Infrastructure Bill [HL]

Lord Whitty Excerpts

Monday 10th November 2014 Lords Chamber

[The Earl of Caithness]

My Lords, it is clear now. Industry does not need further clarity. It works.

[Lord Whitty (Lab)]

My Lords, those who oppose these amendments are missing the point. The amendments may well be in the wrong place; they may well be too wide. I did not intervene in the previous debate because I thought that it was becoming far too polarised. Public opinion on the issue of fracking is polarised, but public opinion is not polarised in relation to the protection of our national parks and our areas of outstanding natural beauty. Unless the Government in some way recognise within the overall approach to fracking that there are certain sites which have to be protected—whatever provision exists elsewhere in terms of general planning law and so forth—the outcry against fracking will grow rather than be reduced.

The Government should at least have the grace to recognise that that is a reality. In terms of public acceptability of fracking, protection of our protected areas is an important element which needs to be in the regulations and in the Bill. Whether the amendments in the name of the noble Baroness are technically in the right place or not, the politics and the PR for fracking need to make that point. If they do not, the 25% of people who fundamentally oppose fracking will grow in number. The Government have the opportunity to ensure that that does not happen. I hope that, if not now then in the process of this Bill through the Commons, the Government will put that right.

[Baroness Worthington]

My Lords, I am grateful to noble Lords who have contributed to this debate, which has been another interesting exchange of views on how best to get the fracking industry off on the right foot and to minimise the degree of public opposition that might arise.

I recently visited the Lake District, which is one of my favourite parts of the country. I visited a mining museum and, in doing so, I realised that we often see such parts of the country as having a great value now in terms of tourism, wildlife and appreciation of scenic beauty, but that they have in previous times been quite diversely economically active and been able to accommodate different activities within the boundaries of the parks as we know them today. Therefore, I for one am not of the opinion that these special places need to be preserved in aspic but that it is about achieving the right level of balance.

That said, it is absolutely clear that, when you have a Government who say that they are all out for fracking and that it will be the silver bullet that solves all our energy needs, and slightly overhype it, you can see why people get nervous that all due consideration and care are not being taken. I shall be interested to hear the Minister’s responses to the two amendments. The second of them, Amendment 115, points to something of an inconsistency, with planning guidance having been issued for national parks and AONBs but not for other nationally significant sites. Such sites, because they tend to be smaller, more fragmented and under considerable pressure from a wide range of economic activities already, arguably deserve even greater levels of protection than those larger national parks and AONBs, which I think can accommodate economic activity within them and generate jobs and economic benefits. I look forward to hearing the Minister’s response.

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Moved by

[Lord Whitty]

115D: Clause 34, page 39, line 18, at end insert—
“( ) The regulations must require contributions to the contingency fund or funds from relevant energy undertakings which are sufficient to meet—
(a) any loss caused directly or indirectly by the operation of the oil and gas activity;(b) the costs of—(i) remediation;(ii) enforcement action against the relevant energy undertaking;(iii) other measures taken by a public authority in respect of, or in consequence of the loss, or the activity which gave rise to the loss.( ) The regulations must ensure that the contingency fund is protected in the event of the insolvency of a relevant energy undertaking which has made payments to the fund.”

[Lord Whitty]

My Lords, I am trying to help the Government out here. This is yet another part of the jigsaw that is necessary to ensure public acceptability of fracking in appropriate circumstances. The amendment deals with the issue of damage caused by fracking and who is liable for it.

We have had a debate about the nature of the regulations, whether or not they are effective and whether there are enough resources to enforce them. Even if we accept that we have world-class regulations and regulators in this area, if fracking takes off in the way in which its proponents—and, to some extent, I—hope it will, then there will be hundreds of sites across Britain and, however good the regulatory process, however vigilant the regulators themselves and however well motivated those companies that are responsible for those operations, there will be problems. There is no prior form of energy where there have not been some accidents, leakages or effects on the environment, on neighbours, on businesses or on the water supply.

The failure of even a fraction of the number of wells that are being talked about could have a significant impact on the landowner, on the farmer, on the community close to the fracking site, on individual households or indeed on individuals, or it could have an effect on other businesses, whether small local businesses or giant water companies. We therefore need to have an effective liability arrangement that ensures that the cost of such damage and its remediation do not fall on the public purse. We have historic examples here in the energy field. Whether you are talking about deep coal mining, opencast mining or the nuclear industry and the cost of decommissioning there, the reality has been that the costs of damage, waste and pollution have been borne almost entirely by the taxpayer. I want to see a provision in the Bill whereby that does not arise in the case of substantial development of the fracking industry.

My amendment would therefore deal with the Secretary of State’s obligation to bring forward regulations to ensure that any operator within this field, whether in the exploratory or subsequent stages, has sufficient resources to cover any loss arising from the operation, the costs of remediation and the costs incurred by the public authorities in enforcing that. That may require a separate fund within the company or a common fund. I leave that to the Secretary State in the regulations. However, such provision is necessary.

I am afraid that the Minister’s reply, when I referred to this issue in rather similar form in Committee, raised several concerns. It was argued by the Minister that companies can be required to remediate the effects and prevent further damage from pollution under existing regulations. However, in general, that applies only if land itself is contaminated in the strict terms of those regulations. It is not clear that funds need to be available from the outset to foot the cost of this remediation activity.

The Minister made a big point of saying that we should not treat fracking differently from other industries and that existing law is robust. However, one has only to look at one of the examples that I mentioned: opencast mining in Scotland cost £200 million in Scotland alone, and the entire cost fell on the public purse. My amendment also therefore seeks to ensure that that would not arise in this case and that a fund would be provided in advance, as it were, and in effect would be bankruptcy-proof.

The Minister also argued that environment regulators already have the power, although not the requirement, to require up-front financial bonds to address the risk wherever they deem that necessary. Article 14 of the European mining waste directive is relevant here but it is limited; it relates only to the situation where the waste itself is hazardous or is managed at a category A site. Neither of those things needs to apply for substantial damage to be caused if there is some leakage or other damage caused by the fracking operations.

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[Baroness Verma]

My Lords, I hoped that I had reassured noble Lords that we do not wish to see the taxpayer foot the bill or any bill, and that there will be processes in place to ensure that that is the case. Having gone through the amendment of the noble Lord, Lord Whitty, and his concerns, I hope that he will see fit to withdraw it.

[Lord Whitty]

My Lords, I am very grateful to the noble Baroness for her full reply and for the matters that the noble Lord, Lord Jenkin, drew to our attention. It has always been clear to me that the Government and the regulatory authorities have the powers to require remediation. The issue I was attempting to cover was if sufficient funds were not available to do that. The Minister said that the authorities, in granting a licence, have the ability to say, “You have to provide some money upfront”. There was also reference to a mutual industry scheme. It seems to me prudent for the Government to make that a condition of the licence—either that a fund is established or that the relevant body is a member of the scheme being established by the industry. Otherwise, we will end up with a situation whereby, as a result of an unforeseen accident combined with financial problems for the company, or, as a result of a situation whereby, many years hence, there is an abandoned site, orphan site or a site that has been badly decommissioned, there is damage but there are no funds available to cover it, so at the end of the day the taxpayer will pay for that.

I accept a lot of what the Minister and the noble Lord, Lord Jenkin, said but unless this is a condition of a licence, either through insurance or by establishing a fund, we will not have the situation entirely covered, and that is not entirely reassuring to those who are worried about the potential impact of that on their environment, business or dwellings. The Minister has gone some considerable way on this issue and I will certainly not press the amendment any further tonight, but her reply was not quite as reassuring as I had hoped. Nevertheless, I thank her and others who have contributed to this debate. I beg leave to withdraw the amendment.

Amendment 115D withdrawn.

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[Lord Jenkin of Roding]

My Lords, I added my name to my noble friend’s amendment and I congratulate him on the way in which he moved it. I want to make two points. First, I was the Minister for Energy in the very early stages of our North Sea oil and gas. I was the Minister for only seven weeks when we lost the election at the end of February 1974. At that stage, no one had the remotest idea of setting up a sovereign fund. I do not remember the thought crossing my mind or my desk. As my noble friend Lord Forsyth has indicated, we did not have the slightest idea of how much it was going to be.

In a sense, I take issue with my noble friend Lord Hodgson for saying that it was a massive mistake. I find it difficult to accept that. There may have come a time when one should have seen that the prospects were going to be as bright as they have been and one might have done something to meet my noble friend’s wish. But to have expected that to happen in the very early stages when the oil and gas had scarcely begun to flow is a little unfair. At the time, when BP was investing in the Brent oilfield, which became the most important oilfield, its financial director said that he had established a law; namely, that, however much is spent in developing a North Sea oilfield, the amount still to be spent would be constant. It stands constant. It does not go down. That was the climate in which the oil industry was operating then. The Government, I think, gave it every opportunity to develop and we have enjoyed the success.

Secondly, I hesitated to put my name to my noble friend’s new clause because of the figures. My noble friend Lord Forsyth has already raised this. Nevertheless, I think the principle is sound, particularly what was said about intergenerational equity. Where you have the prospect of major wealth, is it right that it should all be spent on the present generation? It seems to me that there is a principle here that it is desirable to support. My noble friend referred at the end of his speech to what my right honourable friend the Chancellor said over the weekend about,

“making sure money is not squandered on day-to-day spending”.

When you have the indebtedness we have it is unrealistic to say that when you are spending money to keep the economy going to meet the needs of social services and so on that somehow if we spend the revenues from something such as shale gas we are squandering it. However, there may come a time, as happened in Norway, when it would be right to set up a fund. My noble friend’s new clause says that the Government “may”—it does not say “must”. I have already indicated that I have some doubts about the figures he has put in at the end but the principle seems to be very sound and I hope that the opportunity may come when we shall do something about it. Like him I look forward to the reply from my noble friend on the Front Bench.

[Lord Whitty]

My Lords, I have also added my name to this amendment. This is for two reasons—partly, I was swept away by the rhetoric from the noble Lord, Lord Hodgson, in Committee; it is such an obvious strategic decision that I thought I must support it. The second reason is purely historic. Somewhere in the archives of the TUC, from about 1973, there is a paper with the initials “LW” on it. In that paper I argued that we should set up a fund to invest in upgrading into the new technologies of the manufacturing industry and acquire assets at home and abroad to meet the interests of the state and of the British economy out of the tax revenues which we anticipated would come from the North Sea. We had no idea how much revenue would be coming in from North Sea oil at that time but it would clearly be substantial. I do not think anybody thought at that point it would be as substantial as it turned out, altering the terms of trade of the UK, with the level of sterling rising to the detriment of the competitiveness of the British manufacturing sector which was, of course, already a bit deadbeat and uncompetitive.

If only they had listened to me then. I am afraid that I never got my paper to the noble Lord, Lord Jenkin, while he was still in office but the next Government took no notice of it nor, indeed, the one after that. It stayed through all that period of North Sea oil revenue the Government received—I would not use “squandered”. I disagree with a lot of the priorities of the Government of the 1980s as noble Lords know, but that revenue was not used for the long-term benefit of the British economy when at least a fraction of it should have been. I thought the noble Lord, Lord Hodgson, had an important point here. If this industry develops to the extent that many of its proponents are saying, although none of us knows that yet, there will be a serious tax revenue that is in a strict sense a windfall for future Governments and a windfall for the British economy. We should not make the same mistake and we should take a lesson from our Norwegian cousins by investing in a fund that can provide some degree of security and improvement of the British economic situation for future generations. I am very happy to support in principle the noble Lord’s amendment.

[Lord Teverson]

My Lords, I welcome this amendment and I was pleased to add my name to it both in Committee and now on Report. The important point to make is that my noble friend Lord Hodgson is absolutely right: if we do not put this on to the statute book as something that can happen, the temptation will pass and it will be as if it never happened. That is why I am keen that it should be done now.

I should say just as an observer, if you like, that it is very easy to expand government expenditure and very difficult to pull it back. It is easy to find uses for income if it is there, but perhaps those uses are not always the best for our long-term future. It is easy when there are financial and fiscal constraints of the kind the country is confronting at the moment, but that is not always the case. It is hoped that we will get over the current deficit at some point in the not too distant future. That is why it is important to prepare for a sovereign wealth fund so that we can build it up in an intergenerational way, as has been advocated already.

The other aspect is completely different and not at all the most important. In the last parliamentary Session this House set up a Select Committee to investigate the nature of soft power. I was not a member of the committee, but it seems to me that countries with sovereign wealth funds exercise considerably more soft power in global affairs. That is not surprising because money talks—not just within the family or in business, but across nations as well. Why does Norway enjoy its stature? It is in part because of its sovereign wealth fund. The same can be said for a number of Gulf states and for China. In terms of Britain’s status in the future, we would gain quite considerably if we were seen to be a country that is able to save, invest and exert influence financially beyond our borders in this way rather than one that just keeps its current account going through non-renewable resources that cannot be brought back. That is why I feel strongly that we should at least take the step of this enabling legislation and then let future Governments decide how it should be used.