Energy Bill [ Lords ] (First sitting)

Alan Brown Excerpts

Committee stage
Tuesday 23rd May 2023 Public Bill Committees

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)]

As ever, it is a pleasure to serve under your chairmanship, Mr Gray, and particularly for the first time as a Minister on a Public Bill Committee. I am sure you will keep me on the straight and narrow over the next few weeks. I look forward to working with you and members of the Committee as we scrutinise this landmark and, as you described it, mighty Energy Bill.

To begin, I want to remind Members of the purpose and background of the Bill. The Energy Bill will provide a clearer, more affordable and more secure energy system. It will liberate private investment in clean technology, reform our energy system so that it is fit for purpose, and ensure the safety, security and resilience of the energy system.

I turn first to amendments 75, 76 and 81, tabled by the hon. Members for Southampton, Test and for Bristol East. Amendment 75 seeks to expand the definition of a transport and storage network user in clause 1 to refer additionally to users who may seek to use carbon dioxide taken off a transport and storage network, not just those who are seeking to transport and store carbon dioxide for its permanent geological storage.

Although there are many uses for carbon dioxide across industrial sectors in the UK, including fertiliser production, cement, lime, and food and drink, as the hon. Member for Southampton, Test set out—indeed, there was little in what he said with which I found myself disagreeing—not all these applications result in the permanent abatement of carbon dioxide. For some of those products, the carbon dioxide is ultimately released back into the atmosphere.

The Government’s aim in prioritising support for the deployment of carbon capture and storage in the UK is to incentivise large-scale, permanent abatement of carbon dioxide and the establishment of a transport and storage infrastructure, which is essential to achieve net zero emissions. Carbon capture and usage technologies resulting in the permanent abatement of carbon dioxide could represent only a small abatement potential as compared with carbon capture when the carbon dioxide is disposed of by geological storage. For those seeking to use captured carbon dioxide, alternative options are likely to be available, such as off-taking carbon dioxide directly from an emitter before it enters a transport and storage network. For those reasons, the Government do not consider the amendment to be necessary or appropriate.

Clause 2 establishes a prohibition on operating at a geological carbon dioxide storage site or providing a service of transportation of carbon dioxide by pipeline without a licence. Amendment 76 seeks to expand the scope of this licensing requirement to include licensing the use of carbon dioxide that has been captured and transported. The licensing requirement in clause 2 is intended to establish a regulated investment model for the transport and storage of carbon. This is a “user pays” economic regulation model that involves the network users—power and industrial emitters—paying for the transport and geological storage of the carbon dioxide that they produce. Licensed transport and storage companies will be able to recover their investment in the transport and storage network through the fees charged for transport and storage services. This model provides long-term revenue certainty for investors to pool through the invested needed to establish and scale up carbon dioxide transport and storage infrastructure here in the UK.

As pipeline, transport and storage assets have monopolistic characteristics, oversight by Ofgem, the independent economic regulator of carbon dioxide transport and storage, will ensure that users are protected from anti-competitive behaviour and that costs are economic and efficient. A model of economic regulation for delivering carbon dioxide transport storage was identified as the preferred option following the Government’s 2019 consultation on business models for carbon capture, usage and storage.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

The Minister mentioned Ofgem. What discussions were had with Ofgem about its capability, expertise and resources to deal with what is going to be a whole new suite of competencies for Ofgem?

[Andrew Bowie]

Of course, none of this is without its challenges, and Ofgem recognises that. However, I have regular conversations with Ofgem and the Department is happy that it is indeed scaling up its capability, to enable it to deal with not only the new carbon capture utilisation and storage procedures that we are discussing but the whole range of areas in which Ofgem will have a role as we move towards a net zero future. Given the aims and purpose of the economic licensing framework that clause 2 establishes, I hope that the hon. Member for Southampton, Test will agree to withdraw his amendment.

Amendment 81 seeks explicitly to include within the scope of the term “revenue support contract” a contract for the use of carbon capture. We understand that to mean a contract to support carbon capture and usage. The carbon capture revenue support contracts are intended to support the deployment of carbon capture technologies. The Bill allows for carbon capture revenue support contracts to be entered into with eligible carbon capture entities. Broadly, a carbon capture entity is a person who, with a view to the storage of carbon dioxide, carries on activities of capturing carbon dioxide that has been produced by commercial or industrial activities, is in the atmosphere or has dissolved in seawater.

Storage of carbon dioxide is storage with a view to the permanent containment of carbon dioxide. It is important to emphasise that provisions in the Bill may therefore allow for a broad range of carbon capture applications, including those carbon capture entities that utilise the carbon dioxide, resulting in the storage of carbon dioxide with a view to its permanent containment. Decisions on which carbon capture entities will receive Government support are to be made on a case-by-case basis. Prioritising support for carbon storage is considered essential to help deliver our decarbonisation targets.

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[Andrew Bowie]

New clauses 33 to 36 would insert provisions for the review of the strategy and policy statement, and procedure requirements for the designation of such a statement.

The Bill already contains a number of measures to deliver a cleaner, more affordable and more secure energy system for the long term, as set out by the long title, so there seems to be little to be gained from the proposed new clause 33. The Government’s approach to these matters will be informed by the strategy and policy statement provided for under the Energy Act 2013, on which we are currently consulting.

I turn to new clauses 34, 35 and 36. The 2013 Act introduced a power to designate a strategy and policy statement setting out the Government’s strategic priorities for energy policy in Great Britain, the roles and responsibilities of those implementing such a policy and the policy outcomes to be achieved. The strategic priorities of the Government’s energy policy are to be taken as a whole. They include, but are not limited to, our targets under the Climate Change Act 2008, reducing costs for consumers, tackling fuel poverty, and securing a diverse and viable long-term energy supply. The strategy and policy statement power in the 2013 Act is not specific to the measures contained in any specific Act. The power is wider, and it enables the strategy and policy statement to cover any or all of the Government’s strategic energy priorities, wherever they are set out.

On 10 May 2023, the Government published their consultation on a draft strategy and policy statement for energy policy in Great Britain. We are seeking responses until 2 August, and we intend to designate a final strategy and policy statement by the end of this year. Designation of a strategy and policy statement will ultimately be a decision for Parliament, not for the Secretary of State. I hope that hon. Members are satisfied by those reassurances.

[Alan Brown]

Will that be a wider strategy and policy statement that goes to Ofgem? An overarching energy policy has long been outstanding.

[Andrew Bowie]

I believe that that was made clear. As I said earlier, we are working with Ofgem to ensure that it has the capabilities to deal with all of this. In terms of a national policy statement for Ofgem moving forwards, there will be a series of announcements over the next few months and, indeed, the year that will enable Ofgem and the future service operator to get into a position where they are able to deal with what we introduce through the Bill and other statements.

Clause 1 establishes Ofgem as the economic regulator for carbon dioxide transport and storage. It also establishes the principal objectives and statutory duties for both the Secretary of State and Ofgem in carrying out their functions under part 1 of the Bill. Transport and storage networks will act as the enabling infrastructure for carbon capture and storage from a range of sources, including power plants, industrial facilities, low-carbon hydrogen production and, potentially, direct air capture.

The economic regulation model provides long-term revenue certainty for network operators while protecting network users from monopolistic behaviours, as has already been described. The Government consider that Ofgem is the most appropriate body to act as the economic regulator for carbon dioxide transport and storage, due to its experience and expertise in the economic regulation of the overall energy sector. The selection of Ofgem as the regulator has received broad support from the industry. The principal objectives set out in clause 1 reflect the balance of considerations for a nascent carbon dioxide transport and storage sector.

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[Andrew Bowie]

Clauses 2 to 6 relate to the licensable activities for carbon dioxide transport and storage.

Clause 2 establishes the prohibition on the transport of carbon dioxide by pipeline and its geological storage without an economic license regulated by Ofgem. As carbon dioxide pipelines for storage and site infrastructure are likely to be operated as regional monopolies, a framework of economic licensing and regulation is designed to prevent anti-competitive behaviours. Licensable activities will initially include the transportation of carbon dioxide via onshore pipelines and offshore pipelines, and the operation of an associated geological storage facility. The clause enables other methods of transportation of carbon dioxide to become licensable activities, should that be considered appropriate as the carbon capture and storage market evolves.

Non-pipeline methods of transportation—shipping, road or rail—are expected to form part of wider carbon dioxide transport and storage networks. These methods of transport are particularly important for dispersed sites, where there are emitters who wish to have their carbon dioxide captured and transported for permanent storage, but are not suitably located to join a transport storage network by pipeline.

While non-pipeline methods of transport will have an important role in the development of carbon capture and storage networks, the Government consider that there is currently insufficient evidence to justify economically regulating non-pipeline methods of carbon dioxide transport. As those methods of transportation have differing characteristics from pipelines, with a potential lower cost of entry and an ability for multiple asset-running in parallel, competitive regional markets may emerge naturally for non-pipeline transportation of carbon dioxide. However, should competitive markets not emerge as anticipated, that may be rationale for future regulatory intervention. The ability of the Secretary of State to bring activities within the scope of the licensing framework is particularly important, given the financial support provided by the Exchequer to support carbon capture facilities and to ensure appropriate and effective protections can be put in place for users of the network.

I turn to clause 3. Any future use of the power established in clause 2 to extend the economic regulation framework to other methods of transporting carbon dioxide, should that be considered appropriate, would be subject to statutory consultation, as provided for in clause 3. Under the provisions of the clause, the Secretary of State is required to give notice of their intention to make regulations to extend the licensing framework to other methods of carbon dioxide transportation. That would include statutory consultation with the economic regulator to confirm the rationale for market intervention and consultation with the devolved Administrations.

Clause 4 sets out the territorial scope of the economic licensing framework for carbon dioxide transport and storage. The economic regulatory regime established by chapter 1 and part 1 of the Bill will extend to all parts of this United Kingdom. The licensing regime and economic regulation will also apply to transport and storage activities offshore, both in the UK’s territorial seas and in waters designated as a gas importation and storage zone under section 1(5) of the Energy Act 2008.

Clause 5 provides for the Secretary of State to grant exemptions from the requirement to hold a carbon dioxide transport and storage licence. That provision is important to ensure that the prohibition established by clause 2 operates effectively and as intended and does not, for example, impact or inhibit activities that it is not considered appropriate to economically regulate.

For example, exemptions are a means by which a small-scale operator would not be burdened by licensing costs and obligations that could be considered disproportionate to the scale of their operation. However, exemptions should not enable a competitive advantage over licensed operators. Exemptions will be set out in the way of regulations and may be granted either to a class of persons or to an individual person. A statutory consultation process is set out in the clause, to ensure that appropriate notice is given ahead of making exemption regulations and to allow for representations to be made.

Clause 6 provides for the Secretary of State, by way of regulations, to be able to vary, withdraw or revoke exemptions from the licensing requirements that have been granted under the provisions of clause 5. As market circumstances change, it is conceivable that certain activities, categories or classes of activity that are appropriately exempt from economic regulation in the early years of CCUS deployment may, as the sector matures, be considered more appropriate for licensing and regulation, or the particular activity that was subject to exemption may itself develop or change. That will ensure that any exemptions granted remain appropriate as the UK CCUS industry matures. I hope that the Committee will agree that clauses 2 to 6 should stand part of the Bill.

[Alan Brown]

rose—

[The Chair]

I call Alan Brown.

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[The Chair]

Well, we need to decide which—I call Alan Brown.

[Alan Brown]

Thank you, Mr Gray. It is a pleasure to serve under your chairmanship. I will just ask the Minister a few brief questions.

In clause 3, the consultation on proposals for additional activities sets a 28-day timeframe in which objections or representations can be made, and the clause details that the Secretary of State must consider those. However, there is no timeframe for the Secretary of State to respond, and there is nothing that actually details the process of how representations will be considered and responded to. Could the Minister give a bit more information on that?

Clause 3(3)(b) is about notice given to Scottish Ministers relating to devolved competences, so could the Minister give examples of the types of activities he envisages that covering? Also, what process will the Secretary of State follow in taking the views of the devolved Administrations?

That goes to the wider concern that I have already expressed about the UK Government having powers to interfere in what would usually be devolved competences. I know that it is slightly nuanced in this case, but I just want to flag that I do not want to later have lodge loads of amendments and force votes on replacing “consult” with “approval”. I know that it is slightly different at this stage, but could the Minister give details of what he thinks the activities would be? The same question applies to subsections of clause 5 and 6.

[The Chair]

I presume that His Majesty’s loyal Opposition wish to say something. I remind the Committee that when you wish to catch my eye, it is important to stand up and make it plain that you wish to speak. If you do not do so, I will not call you. I call Dr Alan Whitehead.