Draft Offshore Environmental Civil Sanctions Regulations 2018

Claire Perry Excerpts

Tuesday 15th May 2018 General Committees

[The Minister for Energy and Clean Growth (Claire Perry)]

I beg to move,

That the Committee has considered the draft Offshore Environmental Civil Sanctions Regulations 2018.

It is a pleasure to serve under your chairmanship, Ms McDonagh. The regulations will allow the Department for Business, Energy and Industrial Strategy’s Offshore Petroleum Regulator for Environment and Decommissioning to impose financial civil sanctions for contraventions of offshore environmental legislation, which we believe provides a more appropriate and proportionate enforcement option and will further encourage operators to do the right thing in ensuring that those limits are not breached.

The regulations will, moreover, bring OPRED in line with the onshore environmental regulators, which already have such powers. The regulations will provide the offshore regulator with the ability to impose financial penalties on operators that are breaching environmental legislation.

I have visited OPRED and want to pay tribute to the civil servants working so hard in the fair city of Aberdeen who are doing a marvellous job to ensure that our offshore industry adheres to among the highest environmental standards in the world. One problem they have, unlike onshore regulators, is that they do not have the power to impose fines when they uncover a breach. The regulations will allow that gap in their current enforcement options to be filled.

[Ms Angela Eagle (Wallasey) (Lab)]

I do not think that there is anything anyone could object to about having a civil penalty as well as a criminal one, but the Minister implies that there have been some breaches that her inspectorate has not considered to be serious enough to bring criminal proceedings against. Therefore, the companies perpetrating them have been allowed to get away with it. What kinds of breaches does the Minister think the new civil penalties will enable her inspectorate to get a handle on? Such breaches have, by implication, gone by the board because of the inflexibility of the current arrangements.

[Claire Perry]

I welcome that intervention. I will say a little more the sort of breach that will attract the new civil penalty. To reassure the hon. Lady, a series of enforcement actions are already taken and they will have the effect of removing any breaches as quickly as possible. Those include serving an enforcement or prohibition notice, revocation of a permit, and referral for consideration of prosecution.

The majority of contraventions tend to be quite minor and the only enforcement option available is a criminal prosecution, which is costly and time-consuming for all parties. Of course, OPRED does not determine whether those matters should be prosecuted; that is rightly for the judicial system to decide. Giving OPRED these powers, which are in line with those enjoyed by the onshore regulator, would allow it effectively to make that decision and impose a financial civil sanction. That would allow for a more timely and cost-effective response, and it would not lead to the criminalisation of operators that have committed only a minor breach that they are anxious to put right but for which there is currently no sufficient penalty regime.

[Ms Eagle]

I am just trying to find out how large this issue is, in terms of companies that have been in breach but whose actions the prosecuting authorities did not think serious enough to bring criminal charges against them. By implication, there has been a series of breaches that are not serious enough to merit criminal charges but which would fall under the Minister’s proposed civil prosecution structure. Will she give us an idea of how great an issue this is and what has been allowed to pass because we did not have flexibility for a civil rather than a criminal process?

[Claire Perry]

I will give the hon. Lady numbers, because she and I both like facts rather than opinions. Since 2016, there have been 4,178 total breaches of environmental regulation. That sounds a lot but many are very minor. Of those, 78 have been subject to investigation. The assessment of my officials is that 10% of those 78 would have reached the required standard of proof for receiving a civil sanction. OPRED’s view is that that number will not change dramatically. We are talking about tens rather than hundreds. Of course, the measure is almost a threat; it is unlikely to be the outcome. As the Minister responsible for oil and gas, I believe that we have, by and large, very compliant companies that are anxious to maintain the reputation of the North sea basin as the most environmentally well-regulated. I hope those data satisfy the hon. Lady, who asked an excellent question.

Returning to my opening remarks, the measure is the ultimate penalty. It allows the regulator to have more arrows in its quiver when it gets out there and ensures that enforcement notices are taken seriously. In addition to the civil sanction, the ultimate threat is the revocation of a permit, which means that an operator can no longer operate. It is felt that those and the prosecution option are perhaps too severe for some of the sanctions being investigated. I have mentioned the numbers. Although criminal prosecutions can carry substantial penalties, they are used relatively infrequently, because they are so resource-intensive to carry out.

The sanctions will be applied instead of, not in addition to, criminal prosecution for cases where the required criminal standard of proof is met. The fixed and variable civil sanctions that OPRED will have the ability to impose range from £500 to £50,000. Those recommendations follow a consultation that finished on 15 February, seeking views from the public, the hydrocarbon sector and other relevant stakeholders, such as nature conservation bodies and environmental non-governmental organisations. There were only 13 replies, the majority of which responded positively to the regulations. No additional substantive changes to the regulations were needed as a result of the consultation.

Concerns were raised about the potential overuse of powers, the burden of proof and, fundamentally, the legislation to which the civil sanctions would apply. My team published a response on 16 April that detailed all those points, should people be interested. Many of the issues raised are relevant to OPRED’s enforcement policy and civil sanctions guidance document, which is being produced alongside the regulations, rather than to the regulations themselves. Both the guidance document and the enforcement policy will be subject to consultation and published in final form before any civil sanctions are issued.

In summary, the objective of the regulations is to create an equivalent environment for onshore and offshore operators, which in many cases are the same company; maintain the UK’s position as having excellent environmental standards for hydrocarbon extraction; give OPRED additional powers to impose financial civil sanctions for contravention of specified environmental legislation; and provide an element of proportionality for a breach that is deemed sufficiently serious to invite a potential criminal process but without actually taking the operator to court, although that option is retained for the most serious breaches.

Our intention is a proportionate and measured approach that will ensure greater compliance by offshore operators and allow enforcement action to be taken swiftly. If agreed by the Committee, the regulations will enter into force alongside the supporting documents on the next common commencement date of 1 October 2018. I recommend the regulations to the Committee.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Ms McDonagh. I have read the proposals carefully. My understanding is that, as the Minister set out, the plan in essence is not to create a further series of offences—indeed, the statutory instrument does not create any new offences—but to attach a series of civil penalties to the existing penalties so that there is a range of civil remedies available to OPRED in addition to the criminal remedies available to it under existing legislation.

There are two kinds of civil penalties for offshore breaches of environmental regulations: fixed penalties, ranging from £250 to £5,000, and variable penalties, ranging from £500 to £50,000. The distinction between those ranges is considerable, but the fixed penalties clearly would be very minor for companies found guilty of a breach.

[Claire Perry]

Will the hon. Gentleman accept a clarifying intervention? My officials have provided me with a helpful table, which sets out the offences to which the civil sanctions will apply—the underlying regulation, the offence and the proposed level of sanction. I am happy to share that with him and with other Committee members who are interested, if that would help.

[Dr Whitehead]

I thank the Minister for that helpful intervention. I was attempting to establish the range of penalties that will be available under the new regime. It would be helpful to have that additional information, but the penalties basically fall into the two categories I mentioned—one with a minor range and the other with a rather more major range. Nevertheless, the top of the range of variable penalties is £50,000.

In addition to what the Minister has told us, the explanatory memorandum published alongside the SI deals with why it is claimed those penalties are needed. It states:

“The need for the instrument has arisen due to a number of contraventions of environmental Regulations going unpunished as a result of OPRED’s lack of a proportionate enforcement response. The introduction of instrument will provide a more flexible, timely and proportionate enforcement tool by conferring on OPRED the power to impose civil sanctions on operators who are found to have breached existing environmental Regulations.”

It also states, as the Minister mentioned, that prosecutions

“are costly and time consuming and ultimately, the decision whether to bring criminal proceedings lies with external prosecuting authorities, not OPRED.”

That gives the impression—my hon. Friend the Member for Wallasey pressed the Minister on this—that a number of contraventions are going unpunished. It appears that they are happening but, because OPRED either is too busy—it is snowed under with other work—or does not have a proportionate enforcement response, they are not being prosecuted. It would be helpful, either now or for future reference, to hear a little more about exactly what those unprosecuted contraventions consist of. My hon. Friend made an excellent effort to pin that down, but I do not think we got very far with that question.

That is a puzzling question in the context of a number of oddities with the proposed procedure. As far as I understand it, the procedure is not supposed to substitute offences and civil penalties of a different order for those that are in place at the moment. It specifically does not do that. The idea that a number of offences go unpunished because they are below the radar of criminal prosecution therefore appears to be gainsaid by the structure of the new arrangements.

The explanatory memorandum states:

“The instrument does nothing to change the burden or standard of proof in relation to the offences, so civil sanctions will only be imposed where OPRED is satisfied that a prosecution could have been pursued.”

In other words, the civil sanctions will be the punishment for an offence that could have been subject to prosecution and the present criminal sanctions available to OPRED, and it would be OPRED’s choice to impose those civil sanctions. The new regime will not be able to spot and punish a series of under-the-radar offences; rather, the existing criminal sanctions regime will continue, but with a series of new penalties on top. That is one oddity of the proposals.

One could conclude that this approach is being taken in the belief that a fixed penalty regime enables us to, as it were, stick notices on the windscreens of offshore operating companies, thereby making life easier all round, and that some of the offences that have been scooped up under the existing regime are not really as bad as all that, so a small fixed penalty of a few hundred pounds should do the trick. I am sure that that is an unfair characterisation, but it is an interpretation of some of the consequences of the new regime.

It also sounds like the particular issue of environmental offences committed in the North sea and elsewhere is not that great, so a new regime will cope better with an overall downsizing of what we think we are doing in enforcing regulations on companies. Moreover, OPRED is extremely busy and does not have a proportionate enforcement response; prosecutions are costly and time-consuming; and the measure fills a gap in a very busy schedule.

OPRED already has enforcement notices under its belt. The Minister mentioned a number of OPRED enforcement notices over the past year or so, but what, on a broader canvas, has OPRED been doing recently regarding those offences? She helpfully set out for us the number of prosecutions that could have been considered for possible breaches, but I have here the actual notices and prosecutions carried out by OPRED over the year prior to May 2017. It issued five enforcement notices under the Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005; two under the Fluorinated Greenhouse Gases Regulations 2015; and a further improvement notice. That is eight notices all together, with one prosecution completed and three further cases referred to the relevant prosecuting authorities.

OPRED did not, therefore, have a massive burden of prosecutions and enforcement notices under its belt during that particular year. I hope the Minister will explain whether she believes that that level of activity amounts to the crippling burden suggested by the explanatory memorandum, which has been used to justify the new regulations.

It is also interesting that OPRED already has a range of civil penalties available to it for environmental pollution and breaches of regulations related to environmental stewardship. Surprisingly, they are not mentioned in the notes accompanying the SI, but OPRED has been active on notices under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, which provide for substantial civil penalties for breaches such as failure to comply with a condition of a permit; failure to pay a penalty for exceeding an emissions target for an excluded installation; under-reporting of emissions from an excluded installation; failure to comply with a condition of an emissions plan, a direction relating to an operating ban, an enforcement notice or an information notice; and providing false or misleading information.

Those are civil penalties for breaches that in many cases mirror the sorts of things listed in the SI under discussion. OPRED has been quite active in pursuing penalties under the 2012 regulations: hon. Members will be interested to know that in 2016-17 no fewer than six civil penalties were issued, and fines of more than £900,000 were collected as a result. That suggests that OPRED is already quite active in pursuing civil penalties for breaches of regulations under legislation that is inexplicably completely absent from our discussions this afternoon.

I hope that the Minister will clearly tell the Committee that she considers there is no danger that the introduction of new penalties will lead to the downgrading of enforcement, particularly environmental standards enforcement. Also, I hope she will indicate that in future we will be able at the end of each year to see in full the working of the breaches that have occurred and how they have been dealt with, as a matter of regular record. Then we can see on a continuing basis that such downgrading is not happening.

Perhaps the Minister will also inform us what is to happen to the existing civil penalty regime under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, as a result of the introduction of the new penalties, particularly given that, at first sight, we see that a number of penalties provided for in the new regime mirror those already available under existing legislation. What would be the preferred option for OPRED? Will it stop applying the higher-penalty civil remedies available under the legislation I have mentioned, and begin to operate the lower-penalty arrangements available to it under the new regime, or has the Department issued no guidance on that? If not, will such guidance be available in the guidance document that we are promised will be available in November?

We do not intend to divide the Committee, but as I think you can appreciate, Ms McDonagh, a number of aspects of the proposals look frankly a little odd, and further consideration is needed of how they will sit within the existing criminal and civil penalty regimes. Clarity from the Minister to diminish that feeling of oddness would be an admirable way to conclude our proceedings.

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[Claire Perry]

I thank the hon. Members for Southampton, Test and for Wallasey for their good, probing questions, to which I will respond in three blocks.

The hon. Gentleman suggested in his tone that OPRED was making up the fact that it was really busy. He will know—the hon. Lady will, too; I am sure she has done the dunk test and been out to see the various rigs—that we now have 299 oil and gas installations. We have 20 inspectors, who are required to go out and inspect in the most awful conditions, and it is absolutely right that we give them the tools that they have asked for to do their job most effectively. Let me again put on the record my gratitude and admiration for what they do.

The hon. Gentleman made a good point, as he often does—he always does, actually—which helped clarify something in my mind. He is right to flag that we already have a civil penalties regime for breaches under carbon emissions legislation, which is dealt with by an entirely separate set of regulations. The draft regulations will bring the same suite of tools—enforcement notices, civil penalties and, for the worst cases, prosecution—to bear on non-CO₂-related breaches: in effect, in this case, oil and chemical spills. It was helpful for him to make those points, because that helped me to ensure that I was clear about what we are doing. In a way, the numbers that he pointed out show that this will be an effective way of dealing with lesser breaches, just as it is under CO₂ legislation, which requires civil sanctions and/or prosecutions for the most serious cases.

I defer to the hon. Lady’s long knowledge of this area. She is right to point out that the North sea, although it is probably past peak production, is in a period of real renaissance. That is partly because of what the Government have done in listening to the oil and gas industry—

[Ms Eagle]

indicated dissent.

[Claire Perry]

The hon. Lady shakes her head, but she will know that this Government proposed the transferrable tax history, which my hon. Friends north of the border campaigned for very strongly and the industry had been asking for. Along with investment in the Oil and Gas Authority, which is the oil and gas regulator, and the wonderful Oil and Gas Technology Centre in Aberdeen, which is co-funded by the Westminster Government and the Scottish Government, that has stimulated a whole wealth of new investment and interest, and asset transfers from the big boys—she was correct to call them that: they are mostly boys—to smaller, more nimble companies that are better able to exploit those assets. We should all be very proud of that.

I want to push back a bit on the idea that the regime is being weakened. There are some serious large breaches—in effect, oil and chemical spills—that are absolutely worthy of prosecution. Then there are a whole suite of lesser offences for which enforcement notices can be issued and, most importantly, remediation action can be taken, both in clean-ups and ensuring that it does not happen again. However, other than through an exchange of letters and conversations, there is no way to make it clear to that operator that that is totally unacceptable behaviour which must not happen again.

I argue that having a civil sanctions regime enables that message to be sent even more strongly. For operators who—knowingly or unknowingly—are effectively allowing smaller breaches to happen, a suite of sanctions that did not exist will exist and be in force thanks to the regulations. I say unequivocally to the hon. Lady that this feels like a tightening of the regulatory regime. She is right that we have an offshore sector that is capable of generating hydrocarbons into the future. Ultimately, we will get to a hydrocarbon-free world, but, in the case of gas, if we invest in carbon capture and storage technology as we want to do, we can keep that gas being burnt cleanly in the system for a long period of time. It is economically vital to this country that we do that, and we need a regulatory regime that enables good operators to do what they do.

The hon. Lady said there might be some rogue operators creeping in. I am not suggesting that—there is no evidence of that—but we do have to bear that in mind, and these are the sorts of regulations that will send a strong message. Sanctions can be applied and penalties, which can be reinvested in the industry, can be collected to ensure that that message is sent loud and clear.

[Dr Whitehead]

The Minister has been making remarks in the important context of the burden of proof in circumstances where there are civil penalties. Should not the burden of proof for the new penalties be the civil burden rather than the criminal burden when they are in place? That would really underline how the regulations are an extension of powers rather than a contraction.

--- Later in debate ---

[Claire Perry]

The burden of proof is already mandated by legislation. I am not an expert in this—I am sure the hon. Gentleman has done more research on it—but there will be a threshold above which criminal prosecution is deemed to be the right way to go, not because people are trying to save money by not having such a prosecution but because the chances of succeeding are much less. I do not know the specifics of that, but as always I will be happy to write to him with that information.

In summary, these are proportionate and sensible regulations. It is good to hear that the Opposition do not wish to divide the Committee. The regulations will allow our excellent OPRED inspection team to continue to do their job, so I commend them to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Offshore Environmental Civil Sanctions Regulations 2018.