Energy Bill [HL] — House of Lords, 2015-09-07
Topic: Energy
Bryony Worthington (Labour, Centre-left): My Lords, I thank the Minister for his response and for chasing the impact assessment. Can I take it that the full impact assessment will be published tomorrow, or will it be just the oil and gas part? Perhaps he could clarify that point for me Looking at Clause 2, our Amendment 1 is essentially a probing amendment but it is intended to enable us to debate this part of the Bill. At Second Reading, several noble Lords raised the fact that things are changing fast in the North Sea and in the oil and gas sector more generally. We have an undertaking to implement the findings of the Wood review and I am sure the cross-party consensus on that remains strong. However, the Wood review was published in June 2013. Here we are in September 2015 and the pace of change since that date has been quite remarkable We are seeing a steady decline in North Sea production. Outputs of oil and gas are already around 40% lower than in 2010 and lower than at any time since 1977. The first quarter of this year marked the seventh consecutive month in which the UK has been a net importer of petroleum, after having been a net exporter since 1984. The figures for 2014 show that the oil and gas sector as a whole lost £5.2 billion—its worst figure since the 1970s—and total revenues were lower than at any time since 1998 at £24 billion. I quote these figures, which were sourced from DECC’s own analysis, to highlight how things are changing in this sector and in the North Sea specifically The other new element is that decommissioning is now a reality and is starting to incur costs. There was a feeling a few years ago that decommissioning was the beginning of the end. Now it is being seen as the beginning of a new industry and there is considerable decommissioning activity going on, not least because many of these assets have been in place for decades, perhaps well beyond their imagined timespan. They are therefore reaching the end of their usable lives, even if we wished to keep using them. The purpose of the amendment, then, is to ask for a report to Parliament on the fitness of the powers now being created for the OGA. We have suggested that it should be produced within six months but we do not have a fixed view; a year would be equally fine. However, we must make sure that we set off on the creation of this new quango or arm’s-length body with the right set of objectives We will debate amendments later today where we will talk more about the need to update the objectives, particularly in relation to the storage and transportation of waste greenhouse gases. It seems clear that, as we look at the implications of climate change, which are now uncontested—I think it is settled that we need to decarbonise our energy systems—that will change the economics of all fossil fuel activity. If we are to meet our targets, either we will be forced to decarbonise our use of fossil fuels using CCS or we will see a drastic reduction in the demand for those products. Either of those has significant implications for the UK economy and for the oil and gas sector, hence the desire to table an amendment that enables us to have this debate and to require that the OGA be kept up to date with the most recent developments in this sector As I have said, oil and gas prices have fallen and there seems to be no sign of their coming back up again any time soon—of course these prices fluctuate but this now seems to be a systemic drop—so we must have a body with the right remit and objectives to do the job of making sure that, while we maximise the economic return from the North Sea, we accept that this may not be solely through the recovery of hydrocarbons but might, of necessity, require a completely new industry that not only extracts hydrocarbons but returns the waste gases to under the sea. We are blessed with a natural repository for many billions of tonnes of waste greenhouse gases, which I am certain we will need if we want to keep the costs of decarbonisation under control and ensure that we are decarbonising cost-effectively I shall speak also to Amendment 3 in this group. Amendment 1 requires a report to be made on the fitness of purpose of these powers, but Amendment 3 is more specific and seeks to change the primary objectives of the OGA to include CO2 transportation and storage. It would negate the need for many of the subsequent amendments that we will talk about today because it would bring about a high-level change which would mean that we would not have to catch lots of subsequent clauses and add references to CCS and storage and transportation to the powers being taken here. Many amendments that we will come to today relate to how, as drafted, there is reference back to the principal objective of the Bill and the fact that currently that principal objective does not include the transportation and storage of CO2. Therefore, many of the amendments are trying to reinsert it. We could take another approach, such as the one set out in Amendment 3, which is simply to change the primary objective. There is merit in our discussing that, particularly as CCS offers a lifeline for the future development of hydrocarbon use in the UK by being able largely to decarbonise our use of those fuels CCS is essential in that it will enable us to keep using hydrocarbons but, as I alluded to earlier, it is equally important to keeping the costs of decarbonisation contained. At the global level, the Intergovernmental Panel on Climate Change has stated that if we do not have CCS on a global scale, we are likely to see the costs of decarbonisation being double what they would be otherwise, while in the UK the Energy Technologies Institute has estimated that without CCS, by 2050 the costs of decarbonising to reach our targets could be in the order of £40 billion to £50 billion a year more than if CCS is deployed This is an important and timely subject. We are seeing projects in the UK moving forward to deployment to enable us to make use of the North Sea. I am sure that the OGA will say, "We would rather have our remit nice and narrow; please leave us alone". That is fine, but we are moving to a time when the social contract between the citizens and taxpayers of the UK and the offshore oil and gas operators is changing. The oil and gas industry largely used to get on with what it was doing—delivering us rather nice, large sources of tax revenue—and everyone was happy. That is shifting. The revenues are falling, as we have seen in recent years, decommissioning costs are rising and the OGA itself, as we will come to debate later this afternoon, will potentially receive public funding to go about its business. This is no longer purely a commercially focused sector and it requires government to intervene to help it. It has the opportunity to receive public funding—the oil and gas operators already receive generous tax breaks that enable them to offset their decommissioning costs. The social licence between us, the citizens of the UK, and the offshore oil and gas operators is shifting. We need to make sure that the OGA reflects that change of balance and takes on a role fit for the 21st century We should always consider very carefully when we create new public sector costs. The Government have pointed out on numerous occasions that we are living through a time of austerity, and it seems a bit strange that we should be creating a new area of public spending here without requiring this to be a comprehensive body that takes into account a whole range of views and issues and keeps pace with current events. As good as it was, the Wood review—which I am sure will continue to receive cross-Bench support—is over two years old, and two years has been shown to be quite a long time in the oil and gas sector, hence the need for these two amendments. I look forward to the Minister’s response and I beg to move.