Baroness Worthington
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Infrastructure Bill [HL]
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Baroness Worthington
Baroness Worthington (Lab)
My Lords, it is a pleasure to speak to the energy parts of the Infrastructure Bill on Report. We hope that these amendments will introduce a level of co-ordination into government policy, specifically with regard to the use of enhanced oil recovery for the furtherance of extraction of oil and gas reserves from the North Sea—and, in doing so, will join up with a policy on carbon capture and storage and the pursuit of carbon capture and storage. We on these Benches are clear that we must pursue a range of technologies if we are to meet our challenging greenhouse gas targets and, more specifically, if we are to decarbonise both our power sector and, importantly, our industrial sector. When we look at the industrial sector, it seems clear that CCS will have to play a considerable role.
Unfortunately, we have not yet seen the ground being broken on any CCS projects in the UK. We have seen CCS start to operate on a commercial scale in Canada and we will see a plant opening in the US. We are also told that commercial-scale projects are expected to be commissioned in China. Therefore, we have slightly fallen behind the curve in terms of leadership on this. Nevertheless, our geographic advantages in the UK are such that we can be a very fast follower. We can take the great learnings that we are seeing in other parts of the world and apply them here to become a leader in Europe in the application of carbon capture and storage.
We have two projects under consideration: in Peterhead in Scotland, and the White Rose project in the north of England. Both could help to establish a considerable infrastructure that would help CCS to be deployed in other sectors and at other power stations. In the creation of this infrastructure it is likely that we will see enhanced oil recovery playing a part, particularly in the Scottish project. The purpose of these amendments is to probe the Government on the degree to which CCS and enhanced oil recovery will be incorporated in this new approach to getting economic advantage and economic development in the North Sea. We understand that the Government have tabled amendments with a view to establishing a new regulatory body, following on from the recommendations of the Wood review, which mentioned CCS and EOR specifically. Recommendation 4 states:
“The new Regulator should work with Industry to develop and implement strategies”,
which include looking at CCS and enhanced oil recovery. Unfortunately, as tabled, there is no explicit reference to those strategies in the clauses that we are here to debate this afternoon. My two amendments seek to address that. I look forward to the response of the noble Baroness. I beg to move.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I thank the noble Baroness, Lady Worthington, for proposing these amendments and all noble Lords who have contributed to the debate. It gives me the opportunity to respond in full to both amendments in the group. They seek to extend the maximising economic principle objective to include,
“co-ordination of the transportation and storage of CO2”,
and would require,
“the establishment of a strategic vision for the permanent storage of CO2 in depleted fields”.
I reassure noble Lords that the UK has one of the most comprehensive programmes on CCS anywhere in the world in order to support the commercialisation of the technology and develop the industry. The programme includes a competition with up to £1 billion capital plus operational support for large CCS projects and a £125 million research, development and innovation programme. In addition, the Government set out how we are supporting the carbon capture and storage industry in a policy scoping document published in August. The document sought evidence and views from experts and stakeholders on a range of issues affecting the CCS industry going forward, including CCS with enhanced oil recovery. The deadline for submitting those views passed just over two weeks ago. Given that we are analysing the responses we have received and are in discussions with HM Treasury over its review of the fiscal regime for oil and gas, it would seem premature to make provision in primary legislation at this time.
The Government recognise that captured carbon dioxide could play a role in enhanced oil recovery, and likewise that enhanced oil recovery could play a role in the UK’s carbon capture and storage industry going forward, but the extent of any interaction between the CCS industry and the concept of maximising economic recovery of petroleum is not yet clear. Carbon dioxide transport and permanent geological storage is a nascent industry, so although it is important to promote the industry where possible it would be wrong to be too prescriptive now. That point was made eloquently by my noble friends Lord Jenkin and Lord Caithness. Further discussions with industry and the relevant trade associations are needed before we can say with certainty how the MER UK principle should apply to areas such as CCS.
The Oil and Gas Authority will have a significant function in considering the role of CCS when determining whether companies are operating in line with the maximising economic recovery strategy. The OGA will issue carbon dioxide storage site licences and approve carbon dioxide storage permit applications. It will also have responsibility to ensure that CCS is considered as part of a proposed decommissioning plan and will take into account the viability of utilising captured carbon dioxide in enhanced oil recovery projects. In addition, the transfer and storage of carbon dioxide is an important technology, which is why it is likely to form a key element of the technology and decommissioning sector strategies that will be developed by the OGA, in consultation with industry. These strategies will help to underpin the overarching strategy related to maximising economic recovery.
The right reverend Prelate the Bishop of Chester asked how this would help us to meet our emissions reduction aims as set out in the Climate Change Act 2008. Implementing recommendations contained in the Wood review will be done in a way compatible with the legally binding climate change targets. Our overarching energy strategy seeks to underpin secure and diverse energy supplies, including renewable, nuclear and indigenous resources. The carbon plan has shown that Britain will still need significant oil and gas supplies over the next decades while we decarbonise our economy and make a transition to a low-carbon one; projections show that in 2030 oil and gas will still be a vital part of the energy mix, providing around 70% of the UK’s primary energy requirements as we seek that transition.
The right reverend Prelate also asked about the costs of carbon capture. If he and noble Lords would allow it I would like to write to him and ensure that the Committee gets sight of the letter.
Having given those reassurances and demonstrated that the Government see that carbon capture and storage will be a part of our strategy in the future, though we are still at an early stage, I hope that the noble Baroness can be persuaded to withdraw her amendment.
Baroness Worthington
I thank the Minister for her response and for the comments of noble Lords. I am encouraged to hear these explicit references to the work of the OGA in relation to CCS and EMR. It is not unnecessarily prescriptive to add it to this part of the Bill. As we go forward and if the Government come forward with other legislation to transfer the OGA from an executive to a private company, we may have a chance to revisit this. We are in a world where CCS is being taken seriously and EMR is often associated with that. We are also in a world where offshore oil and gas fields are running down. If CCS can achieve the double aim of reducing our carbon emissions and helping to maximise economic recovery, that should certainly be pursued. I do not see why it cannot be explicitly stated, as it seems such an obvious win-win, but I am happy to withdraw my amendment.
Baroness Worthington
“Underground access: environmental protection
(1) All sites extracting petroleum under the provisions of section 32 must—
(a) carry out an Environmental Impact Assessment,(b) ensure that independent inspections are carried out of the integrity of wells used,(c) publicly disclose the chemicals used for the extraction process, and the proportions in which they are used on a well-by-well basis,(d) consult with the relevant water company, and(e) carry out monitoring over the previous 12 month period.(2) The Secretary of State must by regulation specify what data shall be required under paragraph (e).
(3) Regulations under subsection (2) must specify as required data the levels of methane in the groundwater and ecological studies, that data shall include but is not limited to levels of methane in the groundwater and ecological studies.
(4) Regulations under subsection (2) must be made by statutory instrument and may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
Baroness Worthington
My Lords, I shall speak also to Amendment 115A. These two amendments have been tabled to address what I think will prove a major oversight on the part of the Government. They would ensure that hydraulic fracturing for oil and gas in the UK could get off to a good start with the confidence of the general public. The oversight that I refer to is that there has been no word from the Government on the need for regulations to enhance environmental protection in light of this new activity.
Obviously, we have been used to extracting oil and gas from offshore in the UK for many years. However, the advent of fracking, as has been seen in the US, brings with it a unique set of circumstances and a unique set of potential risks. It seems odd that the Government have not seen fit to come forward with a comprehensive review of the current environmental regulations that would apply to this industry and have sought only to introduce a limited set of clauses to the Bill, which we will come on to debate, relating to trespass laws.
As I have said, fracking is a novel process which contains a number of different stages all of which will be subject to some forms of environmental regulation—let us be clear about that. However, the Economic Affairs Committee of the noble Lord, Lord MacGregor, in its thorough and detailed inquiry and recent report, clearly highlighted the need for a review of the existing regulations not only to simplify and clarify but to ensure that any potential loopholes are closed. Two in particular were mentioned by the noble Lords who were the authors of that report, one being the need for genuine independence of inspectors and the other—here, they cited a recommendation of Professor David MacKay—the need for baseline and ongoing monitoring of fugitive emissions. Our amendment puts forward those requirements as part of new regulations. We have also included two or three other issues.
We propose our amendments not out of any desire to see fracking held back or delayed but to give it the best possible chance of moving forward on the right foot from the outset. Just last week, a town in Texas, Denton, voted against allowing fracking to continue within the confines of the town. This is right in the heart of the oil and gas boom that has been brought about by shale gas in the US. The reason cited for passing the ban was that people had become tired of industry trying to work around environmental protections and environmental regulations.
Our aim in tabling the amendments is to ensure that we do not have that outcome here in the UK. We should take the time now to introduce a proper regulatory framework that enables the industry to get off to the right start and to learn from some of the mistakes that we have seen in the US, where patchy regulation has led to a number of pernicious scare stories being in the public mind when it comes to fracking. Once such stories have seen the light of day, they are very hard to root out. It is our contention that the Government have not done enough to go forward with a sensible and balanced approach to fracking in the UK—hence these amendments.
As I have said, in thinking about amendments, we read with great care the recommendations of noble Lords on the Economic Affairs Committee. I am pleased to say that we have taken forward the two recommendations that I mentioned, on independence of inspectors and in relation to the monitoring that is needed to establish a baseline. We can have a discussion about how that baseline should be established, but it would be in the interests of the industry to have baseline monitoring because what we do not want is for stories to keep abounding about shale gas having higher emissions than coal simply because we lack the data. It would be a shame not to put in place the adequate protections so that we can have access to those data and can refute such claims, and to show that fugitive emissions do not undermine the environmental case for fracking.
As I said in my comments previously on CCS, on our side we are committed to bringing forward a whole range of low-carbon technologies and fuels to enable us to decarbonise our economy. Shale gas can play an important role in that. I would far rather that we use homegrown gas than imported Russian coal. For that reason you will see that we are, in general, supportive of the Government’s moves to change the laws and the legal loopholes that we will debate today. However, we have tabled this amendment because this is a very serious issue. We need to get public support and public confidence and ensure that our regulators have every possible chance to ensure that this industry gets off to a good start.
Baroness Verma
I am extremely grateful to the noble Lord, Lord Young. He is absolutely right to point out that exploration is immediately stopped once the level of 0.5 is reached. However, I will clarify the point and write to him, and put a copy of the letter in the Library.
With these reassurances, I hope that I have been able to convince the noble Baroness to withdraw her amendment.
Baroness Worthington
My Lords, I am grateful to the Minister for her comments and to noble Lords on all sides of the House who have spoken in this illuminating debate. As is characteristic of this place, it has been based on fact and has reflected the care and understanding that is always applied to these issues. However, having listened to the noble Baroness’s response, I have to say that she has not reassured me that the Government are listening on the very important issue of the need, for the industry’s own sake and for the economic benefit of this country, to be absolutely certain that, while we have a world-class regulatory system in place today, we will not see it become overwhelmed as the use of this form of extraction of the UK’s natural resources expands. There is an absolute and clear link between requirements in statute and the resources that are made available to meet those legal standards. I think it was the noble Baroness, Lady Young of Old Scone, who pointed out that it is imperative that we have a clear and transparent regulatory system so that we know what is required of everyone and so that adequate resources are made available to ensure that, in the future, fracking has the best chance of proving to its detractors that it can be done safely. It is not correct to say that everything is in place for a world-class regulatory system today. There are loopholes and, while the noble Baroness has sought to give us some reassurances on independent inspection, I do not believe that she has addressed all the questions that have been raised in the debate. On that basis, I will not withdraw the amendment and I seek to test the opinion of the House.
Lord Whitty (Lab)
My Lords, those who oppose these amendments are missing the point. The amendments may well be in the wrong place; they may well be too wide. I did not intervene in the previous debate because I thought that it was becoming far too polarised. Public opinion on the issue of fracking is polarised, but public opinion is not polarised in relation to the protection of our national parks and our areas of outstanding natural beauty. Unless the Government in some way recognise within the overall approach to fracking that there are certain sites which have to be protected—whatever provision exists elsewhere in terms of general planning law and so forth—the outcry against fracking will grow rather than be reduced.
The Government should at least have the grace to recognise that that is a reality. In terms of public acceptability of fracking, protection of our protected areas is an important element which needs to be in the regulations and in the Bill. Whether the amendments in the name of the noble Baroness are technically in the right place or not, the politics and the PR for fracking need to make that point. If they do not, the 25% of people who fundamentally oppose fracking will grow in number. The Government have the opportunity to ensure that that does not happen. I hope that, if not now then in the process of this Bill through the Commons, the Government will put that right.
Baroness Worthington
My Lords, I am grateful to noble Lords who have contributed to this debate, which has been another interesting exchange of views on how best to get the fracking industry off on the right foot and to minimise the degree of public opposition that might arise.
I recently visited the Lake District, which is one of my favourite parts of the country. I visited a mining museum and, in doing so, I realised that we often see such parts of the country as having a great value now in terms of tourism, wildlife and appreciation of scenic beauty, but that they have in previous times been quite diversely economically active and been able to accommodate different activities within the boundaries of the parks as we know them today. Therefore, I for one am not of the opinion that these special places need to be preserved in aspic but that it is about achieving the right level of balance.
That said, it is absolutely clear that, when you have a Government who say that they are all out for fracking and that it will be the silver bullet that solves all our energy needs, and slightly overhype it, you can see why people get nervous that all due consideration and care are not being taken. I shall be interested to hear the Minister’s responses to the two amendments. The second of them, Amendment 115, points to something of an inconsistency, with planning guidance having been issued for national parks and AONBs but not for other nationally significant sites. Such sites, because they tend to be smaller, more fragmented and under considerable pressure from a wide range of economic activities already, arguably deserve even greater levels of protection than those larger national parks and AONBs, which I think can accommodate economic activity within them and generate jobs and economic benefits. I look forward to hearing the Minister’s response.
Baroness Verma
My Lords, I welcome the commitment of the noble Baroness, Lady Young, to protected areas and was grateful for our meeting prior to today. Such areas are nationally and internationally important in terms of their environment, and all noble Lords who have contributed today, from whichever perspective, have highlighted their significance.
As the noble Baroness made clear in Committee, these areas are the jewels of our country and we agree that they need to be accorded appropriate protection. While I recognise the intent behind the noble Baroness’s amendments, which is to ensure the necessary protection for habitats and species in or near to protected areas, I assure her that such areas are already offered a high level of protection derived from EU directives transposed into domestic policy and through the planning system, as noble Lords have alluded to today. The National Planning Policy Framework, the supporting planning guidance and a government circular on biodiversity and geological conservation all recognise that there are areas designated for natural conservation and biodiversity value, including sites of special scientific interest, special protection areas, special areas of conservation and Ramsar sites, and that they should be given a high level of protection. They are clear that protected areas need to be fully and appropriately considered by mineral planning authorities when exercising their planning duties, both in preparing local plans and determining planning applications.
The planning authorities assess each application for shale and geothermal development on a case-by-case basis. For example, the National Planning Policy Framework makes it clear that development should not normally be permitted if, either individually or in combination with other developments, it is likely to have an adverse effect on a site of special scientific interest. That applies even if the development is outside site of special scientific interest boundaries.
The Conservation of Habitats and Species Regulations 2010, which transpose the EU habitats and wild birds directives, ensure strict controls on any plan or project that might affect European sites such as special protection areas and special areas of conservation. Development cannot occur on or near such protected areas unless it can be shown to a high degree of scientific certainty that there will be no adverse impact on the integrity of the site. This is a very high bar for securing development in such areas. In addition, the Natural Environment and Rural Communities Act 2006 and the Nature Conservation (Scotland) Act 2004 place a duty on all public authorities, including the Secretary of State for Energy and Climate Change, when exercising their functions, to have regard to the purpose of conserving biodiversity. Public bodies also have comparable duties relating to national parks, areas of outstanding natural beauty and sites of special scientific interest.
It is important to note that the regulatory system in the UK fully recognises these protections. Before any oil or gas operations can begin, operators must gain a permit from the environmental regulator, the Environment Agency or an equivalent agency. The Department for Environment, Food and Rural Affairs is currently preparing revised guidance on protected wildlife sites as part of a wider project to make all the department’s guidance quicker to use and easier to understand—the noble Baroness raised that when we had our meeting the other day. This will help ensure that these requirements are clearly communicated to developers and regulators.
The noble Baroness, Lady Worthington, said that the Government looked on shale as being a silver bullet. We have always maintained that we do not see it as a silver bullet but that we see its potential for ensuring that we have home-grown supply and energy security and for helping drive down costs to the consumer. The debate should be in that context rather than shale being taken out of context in the wider arena.
In drawing the attention of the noble Baroness, Lady Young, to the robust regulatory regime that is already in place and the full recognition that the planning system already gives to protected areas, I hope that she is reassured that such areas are already accorded significant protection and, on that basis, will withdraw her amendment.
Lord Teverson
My Lords, I do not want in any way to suggest that Wales should not have its own authority over this area. As a citizen of Cornwall, I absolutely agree with the noble Lord—though I do not know enough about what the relationship is here.
On the attack on fracking, down in Cornwall our geology does not support shale gas but it does support deep geothermal, in which fracking plays an important part. I think that the noble Lord spoke on the whole about fracking in relation to shale gas, but there are issues around fracking for whatever purpose, and seismic events are one of those. In one of the early EU-funded geothermal tests in Alsace, there were seismic events and a lot has been learnt from that. There were also events in Blackpool, but as I understand it the industry is able in the right locations to make sure that such matters are very well controlled.
I make the point that fracking can be good. It can be good for renewables. I hope that in the longer term fracking will be available for deep geothermal in terms of power generation. At the moment, it looks like we will go through a heat revolution with not quite so deep geothermal, but in the long term we may get to generate baseload electricity through deep geothermal. I wanted to make that point, because fracking is not just around shale gas; it has those other benefits as well.
However, Wales should be able to steer its own course.
Baroness Worthington
My Lords, I rise briefly to ask the Minister for her comments on the issue of devolution and fracking. I am particularly interested in the Scottish question raised by the noble Lord, Lord Wigley. As I understand it, Holyrood already controls planning permission and the permitting regime, so it would not be a huge step to devolve this aspect of the control of fracking and rights of access. I just ask that question.
I am also grateful to the noble Lord, Lord Teverson, for drawing the attention of the House to the fact that, when we talk about these provisions and rights of access, they apply to more than just the extraction of petroleum. Indeed, they apply to deep geothermal, which arguably needs the loophole to be changed more urgently than in the case of fracking for oil and gas. It may change the view of the noble Lord, Lord Wigley, on this that you can frack for coal as well. Fracking of deep-mine coal might bring a degree of economic development back to Wales. I am not saying that that is the only way that Wales should develop; I am much more interested in some of the marine technologies, biomass and wind in a Welsh context—those seem to have huge potential. However, I would never rule out the idea that deep coal mining could come back as an economic activity if done in combination with carbon capture and storage.
In summary, these clauses potentially relate to more than just oil and gas extraction, and I am interested in the noble Baroness’s response on the Scottish question.
Lord Judd
My Lords, I have been glad to put my name to this amendment, which is very wise and prudent. It has been suggested in recent years that the interpretation of welfare capitalism has changed. The original concept was that capitalism had a social responsibility that it should discharge for the well-being of society as a whole. It seems that quite a lot of people have come to believe that perhaps welfare capitalism is about ensuring that while wealth generation and profit is privatised, risk is nationalised and is the responsibility of the taxpayer. The point in the amendment that is particularly important in this context is what happens in the case of insolvency, when all the best predictions can be blown away in the wind in the chaos that follows.
If a scheme is put forward and is being properly costed, the cost of dealing with potential damage, closure or the consequences of that is an essential element in the calculations. We are concentrating today on this new and exciting aspect of shale development but we are beginning to see infrastructure across the country in connection with power generation and its distribution that is no longer required. We need to be very careful that we are ensuring that any adverse results of that are not left just for the taxpayer to settle, but that they are the responsibility of the people who, while they are operating, are receiving the profits that come from that.
Baroness Worthington
My Lords, I am grateful to my noble friend for tabling his amendment and for continuing the discussion that we started in Committee. I am sympathetic to the intention behind these amendments and am particularly interested in the aspect of liability arising from orphaned sites. We are talking about a potential new industry that will see a large number of distributed sites developed. We may well see smaller companies that perhaps do not have the assets or deep pockets of more traditional extractive companies, and there would be considerable potential for orphaned sites. I am very interested to hear from the Minister how we would address any liability arising from such orphaned sites.
I think my noble friend Lord Whitty said that he is seeking for the Government to demonstrate foresight. It strikes me that the Government are demonstrating foresight in some respects of fracking, in imagining the future benefits and future economic wealth that will come. Over the weekend, we even heard comments about the imagined spending of all this great tax revenue. We shall debate that aspect shortly. That foresight is possible, but perhaps we should apply it in the slightly more realistic context of learning from previous experiences of extractive industries in trying to plan for what happens if everything does not go according to plan. I would have thought that companies would be able to take out insurance against some of these liabilities. Again, I would be interested to hear from the Minister about what type of insurance she might expect companies to undertake and what liabilities would be insured. We are entering uncharted territory in the types of company, the types of project and their distribution across the country. It is right that we should proceed with caution.
There is a lot of merit in the amendments tabled by my noble friend Lord Whitty. He started by saying that he was trying to help out the Government. A number of us have tried to help out the Government during tonight’s debate. However, I suspect that the Government are not listening and do not want to be helped out, but there we are. I look forward to the comments from the Minister in response to this amendment.
Baroness Verma
My Lords, I am always grateful to the noble Lord, Lord Whitty, for trying to help out the Government. I have listened very carefully and of course I recognise his concerns and those raised by the noble Lord, Lord Judd. However, as my noble friend Lord Jenkin very eloquently put it, there is already a lot in place that addresses the concerns raised by the noble Lord, Lord Whitty. The existing regulatory system covering onshore oil and gas is robust. We already have more than 50 years’ experience of regulating the onshore oil and gas industry. There are controls and regulations in place to ensure on-site safety, prevent water contamination, mitigate seismic activity and minimise air emissions.
While the Government are keen for shale and geothermal exploration to go ahead, shale gas development must be safe and environmentally sound. I agree with noble Lords that we need to be sure that we are responding robustly to the perceived concerns that the public raise. One of the central aims of the current regulatory framework is to ensure that wells are appropriately designed and operated, and that when operations cease they are properly decommissioned.
A petroleum licensee cannot search for, bore for or get petroleum without a petroleum exploration and development licence, the terms of which are in the model clauses set out in secondary legislation. All drilling or production operations, and the abandonment of any well, require the consent of the Secretary of State. In addition, there are regulators and controls that can be relied on to minimise risk and any impacts associated with oil and gas activities. Those controls include conditions attached to environmental permits issued under the Environmental Permitting Regulations 2010 in England and Wales and the equivalent regime in Scotland, as well as safety scrutiny by the Health and Safety Executive.
The current regime, as it applies to shale gas, includes the management of mining waste and naturally occurring radioactive minerals, the scrutiny of well design and construction, the suitable restoration of sites, the protection of habitats and 10 different EU directives addressing environmental concerns. In addition, the Environmental Protection Act 1990 and the domestic Environmental Damage (Prevention and Remediation) Regulations 2009 provide for the remediation of contaminated land and serious environmental damage. This regime, together with the operators’ responsibilities under their licences and permits, is sufficiently robust to ensure that operators are required to remediate any damage or pollution to the environment.
If, for any reason, these controls were not enough—we have no reason to think that this would be the case because the UK has a well developed and very strong regulatory regime—and if any damage were to occur, in accordance with statutory requirements and government policy, remediation of the damage would be dealt with under the main regimes for dealing with contamination. These regimes are sufficiently robust to ensure that, if a company causes damage, harm or pollution to the environment, operators can be required to remediate the effects and prevent further damage or pollution. This is the same approach that applies to other industries, and we believe that the existing law is robust.
Baroness Worthington
My Lords, I am grateful to the Minister for speaking to her amendments. As she said, there are three aspects to this group. The first is the potential for somebody other than Ofgem to administer the RHI. I am intrigued by this aspect and I wonder whether we may be creeping towards a bit more joined-up government in terms of renewable energy. There is always a tendency to equate renewables with electricity, whereas under the EU mandatory targets agreed for 2020 we are required to move forward on renewable energy, which means electricity, transport and heat. There has been rather a stop-start process of renewable transport fuel support, and a separate body oversees that. Under the RO the renewable electricity side has been the responsibility of Ofgem, and it is now moving to the department, for the Secretary of State specifically to oversee, while Ofgem has been given the RHI to look after. It would seem sensible to me to have one consolidated agency to deal with all renewable energy, so that we could properly assess the best application of our renewable resources to the different markets.
If we apply a biomass unit of energy to the generation of heat we get far more efficiency and far more displacement of carbon in the heat market than we would by going into electricity—or, indeed, into transport fuels. We need a bit of joined-up thinking on our various ways of supporting renewable energy. I wonder whether this gives us an opportunity to have a look at the regulatory framework.
On the second part, about third-party payments, I am very supportive of the amendment. It will help to overcome a barrier about which people have personally petitioned me, and said how much of a barrier it is.
On the third point, however, I am afraid that I am not quite so supportive. I do not want to detain us too long, but the Minister and I have spent many a pleasurable afternoon in Committee discussing the RHI. It has not been unnecessarily time-consuming or difficult—we generally tend to get through SIs quickly—but it gives us an opportunity to revisit the RHI and see how it is doing. It would be a shame if we were to create any uncertainty in the industry by moving to the negative resolution procedure. I seek clarification from the Minister. She speaks of uncontroversial straightforward changes and describes them as technical. If that group of potential changes included changes to the subsidy levels for different technologies, that might cause alarm for some people in the sector—particularly if they felt that they would not have the opportunity to petition Members on both sides of the House, to discuss and to raise concerns.
This is an industry that has seen quite a lot of changes, and is subject to rigorous derogations and price control mechanisms. They are incredibly complex, and I do not really want to spend any more afternoons debating them—but I would do so if that would give comfort to the industry. It is a new and growing industry, and we are not quite on track yet for meeting our targets. We need to see considerably higher growth in renewable heat if we are to meet the challenging targets that we have set ourselves. I am seeking reassurances from the Minister that these negative resolution procedures will not increase uncertainty in an industry that we need to see getting stuck into the job of delivering and putting us on a strong footing with regard to our EU targets.
Baroness Verma
My Lords, I agree completely with the noble Baroness that we must ensure that there is proper parliamentary scrutiny. I assure her that the amendment aims to achieve greater flexibility while retaining appropriate parliamentary scrutiny. The amendment stipulates that some use of the powers is important in areas that remain subject to the affirmative resolution procedure. We will not move away from that where there is cause for it. Where we just want to make some minor, technical changes is where it is probably more likely that we would wish to use the negative resolution procedure.
Baroness Worthington
Will the noble Baroness write to me? What I am most interested in is change to the level of subsidy given to different technology bandings.
Baroness Verma
I of course undertake to write to the noble Baroness and place a copy in the Library.
Baroness Worthington
“Application of duty to limit emissions
(1) The Energy Act 2013 is amended as follows.
(2) In Schedule 4 (application and modification of emission limit duty), after paragraph 1(1)(b)(ii) at end insert—
“(iii) substantial pollution abatement equipment dealing with oxides of sulphur, oxides of nitrogen, heavy metal emissions or particles is fitted to the generating station.””
Baroness Worthington
My Lords, a number of noble Lords may recognise this amendment, because this is not the first time we have had this discussion. I am afraid that I do not intend to apologise for retabling it; I shall keep retabling it until the issue is resolved. At the moment, whether because of a lack of joined-up thinking or because it is the Government’s intention, we are seeing perverse effects arising from their energy market reforms, leading to a reinvestment in old coal.
I said earlier that I would far rather we used home-grown gas to generate electricity than see imported Russian coal being burnt in stations built in the 1960s and 1970s that are now well past their use-by date. When I tabled this amendment in Committee, the Minister’s response was to say that she agreed neither with my analysis of the current position nor with my prediction of the future, and was not convinced that the amendment, which, essentially, would bring in a backstop power to enable us to limit the operating hours of old coal, was needed.
Last week Eggborough, one of the coal-fired power stations built in the 1960s that is seeking a three-year contract to extend its life under the capacity payments mechanism, was sold to a Czech energy company which, in addition to running power, heat and energy provision services in the Czech Republic, is also the third largest coal producer in Germany. This is its first entry into the UK market. The company is EPH, whose spokesperson, Daniel Castvaj, said that there were obviously questions over the long-term operation of the plant but that the company intended to run the existing units for as long as possible.
Today a report was released by WWF with the help of Imperial College London. It made the point that I have continually been seeking to make to the Minister and the Government that just wishing old coal away is not going to work. If we want coal to come off our system and be replaced by cleaner, more efficient infrastructure, we will have to regulate to make that happen. We were told during the passage of the Energy Bill that this would be achieved by financial measures, through the introduction of a carbon price floor, which was in the Finance Bill, and that that would see an end to coal. No sooner did that Bill pass into law than that financial provision was frozen. The escalator, intended to drive off coal, was removed.
Everything that the Government told us during the passage of the Energy Bill has changed since it passed into law. More information has now come to light on the impact of the capacity mechanism. That was intended to enable investment in new infrastructure—to bring forward cleaner infrastructure and make sure that the lights stay on. However, the Government’s choices in how they have implemented that measure have meant that there is now a real possibility that we will not see the capacity mechanism bringing forward investment in new gas infrastructure. If we do, it will be on a very small scale. Instead there will be reinvestment in old coal.
Overall, the capacity mechanism and the people who have bid into it demonstrate that we have more than sufficient plans for infrastructure and supply than is demanded by the capacity mechanism. In fact, it will come down to a straight choice between investment in old coal and investment in new gas. The costs of that are such that it is my expectation—we will find out in December whether this is the case—that it will be old coal that wins and new gas will not. Essentially, the capacity mechanism favours short-term investments by allowing coal plant to continue operating unconstrained, at high load factors but lower efficiencies, than if there were investment in cleaner gas.
I am sure that I will hear from the noble Baroness that she disagrees, but the Imperial College study launched today and commissioned by WWF said:
“Imperial College’s economic modelling shows that it is unwise to simply assume that coal-fired power stations will all close in the 2020s. If government wants old coal stations to close it needs to ensure that happens through legislation. We modelled a variety of scenarios and, with the UK’s existing suite of energy policies, in every instance coal still played a role in generating electricity and 2030 emissions targets were missed”.
That was picked up today by the Independent, which went one step further and said that this really showed that the coalition’s commitment to being a green Government was in tatters and that it did not have credibility in its comments on moving to a decarbonised electricity system.
I saw the noble Lord, Lord Turner, here earlier but he is obviously not in his place now. He commented on WWF’s report and I shall take the liberty of quoting him. He said:
“"The Intergovernmental Panel on Climate Change’s latest report update on climate change science makes it unequivocal that we must reduce carbon emissions dramatically to avoid major harm to human welfare. And we cannot achieve the required cuts unless we eliminate unabated coal from the electricity generating system”.
At the end of an extensive comment, he concludes:
“A clear commitment to get unabated coal out of the UK generation system is needed to provide certainty against which businesses can invest”.
The amendment has been tabled a number of times and I make no apology for that. I will keep tabling it, probably until I run out of breath, because I care passionately about achieving decarbonisation at least cost and by keeping our energy supplies secure. It is a very short-term attitude to think that if we patch up old coal and keep it running at high load factors it will somehow be beneficial for the country as a whole. Yes, it may make a small difference in the short term, but in the longer term it will be wasted investment. If we are to hit our targets, we need to get our electricity systems almost fully decarbonised by 2030. We need unabated coal to come off. These stations are old, inefficient and highly polluting. If we do not phase them out, using measures such as the EPS, we will simply see ourselves running very fast to stand still. Every coal station that stays open emits twice as much as a gas station. More renewables and nuclear have to be built to compensate for those extra emissions, at a greater cost. This is really not that difficult to work out: old coal should come off first. It is the most polluting and we are wrong to set in place a capacity mechanism that keeps it going a moment longer than it needs to.
I hope that at some point the Government will see the logic of my argument and accept that something needs to be done if we want to get these coal stations out of our system early in the 2020s. I beg to move.
Baroness Verma
My Lords, I thank the noble Baroness, Lady Worthington, for yet again bringing this subject to the attention of the House. As my noble friend Lord Caithness eloquently said, we debated this amendment during the passage of the Energy Bill less than a year ago. Noble Lords will recall that, after careful consideration, this House and the other place decided that it should not be adopted. I do not propose to set out in detail again the reasons why the Government did not support this amendment when it was last considered. However, noble Lords will recall that the Government’s main concern was that it could lead to circumstances where existing coal plants closed prematurely, leading to a need for more generation capacity to be built earlier than would otherwise be necessary, and resulting in totally unnecessary and avoidable cost to consumers.
I want to address the points made by the noble Baroness that developments since we last considered this amendment make it necessary to reconsider the conclusion we reached at the time. It is true that there have been a number of developments over the course of this year. We have set about implementing our electricity market reforms, which include taking the actions that are delivering new investment and our plans for a secure, affordable and low-carbon electricity system. That is well demonstrated by the allocation in April of the first contracts for difference to eight renewables projects. These projects include offshore wind farms and coal to biomass conversions, which alone will provide up to £12 billion of private sector investment by 2020, supporting around 8,500 jobs and providing a further 4.5 gigawatts of low-carbon generation capacity to Britain’s energy mix.
The noble Baroness pointed to the capacity market and the fact that four of the 11 remaining coal plants are seeking a three-year capacity agreement to refurbish their plant. She said that that is evidence that these plants will upgrade to comply with the industrial emissions directive allowing them to continue operation long into the future and generating at levels inconsistent with our decarbonisation plans. She also pointed out that the freezing of the carbon price floor improves the economics of continuing to operate coal-fired power stations. The fact is that neither of these developments is expected to have a significant impact on the overall future outlook for coal.
The Government’s latest projections, which take into account recent changes to the carbon price floor, suggest that virtually all coal will have retired by the end of 2025. Only one of the four plants seeking a three-year capacity agreement has fitted the equipment needed to comply with the directive and operate without constraint when it comes into force on 1 January 2016, as my noble friend Lord Caithness rightly said. We are not aware of evidence that any of the other plants will be compliant with the directive at the time it comes into force.
Even were these plants to achieve compliance at some point in the future, our assessment remains that overall levels of generation from coal will decline over time as multiple factors, including age, environmental regulation, increasing levels of low carbon generation and a strengthening carbon price, act to reduce coal generation, although the additional resilience to our energy system that comes from a small number of compliant plants while they are still economic to operate would not be unwelcome.
The risks that would be created by this amendment are also more immediate. I would like to draw the attention of noble Lords to the first auction under the capacity market that will be held in December, which is our response to ensuring security of supply at the least cost to the consumer. A potential impact of this amendment is to constrain the ability of plants to generate when it is otherwise economic for them to do so. Accepting this amendment will therefore create a significant regulatory risk to those plants seeking refurbishment contracts in the capacity market. Their response may therefore be to seek a higher capacity clearing price to compensate for this possible reduction in electricity market revenue, particularly in the years preceding the first delivery year in 2018-19. Alternatively, these investments may not go-ahead. Neither scenario is desirable, with the risk that the cost of the capacity market is pushed upwards with no accompanying benefit to security of supply.
We should also consider what sort of signal it sends to investors of all types of generation, not just coal, now and in the future. They will interpret this as further intervention of a measure that has already been rejected by this House and so close to the first capacity market auction where we will be seeking competitive commitments from over 48 gigawatts of capacity to ensure continued security of our electricity supplies over the course of this decade. It is also important to remember that over 10 gigawatts of new gas has come forward to participate in the December auction, highlighting that we have the right incentives in place to ensure security of supply at the least cost to consumers and to encourage competition through new investment. As we discussed last year, I will oppose an amendment that has the potential to increase consumer bills and increase the risks to security of supply.
There is an almost unanimous consensus on the need to substantially decarbonise our electricity system on the pathway to cutting our greenhouse gas emissions by at least 80% by 2050. There is a similar consensus that it is only with carbon capture and storage that coal will continue to play a role in that future. The measures we agreed last year to reform our electricity market are already bringing forward the investment needed to achieve this cost effectively and securely. Against this background we continue to believe that applying the EPS as proposed by this amendment is a potentially risky intervention in the market.
I hope I have gone half way to convincing the noble Baroness that the developments since the Energy Bill was before this House less than a year ago are unlikely to have the impact she assumes and I hope on that basis she will be willing to withdraw her amendment.
Baroness Worthington
My Lords, I thank the Minister for her response. It may well be true that up to 10 gigawatts has bid into the capacity market but my point is that not one of those apart from Carrington, which is already under construction, will successfully be awarded a capacity mechanism contract. They are going to be frozen out by contracts that will be given to existing coal. It is pointless telling me that lots of people out there want to build gas if in reality we are going to keep coal open at the expense of those investments in cleaner, more efficient technology.
We have spent the largest part of this evening talking about fracking rather than the need to develop the resource of gas so that we can use it as a bridging fuel. There is absolutely no point us investing in that if there are not going to be any stations in which we can burn it efficiently. The losers in this capacity mechanism at the moment are the operators of existing gas stations and those who wish to build new ones. That is because we continue to tell ourselves that the lights will go out if we constrain coal and that that will necessarily force a higher price on to consumers. The money we are spending on propping up old coal is going to be money wasted—we will have to shut these stations anyway at some point. Why we seem to be perpetually telling ourselves that we cannot do without these ageing dinosaurs in our electricity system is beyond me.
I do not intend to detain the House any longer at this stage and I will, of course, withdraw my amendment. However, I reiterate the words of Dr Gross from Imperial College that we will not see the end of old coal without government intervention. If this Government refuse to do it then it will fall to another Government. There is a future for coal; it is with CCS and only with CCS. Unabated coal is simply not something we should be sustaining through the 21st century and no end of anyone telling me otherwise is going to persuade me. However, I will withdraw this amendment now.