Energy Bill [HL]

Lord Callanan Excerpts

Committee stage
Wednesday 7th September 2022 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank the noble Lord, Lord Teverson, for his kind invitation to address noble Lords on this subject, and I thank others who have contributed to the debate.

Let me start with Amendment 40, tabled by the formidable Scottish duo of the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes. He is sadly not with us today, which is a shame: he always adds to the jollity of the proceedings, but I am sure he will be back with us soon. This amendment seeks to ensure that the conferral of functions on persons by revenue support regulations is appropriately delegated.

Clause 57 sets out the Secretary of State’s power to make provision in regulations about revenue support contracts, including the funding of liabilities and costs in relation to such contracts. These are referred to as, as has been said, as the revenue support regulations. Clause 57(7) states that

“revenue support regulations may confer any function on any person.”

This is intended to enable persons other than a revenue support counterparty, allocation body or a hydrogen levy administrator to take on a role in the delivery of revenue support contracts and related funding. As with revenue support regulations, such functions would be limited to those about revenue support contracts, including the funding of liabilities and costs in relation to such contracts.

Let me make it clear to the House that Clause 57(7) absolutely does not provide the Secretary of State with a general power to confer any function on any person, outside of the scope of revenue support regulations. It is also worth noting that the selection by the Government of any person to undertake such functions would be subject to principles of public decision-making. The Government are, of course, duty bound to take only relevant considerations into account when making a decision.

I move on to Amendments 42, 44 and 64, from the noble Lord, Lord Lennie, and the noble Baroness, Baroness Blake, and spoken to by the noble Lord, Lord Teverson. These amendments seek to ensure propriety when conducting the designation exercise and when transferring any relevant property, rights and liabilities. Of course, it goes without saying that I too support ensuring the upmost standards for those wishing to fulfil the role of hydrogen production counter- party.

The Government anticipate that the Low Carbon Contracts Company Ltd, or LCCC, which is the existing counterparty for contracts for difference and the planned counterparty for the dispatchable power agreement, will in fact be the counterparty for the low-carbon hydrogen agreement, subject of course to successful completion of administrative and legislative arrangements. That is also the case for the industrial carbon capture contracts. In taking the decision to proceed with the LCCC as the counterparty to the low-carbon hydrogen agreement, the Secretary of State considered, among other things, its ability to deliver the required functions and experience and track record in contract management. These considerations would of course be made on any future decisions, which would also be subject, as I have said, to the normal principles of public decision-making.

It is worth pointing out—I suppose that this is the Government declaring an interest—that the LCCC is wholly owned by the Secretary of State for BEIS and is governed by its articles of association and a framework document setting out the relationship with the Secretary of State and its guiding principle.

The justification of the noble Lord and the noble Baroness for the inclusion of “fit and proper” was its apparent precedent in what was the National Security and Investment Bill, yet this phrasing does not in fact appear in the Act as made. Therefore, with the reassurances and information that I have been able to provide to noble Lords, I hope that the noble Baroness will feel able to withdraw her amendment.

[Baroness Liddell of Coatdyke (Lab)]

Given that explanation, I am prepared to withdraw the amendment.

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

We come to Amendment 41. Lord Callanan?

[Lord Callanan (Con)]

Moved formally. No! I will speak to it.

[Baroness Bloomfield of Hinton Waldrist (Con)]

That was my fault.

[Lord Callanan (Con)]

You just can’t get the Whips to support you properly nowadays, can you?

[Baroness Bloomfield of Hinton Waldrist (Con)]

Thanks.

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[Lord Callanan (Con)]

I am only joking. My noble friend is brilliant at the job.

Amendment 41

Moved by

[Lord Callanan]

41: Clause 57, page 52, line 21, at end insert “or (Enforcement).”
Member's explanatory statement
This amendment provides for regulations under new clause (Enforcement) to be subject to the affirmative procedure.

[Lord Callanan (Con)]

I will speak to government Amendments 41 and 63 standing in my name. Amendment 63 will enable the Gas and Electricity Markets Authority and the Northern Ireland Authority for Utility Regulation to enforce hydrogen levy requirements imposed on relevant Great Britain and Northern Ireland market participants respectively.

The existing enforcement provisions in the Bill enable regulations to make provision for the levy administrator to, for example, issue notices and charge interest on late payments in respect of market participants who default on levy payments. Amendment 63 complements the existing enforcement provisions. Crucially, it ensures that regulations can make provisions for more robust forms of enforcement and enables enforcement under the terms of the licences held by market participants obliged to pay the levy, such as the possibility of licence revocation. It is critical that the levy is supported by a suite of enforcement measures. This will help reduce the risk of defaults on levy payments and help ensure that the levy administrator can collect the money required to fund the hydrogen business model and cover related costs.

Amendment 41 ensures that regulations made under this new clause will be subject to the affirmative resolution procedure, to ensure sufficient parliamentary scrutiny of these more robust enforcement arrangements. Therefore, I hope they will be acceptable to the House. I beg to move.

[Lord Lennie (Lab)]

My Lords, these government amendments are evidence of the rather chaotic state of the Bill as it has come to us. It is long—300-plus pages, 13 parts, et cetera—and missing this from the original drafting is an oversight by the Government that needs some explanation. Having said that, the amendments allow for an enforcement provision under the new regulations and for these to be subject to the affirmative procedure. We welcome that scrutiny and the ability to enforce regulations that are made. These amendments will also allow revenue support regulators to make provision for the relevant requirements found in the pre-existing enforcement regimes win the Gas Act 1986 and the Electricity Act 1989, as well as, as the Minister said, regulations regarding Northern Ireland. I would be interested to know when the existence of these pre-existing requirements was discovered. I look forward to his response.

[Lord Callanan (Con)]

The noble Lord is correct that a lot of drafting work went in. There is always limited OPC drafting time in government. It is regrettable that these clauses have had to be added, but I hope that I have provided sufficient explanation for them. The detailed levy design is pending, of course, but they include the enforcement arrangements for the levy. It is crucial that we allow for regulations to make provision for a range of enforcement measures. This provision simply allows regulations to enable the Gas and Electricity Markets Authority and the utility regulator to use their existing enforcement powers to ensure that relevant market participants comply with the obligation to pay the levy. Participants in the energy market are already very familiar with these arrangements.

Amendment 41 agreed.

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[Lord West of Spithead (Lab)]

My Lords, I support the amendment in the name of the noble Lord, Lord Moylan, which relates to resilience. We are very bad at spending money on resilience. The Treasury hates to spend money on resilience, as I know from my time as a Minister.

[Lord Callanan (Con)]

It hates to spend money full stop.

[Lord West of Spithead (Lab)]

Well, yes, it hates to spend money full stop, but especially on resilience. Whether it is the loss of our GPS system and how we would counter that or PNT, there is a whole raft of areas where it is really unwilling to move and spend money even though these things are crucial. In this case, it is extremely important that we have the ability to store gas as we move into the future. I agree totally with the noble Lord, Lord Moylan, that the amount we have to store may vary quite dramatically.

Earlier, the Minister spoke about how we have infrastructure built to bring LNG into this country. We certainly do—I was heavily involved in ensuring that we got the right ships from the North Dome in Qatar to Milford Haven and setting up the infrastructure there. It was meant to provide 15% to 30% of our LNG. That was fine when people were not outbidding us for that LNG. That is the problem now; we cannot guarantee that that LNG will come to us, so we need some form of resilience. I believe that resilience should be our having some gas storage capability.

I have to get a naval thing in. It is interesting that, between the two wars, we forced the Treasury to ensure that our then 850-ship Navy—it is a bit smaller now—had sufficient fuel stored in this country to fight at war rates for six months. Someone in government had calculated it. We have to have a calculation; 25% might be wrong, but there is a requirement for some storage. We need to think very hard and the Government need to come up with a view from their experts on how much that should be. It may dwindle in time, but we certainly need it in the near term as quickly as possible. I very strongly support Amendment 225.

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[Lord Lennie (Lab)]

My Lords, the amendments from the noble Lord, Lord Oates, are very welcome and they plug a gap in the Energy Bill. Amendment 50 facilitates the changes proposed by allowing the Secretary of State to

“designate the person to be a counterparty for long duration energy storage revenue support contracts.”

Amendment 51 introduces a new clause which allows the Secretary of State to

“direct a long duration energy storage counterparty to offer to contract with an eligible person”.

Clauses 59, 61 and 63 already allow designation of counterparties for transport and storage, hydrogen production and carbon capture revenue support contracts, and Amendment 50 simply replicates this for long duration energy storage. Similarly, Clauses 60, 62 and 64 already allow the Secretary of State to direct counterparties to offer to contract, and Amendment 51 replicates this for long duration energy storage.

The amendments define long-duration energy storage revenue support contracts as being

“between a long duration energy storage counterparty and the holder of a licence under section 7”

and, as ones

“entered into by a long duration energy storage counterparty in pursuance of a direction given to it under section 60(1).”

This fills a big gap for long-duration energy storage. According to the Government, longer-duration storage—access across days, weeks and months—could help to reduce the cost of meeting net zero by storing excess low-carbon generation for longer periods of time, thereby helping to manage variation in generation, such as extended periods of low wind. This in turn could reduce the amount of fossil-fuel and low-carbon generation that would otherwise be needed to optimise the energy output from renewables.

Long-duration energy storage includes pumped storage as well as a range of innovative new technologies that can store electricity for four hours to supply firm, flexible and fast energy that is valuable for managing high-renewables systems. Introducing long-duration energy storage in large quantities in Britain by 2035 can reduce carbon emissions by 10 megatonnes of CO₂ per annum, reduce systems costs by £1.13 billion per annum and reduce reliance on gas by 50 TWh per annum. That seems to me worth consideration in this Bill.

Amendment 225 in the name of the noble Lord, Lord Moylan, which has general support around the House, requires the Government to produce a strategy for the storage of gas for domestic consumption. This would see the construction and operation of gas storage facilities capable of holding 25%, although it could be more—it could be 100%—of forecast domestic consumption each year beyond 2025. While agreeing that UK gas storage is currently small, which may have left us exposed to higher prices and shortages thus far, is it the solution to the long-term energy supply problems that we may face? It may well be that we need an immediate expansion of gas, but whether it is the long-term solution to our energy supply is open to some question. The UK currently stores enough gas to meet demand over four or five winter days, which is clearly not enough. But the new Chancellor said, when he was the Business Secretary, that the answer to mitigating a quadrupling of the gas price in four months was to get more diverse sources of supply, and more diverse sources of electricity, through non-carbon sources. So there is some doubt about the long-term viability of increasing gas storage.

Amendment 240 from the noble Lord, Lord Foster, would establish a new clause to store energy generated by solar panels in the list of energy-saving materials that are subject to zero-rate VAT. He had the example of his friend in the south-west. Modelling from Cornwall Insight’s view of the GB power market out to 2030 has shown that between 2025 and 2030 the Government must spend almost one-fifth of their total energy technologies investment, which includes solar, wind, nuclear and carbon capture and storage, on energy storage batteries, if we are to meet renewable targets and stabilise the energy market. Latest data estimates that almost 10% of grid capacity will be provided by battery storage by 2030, at an estimated cost of £20 billion. So, considering both the need and the cost of this, the amendment seems a sensible proposal to encourage the market to take up some of the burden.

[Lord Callanan (Con)]

I thank all noble Lords for participating in what has been a fascinating debate on an important subject, very much building on the discussion that we had earlier this afternoon. I shall come on to the issue of gas storage—a popular topic of the day—a bit later.

I start with Amendments 50 and 51, tabled by the noble Lord, Lord Oates. Long-duration energy storage covers a wide range of technologies, and the Government are looking at the need for revenue support for these separately, as they all face different challenges and solve different problems. While I commend the noble Lord’s intentions, I put it to him that these amendments are premature at this stage.

In the case of electricity storage, I reassure the noble Lord that we are committed to developing policy enabling investment for large-scale, long-duration electricity storage by 2024, as we have set out in our response to the call for evidence. As noted by the noble Lord, Lord Oates, we recognise that these technologies face significant barriers to deployment under the current market framework, due to their long build times, the high upfront costs, and the lack of forecastable revenue streams. Similarly, in the case of hydrogen storage, the 2021 UK hydrogen strategy set out our ambitions in this area.

More recently, and in recognition of the important role that hydrogen storage is expected to play in the hydrogen economy, we committed in the 2022 British energy security strategy to design hydrogen transport and storage business models by 2025. Indeed, we published a consultation on these matters in August. It is my contention that adding these clauses to the Bill now would prejudge the outcomes of the policy development which, as I hope noble Lords recognise, is already well under way.

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[Lord Teverson (LD)]

That is moving back from what I understood. I understood there had been an agreement, or is it just that the facility has been licensed? Is that how far it has got, and so a commercial agreement has still to be made? Is that where we are?

[Lord Callanan (Con)]

As I said at OQs this afternoon, licences have been granted by Ofgem, by the regulatory bodies, because the safety and security of the facility is important. Centrica has taken a commercial decision to open part of the storage facility for this winter, and it has submitted other plans for our consideration, which we are doing. I apologise to the noble Lord, but I can go no further than that at the moment. As soon I have further information, and we expect progress in the near future, I will inform the noble Lord and the rest of the Committee.

[Lord Teverson (LD)]

I thank the Minister for that information, but it sounds to me like Centrica is conducting a very hard negotiation with the Government, maybe at the security expense of the country—I do not know.

[Lord Callanan (Con)]

I will leave that as a comment; there is nothing I can reply to on it. When I have further information, I will update the Committee.

The commitment proposed by my noble friend Lord Moylan to have in storage gas equivalent to 25% of forecast domestic consumption by 2025 is extremely ambitious. It is also horrendously expensive to do and, I submit to the Committee, unnecessary. The Government fully recognise the importance of gas storage, as I said, and officials continue to work on the future role that it can play in the clean energy landscape, particularly as gas production, as a number of noble Lords have said, can start to decline. But, of course, the fact that we get 45% of our production from our own continental shelf is, in effect, a giant gas storage facility and that is why we have traditionally had much less than continental countries which do not have those advantages. There is an integrated market—that is correct—and both sides benefit from it. As I said, the interconnectors over this year have been operating massively in the direction of the rest of continental Europe from the UK.

I think I have answered all the questions that were raised about gas storage facilities.

[Baroness McIntosh of Pickering (Con)]

I am sure it is on the departmental website, but do we know how much gas is supplied by interconnectors from Norway, and how much is supplied by tankers from Dubai and other countries in the overall scheme of things?

[Lord Callanan (Con)]

When my noble friend says “tankers”, I take it she means LNG tankers. I forget the exact figure, but we get 45% from our own domestic capacity and about 3% to 4% through interconnectors, so I guess the rest will be made up from LNG shipments. We have three LNG gasification terminals in the UK. Those figures are off the top of my head; I will correct them if they are not right.

Turning to the amendment in the name of the noble Lord, Lord Foster, I am sure he expects the reply that he is going to get. As he will be well aware, changes to tax policy are considered as part of the Budget process. As Treasury officials are always very keen to tell me whenever I put forward such proposals, they have lots of proposals from people for exemptions from various taxes but not many proposals for how to make up the revenue that would be lost from them. I am sure that the Chancellor will want to take that fully into consideration in the context of the Government’s wider fiscal position. I fully take on board the points that the noble Lord made. The Government keep all taxes under review and always, the Treasury tells me, welcome representations to help inform future decisions on tax policy.

[Baroness Worthington (CB)]

In case there are any Treasury officials listening or, indeed, reading Hansard, I suggest that one form of new tax would be on the trading of fossil fuel commodities. This is a huge source of revenue to the suppliers of fossil fuels into the market, and the commodity trading markets is a very good place to look for taxation revenue.

[Lord Callanan (Con)]

I thank the noble Baroness for her suggestion. The Treasury is not normally shy in coming forward with proposals for extra taxes if it thinks it can get away with it. Of course, we have already imposed the excess profits levy on a number of producers in the UK; indeed, those producers already pay increased rates of corporation tax. We must be careful that we do not disincentivise investment. Putting aside the wider politics of it, which we all understand, I am sure that everybody is aware that we need tens of billions of pounds of investment into existing oil and gas facilities. I welcome the support of the noble Lord, Lord Teverson, for the continued production of UK gas; it is an important transition fuel and I hope he will manage to convince some of his Liberal Democrat colleagues to support us in this. We do need gas in the short term, but many of those same companies are investing many billions of pounds also in offshore wind and other renewable energy infrastructure, so we want to be careful not to disincentive them too much from that. I am sure the Treasury will want to take into account all these helpful considerations as to how it can increase its tax base.

In conclusion, I am grateful to noble Lords for their amendments on these topics. I hope I have been able to provide at least some reassurance to some people on their amendments and that they will therefore feel able not to press them.

[Lord Oates (LD)]

I thank the Minister for his reply. On the tax treatment of batteries for solar power, I heard the Prime Minister at Prime Minister’s Questions today say on a number of occasions, “What I am about is cutting tax”, so perhaps he could suggest to her that this is one of the first tax cuts she could make.

On long-duration storage, the Minister made the point that there is a wide range of technologies, some of which are innovative, and the Government need to consider them. As I said in moving my amendment, that is acknowledged, but there are some that are not innovative: they are proven and effective and we need to get on with them. I hope the Minister can find a way of addressing this, because we will come back to it. The Government need to find a way, whether it is through specific pathfinder pilots or whatever it is, to get on with some of the things that need to happen now. The Minister said that it was premature at this stage to come forward with this stuff. If he talked to the project managers of Coire Glas, I think they would tell him it is not premature at all; in fact, it is desperately needed. They have a project ready to go, but they have no revenue model. We know we need it, the Government acknowledge in their consultation on long-duration storage that we need to massively ramp this up, so we really need to get on with it. I am afraid the Minister did not really address that.

I have one final question for the Minister. He said we will have the solution “by 2024”. Can he confirm that that means we will have the revenue models by 1 January 2024? There is a big difference between “by 2024” and during 2024. The industry is very worried that, when it has pressed the department on this, it has been given no assurance that it actually means “by 2024” and that it could be by the end of 2024. Can the Minister clarify that, in writing perhaps, to me and other Members of the Committee? These are critical things. We just have to get on with doing the things that we know how to do. There are lots of things that we do not know how to do. I beg leave to withdraw my amendment.

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[Lord Teverson (LD)]

My Lords, I think we are all trying to achieve the same thing here. As the noble Baroness, Lady Blake, said, maybe we need to take this forward as a way to do it. The cost to consumers is absolutely central at the moment, and this is not a short-term thing—it is at least medium term. Later we will come to an amendment which says we should repeal the Nuclear Energy (Financing) Act, which was all about raising costs to consumers in the short term and has nothing to do with nuclear power otherwise.

In my amendment, I am trying to do something very similar to what has already been debated: if we are going to accept this levy—we know levies are always very contentious when implemented in terms of who has to pay for them and who gets the benefits from them, which leads to a lot of argument—it is quite clear that for hydrogen there is only a very limited sector of organisations, people and population who will actually benefit from it. In its own way, my amendment seeks to prevent other consumers who are not benefiting from hydrogen having to pay for that investment.

It is very much in line with other Members’ amendments and it is absolutely fundamental to the messages that we as a Parliament, and the Government, are putting out at the moment to consumers and company users of energy. Let us make sure that, if we have this levy, it is kept to those who benefit from hydrogen rather than those outside who do not.

[Lord Callanan (Con)]

I thank the noble Lords, Lord Lennie and Lord Teverson, and the noble Baronesses, Lady Worthington and Lady Blake, for their amendments relating to the hydrogen levy provision. Before turning to the amendments, let me make the general point that these provisions in the Energy Bill will not, as all noble Lords are aware, immediately introduce this levy; they will only enable government to introduce the levy later through secondary legislation.

I will start with Amendments 52, 54 and 62 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. Amendments 52 and 54 seek to limit the energy market participants that could be obliged to pay any future hydrogen levy to gas shippers only. The Government intend that the levy would initially be placed on energy suppliers, and it will operate in a similar way to the existing levy schemes, where revenue support is funded through energy supplier obligations, such as the supplier obligation that funds the current contracts for difference regime. That is because these funding mechanisms are well understood by the private sector and have been extremely successful. The Government consider that establishing a similar levy would provide investors and developers with confidence to invest in low-carbon hydrogen production projects.

The option to levy gas shippers has been included with the intention to allow for a greater range of options for future levy design. The Government anticipate that the costs of any future levy on gas shippers would be passed through the energy supply chain and ultimately on to energy users, in a similar way to existing supplier obligations. It is unlikely therefore that these amendments would have the effect of preventing costs associated with the levy being passed on to households.

I turn to Amendment 62, which seeks to guarantee the return of overpayments of the levy to energy customers. The Government’s intention, and our expectation, would be that, in the event of overpayment by relevant market participants, those sums would be returned to market participants, who in turn should then pass them on to their customers.

Amendment 53, tabled by the noble Lord, Lord Teverson, seeks to ensure than an obligation to pay a hydrogen levy would, where possible, be placed only on those who would directly benefit from the low-carbon hydrogen production funded by the levy. Low-carbon hydrogen could support decarbonisation across the economy, which could benefit gas and electricity customers generally.

The powers that we have in the Bill provide options for where a hydrogen levy might be placed in the energy value chain, enabling future regulations to make provisions requiring one or more descriptions of gas suppliers, electricity suppliers and/or gas shippers to pay the levy. The Government have not yet reached a decision regarding which types of market participants will be obliged to pay the levy. That decision will be taken in due course and will no doubt be discussed in our Lordships’ House during the course of the secondary legislation that would be required to implement it. The decision will take into account a wide range of considerations, including but not limited to considerations related to fairness, which I know are the focus of the amendments tabled by the noble Lords. Given the Government’s approach to policy development on this levy, I hope that noble Lords recognise the amendment is unnecessary.

I turn to Amendments 55, 56 and 57, tabled by the noble Baroness, Lady Worthington. Amendment 55 seeks to ensure that an obligation to pay a hydrogen levy administrator could not be placed on electricity suppliers. I would contend that it is crucial that the provisions in the Bill allow for a range of options for where the levy might be placed to help enable the Government to future-proof the levy over the longer term and accommodate changes to the wider energy market.

As I alluded to earlier, we expect low-carbon hydrogen to play an important role in decarbonising the electricity sector. This provides support to the case for including electricity suppliers as a possible point of obligation for the levy. I understand the concern expressed by the noble Baroness and, if she will allow me, I will take this away and possibly revisit it at Report, but I hope she will not press her amendment.

[Baroness Worthington (CB)]

I am grateful for the Minister’s response. I have no doubt that hydrogen will have a role to play, but it is more likely to go into fertiliser production or long-distance fuels for shipping and aviation. The provisions being taken here do not allow for it to be applied to the sectors that consume fossil fuels—gas obviously covers fertilised gas. This needs to be thought through in relation to where hydrogen will most likely be needed. It will play a tiny role in decarbonising electricity, if at all, because there are so many other ways of doing it more cheaply and more efficiently.

[Lord Callanan (Con)]

I understand the point made by the noble Baroness. I have also seen the models of where it is most likely that hydrogen would be used, and I have considerable sympathy for many of the points that she made. As to the where it will be used, it will clearly be in industrial processes and heavy-goods transportation. These would be more likely uses than home heating or decarbonisation, but it would possibly play a role. Nevertheless, as I said, I have taken note of what has been said in the Committee and understand the points that have been made. If the noble Baroness allows me, I will take them away to look at, and possibly revisit them at Report.

Amendment 56 seeks to impose restrictions on when the hydrogen levy can be introduced to fund the hydrogen business model. This will help to unlock potentially billions of pounds worth of investment in hydrogen that we need across the UK. The Government are committed to ensuring that long-term funding is provided through the hydrogen business model, and the provisions in the Bill do not require the Government to introduce the levy by a particular date. We do not expect the levy to be introduced any time before 2025, and so we do not expect it to have any impact on consumer bills before then, at the earliest. Decisions regarding when to introduce the levy will take into account wider government policies and priorities, including considerations related to energy bill affordability, which is always at the forefront of our considerations.

The first set of regulations under Clause 66, establishing the levy, will also be subject to the affirmative resolution procedure, so we would fully expect Parliament to exercise its role, and particularly your Lordships’ House to scrutinise how the Government intend to exercise those powers.

Amendment 56 would, in my view, introduce restrictions that are unnecessary, given the Government’s approach to decisions related to when to introduce the levy and the parliamentary scrutiny requirements that would be associated with any relevant secondary legislation.

Amendment 57 seeks to protect consumers by introducing a requirement for the Secretary of State to publish a specific consumer impact report before making regulations under Clause 66, establishing a hydrogen levy. As I mentioned, the parliamentary procedure for the first set of regulations that establish the levy will help ensure that the levy receives sufficient scrutiny from Parliament. Crucially, I can tell the Committee that it is already the Government’s intention to publish an impact assessment alongside the draft regulations made under Clause 66. I hope noble Lords will recognise that the amendment is unnecessary and feel able to not press their amendments.

[Baroness Blake of Leeds (Lab)]

I thank the noble Lord for his comments and welcome, as we all do, the commitment to revisit one of the amendments from the noble Baroness, Lady Worthington. We look forward with interest to that. However, on some of the other aspects, there will be conversations between now and Report, and I am fairly confident that we will come back to discuss what is, in our view, a really important area. With those comments, I beg leave to withdraw the amendment.

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Moved by

[Lord Callanan]

63: After Clause 77, insert the following new Clause—
“Enforcement
Enforcement(1) Revenue support regulations may make provision—(a) for requirements imposed under the regulations on—(i) a gas supplier who holds a licence under section 7A(1) of the Gas Act 1986, or(ii) a person who holds a licence under section 7A(2) of that Act (gas shipper),to be enforceable by the Gas and Electricity Markets Authority as if they were relevant requirements within the meaning of sections 28 to 30O of that Act;(b) for requirements imposed under the regulations on an electricity supplier who holds a licence under section 6(1)(d) of the Electricity Act 1989 to be enforceable by the Gas and Electricity Markets Authority as if they were relevant requirements within the meaning of Part 1 of that Act;(c) for requirements imposed under the regulations on—(i) an electricity supplier who holds a licence under Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I. 1)), or(ii) a gas supplier who holds a licence under Article 8(1)(c) of the Gas (Northern Ireland) Order 1996 (S.I. 1996/275 (N.I. 2)),to be enforceable by the Northern Ireland Authority for Utility Regulation as if they were relevant requirements within the meaning of Part 6 of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6)).(2) References in subsection (1) to enforcement include enforcement under the terms of a licence mentioned in any of paragraphs (a) to (c) of that subsection.”Member's explanatory statement
This amendment enables revenue support regulations to make provision about the enforcement of requirements imposed by the regulations.

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Moved by

[Lord Callanan]

65: After Clause 81, insert the following new Clause—
Modifications of licences etc
(1) The Secretary of State may modify—
(a) a condition of a particular licence under section 6(1)(b) of the Electricity Act 1989 (transmission licences);
(b) the standard conditions incorporated in licences under section 6(1)(b) of the Electricity Act 1989 by virtue of section 8A of that Act;
(c) a document maintained in accordance with the conditions of licences under section 6(1)(b) of the Electricity Act 1989, or an agreement that gives effect to a document so maintained.
(2) The Secretary of State may modify—
(a) a condition of a particular licence under section 7 of the Gas Act 1986 (licensing of gas transporters);
(b) the standard conditions incorporated in licences under section 7 of the Gas Act 1986 by virtue of section 8 of that Act;
(c) a document maintained in accordance with the conditions of licences under section 7 of the Gas Act 1986, or an agreement that gives effect to a document so maintained.
(3) The Secretary of State may modify—
(a) a condition of a particular licence under Article 10(1)(b), (bb) or (d) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I. 1)) (transmission, distribution or SEM operator licences);
(b) the standard conditions of licences under Article 10(1)(b), (bb) or (d) of that Order;
(c) a document maintained in accordance with the conditions of licences under Article 10(1)(b), (bb) or (d) of that Order, or an agreement that gives effect to a document so maintained.
(4) The Secretary of State may modify—
(a) a condition of a particular licence under Article 8(1)(a) of the Gas (Northern Ireland) Order 1996 (S.I. 1996/275 (N.I. 2)) (licences to convey gas);
(b) the standard conditions of licences under Article 8(1)(a) of that Order;
(c) a document maintained in accordance with the conditions of licences under Article 8(1)(a) of that Order, or an agreement that gives effect to a document so maintained.
(5) The powers conferred by subsections (1) to (4) may be exercised only for the purpose of facilitating or supporting enforcement of, and administration in connection with, obligations under regulations within section 66 (including facilitation and support by way of allowing or requiring the provision of services).
(6) Provision included in a licence, or in a document or agreement relating to licences, by virtue of any power under subsections (1) to (4) may in particular include provision of a kind that may be included in revenue support regulations.
(7) If under subsection (1) or (2) the Secretary of State makes modifications of the standard conditions of a licence, the GEMA must—
(a) make the same modification of those standard conditions for the purposes of their incorporation in licences of that type granted after that time, and
(b) publish the modification.
(8) If under subsection (3) or (4) the Secretary of State makes modifications of the standard conditions of a licence, the Northern Ireland Authority for Utility Regulation must—
(a) make the same modification of those standard conditions for the purposes of their incorporation in licences of that type granted after that time, and
(b) publish the modification.
(9) Before making a modification under this section, the Secretary of State must consult—
(a) the holder of any licence being modified, and
(b) such other persons as the Secretary of State considers it appropriate to consult.
(10) Subsection (9) may be satisfied by consultation before, as well as by consultation after, the passing of this Act.
Member’s explanatory statement
This new clause and new clause (Section (Modifications of licences etc): supplementary) confer power to modify certain licence conditions, industry codes etc for purposes related to the enforcement of the hydrogen levy.

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[Lord Callanan (Con)]

My Lords, in moving Amendment 65 I shall speak also to Amendments 66, 147, 149 and 190 standing in my name. These amendments will allow the Secretary of State to modify the licences of certain gas and electricity market participants in Great Britain and Northern Ireland. They will also allow the Secretary of State to modify documents maintained in accordance with these licences, such as industry codes, or agreements that give effect to such documents. The Secretary of State will be able to make such modifications only for the purpose of facilitating or supporting enforcement of, and administration in connection with, hydrogen levy obligations.

As I have said, decisions on the detailed design of the levy are pending. However, it is likely that persons other than the levy administrator will need to perform functions, provide services, and/or provide information and advice that support and facilitate the administration and enforcement of the levy. This power is required in order that the Secretary of State can modify relevant licences and codes to support and facilitate the administration and enforcement of the levy. In particular, it is required so that the Secretary of State may make modifications to support or facilitate persons who are parties to relevant industry codes to take on roles related to the levy’s administration and enforcement.

I can tell the Committee that there is precedent for this type of provision, with similar powers contained in the Energy Act 2013 and the recent Nuclear Energy (Financing) Act 2022. Provisions in the Energy Act 2013 were used to make licence and code modifications in relation to the contracts for difference regime. This power will help future-proof the levy, enabling the Secretary of State to implement licence or code modifications in order to accommodate any future changes to the levy design.

I can reassure your Lordships that these amendments of course include a requirement for the Secretary of State to consult the holder of any licence being modified and such other persons as the Secretary of State considers it appropriate to consult before making any modification. This will help ensure that relevant bodies are engaged in any potential modifications.

In addition, before making modifications under this power, the Secretary of State must lay a draft of the modifications before Parliament, where they will be subject to a procedure analogous to the draft negative resolution procedure used for statutory instruments. This also allows for additional scrutiny for any proposed modifications under this power. I beg to move.

[Baroness Blake of Leeds (Lab)]

Briefly, I thank the Minister for that explanation. I am sure, looking back at comments made earlier this afternoon, that the team opposite cannot be happy with the number of government amendments that are coming through on the Bill at this stage—I hope that will be taken up on a serious note on this and other Bills that have come forward.

The only slight question I have is that we talk about consultation as though everyone understands exactly how it happens and everyone is happy with the way it is done. Is it possible to be slightly more specific about who else might be consulted apart from the owner of the licence? I would also like some reassurance around the openness and transparency of a process to make sure that all parties are aware of any changes made in the future.

[Lord Callanan (Con)]

I am happy to reassure the noble Baroness that the relevant consultations will of course take place on any changes made.

Amendment 65 agreed.

Moved by

[Lord Callanan]

66: After Clause 81, insert the following new Clause—
“Section (Modifications of licences etc): supplementary(1) In this section “relevant power” means a power conferred by any of subsections (1) to (4) of section (Modifications of licences etc).(2) Before making modifications under a relevant power, the Secretary of State must lay a draft of the modifications before Parliament.(3) If, within the 40-day period, either House of Parliament resolves not to approve the draft, the Secretary of State may not take any further steps in relation to the proposed modifications.(4) If no such resolution is made within that period, the Secretary of State may make the modifications in the form of the draft.(5) Subsection (3) does not prevent a new draft of proposed modifications being laid before Parliament.(6) In this section “40-day period”, in relation to a draft of proposed modifications, means the period of 40 days beginning with the day on which the draft is laid before Parliament (or, if it is not laid before each House of Parliament on the same day, the later of the 2 days on which it is laid).(7) For the purposes of calculating the 40-day period, no account is to be taken of any period during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than 4 days.(8) A relevant power—(a) may be exercised generally, only in relation to specified cases or subject to exceptions (including provision for a case to be excepted only so long as specified conditions are satisfied);(b) may be exercised differently in different cases or circumstances;(c) includes a power to make incidental, supplementary, consequential or transitional modifications.(9) Provision included in a licence, or in a document or agreement relating to licences, by virtue of a relevant power—(a) may make different provision for different cases;(b) need not relate to the activities authorised by the licence.(10) The Secretary of State must publish details of any modifications made under a relevant power as soon as reasonably practicable after they are made.(11) A modification made under a relevant power of part of a standard condition of a licence does not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of Part 1 of the Gas Act 1986, Part 1 of the Electricity Act 1989, the Electricity (Northern Ireland) Order 1992 or the Gas (Northern Ireland) Order 1996. (12) The power conferred by a relevant power to “modify” (in relation to licence conditions or a document) includes a power to amend, add to or remove, and references to modifications are to be construed accordingly.(13) In section 81 of the Utilities Act 2000 (standard conditions of gas licences), in subsection (2), after “Smart Meters Act 2018” insert “or under section (Modifications of licences etc) or sections 193 to 195 of the Energy Act 2022”.(14) In section 137 of the Energy Act 2004 (new standard conditions for transmission licences), in subsection (3)—(a) omit the “or” after paragraph (f);(b) after paragraph (g) insert—“(h) under section (Modifications of licences etc) of the Energy Act 2022,”Member's explanatory statement
See the explanatory statement for new clause (Modifications of licences etc).

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[The Deputy Chairman of Committees (Baroness Pitkeathley) (Lab)]

We come to Amendment 67. Lord Callanan?

[Lord Callanan (Con)]

Moved formally.

[Baroness Bloomfield of Hinton Waldrist (Con)]

No.

[Lord Callanan (Con)]

I am one group ahead.

[The Lord Privy Seal (Lord True) (Con)]

Don’t worry, Martin—we’re counting it against you.

Amendment 67

Moved by

[Lord Callanan]

67: Clause 82, page 71, line 22, leave out subsection (1) and insert—
“(1) The Secretary of State may by regulations make provision for requiring relevant persons to provide security for the performance of obligations relating to the future abandonment or decommissioning of carbon dioxide-related sites, pipelines or installations.(1A) For the purposes of subsection (1) an installation, site or pipeline is “carbon dioxide-related” if it is, or is to be, used for a purpose related to the geological storage, or transportation, of carbon dioxide.(1B) In this section references to an installation, site or pipeline include one that is located in, under or over—(a) the territorial sea adjacent to the United Kingdom, or(b) waters in a Gas Importation and Storage Zone (within the meaning given by section 1 of the Energy Act 2008).”Member's explanatory statement
This amendment and the amendments in the name of Lord Callanan at page 71, line 34 and page 71, line 38 revise the scope of the power in subsection (1) so that it is defined in terms of the provision of security for the performance of certain obligations, rather than by reference to the provision of security in respect of specific kinds of costs.

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[Lord Callanan (Con)]

I apologise to the House for the delay. It is typical that I should do that when the new Leader has just arrived and when my possible reappointment is still under consideration.

Amendment 67 ensures that regulations requiring provision of security for decommissioning can capture obligations relating to “carbon dioxide related” installations, sites and pipelines. It also clarifies that the power extends to both onshore and offshore assets.

Amendment 69 expands the class of people who may be required to provide security in respect of their carbon capture usage and storage decommissioning obligations. This includes an economic licence holder under Clause 7, or someone to whom a notice has been, or may be, given for the preparation of an abandonment programme under the Petroleum Act 1998. Amendment 68 amends the label to “relevant person” so it is more consistent with this revised definition. Amendments 73, 77 and 85 are consequential to those amendments.

Amendment 70 introduces a broader definition of decommissioning costs. This is to ensure that the regulations requiring provision of security reflect the full range of decommissioning obligations. These obligations include such things as the decommissioning of infrastructure and the post-closure monitoring obligations as set out in the Government’s 2021 consultation. Amendments 71, 72, 74, 83 and 89 are consequential.

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[Lord Lennie (Lab)]

Okay, do not reappoint him. What can I say? I was going to set out a hypothetical situation about an oil and gas plant that had been decommissioned, but not fully, and was to be recommissioned and transferred to CCUS usage. I do not know whether that will never be possible, but who knows? It is a complicated situation and I wanted to know where the Minister thought responsibility would lie. However, I am pleased to say that he has pointed us towards the 1998 Act, the 2008 Act and some other Acts, so somewhere in there lies an answer. It would seem sensible to draw together whatever is the answer to the question and put it in the Bill, to update it. The Minister can come back on that and to the question of the noble Lord, Lord Teverson, about whether that will ever be the situation.

As for the other government amendments to the Bill, I have again to make the point that this Bill of 350-plus pages, three parts and however many clauses is surely sufficient to cover the energy circumstance. As I said in my introduction yesterday, the Bill is a mix of all sorts of things without a coherent theme. If it had a coherent theme, it might well have covered these matters in the first place, but that is really for then, not for now.

[Lord Callanan (Con)]

I thank noble Lords, and let me apologise to the Committee for the number of government amendments. They are quite technical, and the Bill is obviously very large. It was drafted at pace, and it was not possible with the resource we had available to get all the details finalised, which is why there are a number of technical amendments.

The answer to the question of the noble Lord, Lord Teverson, which is a very good one at first sight, is that, of course, when the storage facilities are full, the storage facilities themselves are not decommissioned. They are used, but all the storage infrastructure—pipework and all the associated engineering, platforms, injection facilities, et cetera—will need to be decommissioned. I am sure the Liberal Democrats fully support the “polluter pays” principle, whereby someone who has benefited from a facility should be made to bear the costs of decommissioning it, which is why we are setting up a fund to do that. I reassure him that we do not decommission the actual sites—as he said, it would be quite difficult to extract the carbon dioxide from them to put it somewhere else—but they require monitoring, and the associated infrastructure will need to be decommissioned, which is why the fund is being established.

Amendment 67 agreed.

Moved by

[Lord Callanan]

68: Clause 82, page 71, line 28, leave out “licence holder” and insert “person”
Member's explanatory statement
This amendment and the amendment in the name of Lord Callanan at page 71, line 29 enable regulations under clause 81(1) to apply to a person falling within paragraph (a) or (b) of subsection (3).

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Moved by

[Lord Callanan]

82: Clause 82, page 73, line 7, leave out “under or”
Member's explanatory statement
See the amendment in the name of Lord Callanan at page 72, line 42.

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Moved by

[Lord Callanan]

85: Clause 83, page 73, line 34, leave out “licence holders” and insert “persons”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 28.

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Moved by

[Lord Callanan]

87: Clause 83, page 74, line 29, leave out “licence holder” and insert “person”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 28.

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Moved by

[Lord Callanan]

89: Clause 84, page 75, line 25, leave out “and legacy”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 34.