Nuclear Energy (Financing) Bill

Debate between Lord Howell of Guildford and Baroness Worthington

Committee stage
Tuesday 8th March 2022 Grand Committee

[Lord Howell of Guildford (Con)]

My Lords, surely no one is suggesting that these are alternatives, or if they are then that is not what any sensible assessment would allow. Of course the aim for a decarbonised world has to be sought through many forms. All that is being said is that to leave out one of the major areas of decarbonised electricity is asking for trouble, unless one can begin to assess the enormous costs of trying to fill it in in areas where it may not even be available.

The example of Germany is one that the noble Lord should perhaps bear in mind. The rumour is that, having tried to do without nuclear power and got down to its three remaining nuclear stations, there is strong talk that if it is to move into the new world that we are facing now, which has all sorts of implications for the future, a large chunk of reliable low-carbon nuclear capacity must be either retained or developed to add to all the other highly desirable things for net zero and all the other projects, including of course energy efficiency and a far greater use of every kilowatt of electricity for output, which is the secret of considerable improvement without too much electricity. If that is what is being argued, we are all for it, but nuclear electricity is an unavoidable part and to drop it seems a bit odd and very high-cost indeed.

[Baroness Worthington (CB)]

The noble Lord, Lord Teverson, has talked about the cost of energy. I agree with him that it is very important that we take this issue seriously. The reality is that the CfD mechanism, which will still be part of the financing mechanism under the RAB model, will pay back when we see these very high prices—some of those CfD models are paying back to consumers. My question for the Minister is: under the RAB model, if it pays back in future, will that revenue flow back to consumers or will it sit with the Treasury?

One of the criticisms that could be levelled at this idea is that it is regressive. If it were a tax, those who could afford to pay it would pay more while those who could not would pay less. The universal credit amendment is trying to say that the regressive nature of this needs to be thought about. If you exclude someone from the payments then you might be excluding them from the repayments if the CfD provides revenue back, so this needs thinking through. There is a real question here about its regressive nature. If the CfD is paying back in, are we holding that in the Treasury or could it go back to the consumer?

Energy Bill [HL]

Debate between Lord Howell of Guildford and Baroness Worthington

Tuesday 12th April 2016 Lords Chamber

[Baroness Worthington]

I note that, but I would just say that we are not Canada and we are very fortunate to have the North Sea as a reserve to use, which I believe would make it more cost efficient if we could do it in a timely fashion—obviously, not wanting to gold-plate anything, but making the best of the resource that we have in this nation. As I said, we need some reassurances from the Government. I am part of the group that the noble Lord, Lord Oxburgh, has now set up, which is looking at the whole issue afresh. We do not want to push carbon capture and storage for its own sake, but only in so far as it gives us options to decarbonise at least cost. I hope that the Minister will be able to say some words of reassurance about that process and the seriousness with which the Government will take the recommendations of that group.

[Lord Howell of Guildford (Con)]

My Lords, I agree that carbon capture is one of the keys to the future of energy and climate policy, because, if it can be done commercially and successfully, it will allow us to continue burning fossil fuels but in ways where the carbon is extracted. This is the case for continuing with fossil fuels, and perhaps slightly undermines the case of those who want to abolish fossil fuels altogether, because the whole point is that you can carry on if you have the technology.

Through your Lordships, I ask the noble Baroness who just spoke from the Liberal Democrat Benches whether they have thought about alternative and cheaper carbon removal technologies. There is carbon capture utilisation, which is developing in all sorts of new areas. It is beginning to look as though it can undermine the vast costs of piping carbon away into the North Sea. As we heard from the Minister, that would set back the problems in the North Sea, which are enormous and one hesitates to add any burdens to them, however important one may think the technology. So if there are cheaper ways of going forward, surely we should be going those ways.

That makes sense of what I understand from my noble friend to be the Government’s strategy, which is that the experimental efforts with carbon capture and storage in its full glory, with piping, transmission, finding places in the North Sea and overcoming all the vast technical and cost problems, can be replaced by something rather more imaginative. We may be moving in the right direction. My question is whether the Liberal Democrats have thought about those alternatives before pressing something which will obviously hurt the oil and gas industry in the North Sea at a time when it is already hurt very considerably.

--- Later in debate ---

[Baroness Worthington]

My Lords, Amendment 9E is in my name. Our previous debate on this took place in October, before the historic climate agreement in Paris, which, for the first time, saw virtually all countries agreeing to take action together to avert the growing risk of global climate change. The significant breakthrough that made Paris a success was that countries are now individually responsible for coming forward with nationally determined targets and measures, while being guided by an overarching collective goal.

That process places the responsibility on countries to do what they can, with a view to ratcheting up ambition over time. The UK already has its own nationally determined commitments and we have been at the forefront of international leadership on climate change domestically and internationally for well over a decade. Again, I pay tribute to Secretary of State Amber Rudd, who deserves great credit for the role she and her team played in making Paris the success that it was.

Now, as we enter the final stages of this Energy Bill, which we have been considering since last July, the question we face is: how will we as the United Kingdom want to continue in that climate leadership role by demonstrating our commitment to domestic action, leading by example and forging a path that others can follow? We can and must do this, I believe, by reviewing and reforming an important aspect of our ground-breaking Climate Change Act; that is, how we measure progress.

As things stand, how we do this is complicated and unclear, made ever more complex by a decision introduced in secondary legislation and taken after the Bill was agreed that we should use European emissions allowances as the basis for accounting for our emissions in the power and industrial sectors. This is how things work currently but it cannot continue in this way for much longer. We must start counting our actual domestic emissions, guided by a common international goal set at the European and global level.

Our original amendment, agreed to in this House, sought to make this change in primary legislation, but since I have no desire to upset the timetable for setting the fifth carbon budget, which, as the Minister pointed out, we expect to be set before 30 June, and the process is now well under way, I have not retabled the amendment that was agreed in October. Instead, we have proposed what we believe is a constructive way forward and have listened carefully to the comments made by the Minister in the other place, which were constructive and talked about the timing being the main issue of opposition from the Government.

But there still is a fundamental question at stake here: do we wish to meet our carbon budgets in a way that we determine—for example, through policies and measures that we deem appropriate for our circumstances—or are we happy to have half our budgets set for us on the basis of ever-more complex rules agreed in Brussels? At the moment, as our decision to implement a carbon price support policy shows, we are taking our own path. We add an extra £18 to every tonne emitted in the UK and we are pursuing our own policies to decarbonise. Ahead of Paris, the Secretary of State made a historic commitment to phase out coal for power generation in the UK by 2025. She was rightly praised for this commitment because it sends an important signal to investors at home and to other countries struggling to reduce emissions from coal, including Germany and Holland.

Given that this is our chosen option—that we are pursuing leadership and taking our own path—it seems illogical that our carbon budgets should not reflect our own circumstances. Working on the basis of our own accounting would enable us to make sensible decisions about which sectors to move forward on more quickly and which to give more time to; for example, we could provide more of a budget to sectors that are hard to decarbonise, such as heavy goods vehicle transportation or farming, while moving faster on the power sector, where we are currently overdelivering, as the Minister said. There are 36 million tonnes of overdelivery coming from the power sector. We should be able to use that and redistribute it to other sectors, but as things stand that is not possible.

There are very good reasons why our original amendment made sense, but as I listened to the considered words of the Minister in the other place, I concluded she was right not to accept that amendment at this time, as we are only weeks away from publishing the fifth carbon budget. We hope and assume that this number will follow the advice of the CCC and we expect that to help restore some confidence in the industry. But once that is in place, we should then determine how we will meet that ambition and part of that determination should be: what counts towards compliance with that budget? The amendment in my name, in lieu of our original amendment, sets out a process by which the Government can decide how we measure our progress and how we plan to meet our targets, including a deadline of the end of 2017 by which the matter should be resolved in secondary legislation. With the budget and the rules in place, we will then be in a position to develop a long-term plan to comply with those targets and lead by example.

Unfortunately, short-term thinking is endemic in our political system. More attention is paid to fleeting headlines and passing trends on Twitter than to the important details of often complex policy areas, such as energy, which are so necessary to drive investor confidence in growing our economy. Climate change is a long-term crisis that is slowly unfolding on our watch. Record losses in sea ice, massive coral bleaching in the Great Barrier Reef, unexplained spikes in methane emissions—these are the warnings that are going off around us. We owe it to ourselves and to all future generations to do all within our ability to act and to cause others to act to mitigate this crisis.

What we in this Chamber can do, what opposition parties can do and what the Government can do is try to pass good laws that provide sensible, long-term frameworks to drive down emissions in least-cost ways. The Climate Change Act was agreed on that basis and it works, but it is now in need of review. I urge the Minister to consider this amendment carefully and if he feels it is within his power to accept it, I hope he will do so, so that we can embark on a process of proper reflection and review over a reasonable timescale, and then we can make the changes that are needed to repatriate the way we meet our most necessary climate obligations.

[Lord Howell of Guildford]

My Lords, I have only one question about this amendment, and it is aimed at both sides of your Lordships’ House. As my noble friend rightly said, this is an extremely complex matter. I sometimes feel that the noble Baroness, Lady Worthington, is the only living person who fully understands the complexities of it all. It seems to me that if one looks behind the thoughts and motivations, the bottom line is whether additional pressures are put on consumers, on the nation, on industry and on activities of every kind to complete the carbon budgets, what weight we give to absolute, precise completion of the established carbon budgets—or indeed the next one we decide—and what contribution that will make worldwide to combating global warming.

My question is simply to ask why the noble Lord, Lord Grantchester, has tabled this amendment, when in the Climate Change Act, with which the noble Baroness, Lady Worthington, had so much to do, there is a specific provision—Section 10(2)(h)—which warns and advises the Government and Ministers to have account of,

“circumstances at European and international level”.

The intention behind that was quite clear: to establish that if we got very badly out of line with neighbouring countries on our carbon budgets and on the provisions required to keep to them, the matter would be looked at again and, if necessary, changes would be made. My only question is: why are we not doing that now? Electricity costs between German and British steel have got out of alignment. Everyone knows that. We all know that theirs are 40% less and that we are paying £80 per megawatt-hour for steel-making in Britain, of which some £34 may be in additional green charges and levies. I accept that some of those are absolutely necessary, but some obviously take us out of line with our European neighbours, with the devastating results which we have all seen in the last few weeks. These things can be brushed aside, but everyone knows that this is one of the very powerful reasons why we are in some difficulties over the steel industry. I do not think that that can be denied.

[Baroness Worthington]

On that point about the steel industry, one point I was trying to convey is that if we take control of our own carbon budgets then we would decide how to allocate emissions to the steel sector, for example, rather than it being dictated by the EU ETS credits. We could then make our budgets and be more flexible to allow for those sectors that need to retain emissions for longer and push down further on the power sector, which is overdelivering by a substantial margin. We could use that to move that allocation around and protect those industries that we choose to protect for slightly longer.

Energy Bill [HL]

Debate between Lord Howell of Guildford and Baroness Worthington

Wednesday 4th November 2015 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I, too, thank the Minister for the way he has conducted the debate inside and outside the Chamber. It has been a genuine pleasure to work with him.

When the Bill arrived, it appeared relatively simple but did not seem to flow from the understanding we now have of the energy trilemma: having to balance the need for reliable, resilient energy systems with affordability and decarbonisation. The Bill focused almost exclusively on extraction of fossil fuels—something we will continue to do—but contained nothing about the other elements of the trilemma, other than two short clauses on onshore wind. I hope that, following the scrutiny it has received, we now have a better balanced Bill, due in part to the contributions from all sides of the House but also to the way the Minister has engaged, so I thank him for that.

This is going to be my last official opportunity to speak as the shadow Minister, so I take this opportunity to thank all my colleagues who have worked with me not just on this Bill but on the previous one—this in fact is my second energy Bill. I particularly thank Catherine Johnson, of our research team. This has been a tricky Bill to work on, with lots of detail and condensed timescales, and she has dealt with everything we have thrown at her admirably. I also thank my Whip, the noble Lord, Lord Grantchester, all my colleagues on the Front Bench and my colleagues in the shadow DECC team in the other place.

Everyone knows that energy and climate change are passions of mine, and I have found it an absolute privilege to work on two significant pieces of legislation. We have not always agreed and we have differences, but there is a common core aim: to decarbonise our economy, as the Minister has reiterated. That, we know, is certain, and we seek to do so cost-effectively and with a reliable outcome. The challenge is in working out exactly how to achieve that, and the Bill now is testimony to the subtleties involved in that complex challenge. It has been a great privilege to be part of that remarkable process.

I shall be moving on, although not very far. I shall return to the Back Benches and follow the passage of this and subsequent Bills that will address this topic, because this is a multi-decadal challenge and no country has all the answers. We are at the forefront of trying to work through some of these difficult issues. As the Minister said yesterday:

“There is no silver bullet”.—[Official Report, 3/10/15; col. 1591.]

There is no blueprint we can simply pick up and follow. We are inventing the rules as we go. We will make mistakes and will have to revisit issues, but I hope that this House in particular will do so in the spirit of shared endeavour, as we seek to decarbonise cost effectively and to create a reliable system. I hope that we will continue to revisit this issue, improve policy and, most importantly, send clear signals to the outside world, bringing investors with us, maintaining investor confidence and moving forward as a country, united in this endeavour.

The amendments the Minister has introduced are technical—I am particularly pleased to see that the Long Title is changing to reflect the more balanced approach to the energy trilemma we are grappling with—and I am very grateful to him for tabling them.

[Lord Howell of Guildford (Con)]

My Lords, perhaps I may say how sorry I am to hear that the noble Baroness, Lady Worthington, is leaving the Front Bench; it is news to me. I have learnt a lot from listening to her. I do not agree with everything she says, but her grasp of climate issues is unquestioned and she has added a great deal to the debate.

I also thank my noble friend for the way he has conducted this complex debate. I hope that the Bill goes to the other place with the clear message from our debates on it, and from yesterday’s debate on electricity resilience, that the whole of our energy policy needs rebalancing. Not that one necessarily wants a lot more energy Bills to come through your Lordships’ House, but I hope that this is just the beginning of a move to a better balance than the current position, which has led to some quite serious muddles. The noble Baroness mentioned one of those last night: that, in our attempts to establish good capacity three, four and five years out, we appear to be ending up with a lot more diesel engines, which is the opposite of what was intended. That arises from the lack of balance between subsidies for wind, which we discussed, and the unwillingness of people to invest in new combined cycle gas turbines.

That is not strictly connected to the government amendments, but I thought I should register my admiration of the amazing grasp that the noble Baroness, Lady Worthington, has of this very complicated subject.

Energy Bill [HL]

Debate between Lord Howell of Guildford and Baroness Worthington

Wednesday 21st October 2015 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I was not going to intervene at this stage, but the right reverend Prelate’s intervention and his association with my noble friend Lord Lawson’s Global Warming Policy Foundation prompted me to pursue the point that he raised. A lot of our discussion has been on the penalties —in other words, the removal of subsidies from people who thought that they had a chance of the subsidy when they started their projects. That is aside from whether the project is environmentally okay or whether they get local government approval for planning reasons and so on; it is simply the question of whether they were caught by various delays and, therefore, would not get the subsidies that they thought they would get when they set out.

We are not in any way trying to stop the development of the very successful parts of the onshore windfarm industry. As the noble and learned Lord, Lord Wallace, reminded us, electricity from wind power is getting cheaper. If it is getting cheaper, it will in due course need less subsidy. Remarks from outside this country—particularly an ill-informed remark by the UN adviser, Professor McGlade, that somehow Britain was putting a stop to its movements towards low-carbonisation by putting a stopper on all wind power and so on—are way out of kilter and far from representing where we stand.

It is no less interesting to work out to what extent these grace periods will help the situation—I thoroughly approve of all the amendments that my noble friend has brought forward with such assiduity. Presumably, as a result of these grace periods, we will see slightly more subsidy paid out, which has to come from the consumer—the industrial consumer in particular—than we would have done before he introduced the amendments. The money that was not going to come from somewhere has to come from somewhere. Somebody will have to pay for it. This is on a day when we are staggering under the colossal redundancies that have been announced throughout the steel industry—including the steel industry in Scotland—which, we are told, are overwhelmingly the result of very high energy costs. Apparently, for electricity, we are paying twice the German level. In turn, of course, energy costs for the steel industry of Europe are leading people to predict that the entire industry will be wiped out. At a time like this, we need to watch with needle sharpness what is happening to the costs that are falling on the industries where all these jobs are being destroyed. How much more of that cost is still going to persist in meeting all the grace period conditions which the noble and learned Lord, Lord Wallace, with his massive legal knowledge and detailed grasp of the situation, has described as being necessary and fair? How much more will this kind of fairness cost in the end in burdens on the electricity users of Scotland and the rest of the United Kingdom in ways which will precipitate even further these appalling redundancies? We need to keep that side of the argument very clearly in our minds.

[Baroness Worthington]

My Lords, I am grateful to the Minister for introducing the government amendments. I will speak to those and also to Amendment 78C in my name, and in support of the amendments tabled by the noble and learned Lord, Lord Wallace.

As we enter the second day of Report, I do not feel that the Bill has been well handled, as has already been referenced. This may stem from the fact that the Bill was not ready when it was presented to us. Significant areas of policy were still being developed. It was a very fluid situation. In fact, the term “liquid legislation” will probably stay with us for many years to come. It was coined by the noble Lord, Lord Howell, in the recommital stage of Committee and describes very accurately how we have been dealing with a set of moving parts as we have gone through the Bill. Here we are on Report, but it still feels very much like a Committee stage, and that is regrettable. We should not be in this situation where we have so many controversial issues still unresolved.

Throughout the Bill’s passage, I have pressed the Minister to give me a justification and a sound argument why the Government have chosen the route that they have in this Energy Bill of introducing what is now Clause 66 regarding the early closure of a renewables support scheme that was already closing 12 months early—and, in fact, not closing it to everybody but just to one subsection of technology: onshore wind. Why do we find ourselves in a place where the Government appear to have singled out for special treatment a single technology from all the low-carbon technologies available to us, and where that special treatment is so damaging and corrosive to investor confidence? I am afraid that I have not received a suitable answer to that question throughout the passage of the Bill. Now the answer given boils down to a very few words that appeared in the Tory Party manifesto, that the Conservative Party would put an end to—

Energy Bill [HL]

Debate between Lord Howell of Guildford and Baroness Worthington

Monday 14th September 2015 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I, too, am waiting for my noble friend Lord Ridley to give his limpid views on the future of onshore wind and, indeed, on the role of onshore and offshore wind power in the tasks of reducing emissions worldwide and producing a balanced energy policy for the British people. No doubt he will enter into later debates on the next clause which will cover very much the same ground.

I admire the noble Lord, Lord Teverson, for his frank admission of the dilemma he faces. On the one hand, localism is the flavour of the month, the year and the time, and there is a great desire to move from central administration in every area of policy, certainly including energy, into a greater role for local people, local planning and local authorities, yet he is also worried about inconsistency and fears that in some way the onshore wind cause is being abandoned. I do not see that. If you look at the proposals and the argument in the impact assessments behind the Bill, it is perfectly clear that, first, onshore wind has had a fantastic run over recent years. Some would say it was possibly too big a run given the very considerable economic advantages it brought to many wealthy individuals, gigantic corporations and energy companies and to those who are benefiting in all sorts of other ways from the proceeds and the subsidies, which are, of course, paid for by the consumer. In many cases, we know it is the poor consumer, and it is certainly the competitive consumer in industry. It is clear that subsidies have created this great growth. There must be a limit, as has been set quite clearly by government, and it is going to be exceeded unless the brakes are put on. There is a limit in two senses: first, the sheer weight of subsidy required to maintain the industry until it can get its costs down. I will come to that in a moment because there are real problems in getting costs down.

Secondly, there is managing a balanced grid system which can absorb the intermittency of wind. Every country that has gone into this business in a big way—Denmark is a good example—has found enormous difficulties. That is one reason why Denmark wants to have an interconnector with Britain for electricity. Intermittently there will be no charge at all for the electricity it supplies to us because it is a danger to it and an advantage to us. Spain has found enormous difficulties in going too fast and beyond the limits of engineering and electronic management in organising its grid when the wind blows too hard or too regularly.

Thirdly, there is the intermittency problem, which we all face. One day we will get over it because the storage will come at lower costs and intermittency problems will be much reduced. In the mean time, though, intermittency requires back-up, and back-up requires gas. There are other devices but gas-generated electricity is the area where most people in Europe, certainly in this country, think the gap can be filled. Far from being inconsistent, then, it seems to me utterly consistent that at this point the contribution of onshore wind should be restrained in the ways that are proposed.

As for the emissions angle, we know that we are driven by the European requirements for renewable energy, the formidable target of 15% of our energy from renewable sources by, I think, 2020, and Europe’s target of 40% by 2030. It is quite clear from the present pattern that we are not going to meet that target, and that even if we were to double the onshore wind power we still would not get near it, even if we took into account merely the emissions that emerge from the production of energy. In fact, the emissions that emerge from our capital consumption of energy per head, and from all the vast imports that we suck into this country from countries with much lower standards with very high emission content, have not fallen very much at all; indeed, many would argue that they have increased greatly since 1990.

So the real problem is that the present policy is not actually working. Those of us who are concerned about climate change look at what is happening throughout Europe, notice the contrary tendencies in delivering emission reduction—much more coal burning and a failure of the heavy concentration of wind around the islands, like the one that we are living on—and ask whether we should not begin to think about an entirely new and different policy. I see no inconsistency at all. No doubt we will debate this a little further on in the afternoon in more depth and detail.

I worked very closely with my friends in the Liberal Democrats in the last Government and enjoyed doing so, but I find their stance on this almost impossible to understand. They seem to be favouring a system that does not do much for emissions, distributes money in massive ways from the poor to the rich and apparently produces all kinds of tax advantages that are going to be exploited. This is one irony of the situation: even with this restraint, it looks to me as though we are going to have continuous investment in onshore wind, even without the subsidies, because of the big tax advantages that are built into the system. Should we not be looking at those before we take a position on the question of local powers and so on?

It is a puzzle to me that we do not look in a more balanced way at what is being done. It seems utterly consistent. I do not think that I want to be a supporter of anything that promotes further a system that is unfair to the poorest people and consumers, and which delivers considerable tax advantages to clever people and yet does not do very much at all for emission reduction. It seems to me to be a sad mixture, and it is about time that it was changed.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the noble Lord, Lord Teverson, for introducing this clause stand part debate, and to noble Lords who have contributed to it. I shall make a few comments. As we enter the third day of Committee, I am grateful to the Minister for having agreed to extend the Committee for an extra day. I think that this has arisen because we felt—I have probably made myself fairly clear on this—that the handling of the Bill has been slightly suboptimal, and we are expecting more amendments to come to us before Report. We are very grateful that we now have an opportunity to discuss those in Committee before then.

Today we move on to Part 4, which it is fair to say is the more controversial aspect. People on both sides of the Committee may have different views about the benefits or disbenefits of particular technologies, but we must strive to ensure that we have a good policy and governance regime that will help investors not to waste their money. One of our concerns is that any manifesto, no matter how good the drafters, is prepared relatively hastily and usually without a great deal of thought for the detail. Yet here we are, just months after that manifesto was put into print, hastily enacting some of the statements in it and I think that we are still lacking some of the detail.

Energy Bill [HL]

Debate between Lord Howell of Guildford and Baroness Worthington

Monday 7th September 2015 Lords Chamber

[Baroness Worthington]

My Lords, I thank the Minister for his response and for chasing the impact assessment. Can I take it that the full impact assessment will be published tomorrow, or will it be just the oil and gas part? Perhaps he could clarify that point for me.

Looking at Clause 2, our Amendment 1 is essentially a probing amendment but it is intended to enable us to debate this part of the Bill. At Second Reading, several noble Lords raised the fact that things are changing fast in the North Sea and in the oil and gas sector more generally. We have an undertaking to implement the findings of the Wood review and I am sure the cross-party consensus on that remains strong. However, the Wood review was published in June 2013. Here we are in September 2015 and the pace of change since that date has been quite remarkable.

We are seeing a steady decline in North Sea production. Outputs of oil and gas are already around 40% lower than in 2010 and lower than at any time since 1977. The first quarter of this year marked the seventh consecutive month in which the UK has been a net importer of petroleum, after having been a net exporter since 1984. The figures for 2014 show that the oil and gas sector as a whole lost £5.2 billion—its worst figure since the 1970s—and total revenues were lower than at any time since 1998 at £24 billion. I quote these figures, which were sourced from DECC’s own analysis, to highlight how things are changing in this sector and in the North Sea specifically.

The other new element is that decommissioning is now a reality and is starting to incur costs. There was a feeling a few years ago that decommissioning was the beginning of the end. Now it is being seen as the beginning of a new industry and there is considerable decommissioning activity going on, not least because many of these assets have been in place for decades, perhaps well beyond their imagined timespan. They are therefore reaching the end of their usable lives, even if we wished to keep using them. The purpose of the amendment, then, is to ask for a report to Parliament on the fitness of the powers now being created for the OGA. We have suggested that it should be produced within six months but we do not have a fixed view; a year would be equally fine. However, we must make sure that we set off on the creation of this new quango or arm’s-length body with the right set of objectives.

We will debate amendments later today where we will talk more about the need to update the objectives, particularly in relation to the storage and transportation of waste greenhouse gases. It seems clear that, as we look at the implications of climate change, which are now uncontested—I think it is settled that we need to decarbonise our energy systems—that will change the economics of all fossil fuel activity. If we are to meet our targets, either we will be forced to decarbonise our use of fossil fuels using CCS or we will see a drastic reduction in the demand for those products. Either of those has significant implications for the UK economy and for the oil and gas sector, hence the desire to table an amendment that enables us to have this debate and to require that the OGA be kept up to date with the most recent developments in this sector.

As I have said, oil and gas prices have fallen and there seems to be no sign of their coming back up again any time soon—of course these prices fluctuate but this now seems to be a systemic drop—so we must have a body with the right remit and objectives to do the job of making sure that, while we maximise the economic return from the North Sea, we accept that this may not be solely through the recovery of hydrocarbons but might, of necessity, require a completely new industry that not only extracts hydrocarbons but returns the waste gases to under the sea. We are blessed with a natural repository for many billions of tonnes of waste greenhouse gases, which I am certain we will need if we want to keep the costs of decarbonisation under control and ensure that we are decarbonising cost-effectively.

I shall speak also to Amendment 3 in this group. Amendment 1 requires a report to be made on the fitness of purpose of these powers, but Amendment 3 is more specific and seeks to change the primary objectives of the OGA to include CO₂ transportation and storage. It would negate the need for many of the subsequent amendments that we will talk about today because it would bring about a high-level change which would mean that we would not have to catch lots of subsequent clauses and add references to CCS and storage and transportation to the powers being taken here. Many amendments that we will come to today relate to how, as drafted, there is reference back to the principal objective of the Bill and the fact that currently that principal objective does not include the transportation and storage of CO_2. Therefore, many of the amendments are trying to reinsert it. We could take another approach, such as the one set out in Amendment 3, which is simply to change the primary objective. There is merit in our discussing that, particularly as CCS offers a lifeline for the future development of hydrocarbon use in the UK by being able largely to decarbonise our use of those fuels.

CCS is essential in that it will enable us to keep using hydrocarbons but, as I alluded to earlier, it is equally important to keeping the costs of decarbonisation contained. At the global level, the Intergovernmental Panel on Climate Change has stated that if we do not have CCS on a global scale, we are likely to see the costs of decarbonisation being double what they would be otherwise, while in the UK the Energy Technologies Institute has estimated that without CCS, by 2050 the costs of decarbonising to reach our targets could be in the order of £40 billion to £50 billion a year more than if CCS is deployed.

This is an important and timely subject. We are seeing projects in the UK moving forward to deployment to enable us to make use of the North Sea. I am sure that the OGA will say, “We would rather have our remit nice and narrow; please leave us alone”. That is fine, but we are moving to a time when the social contract between the citizens and taxpayers of the UK and the offshore oil and gas operators is changing. The oil and gas industry largely used to get on with what it was doing—delivering us rather nice, large sources of tax revenue—and everyone was happy. That is shifting. The revenues are falling, as we have seen in recent years, decommissioning costs are rising and the OGA itself, as we will come to debate later this afternoon, will potentially receive public funding to go about its business. This is no longer purely a commercially focused sector and it requires government to intervene to help it. It has the opportunity to receive public funding—the oil and gas operators already receive generous tax breaks that enable them to offset their decommissioning costs. The social licence between us, the citizens of the UK, and the offshore oil and gas operators is shifting. We need to make sure that the OGA reflects that change of balance and takes on a role fit for the 21st century.

We should always consider very carefully when we create new public sector costs. The Government have pointed out on numerous occasions that we are living through a time of austerity, and it seems a bit strange that we should be creating a new area of public spending here without requiring this to be a comprehensive body that takes into account a whole range of views and issues and keeps pace with current events. As good as it was, the Wood review—which I am sure will continue to receive cross-Bench support—is over two years old, and two years has been shown to be quite a long time in the oil and gas sector, hence the need for these two amendments. I look forward to the Minister’s response and I beg to move.

[Lord Howell of Guildford (Con)]

My Lords, I will say a few words in support of the spirit, at any rate, of this amendment from the noble Baroness, Lady Worthington. I declare an interest as chairman of the Windsor Energy Group, adviser to various energy companies, as in the register, and president of the Energy Industries Council. As the noble Baroness has rightly said, this is a sensible requirement for the future because, as she has also said, the North Sea is a mature province and the industry is clearly undergoing huge change—probably the biggest period of change since the 1970s and early 1980s. Most of the talk in the industry at the moment is about the impact of the halving of the oil price. Even in this morning’s papers, we see some pronouncements by experts on the possibility of whole areas of the North Sea shutting down unless completely new arrangements and management structures can be devised to cope with the new situation.

Obviously, behind this lies the question of whether the price will stay down. My own view is that, barring high-impact events like huge new political upheavals beyond the ones we already have in the Middle East, there will be no obvious bounceback in the price for a very long time. People talk as though the OPEC countries had some choice of policy—they could just cut production and the price would go up. Well of course that would not happen. They have lost control of the price. Russia has no intention of co-operating, and the shale industry in America, although there have been a few bankruptcies, will come back again and increase production as soon as the price rises. So the OPEC countries would gain nothing. Iran of course may be coming on stream as well. All this means that the industry in the North Sea is now facing a period when, on the supply side, there will be a lot more oil. On the demand side, there will probably be rather flat demand, whether from China, from Japan—which is going back to nuclear so will not need so much—or, indeed, from the United States or us, where the demand for oil is flat or even falling.

This is a completely new management challenge. We must have some reassurance, at least in a year’s time but preferably from the start, that the new regulatory authority—the OGA, with its expanded powers into a separate agency, as is now proposed—has the facilities, opportunities and abilities to manage completely new requirements. We have to see a province that is going to adapt to low prices, that develops completely new opportunities and new technologies, not unrelated to the points made by the noble Baroness about the possible disposal of carbon dioxide through CCS techniques, and that learns from other countries. Norway in particular may have a lesson or two for us on how to maintain a mature province and develop new opportunities at sea.

Energy Bill

Debate between Lord Howell of Guildford and Baroness Worthington

Tuesday 2nd July 2013 Grand Committee

[Baroness Worthington]

Does the noble Lord agree that it is quite clear the reason for those price increases is the high price of gas?

[Lord Howell of Guildford]

No, I would not agree at all. I look at my bill, and I do not know whether the noble Baroness has looked at hers recently, and find that 20% stuck on the bill as a result of green policies and green taxes. It may be that gas contract prices have been rising, but spot prices, and indeed some contracts around the world, have been falling. The noble Baroness knows well that in the United States, for very special reasons which may become global reasons, the price of gas is about a quarter of what it is here. So I do not agree with that proposition, and would certainly disagree with it even more in the future.

[Baroness Worthington]

Will the noble Lord therefore explain why gas bills have been rising when they do not carry any of the costs of the renewables obligations, as on electricity? There is very clear evidence in the public domain that up to two-thirds of the increase in prices is because of the underlying price of gas.

[Lord Howell of Guildford]

Obviously the bulk of a market price is the price at which gas is purchased: either contract or spot. However, if the noble Baroness is asking me to agree with the proposition that gas prices are now, or will be be, the driving force in raising prices, and that we should ignore the additional pace at which extra costs are placed on the consumer, I am afraid I cannot. The consumer is paying more. Energy prices in this country—I do not want to wander off the amendment too far—are very high, almost as high as in Germany. This is not good for our industry, and the pace at which people can be asked—it is a question of pace, not principle—to bear additional costs, particularly poor families, has to be handled with great care and calibration by policy makers.

That is why this idea of targets represents a danger, encouraging more over-ambition and more speedy decisions which distort incentives. Furthermore, technology is changing all the time, and all kinds of developments can take place which wrongfoot those who have established targets for years ahead. I know about that because in the 1970s and 1980s I was the Energy Secretary, and we launched a huge programme looking 50 years ahead for replacing our nuclear fleet, which, if we had done it, would have saved a lot of problems today. Although we announced that we were going to have nine new pressurised water reactors by 1990, we only actually built one. Today, those reactors would have been built and would be working excellently, producing low-carbon electricity. Alas, that did not happen.

So if the aim of this amendment is to bring greater firmity of purpose, and to reduce infirmity of purpose, it is not going to succeed. The aim of the Bill is to get more investment and to get the investors putting their money into new machinery, whether it is renewable, nuclear or gas turbines. That investment is not coming forward. It is not happening, and if people say it is about to happen, I have to ask—and this is where I am going to sound disloyal to the Government—why are Ministers rushing around talking about de-mothballing existing plant to fill likely gaps in our power supply in the next few years? Why is the National Grid talking about interruptible contracts? These are very frightening things. These are not going to increase certainty; they are vastly decreasing certainty. The oil companies and energy companies that come to me are not at all impressed by this Bill. They do not believe that it will create the investment certainty they need and they wonder when the politicians are going to show more finesse and care, and when the proponents of green energy, of which I am certainly one, are going to show more sense of pace in pushing forward these issues.

If we continue at the present rate, if we continue to install targets that apparently commit Governments—but of course time passes and they change—and if we continue to believe in targets driving investment and pricing decisions, we will create precisely the kind of political backlash that we now have. We will see poorer performance on CO₂ than other countries that avoid all these sorts of targets, such as the United States, which has a brilliant performance on CO₂. We are going to see less security, less affordability and more damage to our country, its competitiveness and, above all, the poorest families in the land. These targets are not only undesirable but dangerous and I very strongly oppose them.