Financial Services and Markets Bill

Debate between Lord Lilley and Baroness Worthington

Committee stage
Tuesday 7th March 2023 Grand Committee

[Baroness Worthington (CB)]

I will interject on behalf on the amendment I drafted, as the noble Lord has completely mischaracterised what we are attempting to do here and has narrowed the debate into a very narrow conversation about oil and gas assets. We are talking here about climatic risk across the whole economy. It is not just oil and gas operators; it is anybody who has any money wound up in any of the sectors that will be affected by the physical risk, the risk of transition and the societal risk when we finally realise that science does not negotiate with oil and gas companies, financial regulators or anybody who pretends to be able to predict the future. We have poor modelling, we have terrible risk assessments, and the PRA and the Government need to issue better guidance so that we can understand the risks we are facing. Let us not reduce this to a narrow discussion about oil and gas interests.

[Lord Lilley (Con)]

I read the amendment in the name of the noble Baroness. Proposed new subsection (1) refers to

“group undertakings engaged in existing fossil fuel exploitation and production … group undertakings carrying out new fossil fuel exploration, exploitation and production”.

If this is not about fossil fuel exploration, that is not very clear from her amendment. I am dealing specifically—

[Baroness Worthington (CB)]

My Lords—

[Lord Lilley (Con)]

Hang on, I must have the right to reply to the previous intervention before I take the next. I am not dealing with things other than fossil fuels. I am talking just about fossil fuels. It seems to me that the noble Baroness’s amendment is about fossil fuels, in large measure. My arguments have not been responded to because they are fundamentally logical. They are the whole basis of government and CCC policy. But I give way to the noble Baroness now.

[Baroness Worthington (CB)]

The amendment lists certain sectors which are likely to be most affected. It does not in any way say it is limited to those sectors, and I think it is egregious to assume that this is a narrow amendment when it is, in fact, a very broad amendment.

[Lord Lilley (Con)]

My remarks are narrow. The noble Baroness’s amendment may be broad. Can we agree on that and deal with the aspect of fossil fuel investment?

[Baroness Worthington (CB)]

Yes.

[Lord Lilley (Con)]

We ought to allow the industry to invest as long as we are phasing out demand. If it invests too much, it is its problem. If it invests too little, it is our problem.

Energy Bill [HL]

Debate between Lord Lilley and Baroness Worthington

Committee stage
Monday 16th January 2023 Grand Committee

[Lord Lilley (Con)]

I have not read the report, but I will read it. I have read similar reports, and almost all rely on the statistical phenomenon that random events are as likely to be bunched together as they are to be evenly spread; I say that as someone who studied statistics. This results in bunches of things; for example, you will get bunches certain cancers somewhere near Windscale, as it used to be called, yet there are bunches elsewhere not near Windscale but people do not worry about them. I very much doubt that there is any scientific basis—and indeed the authors of the article could not think of any scientific basis—as to why we should relate one thing to another in that case. It is the sort of thing that the anti-vaxxers say when they find a little concern. Obviously we should always be concerned about issues such as vaccination or drilling under pressure, but we should not exploit people’s fears to stop something we do not like for other reasons. I hope that my amendment will be adopted and that it will mean that we actually regulate the shale gas industry on exactly the same basis as we do all other industries which can produce similar environmental impacts.

[Baroness Worthington (CB)]

My Lords, I hesitate to speak on this fascinating group of amendments, because we have had a rather long debate already. However, as it is such an important aspect of energy policy, I hope that the Grand Committee will bear with me as I comment on the group of amendments. If I had more time and had not been overseas recently, I would have added my name to Amendment 222A tabled by the noble Baroness, Lady Sheehan, as it is absolutely critical that we have transparency.

Over a series of years, finance measures have allowed us to walk into quite a huge liability on the public purse in relation to decommissioning the oil and gas facilities that are already there. That should not be ignored; it could be huge and very significant, especially as the nature of the investment in the North Sea shifts away from the majors into much smaller, less stable and less financially competent entities. I fully support the amendment and look forward to hearing from the Minister in detail in his response, because it is very well drafted and concerns an absolutely critical issue.

--- Later in debate ---

[Lord Lilley (Con)]

Will the noble Baroness give way?

[Baroness Worthington (CB)]

I will continue if I may, and perhaps the noble Lord will come back to me on all the reasons. Another reason is that there is a moral dimension to climate change. We should never forget that. It is not about number crunching and bean counting of carbon in one country or another. This is a common-action problem. The whole world needs to move. Arguably, we have had the greatest number of years of unfettered exploitation of fossil fuels of any country on the planet. Therefore, it is high time that we signalled an end to that, to allow those countries that have not had that possibility to potentially increase their revenues from their resources while we signal the direction for the whole planet. That moral leadership is what led to net zero and it is what will lead to us acting on the supply side, because we must do both. We cannot effectively do this by cutting with one side of a pair of scissors. We need to cut with both. It seems ludicrous that the only body in the world that discusses supply-side constraints is OPEC. We are a nation state and we should, as a group of countries, come together to negotiate a much more considered and appropriate mechanism for looking at the supply side.

Finally, there is an absolute imbalance of power in those incumbents currently involved in the extraction of fossil fuels. They do not sit by passively, waiting for demand to be destroyed. I can tell the Committee as a matter of fact that money is being put into disinformation and misinformation campaigns to slow down the demand reduction that we want sped up. I do not disagree that demand is a very good way of doing this, but it is not the only way. We must be clear-sighted and honest with ourselves when we look at this problem from the perspective of a single-member state. What influence can we have on the world? Standing up to these giant companies with huge budgets, massive legal teams and huge sophisticated communication exercises is not easy. If we in the UK took this on, we would have to do so in an international context.

Therefore, I am not putting my name to these amendments. They are not appropriate without that commitment to act on an international basis. Here I am echoing some of the comments made about the non-proliferation treaty. Something must happen on the supply side within the auspices of an international agreement. We can then have an orderly transition in which everyone understands what we are allowed to do and what we are not. The current situation, where coal mines can be approved in the UK in the 21st century—sending people underground to dig out coal that no one wants with high sulphur content—is ludicrous. We as a country should lead on this. We should introduce appropriate policy at this stage, not legislation, which leads us to an international agreement.

I am sorry that I have spoken at length, but I feel strongly that we should take this on as a nation, particularly for that moral reason.

[Lord Lilley (Con)]

I was touched by the concern expressed by the noble Baroness for giving people in the fossil fuel industry certainty about the future. I used to be an analyst in the City, analysing energy and trying to forecast. It was very uncertain. The oil, gas, coal and electricity companies all found it very difficult to forecast. It is now somewhat easier because we have spelled out a path to net zero. They know that there will be a decline. They may think that perhaps it will not as much as that, or a bit more, but they have a better trajectory than ever before. In any case, why is she so worried about people in the fossil fuel industry having certainty, which no one else has? Also, she said that it is a moral issue—that it is about signalling something. In other words, it is virtue signalling.

[Baroness Worthington (CB)]

I dispute that point completely. It is not about virtue-signalling; it is about moral leadership. There is a difference. When the UK stood up and passed legislation on climate change, and took those measures to pass net zero, the rest of the world took notice. We can do the same on this issue, and we will need to. It does not have certainty because it depends on who you talk to in the City. At the moment, many people in the City are saying, “Woohoo!” Everybody is piling on to fossil fuels, with record high profits and huge amounts of money to be made in the short term. That short-termism is going to send us as a society collectively off a cliff. We do not want to see that. What happens in that uncertainty is speculation. A huge amount of trading that goes on with these commodities creates a bubble that all of us then pay for. I do not want to see any more of that; I want it to become a regulated industry that is declining according to an agreed strategy. Otherwise, I have no doubt that they will push us off a cliff; arguably, they already have.

I turn to other amendments in this group. I do not want to get into a debate about fracking but, for the record, I remember being on the Front Bench when we debated fracking regulations in our debates on the energy Bill that introduced them. Why did the industry not spot this at the time? Perhaps it was a clever move by the Lib Dems that it did not spot, although I would find that surprising. There is a host of regulations that have been passed on this issue. I am not averse to us looking at these seismic limits again because nobody wants to hold the Bill back on that basis. However, my contention is that the time has passed and it will be too slow to make a significant contribution to our domestic gas supply. We would be far better off electrifying everything and reducing primary energy demand by at least a third in that process.

That brings me on to Amendment 224, tabled by the noble Lord, Lord Moylan. Surprisingly, I quite like this amendment because it would force us to think about how we could reduce our domestic reliance on gas. Within that timeframe, no fracking is coming online, I am afraid, so the only option left is massively reducing our dependence on gas. That means electrification, not just because it is abundant, clean and cheap but because it is much more efficient. It is an energy-efficiency measure to electrify, taking down primary consumption. I feel confident that, if we were to produce a strategy, we would see a huge amount of electrification being brought on. That may well be what we should be doing; in fact, Amendment 242, which we debated previously, would have asked the Government to do just that. Perhaps there is something here to come back to on Report.

I turn to Amendment 227A; it was not debated but I am sure that we will come on to it. I just want to say that I lend my support to that renaming.

On Amendment 227AA in the name of the noble Baroness, Lady Sheehan, flaring is absolutely ludicrous in the sense that we should not be allowing this resource to be burned without it being captured and brought to market. However, there is something worse than flaring: venting. I want to hear some reassurance on the banning of flaring—it has been banned at times, specifically for wildlife protection reasons as I remember it—because it can lead to venting. That means allowing methane to be released into the atmosphere, which would be far more damaging and much harder to track. I would not want to see this amendment agreed to unless that issue was addressed.

We have had a debate about coal. If we are looking at this Bill holistically—I offer the Minister this thought for free—there is a way through the apparent contradiction around allowing us to exploit in environmentally sensitive ways the continued use of our own fossil resources where that will avoid us bringing in more polluting sources from America, which I think is the case at the moment. What about a climate recovery fund? We have just created a marine recovery fund for the almost non-existent damage that the offshore wind industry creates. What about a climate recovery fund for the very real damage that the continued extraction and burning of fossil fuels causes? Why do we not innovate around that policy? It would be easy to implement it. It could become a condition of all future licensing of fossil fuels in this country. We could work out the price we think should be paid and give the industry an incentive to make CCS work. That is something the Government could look at; I would be happy to meet the Minister to discuss it but I have only just thought of it.

Oil and Gas: Subsidies and Licensing

Debate between Lord Lilley and Baroness Worthington

Thursday 20th January 2022 Grand Committee

[Lord Lilley (Con)]

My Lords, I apologise for missing the first few seconds of the debate; foolishly, I was sitting in the Chamber instead of here. I congratulate the noble Baroness, Lady Jones, on securing the debate. I have always longed to agree with her, since I like her so much, and I do agree with her on the two objectives of the debate. I am against subsidies for the oil and gas industry, as I am against subsidies for renewables. I am also against undue influence being brought to bear on government.

The oil and gas resources with which this nation has been endowed by a beneficent providence are, essentially, the property of the people. It is right that the economic rent and value of those resources should be extracted for the benefit of the people and not given away. I first made myself an enemy of the oil industry when I published a document called North Sea Giveaway, advocating that licences should be not allocated but sold to the highest bidder, so as to extract the economic rent. For a while, it actually changed the Government’s policy. That was before I was ever a Member of Parliament; I had more influence then than I do now. Sadly, it did not continue for ever, and eventually Governments and officials went back to allocating, rather than selling, auction blocks.

Instead of extracting the money that way, they tried to do so by imposing a whole range of taxes—the royalty, the petroleum revenue tax and the supplementary corporation tax, all on top of the basic corporation tax that other industries pay. Since 1975, when oil first began to be extracted from the North Sea—I was then an energy analyst in the City—the oil industry has paid over £186 billion in those taxes to the Government.

Beyond the folly of giving away the licences rather than selling them, the idea that the UK subsidises the oil and gas industry is a nonsensical myth. The £4 billion that the noble Baroness mentioned is not a subsidy. Every industry is allowed to offset the costs it incurs to produce revenues against the revenues that those costs generate. The oil industry is no exception, but in that industry some of the costs are incurred after the revenues have been generated—in particular, the decommissioning costs. It is absolutely normal and acceptable for companies to be able to offset those costs against revenues in previous years. They get back tax that they paid on those revenues that were in excess of their costs. That is normal, and to describe it as a subsidy is, frankly, an abuse of language.

[Baroness Worthington (CB)]

I am enjoying this very much, but can the noble Lord comment on the rules that now underwrite those decommissioning costs with taxpayers’ money? As I understand it, that will cost us in the region of £20 billion over the coming years, because we are now underwriting some of those decommissioning costs. Is that not a subsidy?

[Lord Lilley (Con)]

It could well be but, as I understand it, that is not the £4 billion to which the noble Baroness referred.

[Baroness Worthington (CB)]

I am saying the wrong thing?

[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.