Energy Bill [HL]

Baroness Sheehan Excerpts

Report stage
Tuesday 28th March 2023 Lords Chamber

[Lord Teverson (LD)]

My Lords, I will speak to my Amendment 33, which is around the decommissioning costs of carbon capture and storage installations. First, I will read what is in Clause 85(1) about financing costs:

“The Secretary of State may by regulations make provision for requiring relevant persons to provide security for the performance of obligations relating to the future abandonment or decommissioning of carbon dioxide-related sites, pipelines or installations.”


It is not often that one is shocked in Grand Committee in the Moses Room. Normally it is a feeling of impotence when you are going through SIs, rather than some sort of greater emotion, but I was shocked when we discussed this. I asked the Minister how we protect the funds that are for decommissioning at some point way into the future. How are we sure that they are not like the dodgy builder who takes your deposit and then, when you ask him or her to decorate your house, the phone is no longer answered and the money has disappeared? How do we know, in this rather difficult area of energy, that those “relevant persons”, and more importantly their banks accounts, will still be there so that in some distant future, maybe decades ahead, this money is available?

If I am honest, when I had the answer from the Minister—which I cannot quote as I have not looked it up—I was shocked that there did not seem to be any provision for protection of the rather large sums that I expect to be there. That is why I have introduced this amendment. It is very simple and demands that when these payments are made they are effectively put into an escrow account, or at least a ring-fenced fund of some sort, so that they are there when these facilities need to be decommissioned. It is then up to the Secretary of State to agree when that money can be disbursed so that decommissioning can take place or disbursed because the funds are no longer needed.

It is as simple as that. It is about protecting that money that we as taxpayers and citizens of the UK are owed when that decommissioning happens and making sure that the money really is paid rather than having disappeared at the time. I see no guarantee within the three pages of other details about how these funds should work. I hope the Minister can come back to me and reassure me that, if he is not going to accept this amendment, the Government will ensure that this money is ring-fenced and is there for us and future generations when we reach that decommissioning point.

[Baroness Sheehan (LD)]

My Lords, I declare my interest in the register as a director of Peers for the Planet.

I shall speak to only one amendment in this group, Amendment 33, in the name of my noble friend Lord Teverson, to which I have added my name. It aims to ensure that decommissioning funds, as the noble Lord has explained, are available for decommissioning when the time comes. I support it not least because it complements Amendment 222A, which I tabled in Committee, on transparency of decommissioning, particularly with respect to future taxpayer liability for decommissioning relief deeds, which are agreements between the individual oil and gas companies and the Treasury. The National Audit Office and the Public Accounts Committee have both expressed concern about this public liability. I quote from the 2019 NAO report on decommissioning:

“With decommissioning activity increasing, the government is paying out more in tax reliefs for decommissioning at the same time as tax revenues have fallen due to a combination of lower production rates, a reduction in oil and gas prices and operators incurring high tax-deductible expenditure.”


That represents a triple whammy for UK taxpayers since, as the report says, for the first time ever, in 2016-17,

“the government paid out more to oil and gas operators in tax reliefs than it received from them.”

The scenario under which that public subsidy of oil and gas production took place in 2016-17—that is, the triple whammy of lower production rates, a reduction in oil and gas prices and operators incurring high tax-deductible expenditure—is the future outlook for the gas and oil sector as the world moves ever more rapidly towards decarbonisation. The USA’s inflation reduction Acts and the imminent EU response via the green deal industrial plan will turbocharge that transition, and rapid transformative change is very visible on the horizon.

While oil and gas expansion currently looks secure, it is only artificially so, given the very generous tax reliefs, subsidies and other support that the Government continue to provide, not least via decommissioning relief deeds. With over 100 new licences for exploration and production on offer, the risk of stranded assets is compounded hugely. Why do the Government persist in giving preferential treatment to fossil fuel producers? That is a question that I have put to the Minister before on several occasions, and I hope that this time there might be an answer.

It used to be that a ceiling of sorts was kept on the overall cost to the taxpayer by the fact that a firm could not claim back more in decommissioning tax relief than it had previously paid in tax. That makes sense but, since 2017, the Government have explicitly said that when firms default the partner firms that pick up the bill can claim back more in tax relief than they have ever paid. That certainly needs some digesting.

It cannot be right to put on life support an industry that has had its day—life support that is publicly funded. The amendment asks the Government to take precautions with the public purse, uphold the “polluter pays” principle and ensure that operators of new fields and buyers of existing ones accept that they cannot escape their responsibility to our planet, the one and only planet that we have.

[Baroness Blake of Leeds (Lab)]

My Lords, in speaking to the amendments in this group, I particularly thank my noble friend Lady Liddell for the well-informed and detailed explanation of why the amendments in her name and that of my noble friend Lord Foulkes are so important and relevant. What we heard was the crossover between the considerations within these amendments and the discussions that we had on the previous group regarding the work that we believe needs to be done to strengthen the hand of Ofgem, particularly to justify and evidence decisions, as we heard, enabling strategic anticipatory investment.

--- Later in debate ---

I apologise for the long update but, reflecting on these points, I hope that the noble Baroness will withdraw her amendment.

[Baroness Sheehan (LD)]

Before the Minister sits down, I will ask him to clarify a couple of things. First, I welcome his statements on decommissioning, but can he confirm whether the safeguarding of decommissioning funds will include all fields, both existing and new? Secondly, can he confirm that it is the FCA that will provide the regulatory oversight for decommissioning funds?

[Lord Callanan (Con)]

It would depend on what the noble Baroness means by “decommissioning funds”. What would the decommissioning funds be for? In response to the noble Lord, Lord Teverson, I outlined our intention to ring-fence the CCUS decommissioning funds.

--- Later in debate ---

[Baroness Worthington (CB)]

My Lords, Amendment 40 relates to the carbon take-back obligation. We had an excellent debate towards the end of Committee about the question of what government policy is on the supply side of the equation of tackling climate change and environmental impact. On one hand, we had a group of Peers who were talking about the need to increase our extraction of fossil fuels and to move into fracking and other types of exotic extraction. On the other hand, we had an amendment which said, “Absolutely no more—turn off the licensing completely”.

It struck me that there needs to be a path through those two positions. We need to start making this industry responsible for the impact of its product. When we look back, we will wonder how we allowed ourselves to carry on extracting fossil fuels in an unlimited way and putting them into the market without the Government having a policy on that aspect of the problem.

This amendment is designed to introduce a policy that would make the extractors of fossil fuels—the oil, gas and coal producers—responsible for the greenhouse gas impact of their product. A requirement to bury back the greenhouse gases arising from those products would be phased in over time. If the industry cannot find sufficient carbon capture and storage opportunities to permanently store those greenhouse gases, it should be paying a buyout price of £200 per tonne of CO₂, representing what is expected to be the social impact price of carrying on this unlimited extraction.

Should the UK be seeking to do this in what is essentially a global market? The international dimensions are at the core of why we need to do it. At the moment, as individual countries and companies, we all tell ourselves that it is important to extract every last gram, ounce or therm of gas, oil and coal out of our economy because others are going to have not to use theirs. Everyone is incentivised to think that they will be the one burning the last therm and the last tonne. Continuing with that approach is a collective international suicide pact. If every country carries on extracting to the very last atom of carbon left in our oil and gas fields, we will go well beyond 1.5 or 2 degrees. In doing so, we will remain hooked on this commodity. It will remain cheap, affordable and available. We will not make the break from fossil fuels that we know we need to in order to address not just climate change but the security, resilience and efficiency of our energy systems.

It is important that we start the debate about government policy on the continued extraction of fossil fuels in this way. At the moment there is no policy. That is why it falls to the planning inspectors to decide whether we should have a new coal mine and to other regulators to keep exploiting the economic value of the North Sea for oil and gas without reference to its future unsustainability. It is not sustainable now. We need to signal a move and acknowledge that this industry needs to adapt. If it wants to pursue carbon capture and storage, let us oblige it to do so.

I am perfectly happy with the Government supporting the first carbon capture and storage projects to get them started and for cost discovery, but there should not be a continued subsidy of that solution. We should oblige the industry to do it. In making it responsible for the impact of its products, it will discover whether it is cost effective, whether it can be done cheaply and whether carbon capture and storage is real. Let us allow industry to discover that. If we give it the obligation, everyone will move forward together on an equal playing field. We could take the responsibility away from the taxpayer and the bill payer and give it to the industry. Quite frankly, at the moment it has more than enough resources and profits to be able to invest in that and to find the least-cost solutions.

Admittedly, Amendment 40 is a big thing to introduce on Report. I am simply seeking to start a debate about this. I hope that I receive some support and that it will be considered in the other place. I look forward to the Minister’s comments. I beg to move.

[Baroness Sheehan (LD)]

My Lords, I have added my name to Amendment 40 tabled by the noble Baroness, Lady Worthington—I hope I can refer to her as my noble friend. I have done so in solidarity with her and in acknowledgement of her dexterity and expertise in handling the excesses of the oil and gas sector, rather than from a steadfast conviction that the carbon take-back scheme is the deterrent needed to curtail the enthusiasm of the financial markets in their continuing and increasing support for the sector.

I want to find out more about the scheme and to raise some questions posed by it. I get that this novel scheme is cleverly devised, accounting for not just the carbon neutrality of the production of fossil fuels but their deployment, subsequent combustion and release into the atmosphere as greenhouse gases. I support that, but I also have concerns.