Energy Bill [HL] — Second Reading

Part of the debate – in the House of Lords at 11:38 am on 22nd July 2015.

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Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Energy and Climate Change, Lord in Waiting (HM Household) (Whip), The Parliamentary Under-Secretary of State for Wales 11:38 am, 22nd July 2015

My Lords, your Lordships’ House has had several opportunities to debate energy issues this year, and I know that the debate on this Bill will be as full and rigorous as it has always been in the past.

The Government’s energy priorities are clear: keeping bills as low as possible for families and businesses, and powering the economy while decarbonising in the most cost-effective way. These are challenging and critical objectives, but the Government have a long-term plan, underpinned by carbon budgets, to meet our responsibilities.

Keeping the lights on is non-negotiable. Our modern technological society cannot function without power. A diverse energy mix, including homegrown sources, provides the most resilient system. Tackling climate change is also non-negotiable. Your Lordships know that climate change is a threat not just to the environment but to our national security, global security and long-term economic prosperity. A global deal is the only way both to deliver the scale of action required and to drive down the costs of climate action, so the global conference in Paris this December is a serious opportunity to avoid its catastrophic effects and open up new avenues for low-carbon industries.

Going for clean energy makes economic sense, and it makes business sense: clean energy is a boom market, bringing jobs, investment and growth. But it makes sense only if we keep costs pinned down. The vital financial support that has been provided to the renewables sector has helped new and innovative technologies, while increasing the amount of low-carbon electricity that powers homes and businesses across the United Kingdom. Financial support has already driven down the costs of renewables significantly and these are continuing to fall, making it easier for the industry to thrive without subsidies.

To work for everyone, decarbonisation has to be affordable and sensitive to the impact it has on people’s pockets and wider economic circumstances. The Government have today announced a package of reforms to take control of the costs of renewable electricity subsidies under the levy control framework. This is part of the Government’s commitment to control energy bills for hard-working British families and businesses as we continue to move to a low-carbon economy and make progress towards our carbon reduction and renewable energy targets. This will provide the basis for a more sustainable approach to future low-carbon electricity investment. Consistent with this, in the autumn the Government will set out their plans in respect of the next contract for difference allocation round.

In line with keeping bills as low as possible and ensuring that markets work for consumers, we are proposing to introduce competition to the way our networks deliver electricity, which will open up the energy market to innovation and could potentially save British bill payers £390 million over 10 years. The role that United Kingdom businesses can play in meeting the United Kingdom’s climate change targets is undoubted. By incentivising reductions in energy consumption and emissions, the Government are giving business the tools to achieve that goal. Likewise, by cutting red tape and bureaucracy and creating a simple energy tax system that rewards energy and carbon saving, we are empowering businesses to increase productivity, support growth and ensure their place in a competitive global market. We want to collaborate with industry and the wider green economy sector to ensure that we develop a framework for simplicity and stability.

With regard to North Sea oil and gas, the Bill will complete the work started in the previous Parliament to implement fully the recommendations of Sir Ian Wood’s review into United Kingdom offshore oil and gas recovery and its regulation. The Bill is evidence of our continued commitment to support development of North Sea oil and gas. The United Kingdom’s oil and gas industry is of national importance and makes a substantial contribution to the United Kingdom’s economy, energy security and employment.

The Bill will build on the establishment of the Oil and Gas AuthorityOGA—on 1 April 2011 as an executive agency of the Department of Energy and Climate Change, and the powers taken in the Infrastructure Act 2015 to establish the principle of maximising economic recovery in the United Kingdom continental shelf. The Bill has been welcomed by Oil & Gas UK, the trade association for the industry. The chief executive, Deirdre Michie, recently said:

“The OGA is a critical catalyst for the work being done to sustain offshore oil and gas activity and the Bill aims to provide the new regulator with the tools and capabilities it will need to do the job effectively and efficiently so we support its swift passage through Parliament. The provisions contained in the Bill complete the implementation of Sir Ian Wood’s recommendations for MER UK – Maximising Economic Recovery from the UK Continental Shelf”.

The Bill will formally establish the OGA as an independent regulator, which would take the form of a government-owned company, and transfer regulatory powers and functions to the OGA, providing it with new powers to be an effective steward and regulator of petroleum recovery.

Implementing the Wood review recommendations will be done in a way that is compatible with our climate change targets. The 2011 Carbon Plan noted that Britain will still need significant oil and gas supplies while we decarbonise our economy and transition to a low-carbon economy. Maximising recovery by increasing efficiency of production, as well as increasing levels of production of the United Kingdom’s oil and gas, will help to maintain security of supply as well as boost growth and jobs. In 2014, oil produced on the United Kingdom continental shelf was equivalent to around 56% of United Kingdom oil-product demand, while gas produced in the United Kingdom was equivalent to just over half of United Kingdom gas demand. Any oil and gas demand that we do not produce ourselves has to be met by imports, at significant extra cost to the economy. The falling oil price makes effective stewardship of North Sea oil and gas all the more important, as the oil and gas industry in the United Kingdom supports an estimated 375,000 jobs. With industry collaboration and facilitation by the OGA, we will help to drive down costs and improve efficiencies across the sector.

Your Lordships may recall that the March Budget also introduced a number of measures that will help encourage more than £4 billion of additional investment in the United Kingdom’s oil and gas industry over the next five years. Petroleum revenue tax is to be cut from 50% to 35% to support continued production in older fields, while the existing supplementary charge for oil companies is to be cut from 30% to 20%, backdated to January. The Government will also invest in new seismic surveys of underexplored areas of the United Kingdom’s continental shelf.

The Bill will make retrospective provision protecting the taxpayer from liability for historic fees which have been charged, and prospectively enable more comprehensive charging of the offshore oil and gas industry for permits and licences for environmental and decommissioning activity. I thank the Select Committee on the Constitution for its recent report on the retrospective power in the Bill. The Government believe that it is right to protect the taxpayer from the costs of regulating the industry, under the “polluter pays” principle, and will respond to the Select Committee’s report before Committee stage.

Moving to onshore wind, decarbonisation must work in particular for the local communities where infrastructure is built. So the Bill makes provision, alongside new planning guidance, to give local people the final say on new onshore wind development applications in their area. The Government made a manifesto commitment to change the law so that local people have the final say on onshore wind applications and the Bill is part of the Government’s delivery of that commitment, alongside forthcoming secondary legislation and the new considerations for applications for planning permission announced by the Department for Communities and Local Government.

The Bill also helps to deliver the Government’s manifesto commitment to end new public subsidy for onshore wind by bringing forward the closure of the renewables obligation to new onshore wind in Great Britain one year earlier than previously planned. This was a clear and unambiguous manifesto commitment. We have made a great start with renewable power and we will want to be in the best possible position to decarbonise the economy in a cost-effective way, so we will be pushing for an ambitious deal in Paris. We have made excellent progress so far. In 2014, 19% of electricity generation was from renewable sources. We are on track to meet our ambition of 30% of electricity from renewable sources by 2020, and the Bill will not change that.

In 2014, operational onshore wind farms in Great Britain received in the region of £800 million under the renewables obligation. We would expect this to increase to £1.1 billion per year if, as expected, a total of around 11.6 gigawatts of onshore wind comes forward under the renewables obligation. We are therefore taking action to provide us with better control of spending on subsidies and we will ensure that bill payers continue to get value for money as we move to a low-carbon economy.

In conclusion, this Bill seeks to reform onshore wind subsidies and put more power in the hands of local people to make decisions on the development of new wind farms in their area. This Bill will help to support jobs and growth by reinvigorating our domestic oil and gas industry. I believe that the measures in the Bill will keep Britain on the road to economic recovery and secure our energy supplies. I thank noble Lords for their engagement in this progress today. I look forward to a good debate today and throughout the progress of this Bill. I beg to move.