Lord Jenkin of Roding
Main Page: Lord Jenkin of Roding (Conservative - Life peer)Infrastructure Bill [HL]
Lord Jenkin of Roding Excerpts
Lord Whitty (Lab)
My Lords, in moving Amendment 94 I will speak also to Amendment 94A. The first amendment is in my name and that of my noble friend Lord Judd while the second is solely in my name. Both deal, essentially, with the same issue. The first is a general statement of principle—that energy efficiency should be considered alongside other options for the delivery of infrastructure improvements and dealt with on the same basis. The second goes into rather more detail and sets various conditions, in that any proposals would have to meet carbon targets, contribute to the reduction of fuel poverty and be compatible with and considered alongside other investments in energy infrastructure. I do not mind which of these two amendments the noble Baroness accepts. I would be quite happy with either or both, or perhaps even a better one from her, but the essential point here is that energy efficiency is underregarded when we look at the programme for national infrastructure.
The Government have produced a lot of papers on infrastructure. The one in June 2013, which was not the first, has effectively nothing about energy efficiency. There is a brief obtuse reference at one point to the Green Investment Bank but nothing else. The National Infrastructure Plan itself, which came in December 2013, had a whole chunk on energy going through all the different aspects of energy, from the heat programme through to all the different bits of generation. It mentioned the strategy for fuel poverty; the noble Baroness answered a Question from the noble Lord, Lord Ezra, a few days ago, saying it was going to be published in spring 2014, so we are slipping on that. It waits until right to the very end of the provisions on energy before it mentions smart meter rollout, the only aspect of energy efficiency which is mentioned therein. There was then another document, a finance update for the infrastructure plan, which was delivered in March this year. Again, that did not mention energy efficiency.
It is important that investment in energy efficiency is seen alongside “big bucks” investment in generation and improvements in the energy system itself. Delivering energy efficiency improvements has the best return, pound for pound, of any investment in energy in terms of carbon saving, of cost saving to the consumer and of energy saved. A relatively recent Cambridge Econometrics study showed that very clearly. It also is more labour-intensive and therefore creates more skilled and semi-skilled jobs. It benefits the whole of the country rather than part of the country, as some of the infrastructure projects do on the transport side and some of the energy ones on the employment side. Hinkley Point will be great for west Somerset, and I very much approve of it being there, but it does not benefit employment much anywhere else in the country.
I mean a range of things by energy efficiency investment. My principal concern, as noble Lords will recall, has largely been on investment in the housing stock, both in terms of retrofit and of future build. However, that is only one part of it. There are other parts of investment in infrastructure and retrofitting investment that the Government have not touched at all, which relate to commercial buildings and to the use of energy more generally in our economy and on the industrial side.
The very latest document, which the Minister was kind enough to send us last Friday, Delivering UK Energy Investment, is a superb publication. It is possibly a bit glossy, given the history of DECC in this regard, but it has obviously decided that it has to present itself effectively. The last section of the document contains a lot of information on energy efficiency, although some of it is subject to some rather specious claims. In fact, it starts out by saying that, in terms of energy intensiveness, the UK is the “least energy intensive” of all G7 economies. That, however, reflects the structure of the economy and is not a like-for-like comparison, certainly as regards our housing stock, which is universally recognised as being one of the least efficient in Europe.
The energy system itself is subject to some outmoded forms of transmission and distribution which will require attention. That is, indeed, mentioned in the document, but only in the context of the electricity demand reduction dimension of the capacity mechanism, on which we had a lot of discussion during the passage of the Energy Bill. I think Members on this side of the Committee, and many other noble Lords, find this somewhat lacking in precision as yet, but we should be grateful that it is there. However, the broader concept of energy efficiency is referred to in relation to smart meters, investment under the Green Deal and money spent under the ECO. In my opinion it gives a slightly exaggerated view of how effective that is going to be. I am in favour of the ECO. However, the provisions introduced by the Government in the last few months in response to the Prime Minister’s attack on “green crap”, which was presumably an organic predecessor of the “green blob”, means that we now have the ECO spread out over a much longer time period. It is therefore less rapid and less of an investment than was the case as it was originally conceived. Meanwhile, of course, a lot of the predecessor schemes have disappeared. Although the Government are putting some money into that provision, it is relatively low level.
Although these things are going on, they are not considered in the same light as the investment in large-scale generation, the whole of ERM or, indeed, the capacity mechanism, and they are not assessed on the same basis. As I said at the beginning of my remarks, the return on energy efficiency measures, as analysed by countless economists, is much greater than the return on generation investment, whatever the form of generation we are talking about—offshore wind, nuclear, or, indeed, gas or coal—and in carbon- saving terms it is also greater. It seems to me therefore that there is a gap in our approach to national infrastructure on the energy side, although some of this applies also to the transport side because improvements in transport energy efficiency ought to be considered in the same light. If we are looking at how public and private money is spent and directed on infrastructure, investment in energy efficiency should be considered on the same basis, at the same time, with the same degree of urgency and with the same degree of government backing. That is not the case at the moment. These amendments are directed at ensuring that the widest aspects of energy efficiency are reflected in that strategy—a strategy to which the Government rightly give priority in terms of public spending on a public policy, but also one which will directly benefit the consumer and businesses operating within the UK. It will also benefit them early whereas many other investments will take five or 10 years to pay off in terms of energy supply. Therefore it will improve the economics of British industry and business in general.
So the arguments for energy efficiency in all its forms being up there as part of the infrastructure programme are pretty irrefutable. I am not saying that the Government have done nothing on this front but the failure to consider energy efficiency in the same light has meant that such programmes are regarded as lower priority and less exciting, and they are not given the same degree of importance. My amendments attempt to begin to change that. The next version of the National Infrastructure Plan, due at the end of this year or the beginning or next, should reflect this very explicitly with a whole section on energy efficiency rather that it being regulated and only partially covered in the documents. I believe that DECC recognises this but it needs wider recognition across government as a whole so that we are not dependent solely on a glossy DECC publication—welcome though that is. Right in the heart of Treasury thinking on industrial policy, energy efficiency should be up there and treated in the same way as the other infrastructure priorities. I beg to move.
Lord Jenkin of Roding (Con)
My Lords, this is an important amendment. I was glad that the noble Lord, Lord Whitty, gave the Government credit for what has been done. A good deal has been done. I am sure that the noble Lord will have studied, as I have, the paper produced last month on the Energy Savings Opportunities Scheme. It now has its own acronym—ESOS. One can read quite a lot about ESOS.
I was very encouraged the other day by reading of a meeting attended by my noble friend Lord Deighton, the Commercial Secretary to the Treasury. To quote from a press release, my noble friend,
“today said he is ‘extremely attracted’ to the idea of reframing home energy efficiency as one of the UK’s top 40 infrastructure priorities”.
The noble Lord, Lord Whitty, may well be pushing at an open door. My noble friend has very considerable influence on these matters and comes to this House and his job with a very great reputation for what he succeeded in doing in the case of the Olympic Games. As most noble Lords will recognise, he is a figure to be regarded with considerable respect not only in this House but outside it, too.
My noble friend was asked by the Green Building Council chief executive, Paul King,
“whether the Government needed to change the mindset on home retrofit from thinking about 26 million small problems to one major infrastructure opportunity. Lord Deighton said he was ‘seduced’ by the idea of reframing the debate on energy efficiency and that ‘Government should lead’ on the agenda”.
Coming from that source, I hope my noble friend on the Front Bench will sing from the same hymn sheet. It is perfectly clear—as the noble Lord, Lord Whitty, eloquently put it—that this policy has no down side and very considerable upside attractions if one can reach the point where one needs to invest less in production because one is saving more and using energy a great deal more efficiently. That seems to be highly desirable.
It is very interesting that an organisation called the Energy Bill Revolution, which sent me a brief on this recently, quotes research from Cambridge Econometrics showing that energy efficiency schemes,
“outstripped all other investments and tax breaks by creating over 70,000 jobs by 2015, and the boosting of GDP by 0.2%”.
It goes on to say that the key reason for those figures is that the high level of job creation is because it is much more labour-intensive than many other forms of energy investment and much less material-intensive than most construction projects.
Lord Jenkin of Roding
My Lords, I apologise to my noble friend the Minister, the noble Viscount, Lord Simon, and to officials for having put down notice of my intention to oppose the Question that Clause 26 stand part so late, but after I studied the amendments that had been tabled it seemed that this gave an opportunity for a wider debate on the whole question of community involvement. I am very grateful to the noble Baroness, Lady Worthington, for recognising that when she moved the previous amendment.
At Second Reading on 18 June, I expressed my worries about the rush to a statutory scheme when the voluntary approach seems already to produce a very good result. Since then, I have read the draft report of the Shared Ownership Taskforce, which was published a week later. One thing is abundantly clear, no doubt because of the terms of reference the task force was given by Ministers: it is wholly based on the voluntary approach to community involvement. There is no mention in the report of legislation or even the threat of it.
Yes, there was at one time pressure from some voluntary organisations to say that this would work only if the Government forced firms to give community involvement, but those organisations are not saying that now. I have had representations from some of them to say no, they are wholly in favour of the voluntary approach which seems to be working. Therefore, why do we need this so-called backstop? The Government’s argument—no doubt, we will hear this again this evening from my noble friend—is that we want the voluntary approach to work. However, to quote the words of the noble Baroness from a few moments ago, only if that approach is not successful would the Government introduce the backstop. I have a number of questions on that.
Before I come to them, I draw the attention of the Committee to the letter written by the Secretary of State last April to the chairman of the task force, Maria McCaffery, and to the task force vice-chairman, Rebecca Willis from Co-operatives UK. The Secretary of State set this out with complete clarity. He wrote:
“It is my view that shared ownership is better achieved through the flexibility and adaptability of a voluntary process and I welcome your efforts to make this a reality”.
Lower down he wrote:
“It is therefore my intention that the backstop powers will not be overly prescriptive. Regarding the timescales … I would like to reassure you that there is no intention that these powers would be exercised before 2016, if they are exercised at all”.
That is the Secretary of State’s letter, and I attach some importance to it because it is clearly what he meant. However, I fear that the reference to “before 2016” rather gives the game away. The Bill will, I hope, be law before the end of this Parliament—probably early in 2015. So what is that reassurance actually worth? It means that the Government really want to introduce this as soon as possible. That is really very bad psychology.
My first question to the Minister is: where is the evidence that the voluntary approach is not working? All the evidence that I have received suggests that it is actually working rather well. The task force itself gives examples of various models of share ownership in Annexe A of the draft report. They include: split ownership schemes, such as the Baywind Energy Co-operative in Cumbria and the Fens Co-op/EDF scheme near Spalding in Lincolnshire; shared revenue schemes, such as the Falck-Energy4All schemes, with many sites across the country, and Drumlin, with several sites in Northern Ireland; and joint ventures, such as the Neilstan Development Trust-Carbon Free Developments wind farm in East Renfrewshire. This may not be a comprehensive list but it shows that there is a good deal going on.
The question I therefore ask my noble friend is: do the Government keep a register of shared ownership schemes that are being planned, introduced and operated? Can she give me the names of any schemes where shared ownership has been refused? Is there any evidence of that? It may well be that there is, but no one has put that to me. I will be interested in her reply.
The task force’s draft report lays huge importance on the value of flexibility: different solutions for differing circumstances. I have quoted what the Secretary of State said—he did not want to be “overly prescriptive”—but is it not absolutely inevitable that statutory regulations are bound by their very nature to be prescriptive? Examples of this are already in the Bill, such as limits on the size of a scheme, limits on the size of the voluntary share, limits on the kinds of organisation that can represent the community and limits on the nature of the stake that may be held. One only has to read subsequent amendments to realise that these proposals are already causing considerable concern. So the Bill is bound to be prescriptive. The simple fact is that a voluntary system can embrace a wide range of possibilities. Indeed, the noble Baroness, Lady Worthington, and my noble friend a moment ago indicated that there would be a wide range of possibilities for voluntary community involvement.
A statutory system is bound to force future developments into a legislative straitjacket. I cannot believe that that is the right approach. Furthermore, it sends a very clear message—this point has been made to me forcefully by the industry—that, despite all their reassuring words, Ministers simply do not trust the industry to deliver. My noble friend was quite right when she talked about the main motivation for a voluntary approach being to smooth the path to local support and reduce opposition, and there is plenty of evidence for that. That is the main attraction of a voluntary approach for firms and the local community. Yet only a few hours ago I received a note from Ofgem. It made the following point:
“However, we believe there is a question about whether community energy will necessarily provide a positive outcome for consumers”.
For that we wait to see. The note continues:
“We are watching with interest around what happens with the taskforce on community energy (which we do not sit on). We may have concerns about using our enforcement powers around this if the voluntary approach does not work”.
Coming from the main regulator, those are powerful words. I hope that my noble friend will respond to that.
Ministers then say, “Don’t worry. We are going to make this very flexible in all the regulations”, but when are we going to have sight of those regulations? At Second Reading, I asked that we should see the regulations before Report. Since then, we have had the report of the Delegated Powers and Regulatory Reform Committee, which examined the Bill, but not the regulations, of course, because we do not have them yet. It is encouraging to note that paragraph 7 of that report states:
“We accordingly do not find … the arrangements for Parliamentary scrutiny of the exercise of the powers, to be inappropriate. But we are conscious that, even with the amplified outline of the regulatory framework that Schedule 5 affords, the House will not begin to get a clear idea of the real shape and content of what would be a novel statutory regime until the Government provide details of the provision that would appear in instruments made under clause 26. We therefore express the hope that the Government will make available to the House, preferably before Report Stage, as much as possible of the provision that would be included in the regulations”.
That is a pretty strong recommendation from the committee.
What have we had since then? We were all working very hard on Sunday. I was talking to some of the Minister’s officials about this, and about what I was going to say, and the Minister sent me a letter, also dated Sunday last, in which she answered some of the points that we have made. Under the heading, Future details on the regulations, she writes:
“In terms of providing further details on the regulations, as my officials explained, we are strongly supportive of the voluntary approach to shared ownership and would not want to prejudice the models and approaches coming forward by drafting any secondary legislation now. The provisions as they stand retain the future flexibility in order to allow us to respond to changing circumstances, and in particular to take on board any lessons from the voluntary approach”.
I think that means we are not going to see any regulations before Report. If I may say so with great kindness to my noble friend, I do not think that she is going to get away with that. The House will want to know the details of the regulations that the Government are taking powers in the Bill to introduce. I find this a very difficult situation. So, my next question to my noble friend is: does that response mean that we are not going to see the regulations before Report? I would be grateful if she would give a very clear answer to that.
My Amendment 98AB is grouped with the provision we are discussing. There is to be a framework document but, again, we have not seen it. The draft task force report sets out the timetable for monitoring and review. I will not weary the Committee with that because I am sure that many noble Lords will have seen it already, but it is clear that there is to be a significant process of review before there is any question of introducing the backstop provision. The task force draft report states:
“Six and twelve months after the publication of the Shared Ownership Taskforce’s recommendations”—
that will be this September—
“the Taskforce will conduct reviews of commercial renewable energy developers covered by the voluntary Framework”.
Then, as the noble Baroness has told us, there will be a period of consultation, which will take time, and then there will be a period after the consultation is complete before the Government can possibly produce a response, so there will have to be a period of at least a year, but I would suggest probably two years, before there is any question of introducing a statutory scheme. However, the Bill states that the Government want to have the power within two months of it becoming law. Why on earth do they feel that that is necessary? Two years is plenty of time, and psychologically it would be right for the industry. It would feel that this really is a backstop provision and not something that the department is bent on introducing as quickly as possible.
Indeed, I would go further than that. To threaten the industry that there will be statutory powers—a narrow statutory straitjacket—when it will be pursuing a wide variety of voluntary participation schemes by local communities seems to be a very dangerous psychological error. I do not think that the Government understand how businesses react to that sort of thing, but they want to do it, and therefore they have taken the powers to do so within two months of the Bill becoming law. I cannot believe that that is the right approach.
Let me make it clear that I totally support the concept of community involvement in schemes of this sort, and indeed I have some sympathy with those who were asking in the last amendment why it was being limited to onshore renewables. We have heard that it may be extended to offshore later. In France, local communities are incentivised for major nuclear developments by being given cheap electricity. It is provided for the whole of the surrounding area. That is an extremely effective form of community involvement. It does not mean ownership, but it is something that provides a considerable community benefit. I am not suggesting that we should necessarily imitate that here, but again I totally support the notion of getting communities involved, as it were, emotionally rather than politically or financially, in the success of local energy schemes. Indeed, as noble Lords have suggested, this might even go wider than energy. However, to hang over the head of industry the threat that if it does not, it will be subject to a legislative straitjacket, is a deplorable misjudgment of the way industry behaves. I look forward to hearing my noble friend’s response.
Baroness Verma
My Lords, I am extremely grateful to my noble friends Lord Jenkin and the Duke of Montrose, and to the noble Baroness for her contribution. This debate on Clause 26 allows me to lay out why we consider that what the Government are doing is absolutely the right approach. At the same time, I will address the matter of my noble friend’s Amendment 98AB, which seeks to delay commencement of the provisions by two years.
As we all agree, shared ownership is a key way to galvanise support and acceptance from local communities. That is critical for the future of the renewables industry. I have said previously that this Government have set out a logical and sensible approach to achieving that, first, through a voluntary means. Then, only if that is not successful, would we consider bringing forward legislation—and that only following a formal consultation.
With that in mind, I will respond to the points that my noble Friend Lord Jenkin raised today. First, I do not agree that the Government do not trust industry to deliver the voluntary approach. As I said before, the Government have set up an industry-led task force to drive an increase in shared ownership. We hope and believe that shared ownership will be achieved in that way. If we do not trust industry, as my noble friend suggested, why would we have set up a task force in the first place? I welcome the fact that the Shared Ownership Taskforce is—
Lord Jenkin of Roding
I should have explained that the question of the Government giving the impression that they do not trust industry is something of which I was informed by RenewableUK. One of its senior officials is a chairman of the task force. I have to assume that she understands that lack of trust as well. Perhaps she did not put it in her report but nevertheless her organisation made it perfectly clear to me that that is how it interprets this threat of legislation.
Baroness Verma
I am grateful for my noble friend’s intervention but reiterate that we are working closely with industry. That work, through the Shared Ownership Taskforce, is going well. We commend the publication of its draft report. However, it would be naive to expect all those in industry to welcome this with open arms. Taking legislative powers has helped bring this matter to the forefront. The possibility of legislation has encouraged industry to take this matter seriously and provide the commitment necessary for the voluntary approach to succeed. The Government’s firm view is that the backstop powers are needed precisely in order for the voluntary approach to work. It is basically a call to action.
My noble friend made the point that there is nothing stopping Government legislating, even if the voluntary approach works. I would like to be absolutely clear that that is not our intention. The backstop powers would be exercised only if the voluntary approach does not succeed. In determining success, we will be guided by the task force and the outcome of its review in 2015. The Secretary of State for Energy and Climate Change addressed the task force to reassure it on that point. In addition, he provided further reassurance that, in order to give sufficient time for the voluntary process to take effect, there was no intention of exercising any power before 2016, if at all. In the Queen’s Speech debate in the other place, he reiterated this point:
“Since we are pursuing a voluntary approach, the power in the Bill is a back-stop. The community energy sector was clear that the voluntary approach should be given a chance to succeed, and I agree”.—[Official Report, Commons, 5/6/14; col. 139.]
Baroness Verma
I apologise for not being able to respond to the noble Baroness. I had a note to say that I would be writing to her because it was a detailed question. I will ensure that Members of the Committee get a copy.
I hope that I have been able to reassure my noble friend Lord Jenkin as to why Clause 26 should stand part of the Bill and convince him that delaying commencement of these provisions is not the right approach.
Lord Jenkin of Roding
My Lords, I take some comfort from what my noble friend said in response to this short debate. She said she will do her best to see that we get some indication of what is going to be in the regulations, and I very much welcome that. I understand her argument about not wanting to tie herself down. The Government would tie themselves down by taking a legislative power or even indicating legislative powers some years before they have to become operative because there may be many lessons to be learnt before that time. It is quite clear that we are going to have return to this on Report.
I was slightly surprised and disappointed that my noble friend told the Committee that we are not going to get the final report from the task force until October. It is having a consultation phase—and I refer to the first page of the task force draft report—before publishing the final report in September, because the task force would like to seek wider views. The difference between September and October is quite crucial, because we will resume the sittings of this Committee in October, perhaps within a day of reassembling. That will be followed in due course by Report, at which stage we will presumably wish to come back to this, having moved beyond this part of the Bill. So this is really rather important. I hope that my noble friend might be able to convey this to the chairman of the task force. She said September, and there are people in the House who would like it to be September. It should not be like so much that the department has done and slip from month to month. That is not the right way in which to do things. If you say that you are going to publish on a certain day, that is the date on which you should publish. I find the readiness to accept slippage of that sort, sometimes running into many months, rather distressing—but there we are.
I had one representation this morning from a group or a firm that is anxious that the task force is laying down prescriptive models for community participation. It sees a whole range of other things that it could do, which would achieve exactly the same objective—namely, aligning the interests of the community with those of the investor—which do not appear to be considered at all. It would want to have at least what it calls “shared generation”, in which the commercial operator ensures a proportion of the energy generated from a project is discounted off the energy bills of the houses and businesses in a specified local area. As I said a few moments ago, they have been doing that in France for years with the big nuclear power stations, and it seems to work; it provides precisely the readiness of the local community to host what otherwise might be an unwelcome, large and intrusive investment. It would be entirely appropriate for something like that to be available in these circumstances, so this is a moving scene. The minute that we encompass it in statute, it needs primary legislation or at least amendments to subordinate legislation to widen the scope.
This is unfortunate, but I accept one point that the Minister made. She set out her stall and said that there is a backstop provision in the Bill, so I can now understand why, as she put it, it would send the wrong message if we were now to take it out. I can see that, but perhaps it would have been clever not to have gone down this path at all. We might have relied on the voluntary system to take the whole thing forward and then, if it was not successful, started talking about legislation. However, that is not what has happened. We cannot take this any further this afternoon, but I hope that I have made my views clear.
Lord Cameron of Dillington
I oppose these amendments. There are dangers involved. I believe in community involvement in local energy schemes whether voluntary or, if need be, statutory, and on the whole this clause is a good proposal. As I said at Second Reading, financial involvement means that the local community does not get in knee-jerk opposition to a scheme, which is good. However, I have chaired or been on the board of several unquoted companies, and I am very much aware of the power that shareholders owning as little as 10% of the equity can have. They would probably rightly be able to claim a place on the board and by judicious use of their block of shares they can have, if so minded, a fairly negative effect on the progress of the company in question. I have experienced an instance of this where a minority shareholder on the board had an agenda different from that of the rest of the board. It is very difficult to drive forward a company under those circumstances. The shareholder can look for opportunities to block and do deals with other shareholders in a negative way.
We are trying to encourage these energy projects to get off the ground and overcome all the obstacles. Those obstacles are not only planners but energy companies, connection problems, landowner problems and certainly community problems. They all have to be focused upon. If the business involved does not remain totally focused on driving the project and overcoming all these obstacles, it can easily falter and the project will get delayed or, worse still, fold altogether. If a group could compulsorily buy in to 10% or, worse still, 20% of a local energy project, that would easily open the door to spoiling tactics by antis, whether they are anti-fracking, anti-wind, anti-PV or just BANANAs —BANANA, as your Lordships will know, stands for “build absolutely nothing anywhere near anything”. In my view, 5% would be a safe upper limit for community involvement, particularly if it is compulsory, 10% would be risky and 20% would be extremely dangerous for our renewable energy industry.
Lord Jenkin of Roding
I promise I am not going to try the patience of the Committee anything like as long as I did a few minutes ago. If one reads the passages in the draft report of the task force, it recommends a number of different methods by which financing could be organised. One is crowdfunding. That might be quite a good way to raise sufficient money to get the community involved. Perhaps it would not be the whole community or the BANANAs that the noble Lord, Lord Cameron, referred to, and we are all very familiar with them, but enough people for them to turn around and say “For heaven’s sake, shut up because we want this to go ahead”.
That report is quite interesting because financial circles see some difficulty of the sort that the noble Lord, Lord Cameron, has been describing, but this is particularly a case where the widest possible flexibility is needed. We want to see community involvement in infrastructure schemes of this sort, but we should not attempt to prescribe how that should happen. The noble Lord, Lord Cameron, clearly indicated that raising the percentage might offer considerable difficulties. It should be entirely free for a local community or investor to decide how it should be done. That can really only be done under a voluntary system.
Lord Teverson
My Lords, perhaps I may respond to the noble Lord, Lord Cameron, who raised some valid points, but they were over individual shareholdings, which is a separate issue, as opposed to a total collective shareholding. Further regulations could be made around maximum individual shareholdings or defining the control of those shareholdings. That is a fairly regular way in which to do this—aggregating some of these things if they are, for example, vexatious. I accept fully that there is a risk of individual shareholder activism but that is a separate issue to the community being able to have a significant or noticeable stake, as opposed to one that is, in smaller schemes, almost token.
Baroness Verma
My Lords, the UK oil and gas industry is of national importance: it makes a substantial contribution to the economy and supports around 450,000 jobs. Oil and gas will continue to play a vital part in the energy mix as we transition to a low-carbon economy and will still meet around 70% of our energy demand in 2030. Therefore, it is vital that we maximise our indigenous supply, to put downward pressure on prices, support jobs and maintain secure supplies.
The Government commissioned Sir Ian Wood in June 2013 to review the regulatory regime for the UKCS because, although investment levels are rising and near-term prospects are strong, there are new challenges for exploration and production, and the environment is very different from when production peaked approximately 15 years ago. Production and exploration levels have fallen, and production efficiency has declined.
Sir Ian’s final report was published in February 2014 and included four recommendations for the Government. His independent report estimates that full and rapid implementation of his recommendations will deliver the equivalent of at least 3 billion to 4 billion barrels of oil more than would otherwise be recovered over the next 20 years, bringing over £200 billion additional value to the UK economy.
The Government have accepted Sir Ian Wood’s recommendations and last week published a formal response setting out their plans for implementation. The government amendments before the Committee are the first vital step in implementing those recommendations and will send a clear signal of the changes required to industry practice and the role of the regulator to deliver the benefits he sets out in his review.
Amendment 95ZA seeks to put the overriding principle contained in Sir Ian Wood’s report into statute, which is maximising the economic recovery of offshore UK petroleum. This is to be achieved, in particular, through the development, construction and deployment of equipment used in the petroleum industry and through collaboration among holders of petroleum licences, operators under petroleum licences, owners of upstream petroleum infrastructure and those planning and carrying out the commissioning of upstream petroleum infrastructure.
The Government and industry should work together to maximise the economic recovery of offshore petroleum from the UK. Because of the continually changing nature of regulation, the developing needs of exploration and production in the North Sea, and changes in technology and approaches, we think that the concept of MER UK is something that itself is likely to change over time. We therefore do not think that setting out the meaning of “maximising economic recovery” in primary legislation is desirable, as greater flexibility is required.
We take the view that this is better achieved through a strategy which can adapt to new challenges and the evolving needs of oil and gas regulation in the North Sea. The clause therefore requires the Secretary of State to produce a strategy for enabling the principal objective to be met and places a duty on the Secretary of State to collaborate with industry and carry out his activities in accordance with the strategy. The clause also places duties on petroleum licence holders, operators, infrastructure owners and associates of those persons to comply with that strategy. There is also a duty on those planning and carrying out the commissioning of that infrastructure. The Secretary of State is under a duty to lay before Parliament a report at the end of each reporting period on the extent to which relevant persons have acted in accordance with the strategy.
The second main provision, set out in Amendments 94B and 95ZB, provides the Secretary of State with the power to raise a levy from industry to help fund the costs of regulating this sector. This is consistent with the user pays principle and the Government’s belief that those who benefit from a service should ultimately pay for it. The power is circumscribed in a number of respects. The total amount of the licensing levy payable cannot exceed the costs of the Secretary of State carrying out his relevant functions. The levy cannot be used to recover costs in respect of areas in which a charge is payable under the Gas and Petroleum (Consents) Charges Regulations 2013 as those regulations stand when this provision comes into force. To ensure the costs are proportionate, the clauses also allow for different amounts to be charged in respect of different licences.
Finally, the levy is subject to a three-year sunset clause, which will mean that the levy arrangements are reviewed over that timeframe to ensure the system put in place is fair, effective and efficient in terms of its administrative burden. As set out in the government response to the Wood review, published last week, the Government have committed to contribute £3 million per year to the running costs of the OGA from 2016-17 for five years. This is to demonstrate the Government’s commitment to the tripartite approach to delivering MER UK and a recognition of the importance to government that the OGA is well funded from the outset. The levy will, of course, be net of this funding received from government.
For the avoidance of doubt, noble Lords should note that in due course the Government intend to set up the regulator as an arm’s-length body in the form of a government company. However, in the interim, the body will be established as an executive agency. Therefore, for the present, the legislation refers to the Secretary of State.
The other government amendments in this grouping, Amendments 95ZC, 96ZB, 97A and 98AA, are technical in nature and I do not propose to spend too long on them. Suffice to say that these clauses deal with consequential provision, the parliamentary procedure in relation to regulations, territorial extent and commencement. Amendment 95ZC amends the scope of the power in Clause 28 so that it applies also to the clauses dealing with maximising the economic recovery of UK petroleum, the levy on holders of certain energy licences and the relevant schedule. Amendment 96ZB amends Clause 29 so that if we amend the reference to the Gas and Petroleum (Consents) Charges Regulations 2013 as set out in the primary legislation, we would have to use the affirmative procedure. Amendment 97A is required because the Wood review amendments are to have GB extent. It also contains an amendment in relation to the extent of the Extractive Industries Transparency Initiative. Amendment 98AA relates to commencement in respect of the Wood review provisions and the Extractive Industries Transparency Initiative.
The Government have worked at a furious pace to bring forward the measures for this Bill. However, in doing so, we have not yet been able to publish the regulatory impact assessment which normally, although unfortunately not always, would accompany the introduction of the relevant provisions. It is our firm intention to publish our assessment of the indicative range of potential costs and benefits of these powers prior to Report.
I hope it will comfort noble Lords that the industry is supportive of Sir Ian’s recommendations and has called on the Government to implement them timeously. The policy intent is to reduce regulatory burden, empower a stronger, more capable regulator that can mobilise and catalyse, and enhance the efficiency and co-ordination of activity in the UK continental shelf. The clauses we have put forward in the Bill are a key part of what is required to implement the recommendations. I beg to move.
Lord Jenkin of Roding
My Lords, I give an unreserved welcome to these new provisions. When Sir Ian Wood’s report was published last February, and the industry had had time to absorb its messages, there was almost universal support for his recommendations. I think my noble friend said that the Government have worked at a furious pace, and I recognise that. However, I wish to make two points. First, I am surprised to be told by the industry’s representative body that it was not consulted on the terms of these government amendments. It states that the industry,
“has not been consulted about the nature and format of these MER UK amendments”.
I stress as strongly as I can that in the next stages of carrying this forward—working out the strategy, dealing with the details and all the other matters which will flow from this—the Government simply must regularly consult the industry; otherwise, the good will that has been attracted by the evident swiftness in accepting a very complex and detailed report will evaporate if there is a feeling that somehow the Government are charging ahead and not taking account of what the industry wishes to say. I am sure that my noble friend will give me a very firm commitment that the Government will consult the industry on any further steps.
My other point is based to some extent on my experience as a long-standing member of various voluntary bodies and other organisations. Some years ago, I chaired an Anglo-Norwegian seminar for the Foundation for Science and Technology. The seminar was held at what was then the Institution of Electrical Engineers and was attended by the King of Norway, the Duke of Edinburgh, the managing director of BP—my noble friend Lord Browne of Madingley—and the chief executive of Statoil. A very high-level discussion took place between the British and the Norwegians on not just the North Sea but, of course, the Barents Sea. It was a fascinating morning and I certainly learnt a great deal. I chaired much of the meeting and the noble Lord, Lord Broers, chaired another part. At one point, one of my honourable friends from the other House asked the two chief executives—my noble friend Lord Browne and the Statoil CEO—what their highest priority was. The answer was, “fiscal and regulatory stability”. They make long-term investments and changes in the tax system or the regulatory system do enormous damage in undermining willingness to invest.
That event was followed, a week later, by the then Chancellor of the Exchequer, the right honourable Gordon Brown, imposing a substantial additional tax on the industry in the North Sea, which caused huge dismay. Other Governments have done the same in the past, so it was not unique, but it was a remarkable example. Having been told that the highest priority was stability, the Government made a significant change on that sort of thing, with no notice. It really was a very astonishing response.
Lord Whitty
My Lords, I want to make just a few remarks on this. I do not quite share my noble friend’s rosy picture of the effect of the oil and gas industry on the British economy. Although benefits were derived from the period during which Britain was an oil producer, it distorted the rest of the economy. That need not necessarily have been the case, had we had a plan to use the proceeds from North Sea gas and oil in a way which developed the rest of the economy. Instead, large sections of the manufacturing sector disappeared. We did not have a clear strategic plan for the totality of the economy although there was a fairly clear strategic plan as regards the exploitation of North Sea gas and oil itself.
I do not wish to prolong that situation during the decline of North Sea gas and oil. We now need to plan for the transition. That is, in a sense, what the Wood report is saying. The mechanism for doing that is in part reflected in these government amendments. They are, however, slightly odd amendments because they effectively propose the basis for a new regulator. As that regulator is not yet in being, reference is made to the Secretary of State. Presumably, the Minister will be able to confirm that at some point down the line we will have new primary legislation which sets up the structure, governance, powers and responsibilities of the new regulator, in which case some of these measures will have to be rewritten not very far down the line. I am not necessarily against that but it means that how the measure is written in relation to the Secretary of State will be different when we have a fully fledged regulator. There will be different parliamentary oversight apart from anything else.
My next point follows that made by my noble friend on carbon capture and storage. It is important to recognise that the continuing use of fossil-based fuels will not be compatible with our carbon targets unless there is some form of carbon capture and storage. Moreover, the North Sea has bequeathed us a significant natural facility for storing that carbon. The whole issue of enhanced oil recovery and the use of that storage for carbon dioxide storage in the future is vital. Indeed, in the whole of Europe, and possibly the world, there is no more obvious place where we could store the carbon produced through the continuing use of fossil fuels, with, I suspect, relatively little local opposition.
When the noble Lord, Lord Cameron, and I were involved in the Select Committee report on European energy, we found that Germany and other central European countries were very opposed to carbon capture and storage taking place among their population and on their territory. However, in Britain we have a real opportunity to offer the totality of the European energy and industrial network the use of those North Sea facilities, which would last a long time. I once asked someone to put a timescale on that but it will certainly see us out and will probably be longer than the period during which we have extracted North Sea oil and gas. It is therefore important that the carbon capture and storage element is written into the strategy and the legislation paving the way to set up a new regulator, as my noble friend’s amendment would do. Therefore, I hope that the Government will accept it.
My last point is tangential and requires the Minister to talk to her colleague, the noble Baroness, Lady Kramer. Amendment 94B and the subsequent amendments seek to establish the provisions of a licence. Some noble Lords may remember that when we started to discuss this Bill a few weeks ago, we talked about a licence for a new highways company. The noble Baroness, Lady Kramer, said that that would all be dealt with in the licence. However, in relation to energy, primary legislation is required to set down what the licence will cover. I think that we need a reply from the Department for Transport at some point as to why we do not need the equivalent in relation to the corporatisation of the Highways Agency into a body that will itself require a licence. The questions that I and others have raised on the nature of this new body have been brushed off by it being said that it will all be in the licence. When we come back to the front end of this Bill, I may start asking those questions again. I do not expect the Minister to answer that now, but perhaps she or her officials could convey that to their opposite numbers in the Department for Transport.
Lord Jenkin of Roding
I shall make a few observations on the speeches that we have heard from the noble Baroness, Lady Worthington, and the noble Lord, Lord Whitty. The Government are pursuing carbon capture and storage. They have put up £1 billion, which will probably not be necessary, and have identified projects that will be supported, one of which is the project at Peterhead, which will use the storage available in the offshore oil field. That is exactly right. I have asked questions in the past about the perfectly good saline caps onshore and why they could not similarly be used; they have exactly the same provision to be able to keep material indefinitely over millennia. Some of them are now being used for gas storage. I was pleased to hear today that there has been quite a significant increase in gas storage in recent years—something for which I and others have been arguing. It is entirely right, as the Secretary of State said in his Written Statement that,
“the principles will apply to offshore activity, however Government intend that the OGA’s remit should extend to onshore—as well as to the licensing activity for natural gas storage and unloading and carbon dioxide storage—and so, working with the respective industry stakeholders and trade groups, we will look to extend the principles accordingly”.—[Official Report, Commons, 16/7/14; col. 74WS.]
I am sure that that is right, but it prompts the question of whether these principles apply to the extraction of natural gas from shale. Different conditions may need to apply. Noble Lords have already referred to the idea of progressively replacing inevitably declining oil and gas resources with the apparently huge availability of shale gas in this country. I do not want to anticipate the debates that we will have in the autumn after the consultation on access to shale gas. However, the fact of the matter is that there are very large quantities indeed. It is interesting that the Bowland shale basin, which has been surveyed quite substantially by the British Geological Survey, is many hundreds of feet in thickness, quite apart from being two kilometres down, or whatever it is. Much of what was being extracted in America has been from comparatively slender deposits of shale. In that respect, we are sitting on a huge potential resource, which will need to be very carefully managed from all sorts of angles—environmental, and everything else. What we hope that OGA will do for the offshore oil and gas industry is to gain knowledge that will be applicable to these onshore developments, to which the Secretary of State referred in column 68 of his Written Statement. Of course he also said:
“Government will work closely with industry and other interested parties in the months ahead to undertake this work and ensure we are ready to put legislation on the additional powers before the House in the first Session of the new Parliament”.—[Official Report, Commons 16/7/14; col. 75WS.]
That is keeping up with the tradition of having a new Energy Bill every Session.
This is so important, and one has to get this right. Perhaps with the addition of the amendments that the Government have tabled, this is a very important step forward. One has to recognise that this is not inevitable; it has to be very carefully managed, and with the co-operation of the industry, government and eventually the OGA, which is a key player in this, there is no reason why it should not be achieved. I look forward to this with considerable optimism. It is a very good and attractive part of the Bill, and I hope that we accept the Government’s amendments.