Financial Services and Markets Bill

Debate between Lord Lilley and Baroness Sheehan

Committee stage
Tuesday 7th March 2023 Grand Committee

[Baroness Sheehan (LD)]

I find the noble Lord’s contributions really very valuable. But on supply and demand, for him to label us people who just do not want fossil fuels is so incorrect. We need more energy, but it does not have to come from fossil fuels. The fossil fuel industry is supported to an extent.

[Lord Lilley (Con)]

By whom?

[Baroness Sheehan (LD)]

It has been supported by Governments, through subsidies, through tax breaks, through decommissioning tax reliefs—any number of routes for support exist. So I say to the noble Lord: please do not try to categorise the noble Baronesses who have spoken on this issue as people who do not like fossil fuels. What we do not want is for fossil fuels to be needlessly supported in the future when they are patently no longer able to support themselves.

[Lord Lilley (Con)]

I agree with the noble Baroness. I do not want to support fossil fuels. If she looked at the tax revenue levied on the production and consumption of fossil fuels, she would see that it is enormous. To describe that as a subsidy or support is very strange. But to the extent that there is anything that is a subsidy, I am with her: let us remove it, but that is not what these amendments do. They simply aim to make it more expensive to invest in fossil fuels. I do not know whether the noble Baroness, Lady Castle—whatever it is; bouncy castle—is upset at being described as being against fossil fuels. I would have thought that she would be positively flattered. I do not know whether the noble Baroness, Lady Drake, is offended at being told that she is trying to discourage the production of fossil fuels; I thought she was. I am simply saying let us stick to the CCC’s recommendations of phasing out demand and we can leave the supply side to look after itself. We should not pretend that we know better than the industry what is likely to prove excessive or insufficient.

[Baroness Sheehan (LD)]

Before the noble Lord sits down, perhaps I could say a little about stranded assets; I think we have had this exchange before. If stranded assets transpire—from where I am sitting, I think that is inevitable—what assurance can he give that the cost of those stranded assets will not be socialised?

[Lord Lilley (Con)]

Clearly, the Government ought to deal with that problem. These amendments do not deal with that problem. If there is a problem, if the noble Baroness thinks that BP or Shell will go bankrupt and be unable to pay for the liabilities it incurred, we should take steps to deal with that situation. I do not think it is likely but if she thinks it is that serious, she should table amendments that would deal with that, but these amendments do not. They simply make it more expensive to invest in things which we are going to continue consuming, according to the Government’s own plans and the CCC’s own projects and recommendations, in considerable quantities until 2050.

Energy Bill [HL]

Debate between Lord Lilley and Baroness Sheehan

Committee stage
Monday 16th January 2023 Grand Committee

[Lord Lilley (Con)]

If that the best argument against the thesis I put forward, I know I am on strong ground. The noble Baroness says that we might end up with cheap fuel and the oil companies losing money: well, I can cope with both those things.

[Baroness Sheehan (LD)]

Will the noble Lord at least agree that, when we are looking at supply and demand and prices going up and down, that will work only where we have a level playing field? Where you have a market that is skewed, with perverse incentives, such as tax reliefs in the example I gave on my first amendment, that really negates his argument: you cannot say supply is going to be one factor and then have it overridden by incentives to investment that reduce the risks for the people taking them.

[Lord Lilley (Con)]

I think that is a rather different set of arguments. My point is that we can approach net zero by reducing demand and let supply find its own level, with or without incentives. Incidentally, the idea that there are incentives to oil production, when the taxes at our pumps are a massive proportion of the price we pay and when oil in the North Sea pays double the corporation tax rate that other companies do in any other industry, is simple nonsense.

However, now I will turn, if I may, to my own Amendment 226, which would ensure that the conditions relating to vibrations from drilling for shale should not exceed those applied to other industries, for example under British Standard 5228. There is no reason that shale drilling should face different conditions as to the tremors it may cause from, say, quarrying, mining, construction or pile driving. In particular, there is no reason, other than environmentalist virtue signalling, why standards for shale as far as tremors are concerned should be stricter than drilling for geothermal or carbon capture and storage—other than that they get positive ticks from the green lobby whereas shale does not, even though we are going to continue using gas for many decades to come.

Indeed, recently, there was a 1.6 magnitude tremor in Cornwall as a result of drilling for geothermal. People could feel it. It did not do any damage, of course, and it is an order of magnitude higher than the maximum tremor that we allow without stopping production in shale. The level set by Sir Ed Davey when he was Secretary of State for Energy was a magnitude of 0.5 and the one in Cornwall was 1.6. Sir Ed Davey has since admitted that he was proud that, by setting this limit, he effectively stopped the fracking industry in this country. Of course, that was not what he said at the time.

At the time, he said that he was accepting the report that came out at the time. It was an excellent report, produced by the Royal Society for Science and the Royal Academy of Engineering, called Shale Gas Extraction in the UK: a Review of Hydraulic Fracturing. The opening paragraph states:

“The health, safety and environmental risks associated with hydraulic fracturing (often termed ‘fracking’) as a means to extract shale gas can be managed effectively in the UK as long as operational best practices are implemented and enforced through regulation.”


So it gave a pretty clear vote of support. It said that the

“magnitude of seismicity induced by hydraulic fracturing would be no greater than”

magnitude 3, which would be

“felt by few people and result in negligible, if any, surface impacts.”

So we are left with this absurdly low criterion, which is an order of magnitude more severe than that applied to any other industry.

It is not only an order of magnitude; it is entirely unreasonable. Natural earthquakes in this country can be several orders of magnitude greater than is permitted as a result of fracturing for shale gas, and these natural earthquakes occur with little damage. I can remember being woken up at midnight on 23 September 2002 in London. My whole house shook and the windows rattled and I was woken. It was the only time—no, I will not say anything about that. The earthquake was actually centred in Dudley in the Midlands and was a force 4.7 and had that effect in London. There were no reports of damage anywhere in the United Kingdom as result of it—and that was 500 times greater than the highest seismicity induced so far by fracking in the UK, let alone the low 0.5 standard set. Over the last 50 years, according to the British Geological Survey, there have been 25 natural earthquakes of greater than or equal to magnitude 4 and in the last 60 days we have had 29 minor earthquakes in the United Kingdom about which no one has complained at all.

The University of Liverpool produced a study using seismicity measurements which showed the impact of a whole range of household events. I have a copy of it here. It showed that, for example, a door slamming uses more vibration at its surface than the maximum magnitude permitted from fracking in the United Kingdom. So does sitting down suddenly on an office chair, or a building site piledriver 15 metres away. They are all similar orders of magnitude—they are 0.6—but you can find things which are an order of magnitude higher, and we should remember that this is a logarithmic scale. Dropping a large bag of shopping has a magnitude of 1.5 and a toddler playing on a wooden floor, I am astonished to learn, can produce seismicity of 2.1. So we are talking about having such a degree of security against any seismic shock resulting from fracking as to be completely ridiculous.

Oil and Gas: Subsidies and Licensing

Debate between Lord Lilley and Baroness Sheehan

Thursday 20th January 2022 Grand Committee

[Lord Lilley (Con)]

Maybe. It seems unwise to have got into a position in which the oil companies are required to do something that they cannot and have not been financing, and to take it to the taxpayer. I think that the noble Baroness will agree with me that up to now there has not been a subsidy. If we did not allow the costs of decommissioning to be offset against the revenues that the oilfields generate, we would effectively be taxing rather than supporting the most ecological activity that we require of oil companies; namely, the removal of what they have constructed in the North Sea.

The second thing that the noble Baroness is against is undue influence on licensing. One of the arguments in my pamphlet about the North Sea giveaway was that giving away those huge resources means that the civil servants who decide on it will be open to corruption. Amazingly, in the ensuing years, I found no evidence of that micro-corruption; nor is there any evidence of macro-corruption, in the sense of the oil and gas industries exercising undue influence. On the contrary, the offshore fields are not being developed—Cambo and the other one whose name I forget—and, onshore, hugely valuable shale resources are not being exploited. It is clearly not the oil industry that is exercising undue influence; somebody else must be. It is not those who want to reduce carbon emissions who are exercising undue influence because, by and large, particularly in the case of shale, if we import gas instead of producing our own—that is the consequence of not allowing shale exploration—we incur greater emissions, not just in transport but in liquefying and then deliquefying gas, which is an energy-intensive process.

There are two ways in which we can meet the net-zero target. One is to reduce demand, and the other is to reduce supply. The sensible way is to reduce demand. If you reduce supply ahead of reducing demand, the price goes up, as we are seeing now; the oil and gas companies make undue profits, which will upset you all greatly, and I do not particularly want to see them make undue profits either; and it will cause difficulties to households in the short term, which is what we are experiencing. I hope that we will see more realistic analysis than we have heard so far.

[Baroness Sheehan (LD)]

I want to ask the noble Lord something before he sits down. I bow to his greater understanding of the finances behind pricing of oil. Maybe he can explain why, in 2019, for each barrel of oil the UK received so much less—$1.72 in tax—than Norway’s more than $21 per barrel of oil. On the supply and demand side, would he not say that it is not one or the other? We need to do both if we are to get to net zero in the timeframes that we have set ourselves.

[Lord Lilley (Con)]

I have not looked at the profitability per barrel and the tax paid per barrel, but I used to do that every day 40 years ago. I assume that it is because our fields are now running down, whereas the Norwegian fields are still far from fully mature. As far as I know, Norway’s tax regime is not hugely different from our own; it was not then. On the question of whether we have to restrict supply as well as restricting demand, no, we do not. If you reduce demand and anyone has supply available and no market for it, they lose money—that is their problem—but if you reduce supply without reducing demand, you raise prices, increase profits to the industry and increase costs to ordinary households.