Baroness Smith of Basildon
Main Page: Baroness Smith of Basildon (Labour - Life peer)Energy Bill [HL]
Baroness Smith of Basildon Excerpts(13 years, 11 months ago)
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“( ) to assess whether the person’s obligations under section 41B of the Electricity Act 1989 or section 33BC of the Gas Act 1986 are, in particular, being discharged transparently, cost-effectively and consistently throughout the duration of the obligations and achieving value for money; and( ) to assess whether these obligations are consistently targeting priority groups and properties”
Baroness Smith of Basildon
My Lords, this is a fairly brief and self-explanatory amendment, which gives us the opportunity to have an assessment of the obligations to ensure that they are,
“discharged transparently, cost-effectively and consistently”,
throughout the time period and to ensure that we have those areas covered so that we can make a full assessment of the effectiveness of the obligations. It is very straightforward and I hope that the Minister will be able to accept it. We have all learnt from past examples when the programmes in place may have been extremely valuable but we have also learnt lessons about how much more valuable they could have been if there had been such transparency in place. This is about getting the best approach. I beg to move.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)
My Lords, I welcome everyone back to the Committee and thank all noble Lords for their great contributions to date. May it continue. As I have said repeatedly, this is only one stage in the passage of our Bill, and there will be opportunities between now and Report for further advice to be given and listened to, further discussions to be had and further detail to be discussed.
Before I begin, I should say that in the debate on 26 January, I referred to a target of reducing carbon emissions by 10 per cent. I should clarify that this target refers to emissions from central government. I did not want any uncertainty there. We are keen for local authorities to play their part in reducing emissions. This will help the UK meet its legally binding carbon budgets, but local authorities are not formally covered by the 10 per cent central government target.
Amendment 30ZA would amend Clause 66 to provide further information-gathering powers. This is entirely consistent with the Government’s intention for greater transparency under future energy company obligations. The powers in Clause 66 allow us to gather such information as is necessary to help the Government to decide what provisions to make in future secondary legislation, powers which also enable the Government to review the operation and effect of policies that are under way. The matters that the noble Baroness seeks to cover are all, I believe, potentially germane to these issues, and are therefore covered in principle by the existing powers. Information could include, for example, exactly which measures the companies are delivering where, and how much those measures are costing the energy companies to acquire and install.
I hope that this has provided satisfactory reassurance and ask the noble Baroness to withdraw her amendment.
Baroness Smith of Basildon
My Lords, on the basis that the issues are covered, I would be happy to withdraw.
“Accidental petroleum releases: verification of financial costs
After section 3 of the Petroleum Act 1998 insert—
“3A Accidental petroleum releases: verification of financial costs
(1) At the time of applying for a licence under section 3, the applicant must provide the Secretary of State with information showing that the applicant has sufficient funds to compensate any damage caused, or loss suffered, as a result of petroleum being accidentally released during the operation of that licence.
(2) The information provided in subsection (1) must be approved as a true and accurate record of the financial affairs of that person by an independent and qualified auditor and must meet any other standards specified in regulations made by the Secretary of State.
(3) The Secretary of State must make regulations, in particular, to provide for the type of financial and supporting information to be provided under subsection (1).
(4) Before issuing a licence under section 3, the Secretary of State must be satisfied that—
(a) the applicant has provided a complete and accurate record of information required by this Act and any regulations made under this Act; and (b) on reviewing that information, the applicant has sufficient funds to compensate for any damage caused, or loss suffered, as a result of petroleum being accidentally released during the operation of the licence.””
Baroness Smith of Basildon
My Lords, I put this forward as a probing amendment to clarify the issue of liability in the event of an oil spill. There are two triggers for the amendment. The first is the group of clauses that we are coming on to discuss and the second is the debate that we had thanks to the noble Lord, Lord Moynihan, towards the end of last year on the Deepwater Horizon oil spill. It was while researching for that debate that I thought more about the issues of liability if we had a spill in this country. I understand that with the Deepwater Horizon spill the costs are huge—around $20 billion and still counting. I am not clear on the issues of liability in this country, which is an area of concern. This seems an opportune moment to raise it during our proceedings on the Bill.
There is a two-pronged approach to this. First, there are technical ways in which to do everything that we can to avoid such a spill. Secondly, we could have an insurance policy in case a spill was to occur. That is the reason for proposing this amendment. At the moment, should there be a significant oil spill, the costs would fall on the taxpayer. Would that be at a national or a local authority level? This amendment seeks increased liability cover to be required before drilling in the UK. The recent report from the Energy and Climate Change Committee in the other place dealt with this issue and highlighted liability as an area that needed significant improvement to protect the taxpayer. The financial requirements currently placed on the industry are under the offshore pollution liability agreement, but my understanding is that they are quite weak. A significant oil spill would leave taxpayers disadvantaged, because they would face potentially huge costs in order to clear a major spill from the ocean off our shores.
In proposing this amendment, we want the Government to ensure that any new offshore drilling licence is granted only when the licensee has proved its ability to meet the full costs to address the direct and indirect consequences of an accidental release of oil that occurred as a result of any operations on the UK continental shelf. The Government should also ensure that compulsory third-party insurance cover is obtained for all small exploration and production involved in drilling operations in the UKCS. When we discussed this issue before, the Minister was content that the current arrangements for monitoring in the UK were perfectly adequate. Indeed, we have some of the toughest regulations and inspections in the world, but the HSE has warned about the increase in the number of serious accidents and spills. It has said that the industry’s performance is not good enough and has urged it to up its game.
The monitoring and regulations that we have in place are significantly better than those that existed in the US at the time of Deepwater Horizon. However, I was concerned that the department’s evidence to the committee confirmed that just one inspection of a deepwater rig will take place in 2010-11. I appreciate that the Government will be vigilant, but we need some clarification on the costs and who would be responsible.
There are technical improvements that the Government could undertake. I am sure that the Minister is aware of the issues surrounding blow-out preventers and how they could be improved. Obligations might be placed on companies installing such rigs to have significantly improved blow-out preventers, doing everything that they could to prevent a blow-out and an oil spill. However, in case there was an oil spill, it would be helpful for some clarification as to where responsibility lies and whether measures could be taken via insurance on the licensees, as indicated in my amendment. Could the Minister consider that?
Baroness Noakes
My Lords, the noble Baroness, Lady Smith of Basildon, raises some interesting points with her amendment but I wonder if its terms are quite right. She is asking for an ascertainment of financial capability at the time of the granting of a licence. However, if a requirement is to be imposed, it needs to be a continuous obligation—that is, something that is tested at regular intervals. A licence is granted at one point in time but a spill may occur many years later, when the financial position of a company is quite different.
Secondly, it is not so much a question of whether the applicant has sufficient funds, but of whether it has access to funds via insurance. It is probably much easier to demonstrate that there is adequate insurance to cover what might reasonably be expected to follow than to look at a company’s balance sheet. I also say to the noble Baroness, wearing my accountant’s anorak, that auditors do not certify things as being “true and accurate”. Doubtless if this amendment found favour with the Minister the correct wording could be formulated.
Baroness Smith of Basildon
I am very grateful to the noble Baroness; her contribution was extremely helpful. Certainly, it was not the intention that the time of applying for a licence should be the only time when financial capability was assessed. The insertion somewhere in the wording of “continuous” would be extremely helpful, as is her point about access to funds via insurance. The contrast I was trying to draw was with the Government’s policy on the nuclear industry. Currently it is the Government’s policy that a nuclear power company would have to be responsible for all the costs of decommissioning for some time—indeed, for the foreseeable future. In our previous debate we talked about 100 years or so. It seemed that equal responsibility should be taken by oil companies. I am grateful to the noble Baroness for her suggestions.
Lord Moynihan
My Lords, I was not going to intervene on this, but I have just watched, at some length, the follow-up proceedings in Congress on the first presidential commission report on the BP Deepwater Horizon disaster, which was published several weeks ago. Most of the cross-examination on this issue highlighted the fact that caution should be the order of the day in assessing the level of cover that an operator would require. Caution is needed because there is a massive difference between the majors and the independents. The representatives of the commission, when cross-examined in the last few days, highlighted the fact that they had not had the opportunity to discuss this issue, which is a valid and important one to raise. I welcome the fact that an amendment has been tabled so that we can consider it. However, the representatives had not had an opportunity to sit down with the insurance industry to look in detail at the exposure—the level of cover required—and the impact on the industry as a whole.
We in this country have a proud and, in my view, wise policy of encouraging independents to come on to licences alongside the majors to add further expertise and bring additional value to the table on safety, drilling expertise and well knowledge. I would be cautious about taking too much of a blanket approach to this at the moment—one which did not take into account the exposure that was being sought by the noble Baroness for different licence-holders and different companies on the same licence. The direction of travel in which she is heading is one that the industry will need to follow. This will inevitably be a major issue as the industry moves forward, both in the United States and elsewhere. It is a subject that will require detailed consideration between government, the industry and the insurers to come up with the best possible method of moving forward to ensure that, on the one hand, there is cover but, on the other, we do not end up with just a handful of majors and lose the independent sector. It has contributed so much to the development of the North Sea and has a commitment to safety that is as great as that of anybody else operating there. That is my only word of caution.
This is a highly complex area, which needs a good deal of further reflection, but I welcome the fact that the noble Baroness has brought this to the Committee. It is an important issue and she knows my interest in the subject. I hope the Minister responds equally positively about the importance of this issue and of continuing discussions between the Government, the insurance industry and the operators—and not just the operators but the drillers—to make sure that there is appropriate cover, but that cover is not required to the point at which we lose a significant section of the industry, which so far has contributed greatly to the development of the North Sea.
Lord Marland
My Lords, this is an excellent amendment and the Government are entirely in agreement with its broad principles. I am grateful to my noble friend Lord Moynihan for his comment as a practitioner in this field. I should preface any remarks that I make with a reminder that, in my former life, I spent most of my time trying to sell insurance to oil companies and to make myself even richer, so I was all in favour of them buying as much insurance as possible. However, in my current role, I see that a balance has to be struck and that I was wrong at the time—or only partly right. My shareholders thought that I was right.
The Government are in full agreement on this. We have seen the Select Committee’s recommendations and we are evaluating them at the moment. The noble Lord, Lord Moynihan, makes the point that we must not rush into this or have knee-jerk reactions. Of course, when the Government issue licences, a fundamental part of that is that the company awarded the licence becomes a member of the Offshore Pollution Liability Association; it has to purchase £250 million of cover and it then goes into a pool that offers greater cover. This pooling arrangement is fairly unique and it gives us a number of solid assurances. There are two imponderables that need evaluation. One is the quality of insurance cover. Obviously, if the insurance provider is not of A-graded quality, particularly with a longer-term liability situation, that would be a concern. That needs looking at rigorously. Then there is the matter of the quantum.
Two things are going on, as the noble Lord, Lord Moynihan, said. The first is the inquiry that is happening in the United States. We would not want to prejudge what is happening in that inquiry, which we want to evaluate. Also, we want to evaluate the Select Committee’s comments, which are valid. I hope that the noble Baroness will understand that the Government take this matter seriously. She has been persuasive in taking an important line. It is very much in the country’s interest that the subject of pollution should be managed very carefully indeed.
Baroness Smith of Basildon
I am grateful to the noble Lord for his expression of support and agreement with the intention of my amendment. I am not quite sure what he means by knee-jerk reaction and rushing into this. As new licences are being issued for drilling, probably as we speak, this is clearly an issue that needs to be addressed with some urgency, although I take on board entirely the points made by the noble Lord, Lord Moynihan. I understand from the Minister’s comments that the Government are looking at this matter and that we will return to it. With that information, I am happy to beg leave to withdraw the amendment.
Baroness Smith of Basildon
My Lords, to be helpful to the Minister, I was able to give him advance notice of the kind of questions that I wanted to ask about this clause. I am grateful that, earlier today, someone from his department e-mailed me, although I have not had a chance to look through those responses in detail. It would be helpful to raise some of these issues in Committee and to hear his responses.
I feel that there is a lack of clarity about why this chapter is coming forward at this time. It is entirely appropriate—indeed desirable—that the Government move to consolidate the four pieces of legislation that currently exist in this area. That is helpful to the industry and to government. In consolidating, these clauses go a little further than the existing legislation. That is the area on which I seek clarification.
I understand that in the future, where there is a dispute about a third-party operator seeking access to upstream petroleum infrastructure, the Government will seek commercial agreement. These clauses provide for the Government to seek to resolve the issue. Their role almost seems to be that of an arbiter, though it seems stronger than that.
Baroness Northover
My Lords, this chapter is designed to replace the current legislation on third-party access to upstream petroleum infrastructure. Perhaps I can further clarify what information the noble Baroness has already received; she obviously has a good grasp of what this section seeks to do. It relates to access to offshore pipelines, platforms and processing facilities and to the onshore terminals and pipelines to which they connect. The existing provision, which in part dates back to 1975, has grown piecemeal. As the noble Baroness said, it is scattered over four Acts of Parliament. The procedures are not fully consistent; the definitions are not well aligned and some kinds of facilities are not explicitly covered, which is why the provision needed to be updated.
The need for third-party access is increasingly important. This is the significant point. Even after four decades of exploitation, there are 20 billion barrels or more that might still be produced from the UK continental shelf. The remaining pockets of oil and gas are typically individually small. Many are not large enough to justify dedicated pipelines or processing facilities. Economic development of these discoveries will increasingly depend on getting timely access to existing pipelines—where these have spare capacity—and on getting reasonable terms for that access. This is the kind of shift that helps to explain why this has been brought about. The time is therefore right to overhaul the existing legislation and to make sure that it is fit for purpose in this situation.
Of course, dispute resolution should not be a routine process. Third-party access can be and in the overwhelming majority of cases has been, as the noble Baroness acknowledges, agreed amicably between the parties involved. We have every intention that this should remain the case. We are fully engaged in and fully support the industry’s work to develop its own voluntary code of practice for infrastructure access. Disputes will nevertheless happen and negotiations will from time to time break down, so it is necessary that the Government should have the means of resolving an impasse where it occurs. This chapter therefore re-enacts the existing legislation, but as a unified process that has full coverage of all relevant pipelines, platforms and terminals.
Clause 78 sets out the basic procedure for resolution of disputes about access. It specifies the scope of the procedure—that is, the pipelines and other facilities to which it applies; the right of a person seeking such access to apply to the Secretary of State for the rights if unable to secure them by negotiation; the procedure that is to be followed; certain matters that are to be taken into account; and appropriate safeguards for the interests of the owners and others with existing rights. Finally, subject to that procedure and the safeguards, it sets out the powers of the Secretary of State to issue a notice granting appropriate rights to the applicant.
These provisions make two key changes. First, the current legislation provides a safeguard for the reasonable requirements of the owners for transport or processing of oil and gas and for the entitlements of other users who already have rights to the infrastructure for transport or processing. The Secretary of State must be satisfied, before making an access notice, that doing so will not prejudice these requirements or rights. In general principle, this is clearly right but, on reflection, we think that an unqualified requirement on this point will prove unduly restrictive. There will be circumstances in which introducing a third party into an existing facility will reduce, at least temporarily, the capacity available to others. If nothing else, the making of a physical connection is required, which entails a risk of interruption to operations.
We think it desirable that the Secretary of State should have a similar flexibility in determining terms for access. Accordingly, we have qualified the safeguard provision for existing capacity requirements or rights so that such rights and requirements can be effected, provided that suitable compensation is available to the affected users. The other innovation is that the access notice has effect only if accepted by the applicant within a defined time. This meets a concern that has been raised in discussion with the industry. We think that it will provide a helpful degree of clarity for all involved.
The noble Baroness made reference to this being left to the market. I emphasise that the market model applies to the Green Deal, and we are moving on to another part of the Bill here. I hope that she can see the case that is being made for why, in these circumstances, these measures need to be taken forward.
Baroness Smith of Basildon
I am grateful to the noble Baroness for giving a detailed explanation, although I am not really sure that she understood fully the points that I made. I apologise if there was not enough clarity in what I said. I have asked that a copy of the brief that was e-mailed to me today by her department should be given to her as well. I shall make sure that she receives that.
We have heard so many times about what the market mechanism will provide under the Green Deal. Previously, in this area of policy, it has been more about the commercial arrangement than market mechanisms, but the Government seek to alter that—as I understand it, on the basis of one case in which the Secretary of State has been asked to intervene. Is this an appropriate way in which to progress? Although the Secretary of State has been asked to intervene, the new clause gives the Secretary of State powers to seek information on how negotiations are going and then to issue a notice granting rights. I am concerned that the Government feel that they could be acting on behalf of one of the participants in a commercial arrangement. I am not sure that that is prevented from happening in the clauses we are discussing.
I am happy for the noble Baroness to take this away and come back to me on this matter. There was another point that she did not address. Some companies have put it to me that such a clause, whereby there can be direct intervention by the Secretary of State in what was a commercial arrangement, could impact on the investments of those companies in the industry. That is quite a serious matter, and I asked whether there had been any discussions with the industry on investment. I appreciate that she does not have the information to hand, but if she could let me know it would be very helpful.
Lord Teverson
I like this part of the Bill. Good questions have come from the noble Baroness, which we would not have dealt with in Committee otherwise. First, as the Minister says, these provisions give the opportunity for small oilfields to be exploited when the infrastructure and investment in that would not otherwise allow that at all. Secondly, to pick up the point made by the noble Lord, Lord Moynihan—although he is not in his place—it must make it possible for smaller, independent oil companies to exploit those opportunities, which would not otherwise be there if there was no sharing. The pipelines that are already there are in a certain way a ransom strip. They are a monopoly of a facility that has been invested in, rightly, by those organisations, but they give undue leverage to those organisations. Also, the fact that this legislation is here means that commercial deals will almost certainly be done, whereas they might not be if it was not here. So this is a good clause in the Bill.
Baroness Smith of Basildon
I am grateful to the noble Baroness, who has sought to address my concerns. I have had a note from the officials to say that there are many legal complexities around this. On that basis, I am happy to discuss further—that would be helpful for my peace of mind and in understanding why certain provisions have come forward in the way that they have. I am grateful to the noble Baroness for that offer.