Energy Bill [HL]

Baroness Worthington Excerpts

Wednesday 22nd July 2015 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, it is a genuine pleasure to respond to a debate that has had a veritable all-star list of energy experts contributing to it. I begin by thanking the Minister for his introductory comments. My sense is that we now have a very capable and committed Minister but, sadly, he comes before us with a rather shoddy and politically tawdry Bill. That is to be greatly regretted because important things need to be done in energy policy. There are big issues to be tackled and 2015 is a big year for climate change. I fear that we will waste precious parliamentary time on a Bill that is not complete, is lacking in important detail and is very confusing and conflicting in the messages that it is sending.

As many noble Lords have mentioned, the Bill is in two parts, the first relating to the setting up of the Oil and Gas Authority and the second consisting of a meagre two clauses that seem to be designed to destabilise the wind industry.

Many noble Lords have spoken very eloquently about the first part of the Bill. It is indeed necessary to implement the findings of the Wood review. However, the timing of the review was rather unfortunate, being published in February 2014—mere months before we saw a radical resetting of the global oil price. The noble Lord, Lord Howell, and my noble friend Lady Liddell pointed out to us that things are changing rapidly in the global oil and gas industry, and my fear is that this aspect of the Bill reads slightly as though it is out of touch and out of time with what is happening in the industry today.

I say that because we have seen a dramatic falling off of revenues from oil and gas from the North Sea continental shelf. It is now a very different place. I am sure that we will go through this in detail in Committee but we must ask whether the Government have truly reflected on whether the powers they are giving the OGA will be fit for purpose.

The statistics are quite astounding. Revenues from offshore oil and gas have already tumbled by 40% but they are likely to tumble again from £2.1 billion last year to only £0.7 billion in 2015-16. This is a serious issue. The future scenarios upon which we are relying that might see rising receipts are predicated on an oil price of between $70 and $100 a barrel. We must ask ourselves whether that is likely. It is possible—everything is possible—and even plausible that, with renewed investment in the North Sea and a renewed commitment, we will see production levels creep back up again. However, no matter how much wishful thinking we might apply to this problem, we will not see a return to the activity levels that we had in the heady days of the 1970s, 1980s and 1990s. Production peaked in 2000 and has been falling steeply since the start of this century. My noble friends Lady Liddell and Lord O’Neill hinted that there is a future for the North Sea but it is likely to be very different from the one we see today.

It is likely that some of the skills will be transferable into the offshore renewables industry and equally likely—again, the noble Lord, Lord Oxburgh, spoke eloquently on this, as did my noble friend Lord Whitty—that the North Sea will reinvent itself as a source of storage for CO₂ as we move to decarbonise our fossil fuel industries. This creates a challenge for the OGA because part of its job, in addition to trying to create some transparency and openly negotiate reinvestment in the North Sea, will be considering decommissioning—the rolling out and management of decommissioning. However, the risk is that, because it is largely determined by private sector players, the decommissioning may occur out of sync with our needs for carbon capture and storage.

If we do not get on with the carbon capture and storage element of our energy strategy, we could see a mismatch where infrastructure that would otherwise be re-used for carbon capture and storage is simply decommissioned because the carbon capture and storage project is not yet up and running. Will the Government consider creating a hierarchy in the OGA’s thinking—where the talk is about efficiencies and investment but then thought is given to re-use for CCS, and only then is thought given to decommissioning—so that we do not run the risk of a timing mismatch?

Another subject which I am sure we will talk about in Committee and which was mentioned by my noble friend Lord Grantchester is the core functions of the OGA and whether they are fit for purpose and comprehensive enough, given today’s concerns. I certainly echo my noble friend’s comments that the core functions should include references to environmental considerations and climate change. One aspect of the new regulatory authority will be that it can levy fees and raise finance for necessary expenditure, including on environmental issues. A very interesting proposal has been posited by the academic Myles Allen from Oxford University. He has been asking whether the time has now come to ask the extractive industries, which are currently extracting fossil fuels to be burned for our energy sources, to pay a levy towards the climate change damage that arises from the use of their products. We may wish to explore that in Committee.

The Bill has two functions—looking at oil and gas and the more minor measures on onshore wind—but I am left wondering whether it could have been different. Could we not have had a much more positive Energy Bill from the Government? There is an agenda here that I support. The Government said in their manifesto that they will seek to decarbonise at least cost. That is a very sensible aim. I am a technology neutralist—neutral in terms of which technologies we should be deploying. I do not believe that there should be holy cows within the energy sector, where certain technologies are protected. I honestly believe that market forces should help us to determine which of the technologies should succeed. That should be overlaid with strategic oversight from government to determine which technologies will play to the UK’s strengths and to ask where we can invest in and develop technologies that will give us a lead in the global race towards decarbonisation.

That leads me to think that we are missing a trick on carbon capture and storage. The Bill, had it perhaps not been rushed through at quite the speed that it has been and had a little more consideration been applied to it, could have been an excellent vehicle for kick-starting our focus on carbon capture and storage, not least because of the measures regarding the Oil and Gas Authority but also because we have now recognised that we need to do something to help industry to decarbonise. We talk a lot about electricity decarbonising but there are still large sources of greenhouse gas emissions in this country that will need to be decarbonised or these industries will simply be forced to leave the European Union and move elsewhere, because the caps on those emissions are tightening.

There has been some very good work on the subject of how to decarbonise our industrial sector. A recent report commissioned by DECC or the DTI—I forget which—asked the Teesside Collective to think about policy mechanisms for funding industrial decarbonisation. There are some very interesting ideas there. When will the Government start to take this seriously? When will we see some policy consultation on how we are affordably to provide industry with decarbonisation options that mean that it can reinvest in the UK and get primary production of materials going again, safe in the knowledge that we are insulated against carbon prices in future? That is the sort of Energy Bill that I would have liked the Government to have come forward with, had they given themselves a little more time to reflect and to produce a more strategic set of measures.

On process, there is no impact assessment for the Bill, which I find curious. When will we see an impact assessment? It has been mentioned by noble Lords today that the methodologies that the Government are using are opaque. The Government say with great confidence that they are on track to meet their renewables targets. Can we see those figures written in black and white please? As my noble friend Lord Grantchester mentioned, it is simply not true that we are on track to meet our EU renewables targets. We may be doing reasonably well in electricity, but we are falling drastically behind on heat and transport, and the target represents all energy, not just electricity.

When it comes to assessing how well we have done, if I were the European Union DG responsible for assessing our performance, I would look very gravely on a Government who come out of the traps with this short-sighted set of measures to rein back on renewables at a time when we have no comprehensive plan and no confidence that we will hit our targets. That seems to me to be wilfully trying to miss targets, and I would take a dim view of it. That will cost the UK taxpayer money, let us be clear, because we cannot simply flout the rules having signed up to them. There will be financial consequences to our missing those targets. Let us see the analysis and see how the Government can be so confident that they can tie their hands behind their back by destabilising some of the most successful aspects of our energy industry.

I have moved seamlessly on to the second part of the Bill, which is clearly the most controversial. It contains merely two clauses at the moment, although, as the noble Lord, Lord Purvis, stated very clearly, we need to see the detail. We need to scrutinise it. There has been no consultation and there is no impact assessment. The Government owe it to Parliament to bring forward that detail as soon as they can so that we can scrutinise it. We have only these two clauses and we must try to derive from them the Government’s intentions and plans. It seems to me that the reality is that this is obviously just narrow party politics. When she announced the early closure of the RO, the Secretary of State namechecked several Conservative Back-Bench MPs. This is clearly more about party politics than anything else. What angers me the most is that it puts in jeopardy the UK’s economic growth for the sake of narrow interests raised by a very small number of MPs. The whole of the UK economy is benefiting from our investment in our energy infrastructure. To put that at risk and seriously damage investor confidence in the way that the Government are is wholly irresponsible.

Several noble Lords mentioned investor confidence, including my noble friend Lord Whitty, the noble Baroness, Lady Maddock, and the noble Lord, Lord Cameron. It is a serious problem. The think tank E3G states:

“Every time these announcements come out, the U.K. looks like a less attractive place in which to invest. I think a number of investors will be pricing in much higher risk now”.

That was true when the Bill was published; it is even more true after today’s announcements. It is really regrettable that we should kick off this new Government with something so short-sighted and tawdry—that is the only word that I can come up with. They are simply enabling a very small but vocal group to issue self-congratulatory press releases while putting serious investment and serious jobs at risk and making us appear to be a country that does not know which way it is going when talking about the need to address climate change and to decarbonise.

The noble Viscount, Lord Ridley, made good points and some of them are obviously being listened to. He and I agree on a few things, and one of them is that there should be a focus on a least-cost approach to this. I am not saying that we should continue to provide subsidies when they are no longer necessary; that is not my aim at all. My aim is that we conduct ourselves in a way that gives investors confidence and allows for an orderly transition—a phrase that has been repeated here today. That is the phrase that the Government have used. An orderly transition is what is needed. This is a long distance from that; the Bill does not represent that.

[Viscount Ridley]

I am very grateful to the noble Baroness for allowing me to intervene briefly, since she mentioned me. The central point to all this is that we are on course to overspend—from £7.6 billion up to £9.1 billion—on subsidies for those industries. What would the Opposition’s position, or anyone else’s, be about reining in that expenditure, because the cost is falling most heavily on the people who can least afford to pay it?

[Baroness Worthington]

I thank the noble Viscount for that intervention.

On the levy control framework, there is an interesting policy that the Treasury invented. I honestly think that it was invented simply for us to have this conversation later down the line. That number represents a partial figure for what is being added to bills as a result of government policy. It is incomplete; it does not include everything. It also makes no reference to the counterfactual. We live in a world with infrastructure built in the 1960s that has now served its time, is closing and will need to be replaced. That involves higher capital costs. You cannot replace assets that have already had their capital costs paid and expect energy prices to stay the same: they will not. The counterfactual is that we will have to spend more money on electricity as we build a new infrastructure.

That is not taken into account in the Treasury’s levy control framework, so it is a particularly redundant policy, and I would not use it as my measure of whether we should be cutting an industry off at the knees just as it is showing signs of success, in the false belief that we are on track with our targets. We are not. We desperately need inward investment and jobs in the UK. The Government do not have a great record in stimulating growth in the economy—far from it. They are desperately cutting costs to mask the fact that economic growth is virtually stagnant—or would be if it were not for immigration. Here we see them recklessly upsetting investor confidence in one of our success stories.

It could have been so different. It could have been done in a much better way. We could have made it clear that we are encouraging a wider range of technologies. We could have talked positively about some of them. We could have heard more about the fact that an increasingly wide range of renewables is now being deployed, but we have not. Unfortunately, we have had a very negative spin on what has been a success story for the UK.

I have not done justice to the debate, because it has been so rich and varied, but I thank noble Lords for all their contributions. As noble Lords can see, this is a subject I feel great passion about. I hope that, as we go into Committee, we will find some way to improve the Bill. I am sure that there are some measures in it that are necessary, but it is not the Energy Bill that we would have brought forward. I hope that through the scrutiny process of Committee we can make changes to make it something worthy of our efforts.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

I am coming to that; I had not forgotten. I think the noble Lord has also tabled a Question for Written Answer on this and I hope he has had a response because I have it here, although I will not read it out. I think he will be reassured that we believe there is sufficient cover at the moment. The Government will continue to monitor the insurance market for capacity in this area and to encourage insurers to enter the nuclear insurance market. I offer the noble Lord my apologies if the response has not yet arrived, but it is certainly on its way to him.

On contracts for difference, raised by the noble Viscount, Lord Ridley, the noble Lords, Lord Whitty, Lord Oxburgh, and others, I have indicated that we will be announcing our approach. Of course it is important that we look at the totality of the position on renewables; I totally agree with that.

The noble Lord, Lord Teverson, raised issues around the automotive industry. He is absolutely right to say that there is a massive opportunity for the United Kingdom in this area. We are working across government on this with the Department for Transport and there is a certain urgency. It is an important issue and it would be great to see British industry have an edge in the area.

The security of the national grid was raised by noble Lords. That was one of the first visits I made, and obviously there are connections with other countries such as Norway and France. I think security of supply is in place.

The Competition and Markets Authority was touched on by the noble Lord, Lord Foulkes, in relation to switching. He will be aware that we are currently studying, and will soon be responding to, the preliminary findings of the Competition and Markets Authority, which had a default mechanism in those preliminary findings for those people who do not switch and are on an expensive tariff. They are put into a default mechanism tariff, which will be better for them. I hope he is reassured by that. The noble Lord also raised the issue of smart grids, which are very important. We are looking at them as part of the smart energy programme.

Finally, I turn to the East Ayrshire coalfield. We are aware of the issues, as the noble Lord indicated, and at the moment the Treasury is looking at the Hargreaves and Banks proposals he mentioned. We will come back to him on that; it certainly has not been forgotten.

[Baroness Worthington]

In anticipation that the Minister is about to finish, I want to touch briefly on two points. I hope I will be forgiven if the noble Lord has already mentioned them. On the European targets, I should like some clarity on the statement from the Government that we are on track. We are not on track. We would like to see some information about how we will compensate for failing to meet the targets for the other two aspects of the energy policy. Related to that, I should like some reassurances because, as I understand it, to have an auction for the CFD, as was planned, the Government would have to be making decisions in August, not in the autumn. Can we assume from this that the planned CFD auction for this year will not take place, and what will that mean in terms of our being able to make progress with our targets?

[Lord Bourne of Aberystwyth]

I thank the noble Baroness for those two points. On the European targets, we are certainly on track, as I think she will accept. Indeed, I think she said that in relation to the electricity target, which is the one that wind directly affects. The other targets are certainly challenging and we are seeking to address them. I have mentioned what we are doing on cars, but I accept that they are challenging. However, I am sure she will agree that the track record of the United Kingdom in meeting our targets is, in European terms, very good, and I am sure it will remain so. On the auction, as I say, we will be making a statement in the autumn about the future of contracts for difference, and I have indicated that there is a future for the levy control framework, but I cannot really add to that at this stage.

Once more, I thank all noble Lords for a wide-ranging debate, which has gone far beyond the narrow remit of the Bill, but that is no bad thing. I hope that, as we go through the Bill, we can engage in the constructive way we have today.