Energy Bill [HL]

Baroness Worthington Excerpts

Wednesday 9th September 2015 Lords Chamber

[Baroness Liddell of Coatdyke (Lab)]

My Lords, perhaps I may ask the Minister a question relating to new Section 89A introduced by Amendment 34. I drew attention at Second Reading to my entry in the register of interests as a non-executive director of the Offshore Renewable Energy Catapult. I drew attention, too, to some interesting ideas that are developing about the use of decommissioned oil and gas facilities in the UK continental shelf for renewable energies, in particular in the area of offshore wind.

Given that the new sections introduced by the clause relate to the powers of the Oil and Gas Authority, would that be a limiting factor given that these renewable technologies are not hydrocarbons? I find it quite a complicated clause to work my way through. I am seeking to ascertain—it may be that the Minister cannot give me an answer today, but perhaps officials could take a look at it—whether there is protection of the possibility in future of previous hydrocarbon capabilities being used for offshore renewable energy. I took some comfort from the use of the word “facility”, which suggests that there might be some leeway there, but given that I am not a lawyer—although there are people in this Chamber who are—perhaps the Minister can give a slightly better answer to those of us who do not have that kind of expertise.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing these amendments at the beginning of the second day of Committee. Before going on to discuss them, I am afraid that I want to revisit the issue of the impact assessment. Since our debate on Monday, a partial impact assessment has been issued. The date on the impact assessment as published is 17 June 2015; the date of signing by the Minister is 7 September 2015. What happened in the intervening months? Why was it not made available to us during the Summer Recess? In fact, it could have been made available to us before Second Reading, had it been published closer to the date on which it was presumably drafted.

Now we have it, but it is only a partial impact assessment. We are still missing the impact assessment for the most controversial elements of this Energy Bill—namely, the clauses on onshore wind. Will the Minister give me a strong confirmation that we will have that in good time for our debate on Monday? If that is not the case, we may have to take further steps because this is simply not good enough. The Committee is not being treated in the way that it should be on these issues. This information is important and it is an important Bill. We should not be seeking to rush it through without due scrutiny. That said, I will move on to the amendments.

The impact assessment is interesting, as these things tend to be, which is why we like to see them. It confirms some of the issues that we debated on Monday such as the rapidly changing nature of activity in the North Sea. The impact assessment reiterates that we are seeing a sharp decline in production and investment into the North Sea and times are changing very fast. However, unfortunately, the impact assessment does not give any reassurance that the Government are applying any long-term vision to this issue. On page 10 of the impact assessment, we see that there has indeed been talk in the Government about what to do about these rapidly changing circumstances. Ideas have been discussed and mooted, and four of them are mentioned on page 10. There is absolutely nothing about repurposing the North Sea or considering how it might be reused.

I am grateful to my noble friend Lady Liddell for her contribution. She talked in terms of reuse for renewables, but I am far more concerned, as I am sure the Minister is now aware, with reuse for carbon capture and storage. There is no mention of repurposing a site for storage and no mention at all of decommissioning within the role of the OGA in relation to this moving forward. We have an impact assessment, but it does not exactly give me any great cause for reassurance. I am hoping that we will continue to revisit these issues when we come to Report. They relate very much to the scope of this piece of legislation.

Turning to the amendments, I want to give one illustration of why the scope issue of the OGA is so important. Under Amendment 33, we are being introduced to the concept of the right to appeal. After Clause 56, the amendment would insert new Section 87A, under which an appeal can be lodged if,

“the information required by the notice is not relevant to the exercise of the OGA or its functions under this Chapter”.

On Monday, we had considerable debate about the issue of the functions and the principal objectives of the OGA. Will the Minister reassure me that yet again this reference to the OGA functions includes the need for information to be made available in relation to carbon capture and storage?

I hesitate to go over the ground we went over on Monday, but we need clarity on the principal objectives of this new body. I request that we have the primary objectives as set out in the Infrastructure Act, which amended the Petroleum Act 1998, stated on the face of the Bill. We could have some consolidation. Instead of having to refer back to pieces of legislation that then amended other pieces of legislation, could we not have some clean objectives clearly stated so that we can then interpret all of these powers and changes that the OGA will be overseeing in light of the clear statement of the primary objectives? Those primary objectives must be fit for purpose. They must cover the issues we have raised in relation to decommissioning and repurposing for use in carbon capture and storage.

I hope that the Minister will be able to respond with some reassurances on the general point about the Bill handling but also in relation to that specific issue on Amendment 33. Can he assure me that the appeals will not allow the industry to claim that requiring information in relation to carbon capture and storage activities falls foul of this requirement, being outside the primary objective of the OGA?

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Finally, doing this would be a shot in the arm for the industry in northern and north-west England. Jobs would be associated with it. It would allow the oil companies to provide jobs for many of the people they are having to lay off. Furthermore, there would be jobs in construction, particularly in north-west England. In short, I think this issue merits much more detailed scrutiny. We also have to recognise that time is not on our side in two ways: from a climate change point of view; but, even more importantly, in the North Sea, where gas and oil fields are being closed down. Many that are potentially usable for CCS may be sealed permanently and cannot be reopened without considerable expense unless we move very fast indeed. I beg to move.

[Baroness Worthington]

My Lords, I am grateful to the noble Lord, Lord Oxburgh, for introducing this amendment, to which I was very pleased to add my name. Like the noble Lord, I would like us to take a step back and think about this debate in context. I am grateful to Professor Myles Allen at the Oxford Martin School and Professor Stuart Haszeldine from Edinburgh University, who have provided some very interesting briefing materials on the amendment. Myles, in particular, has a very interesting way of describing the challenge that faces us. To help us comprehend this issue and that of climate change and the problem of the unburnable carbon, to coin a phrase from the Governor of the Bank of England, Mark Carney, let us imagine seven lumps of coal, each representing half a trillion tonnes of available fossilised carbon. That represents what we know to be the available fossil fuel reserve: 3 trillion to 4 trillion tonnes of usable carbon. It might actually be much higher than that. Our seven lumps of coal might be closer to 14 if we include unconventional sources such as shale gas, tight gas and tar sands. So we have an awful lot of stored carbon on this planet.

Over the past 250 years we have burned and dumped into the atmosphere one lump; that is, half a trillion tonnes of carbon. As a result, temperatures have now risen on average by 0.9 degrees globally; there is a time lag so that figure may go up. We should remember that 0.9 degrees globally means very different temperatures at the poles. There might be double the warming—closer to 2 degrees—happening in the polar regions, where of course there are large amounts of ice, in both the Greenland ice sheet and the Arctic itself. I know that the noble Viscount, Lord Ridley, will speak shortly but this is reasonably uncontested science. This is simply the physics of the additional loading into the atmosphere.

At the rate we are currently burning fossil fuels, it will take us just another 30 years to burn the next lump— the second of our seven lumps of available carbon—which will likely exhaust our safe carbon budget. We can have a debate about “safe” and about the scale but, by and large, in about 30 years’ time we will have emitted as much again as we have since the Industrial Revolution. The third lump will almost incontestably take us over the 2-degree limit. Two degrees is the supposed safe threshold—again, this number will probably be revisited time and again but it seems likely that beyond that point we will be into the realms of an unsafe climate. The next lump takes us to 3 degrees, and so on.

Now, if we have 14 of these lumps and we are burning through them at the rate that we are, the obvious conclusion is that we are going to have to come up with some mechanism for either leaving some of this carbon untouched or burying the associated greenhouse gases back underground, if we want to use these resources. So far most of the debate has been about trying to burn that second lump of coal a little bit more slowly and nobody is facing up properly to the scale of the challenge of what we do with our carbon assets and how we transition into a new future.

I think there is something in the air—sorry to be a little bit cheeky but there are also 400 parts per million of carbon dioxide in the air—and there is a mood shift. It probably is precipitated by the Paris talks. International negotiations provide a useful chance for us as a global community to take stock and assess what we are really doing to address this problem. I hope that Paris will be a success but it is evident that that is just a staging post and the hard work will start afterwards, when we sit down and consider the implications of what we are setting out to try to do in terms of decarbonising our energy systems.

Obviously, we should pay tribute to the companies and individuals and, indeed, all the previous Energy Ministers who have helped us to lift ourselves out of poverty and have a higher standard of living using our hydrocarbon resources, but the game is changing and in the future we are going to have to recognise the risk of climate change and take action to mitigate it. For our generation and for future generations, this is something that we simply have to do.

So, in the run-up to Paris, here we are with an Energy Bill that seeks, on the surface of it, to extract more hydrocarbons from the North Sea—and, as a side issue, to not have any more onshore wind. That does not seem completely in tune with the general sense outside these Chambers, government and Whitehall that we need to take climate change seriously. What we are trying to do in these Committee sessions is to make sure that this Bill is fit for purpose in terms of the challenge it is trying to address and is making good use of our parliamentary resources.

I happen to think that the idea that has been circulated and which the noble Lord, Lord Oxburgh, is now encouraging us to debate has merit. I am not saying that it should be policy, and there are many unanswered questions that relate to it, but it has some very interesting features. We should first acknowledge that although we have carbon budgets in the UK that cover our whole economy, in reality there is nothing in policy measures that prices carbon into the heat and transport sectors. There is a cap on electricity and on emissions coming from heavy industry, some of which is of course from gas. That is taken care of: there is an EU scheme and a UK top-up measure, so we at least have some handle on that. When it comes to the other sectors, which mainly means the distribution of gas into the heating of buildings and the use of oil as petroleum in transport, we do not have a policy that explicitly addresses the emissions. We have taxation, of course, and we hope that the Treasury is recycling some of that into good things, but by and large it is an uncapped sector in which there are very few measures—I cannot readily think of any—that address the totality of those emissions from those sectors.

I am sure that we could look at this in lots of ways but the idea being circulated in the briefings is elegant. It simply states that upstream, at the very point at which a product is brought out of the ground or imported into the country, we would place an obligation on those importers and extractors so that they then source the least-cost ways of storing a proportion of their emissions underground and addressing the impact of their product. What I like about this is that it would create an obligation that sits in the hands of the private sector. It would also create an obligation on a group of people who have a great interest in seeing carbon capture and storage come to fruition because it lengthens their business plan. It gives them an opportunity to continue what they are doing without imperilling the planet, so they seem the right people to talk to.

We all know that certain companies, including Shell, are pushing ahead. They are seeking contracts for difference from the Government to move ahead with a CCS project. But I am sure they would readily admit that in a world in which their competitors are not doing the same, it is incredibly difficult to do this. If they say that they will take on an extra price burden, they are necessarily dependent on government subsidy to get it going because of the fact that their competitors will not be doing the same. They will come under shareholder pressure saying, “Why are you taking on these extra costs when no one else is?”. So we can either carry on in this way, giving out subsidies and negotiating bilaterally with these companies, or we can say, “Let’s try to do it a different way, creating the right framework to get the right players involved”. They bring unrivalled engineering expertise and excellence with their knowledge of the North Sea. If we genuinely think that the North Sea offers a new economic opportunity for the UK—and I think that is the case, not just for our emissions but for Europe’s—then let us harness these giants of engineering and get them to apply their minds to this task.

As the noble Lord, Lord Oxburgh, mentioned, there would of course be a modest price passed through but if we start at a low percentage of emissions then it would be almost unnoticeable—certainly much less than the fuel duty we currently charge. I think we would find that the cost of carbon capture and storage that was uncovered would be far and away lower than we can imagine. I know from my time in the Civil Service that we would imagine what costs were going to be, but then be completely startled when industry went off and did the things we asked it to do. It came in at much lower cost. One of the best examples of that is the carbon market set up under Kyoto, where at the time of negotiation the belief was that chemical companies which produced HFC gases would have to be buyers of permits. It turned out that as soon as someone did the maths, they were completely capable of reducing their emissions at very low cost and bringing forward huge amounts of certificates to the market, which then crashed the price. They were sellers at such a volume that they managed to make the price almost negligible, so apply market forces to these problems and you will see costs coming in lower than civil servants and we are able to imagine at the moment. That is hugely important because affordability of decarbonisation is a massive challenge. We must keep our focus on that. We will not have a licence to carry on if we keep having high costs when we do not need them to be so high.

As your Lordships can tell, I am quite in favour of this provision because it has a market element but I do not want to trivialise the role of the Government at the moment in helping to stimulate the demonstration projects. I wish nothing that I have said today to make investors feel nervous that we are somehow not going to back the demonstration projects at White Rose, Peterhead and Grangemouth. They are very important projects—the first of a kind—and we want to see them succeed. I think it is fair to say that there may well need to be more state involvement in making the infrastructure work and so that it is done at the right scale for those demonstration projects. However, if we look a little further forward beyond those demonstration projects, we know that we need to get into a world where these technologies are, as far as we can make them, standing on their own two feet and competing with each other to keep costs low.

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So we do have some time to get this right, and I remind the noble Baroness, Lady Worthington—

[Baroness Worthington]

I apologise if I have risen too soon; I look forward to hearing what the noble Viscount is about to say. It is true, is it not, that there is a time lag between our emissions and changes in temperature? We are therefore likely to have a 30 to 40-year period in which we know we have committed ourselves to higher temperatures, and yet we are waiting for the impact. That surely means that we should be concerned sooner, rather than later. Secondly, does the noble Viscount not acknowledge that a global average temperature rise of 1 degree would be double that in the Arctic? A 2 degree global rise would therefore be 4 degrees in the Arctic, which could have a significant impact on the melt, leading to sea level rise.

[Viscount Ridley]

On the first point about the lag, yes, but the whole point is that I am comparing the rate of temperature increase with the rate predicted by the IPCC, which knew about the lag and built it into its models. Essentially, the noble Baroness is talking about the difference between equilibrium climate sensitivity, which is reached after many centuries, and transient climate response, which is what you immediately get. Yes, there is a big difference there, but the climate sensitivity figures—I was coming on to this—are based on 14 new studies, one of which Myles Allen co-authored.

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[Lord Oxburgh]

My Lords, I thank all noble Lords who have participated in our lively and interesting set of exchanges, which are too numerous to answer all in detail. However, the noble Lord, Lord Howell, asked about the implications for the North Sea. I probably did not make my submission too clearly, but one of the reasons that CCS is creeping along glacially is that no one can make a business case and there is no investor confidence. A regulation of this kind would plan a clear way forward for industry and CCS would become much more investable for the private sector—and there would be much less dependence on government.

The noble Lord, Lord Teverson, commented on the large scale and expensive nature of CCS. We do not really know what it costs. We know what the operation in Canada has cost, and it is a lot of money. However, there is a hockey stick curve for all these things; they are expensive at first but prices come down. All new technologies and new ways in which to capture carbon would be explored and invigorated with a clear drive from government, and there would be responsibility on companies to find a cheap way of doing this.

The noble Viscount, Lord Ridley, made a number of points, including on the carbon floor price. I am indeed worried about the delay. He commented on the overseas implications. I agree that among the things that we would have to tease out would be the implications for the UK of doing this by itself. What would be the implications for our position more widely? Might we be able to persuade other EU countries to come in on this? For a lot of people, this kind of approach is a no-brainer; it is the obvious, “polluter pays” way forward. I say to the noble Viscount that I never believe the figures on climate projections. He will have noted that, although I mentioned 4 degrees, I did not say when. What is beyond doubt is the direction of change, and cutting down our emissions and putting them out of the way as quickly as possible is a sensible precaution to take.

I thank the Minister for his words.

[Baroness Worthington]

I should like to respond to one question about how this matter relates to the Bill and the North Sea. I want to offer this fact to Members of the Committee: over its time, the North Sea has produced 42 billion barrels of oil. It has been of great benefit to us as a country; however, those barrels have contributed 18 billion tonnes of CO₂ to the atmosphere. There is a definite link to not only the North Sea’s inevitable economic benefits for us but the environmental consequences of that. I should also say, for information, that buying CO₂ commercially as a feedstock at the moment costs £100. We must be able to sort something out whereby the producers of CO₂ and those who buy it at £100 can be brought closer together, so we can begin to see the development of an industry in getting CO₂ safely out of the atmosphere.