Oil and Gas: Subsidies and Licensing

Lord Offord of Garvel Excerpts

Thursday 20th January 2022 Grand Committee

[The Parliamentary Under-Secretary of State, Scotland Office (Lord Offord of Garvel) (Con) (Maiden Speech)]

My Lords, it is a great honour to be here to make the final contribution to this short debate today. As a newly appointed Parliamentary Under-Secretary of State for Scotland, here I am making my maiden speech in this House.

Allow me to start by thanking noble Lords for the great welcome you have given me in this place, my supporters—my noble friends Lord Kirkham and Lord Forsyth of Drumlean—Black Rod, the Clerk and, especially, the doorkeepers, who look with great amusement at me as I wander around the place in circles. I should also give special thanks to my mentor and noble friend Lord Leigh of Hurley, and to my Whip and noble friend Lord Younger of Leckie, for sharing their invaluable knowledge of the workings of your Lordships’ House. We have an important debate to discuss this afternoon, but just before I do, I think it is customary on these occasions to spend a little moment on some personal matters, so let me get those out of the way now.

I was born in a modest but homely tenement at 33 Bank Street in Greenock, an industrial town west of Glasgow on the Firth of Clyde. I was educated at my local schools, Ardgowan Primary and Greenock Academy, and I got a first-class education for free. I am not the first alumnus of that school to be associated with this House; my noble friend Lady Goldie of Bishopton was a distinguished head girl of Greenock Academy, as indeed was the wife of my noble friend Lord Leigh of Hurley. I was dismayed when my old school was closed in 2011, having been founded in 1855. It was determined by the local council that, with Inverclyde depopulating post industrialisation, the schools needed to go down from eight to six, and it was decided that it conferred too great an advantage on the students who went to that school to study there, so it was closed. Surely that is an egregious example of levelling down in Scotland, and it was a personal motivator for me in joining this Government to support the levelling-up agenda.

So, why Lord Offord of Garvel? If you walk down Bank Street, where I was born, past the Wellpark to my local parish church, the mighty Mid Kirk, and cross the road past the magnificent Georgian Custom House on the Clyde, and then turn right along the river, you will come to Garvel Point. Garvel has long been a landmark in Greenock because it is where the deep water is located, and it was originally a safe harbour for the fishing fleets before the first industrial revolution transformed the town into a thriving trading port and shipbuilding hub. Greenock’s most famous son is the inventor and engineer James Watt, and the dock which bears his name today remains in use at Garvel Point. In fact, two of the three dry docks on the Clyde were located at Garvel, and a recent renovation project has repurposed one into the award-winning Beacon theatre.

That brings me neatly to the Question before the Committee today. One of my first ministerial duties was to participate in COP 26 in Glasgow—how fitting that the world came back to the Clyde to seek new solutions to this climate emergency. What a tremendous achievement of the UK’s two-year presidency it was to increase the global commitment to net zero from 30% to 90% of world emissions. Some say that the UK has a limited role to play in climate change as we account for only 1% of world emissions. Yet COP 26 proves that our leadership still counts, because we can demonstrate that it is possible simultaneously to grow our economy while cutting our emissions.

This is what I learned at COP 26: we have the capital, the brains and the political will to meet the climate challenge. Participating in the Net Zero Technology Centre forum—funded by the Aberdeen City Region Deal—I was so encouraged to hear technologists from the oil and gas sector in Aberdeen collaborating with Houston, Calgary, Perth and Canberra as they repurposed their assets and people into low-carbon energy sources.

How gratifying it is that Scotland has such a prominent and world-leading role to play in rebalancing the UK’s energy programme to net zero by 2050. We have all the natural resources and the existing infrastructure, plus the scientists, engineers and skilled workforce required to build a balanced scorecard in energy. Scotland contributes 60% of UK wind and 40% of the 160,000 highly skilled jobs already working in energy across the UK. This is called punching above our weight in a UK where we contribute just 8% of the population but 33% of the geography.

However, we must remember that a key word in this climate debate, already mentioned by the noble Lord, Lord Oates, is “transition”, and that it is to net zero, not to zero carbon. Some 35% of our energy needs in 2050 will still come from carbon; today it is 75%, so that will be a massive reduction—more than halved. It would be foolhardy and irresponsible to ditch our world-class oil and gas sector in the North Sea to increase our carbon footprint by importing, whether from Russia—bad—or Qatar: good.

The North Sea Transition Deal is an exemplar in the G7 of a domestic oil and gas industry working in partnership with government to ensure that net zero is met by 2050. The noble Baroness asked what milestones we have along the way. By 2030, the cash flow generated in oil and gas will contribute £15 billion of long-term investment into new energy technologies. On the transition of jobs, by 2030 the UK offshore energy sector in total will increase from 160,000 to 200,000 jobs, of which two-thirds will be in low-carbon energy sources.

One of my new responsibilities is the North Sea Transition Deal, and in the last forum we had there were presentations from oil and gas companies, talking about how their target for 2025 is 50:50 investment of capex and renewables to get a return on capital in the region of 12%. Speaking as a businessman, I asked what percentage return on capital you get on each side of the scorecard. There was a certain amount of silence, because it emerged that renewables on their own do not return on capital at this point. Therefore, it is essential for the cash flow made in oil and gas to be reinvested to produce renewables. We will get transition to renewables only if it is a managed transition, using cash flow from carbon as it reduces to invest in renewables. That is absolutely essential. The two go hand in hand; you cannot have one without the other.

I will directly answer some of the questions posed in this debate, turning first to the noble Baroness, Lady Jones. I must say, this is a baptism of fire. I do not recognise the country she mentioned as corrupt. Maybe if I am here long enough that will emerge for me, but I do not recognise that to be the case where we are today. The financing of parties seems to be a whole new debate and perhaps can be done another time. I am on the record as saying that parties should not be financed by taxpayers. However they are financed, as long as it is transparent and legal I suggest that it is fine, but perhaps we should park that for another debate at another time.

The key thing that has come through here is the use of language and the fact that the word “subsidy” is so misused. My noble friend Lord Lilley made it very clear that as a matter of business practice, whichever industry you are in, it is entirely legitimate to off-set costs against revenues. In this sector, because the lead times are so long there is quite often a mismatch, and therefore money flows back and forwards. Since the oil and gas industry began in this country, total tax revenues of £360 billion have been received, and £33 billion in the last 10 years alone, but along the way you will see ebb and flow: money in, money back.

Tax relief is a normal part of the corporate tax system. Genuine costs and injuries such as the safe removal of infrastructure at the end of a field’s life are not a subsidy but a tax deduction and quite often, in certain cases, money flows back to the Treasury. Therefore, it is just inaccurate—perhaps self-serving—to use an emotive word such as “subsidy” when something is regulated by our own accountancy businesses, as is the case for all sectors. I push back firmly on the idea that we subsidise. We are against subsidies in this country and generally want to have free trade.

As I said before, on the point raised by the noble Baroness, Lady Worthington, it is essential that we transition jobs to renewables if we are to have two-thirds of jobs in low-carbon renewables. We have discovered from a study at Robert Gordon University that the onshore and offshore skills we currently have in carbon are absolutely essential to the new world. For example, when it comes to carbon storage, floating oil fields, et cetera, we currently have very transferable skills in the oil and gas industry and will transition them into renewables.

The noble Lord, Lord Oates, talked about his heritage in coal mining. We know exactly how that feels in Scotland; 40 years ago we closed the mines and started importing coal. What on earth is the point of that? Are we really going to make the same mistake again 40 years later, when we have a vibrant industry with 160,000 workers?

We are talking about a new Britain here, are we not? This is a new global Britain—a high-production, high-wage economy, with highly skilled jobs. This is an exemplar of highly skilled jobs in this country that we should be very proud of. Certainly, from a Scottish perspective, this is our second biggest industry, after fisheries, food and drink. It is one of our five exemplars in the UK, and we need to protect it.

Before I come to the end of my piece, the answer to the Question—for Hansard—is that the Government do not give subsidies to fossil fuel companies. The licences are awarded by an independent regulator, the Oil and Gas Authority, within the framework of achieving net zero. In fact, on Tuesday the High Court dismissed a case brought by climate activists that the regulator was giving unlawful subsidies.

The OGA is an independent regulator. Its staff are classified as public servants and are subject to rigorous standards and codes. Therefore I would say that the oil and gas industry is subject to a robust, multilayered regulatory system, which is independent and transparent, and there is no

“undue influence from outside interests”.

In closing this debate, let me be quite clear that the Government do not believe that decarbonising our economy means shutting the oil and gas industry, as has been said in this Room. We certainly do not believe in demonising a world-leading industry with the sort of intemperate language used by Patrick Harvie, Green Minister in the Scottish Government, who recently said that only those on the “hard right” would support oil and gas extraction. What an insult to the 160,000 workers in this vital sector. A broad range of stakeholders, from entrepreneur Sir Ian Wood to the GMB trade union, have warned politicians against creating an adverse investment environment for this vital sector. There is nothing just or fair about that, and it would set us back on the road to net zero.

[Lord Lilley (Con)]

May I intervene, on behalf of the Committee, to congratulate the Minister on his maiden speech? It was an eloquent, fascinating account of his background. His is a welcome Scottish voice in this House, and he will bring his experience of developing industries and business to our debates. We look forward eagerly to hearing his future contributions to our debates.

[Lord Offord of Garvel (Con)]

I thank the noble Lord for those kind words.