Energy Bill [HL]

Baroness Worthington Excerpts

Report stage
Tuesday 28th March 2023 Lords Chamber

[Lord Ravensdale (CB)]

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

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

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

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

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

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

[Baroness Worthington (CB)]

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

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[Baroness Liddell of Coatdyke (Lab)]

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

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

[Baroness Worthington (CB)]

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

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

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

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

[Baroness Blake of Leeds (Lab)]

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

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

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

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Moved by

[Baroness Worthington]

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

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[Baroness Worthington (CB)]

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

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

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

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

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

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

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

[Baroness Sheehan (LD)]

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

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

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[Lord Callanan (Con)]

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

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

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

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

[Baroness Worthington (CB)]

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

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

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

Amendment 40 withdrawn.