Offshore Environmental Civil Sanctions Regulations 2018

Debate between Lord Bruce of Bennachie and Lord Henley

Thursday 21st June 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the regulations will provide BEIS’s Offshore Petroleum Regulator for Environment and Decommissioning—OPRED—with powers to impose financial civil sanctions as an enforcement option for contraventions of offshore environmental legislation. The regulations do not create new offences; they allow OPRED to impose financial civil sanctions for breaches of a suite of existing regulations.

The current enforcement options available to OPRED are not consistent with those held by onshore regulators and do not provide for sufficient deterrence against non-compliance with environmental legislation. This is because, in the majority of cases, the only enforcement options available are criminal prosecution, or to take no action at all. As prosecutions are disproportionate in the majority of cases, no action can be taken. Expanding OPRED’s powers to allow for the imposition of civil sanctions would bridge this enforcement gap.

OPRED investigates breaches of environmental legislation in respect of offshore oil and gas platforms operating on the United Kingdom continental shelf. Unlike onshore regulators, OPRED does not have the powers to impose financial civil sanctions in respect of the majority of those breaches. Current enforcement options for OPRED include: serving an enforcement or prohibition notice, revocation of a permit, and referral for consideration of prosecution. OPRED can issue civil sanctions in relation to breaches of the European Union Emissions Trading Scheme but has no power to do so in relation to its remaining regulatory regime.

Since 2016, OPRED has been made aware of 4,178 potential breaches of environmental legislation by offshore operators and has undertaken 78 formal investigations. Seven resulted in the issue of enforcement notices and two were referred for criminal prosecution. Although the remaining 69 were judged to meet the required standard of proof and involved significant non-compliance with legislation, most involving spills of over 1 tonne of oil or chemicals, OPRED could take no formal enforcement action due to the lack of an appropriate and proportionate response. This has had the consequence of undermining the deterrent effect of the existing environmental regulation. The introduction of civil sanctions would allow for fines to be awarded in the more serious of these cases.

The regulations provide for a more appropriate and proportionate enforcement response, allowing OPRED to maintain a consistent approach with onshore regulators and encourage greater compliance by operators. Enforcement or prohibition notices are not appropriate in all cases and the revocation of a permit, with the result that a holder could no longer operate, would not be a proportionate response to the majority of regulatory breaches. Prosecutions are reserved for only the most serious of cases. They are costly and time-consuming, with cases frequently taking more than a year to reach resolution. In addition, the decision whether to proceed with a prosecution is taken by bodies other than OPRED. Expanding OPRED’s existing powers to enable the imposition of civil sanctions would allow for a more timely, cost-effective and proportionate response that would not unnecessarily criminalise oil and gas operators.

The civil penalties currently available to OPRED may be awarded only in respect of CO₂ emissions and cannot be utilised for any other regulatory breaches such as oil or chemical spills. As such, the vast majority of contraventions of environmental legislation currently result in no enforcement action being taken. The regulations will allow OPRED to take swift action where previously it could not, thereby providing greater deterrence against non-compliance and tackling the behaviour of those who perform poorly or ignore their environmental responsibilities. Civil sanctions will be applied instead of, not in addition to, criminal prosecution in cases where the criminal standard of proof is met. The fact that breaches must be proved to the criminal standard before a sanction can be issued is required by the parent legislation. The fixed and variable civil sanctions that OPRED will have will give it the ability to impose fines ranging from £500 to £50,000. This range has been chosen to maintain a consistent approach with onshore regulators and reflects the statutory minimum and maximum fines available to the courts through criminal prosecution.

The objective of the regulations is to provide OPRED with the powers to impose financial civil sanctions on offshore oil and gas operators who contravene specified environmental legislation. To this end, the regulations will provide a more proportionate enforcement response than criminal prosecution alone while retaining this option for the most serious breaches. They will maintain a consistent approach with onshore regulators and encourage greater compliance by offshore operators by allowing for enforcement action to be taken more swiftly in more cases. The regulations will come into effect on 1 October 2018 and I commend them to the House.

[Lord Bruce of Bennachie (LD)]

My Lords, I thank the Minister for that explanatory introduction, and I have just a couple of points to raise with him. I welcome the purpose behind this change in the law, which I assume is to reduce the number of incidents. Has the regulator made an assessment of the impact it will have? The figures the Minister gave are for the number of breaches, most of which were not serious. However, those that were serious cause a little concern, and obviously the point that prosecutions are not effective under the present law has to make it a consideration as to whether civil sanctions will make a significant difference.

My second point is whether the criminal burden of proof will have a difficult impact in the sense that it is quite a high standard of proof, although that is right and proper given that these are new regulations. Nevertheless, is the regulator satisfied that it will be able not only to prosecute effectively but, more importantly, that it will be able to create a climate in which there will be a significant reduction in the number of incidents? That is really what I am seeking. Has there been any assessment by the regulator of that?

Offshore Combustion Installations (Pollution Prevention and Control) (Amendment) Regulations 2018

Debate between Lord Bruce of Bennachie and Lord Henley

Thursday 21st June 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the regulations will provide BEIS’s offshore petroleum regulator—that is, OPRED, as referred to earlier—with powers to impose emission limits on atmospheric pollutants from certain types of combustion plant and monitoring requirements for those pollutants.

The regulations transpose two European Union directives and will allow OPRED to impose emission, monitoring and reporting controls on specific atmospheric pollutants from certain types of combustion plant, such as gas turbines and engines, on offshore installations. Obligations from these directives are transposed by amending the existing Offshore Combustion Installations (Pollution Prevention and Control) Regulations 2013.

The 2013 regulations implement provisions of chapters I, II and VII of the industrial emissions directive. The controls are enforced through permits for combustion plant, such as gas turbines and engines, on offshore installations that, alone or when aggregated, have a thermal rated input equal to or greater than 50 megawatts. When the industrial emissions directive was being implemented, there were no offshore facilities with qualifying large combustion plant such as boilers, heaters and diesel engines and none was foreseen. Consequently, those obligations relating to large combustion plant in chapter III of the directive were not transposed. However, there are now two offshore installations with plant that fall within the scope of chapter III of that directive, and relevant provisions in that chapter will now apply. The medium combustion plant directive obligations mean that we now also need to extend our regime to medium combustion plant to include boilers, heaters and dual-fuel engines with thermal capacities in the range of 1 to 50 megawatts.

Twelve offshore installations will be subject to the new requirements. There will be new requirements to control, monitor and annually report data on specified atmospheric emissions from large and medium-sized combustion plant, in line with the directives. Relevant existing permits issued under the 2013 regulations will be revised to incorporate the new obligations. Where necessary, new permits will be issued. The regulations will also ensure that inspection reports relating to large combustion plant are made publicly available. This is not required for medium combustion plant. The Offshore Environmental Civil Sanctions Regulations 2018 will apply to the regulations and will act as a deterrent against non-compliance.

In September 2017, a four-week public consultation on these draft regulations was undertaken. Eight responses were received seeking additional clarifications and concerns were raised regarding combustion plant which would be unlikely to meet the emission limits. The Government’s response addressed the consultation comments and we agreed to publish an updated guidance note to support operators’ compliance with the regulations.

One substantive issue arose from the consultation regarding the provisions in Regulation 15, under which emission limits will be included in permits to control the level of pollutants emitted into the atmosphere. The concern is that, in some cases, those limits may not be achievable because replacement or retrofitted abatement of existing plant will not be possible due to space limitations and technical configuration on offshore installations which were designed many years ago. We took account of industry concerns by making clear that we will work with operators on a case-by-case basis to manage the situation in line with the regulations. We understand the importance of maintaining the security of energy supplies and maximising economic recovery of hydrocarbons and do not want to see offshore installations entering early cessation of production.

The regulations are needed to control and reduce emissions of pollutants harmful to the environment and human health and implement two EU directives. Without additional powers to monitor air pollutants at the individual plant level, it is difficult to accurately quantify the emissions and ensure compliance. The regulations will contribute to our aim of ensuring that offshore hydrocarbon activities are carried out in a safe, clean and environmentally sound manner.

In conclusion, the object of the regulations is to control atmospheric emissions from offshore combustion plant which are harmful to the environment and human health, in line with EU directive requirements. This will be achieved through permits for qualifying combustion plant to set emission limit values, monitoring and reporting conditions; conducting offshore inspections and investigation of breaches; and the use of enforcement notices to instruct operators to take action to address breaches within specified timescales.

The regulations will enter into force 21 days after being made. The requirements will take effect immediately for large combustion plant, but there is a phased implementation for medium combustion plant. I commend these draft regulations to the House.

[Lord Bruce of Bennachie (LD)]

My Lords, I thank the Minister for that introduction. He has touched on my concerns, but I want to press him a little further. I appreciate that this is the implementation of an EU directive and we want to maintain compliance with EU regulations, but it is a fact, nevertheless, that the largest volume of offshore installations are in the UK or the Norwegian continental shelf. I am not denying that there are other installations in Germany, the Netherlands and Denmark, but the big ones in the most exposed conditions are in the UK and Norway.

Of course, in the past the EU has attempted to have more direct involvement in the regulation of the North Sea, which has been resisted, I think correctly, by the UK. What I want to explore, and the Minister did touch on this, are the concerns, particularly with some of the mature investments we have in the North Sea, that the difficulty or the disproportionate cost that might be involved in meeting these could affect future production. The Minister has indicated that the Government want to work with the industry, but how sure are they that we will not reach a situation in which significant production or investment will be compromised?

I say that with some hesitation. I know the environmentalists tend to want to shut everything down, or be resistant, and I certainly do not wish to give the impression that I am not keen to ensure that we operate the highest possible standards. But we have to operate within realities and it is true that large installations in really difficult conditions such as the northern North Sea are likely to have larger requirements for generating capacity, which could cause them problems.

My final questions are: given that it is an EU regulation, is Norway applying the same conditions? Is there any question that UK installations would be at any cost disadvantage compared with Norway, or do we have an assurance that Norway is operating at least the same standards?

Scotland Act 2016 and Wales Act 2017 (Onshore Petroleum) (Consequential Amendments) Regulations 2018

Debate between Lord Bruce of Bennachie and Lord Henley

Thursday 21st June 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, in line with the Smith and Silk commission agreements, the Scotland Act 2016 and Wales Act 2017 provide for the devolution of onshore oil and gas licensing to the respective Governments.

Today’s debate will focus on the devolution of Section 45A of the Petroleum Act 1998 to the Governments of Scotland and Wales. Section 45A provides the means of assurance to the relevant authority that the relevant person will be able to plug and abandon a well or otherwise provide the necessary funds for it to be done. As such, Section 45A is a key part of the licensing regime and needs to be devolved to enable Scottish and Welsh Ministers to ensure that licence obligations can be met and wells can be plugged and abandoned as appropriate. We intend to transfer Section 45A powers to Scottish and Welsh Ministers for their respective territories, using powers to make consequential amendments under the Scotland Act 2016 and Wales Act 2017.

As recommended by the Smith and Silk commissions, it was agreed that powers related to onshore oil and gas licensing, aside from those relating to royalties, would be devolved to Scotland and Wales. The Scotland Act 2016 and Wales Act 2017 will transfer legislative competence for onshore petroleum to the Scottish and Welsh Governments when fully commenced, with the exception of matters relating to setting and collecting licence rentals.

To aid devolution, in February this year we commenced Sections 47 and 48 of the Scotland Act 2016, which transferred the existing UK onshore licensing regime as it applies in Scotland to Scottish Ministers. This means that Scottish Ministers have the powers to administer the existing onshore oil and gas licensing regime in Scotland and to create a bespoke licensing regime if they wish. It has been agreed between Welsh Ministers and the Secretary of State for Wales that provisions that enable Welsh Ministers to administer the existing onshore oil and gas licensing regime in Wales, or to create a bespoke regime if desired, will commence on 1 October 2018. Therefore, we intend to make and lay negative regulations necessary to deliver this in early September.

I turn now to the detail of the affirmative regulations that we are debating today. The proposed consequential amendments included in this statutory instrument will make amendments to Section 45A of the Petroleum Act 1998. These amendments are consequential on the devolution of onshore petroleum licensing functions to Scottish Ministers under Section 48 of the Scotland Act 2016, and to Welsh Ministers under Section 23 of the Wales Act 2017.

The consequential amendments that these affirmative regulations make reflect the role of Scottish Ministers as the licensing authority in Scotland, and allow the licensing regime to work as intended in relation to onshore areas in Scotland. The regulations provide for the position both before and after commencement of the Wales Act 2017, which makes equivalent provision for devolution of onshore oil and gas licensing to Wales.

As I set out at the beginning, Section 45A is a power that allows the relevant authority to issue a notice requiring a person, once they have begun to drill a well, to provide information regarding their financial affairs. If the authority is not satisfied that the person will be capable of plugging and abandoning the well following the submission of financial information, Section 45A allows the relevant authority to issue a notice requiring the person to take action. This notice could include the provision of security to the relevant authority, to ensure that the costs of plugging and abandoning the well are covered. Although this provision has not to date been used onshore, we consider that the power applies onshore, and therefore Section 45A forms part of the regime which should be transferred.

A negative statutory instrument will follow these affirmative regulations to make consequential amendments to the onshore licensing regime in Wales. Transferring powers from the UK Administration to a devolved Administration does not count as a regulatory provision, so we are not required to do a regulatory impact assessment. Furthermore, there has been no specific consultation on these technical amendments as they are necessary to the effective operation of the provisions set out in the Scotland Act 2016 and Wales Act 2017, which were consulted on separately.

The regulations assist in giving the Scottish Parliament, the National Assembly for Wales and Scottish and Welsh Ministers greater control over their onshore oil and gas resources, complementing the provisions of the Scotland Act 2016 and Wales Act 2017. These affirmative regulations are an important step towards delivering a recommendation of the Smith and Silk commission agreements and to ensure a smooth devolution of powers for onshore oil and gas licensing in Scotland and Wales to Scottish and Welsh Ministers.

I commend the regulations to the House.

[Lord Bruce of Bennachie (LD)]

My Lords, of course I support the instrument, not least because, as the Minister said, it fulfils a pledge of the Silk and Smith commissions to transfer these powers to Scotland and Wales, but I have one question and a bit of context, because the transfer of these powers has generated a lot more heat than light in Scotland, where the Scottish Government claim that this gives them the power to ban fracking or any other form of onshore exploration, which the Court of Session says does not exist. In other words, the First Minister says that fracking is banned in Scotland, but the Court of Session says that it is not and is simply subject to normal planning considerations, so we are in a state of confusion, which is no responsibility of the Minister or the UK Government, having transferred that power.

This will become a significant issue only if there is a commercial desire to do significant onshore drilling or shale activity in Scotland, which Ineos has been preparing the ground for. It is entirely hypothetical, but it has been stated that if the future of Grangemouth, for example, depended on being able to extract shale oil that exists right underneath the plant, the issue would become politically more real, because you would be banning something that had a significant impact for Scotland, as opposed to current theological arguments about whether we should be doing that.

The only question I have for the Minister relevant to the regulations is on the section that says that everything is devolved except for the consideration—which is presumably the fee that might be involved. I completely understand that the administration and licensing of oil and gas energy is a reserved matter and therefore entirely for the UK Government, but I wonder, given the context that I have just outlined, whether adding to the pot the economic benefit of a licence—not only the commercial benefit but the revenue and royalties that might accrue to the Scottish Government—could change the tenor of the debate.

I have to make it clear that my party is not in favour of fracking and supports a ban. I personally do not agree with that; I think we should wait and look at the facts and the science rather than take a decision before it becomes a reality. Right now, it is purely theoretical; the whole thing is a power to do something that no one commercially is seeking to do and which the Scottish Government and public say that they do not want to happen. However, I can anticipate a situation in which reality will say that it is material and significant—that there are jobs and investment that matter—and the devolution of this power will become a problem, albeit one for Scottish politicians, not UK politicians. But I repeat what I said about transferring the consideration as well—not necessarily the licence, but the consideration. That would just be another factor that might realistically be put into the mix.

Oil and Gas: UK Continental Shelf

Debate between Lord Bruce of Bennachie and Lord Henley

Monday 18th June 2018 Lords Chamber

[Lord Bruce of Bennachie]

To ask Her Majesty’s Government what steps they will take to promote new exploration and enhanced recovery of oil and gas from the United Kingdom’s continental shelf.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the Maximising Economic Recovery of UK Petroleum strategy sets out the steps that the industry and the Oil and Gas Authority must take to secure that the maximum value of economically recoverable oil and gas is recovered from the strata beneath UK waters. Most recently, the Government have provided £45 million for seismic surveys in underdeveloped areas, and data from those will support the forthcoming 31st offshore licensing round.

[Lord Bruce of Bennachie (LD)]

I thank the Minister for that reply. As noble Lords will be aware, the industry has had a pretty traumatic two or three years, but nevertheless it accounts for hundreds of thousands of jobs and billions of pounds of benefit to the balance of payments. However, not enough exploration, development and enhanced recovery investment is taking place. Will the Government ensure that there are sufficient incentives, not subsidies, to make this happen rather than just encourage it to do so? We should recognise that if we do not look, we do not find, and we cannot produce.

[Lord Henley]

I agree with the noble Lord that the industry has had a pretty traumatic time but I think things are picking up. As he said, this is very important for energy security, jobs, the economy and—dare I say it—the Exchequer. As I said in my original Answer, we are providing funds for seismic surveys to help in the next round. As the noble Lord will be aware, some 61 companies got licences in the previous round, with the potential to produce some 320 million barrels of oil equivalent. I hope something similar or better will come from the next round.