Energy Bill [ Lords ] (Sixteenth sitting)

Katherine Fletcher Excerpts

Committee stage
Tuesday 27th June 2023 Public Bill Committees

[Olivia Blake]

It has been an interesting discussion. “Maximum economic recovery” might sound like three benign words, but they could be a toxic combination. If we are not careful, they could be rephrased as “maximum economic crisis”. The climate catastrophe that will unfold if we do not cap global warming at 1.5°, and maintain that on average over 20 years, will be incredibly tough for any Government and for everyone internationally. Some reports suggest that if we wait 10 years, it will not take 1% of GDP to tackle the climate emergency; that will jump staggeringly. About 8% of GDP expenditure will have to go on resilience alone, and dealing with the consequences of the climate catastrophe. The cost of changing to a green energy system in that same decade would double as well. It is really important that we understand what that means.

I say “toxic combination”, but there is also the very real and significant risk of stranded assets. The financial sector, the insurance industry and pension funds are all very aware of the issue, and we see that in how they are changing the way that they invest in projects, and the divestment policies of many of the institutions in this space. Nature published an article in 2022 stating that 60% of oil and gas and 90% of known coal should remain in the ground if we are to get to 1.5°C, but the issue of stranded assets is a reality. We cannot have our cake and eat it; we cannot inhale our cake quicker and hope for the best. Every drop of oil and gas and every lump of coal that we burn contributes to the Anthropocene we are seeing. We have decisions that we can take, and we know that those decisions have an impact.

Stranded assets are really important in this debate. A report in 2022 suggested that the oil, gas and fossil fuel industry had £1.4 trillion of stranded assets. That means that there will be a cliff edge for jobs. There will be assets that people can no longer use or get value from. It will mean that we have barrels of oil, gas and coal that we cannot use, because—a very senior scientist makes this argument in the report—the world will have moved on. We hope that the world will move on as a result of the Bill; if we do not scale up net zero measures, UK households could be spending £500 a year on foreign gas, rather than saving £1,500-odd through a move to renewables and energy efficiency policies, and retrofitting.

This is an incredibly important point. We cannot just hope that things will get better, and squeezing every last drop out of the North sea is not compatible with our aim of 1.5°. We cannot set a date for getting to net zero, but then produce as much carbon and other greenhouse emissions as we like and hope for the best. There must be carbon budgeting, as we all know. We have had all this conversation about a just transition, yet we are giving massive tax breaks. For example, if Rosebank goes ahead, it will receive a tax break of £3.75 billion for something that may soon become a stranded asset.

[Katherine Fletcher (South Ribble) (Con)]

I am grateful to the hon. Lady, and I will be brief. Will she share the definition of a stranded asset? Some oil and gas extraction areas have enormous potential for carbon capture and storage; it will be a matter of pushing stuff down a pipe, rather than pulling stuff out of it. Has any of that been taken into account in her slightly apocalyptic analysis of what we can do in the North sea and other areas?

[Olivia Blake]

It is apocalyptic because going above 1.5°C will be catastrophic.

[Katherine Fletcher]

We are talking about a transition.

[Olivia Blake]

I absolutely agree that it needs to be a transition; that is exactly my point. In the scenario we are discussing,

“Fossil fuel resources that cannot be burned and fossil fuel infrastructure (e.g. pipelines, power plants) that is no longer used may end up as a liability before the end of its anticipated economic lifetime.”

The assets are not being valued at their value over their lifetime; it is that simple. Say we give a value to an asset for its lifetime—25, 50, 100 years or whatever. Its lifetime will fall short of that period, and there will be catastrophic consequences for the financial and economic world; things will go into freefall. This is about economic risk, not just what we have, where. It is that fundamental. That understanding is missing from a lot of this debate, but financial services, pension funds and the insurance industry are all saying that they are very aware of the issue.

[Katherine Fletcher]

The hon. Lady has just read quite a detailed definition of a stranded asset, which included fossil fuel reserves remaining under the ocean, if I heard her correctly.

[Olivia Blake]

We would have to leave them there, but figures for them would be baked into the economic analysis and the business planning for those sites. That is why there is a financial risk; financial plans will come into play that will be unrealistic and unmeetable. That is why the assets will become stranded assets; it had been planned that they would produce a profit over a period, but we will not get to that time because of the situation.

--- Later in debate ---

[Katherine Fletcher]

If I understand the hon. Lady correctly, she is worrying about a figure of £1.5 billion in stranded assets, which includes fossil fuels that are left under the ground. That does not take into account the fact that the assets could be repurchased for an energy transition. Would she agree that there is perhaps more analysis to do?

[Olivia Blake]

To be clear, it is not £1.3 billion; it is £1.4 trillion, and that is why this is significant. I am not the only one worried about this—so are financial institutions around the globe. This massive financial risk could spin us into financial crisis if we are not careful. This is not just a climate catastrophe; it is an economic situation that we need to monitor, and we need to ensure that we do not have a cliff edge that lands us in a spiral that we cannot get out of. That is why a transition is so important, and why we need development of industry in the North sea, but cannot rely on our valuations of assets at the moment.

We need to take into consideration changes in the use of oil and gas, so that we can reach 1.5°C. We cannot deal with those two issues in isolation. As much as that would please everyone at the moment and allow them to make a quick buck, it is economically illiterate to think that we can continue as we are. That is a big problem. There are huge opportunities for Government, and I welcome a lot of the things in the Bill that will help to unlock them.

At household level, the move to renewables would significantly benefit people. Renewables are three times cheaper than oil and gas-related heating and electricity. A record number of households are suffering from energy insecurity. It is important that we look at the issue in the round. We cannot just say, “We need this” or “We need that,” and expect it to add up. If the financial sector gets scared, and much suggests that it is, it will look to invest in other places. If insurance companies say, “We are not going to insure these facilities because there is such an economic risk to us,” we are in trouble. If pension funds flee from the sector, we are in trouble. Our financial sector is incredibly important in this area, and those in it are saying loud and clear, “Governments are behind us, and we need them to catch up.” This tiny phrase, “Maximum economic recovery”, and what it asks for, could lead to the cliff edge that we have all been saying that we do not want. That is why this is so important.