Offshore Petroleum Licensing Bill

Lord Callanan Excerpts

Committee stage
Tuesday 23rd April 2024 Grand Committee

With that, I look forward to the Minister’s comments.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, first, I thank everybody who contributed to what I think has been a positive debate on a number of important issues.

Amendment 1 in the name of the noble Baroness, Lady Hayman, seeks to prevent the NSTA inviting applications for licences until regulations banning non-emergency flaring and venting on new offshore installations are in force. After two years, it would also prevent the NSTA inviting applications until additional regulations banning all flaring and venting on existing offshore installations are in force.

Flaring and venting are controlled processes to dispose of gas. These activities can take place for emergency or safety purposes, during non-routine operations and on a regular basis, as a result of the design of existing platforms. This latter category is known as routine flaring and venting.

The Government are clear on the importance of having a target for zero routine flaring and venting in the North Sea. This is a key measure for reducing greenhouse gas emissions from production. We are committed to the World Bank’s zero routine flaring initiative, which aims to eliminate the practice globally by 2030; indeed, we are going further with a commitment to ending not just flaring but venting for both oil and gas by 2030.

The North Sea Transition Authority’s current strategy includes enforceable obligations on industry to reduce greenhouse gas emissions from a range of sources, including flaring and venting. As the noble Lord, Lord Bruce, and my noble friends Lord Moynihan and Lord Lilley pointed out, the NSTA’s current guidance to industry also makes it clear that all new developments should be planned on the basis of zero routine flaring and venting. Further, the new OGA plan, published last month, confirms the expectation that there should be zero routine flaring and venting on all platforms from 2030 and requires industry to report in more detail, including on financial planning, to ensure continuous improvements in flaring and venting.

The UK’s proactive approach is already reaping rewards. Based on the latest data, North Sea flaring is down by 50% since 2018. The sector is on track to deliver on the ambitious decarbonisation target in the North Sea transition deal to reduce emissions from operations to 50% of 2018 levels by 2030, ultimately ensuring that the UK continental shelf reaches net zero by 2050. Key to delivering a 50% emissions reduction by 2030 will be eliminating routine flaring and venting in a responsible manner and electrifying platform operations to enable this to happen.

I say in reply to my noble friend Lord Moynihan that it is the Government’s view that our 2030 flaring and venting target is already ambitious. Significant changes to infrastructure, which require appropriate time and planning, need to be made. If we do not carefully manage the ending of routine flaring and venting, it will lead to the early closure of platforms—I suspect that some noble Lords would welcome this—and the potential loss of both the appropriate UK production and the jobs, tax revenue and economic activity that go with it.

Of course, as I have pointed out repeatedly, loss of domestic production will also increase our reliance on imports, including liquefied natural gas, which, as we have said repeatedly, has higher production and transportation emissions. My submission is that that would make no sense either economically or from the point of view of emissions. As drafted, this amendment would also prohibit flaring and venting for emergency and non-routine purposes after two years. That would create unacceptable health and safety risks for workers and would likely result in a shutdown in production in those circumstances. Taking on board the suggestion of the noble Baroness, Lady Blake, I am always happy to meet further with the Opposition to discuss this important matter.

Amendment 2 in the name of the noble Baroness, Lady Hayman, would require the Secretary of State to publish a green skills retraining plan for oil and gas workers before the NSTA could invite applications for offshore production licences. I can reassure the Committee that the Government absolutely recognise how important the skills, expertise and resources of the oil and gas industry are for our transition to cleaner technologies. A report by Robert Gordon University found that over 90% of the UK’s oil and gas workforce have medium to high skills transferability to the offshore renewables sector.

It is vital that the transition to cleaner energy is managed carefully and responsibly. We must ensure that oil and gas jobs are not lost before renewables and other clean technologies grow sufficiently to take up those valuable skills and workers. That is why we are taking action, including by introducing this Bill to safeguard those jobs for the future.

To take an example, a key commitment of the landmark North Sea transition deal between the Government and the industry is to ensure that people and skills from the existing oil and gas workforce are transferable across the wider energy sector. This includes the development of a digital skills passport to facilitate this transferability, which is being funded by the Scottish Government and industry. We are interested in this work and keen to take it forward. Indeed, we are working with the Scottish Government, the industry, relevant skills bodies and trade unions to support the delivery of this work, which is led by Offshore Energies UK and Renewables UK.

In addition, the Government are shortly due to launch our green jobs plan in the first half of this year, supported by the green jobs delivery group. This plan will provide the actions needed to ensure that we have the skills and occupations within the UK workforce, at the right time and in the right place, to develop our net-zero, nature and energy security targets.

All in all, the Government’s spending and policy ambitions will support up to 480,000 green jobs by 2030. The additional requirement that this amendment places before further licensing can take place would damage investor confidence and cause confusion for industry, employers and the workforce. It would therefore only undermine the ongoing work across the UK and could be inappropriate, given the responsibilities of the devolved Administrations also in this area.

Amendments 6 to 8 are in the name of the noble Earl, Lord Russell. Amendment 6 would remove requirements on the NSTA to invite applications for production licences when both the net importer and carbon intensity tests have been met. I take this opportunity to remind the Committee of the purpose of the Bill: it is designed to give industry certainty on the future of licensing rounds. By providing industry with this confidence, the Bill will support the required ongoing investment and protect the jobs and skills required to support the energy transition. Amending that duty on the NSTA when the net importer and carbon intensity tests have been met would undermine the purpose of the Bill and the confidence that it is designed to provide, and will put these important benefits at risk.

Amendment 7 would modify the duty that the Bill places on the NSTA, so that only companies that have committed to investing half their profits from activities carried out under licences in the green UK economy would be invited to apply for production licences.

The Government have a tremendous record for attracting investment into green industries. Since 2010, we have seen around £300 billion of public and private investment in the low-carbon sectors. According to BloombergNEF, total public and private investment in UK low-carbon sectors reached £60 billion in 2023—up by 71% in real terms from 2022.

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[Lord Callanan (Con)]

I was just making the point that the licences provided for in the Bill, where granted, will give exclusive rights to explore an area. Additional permissions will be required before any activity can take place, such as the drilling of a well or construction of a development facility. At each stage and ahead of every such permission being granted, an environmental assessment takes place including, where necessary, public consultation and consultation with nature conservation bodies, to ensure that the impact on the environment, including MPAs, is taken into account in the licensing process.

In response to a specific question, I am not aware of my department having received any communications from the Joint Nature Conservation Committee about the Bill, but noble Lords can be assured that the Government remain committed to ensuring that we meet our Environment Act target on MPAs.

The Government’s marine spatial prioritisation programme will ensure that a strategic approach is taken to identifying future marine development sites. The programme is exploring opportunities to optimise the use of the seas and enable marine activities to co-exist.

Similarly, the strategic spatial energy plan, which the Government will commission in spring 2024 from the National Energy System Operator, will assess the most efficient locations and types of energy infrastructure, reducing inefficiency in infrastructure build. The Bill will not undermine our ability and ambition to ensure co-existence between strictly regulated human activities that may be both possible and necessary in an MPA and, of course, the wider marine environment, including fishing, offshore wind construction and offshore oil and gas, to ensure that we continue to strike the right balance between the full range of our different priorities.

I hope that with those assurances and the explanations that I have been able to provide, noble Lords will feel able not to press their amendments.

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[Lord Moynihan (Con)]

My Lords, I recognise the expertise of the noble Lord who has just spoken, but I think that the two tests in the Bill—which is the subject of this group of amendments, because we are looking to see whether it is feasible and appropriate to add to those tests—are important tests.

On the net importer test, it is fundamentally important as a country to have security of supply. Security of supply comes through diversity of supply, and that security of supply has been shown to be exceptionally important recently, not least with the Russian invasion of Ukraine and the impact that had on western Europe’s gas, being at the end of the pipeline from Russia. It was important to bring home the reality that we need to develop our own energy sources efficiently and economically, in the most benign, sustainable way that we can possibly do with modern technology. The net importer test is important, and I am pleased that it is in the Bill. It absolutely underpins the concept of security of supply, which has always been the basis for our energy system in the United Kingdom.

The carbon intensity test is also relevant, in this day and age of developing reserves internationally and bringing them here with LNG, then transferring that LNG, through a process, to natural gas for power generation in the United Kingdom. If the LNG had a lesser carbon footprint than what we produce in the North Sea, then there would be a very real argument for not having further licensing rounds in the North Sea, because the environmental impact of what we do in this industry is vital, and that is shared on both sides of the Committee.

It is important to question whether we should move towards a position whereby we go to a global test, which the noble Lord, Lord Lennie, suggested, through what was probably a probing amendment rather than one that he would like to see in the Bill. We have an important but minimal impact on whether that 1.5 degree average surface warming above pre-industrial temperatures under the Paris Agreement is achieved. We should be looking to make sure that, as far as possible, everything we do in the North Sea is as sustainable as possible, with the lowest possible carbon footprint. As far as I am concerned, sustainability is one of the four pillars for the consideration of our energy sector. We must address sustainability concerns; we must address GHG emissions; and we must ensure the protection and stewardship of our environment. As I have mentioned, at the same time, we need to have security and reliability. That is the second pillar. We must ensure that current and future energy demand is supplied reliably and responsibly, and, as I said earlier, is able to robustly withstand system shocks.

The third pillar is accessibility and affordability. We must enable energy provision to consumers while minimising cost, and we must support social and economic development. That is one of the reasons we have diversification of supply in the country and the free market to ensure that that is the case.

That free market point is important because we need economic viability of investment. Investment in, and the adoption of, energy solutions characterised by a sustainable return on investment is the fourth and most fundamental pillar. I would just question whether we need to go further than the two tests in the Bill.

I have never, either at Second Reading or in Committee, thought that this Bill was top of the agenda in terms of importance to any Government. I am not sure that it is. I agree with the noble Lord, Lord Bruce, that we can have annual licensing rounds if we want them. In any event, if it is important that they are annual as opposed to biennial, to me, is debateable. The important thing is that all the licences that are awarded must be awarded against a set of criteria; increasingly important in the set of criteria is the environmental footprint around every single aspect of offshore oil and gas production.

We need firm, reliable energy in the United Kingdom to underpin a growth in renewables, but that firm power must be uninterrupted. At a time when we are not moving towards new nuclear as fast as we should be, gas is that basic firm power that will fuel the whole electrification of our system. The other side of this coin is that we are looking for far greater electrification of our rail and wider transport system. Well, for that, you need firm power.

How renewables are at the moment, as well as the lack of good battery storage power—it is interesting to note that the existing battery storage power in the UK covered approximately only eight minutes of average UK electricity demand for the whole of 2023—this lack of battery technology and breakthrough on renewables, without firm power, shows just how much further we have to go. We must have improved and enhanced battery technology. We need firm energy as our lifeblood in this country, not sporadic energy, although moving towards a greater reliance on renewables is, to me, critical. That needs to be underpinned by maximising our gas reserves in the United Kingdom.

Given the limitations of this Bill, those two tests seem reasonable and appropriate to me. I am not sure that the additional tests that are being recommended in the amendments are necessary or helpful in achieving the four pillars that I set out in response to the noble Lord’s very good introduction, if I may say so, of his amendment.

[Lord Callanan (Con)]

I thank all those who contributed. I start with Amendments 3 and 18 in the name of the noble Lord, Lord Lennie, which seek to impose a new climate change test as part of this Bill.

I say at the outset, in response to the challenge presented by the noble Baroness, Lady Jones, that this Bill is entirely consistent with the Government’s target to reach net zero by 2050. Even with continued exploration and development, UK oil and gas production is expected to decline by 7% a year. This decline is faster than the average annual global decline needed to align with the IPCC’s 1.5 degrees Celsius pathway. The noble Baroness might not like those facts but they are facts nevertheless.

As net importers, we produce less than we need—a point made ably by the noble Lord, Lord Bruce. This is projected to remain the case even as our demand for oil and gas shrinks as we achieve net zero. There are already a number of climate checks to ensure that offshore oil and gas activities remain consistent with our climate goals: the climate compatibility checkpoint ensures that the compatibility of future licensing with the UK’s climate objectives has been evaluated before a new licensing round opens; and the North Sea Transition Authority has a specific obligation to assist the Secretary of State in meeting the net-zero target. The recently published OGA plan makes clear that, for production to continue in the North Sea, it must continue to become cleaner. Adding a new test to this Bill is, in our view, therefore unnecessary.

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[Baroness Blake of Leeds (Lab)]

I acknowledge the comments from the noble Baroness, Lady Jones, and the noble Earl, Lord Russell. To repeat the concerns as outlined at Second Reading, our belief is that the tests identified in the Bill will be impossible to fail and are thereby fundamentally flawed, as my noble friend Lord Lennie has previously outlined.

Amendments 12 and 15 in my name are straight- forward. The intention is to be as simple as possible, leaving out “liquified” from the Bill to include all natural gas imported into the UK. We need to achieve clarity, which is not present in the current wording. If the Government want to keep it in, they should be open about the consequences. Liquified natural gas will always be more greenhouse gas intensive in production than UK natural gas. The North Sea field will not meet our total demand for oil and gas, as we know. We need to replace these tests with ones that produce a proper judgment about whether a licence should be issued. The main consideration should be whether issuing a licence is in line with our climate change goals.

Another disappointment with this Bill, as we have discussed, is that there is no reference to previously introduced climate change compatibility tests into production generally—quite an omission. Including only LNG presents a serious problem. We acknowledge that substantial amounts of natural gas come into the UK from Norway via the pipeline. The production of that gas is substantially cleaner than that of UK natural gas. Indeed, we need to be sure that managing the decline in demand for gas is at the heart of a successful net-zero transition. The best and fairer test would be to consider gas imports in the round.

We are trying to amend a Bill that is deeply flawed, as I have previously recognised. I recognise the opposition of the noble Baroness, Lady Jones, to the Bill as a whole. I believe that this a simple way in which we could make some improvements; I look forward to the Minister’s comments with interest.

[Lord Callanan (Con)]

The noble Baroness, Lady Jones, tabled notice of her intention to oppose Clause 1 standing part of the Bill so let me begin my remarks by briefly outlining the purpose of that clause. Under the Petroleum Act 1998, offshore oil and gas licences are administered by the Oil and Gas Authority, which is operating as the North Sea Transition Authority. A seaward production licence grants exclusive rights to the licensee to explore, bore for and produce oil and gas from the geological formations that lie beneath the UK’s offshore waters, within an area defined by the licence. Additional permissions are required before any activity can take place.

Periodically, the NSTA launches licensing rounds inviting companies to apply for such licences. During this process, interested companies submit bids and licences are awarded to bids that promise to ensure the economic recovery of the UK’s oil and gas resources, while of course supporting the drive to net zero by 2050. This existing arrangement means that industry does not have certainty as to when—or, indeed, if—the NSTA will launch a new licensing round. This clause provides that certainty by amending the Petroleum Act 1998 to place a duty on the NSTA to invite applications for seaward production licences in each annual period, which runs from October to September each year. This is subject to two tests being passed: that the average carbon intensity of domestic UK gas is lower than the average carbon intensity of imported liquified natural gas; and that the UK remains a net importer of both oil and gas.

Together, these tests, which will be conducted by the NSTA, will ensure that the annual duty on the NSTA applies only where this supports our wider energy security and energy transition objectives. If the annual duty is triggered, the NSTA proceeds with the current licensing process. It will remain a matter for the NSTA as an independent regulator to decide how many and which blocks or part-blocks to offer for applications—with a minimum of one block—and to ensure and apply the appropriate criteria for determining those applications. It will remain the responsibility of the NSTA to decide whether to offer and grant any licences at the conclusion of that process and whom to offer them to; the NSTA will retain the discretion to grant licences outside of this new annual process in the usual way where needed.

I assure noble Lords that the offering and granting of licences under the new annual process will remain subject to the existing rigorous environmental regulatory requirements. These include the obligation written into the NSTA’s strategy to assist the Secretary of State in meeting the target of net zero by 2050. Indeed, I want to be clear that nothing in this clause contradicts our steadfast and, of course, legally binding commitment to achieving net zero by 2050. We do not need to choose between either delivering net zero or supporting our domestic oil and gas sector; the two things are not mutually incompatible.

Amendments 11, 13, 14 and 16 in the name of the noble Baroness, Lady Jones, and Amendments 12 and 15 in the name of the noble Baroness, Lady Blake, seek to amend the carbon intensity test. This test looks at historical carbon dioxide emissions from the production and supply of natural gas during an assessment period spanning the preceding three years. The test is passed if, during that timeframe, per unit of energy, the carbon emissions of producing gas domestically were lower than the average carbon emissions from the production and delivery of liquefied natural gas from all geographic locations.

The amendment put forward by the noble Baroness, Lady Jones, seeks to change the test to include in the comparison all imported and produced petroleum products, including crude oil, and all forms of natural gas. The amendments put forward by the noble Baroness, Lady Blake, seek to include an assessment of the carbon intensity of all imported natural gas.

It is important to recognise that the markets for oil and gas work very differently; it is not possible to make the same comparisons for oil as it is for gas. In the case of gas, we have a choice either to maximise domestic production or to import more. The more gas we produce domestically, the less we need to import; that seems obvious to me. For oil, we do not have that same choice because oil has to be refined before it is used. For historical reasons, UK oil is generally processed abroad—predominantly in Europe, where our production supports the energy security of our European allies. So a comparison of the carbon intensity of imported oil versus domestically produced oil would be the wrong one to make.

Turning to the test for gas, LNG has been chosen as the relevant comparator as it is a critical marginal source of energy, providing an essential buffer source—especially in winter, when gas demand is higher. Over the past decade, LNG has become an increasingly important method of moving natural gas to market. This will only intensify in the coming years because UK natural gas production peaked in 2000 and the UK has been a net importer since 2004 in order to meet domestic demand.

It is fortunate that some of the UK’s gas imports, in particular pipeline imports from Norway, have relatively low production emissions. However, it is a fact that Norwegian production, like our own, is declining. We will still need gas in the coming years as we transition to net zero. With both UK and Norwegian production declining, it is likely that LNG will play an increasingly important role. During periods of high demand in winter, LNG is a key, flexible source of supply; this role will only increase over time as UK and Norwegian production declines. Producing less domestically means importing more carbon-intensive LNG, which is why a comparison with LNG is the right one to make, in our view, and why we have included it in the Bill.

With the explanation I have been able to provide, I hope that it is clear why the test focuses on LNG and not comparators with oil, which is completely different, or other forms of gas. I therefore ask the noble Baroness to withdraw her amendment.

[Baroness Jones of Moulsecoomb (GP)]

It is hard to summon up the energy to rebut anything. What the Government proved to us yesterday with the Rwanda Bill is that they are prepared to deny reality. So I beg leave to withdraw my amendment.

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[Lord Lennie (Lab)]

My Lords, I thank everyone who has spoken in the debate so far. I thank the noble Earl, Lord Russell, for his proposal about omitting Scotland from the Bill, and the noble Duke, the Duke of Montrose, for his horrified response to the proposal to omit Scotland from the Bill. I am not sure about the debate on Scotland, to be honest, but on balance I think I would keep Scotland in the Bill. I say to the noble Baroness, Lady Jones, that I can see why these amendments would delay the Bill coming into effect, which would not be a bad thing. It would be better if the Bill were not here at all, but, hey, we cannot have everything we want.

The Government have admitted that the Bill will not take a penny off energy bills and will do nothing for energy security, because oil and gas are sold on the international market. The Bill will send precisely the wrong signals to investors about the UK’s commitment to the green transition: Amanda Blanc, chief executive officer of Aviva said that new oil and gas drilling

“puts at … risk the jobs, growth and the additional investment the UK requires to become more climate ready”.

The Bill has been slammed from many quarters, including some surprising ones, such as Theresa May, former Prime Minister. The noble Lord, Lord Browne, former chief executive officer of BP, said it

“is not going to make any difference”

to Britain’s energy security.

Annual licencing rounds will not boost the UK’s economy, as North Sea oil and gas is already in decline, as the Minister confirmed, and over the next decade, in Scotland and England, there will be 25 new jobs in clean energy for every job that is lost in oil and gas. That is what we have to secure: the transition of workers from oil and gas to the new green, clean energy. More extraction in the North Sea will not improve any security or lower energy bills. Remaining reserves are mostly oil, not gas, and 78% of that oil is exported, as it is not in the right form for use in the United Kingdom. The UK is already feeling the devastating impact of climate change, and granting licences simply amplifies the effects. Campaign groups have indicated that the current licences will send “a wrecking ball” through the UK’s climate commitments.

[Lord Callanan (Con)]

First, I thank noble Lords for their brevity on this group.

Amendment 20 seeks to amend the Bill to exclude Scotland. Of course, the vast majority of offshore oil and gas activity takes place off the coast of Scotland to the benefit of all citizens across the United Kingdom. Excluding Scotland from the scope of the Bill, which I understand is the intention of the amendment, would significantly undermine the benefits that the Bill is intended to create. It would risk causing unnecessary confusion for industry and create considerable complexity for the independent regulator. This is particularly true as we transition towards a low-carbon economy and workforce.

As I have already mentioned in previous groups, a report by Robert Gordon University found that over 90% of the UK’s oil and gas workforce have medium to high skills transferability to the offshore renewables sector. Many of those, of course, are in Scotland, where OEUK estimates that over 90,000 jobs are supported by the oil and gas industry. If we rush the transition, or create additional uncertainty in the investment environment, we risk losing the jobs and skills that we will need as we scale up the clean technologies needed to realise that crucial net zero target.

Paying Polluters: UN Report

Lord Callanan Excerpts

Monday 22nd April 2024 Lords Chamber

[Lord Browne of Ladyton]

To ask His Majesty’s Government what assessment they have made of the United Nations Special Rapporteur report on Paying polluters: the catastrophic consequences of investor-State dispute settlement for climate and environment action and human rights, published on 13 July 2023.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, investor-state dispute settlement mechanisms offer investors an independent means of legal redress to seek compensation following a breach of international investment agreements. The report notes that, outside the UK, investors have brought ISDS claims against climate change measures; however, the UK has not faced a successful ISDS claim. On 22 February we announced withdrawal from the energy charter treaty, to avoid remaining in a treaty not aligned with our energy security and net-zero ambitions.

[Lord Browne of Ladyton (Lab)]

My Lords, on 7 December we had a debate on a Motion moved by the noble Baroness, Lady Hooper, on Latin America. In the context of our trade deal with Colombia, my friend, the noble Baroness, Lady Coussins, raised the issue of the inherent manifold injustices of the ISDS. The Minister responding to the debate, the noble Lord, Lord Ahmad, wrote in response:

“ISDS is an effective means of resolving … disputes”,


and the Government are

“content with the standard of protection”

provided. So it is surprising that none of the free trade deals concluded since Brexit contains an ISDS—and the absence of one is an explicit goal of our negotiations for a UK-Canada deal. What is the Government’s view of an ISDS as a means of resolving disputes? If they have shifted their view, what are they doing to ensure that their new approach is reflected in trade with Colombia?

[Lord Callanan (Con)]

This is a complicated area. Of course, these treaties are bilateral, and they also help to protect the investments of UK companies investing in other overseas territories. However, the UK’s investment policy is designed to protect the UK’s right to regulate in the public interest, and so far we have been successful in that, in that we have not seen any successful claims against us.

[Baroness Coussins (CB)]

My Lords, the UN Working Group on Business and Human Rights has said that the ISDS mechanism incentivises investor irresponsibility. Currently there is a case of a UK-listed company using the ISDS in Colombia in a way that undermines the fundamental interests and rights of the Wayuu indigenous people. As penholder at the UN for the Colombia peace process, what are His Majesty’s Government doing to discourage such activity?

[Lord Callanan (Con)]

I thank the noble Baroness for her question. I cannot comment on cases that are currently ongoing, but we will certainly bear her comments in mind when we consider our policy on this matter.

[Earl Russell (LD)]

My Lords, with fossil fuel and mining industries already having won more than $100 billion in awards and at least 175 treaty-based ISDS cases closed or pending that are directly related to environmental measures, does the Minister agree that foreign investors are using the dispute settlement process to seek exorbitant compensation from states that seek to strengthen their environmental protection? What actions are the Government taking with partners and allies on the international stage to try to find solutions to these problems?

[Lord Callanan (Con)]

As the noble Earl is probably aware, there are discussions in the OECD at the moment about the use of these clauses. As I said, we are responsible for the ones that we have signed, recognised and arbitrated against, and we very carefully ensure that these clauses protect our right to regulate in these circumstances on energy and climate change matters. The success of that has meant that we have seen no successful claims against the UK.

[Baroness Blake of Leeds (Lab)]

My Lords, while we will of course hear a lot about the importance of investor confidence, it is as important to ensure that Governments, particularly of less affluent and more vulnerable nations, are able to fulfil their climate commitments. It is estimated that those Governments fulfilling their commitments under the Paris Agreement might be liable to pay up to $340 billion in future cases under this system. Can the Minister tell us the Government’s assessment of what the impact of this system will be on limiting the increase in global temperatures to 1.5 degrees centigrade above pre-industrial levels?

[Lord Callanan (Con)]

The noble Baroness is using the generality to refer to the specific. ISDS clauses are very useful in a whole range of different areas. I accept her point that there is some evidence of their misuse in the case of energy and climate change policies, and we will work with international partners to see how this can be mitigated. We are very careful to make sure that the ones to which we agree preserve our right to regulate. Other countries take their own decisions, of course.

[Lord Sikka (Lab)]

My Lords, many developing countries are handicapped by clauses in foreign direct investment agreements—sometimes called stabilisation clauses—that forbid the hearing of disputes in local courts. As a result, local courts’ lawyers are unable to develop the expertise or necessary institutional structure to combat corporate power. What steps are the Government taking to ban the inclusion of such clauses in FDI agreements, at least for UK companies?

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[Lord Callanan (Con)]

All such agreements are different. Many rely on international arbitration panels that are appointed by the complainant company and the defendant company with an independent chairman. We are very careful in how we regulate these matters and which clauses we agree to. As I said earlier, we will work with other countries to look at their particular disputes as well.

[Lord Purvis of Tweed (LD)]

Is the Minister aware that one of the concerns around ISDS is that it is a secret process, as opposed to a multilateral judicial process that is more transparent? Given the fact that ISDS can be used against small emerging economies and deliberately facilitated by legal funds based in the UK, what discussions have the Government had with our legal community to ensure that ISDS is not just about protecting UK interests and that the legal community in the UK is not using it strategically against emerging economies that do not have the capacity and secret processes to defend themselves?

[Lord Callanan (Con)]

As I said, ISDS clauses work both ways. They also seek to protect the interests of UK companies investing in other overseas economies. Any state that wishes to regulate against the interest has to prove that it is being transparent and fair, not discriminating against foreign investors, et cetera. All these criteria are used to make judgments about whether cases will proceed.

[Lord Davies of Brixton (Lab)]

We discussed ISDS arrangements in the context of the CPTPP Bill recently, and a number of noble Members expressed concern about the impact on environmental standards. The response from the Government Front Bench was, “Not to worry; it won’t be used in this way”. That is clearly not the case with Colombia. It has faced at least 21 cases under the ISDS process, mainly for mining companies and mainly questioning the effect on the country’s environmental standards. Given the pressure that Colombia is under in its transition to full democracy and peace, would the money that it inevitably has to spend on defending these cases, and in some instances paying damages, be better spent on maintaining the peace process?

[Lord Callanan (Con)]

I am sure it would, but we are responsible for what clauses we agree to in the UK. We always protect our right to regulate, and we seek not to take actions that are arbitrary or discriminatory against foreign companies. Ultimately, it is a question of what clauses Colombia agrees to, what criteria it uses and how it will be arbitrated, so it is a difficult question to answer.

[Lord Kamall (Con)]

My noble friend will be aware that when we were both in the European Parliament we used to debate the issue of ISDS, and that one of the reasons that ISDS was asked for by investors was to ensure they had confidence, particularly when there was no confidence in the local legal system. The other side of that is that big companies were perceived to get preferential treatment in being able to go to the ISDS process, rather than through the legal system. We have to look at the trade-offs, and maybe one of the things that my noble friend’s department could look at is the impact of not including ISDS agreements and how much that would affect outward or inward investment in these countries.

[Lord Callanan (Con)]

My noble friend makes a powerful point; of course, it works both ways. We want to protect the interests of UK companies, which sometimes operate in very hostile, non-democratic countries with unclear or murky legal systems. By the same token, we need billions of pounds of investment into the UK—we are the top European destination for inward investment—to help us in our energy and climate change transition, so it is important as well that we demonstrate that we are liberal and open to companies investing here in the UK. These clauses help to deliver that, but they need to be structured in the right manner, transparent and liberal.

Surplus Carbon Emissions

Lord Callanan Excerpts

Wednesday 27th March 2024 Lords Chamber

[Baroness Hayman (CB)]

My Lords, with the leave of the House, I beg leave to ask the Question standing in the name of the noble Lord, Lord Krebs, on the Order Paper.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the Government have overachieved on all their carbon budgets to date. As required under the Climate Change Act, the Government have consulted the Climate Change Committee and the devolved Administrations before taking any decision on carrying forward overperformance from carbon budget 3. The Government are considering the CCC’s and DAs’ responses and will make a decision, ahead of the statutory deadline, on 31 May.

[Baroness Hayman (CB)]

My Lords, I declare my interests as set out in the register and thank the Minister for that reply. The advice of the Climate Change Committee on carryover was unequivocal: that surplus emissions must not be carried forward to loosen later carbon budgets, since most of the surpluses in the third carbon budget period were due to external factors. I seek assurance from the Minister that the Government will consider that unequivocal advice very carefully and make a stringent assessment of the effect of carrying forward surplus emissions from the third carbon budget on their pledge to cut emissions by 68% by 2030.

[Lord Callanan (Con)]

I can say no more than I said in my initial Answer. Of course, we will take into account the advice from the Climate Change Committee and the devolved Administrations. But this is a problem of success; we have overachieved on all our carbon budgets so far, and we should celebrate that. As I said, in terms of carryover, we will take a decision before 31 May.

[Baroness Northover (LD)]

Does the Minister agree that the reductions are due largely to Covid and the slowdown of the economy during that period, as opposed to what the Government had put in place? On the basis of that, and the advice of the Climate Change Committee that carryover would put our position at “serious risk”, surely the Government will not again ignore its advice? Can the Minister go back and make sure that they do indeed act on that advice?

[Lord Callanan (Con)]

We always take that advice into consideration. Covid was obviously a factor in that budget, but we overperformed on all the previous budgets before that as well. It is one factor; we will take it into consideration.

[Lord Foulkes of Cumnock (Lab Co-op)]

What discussions does the Minister have with his counterparts in Scotland? When he or his colleagues meet them, could he try to convince them to change their view on nuclear power? Nuclear power is one way of achieving our aim.

[Lord Callanan (Con)]

I have regular meetings with the Scottish Government, including my counterpart, who is from the Green Party—which makes for interesting discussions, as the House can imagine. The noble Lord is, of course, absolutely right: nuclear power is an essential component of power, both in Scotland and across the rest of the United Kingdom. We will certainly advise the Scottish Government of that. However, if they are crazy enough to dispense of their nuclear power, then their friends in the rest of the UK will be very happy to help out the people of Scotland.

[Lord Kirkhope of Harrogate (Con)]

My Lords, the Government are to be congratulated on achieving these targets, but would my noble friend not agree that we need to do much more with our international relationships to make sure that we alone are not forging ahead when others are failing to do so?

[Lord Callanan (Con)]

My noble friend makes a good point. Of course, the international diplomacy element of this is important. The UK alone is responsible for about 1% of worldwide emissions, so clearly we will not make a difference on our own. But as a leading industrialised nation, it is important that we set an example. We liaise extensively with other Governments internationally.

[Baroness Walmsley (LD)]

My Lords, some, though not all, of our success has been to do with the fact that we have dealt with low-hanging fruit such as getting rid of coal—I hope that we have got rid of it completely. The Government now need to turn their attention to the more difficult aspects of reaching net zero. I cite as an example the steel industry, which is very important in Wales and other parts of the country. What are the Government doing to support the British steel industry to reach net zero?

[Lord Callanan (Con)]

I am not sure that I would share the noble Baroness’s characterisation of getting rid of coal as low-hanging fruit. We have been extremely successful and will get rid of coal completely from the UK’s power system this year. We can contrast that with Germany, which is generating 27% of its power from coal this year. It is a great success, and it was very hard won. Of course, there are difficult challenges to face, one of which is steel. There are many other industrial sectors that are also difficult to decarbonise. We are working with all those industries to find appropriate solutions.

[Baroness Boycott (CB)]

My Lords, future carbon budgets that the Government are proposing depend quite a lot on carbon capture and storage. At the moment, this is not a working technology; it is not actually running anywhere in the world, although many Governments are putting it in their future plans as something that will deliver. Can the Minister give the House an update on where the technology stands, and when he expects it to get off the ground and start reducing carbon emissions?

[Lord Callanan (Con)]

I am afraid that the noble Baroness is incorrect; she needs to check her facts. There are a number of examples of working CCUS plants around the world. There is one in Canada, for instance; there are others as well. She is right that we are rolling it out in this country; there are two clusters we have identified, in the north-west and north-east of England—HyNet and the East Coast Cluster. We are in extensive negotiations with those clusters and want to make final investment decisions by quarter 3 this year, which will put the UK at the forefront of carbon capture in Europe.

[Lord Rooker (Lab)]

Notwithstanding the success of the Government so far, how much of our being ahead of the curve is contributed by the fact that we have de-industrialised and de-manufactured over the last 40 years? We are now importing huge amounts of products but are not actually measuring their carbon content or taxing people bringing them in. It is not sustainable as we are going at the present time, is it?

--- Later in debate ---

[Lord Callanan (Con)]

There is a degree of truth to what the noble Lord says. I do not characterise it as our having de-industrialised; we have some very successful manufacturing industries in this country, many of them low-carbon industries. Of course, the issue of carbon leakage is important, and it is one reason why we have committed to introducing a carbon border adjustment mechanism; we are currently consulting on the precise make-up of that. However, the noble Lord is right that it is a factor.

[Lord Lennie (Lab)]

What impact will the Offshore Petroleum Licensing Bill have on our ability to meet future carbon budgets?

[Lord Callanan (Con)]

As we debated extensively last night, it will have a negligible impact.

[Lord Geddes (Con)]

My Lords, following up the supplementary question from the noble Lord, Lord Foulkes of Cumnock, does noble friend agree that the Scottish Government, and indeed the British Government, could well add tidal power to their list?

[Lord Callanan (Con)]

My noble friend is relentless in his pursuit of tidal. He is right; it is an important component. It is not yet at scale; it is at a relatively small scale of development, but we supported it under the previous CfD round, and I am sure that tidal has a bright future ahead of it as part of our wide energy mix.

[Lord Watts (Lab)]

My Lords, does the Minister agree that we are missing a trick with wind power on land? Does he think the Government should change their policy on that? If so, does he think they should change the planning process to make it quicker to get those schemes up and running?

[Lord Callanan (Con)]

The noble Lord makes a good point. We are considering that at the moment. It is important that if we roll out wind power on land, we do it with the consent of local communities. We want to make sure that we take people who live next to the turbines with us. We are consulting on an appropriate way of doing that.

[Lord Wallace of Saltaire (LD)]

My Lords, since we are talking about various forms of renewable power, have the Government paid enough attention to hydro power from rivers in England and Wales? In France, the national grid was adapted to take on where there had very often been water mills. As I walk past the overflowing Aire each weekend, I think of just how much power we could generate on the various weirs down that river and the many other rivers in the Yorkshire Dales, which are not used because the National Grid has not really made any effort to hook up to local power sources that provide small but useful contributions to our power supply.

[Lord Callanan (Con)]

The noble Lord makes a good point. A number of schemes around the country are taking advantage of that. Again, they are relatively small-scale; they will not provide the large amount of power that we need, but they are worth investigating. I think there are a number of noble Lords in this House who take advantage of tidal power in their own areas.

[Lord Lilley (Con)]

The advice from the CCC on this issue seems quite rational, but will my noble friend ask it to review the advice it has offered on the total cost of meeting net zero? It refused for over a year to produce its workings, and at great expense tried to resist freedom of information requirements. When it went to the tribunal and it was forced to reveal its workings, they were shown to be flawed in a number of ways and have now been condemned by the Royal Society as wrong. Will the Minister ask it to review them and produce some new estimates?

[Lord Callanan (Con)]

I was not aware of that case, and I thank my noble friend for drawing my attention to it. I will certainly raise it with the Climate Change Committee.

Offshore Petroleum Licensing Bill

Lord Callanan Excerpts

2nd reading
Tuesday 26th March 2024 Lords Chamber

Moved by

[Lord Callanan]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the UK recently achieved an important milestone in the global fight against climate change. We were the first major economy to set a net-zero target in law, and we are now the first major economy to have halved our emissions since 1990. Of course, we are not resting on our laurels as we pursue our goal to reduce greenhouse gas emissions by at least 68% by 2030. Between 2010 and 2023, the UK has seen £300 billion of investment into low-carbon sectors, demonstrating that our approach to net zero is working. That is because it is an approach that is proportionate, fair and grounded in reality.

We recognise, of course, that the UK still depends on fossil fuels for meeting around 75% of the energy demand and that that is something that cannot be changed overnight. The independent Climate Change Committee’s data shows that even in 2050, when we reach net zero, oil and gas are expected to continue to play an important, albeit smaller, part in meeting demand and maintaining our national energy security, so managing our remaining reserves effectively will be critical to the transition, and that is why the Government are bringing forward this Bill.

I believe that many of us across the House agree that as a country we must reduce our reliance on oil and gas, but as we do so the question we must answer is: from where do we want to source that oil and gas to meet that residual demand? Oil and gas production in the North Sea has been hugely successful. It has created and supported hundreds of thousands of British jobs and contributed billions in tax revenue over many decades. It continues to provide us with secure, reliable energy and to support jobs and the economy.

North Sea gas currently provides around half the UK demand. OEUK figures show that the sector supports around 200,000 jobs, adds around £16 billion annually to the economy and brings in billions in tax revenue. I think particularly of how important tax revenue like that was in supporting thousands of households with their energy bills following Russia’s illegal invasion of Ukraine. This unprecedented support, among the most generous in Europe, was equal to around half the average family’s energy bill or about £1,500. Without tax revenue from industry, that burden would have fallen to taxpayers alone.

Domestic production is also an important part of our national energy security and the energy security of many of our European neighbours. The simple fact is that if we did not have access to this secure and reliable source of energy, we would be even more reliant on imports. The Government’s position is clear: where oil and gas are needed in the decades to come, as much as possible should come from our own waters.

Having said all that, the North Sea is a mature basin and production is in decline. Even with continued exploration and development, production from the basin is expected to decline by around 7% a year, which is, incidentally, faster than the average that is globally required to align with the IPCC’s 1.5 degrees Celsius pathway. By 2050, the UK’s North Sea oil and gas production is projected to fall by over 90% from today’s levels. The choice before us is whether we seek to reduce our reliance on imports through continuing to issue UK production licences or stop investment in British oil and gas and import even more from abroad.

Without investment in new UK oil and gas fields, we would lose out on more than 1 billion barrels of oil and gas, worth billions in revenue. More than this, our production would decline faster than we could build low-carbon replacements and before the workers in the sector could smoothly transition to jobs in renewable industries. We estimate that such a decline would increase UK import dependence from around 60% now to 70% by 2035. That is more liquefied natural gas with higher production emissions and none of the economic or energy security benefits.

If there was no investment, tens of thousands of skilled British jobs would be placed in jeopardy. Industry leaders have already warned that North Sea workers are at risk of becoming

“the coal miners of our generation”

if we fail to manage the declining North Sea basin in a sustainable way. We cannot allow this to happen.

A recent report from Robert Gordon University found that over 90% of the UK’s oil and gas workforce have medium to high skills transferability to the offshore renewables sector. A key commitment of the North Sea transition deal is to ensure that people and skills from the existing oil and gas workforce are transferrable across the wider energy sector. Make no mistake: these skills are in demand the world over. If they are not wanted here to deliver our own production and our own energy transition, they will surely go overseas and deliver someone else’s.

The general secretary of the GMB—not somebody I quote very often—recently wrote:

“In an increasingly volatile world the UK needs plans and not bans for the future of our energy sector and the transition to net zero”.


In this particular case, the Government could not agree more. We need oil and gas and our domestic oil and gas sector. Industry knows it, the unions know it, everybody knows it—except, perhaps, the noble Lord opposite—and I urge those opposed to continued licensing to think again.

We all want a successful energy transition. This means accepting that oil and gas will continue to play a role in meeting our energy demands for decades to come, and supporting investment and jobs in the North Sea through new licensing so that we can continue to produce that oil and gas from our own resources. However, it also means that during this transition, while we are decarbonising all other sectors of the economy, we should also produce these fuels in the cleanest way possible.

Since 2019, the carbon intensity of global oil and gas production has fallen by around 3%. From the North Sea, it has fallen by 14%. We will go further. The North Sea transition deal commits the offshore oil and gas sector to reducing emissions from operations to 50% of 2018 levels by 2030, with emissions already falling by 23% by 2022. To support this, we have committed to zero routine flaring and venting for both oil and gas by 2030, going further than the World Bank’s zero routine flaring initiative. Industry has made significant progress in meeting this target, with already a near 50% reduction in flaring since 2018. The NSTA already expects all new developments to have zero routine flaring and venting.

This Bill is part of the effective management of the energy transition. This new legislation will require the North Sea Transition Authority to run an annual process for new exploration and production licences in the UK continental shelf, subject to several key tests being met: first, that the UK is projected to remain a net importer of both oil and gas, and, secondly, that carbon emissions associated with UK gas are lower than imported liquefied natural gas. The tests ensure that annual licensing can take place only where it remains the right thing to do.

A more predictable licensing regime will not take us back to the era of peak production in the North Sea; as I said, the reality is that this is a fast-declining basin. Instead, new licensing will simply seek to manage that decline rather than to increase oil and gas production above current levels. However, it will give industry the certainty and confidence it needs to support the continued investment necessary both for our energy security and to help deliver the energy transition. That is an investment worth billions of pounds from companies such as Shell—which is also planning major investment in low-carbon and zero-carbon infrastructure, including offshore wind, hydrogen and carbon capture, utilisation and storage—and BP, which plans to invest up to £18 billion in the UK’s energy system by the end of 2030, in addition to its operating spend in the United Kingdom. The Bill demonstrates the Government’s ongoing commitment to the industry and helps to provide the certainty to ensure that the UK continental shelf remains an attractive investment as we transition to renewables.

The UK is a world leader on climate. We are one of the most decarbonised economies in the world and have met every one of our legally binding carbon budgets, but the fact remains that we will still need oil and gas in 2050, and it is simply common sense to use what we have. If we produce oil and gas here, it is the British public and our European allies—not foreign, and potentially hostile, regimes—that will benefit. If we produce here, we can be safe in the knowledge that our stringent regulations have kept the environment safe. If we produce here, we can reduce our reliance on imports, such as LNG, that have up to four times the production emissions of domestic production. If we produce here, we support a vibrant industrial sector, British jobs and communities that will be key to delivering the energy transition, rather than see them disappear overseas to help to deliver someone else’s. I believe that the choice is clear.

I will leave the House with the words of the chief executive of the NSTA, who said that

“we won’t get to net zero without oil and gas”

and that

“producing as much of the oil and gas we need as possible domestically is the right thing to do, for security and the economy”.

The North Sea has powered us through the last half century and, if we manage the transition correctly, it will power us through the next. I beg to move.

--- Later in debate ---

[Lord Callanan (Con)]

My Lords, I thank all Members from across the House for what has been quite a good debate, for the interest that they have taken in the Bill and for the many insightful contributions that we have had today. I think the debate has shown how interconnected the future of North Sea oil and gas production is with the huge effort we are making—and I am grateful to the noble Earl, Lord Russell, for instance, for pointing out the huge effort we are making —to decarbonise the UK economy through what is a renewables revolution. Nobody disputes that. I do not think anybody in the debate disputed the importance of net zero.

The Government’s position is entirely consistent with delivering on our targets, but we have to manage the decline of North Sea oil and gas production in a predictable and responsible way. I thought that was an excellent point made by the noble Lord, Lord Bruce, from the Liberal Democrat Benches. It is a pity that his two colleagues did not reflect his excellent contribution.

Restrictions on future licensing would be a grave act of national self-sabotage and would place in jeopardy more than 200,000 jobs that OEUK figures show are currently supported by our domestic oil and gas industry. It would forego up to 1 billion barrels of oil equivalent and, equally importantly, remove an important source of tax revenue. That would mean more imports, including of liquefied natural gas, which has up to four times the production emissions of our own natural gas—a point well made by my noble friends Lord Lilley, Lord Moynihan and Lord Ashcombe. It would mean that we forego investment in clean technologies and the energy transition that our oil and gas industry is vital to driving forward, and it would leave us more vulnerable to hostile states, as we saw during the invasion of Ukraine. We need this investment, and we need the sector’s existing supply chains, expertise and skills. Introducing annual licensing rounds through this Bill will help to protect this investment. It will strengthen our energy security and support that essential transition to net zero.

Let me now deal with some of the specific point made during the debate. I thank my noble friends Lord Moynihan and Lord Ashcombe for their speeches, which recognised that the Bill will support our essential energy security. However, I am aware that other noble Lords, including the noble Lord, Lord Lennie, the noble Baronesses, Lady Hayman and Lady Young, and the noble Earl, Lord Russell, suggested the opposite. As I outlined in my opening speech, the UK still relies on oil and gas for most of our energy needs and will continue to do so well into the future, despite our excellent record on rolling out renewables. The UK is exceptionally well placed to support our own energy security and that of our neighbours and allies. As has been pointed out, we have pipelines connecting us to Norway, the Netherlands, Ireland and Belgium. We have the second-largest liquefied natural gas port infrastructure in Europe, and our infrastructure was essential to helping out our European friends and allies during the Russian crisis that they all suffered last winter.

Of course, we also have our domestic oil and gas production, which is a vital part of ensuring our own and our allies’ energy security. We currently produce about half our gas demand from the North Sea. The vast majority of UK-produced gas lands in the UK and combines with imports and storage to provide a healthy and well-supplied gas market. While 80% of the oil produced here is indeed refined abroad, 90% of that takes place in Europe, where it is made into the products that we need in the UK. Maintaining this resource reduces our vulnerability and that of our European allies to hostile states and leaves us less exposed to unpredictable international events. If the invasion of Ukraine pointed out anything to us, surely it pointed out that. Following that invasion, it was our domestic capability that helped us to support our European neighbours to wean themselves off Russian gas and oil, which most European states have now successfully done. By giving industry certainty about the future of licensing rounds, the Bill will help safeguard our domestic production and, in doing so, enhance the UK’s energy security.

Next, let me respond to the points raised by the noble Lord, Lord Lennie, and the noble Baroness, Lady Hayman, that the Bill will not reduce energy bills. Of course, it is true that oil and gas are traded on a global market. As a net importer of oil and gas, this benefits us. The Government have also ensured that excess energy profits are being used to ease pressures on families across the country. This support helped to save the average household £1,500 on its energy bill last winter. The difficult but necessary decision to further extend the energy profits levy for one more year will raise an additional £1.5 billion contribution from the sector to help us cut taxes for hard-working families, reward hard work and support economic growth.

I have also heard claims that the Bill affects the UK’s international leadership on climate. I thank my noble friend Lord Lilley for his excellent speech, which showed why that is not the case. By contrast, some noble Lords—the noble Lord, Lord Lennie, the noble Baronesses, Lady Hayman, Lady Sheehan and Lady Blake, and the right reverend Prelate the Bishop of Norwich—suggested that somehow the Bill would negatively impact our climate leadership. Our record speaks for itself. We are, as I constantly repeat, the first major economy to halve our emissions, and we are leading the world with our climate performance. Our 2030 target is one of the most ambitious among major economies, and again I am glad that the noble Earl, Lord Russell, recognised this. The Bill, I repeat, will not undermine those commitments.

Not proceeding with new licensing, as is the Opposition’s policy, is the real risk to our climate leadership. If we lose the skilled jobs that will transfer from oil and gas to renewables, we put at risk the transition to renewables and net zero. Some other noble Lords, including the noble Baroness, Lady Hayman, and the noble Baroness, Lady Jones, who I am sorry to say is no longer in her place—apologies, she is sitting on the Bishops’ Bench, which is a great surprise to us all; I did not see the noble Baroness down there—raised concerns about the tests in the Bill. These tests have been carefully designed to ensure that new licensing supports our important net-zero commitments. The tests are in fact meaningful. Those tests being met would be a reflection of the fact that the UK is a net importer and that production emissions associated with North Sea gas are lower than imported liquefied natural gas.

There was also some discussion of carbon capture, usage and storage. This point was raised by the noble Baronesses, Lady Jones and Lady Young. The Climate Change Committee, often quoted in this debate, has described CCUS as

“a necessity not an option”

for the transition to net zero. CCUS will be essential to meeting the UK’s 2050 net-zero target, playing a vital role in levelling up the economy, supporting the low-carbon economic transformation of our industrial regions and creating new high-value jobs. The first two CCUS clusters are in the north-west and north-east of England, and we are proceeding as fast as possible to final investment decisions for those clusters. They are already generating thousands of jobs in Merseyside in the north-west and in Teesside, areas that the noble Lord, Lord Lennie, and I know well.

I move on to the points raised about marine protected areas. The noble Baronesses, Lady Hayman, Lady Willis and Lady Boycott, raised the important matter of marine protection. Let me also address the questions posed by the right reverend Prelate the Bishop of Norwich. I assure the House that the Government share the desire to protect the marine environment. Indeed, we have committed that we will be the first generation to leave the environment in a better state than that in which we found it. The UK is committed to the 30 by 30 global target under the Kunming-Montreal global biodiversity framework.

We already have a robust regulatory framework in place to ensure that marine protected areas are effectively protected. Licences will be awarded only after ensuring that the environmental regulator OPRED is satisfied that activities will not have negative effects on those important protected areas. Future licensing will not affect our ability to reach our targets for ensuring that our marine protected areas are in a good or recovering state.

Furthermore, it is important to emphasise that human activity is not banned in marine protected areas. We constrain activities in MPAs, but the intention of the policy is not to forbid activity, especially where the environmental impact is assessed as not causing damage and is closely evaluated and monitored. Work is under way to ensure that we strike the right, important balance between our different marine priorities. The soon-to-be-commissioned strategic spatial energy plan and the cross-government marine spatial prioritisation programme will ensure that we take a more strategic approach to identifying future sites for marine developments and energy infrastructure, while allowing for nature’s important recovery.

In response to the questions from the noble Baroness, Lady Sheehan, the North Sea Transition Authority is responsible for ensuring that operators decommission abandoned wells within the recommended timeframe of two to five years. The noble Baroness also asked me if we would be giving any grants for oil production: no is the answer. In fact, the opposite is the case: any new production will generate billions in tax revenues, the very opposite of giving out government grants. The Government continue to work with the NSTA and the Health and—

[Baroness Sheehan (LD)]

The Minister has not addressed my third question, about stranded assets. Should these fields become so in the fullness of time, will he put in place safeguards to make sure that the British taxpayer is not liable for the costs?

[Lord Callanan (Con)]

The noble Baroness often raises this point. The industry pays billions of pounds in taxes every year, and oil companies are ultimately responsible for decommissioning their assets. As has been pointed out, they are commercial operations. If the fields are stranded assets and the oil companies lose money on them, I doubt whether anybody will shed any tears for them. They are responsible for decommissioning the assets, as is taking place now in many of the depleted fields. I think she needs to have a friendly cup of coffee with her noble friend Lord Bruce, who will fill her in on the details of how the industry works.

[Baroness Sheehan (LD)]

Yes, we get billions in taxes; that is because trillions are made in profits. What I am really concerned about is that if the businesses fold, the profits have been pocketed but the taxpayer will be left with the costs. Does the Minister accept that?

[Lord Callanan (Con)]

If the noble Baroness is asking me if they pay billions in taxes and make billions in profits, then yes, I guess the answer is that the international oil companies do very well out of it. Of course, some of them are also financing renewable infrastructure. Some of the big oil and gas companies are helping to invest in CCUS in this country. We very much hope that they will continue to make profits, because it pays our pension funds and a lot of investors, and a huge amount of money into the UK Exchequer that the Liberal Democrats are normally very keen on spending. The noble Baroness needs to allow that money to be raised in the first place. The companies are responsible for decommissioning their assets.

The Government continue to work with the NSTA and the Health and Safety Executive to ensure that well decommissioning is progressing in line with the relevant safety and environmental regulations and standards. That is exactly the same as has been happening previously. The UK has a very robust decommissioning regime whereby operators are responsible for decommissioning their assets at the end of their useful life. This regime of course includes protections for taxpayers, so that the costs fall on those operators. I hope the noble Baroness is reassured by that.

I was of course also pleased to hear the support of the noble Lord, Lord Bruce, for the jobs in the sector. He has a lot of relevant experience, particularly in north-east Scotland. This is in line with the words of Sir Ian Wood:

“Owing to a world-class oil and gas sector, the North East … is home to the critical mass in skills and expertise that will be crucial to ensuring that we successfully accelerate new and green energies, protecting and creating jobs as we do so”.


I am pleased to have the support of the Labour Party, but we must retain those skilled jobs in the industry, and our firm belief is that this Bill will help us to achieve exactly that.

To conclude, the Bill will give industry the certainty and confidence it needs to continue to invest in the North Sea, strengthening our energy security and supporting the energy transition as we move towards our goal of net zero, through the introduction of annual licensing rounds, subject, of course, to all the appropriate tests being met. I look forward to continuing the scrutiny of the Bill as it progresses through the House, but in the meantime, I beg to move.

[Baroness Blake of Leeds (Lab)]

Before the Minister sits down, could he answer my question about whether discussions are continuing on the issue of methane, as was raised in the other place, and particularly the withdrawal of the amendment from the right honourable Alok Sharma? Can we expect to have some discussion on where those conversations might lead us, if they are indeed taking place?

[Lord Callanan (Con)]

As I always do, I will listen very carefully to the point of view the House expresses in Committee, and, as is normal practice, as a Government we will then consider whether there are any concessions or changes we want to offer in the Bill. I am sure we will want to talk further to the noble Baroness and her colleagues at that point.

Bill read a second time and committed to a Grand Committee.

Strategy and Policy Statement for Energy Policy in Great Britain

Lord Callanan Excerpts

Monday 25th March 2024 Lords Chamber

Moved by

[Lord Callanan]

That the draft Strategy and Policy Statement laid before the House on 21 February be approved.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the past few years have brought unprecedented challenges and uncertainty to Great Britain’s energy system. But we have remained resilient and last year laid the foundations for an energy system fit for the future with the landmark Energy Act 2023, which I know many noble Lords were involved in. It was the largest piece of energy legislation in the UK in a generation, and a world first in legally mandating net zero.

The changes in that Act, including the powers to establish the National Energy System Operator, NESO, and new duties for Ofgem, mean that now is the right time to reaffirm the Government’s strategic priorities and policy outcomes in this strategy and policy statement. The Draft Strategy and Policy Statement for Energy Policy in Great Britain is developed according to Part 5 of the Energy Act 2013. It sets out in clear terms the Government’s strategic priorities and other main considerations of their energy policy, the policy outcomes to be achieved, and the roles and responsibilities of persons involved in implementing that policy.

The Secretary of State, Ofgem—the independent regulator for gas and electricity markets in Great Britain —and the NESO, a new independent public corporation responsible for planning Britain’s electricity and gas networks and operating the energy system, will be required to have regard to the strategic priorities set out in this SPS. The Secretary of State and Ofgem must also have regard to the policy outcomes contained within the SPS, and they must both carry out their respective regulatory functions in a manner that they consider best calculated to further the delivery of the policy outcomes.

The NESO is expected to be established this year. The SPS serves an additional purpose of setting out and clarifying the roles and responsibilities of the NESO, alongside Ofgem and the Government. The SPS is intended to provide guidance to the energy sector on the actions and decisions needed to deliver the Government’s policy goals, and places emphasis on where the Government expect a shift in the energy industry’s strategic direction.

As the independent energy regulator for Great Britain, Ofgem cannot be directed by the Government on how it should make decisions. Similarly, the NESO is being set up to be operationally independent and free from day-to-day government control. However, the SPS will provide guiding principles for Ofgem and the NESO, when it is established.

The strategic priorities and policy outcomes within the SPS do not include the creation of any new policies or duties. The SPS reaffirms the Government’s existing priorities and commitments, such as affordability, protecting consumers, security of supply, net zero, investment ahead of need, and encouraging Ofgem to make full use of its enforcement powers to support these ambitions. This statement will therefore support strategic alignment between government, Ofgem, NESO and the industry, through making clear what government wants to achieve in the energy sector.

As mentioned, the legal framework of the Energy Act 2013 means that Ofgem, NESO and the Secretary of State all have a duty to have regard to the strategic priorities within the SPS. Ofgem and NESO must also give notice to the Secretary of State if, at any time, they conclude that a policy outcome contained in the SPS is not realistically achievable. Ofgem must also publish a strategy showing how it will further the delivery of the policy outcomes, and its annual report must assess its contribution to delivery of the policy outcomes. The SPS therefore acts as a tool to promote alignment between government, Ofgem and NESO, as all parties will have to have legal regard to the statement in some sense.

As per the Energy Act 2013, the SPS has completed two consultations. The first consultation was undertaken with Ofgem and the Welsh and Scottish Governments. Government worked with all parties to make sure that their views were correctly captured before moving on to a second, public consultation held last summer. In the public consultation, government received views from Ofgem, the Scottish Government, ESO and many stakeholders across industry, including businesses, investors, trade bodies, suppliers, generators and infrastructure operators.

Feedback throughout both consultations was generally positive, and stakeholders were keen to see an SPS implemented to give guidance to the sector and clarity on the roles of Ofgem, NESO and government in delivering the Government’s priorities for the energy sector. Since the consultations have concluded, officials have worked through that feedback and, where appropriate, have used this to inform the current iteration of the SPS which is now laid before your Lordships. The Government are confident that this SPS reflects the right strategic priorities and policy outcomes for energy policy for the whole of Great Britain.

I thank the Secondary Legislation Scrutiny Committee for the time it has taken to review the SPS, as well as the noble Lords, Lord Hollick and Lord Lennie, the noble Baroness, Lady Hayman, and others, for their interest in the development of the SPS.

In conclusion, the SPS reaffirms the Government’s commitments and priorities for the energy sector and, in doing so, acts as a tool to support alignment between government, Ofgem, NESO and industry. I beg to move.

[Baroness McIntosh of Pickering (Con)]

My Lords, I congratulate my noble friend on bringing forward the draft strategy and policy statement, which I support.

As president of National Energy Action, and focusing on the SPS’s aims of affordability and protecting consumers to which my noble friend referred, I want to put a question to him. Although I accept, as the department explains in paragraph 46—this was also referred to by the Secondary Legislation Scrutiny Committee—that although Ofgem is independent of government, the regulator is required to

“have regard to the strategic priorities set out in this statement when carrying out its regulatory functions”,

does my noble friend share my concern, particularly for those living in fuel poverty, that although a consumer has control over the unit cost of electricity they are purchasing, they have less control over the standing charge? My understanding of the changes being brought in on 1 April, is that, although we are reducing the unit cost to the consumer, the standing charge is going up incrementally. I imagine, in a very short order—possibly two to three years’ time—that instead of standing charges going up to 50p or 70p, they will cost up to £1 per day. I believe that for many living in fuel poverty that is unaffordable.

So, while I accept that Ofgem should operate independently of the Government, I recall that in 2014, as part of the price review that the water companies’ regulator Ofwat carried out, the Government issued a request to Ofwat to have regard to the affordability of customers’ bills. My question to my noble friend is: is that something the Government might be minded to do under this SPS, in order to have regard to affordability and protecting consumers?

--- Later in debate ---

[Lord Lennie (Lab)]

My Lords, I thank noble Lords who have contributed thus far to the debate for making my job somewhat easier than it would otherwise have been and for raising important questions. The noble Baroness, Lady McIntosh, raised the affordability of standing charges from the NEA. The noble Lord, Lord Naseby, raised a lot of concerns about lack of progress in a number of areas, which, no doubt, the Minister will address. The noble Earl, Lord Russell, had a range of concerns, particularly about a lack of potential progress on the auctioning of offshore wind contracts for difference, which is about to take place—I think next week.

For my own part, there are three points I want to raise this evening. First, this is the first statement since the Government’s Energy Act 2013 facilitated such statements. Secondly, while we agree with much of the statement, there are some clear differences between the Conservatives and Labour: in particular, on setting 2030 as the date by when Great Britain will be a clean power generator. Thirdly, there is a lack of detail and therefore a need for revision at the earliest opportunity.

I will take these points in order. The Energy Act 2013 assumed that a strategy and policy statement would be essential to align government policy with the actions of government agencies and bodies such as Ofgem and ensure they were marching in lockstep. There has not been a statement since 2013. As the noble Earl, Lord Russell, said, given the five-year gaps between statements, we should now be reviewing our second statement.

However, this policy statement is important in seeking to align government and Ofgem, with Ofgem having recently been designated with a net-zero mandate under the Government’s energy policy of 2023. The Government cannot direct Ofgem, so Ofgem cannot operate unless there is such a policy statement. While this policy statement has been delayed—let us say, since 2013—it is certainly now welcome.

These policy statements are supposed to last five years. We should have had a strategy and policy statement immediately after the 2013 Act, and we should now be revising the second one. It is also clear that the strategy and policy statement will not last more than a year or so from now, because there will be a general election. The outcome of that election is not yet known but, should Labour win, it will certainly be reviewed. Can the Government say why no policy statement has been submitted before now?

While much of the statement is welcome, there are some clear differences between the Government and Labour. The original 2030 date by when we were to have clean power is no longer accepted by the Government. They have recently put back from 2030 until 2035 the date for ending the sales of internal combustion engines, in effect, meaning there will be at least a five-year delay. Their former net zero tsar, Chris Skidmore, and their widely respected former chair of COP, Alok Sharma, have both been highly critical of the Government’s policy. This will surely do nothing to reassure either of them.

There are also areas as yet undefined and unclear, such as the relationship between ISOP—now to be called the national energy system operator—and Ofgem. NESO is a commitment in the Energy Act 2023 but, as we have heard, is yet to be established. When it is, there will be much work to be done to define its relationship with Ofgem as well as questions to be addressed about the regional energy system planners. Once NESO is set up, will there be a statement about these matters, including its relationship to Ofgem and, therefore, to government?

There are other areas that require updating. As the noble Earl, Lord Russell, said, these include a plan for developing long-duration energy storage, as well as the 2030 fuel poverty target, which National Energy Action says will be missed by 90%, and the rollout of smart meters, which is well behind the time set originally by the Government. These and other areas in the statement are either unexplained or undefined. Will any update on these matters be forthcoming?

Finally, a strategic policy statement must take account of the real state of the policy landscape or risk irrelevance; but a statement is better than none at all, which is why we welcome this statement despite its shortcomings

[Lord Callanan (Con)]

My Lords, I thank all noble Lords who have taken part in this debate. First, I am confident that the strategic priorities and policy outcomes in the SPS clearly establish what the Government are trying to achieve in the sector. I think it got fairly widespread support and it established why this is important, demonstrating how these smaller policy outcomes contribute to the broader strategic priorities so that stakeholders can be reassured of how their role fits into the bigger picture.

I hope that the SPS gives industry a sufficiently high-level understanding of the roles, responsibilities and remit of government and the regulators in helping to deliver these objectives. Particularly in the case of NESO, we have provided enough information on the body’s remit to give confidence on the role that it will play when it is established, while also recognising that its responsibilities will evolve over time. As well as reaffirming our ambitions, this SPS will give encouragement to Ofgem to utilise the full range of its existing powers to ensure that those ambitions are realised and that stability and confidence are restored across the sector.

I move on to the points that were raised in the debate, starting with my noble friend Lady McIntosh. The SPS makes clear the importance of tackling fuel poverty, as was also raised by the noble Lord, Lord Lennie. Ofgem has conducted a call for evidence on the standing charges issue. I know it is a very topical issue; there is a lot of concern. Ofgem received over 40,000 responses to that consultation. It is reviewing those responses. The Government are liaising closely with Ofgem to understand the options going forward. It is an independent regulator, and it would not be right to interfere in the decisions that it will make, but we do understand the concern that has been raised.

The NESO will be funded and regulated by Ofgem through licences and the price control process, as is the case with the electricity and gas system operators today. That is a well-known model, understood widely across the sector. The approach will provide accountability, scrutiny and, of course, value for money, while ensuring that the NESO is able to deliver fully on its objectives.

As part of agreeing future price controls, Ofgem will ensure that NESO is fully resourced to fulfil its objectives and the obligations set out in its licence, including the funding of its statutory duties such as those towards innovation and keeping developments in the energy sector under review. As with other regulated bodies in the sector, the NESO will have the operational freedom it needs to manage and organise itself to effectively deliver its roles and objectives.

I move on to the points raised by my noble friend Lord Naseby. He quoted extensively from the National Audit Office report on home heating. That is of course different from what we are debating today, but he raised some very good points, particularly on the rollout of heat pumps et cetera, on which I agree. My noble friend will be aware that we took a decision not to proceed with the hydrogen village trial last year. That was due chiefly to the lack of available hydrogen, but it also took into account the real concerns that were raised by many members of the public in that area. It is undoubtedly the case that electrification will provide the vast majority of the decarbonisation options in home heating; hydrogen will play a very limited role, if any, in the decarbonisation of heating.

In response to the questions raised by the noble Earl, Lord Russell, and the noble Lord, Lord Lennie, our aim continues to be for the NESO to be operational in 2024, depending on a number of factors including agreeing timelines with various key parties.

On the review of the SPS, I confirm that the Secretary of State can review the strategy and policy statement at any time—for example, following a general election or a significant change in energy policy.

On the questions raised by the noble Earl, Lord Russell, about the rules and responsibilities of NESO, I confirm that we have set out the roles and responsibilities of government, Ofgem and NESO at a high level in the SPS. The Government set the policy direction, while Ofgem is the independent regulator and makes decisions on business and investment plans. NESO will be the whole system planner, the operator of the electricity system, and the expert adviser to the Government and Ofgem as key decision-makers.

We are currently developing a framework agreement, which will set out the relationship between the Government as the shareholder and NESO. We plan to publish this shortly after designation. The specific roles and obligations of NESO will be set out in its licences, on which Ofgem undertook an initial consultation last year. We are due to undertake a statutory consultation this spring. However, as mentioned previously, we expect that NESO’s role and remit will continue to evolve over time as energy policy develops.

On NESO not being able to raise concerns over the achievability of SPS outcomes until it is established, I reassure the noble Lord that Ofgem will also have a responsibility to raise concerns over achievability. We are already in frequent dialogue with the current electricity system operator, on which NESO will be based, where the Government’s ambitions for energy are regularly discussed.

Finally, I move on to the point made by the noble Lord, Lord Lennie, on why now is the right time for the SPS. The Energy Act 2023 introduced new measures and established the independent system operator and planner in the first place as NESO. We thought that now was a good time—to reply to the point about major policy changes—to develop strategic guidance to explain exactly how we believe that Ofgem, government and NESO would work together to meet the Government’s energy priorities going forward.

I hope I have been able to deal with all the points raised by noble Lords.

[Lord Naseby (Con)]

Can my noble friend answer the question about small nuclear reactors? There has been consistent delay after delay. Are we going to get a decision in this calendar year?

[Lord Callanan (Con)]

That is not the subject of this particular policy statement, but my understanding is that Great British Nuclear is currently reviewing the various designs, having instituted a competition to try to pick the best design going forward. I do not know the precise timescale for responding to that, but I will certainly find out and write to the noble Lord.

Motion agreed.

Home Insulation: Health and Mortality Rates

Lord Callanan Excerpts

Tuesday 19th March 2024 Lords Chamber

[Baroness Blake of Leeds]

To ask His Majesty’s Government what recent assessment they have made of the impact of current levels of home insulation on health and mortality rates.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, evidence of the health benefits of government insulation schemes is gathered as part of those schemes’ evaluations. Recent evaluations show that schemes had a positive impact on general health. For example, improvements in the health of someone in the household were reported after the installations from our government energy efficiency schemes. Of course, the health impacts are higher for those with pre-existing health conditions.

[Baroness Blake of Leeds (Lab)]

Recent reports, including by Sir Michael Marmot, have made a clear link between poor home insulation—coupled with the cost of living crisis and high energy costs—and devastating impacts on the health outcomes of thousands of the most vulnerable people across the country, young and old. What cross-cutting analysis are the Government undertaking to reassess fully the impact of their performance in delivering home insulation in the light of the chronic health outcomes highlighted?

[Lord Callanan (Con)]

I just explained in the Answer to the noble Baroness that as part of all our energy efficiency schemes, we do evaluations afterwards of the effect on people’s bills and health. We are spending over £12 billion over this Parliament and the next on insulation schemes, because we know they make a crucial difference.

[Earl Russell (LD)]

My Lords, it feels as if energy conservation is still the last thought and never the first. We have some of the highest domestic energy bills in Europe and some of the worst-insulated homes, yet we fail adequately to improve home insulation. Meanwhile, we continue to import gas from countries such as Russia. When will the Government do the right thing for bill payers and the environment and set more ambitious home installation targets, particularly for social rented homes?

[Lord Callanan (Con)]

I disagree with the noble Earl; the figures he quoted are not correct, and we are improving home insulation standards. To give one figure, in 2010, 17% of homes in the UK were EPCC or above; now the figure is almost 50%, so we are making progress. We have a lot more to do. We have the oldest housing stock in Europe, but we are making progress.

[Baroness Ludford (LD)]

My Lords, have the Government given any thought to older houses, particularly ones in conservation areas or that are listed? If you want to replace sash windows with double-glazed ones, there is not only that expense but the need to obtain planning consent or listed building consent. It is a very expensive enterprise. What do the Government propose to do to help in this situation?

[Lord Callanan (Con)]

The noble Baroness makes a very good point, and I suspect that she speaks from personal experience. Improvements in energy conservation for homes in listed or conservation areas is a difficult issue. We recently carried out a joint study with DLUHC and Historic Houses, and provided guidance for home owners wanting to do that. She will be delighted to know that you can get well-insulated, double-glazed sash windows to replace the originals.

[Baroness Blackwood of North Oxford (Con)]

My Lords, those with respiratory conditions face life-limiting risks from fuel poverty and poor insulation, and those risks are obviously triggered by weather factors. Is the Minister aware of the potential of AI-based weather models to predict and manage the risks faced by those with health conditions, including prioritising those who would benefit most from the insulation programmes? Will he engage with partners such as the Alan Turing Institute and the Met Office to explore the opportunities to harness these technologies for public benefit?

--- Later in debate ---

[Lord Callanan (Con)]

I thank my noble friend for the question. There are some great technologies coming forward now and, of course, we are always interested to explore how government investment can be better targeted on those who need it the most.

[Lord Clark of Windermere (Lab)]

My Lords, is the Minister aware that there are problems with cavity wall insulation in various older houses, in that the cavities are not large enough to qualify for government assistance? Will he look into that and see if anything can be done to move it forward?

[Lord Callanan (Con)]

I am certainly aware of some technical challenges with different technologies. We have a multiplicity of different housing types. Of course, if the cavities are too small, those properties can benefit from internal or external wall insulation. I would be happy to have a look at that for the noble Lord.

[Baroness Manzoor (Con)]

My Lords, has any thought been given to our mortgage providers—banks and others—enabling people who move home to get their home insulated by providing a slightly lower interest rate or some other benefit? That would mean that, every time anyone moves, the house would be insulated, for the betterment of all.

[Lord Callanan (Con)]

My noble friend asks a really good question. We have a number of innovative pilots with lenders, such as green mortgages and different ways of structuring finance that can help people to upgrade their homes. There are some potential tax changes —which, of course, are a matter for the Chancellor—that could help, but we will continue to make the case.

[Baroness Hayman (CB)]

My Lords, I declare my interests as set out in the register. The Minister referred to the amount of money being put into insulation schemes, but does he accept that over the last 10 years a rota of schemes has been introduced, and that they have failed and been closed down? Does he accept that the industry needs consistent, clear policy, so that it can invest in training in particular, so that the money the Government put in is actually value for money?

[Lord Callanan (Con)]

No, I do not accept that. There has not been a rota of schemes. The most successful scheme, the ECO scheme, has been going since the early part of the previous decade and we have committed funding for a number of years to come. The more successful schemes, such as the social housing decarbonisation fund and others, are also multi-year programmes precisely to provide the long-term certainty to industry that so many contractors say they desire. We have already announced the funding for 2025-28—another £6 billion—and we have set out the schemes on which it will be spent. So, no, I am afraid I do not accept the noble Baroness’s analysis.

[Lord Whitty (Lab)]

My Lords, 20 years ago, when I had some responsibility for the insulation programme, health issues were just as important, if not more so, than fuel poverty as such, or climate change. I made some attempt to get the Department of Health to recognise the preventive nature of this programme. I failed totally, but would the Minister care to comment on his ability to persuade the current Department of Health that a preventive insulation programme is very much in its interests and the long-term interests of the health service?

[Lord Callanan (Con)]

I have not had any discussions with the Department of Health on this. I am not sure of my ability to persuade it of anything, but I would have thought it relatively self-evident that spending money on insulation schemes saves people money and has long-term health benefits. I do not think we need any studies to show us that.

[The Earl of Devon (CB)]

My Lords, to follow up on the issue of failed government schemes, would the noble Lord care to comment on the green homes grant scheme, which failed in 2021? As I understand it, it failed on account of the lack of trained and skilled people to pick up the grant scheme. What focus do the Government have on essential training in these skills?

[Lord Callanan (Con)]

The noble Earl asks a very good question, and there have been a number of studies into why that scheme was not as successful as we would have liked. The fact that it was instituted at the end of the pandemic was one reason; poor choice of delivery contractor was another. I readily concede that there is a general problem in the sector with lack of suppliers and installers, and that is due to the amount of work going on through government schemes and the private sector. We all need to work, together with the installers and the contractors, to build up capacity in the sector. One of the ways we can do that, going back to an earlier question, is to provide long-term certainty of funding.

Advanced Modular Reactors: Criticality Tests

Lord Callanan Excerpts

Tuesday 19th March 2024 Lords Chamber

[Viscount Hanworth]

To ask His Majesty’s Government what assistance they provide to the developers of advanced modular reactors to enable them to conduct criticality tests.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, advanced modular reactors hold significant potential to decarbonise hard-to-abate sectors. As part of the advanced modular reactor research, development and demonstration programme, the Government are exploring what further underpinning research and development is required, such as critical assembly tests for fuel, to demonstrate the abilities of high-temperature gas reactors. The Government are committed to building on our existing support for the sector and, as part of the alternative routes to market for new nuclear projects consultation, we are seeking views on how we can go further to unlock these opportunities.

[Viscount Hanworth (Lab)]

I thank the Minister for that Answer. Several projects aimed at developing advanced fourth-generation modular reactors are under way in the UK, but they are wilting through a lack of the support that should be forthcoming from the Government. They require licences and test facilities in order to prove their designs. All the leading projects are seeking foreign affiliations and may be lost to this nation. Would the Government be happy to rely on foreign enterprises to provide the next generation of nuclear technology, to the detriment of our own nuclear industry?

[Lord Callanan (Con)]

Of course we would not, which is why we are offering support for many of these technologies. The noble Lord’s Question asked about criticality tests—we are aware of that requirement and are in discussions with a number of companies interested in carrying them out in the UK, but these are not simple issues.

[Lord Howell of Guildford (Con)]

My Lords, as I understand it, Great British Nuclear says that the final decision on smaller modular reactors will not be made until 2029 for the present competition, and that no smaller modular reactor will be in service until 2035—that is five years and 11 years ahead. Can my noble friend explain why it will take so incredibly long, when other countries are racing ahead?

[Lord Callanan (Con)]

I do not recognise the dates that the noble Lord cited. Great British Nuclear is obviously heavily ensconced in the design selection process at the moment, and I understand that, given a fair wind, the reactors should be online and producing electricity by the early 2030s.

[Lord Ravensdale (CB)]

My Lords, I declare my interests in the register. One reminder from the conflict in Ukraine is that energy security and national security are indivisible. The Government set out welcome guidance that Russian nuclear fuel imports into the UK will be banned by 2030, but it is a major national security issue to be relying on these imports for another six years. Does the Minister agree that we need to legislate to bring forward this date, as our partners and allies in the US are doing?

[Lord Callanan (Con)]

I understand the noble Lord’s concern, and I know the close interest he takes in this; I share his concerns. I know he had a very productive meeting with the Secretary of State and Minister Bowie to discuss these matters, and he has written following that. A letter on that is being drafted and will come to him shortly.

[Earl Russell (LD)]

My Lords, following the transfer of the intellectual property and personnel in the U-battery project to foreign control, are the Government confident that enough action and support are being provided to UK-based projects to develop advanced modular reactors to prevent them also falling under foreign ownership?

[Lord Callanan (Con)]

Of course there is always more that we can do to support these projects, but we are supporting them with massive financial resources and research and development designs. It is always concerning if foreign companies are taking control of some of these projects, but we nevertheless have a really good scheme of projects in the UK and we are supporting them.

[Baroness Blake of Leeds (Lab)]

My Lords, it is very welcome to hear that the Government plan to invest in new nuclear research and development. However, after their failure to build a single nuclear power station in 14 years and with the rollout of small modular reactors proving to be a protracted process, can the Minister give us a date for the conclusion of the SMR competition?

[Lord Callanan (Con)]

It is great to see that Labour now supports new nuclear projects, because that was not always the case for previous Governments. As I said to my noble friend Lord Howell, we want to see them in production by the early 2030s.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, I congratulate the Government on the acquisition of Wylfa, which is hugely significant for both the generation of nuclear power and the people of north-west Wales. But why are they supporting only high-temperature gas reactor technologies in the AMR RD&D programme?

[Lord Callanan (Con)]

I thank my noble friend for her question and her positive advocacy of Wales and the Welsh nuclear programmes. I suspect that the noble Lord, Lord Wigley, was going to ask me something similar —he may well still do so. The Government selected HTGRs for research and development purposes in the AMR R&D programme following analysis by the Nuclear Innovation and Research Office of the responses to a call for evidence. This analysis suggested that HTGRs are the most promising AMR technology for decarbonisation due to their ability to generate high-temperature heat and their high technology readiness levels.

[Lord Wigley (PC)]

My Lords, I very much agree with the noble Baroness, Lady Bloomfield, and the plea made by the noble Viscount in introducing this Question. I reiterate my support for Trawsfynydd and Wylfa and welcome the steps being taken there. Over the past four years Ministers have repeatedly stressed the role that the Government see for nuclear energy in the challenges of climate change, yet here we are again failing to put resources where they matter, particularly for enhanced safety and disposing of nuclear waste. Will the Government either come clean and admit that they are not fully committed to this next generation of nuclear technology or commit the necessary money to make this happen?

[Lord Callanan (Con)]

I am delighted to see the support from across the House for the contribution that Wales makes to our nuclear technologies, but I am afraid I cannot agree with the noble Lord. We are putting in substantial sums of money: £385 million into the advanced nuclear fund, £210 million to support the development of Rolls-Royce SMR design and up to £170 million for an AMR research, development and demonstration programme across three phases. I could go on with the levels of support; we are supporting most of these technologies.

[Viscount Trenchard (Con)]

My Lords, the noble Viscount makes a very good point. Can my noble friend the Minister explain why Japan’s high-temperature gas-cooled reactor technology, endorsed by my right honourable friend Greg Hands in 2021—which is inherently safe, internationally licensed and has been operating for more than 10 years—has been consigned to the back burner as part of the AMR research, development and demonstration programme? This technology needs to be brought forward into the GDA process now, or it will be too late to make its much-needed contribution to the decarbonisation of industry.

[Lord Callanan (Con)]

I refer my noble friend to the answer I gave to my noble friend Lady Bloomfield. We have selected high-temperature gas reactors for research and development purposes in the AMR R&D and demonstration programme.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, do the Government give any assistance to these developers in terms of the environmental impact of the entire life cycle of their systems, or is that completely disregarded?

[Lord Callanan (Con)]

Of course it is not disregarded. The safety of the UK’s nuclear programme—the disposal of waste nuclear fuels, et cetera—is one of our highest priorities. We have an excellent record when it comes to nuclear in this country.

[Lord Whitty (Lab)]

My Lords, while we are on nuclear, what do the Government make of the reports last week of a major breakthrough in fusion technology, and what support are they giving to British technology in this field?

[Lord Callanan (Con)]

There is indeed lots of exciting talk and articles about developments in fusion, and there are a number of British companies at the forefront of that—we are supporting them. The note of caution I give is that fusion has been the coming technology for about the last 30 years; every year it is 10 years away. To not be cynical about it, there are some great breakthroughs and we are now finally getting more energy out of the system than we put into it, which is very encouraging. But it is a long way away yet.

[Lord Bellingham (Con)]

My Lords, can the Minister say something about winning the support of local communities? Obviously, the crucial aspect in all this is getting local buy-in for these small nuclear reactors. Can he say what the Government are doing to win this argument and to change the narrative from where it is at the moment?

[Lord Callanan (Con)]

My noble friend makes a very powerful point; it is really important to take communities along with us. The interesting thing about nuclear technology is that it is very well supported in the communities where it already exists, but I suspect that if you applied to put it in a different community, you might run into different levels of opposition. It is really important that we explain to people what the technology is, what it does, how safe it is and how it is crucial to the UK’s energy mix in the future.

Energy Bills Discount Scheme (Amendment) Regulations 2024

Lord Callanan Excerpts

Tuesday 19th March 2024 Lords Chamber

Moved by

[Lord Callanan]

That the draft Regulations laid before the House on 7 February be approved.

Relevant document: 15th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 12 March.

Motion agreed.

Gas-fired Power Stations

Lord Callanan Excerpts

Thursday 14th March 2024 Lords Chamber

[Earl Russell (LD)]

My Lords, this announcement comes out of the blue and fuels doubts that this Government are on track to meet their own target of fully decarbonising power generation by 2035. So far, instead of progress we have seen repeated failures to prepare; the offshore wind auction collapse; an effective ban on onshore wind; nuclear power projects delayed; slow or no progress on battery storage, hydro-generation and tidal projects; and a lack of investment in overall grid capacity. I ask the Minister to confirm that the Government are still committed to fully decarbonising power generation by 2035 and that these will be the last ever carbon-based power generation plants to be built in the UK.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan)]

I thank the noble Baroness and the noble Earl for their questions, especially the noble Baroness, although I am slightly perplexed. If she thinks that this announcement was unnecessary, why did the Labour Party ask for it to be repeated in this House today, given that it makes the same point? However, essentially, I accept the point that the noble Baroness has made. We think that this capacity is necessary; it is all about security of supply. The estimate is that in 2035, it might account for only 1% to 2% of all of the capacity that might be required. We are looking forward a decade, with uncertain projections of what the demand will be, how much renewable capacity will be available and even what the weather conditions will be like that far ahead. So, this is sensible contingency planning.

On the questions from the noble Earl, we very much hope and expect that these will be hydrogen ready or capable of having CCUS fitted. Indeed, some gas plants are already taking part in the CCUS cluster sequencing process. This announcement is entirely compatible with our net-zero obligations. Indeed, this is net zero: there will be some emissions but those can be abated, eliminated or captured, or the power stations can run on hydrogen.

We are very proud of our record. We have one of the fastest rates of decarbonisation in the G20, and we announced before Christmas that we have reduced our emissions by 50%. We have the five biggest wind turbine farms in Europe, and that capacity continues to be rolled out. This is sensible contingency planning to make sure that the lights stay on at those times when, as we all know happen, the wind is not blowing and the sun is not shining.

[Lord Howell of Guildford (Con)]

My Lords, I welcome this announcement because it seems to have a strong element of realism and honesty in this whole advance towards net zero, which I personally welcome.

If the aim is to ensure that when we get to net zero, although there will be fossil fuel burning, carbon is captured from that—indeed, there will be gas burning, as there is now, as part of our existing electricity generation —does this not have to go hand in hand with dynamic development of cheaper, simpler and more efficient carbon capture and storage systems, which, if applied to gas burning, will enable us to say, “Net zero is roughly there”? That seems to be the key question, and I hope my noble friend will elaborate on it.

[Lord Callanan (Con)]

I thank my noble friend for his question. He is, of course, absolutely right, and his extensive knowledge of the power and energy system, based on his previous career, is well respected in this House. I can tell him that we are rolling out CCUS at pace. We have allocated £20 billion for support for CCUS clusters. We are progressing our two initial track 1 clusters: HyNet and the East Coast Cluster. We are in final negotiations with the transport storage systems and the emitter projects, some of which are gas power stations, within those cluster projects.

We again intend to be European and world leaders in CCUS. We have massive storage potential in the seas surrounding us; they have powered this country for many years and will help us to store emissions in the future as well. It is something that could even become a net revenue earner for the UK. We are indeed fully committed to that.

[Baroness Bennett of Manor Castle (GP)]

My Lords, the House of Lords Science and Technology Committee yesterday released a timely report, which I am sure the Minister is aware of, on long-duration energy storage. It stresses the importance of that, rather than relying on expensive gas and the deeply uncertain technology of carbon capture and storage. The report points out that the Government have said that they plan to have enough storage to balance the system and that the cap and floor mechanism has worked very well with interconnectors to deliver that. A key point of the report is that the Government have not set a minimum target for long-duration energy storage. Will the Government now set a target for this clearly preferable alternative for long-duration storage?

[Lord Callanan (Con)]

My Lords, the essential misunderstanding of the energy system from the noble Baroness continues apace. The answer to the noble Baroness’s question is that we need both. We need long-duration energy storage, long-term battery storage, pumped storage and long-term hydrogen energy storage—all of which we are progressing. We have the most ambitious plans in Europe in all those areas. However, all independent forecasters who have looked at this, including the Climate Change Committee, agree that, in addition to that, we may need gas-fired generation, of relatively short duration and maybe only 1% or 2%—obviously, the Greens would prefer the lights to go out in their yurts before the rest of us progress in an advanced industrial society. This is essential contingency planning, and we make no excuses whatever for saying that the energy security of the UK is our priority. We can do that in a net-zero scenario, and we will progress that.

[Lord Redesdale (LD)]

My Lords, I have a question about baseload capacity. Under the present Government, the number of larger generators on the grid has fallen quite considerably. Due to that, we will obviously need gas-fired power stations in the short term. However, there is a problem there, because the Minister is talking about short-term capacity. Can he say whether those investing in gas power stations would see a return on investment? The reason why gas-fired power stations have failed to be built over the last 10 years is that, because of the CfD, it has been almost impossible to make the financial case for building those power stations.

[Lord Callanan (Con)]

The noble Lord is right in that the number of larger generators on the system is falling, with the elimination later this year of coal generation —we will have phased it out completely. He is right, again, that the gas generators that we are talking about—which will be some refurbished existing plants, but also a few new ones—will be able to take part in the capacity market auctions. These are essentially auctions for back-up capacity that may be required in certain scenarios.

[Lord Hannan of Kingsclere (Con)]

My Lords, I wonder if my noble friend the Minister can enlarge slightly on the question posed to him by the noble Baroness on the Labour Front Bench about hydrogen adaptation. I very much welcome the Statement; it seems to me important to tackle this issue in the proportionate, affordable and measured way, rather than in a millenarian spirit. Can my noble friend the Minister outline a little bit of what the Government’s hydrogen strategy is as part of that solution?

[Lord Callanan (Con)]

I thank my noble friend for the question; I am very happy to do that. We are progressing a very advanced hydrogen strategy, which I will try to summarise in a few words. We let the first 11 electrolytic hydrogen contracts before Christmas, offering £2.1 billion-worth of long-term support for the development of electrolytic hydrogen. We have a few blue hydrogen projects that are currently taking part in the CCUS negotiations. We are currently putting in place business models for a transportation and storage system and hope to progress that later this year, as well as the first couple of storage projects. We have a very ambitious hydrogen project; we think that hydrogen has a very important role to play in the net-zero scenario, both in terms of long-term energy storage and in decarbonising some elements of industry that are particularly hard to decarbonise. We should of course electrify where we can, but we will still need hydrogen power to generate power in some of those sectors.

Biomass: Power Generation

Lord Callanan Excerpts

Wednesday 13th March 2024 Lords Chamber

[Baroness Boycott]

To ask His Majesty’s Government what evidence they have that power generation from biomass is (1) good value for the taxpayer, (2) not leading to forest degradation in other countries, and (3) compatible with reaching net zero emissions by 2050.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, biomass plays a vital role in ensuring that the electricity system is both reliable and low-carbon by providing dispatchable power when intermittent renewables are not available. Generators receive subsidies only for electricity generated from biomass that is compliant with stringent sustainability criteria. As set out in the biomass strategy, the Government will review sustainability criteria this year. The Climate Change Committee is clear that sustainable biomass can provide a low-carbon and renewable energy source.

[Baroness Boycott (CB)]

I thank the noble Lord very much for his Answer, but it seems incorrect that we should fund any sort of forest degradation, either in this country or in others, such as Canada or the USA. We know that some countries are cutting down old-growth forests to feed companies here in England, such as Drax. A tree planted today, even if you replace it, is not going to sequester carbon until, probably, the end of the century—certainly not within the timeframe that we need. I hope that the Minister can agree with me on that point at least. Can he also agree that, given the short timeframe we are operating in, we should question, or potentially remove, the renewable classification from biomass electricity for the very big companies in this country, such as Drax?

[Lord Callanan (Con)]

I can agree with much of what the noble Baroness says but, like everything else, the situation is more complicated than that. There are many forests across the world—we are talking about forests in the US and Canada here; they are not third-world countries—that are renewable, sustainable and properly managed. The vast majority of the biomass used is a by-product from existing wood cultivation. The main wood is used for forestry, boards, joinery, et cetera, and the by-product is used for biomass. Not permitting biomass would not necessarily result in those forests just carrying on as they are.

[Baroness McIntosh of Pickering (Con)]

My Lords, will my noble friend look clearly at developing more home-produced products, such as fast-growing willow coppice, that will both give a sustainable source of energy to Drax but also help hard-pressed British farmers at this time?

[Lord Callanan (Con)]

My noble friend makes a good point. It is not just Drax; there are many commercial and domestic biomass boilers as well that I am sure would be happy to use sustainable British-produced biomass.

[Lord Browne of Ladyton (Lab)]

My Lords, when biomass subsidies were initially awarded, was it envisaged that the Drax power station would receive more than £2 million a day in biomass subsidies, emit about 12 million tonnes of CO₂ a year, and, last year, take more than 40,000 tonnes of wood from old-growth forests in British Columbia—a practice, incidentally, which Drax previously decried in its own sustainability reports? If not, what criteria will the Minister’s department use when a decision is made about whether subsidies should be extended beyond 2027?

[Lord Callanan (Con)]

The noble Lord posed a number of different questions. First, as I said, sustainability criteria are extremely strict. They are policed by Ofgem. I have spoken to the chief executive of Ofgem about this—it is investigating the allegations. It is Ofgem’s job to uphold the rules and it will not hesitate to take action if the rules are breached. We have some strict sustainability criteria, and it is important that Drax and every other producer abides by those rules. Drax is responsible for about 5% of the UK’s electricity generation, and noble Lords should be aware that this is important for keeping the lights on, and for British energy security.

[Lord Howell of Guildford (Con)]

I agree that there is biomass and biomass, but in this case trees are being cut down to provide wooden frames to replace steel frames in construction, and are therefore contributing to carbon reduction. I understand that the residue of that cutting down—the sawdust and so on—makes up the pellets that we are talking about now for Drax. Should that other side not be borne in mind, together with my noble friend’s view that it is a very complex matter? Just going for the obvious target often leads to the wrong, opposite results?

[Lord Callanan (Con)]

My noble friend is right. It is a complicated subject and should not be the subject of easy sloganeering or campaigning. A number of different issues are involved. What the primary wood is used for is, of course, a matter for the US authorities and for the Canadians.

[Earl Russell (LD)]

My Lords, yesterday at Oral Questions, the Minister— the noble Lord, Lord Benyon—said:

“Biomass is a perfectly legitimate renewable energy source if the wood that is being used is a renewable and sustainable harvest”.—[Official Report, 12/3/24; col. 1897.]


My question is simple: can the Minister—the noble Lord, Lord Callanan—confirm exactly what steps the UK is taking to verify beyond doubt that no old-growth timber is being cut and burnt at Drax?

[Lord Callanan (Con)]

Of course I agree absolutely with the statement made by my noble friend. As I said, I have spoken to Ofgem, which is investigating. It is its job to enforce against these criteria. My officials are in touch with those in British Columbia for further discussions. However, there are many perfectly legitimate reasons why timber would be removed from old-growth forests—for instance, for firebreaks, diseased wood, et cetera. This is a complicated issue. Drax is an important part of the UK’s energy security. Let us make sure that it does this sustainably and abides by the rules before we rush to judgment.

[Lord Birt (CB)]

Has the Minister actually studied the detailed and evidenced findings of the last few weeks from “Panorama”, confirmed by the Government of British Columbia, that Drax is, in fact, burning wood from old-growth primary forests—rich, diverse habitats that are over 150 years old and will take 80 years or far longer to grow back—and that it is doing so in defiance of its 2017 commitment? Against wind, solar, hydro and nuclear, is not the case for biomass as a source of renewable power fatally weak and wholly unconvincing?

[Lord Callanan (Con)]

As the noble Lord knows—we have been in correspondence on this—I do not agree with him. As I said, we are in discussions with the British Columbia authority. This is not a third-world country; it is perfectly capable of sustainably managing its forests in its own way. There are internationally agreed strict sustainability criteria. It is important that Drax follows those rules. Ofgem is studying its application and will not hesitate to take action against it, as I have said.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I think we are missing a point with some of these answers. The fact is that this is taxpayers’ money going on a business scam. Why can the Government not see that?

[Lord Callanan (Con)]

I do not agree with the noble Baroness—I often do not agree with her. This is not a business scam. It is actually bill payers’ money, not taxpayers’ money, but we spend it on a number of different sources, including those mentioned by the noble Lord, Lord Birt. It is not an either/or equation; we need a variety of different sources of fuel for our electricity and our energy uses. If the energy crisis taught us anything, it is the importance of not relying on one particular source. Yes, we need wind, solar, biomass, nuclear and some gas-fired generation in the short term. We need a resilient energy mix across all the different sources.

[Lord Geddes (Con)]

My Lords, on the general subject of renewable energy, in the announcement yesterday of two new gas-fired power stations, an announcement was also made that there were times when renewable energy was not available to generate power. Does my noble friend agree that this simply is not true? Tidal power is constantly available.

[Lord Callanan (Con)]

The noble Lord has asked me about this a number of times. As I have said to him, we are supportive of tidal power and are allocating funds to its development through the various CfD auctions. But I think he will recognise that it is not yet available at scale and in the quantities we would need. We are very proud of our renewable resources: almost 50% of our electricity production is now from renewables; we have the five biggest wind farms in the world; we are easily the biggest producer in Europe; and we are seeing lots of applications for solar development. Renewables are great, but it remains the case that they are not available all the time; we need more storage and back-up, and need other sources as well.

[Lord Rooker (Lab)]

At the risk of upsetting a few colleagues, I ask: is the Minister aware that some of the forests in Canada and America were originally planted for paper? The paper mills closed because paper was not wanted; towns were decimated because they were one-product towns for the paper mills. Drax came along and saved some of those towns in the early days.

[Lord Callanan (Con)]

I do not know the truth or not of that; I will take the noble Lord’s word for it. As I said, these are complicated matters involving a number of different factors.

[The Earl of Devon (CB)]

My Lords, the renewable credentials of biomass are dependent on the trees cut down being replaced by trees that survive and live to full growth. Sure enough, the tragic disease and deer predation of our English forestry means that biomass is not a net-zero source of energy.

[Lord Callanan (Con)]

I do not quite understand the point the noble Earl is making. There are many sustainable forests across Europe and North America, where, as he says, there are different degrees of growth. Trees are cut down, and new ones are planted. For instance, in many of the forests in Scandinavia, more trees are planted than harvested, so it is a “sustainable plus” resource. We should be careful not to dictate to the North Americans —to the Canadians—how they manage their own forest resources. They are fully developed countries; they have environmental movements, as we do in this country; and they ensure that all their production is sustainable. As I said, we are in discussions with the Government of British Columbia, who are quite capable of managing these resources for themselves without being lectured to by us.