Storage of Carbon Dioxide (Access to Infrastructure) Regulations 2011

Lord Teverson Excerpts

Tuesday 12th July 2011 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)]

My Lords, the regulations apply in Scotland as well as England and Wales, and are being made with the agreement of Scottish Ministers. I am sure that my noble friend the Duke of Montrose will be pleased with that.

The regulations transpose into UK law requirements that are part of the EU directive on geological storage of carbon dioxide. The directive requires member states to introduce arrangements that enable third parties to access pipelines and storage sites on a fair and transparent basis. Those arrangements must meet certain criteria. So, for example, we must set up independent arrangements to resolve disputes about access, should they arise. We must also ensure that if access is refused on grounds of lack of capacity or lack of connection, the operator makes the necessary enhancements when a potential customer is willing to pay for them—providing that this does not have a detrimental impact on safety or the environment. The directive also provides for access to be refused where there is incompatibility in technical specifications which cannot reasonably be overcome, or where there is insufficient current or likely future capacity.

We consulted on drafts of these regulations in December 2010. The majority of those responding to the consultation agreed that the regulations represented a sensible approach to implementing the directive’s requirements. However, there was concern about how our approach would apply to storage sites. As a result, we modified the draft regulations to recognise the constraints imposed by the natural characteristics and the environmental permitting arrangements for storage sites.

The approach in these regulations is based on the principle of negotiated access, with the ability to appeal to an independent authority if it is not possible for the parties to reach agreement voluntarily. That authority is either the Secretary of State, or Scottish Ministers where the infrastructure is located in Scotland. This approach has many advantages for carbon capture and storage, not least that it is relatively hands-off and therefore the least burdensome for what is currently an immature industry. It already applies to pipelines conveying carbon dioxide and is the basis on which the development of offshore oil and gas pipelines has taken place for many years. It is therefore familiar to many companies interested in participating in carbon dioxide transportation and storage in the future.

The regulations take as their starting point arrangements that already apply to carbon dioxide pipelines, adapt them slightly for consistency with the requirements of the directive and extend them to cover storage sites. They have effect on the construction of a new pipeline or a storage site, and where a third party seeks to secure access to existing infrastructure. Where infrastructure is being newly created, the regulations enable the authority to impose conditions when granting consents. Those conditions may, for example, require the pipeline or storage site to be constructed or permitted to a greater capacity, or in the case of a pipeline, to follow a modified route. However, those powers can be exercised only where there is evidence of demand and where the parties cannot reach agreement. The authority must be satisfied that the conditions it imposes will not compromise the safety and environmental integrity of the infrastructure or its efficient operation.

The regulations also provide for access and modification to existing transport and storage infrastructure. Again, the parties must first seek to negotiate an agreement. If they cannot do so, the party seeking access can apply to the authority for a notice granting access rights. In reaching a determination, the authority is required to consider a number of factors intended to ensure that the legitimate interests of the owner and users of the infrastructure are taken into account and to avoid a negative impact on safety or the environment. Where the authority grants access rights or requires modifications, it also has the power to determine the charges to be made. We are in the process of developing guidance, on which we will consult extensively before it is finalised, on the principles that the authority will use in coming to such a decision on this and on other powers available to the authority in regulations.

The regulations create an offence of providing false information to the authority in discharging its functions under the legislation. A determination made by the authority will be enforceable through the civil courts, in the same way as if the parties had entered into a contract that had subsequently not been honoured. The directive also requires our third-party access regime to be transparent. The regulations achieve this by requiring information about available spare capacity to be published. In determining this available capacity, the infrastructure owner is able to take account of reasonably foreseeable needs and, in the case of a storage site, against a baseline of the permitted storage capacity of the site. I hope that these regulations will find favour with noble Lords and I commend them to the Committee.

[Lord Teverson]

My Lords, again I do not know what else one could do. There seems to be an outbreak of common sense; we are implementing a European directive, which I see this as primarily, to ensure that pipeline and CCS companies do as we scold our children to do—to share, rather than keep things to themselves.

I have two questions for the Minister. First, he mentioned a long track record of facility sharing in the oil and gas industries, which there clearly already is, but I suspect that those provisions did not perhaps come in until a lot of the structures in those industries had got going. In this case, it is a new industry and I presume that we do not have any carbon dioxide pipelines going extensive distances. Clearly, they do within existing industrial plants but I wonder whether we might get into a sort of games theory where no one builds the first one because the first mover, in this instance, is the one who has to find all the finance and raise all the money, which is not inconsiderable. All the businesses coming afterwards will have to do is show that independent authority that it would make sense to share, so they miss the whole hurdle that the first people had to get over. I wonder whether that distorts the market somehow, but I am sure that the Minister will have an eloquent reply on that. Otherwise, this is good legislation.

Finally, I take this opportunity to ask the Minister where we are in terms of CCS and when we might see the network of carbon dioxide pipelines under—I was going to say across—our countryside. Where are we on the four schemes that the Government are promoting?

[The Lord Bishop of Chester]

My Lords, I, too, will ask the Minister one or two questions, perhaps going a bit beyond the immediate area covered by the statutory instrument. However, I will start with that. Do the Government anticipate that the transport of carbon dioxide will be through an entirely new set of pipelines, or will existing pipelines, in particular those used for natural gas, be used when fields dry up? Is it also possible that a given pipeline might have some form of dual use? Are we talking about an entirely separate infrastructure or about an infrastructure that will be available for both uses?

Can the Minister confirm where the expected storage sites will be, and what state of provenance they have? Are we talking simply of oil and gas fields under the North Sea, or are there other geological structures in which it is anticipated that carbon dioxide might be stored? Given that we are talking about a very long timescale for storage, what evidence exists that the carbon dioxide will not escape, through cracks or whatever?

The impact assessment states, on page 8:

“As the main method of de-carbonising fossil fuel power generation, it will be important that CCS, should it prove viable at a commercial scale”.

That is phrased in the subjunctive conditional. It raises the question: what happens if it is proved that CCS is not viable on a commercial scale? On the previous page, the assessment states:

“CCS is not currently commercial without subsidy”.

It would be helpful to have some idea of what level of subsidy the Government consider may be needed to provide CCS. This is important because, if the Government stick with their position of having no more coal-fired power stations without CCS, and if CCS adds so much to the cost that we do not have coal-fired power stations, we then have to ask what form of electricity generation we will use.

I understand that over the past year our coal-fired power stations have been used more than was expected because they proved cheaper, with the price of gas going up. This has shortened the permitted life of some of our existing coal-fired stations. If we cannot go forward with any coal-fired stations because CCS does not prove to be commercially viable, does this not contain a hidden further increase in electricity prices if we cannot rely on any use of coal generation? Perhaps the Minister could put on the record some comments in response to those questions.