. This clause includes references to passing substances through or into land at depth and includes leaving substances in that land. This applies only in relation to the use of the land for the purposes of exploiting petroleum or deep geothermal energy, so it would not, for example, create any provision for nuclear waste. It does not replace any of the existing regulatory regime, so an operator will still require all the necessary permissions, like planning and environmental permits. Indeed, this clause also ensures that the provisions grant only a right of use and nothing more, so companies will have to comply with existing regulatory requirements.

The third new clause provides the Secretary of State with a delegated power to require companies, by regulation, to make payments to landowners under whose land the right is exercised or other persons as defined by the regulation in return for the right of use. The regulation may also introduce a requirement for companies to provide specified information on these payments. The provisions are included only as a reserve power because both industries have made voluntary commitments to make a one-off payment of £20,000 to affected communities for each unique lateral well that extends by more than 200 metres. The key advantage of such a voluntary approach is to enable flexibility on the detailed arrangements. Different sites may require different arrangements depending on their characteristics. However, in case these voluntary payment schemes are not honoured, this clause will ensure that the Secretary of State can through regulation render them mandatory. Any such regulation will be subject to prior consultation.

The fourth new clause provides for a similar delegated power for a notice scheme. As with the payment scheme, the details of a statutory notification scheme would be set out in regulations following consultation. For now, both industries have committed to notifying communities of works taking place at depth, outlining the area of underground land accessed and the payment to be made. At this very early stage in the development of the shale gas, shale oil, and deep geothermal industries, the typical characteristics of a site and the typical timeframe for development are unknown. We cannot with certainty foresee the way in which industries’ activities will develop in different areas across the UK. A voluntary notification scheme is flexible so it can be adapted as the industries develop. The reserve power to create a statutory notification scheme would be applied only in case the voluntary approach proves not to be satisfactory.

The new fifth clause contains supplementary provisions concerning the powers to introduce payment and notice schemes. The clause contains provisions for the enforcement of statutory payment and notice schemes, including financial penalties for companies that breach the requirements. It also permits statutory schemes to confer functions on certain people, including the Secretary of State, such as a duty, or a requirement to consult. A sunsetting provision is included, which provides that the Secretary of State must review the payment and notice scheme provisions after five years and repeal the relevant sections if a power is not exercised within seven years and if the Secretary of State is satisfied there is no convincing case for retaining it. The Delegated Powers and Regulatory Reform Committee has recommended that regulations made by the Secretary of State to repeal these provisions be subject to the affirmative resolution procedure, and we will be looking to table an amendment to this clause before Report to that effect.

The sixth clause contains the relevant definitions and interpretations. Areas that are “onshore” are currently identified by the definition of “landward area” in regulations made under the Petroleum Act 1998. This clause includes a power to make changes to that definition.

Finally, the amendments seek to update Clauses 28 to 31 to reflect the inclusion of the new clauses on the right of use, and set out matters such as when the new clauses will come into force. We have also introduced an amendment to update the Title of the Bill.

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I will end there. This is a question of balance. We do not wish to impede activities that can improve our security of supply, but we need this to be done in the context of robust regulation. Unfortunately, I do not think that that is the spirit that has prevailed to date. These amendments address a very narrow aspect of fracking and there is not really anything here from the Government on the environmental aspects. That is regrettable. We have tabled amendments that seek to address that and we will debate those shortly.

[Baroness Verma]

My Lords, I thank all noble Lords, in particular my noble friends Lord Borwick, Lord Teverson and Lord Jenkin, for their support for the amendments. The debate has been informative and measured. I hope, in responding to the amendments, that I can reassure noble Lords and address some of the concerns that have been raised. If I do not satisfy noble Lords today I will read Hansard and write back to them in fuller detail.

The amendment in the name of the noble Baroness, Lady Young of Old Scone, would exclude these proposals at a range of locations, including national parks, the Broads and areas of outstanding natural beauty. She called them the jewels of our great country. Companies will still need all their other permissions to be in place before accessing underground land. Sensitive areas would be protected in exactly the same way as they are now. The Government have recently clarified the strong protections that exist for these areas. Where applications represent major development, planning permission can and should be refused in national parks, the Broads and areas of outstanding natural beauty except in exceptional circumstances where it can be demonstrated they are in the public interest.

Applicants for licences will also have to show that they understand the environmental sensitivities of the area applied for and are ready and geared up to address them. They will have to consider the implications of the new planning guidance. We do not intend to include any exemptions to these in our proposals, because we believe that the existing regimes have already been clarified to allow for these sensitivities.

The noble Baroness also asked whether this clause would lead to water shortages. Where water for fracking operations has been provided by local water companies, they are obligated to produce and update every five years a long-term plan that has contingency reserves in case of drought. Therefore, water companies will always assess the amount of water available before providing it to operators. The Environment Agency has said that it will not license abstraction above environmentally sustainable levels. The amount of water used for fracking is controlled by an abstraction licence specifying the maximum amount that can be used.

My noble friend Lord Jenkin very eloquently laid out the potential of geothermal—far better than I did. His amendment proposes to extend the right to use deep-level land for geothermal energy where the main use of that energy is, or will be, the generation of heat, as well as electricity. He also asked about Scotland. My noble friend the Duke of Montrose was able to respond to and answer that question for me by saying that the amendment includes geothermal energy for the purpose of electricity generation because, under the Scotland Act 1998, generation is a reserved matter. So the use of deep geothermal energy for other purposes is devolved to the Scottish Government and, for that reason, we have had to exclude it from clauses; however, we are in discussion with the Scottish Government as to whether they wish to extend the scope to cover this area of heat generation.

My noble friend Lord Borwick asked why we used the word “petroleum”. Licences to exploit oil and gas in the UK are awarded under Section 3 of the Petroleum Act 1998, and that Act permits the Department of Energy and Climate Change to grant licences to search for, bore for and get petroleum. So we use “petroleum” in the context of the Bill because the licences granted to operators are petroleum licences under the 1998 Act.

I turn to the amendments of the noble Baroness, Lady Worthington, to which the noble Lord, Lord Davies, has put his name. The purpose is the production of a report on fugitive greenhouse gas emissions from onshore energy extraction, and that the report be produced six months after the passing of this Bill, and will include,

“monitoring, reporting and managing of existing and future fugitive emissions”.

I draw noble Lords’ attention to the fact that these fugitive emissions are reported already at a national level on an annual basis, as part of the UK Greenhouse Gas Inventory. The detailed methodologies and data sources used to inform these emission estimates are provided in that report, which is publicly available.

The noble Baroness of course raises the concerns of certain groups, and we should take all concerns raised by all people very seriously. However, we must remain committed to ensuring that we work absolutely to the rigour of the regulators. As I set out in my opening remarks, fracking will enable us to reduce our carbon footprint. I know that both the noble Baroness and I share concerns about environmental impact, and we work hard and closely together. I am very pleased that the Opposition agree that we want to ensure, first and foremost, that it is environmentally acceptable to reduce our carbon footprint and work towards reducing carbon emissions. I have certainly never felt that the Government have seen fracking as the silver bullet. What I have seen and heard many times over is that it is part of the wider energy mix that we need to have in our country to ensure that we have energy security and less dependency on outsourcing it from international markets.

I turn to the amendment proposed by the noble Lord, Lord Whitty, for the establishment of a contingency fund by undertakings engaged in the onshore oil and gas industry in order to meet the cost of any environmental or economic damage caused as a result of onshore oil or gas activities. Let me make it clear that the operator is liable for the shale gas well and any damage or pollution it may cause. When operations finish, the operator is responsible for safe decommissioning of the well and for restoring the site to its previous state or suitable condition for reuse. Regulators and controls are in place to minimise risks and any impact on landowners. Any one of these regulators will consider individual concerns about impacts, as far as they fall within their responsibilities. If any environmental damage were to occur, then, in accordance with statutory requirements and government policy, remediation of the damage would be dealt with under the main regimes for dealing with contamination. These regimes provide for the remediation of environmental damage and contaminated land, including water, and apply to the extraction of both petroleum and deep geothermal energy. Taken together, if a company causes damage, harm or pollution to the environment, companies can be required under these regimes to remediate the effects and prevent further damage or pollution. This is the same approach that applies to other industries and we believe that the existing law is robust.

At present, if a shale gas operator becomes insolvent and no rescue mechanism for the company can be found, in limited circumstances the liability could ultimately pass to the landowner. Environmental regulators and planning authorities have the power to require upfront financial bonds to address this risk wherever they deem this necessary. This is more expensive for companies than a group scheme would be but it provides the reassurance that neither taxpayers nor landowners will be left to foot the bill. As a less expensive alternative to upfront bonds, my department has been working with the industry’s trade body, the UKOOG, the onshore operators group, to ensure the development of an industry scheme that will step in and pay for the liabilities in this situation and any other where the liable company cannot be identified.

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Moved by

[Baroness Verma]

95ZBF: Before Clause 28, insert the following new Clause—
“Further provision about the right of use
(1) The ways in which the right of use may be exercised include—
(a) drilling, boring, fracturing or otherwise altering deep- level land;(b) installing infrastructure in deep-level land;(c) keeping, using or removing any infrastructure installed in deep-level land;(d) passing any substance through, or putting any substance into, deep-level land or infrastructure installed in deep- level land;(e) keeping, using or removing any substance put into deep-level land or into infrastructure installed in deep-level land.(2) The purposes for which the right of use may be exercised include—
(a) searching for petroleum or deep geothermal energy;(b) assessing the feasibility of exploiting petroleum or deep geothermal energy;(c) preparing for exploiting petroleum or deep geothermal energy;(d) decommissioning, and other activity which falls to be continued or undertaken, in consequence of activities undertaken for the purposes of exploiting petroleum or deep geothermal energy.(3) The right of use includes the right to leave deep-level land in a different condition from the condition it was in before an exercise of the right of use (including by leaving any infrastructure or substance in the land).
(4) The right of use—
(a) does not give a person (“R”) any power which is greater than, or different from, the power which R would have had if the right had been granted by a person legally entitled to grant it; and(b) does not relieve a person (“R”) from any obligation or liability to which R would have been subject if the right had been granted by a person legally entitled to grant it.(5) Section (Petroleum and geothermal energy: right to use deep-level land) and this section bind the Crown.”

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Moved by

[Baroness Verma]

95ZBG: Before Clause 28, insert the following new Clause—
“Payment scheme
(1) The Secretary of State may, by regulations, require relevant energy undertakings to make payments in respect of the proposed exercise, or exercise, of the right of use.
(2) The regulations may require payments to be made—
(a) to owners of relevant land or interests in relevant land;(b) to other persons for the benefit of areas in which relevant land is situated.(3) The regulations may—
(a) specify the amount or amounts of payments;(b) make provision for determining the amount or amounts of payments.(4) The regulations may require relevant energy undertakings to provide the Secretary of State, or any other specified person, with specified information about—
(a) the proposed exercise, or exercise, of the right of use;(b) the making of payments in accordance with regulations under this section.(5) Before making any regulations under this section, the Secretary of State must consult such persons as the Secretary of State considers appropriate.”

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Moved by

[Baroness Verma]

95ZBJ: Before Clause 28, insert the following new Clause—
“Notice scheme
(1) The Secretary of State may, by regulations, require relevant energy undertakings to give notice of the proposed exercise, or exercise, of the right of use.
(2) The regulations may require relevant energy undertakings—
(a) to give notice—(i) to owners of relevant land or interests in relevant land;(ii) to persons of other specified descriptions;(b) to display notice within the area in which relevant land is situated or elsewhere;(c) to publish notice (otherwise than by displaying the notice).(3) The regulations may make provision about the information which the notice is to contain, including provision about information relating to—
(a) any payment scheme regulations which are in force;(b) the application of any payment scheme regulations to the proposed exercise, or exercise, of the right of use;(c) the method for obtaining a payment under any payment scheme regulations.(4) The regulations may make provision about the manner in which notice is to be given, displayed or published, including provision requiring notice to be—
(a) displayed at specified places or places of specified descriptions;(b) published in specified publications or publications of specified descriptions.(5) The regulations may require relevant energy undertakings to provide the Secretary of State, or any other specified person, with specified information about—
(a) the proposed exercise, or exercise, of the right of use;(b) the giving of notice in accordance with regulations under this section.(6) Before making regulations under this section, the Secretary of State must consult such persons as the Secretary of State considers appropriate.
(7) In this section “payment scheme regulations” means regulations under section (Payment scheme).”

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[Lord Whitty]

My Lords, I want to underline one point under Amendment 95ZBN, which will be tedious because it was raised during the course of the passage of the Water Bill, on the role of water companies. I understand the exasperation of my noble friend Lord Young and the noble Lord, Lord Borwick, who referred in similar terms earlier to scares being raised about shale gas, and their not necessarily being very scientifically based. However, I do not think that Thames Water or Severn Trent Water fall into the category of scaremongering green organisations. They really ought to be brought into this process, because the biggest anxiety is about the effects on the water system and giving the water companies a statutory consultee role would help to reassure a number of people about the effect of fracking operations on the water supply. I therefore hope that proposed new subsection (3) in that amendment is adopted by the Government.

[Baroness Verma]

My Lords, again, I am extremely grateful for the measured way in which this debate is taking place and for the very eloquent way in which noble Lords have presented their arguments, whether supporting what the Government are doing or raising amendments to show concerns. I welcome the spirit behind the amendments, which are aimed at ensuring that environmental safety is fully protected throughout the shale gas extraction process and reassuring the public that that is the case. My noble friend Lord Borwick said that to enable trust we need to ensure that the regulators are presenting a trustworthy way in which to approach the regulatory system.

We have among the most trusted regulators in the world. The commitments the regulators—the Environment Agency and so forth—have undertaken has allowed the debate to become much more measured.

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[Baroness Worthington]

My Lords, I thank the Minister for her response although, again, I am not wholly reassured. Particularly, one of her final comments served to illustrate why there is a level of distrust in the current approach. Put simply, if you leave it to the operators to do everything on a voluntary basis, including paying for all of this, where is your reassurance that it is done to the correct standards? Obviously, a profit motive drives this. Let us not try and beat about the bush. This is about not UK sovereignty of energy but shareholders and people making money. If you ask them to pay for monitoring, they will do monitoring in the best way they think fit. That may well be simply a handheld device or the very minimal level of monitoring, which will not be good enough to establish whether we have a problem, either in terms of establishing the baseline or keeping on monitoring against it.

[Baroness Verma]

Of course, the Environment Agency has to be satisfied. As the noble Baroness is aware, it is among the toughest of the regulators we have.

[Baroness Worthington]

Absolutely, but the noble Baroness will also be aware that it is under quite considerable pressure in terms of its budget. This is an additional new task that it is being asked to perform but is it being given the budget to do it properly?

[Baroness Verma]

Again, I apologise for intervening but I should like to reassure the noble Baroness that the Environment Agency has reassured us that it has adequate resources.

[Baroness Worthington]

Then perhaps my anecdotal point about the money being asked for in order to do the very best in laser monitoring is not true. Perhaps we can have some more correspondence about that before Report.

I will not dwell on this for too long. I think it is fine to say that we are going to take a risk-based approach but exactly how are we going to do this, what level of monitoring will be done and how are the Government going to keep monitoring all these voluntary approaches that are being proposed—voluntary EIAs, for example? The industry can say that but are the Government monitoring whether applications are going in at a local authority level without EIAs? I have certainly had representation from groups saying that they are going in without publicly available impact assessments. I hope that that is not the case but my sense is that the Government are taking rather a lackadaisical approach to this in thinking, “Well, if the industry says it’s doing it, it must be doing it, so that’s fine”. I am afraid that that is not how you engender trust.

I hope that more can be said about the role of the water companies as well. It is not just us who think that they should be statutory consultees; this is coming from Water UK. Therefore, it is certainly something that the Government should take seriously. Of course, if the water companies are required to make a response, they do not have to make it a voluminous response; it can be very short. However, they will then at least be part of the process and there will not be the potential for them not to be involved, which would severely weaken the level of information and knowledge that local planning officers have.

I shall leave it there. I am sure that we will return to this on Report but, at this stage, I am happy to beg leave to withdraw the amendment.

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[Lord Oxburgh (CB)]

My Lords, briefly, I support the thinking behind the amendment. I have two points. There has been significant discussion of the gas price and the coal price. One should bear in mind that both of these could go up and down fairly dramatically. It is quite likely that the shale gas price in the US will rise, simply because the majority of the shale gas in the US resource is not economically exploitable at the present price of between $3 and $4. This is not of great importance, except to emphasise that coal and gas can change. It is important that we see the long-term perspective here and that we do not legislate now on the basis of how these prices look today.

I am not sure that the wording that we have here is right, but the Government need to come back to the House and let us know how they are actually going to meet their obligations under the Climate Change Act in the light of the elevation of the carbon price and the other considerations to which noble Lords have drawn attention.

[Baroness Verma]

My Lords, I am grateful to the noble Baroness for tabling these amendments. I know that many of us heard the well rehearsed arguments during the passage of the Energy Bill. I agree with the noble Lord, Lord Whitty; I do not think it was four years, although it probably felt like four years. Whatever, we all got a lot of grey hairs from it—I remember that.

The measures in the Bill and our electricity market reforms have demonstrated that they are already working and starting to deliver new investment in electricity infrastructure: a clear demonstration of industry confidence. In April, we announced the allocation of the first contracts for difference to eight renewables projects. These projects included offshore wind, coal-to-biomass conversions and a dedicated biomass plant with combined heat and power. By 2020, these projects alone will be able to provide up to £12 billion of private sector investment, supporting 8,500 jobs, and could add a further 4.5 gigawatts of low-carbon generation capacity to Britain’s energy mix. This builds further on the major growth in the UK’s renewable electricity sector that we have seen, with capacity more than doubling since 2010 and with renewables now providing around 15% of our electricity. I wanted to point that out before I came back to the noble Baroness’s amendment.

We recognise that the intent behind the Energy Bill amendment was to achieve outcomes broadly consistent with those to which the Government are firmly committed. The potential uncertainties of applying the EPS in the way proposed by the amendment, on balance, pose risks that the Government should be unprepared to take.

The noble Baroness has already helpfully explained that existing coal-fired power stations will need to invest in fitting equipment in order to meet the requirements of the EU industrial emissions directive. That directive succeeds the large combustion plants directive and sets much more stringent limits on emissions of oxides of sulphur and nitrogen from 1 January 2016. However, I recognise that there have been a number of developments since last year as we have set about implementing our electricity market reforms.

I do not share the noble Baroness’s analysis of the current position or her prediction of the future. I am therefore not convinced that in the case of this amendment there is a need to revisit the conclusion reached by both Houses on this point less than a year ago. I do not think that I want to go back and rehearse the arguments made during the debate on the Energy Bill that led to the rejection of the amendment previously. They highlighted the risk that it could lead to a scenario where coal plants closed earlier than might otherwise be necessary to most cost-effectively achieve the decarbonisation of the electricity system. Were this to happen, the need for more generation capacity to be built earlier than we currently project could result in an increased cost to consumers. The noble Baroness may be prepared to risk imposing such unnecessary cost but I am not. The argument in recent months has been how consumers feel about the cost of energy.

I think there is almost unanimous consensus on the need substantially to decarbonise electricity generation by 2030. There is similar consensus that there will be little or no role left for unabated coal generation in future. However, we continue to believe that applying the EPS as proposed by the amendment is unnecessary and potentially a risky intervention to the market. It is our other EMR policies that will work to deliver the outcomes that we all wish to see but without risking our security of supply and ensuring that we are able to give consumers energy at as low a cost as possible.

The noble Lord, Lord Whitty, asked why we allow existing coal stations to participate in the capacity market. We do it so that the market ensures security of electricity supply at the least cost to the consumer. It is important to reiterate that all existing coal plants still need to meet their environmental commitments and will be subject to the carbon price floor. I assure the Committee that it is also about the fact that we have seen 7 gigawatts of new gas plant come forward seeking capacity agreement, which indicates that the capacity market is bringing on new investment.

I am not convinced that we need to revisit this argument. I know that the noble Baroness is absolutely committed to raising this issue again but I hope that I am able to convince her that the steps we are taking in the broader argument are ensuring that we are able to deliver at a cost value to the consumer and that security of supply remains, and that we remain committed to bringing on as much low-carbon energy as possible through the reforms that we have made in the Energy Act. I hope that on that basis she is able to withdraw the amendment.

[Baroness Worthington]

My Lords, I am grateful to the Minister for her reply. I am particularly grateful to the noble Lords who contributed. It is certainly true that the noble Lords, Lord Teverson and Lord Whitty, explained what the amendment does more clearly than I was able to do. For the avoidance of any doubt, we were simply seeking to limit the amount of time that old coal-fired power stations could run so that they did not provide base load power. That is the purpose behind it. It would not mean that they should shut or that they should not upgrade; it would simply mean that we had a mechanism for preventing them from base loading and thereby displacing otherwise clean capacity.

It is true that one of the cheapest ways of reaching a lower carbon intensity is to run your gas stations first and your coal stations as peaking plant; that is just incontrovertible. Every kilowatt hour produced with gas produces half the emissions compared with a coal station. In the act of upgrading these stations, those kilograms of CO₂ per kilowatt hour will increase. That is because it takes energy to run the filters. So we are taking an already inefficient station, making it less efficient and more carbon intensive, all apparently in the interests of keeping the lights on, when, in fact, we have seen that far more capacity than is needed is coming forward. This coal will displace investment in gas if that gas turns out to be more expensive. Therefore, it does not deliver on security of supply, and it does not deliver on cost-effectiveness because it forces us to do more of the more expensive things. We will have to decarbonise in other ways if we do not close coal, and that will be expensive. It is about cost-effectiveness, and that is why we want this amendment.

The Government do not have a coal policy. They do not have a plan for phasing out coal. Everyone can say fine words about it but coal stations are in the ownership and hands of the private sector. If they can make a profit from running these plants, they will. The Government put nothing into the Act dealing with EMR that stopped old coal—in fact, the reverse. They have created a new incentive, and by allowing firms to apply for three-year contracts the Government are paying them to upgrade. Eight gigawatts of coal is a lot of capacity. Eight gigawatts of new gas would engender a large amount of lower-carbon capacity that would be more flexible and, in the long run, cheaper and more reliable.

We listened with great care to the arguments put forward in the previous debate. The world has changed since then, not least—as my noble friend Lord Whitty pointed out—because policies have changed. The Government took the opportunity in the Budget, shortly after Royal Assent, to freeze the carbon price floor, which was a key defence mechanism. I shall not go on any further. This is a fundamental flaw in the Energy Act. I would like to revisit it, and I am not persuaded by the arguments that have been made. However, at this stage, I beg leave to withdraw the amendment.

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[Baroness Verma]

My Lords, as I made clear during previous discussions on the Energy Bill—now the Energy Act—a decision to exercise this power is absolutely not something that should be rushed into or done in isolation. We had some very long discussions around this target so I will not go back and repeat those. But such a target would have a significant implication for the power sector, the so-called “non-traded” sector, for consumers and the wider economy. It is therefore vital to understand fully, based on evidence, whether a target represents the best approach to meeting our economy-wide carbon budgets cost-effectively and, if so, at what level it should be set.

It is for these reasons that the Government have maintained that the right time to consider whether to set such a target is in 2016. That is the point at which, in line with the requirements of the Climate Change Act, we will undertake extensive analysis to set the level of the fifth carbon budget in law which will cover the year 2030. This will allow us to consider the target in the context of the whole economy and what is required to ensure that the UK not only meets its 2050 emissions target but also remains competitive with other member states. In 2016 we will also have a better understanding of how the market will respond to the reforms that this House debated in the passage of the Energy Act and a clearer idea of EU and global climate change ambition. It is about timing. We laid out very clearly that 2016, in line with the fifth carbon budget, is the right time for this. I suspect that the noble Baroness and I will not agree here but I hope that at this point she will withdraw her amendment.

[Baroness Worthington]

My Lords, I do not propose to detain us any longer on this. I listened to that response. I sincerely hope that whoever is in government will set a challenging decarbonisation target in 2016. It would be better if we let the next Government make that decision but I am very happy to withdraw at this stage.

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, I will be very brief. First, I congratulate the noble Lord, Lord Hodgson, on his excellent exposition of a very important concept. We see much merit in it. The one thing that we cannot replicate as far as the Norwegians are concerned is that they launched their fund at a time of great and increasing prosperity. Any Government in power at present or for the foreseeable future in the United Kingdom are not faced with that same position.

Secondly, there is a community dimension to the issue of shale gas. We are all too well aware of the price that local communities might pay in terms of disruption while the shale gas is mined. Thirdly, I emphasise that while we may underestimate how much is there, of course we may overestimate it too. It is much easier to identify how much is there than to actually extract it. Therefore, we must be able to follow the greater balance of optimism that exists in some places. None the less, the Committee ought to be enormously grateful to the noble Lord, Lord Hodgson, for raising this issue. I hope that the Minister will give him a positive response.

[Baroness Verma]

My Lords, first, I thank my noble friend Lord Hodgson for his amendment and for the most eloquent way in which he explained the merits for the Norwegian people of having a sovereign fund. Of course, shale represents a huge economic opportunity for the UK. It could potentially create thousands of jobs, generate significant business investment and provide substantial revenue for the Exchequer in future.

However, unlike the offshore industry in Norway, the shale industry in the UK is still very much in its early stages. The Norwegian Government’s petroleum fund was established in 1990, as my noble friend said, but that was nearly 20 years after oil first started being produced and when the levels of revenue were well known. In the UK, shale gas is still in the exploration phase. My noble friend said that it was a potential but as yet an unknown. The Government will not be able to forecast the scale or timing of shale revenues until more work is done to determine the extent of gas that can be technically and commercially recovered. It would therefore be inappropriate to indicate now how potential future revenue would be used. As a result, the Government have no current plans to assess the possibility of creating a sovereign wealth fund from this revenue.

I recognise the arguments behind this amendment. Diverting future revenues from government finances to a specific shale fund, or one created by revenue from other natural resources, would come at a cost. Shale revenues may also be needed to make up for shortfalls elsewhere. The UK continental shelf is a mature basin and oil and gas revenues from the North Sea are declining; the Government would likely need to either raise additional tax revenue elsewhere or cut spending to maintain the fiscal balance. The Government consider that, in general, hypothecation, or earmarking revenues for a particular spending purpose, is not always an efficient way in which to manage the public finances. Like all government receipts, revenues are remitted to the consolidated fund to support general expenditure. My noble friend Lord Teverson recognised that fact. Once it goes to the Treasury, it becomes slightly difficult to extract it—but that is because of the methods that we have used, whichever Government have been in power. It allows the Government to allocate resources most efficiently across the economy.

I thank all noble Lords for contributing. It has been a very informative debate, which has raised some very important points. The noble Lord, Lord Davies, said in his concluding sentence that I should be sympathetic to this proposal. Is it something that the Labour Party will put in its manifesto for the next general election? It would be interesting to know how that debate would follow.

[Lord Davies of Oldham]

Could I ask the Minister whether she thinks she will put it in her manifesto?

[Baroness Verma]

I have laid out very clearly our position in government. Generally, hypothecation of revenue is not something that we support.

I conclude by recognising that the noble Lord has made some incredibly important points, but I feel that I cannot accept his amendment and hope that he withdraws it.

[Lord Hodgson of Astley Abbotts]

I thank my noble friend. I feared that “inappropriate” and “hypothecation” would be words used in the arguments produced. I am grateful to noble Lords who have taken part in support of the amendment. The noble Lord, Lord Teverson, put his finger on the matter. If we do not set it up when we start, it will never get set up; it either happens now or it will never happen. Once the money starts to flow, no Government will ever take their hands off it, and the Treasury certainly will not. So we either set the framework up now or this will go the same way as North Sea oil.

The argument that my noble friend has not answered at all—it is unanswerable—is about the inter-generational fairness. Why should we spend it all on ourselves? No matter what the situation may be, if we have got ourselves in a hole we should clamber out of it and not try to rob future generations of what they should share with us. I shall not go on any further, but I am disappointed with what my noble friend has said, although I am not surprised. I shall discuss the matter with people who are more sympathetic with what I am trying to achieve and see whether they want to come back to this at a later stage. I beg leave to withdraw the amendment.