Carbon Dioxide Transport and Storage Revenue Support (Directions and Counterparty) Regulations 2024

Earl Russell Excerpts

Monday 13th May 2024 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, the noble Lord, Lord Jones, spoke about a war on carbon. Of course, that is a war we should not be having to fight. The arrival of these regulations is an expression of failure over decades. We have continued to dig up and burn coal, oil and gas, and now, having done all that damage to the natural carbon capture and storage—the best possible form of it, which nature has done for us over hundreds of millions of years—we are trying to find a mechanism to undo some of that damage. Yet what we are doing here is establishing an expensive, top-down framework for a technology that does not yet exist at any scale and which, if successful, will create natural monopolies.

This novel industry has zero customers and no guarantee that there will be any in the future. It will be heavily dependent on the Government to adopt an energy and industrial strategy down a route that makes the carbon capture and storage industry possible. It is heavily centralised, risky and expensive, which must be contrasted with the decentralised, readily available and readily deployable technologies that exist as an alternative to CCS. What the Government are proposing with these regulations are huge subsidies for decades, in the hope that at some point there will be economic developments that will start to reduce the cost to the taxpayer. This means that our situation is a bit like the problem we have with incinerators, whereby we build incinerators with contracts to supply them with waste for decades and then have to generate the waste. The Government are really combining science fiction with dinosaur thinking here.

I feel some sympathy for the Minister, because these regulations have landed in your Lordships’ Committee in a rather unfortunate week. To quote the Energy Mix website, referring to the carbon capture and storage industry,

“Industry Navigates Very Bad Week”.

This article reflects two developments in Canada, where Capital Power has cancelled a 2.4 billion Canadian dollar carbon capture and storage project at its Genesee generating station, saying that it is “technically viable” but “not economically feasible”. It also reflects, as the Canadian national organisation Environmental Defence said,

“the latest failure in carbon capture’s terrible track record”.

This project had already received 5 million Canadian dollars from the Government of Alberta and was being set up for further tax breaks and support from both the federal and provincial Governments. It is just not working.

The other bad week to which the website referred concerned figures that have come out of Boundary Dam Unit 3, a project worth 1 billion Canadian dollars. It promised to capture 90% of the CO₂ that was being generated but, in fact, its capture rate has been only 57%. This gives me a question to ask of the Minister—and perhaps of the Labour Front Bench—about the regulations before us and the Government’s plans: if there are contracts promising a certain rate of capture but that rate of capture is not met and they fail to deliver what is promised, with the potential to cause considerable damage in this new industry, what will be done? I note that the Toronto Globe and Mail is saying that there are

“continuing tensions between industry and the federal government about the extent to which public dollars will be used to provide”

for this industry.

With that in mind, I note the Minister’s comments in his introduction. I also note paragraph 5.10 of the Explanatory Memorandum to the directions, eligibility and counterparty regulations and paragraph 5.9 of the Explanatory Memorandum to the directions and counterparty regulations, both of which refer to the importance of information being deployed publicly, as well as the Minister’s comments about commercial confidentiality. In so many areas of public provision, we have seen real problems with people hiding behind a total lack of transparency arising from that coverall of commercial confidentiality. Can the Minister assure me that that will not happen in this case?

[Earl Russell (LD)]

My Lords, I rise to speak to both of these SIs. I note that neither of them has been subject to any report by the Secondary Legislation Scrutiny Committee.

Both SIs relate to carbon capture, usage and storage—CCUS—and are broadly welcomed on these Benches. I will not partake in any debate on CCUS today. It is a suite of technologies that enable the mitigation of carbon dioxide emissions from large point sources, such as power plants and refineries, and the removal of existing CO₂ from the atmosphere. In short, CCUS is one vital tool in the toolbox to help us reach net zero.

The Government envisaged building a competitive, self-sustained CCUS market in the UK. I note that, as of today, no commercial-scale CCUS projects are up and running. CCUS could provide economic growth potential as part of the transition to net zero—£1 billion of government money has already been made available for investment in four potential clusters, which aim to be capable of storing 20 to 30 megatonnes of carbon dioxide by 2030—but CCUS has had a slow and slightly rough start in the UK.

The revenue, directions, eligibility and counterparty SI establishes the process by which the Secretary of State can direct a carbon capture counterparty to offer to contract with an eligible carbon capture entity. It also sets out the requirement that certain information must be published by the counterparty in respect of contracts entered into, as well as the requirement on the counterparty to notify the Secretary of State promptly if it is likely to be unable to perform its functions. This instrument concerns the implementation of industrial carbon capture business models, or ICCBMs—there must be a better acronym—which are intended to support the ambition set out in the net-zero strategy to deliver carbon capture, usage and storage, or CCUS, in four industrial clusters. The ICCBMs have been designed to incentivise the deployment of carbon capture technology by industrial and waste users who often have no viable alternative, as the Minister set out, and are similar to contract for difference schemes.

My questions on this SI relate to the future review and scrutiny of those contracts. As they are commercial contracts—I note that they are in the public domain, but some of this may not be made public—and are signed off by the Secretary of State, can the Minister explain what, if any, further parliamentary scrutiny there will be of these processes? These contracts are for new and in some cases yet unproven technologies, so how will value for money be ascertained and reported back to Parliament in future, especially given that the SI allows for the amendment of those contracts in future and no statutory review is envisaged? I welcome the response to the consultation and the changes, including the use of the term “energy recovery generating station” and around the exclusions and support.

Because of time, I will not go through all that the SI on carbon dioxide transport and storage does. It seeks to help establish first-of-the-kind infrastructure in the UK to transport and permanently store the carbon dioxide that has been captured. It provides Exchequer-funded revenue support to mitigate the financial risks of the initial investors. The investment in this infrastructure is welcome, and I recognise the need for it, but what level of financial support is envisaged at this stage? If none is required now but money is perhaps required at some later point, can I ask if and how Parliament might be consulted on that and what limits are in place on those future financial investments in this scheme? If more money goes in, how will that be reported and noted by Parliament?

My other questions relate to parliamentary oversight and scrutiny of the new types of technology and new contracts—what they are delivering and whether they are delivering value for money, how they are monitored and how Parliament gets future say in scrutiny of them.

Finally, in relation to both SIs, the process is delivered via commercial contracts, and both SIs allow for alterations and a requirement on the parties to inform the Secretary of State if the counterparty is unable, or likely to be unable, to fulfil its role as entered into. What, if any, dispute resolution mechanisms exist here between the department and the contractors? I am particularly interested in what legal dispute resolution mechanisms exist to give adequate oversight of this process to Parliament before any potential legal disputes end up in court.

[Baroness Blake of Leeds (Lab)]

I thank the Minister for his in-depth introduction to the two SIs that are before us today and for the comments we have heard so far. There will be some repetition in some of our concerns and questions.

I start by setting a bit of the context. I admire the ambition that is expressed, as we discussed during the passage of the Energy Act, recognising that this whole area is just one part of the toolkit in addressing the need to remove carbon from our industry. The Minister outlined the sheer scale of the proposals here, which involves going from 6 megatonnes in 2030 to 9 megatonnes in 2035, but I do not think he expressed what that will mean in terms of the infrastructure required to support the operations. I have to be honest that this Government have so far not had a great track record in delivering infrastructure across the piece, particularly transport infrastructure.

I would like to have a bit more sense, given the backlog in transport investment, of whether investment in this area will jump the queue, if you like, in the planned progress. Is there a plan? That is a question we come back to again and again in terms of delivering on this agenda. Of course, the other major issue around all this is the way the planning system works, or does not work. Can the Minister assure us that we can move forward with confidence in delivering a fairly steep timetable approaching 2025—next year? The clock is well and truly ticking.