Amendment 8

Energy Bill [HL] - Committee (1st Day) – in the House of Lords at 4:45 pm on 5th September 2022.

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Lord Foulkes of Cumnock:

Moved by Lord Foulkes of Cumnock

8: Clause 1, page 2, line 2, leave out second “may” and insert “are or are likely to” Member’s explanatory statementThis amendment requires there to be an actual impact or likelihood of an impact on the consumers whose interests are being protected, whilst retaining discretion for the Secretary of State and the economic regulator to exercise their judgement. This would enable Ofgem to better justify and evidence decisions enabling strategic anticipatory investment.

Photo of Lord Foulkes of Cumnock Lord Foulkes of Cumnock Labour

My Lords, it is my responsibility and pleasure to move Amendment 8 and to speak to Amendments 9, 14 and 16 in the unavoidable absence of the noble Baroness, Lady Liddell, who will be with us from Wednesday onwards. She sends her apologies but I am pleased to speak on her behalf, and my own, and to thank the Carbon Capture and Storage Association for its excellent briefing about this issue and the implications involved and the help it has given us with drafting these amendments.

I have two points before I go on to the detail of the amendments. As others have said, the UK has one of the largest potential carbon dioxide storage capacities in Europe. This is a very important issue that we are dealing with today, and it should not be underplayed and underestimated. It extends throughout the whole United Kingdom—Scotland, England, Wales and Northern Ireland. Also, as I understand it, it will support 50,000 jobs—a not insignificant number, given the current situation.

Turning first to Amendments 8 and 9, these deal with the importance of a net-zero principal duty to enable rapid network expansion. If we in the UK are to meet our emission reduction targets, carbon capture and storage will need to be rolled out rapidly across the UK during the rest of this decade. To capture and store 30 million tonnes a year by 2030, as the Net Zero Strategy says, we will need to go from nothing to building significant CO2 infrastructure in a short space of time. It is therefore vital that the regime set out in the Bill enables initial oversizing of CO2 pipelines, increasing their size, which will allow for the subsequent rapid network expansion to connect more capture sites to the growing suite of storage sites.

The National Infrastructure Commission’s 2019 regulation review, Strategic Investment and Public Confidence, recommended that the economic regulators’ duties be updated to facilitate long-term investment in networks. It recommended implementing updated duties that will enable network operators to deliver the best results for the public by building and investing in networks that are resilient and fit to deliver net zero while also providing value to current and future users of those networks.

The Government should be commended—it is unusual for me to commend them—for proposing that the duties of the economic regulators include consideration of the needs of existing and future users, but this seems a missed opportunity to include a duty to deliver net zero by 2050, to help the regulators to effectively balance these two equally important factors.

It should be noted, however, that outside the regulators’ core duties, the Bill includes a further requirement for the regulator to support the Secretary of State in having regard to the Climate Change Act 2008, and the new CCUS strategy and policy statement should go some way to addressing this. However, in practice, these mechanisms are not as strong as the regulators’ own duties.

This amendment is therefore essential to give the regulator the necessary powers to make decisions that enable the required strategic anticipatory investment on the network. Ofgem will need to be empowered to make well-justified decisions that balance the interests of current and future transport and storage network users with delivering net zero.

That deals with Amendments 8 and 9. I now come to Amendments 14 and 16, which would ensure that all types of permanent storage are included. Of course, geological storage is not the only type of permanent storage of CO2. This can also be achieved by types of usage where the carbon dioxide is used in a way that it is chemically bound in a product and not intended to re-enter the atmosphere. As currently written, this clause allows only for geological storage, so this amendment is intended to recognise that there are other methods of permanent storage. However, it is important to qualify in this drafting that only carbon capture and usage where it is intended to be permanent—and therefore subject to monitoring and verification—can qualify for this.

It is worth noting that in other areas of the Bill a wider definition of storage is used, and the question could be asked: why are there different definitions for each clause of the Bill? Perhaps the Minister could explain that in his reply. This amendment aligns with Clause 63(8), where the Bill defines “storage” as

“any storage with a view to the permanent containment of carbon dioxide.”

Would it therefore be possible to have a common definition of storage used throughout the Bill?

I hope that the Minister will give a positive response to these amendments and I beg to move.

Photo of Baroness Worthington Baroness Worthington Crossbench

My Lords, I will speak very briefly in support of Amendment 14 and reiterate the question of why there may be inconsistent definitions of storage in the Bill.

In my time exploring carbon capture and storage over the years, I have become somewhat cynical about its ability to scale. The sheer cost of it and the presence of alternatives that may be cheaper and more secure mean that its role will be relatively limited. I am sure that it will play a role, but only if we enable it to be pursued in its widest possible senses. It is absolutely the case that you can store large volumes of carbon dioxide underground; we have aquifers and other underground storage facilities that could be used for this, including in the North Sea and on land, and we should explore those where they make sense. However, there are other mechanisms through which you can enable the use of other stored forms of carbon. Novel techniques are coming to market now involving plasma torches, which, applied to natural gas streams, deliver pure streams of hydrogen plus black carbon. That black carbon can then be used as a manufacturing commodity. Therefore, it would be foolish of us not to include that as a potential option. Similarly, CO2 is used as a binding agent in the production of building materials. In fact, currently the CO2 has to be bought at an extortionate rate, so using pure waste streams of CO2 for the production of building materials will again be a permanent form of storage and it should be supported in the Bill. I fully support this amendment.

Photo of Baroness Bennett of Manor Castle Baroness Bennett of Manor Castle Green

My Lords, I want briefly to reinforce the comments that have already been made. I wish to speak particularly in favour of Amendment 9, on the duty to assist in delivering net zero, and to Amendments 14, 15, 16 and 19; as has been argued clearly, having a consistent definition of storage throughout the Bill makes total sense.

Like the noble Baroness, Lady Worthington, I am very sceptical about the claims made about carbon capture and storage. Often, we see it used as a “get out of jail free” card: “We’ve got all the numbers and they don’t add up. We’ll just throw in a figure for carbon capture and storage to allow us to continue as we are”. That is clearly unviable. None the less, it makes a lot of sense to grab carbon emissions wherever they occur and use them in a constructive way.

The noble Baroness, Lady Worthington, referred to the construction industry. Are we specific about that when looking at mineral carbonation? There is already at least one company that makes the reasonable claim—perhaps still to be fully attested—to be a carbon capture and storage producer of cement blocks, using a process of mineral carbonation that combines waste slag from the steel industry with carbon from industrial plants. We need to leave these possibilities open and ensure that they are encouraged, to make sure that a company that develops such a plan does not then run into a block of legislation that stops it being able to deliver because it would then be left in a difficult commercial situation.

Photo of Lord Teverson Lord Teverson Liberal Democrat Lords Spokesperson (Energy and Climate Change), Chair, EU Environment Sub-Committee, Chair, EU Environment Sub-Committee 5:00 pm, 5th September 2022

My Lords, I wish to speak to my Amendment 10. First, let me say that I very much agree with the drift of the debate so far, in that carbon capture, usage and storage has got a lot more real in the past few years—I give the Government credit as well—in terms of clusters and using carbon capture, primarily for industrial processes. What we should not be using it for is gas power stations that are CS-ready and which through carbon capture become much less efficient in their energy production. Clearly, we should be substituting gas and not using it in that way. The same absolutely goes for usage, where possible. I am sure that a lot of fizzy drinks and other such things use it as well.

In my Amendment 10, I am concerned that there should be in the Bill a duty for the Secretary of State. We should have transparency in the sector. What we are trying to do here is stop cross-subsidy between networks and network users. In many ways, this is a probing amendment. I would be interested to hear the Minister’s reaction on how we can keep these networks and markets transparent so that we can assess users, sectors and networks in their own right and avoid transfer charging or subsidy from one to the other without understanding whether there is a case for it.

Photo of Lord Hutton of Furness Lord Hutton of Furness Labour

My Lords, I want briefly to speak in support of my noble friends’ Amendments 8 and 9, which touch on some important issues that we ought to debate in this House.

To their credit, the Government have brought forward legislation that imposes significant duties on the Secretary of State and the economic regulator. I am sure that we all welcome those duties. However, when it comes to parts of the Bill that create general overriding obligations and purposes, it is important for the legislation to be drafted correctly and coherently, otherwise we create a rod for our own backs—not just for this Government but for future Governments as well. There is always a general case to be made for as much clarity as possible around how those duties and responsibilities are defined. My noble friends’ amendments will certainly help to do that.

I have a specific point to raise with the Minister, and I hope that he will be in a position to respond to it. Having looked at Clause 1 as a whole, the provisions that concern me the most are those in Clause 1(3). One of the duties that we are imposing on the Secretary of State and the regulator is to promote at all times a culture of competition between providers in this sector.

I want to raise a concern with the Minister. Carbon capture, storage and utilisation are huge process engineering challenges for British industry to rise to. I welcome very much the direction of travel that the Government have set out for testing and developing business models for CCUS projects; it is an incredibly important step. My only concern is that, although I am generally a very strong supporter of competition in markets, we can take that ideology too far and apply it in a context which probably will not secure the objectives that we have in mind. Over the next few years, I want to see a mobilisation of British industry, particularly the engineering companies in this country, so that they can come together and work on these projects. It will take that sort of collaborative approach, rather than an approach based purely on competition. If we can pursue that path, it will deliver more of a result over a shorter period than pursuing a purely orthodox, competition-based approach would.

I know that there is no specific amendment tabled to Clause 1(3) today, but I want to put a marker down because this is a general issue of principle. The question is simply this: how are we best placed to mobilise all of the amazing engineering resources that we will need in this country to meet our carbon capture, utilisation and storage targets if it is to be driven purely by competition as opposed to collaboration? If we pursue purely the competitive approach, I suspect that quite a lot of the jobs that the Government have talked about in the Explanatory Memorandum will not come to UK companies; they will go to Finland, Poland, Germany and other countries that are slightly further ahead of us in developing and applying some of the technologies that we will need. There is a general issue here that needs to be raised.

I should have declared an interest at the beginning of my remarks. I am the chairman of Energy UK, which represents the energy companies in the UK, and of Make UK, which represents all the engineering companies.

Photo of Lord Lennie Lord Lennie Opposition Whip (Lords), Shadow Spokesperson (Business, Energy and Industrial Strategy and International Trade)

My Lords, Amendments 11,12 and 13 in my name would all strengthen the relationship between Ministers and the economic regulator by insisting that the Secretary of State and the economic regulator are bound by the listed regulatory principles and the need to contribute to achieving sustainable development rather than just having regard to them. Further, they would oblige a Minister to be bound by their duties as a Minister, as opposed to just having regard for them. They would also require the economic regulator to be bound by the need to assist the Secretary of State, compliant with its duties and targets. It is not sufficient to have regard to these matters; it is important to be bound by them. Can the Minister say what “have regard to” means if not to be bound by them?

Amendments 15 and 16 espouse that the Bill does not specifically include carbon capture usage. To add to the example given by the noble Baroness, Lady Worthington, in January 2021, the major US oil company Chevron announced that it had made investments in the San Jose-based corporation Blue Planet Systems—then a start-up—which manufactures and develops carbon aggregates and carbon capture technology intended to reduce the carbon intensity of industrial operations. Blue Planet Systems manufactures carbon-based building aggregate from flue-gas-captured CO2. These amendments aim to encourage the use of captured carbon as opposed to its storage.

Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, I thank everyone who has contributed to this short debate. Addressing the amendments in turn, I will start with Amendment 8, tabled by the noble Baroness, Lady Liddell, and my old friend the noble Lord, Lord Foulkes, who is very conciliatory today—I am suspicious; something has happened to him over the summer, but I am sure that we will get the old noble Lord, Lord Foulkes, back before we get much further into the debate.

This amendment seeks to amend the principal objective applying to the Secretary of State and the Gas and Electricity Markets Authority in respect of consumer protections. Under the current drafting of this principal objective, it is for the Secretary of State or the economic regulator to protect the interests of consumers who they consider may be affected by regulatory decisions. This drafting is intended to ensure that the economic regulator and Secretary of State have discretion as to the consumer impacts that are taken into account. While the noble Lord’s and the noble Baroness’s amendment is intended to ensure that only actual or likely impacts are taken into account, we consider that the existing drafting already provides for this. Therefore, I submit that the amendment is unnecessary.

I turn next to Amendment 9, which is also in the name of the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes, joined on this occasion by the noble Baroness, Lady Bennett. The amendment as drafted would place an additional principal objective on the Secretary of State and the economic regulator to assist in the delivery of the net-zero objective. I know that we have had this discussion on a number of Bills, but I will reiterate that, under the Climate Change Act 2008, the Secretary of State is already bound by law to ensure that the targets to reduce greenhouse gas emissions are met.

Under Clause 1(6), the economic regulator is required to have regard to the need to assist the Secretary of State in complying with his duties to achieve carbon emissions reduction targets and to have regard to these targets in each of the devolved Administrations. I therefore submit that the economic regulator is already required to take these net-zero targets into account in its regulatory determinations.

Next, I turn to Amendment 10, proposed by the noble Lord, Lord Teverson. This amendment seeks to ensure that cross-subsidy of carbon dioxide transport and storage activities, from users of other networks, is avoided. Clause 1 of the Bill establishes the Gas and Electricity Markets Authority as the economic regulator of carbon dioxide transport and storage. It also establishes the principal objectives and general duties for the Secretary of State and the economic regulator in the exercise of their respective functions in relation to the economic regulation of carbon dioxide transport and storage.

The principal objectives in Clause 1 include protecting the interests of current and future users of the network and those of consumers. In relation to the regulation of gas and electricity, the Secretary of State and the Gas and Electricity Markets Authority remain bound by the principal objectives to, respectively, protect the interests of current and future consumers in relation to gas conveyed through pipes, and in relation to electricity conveyed by distribution systems. Different principal objectives are appropriate to reflect that the objectives for carbon dioxide transport and storage networks are different from those of the gas and electricity networks.

Under the provisions in the Bill, the economic regulator should be able to take into account, in its decision-making in relation to CO2 transport and storage activities, any impacts on users of gas and electricity networks that may arise from those decisions. I hope that the noble Lord is sufficiently reassured on this point.

I move on to Amendment 11, tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. This seeks to ensure that the Secretary of State and the Gas and Electricity Markets Authority are bound by the principles of regulatory best practice and the need to contribute to the achievement of sustainable development. Clause 1 sets out the principal objectives and general duties of the Secretary of State and the economic regulator. The principal objectives are complemented by statutory duties on the Secretary of State and the economic regulator to have regard to certain matters. This includes having regard to principles of regulatory best practice and the need to contribute to the achievement of sustainable development. To have regard to these matters means that the Secretary of State or the economic regulator, as the case may be, must give genuine attention and thought to these matters.

In a complex sector with varying objectives that can sometimes conflict, it is important that the regulator’s duties strike the right balance between setting out all relevant issues and considerations, while giving some necessary discretion to the regulator to balance those considerations in its decision-making process and to have sufficient authority and independence in that decision-making. I hope that explains the point for the benefit of the noble Lord, Lord Lennie.

The formulation of the statutory duty as proposed by the noble Lord and the noble Baroness in our view risks compromising what is quite a delicate balance. The greater the number of statutory duties, and the more binding their nature, the more difficult the act of balancing the different, possibly conflicting, duties becomes. I hope that provides sufficient reassurance.

Amendments 12 and 13, again from the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, also seek to amend the statutory duties applying to the Secretary of State and the Gas and Electricity Markets Authority to ensure that the greenhouse gas emissions reduction targets under the Climate Change Act 2008 are a binding consideration in regulatory determinations. In relation to Amendment 12, as I have already set out, under the Climate Change Act the Secretary of State is already bound by law to ensure that the targets to reduce emissions are met. We therefore do not consider that this amendment is necessary.

On Amendment 13, which would require that the economic regulator should be duty bound to assist the Secretary of State’s compliance with his or her duties under the Climate Change Act, I reiterate the point in relation to the language of “have regard to” in the drafting of regulatory duties in a complex sector with varying objectives that can sometimes conflict. It is important to make sure that the regulator’s duties strike the right balance between setting out all the relevant issues and considerations and allowing the necessary discretion for the regulator to balance those considerations—and of course to have sufficient authority and independence in that decision-making process. For example, in a circumstance where net-zero objectives are perhaps in tension with consumer protections, the amendment could inadvertently reduce the regulator’s ability and discretion to balance such tension. The drafting of the regulatory duties will ensure that achieving emissions reduction targets is considered by both the regulator and the Secretary of State in their decision-making and that this is balanced appropriately against other regulatory considerations. I hope that I have been able to offer sufficient reassurance to both noble Lords.

I move on to the noble Baronesses, Lady Worthington and Lady Bennett of Manor Castle, and their remarks on Amendments 14, 15, 16 and 19, which are concerned with expanding definitions in the Bill to encompass non-geological forms of storage of carbon dioxide, including usage. The definition of “carbon capture entity” in Clause 63 could include a broad range of carbon-capture applications, including projects where the utilisation of carbon dioxide results in the storage of carbon dioxide with a view to its permanent containment. If the project meets the other conditions in the definition, decisions about which carbon-capture entities are eligible for support are therefore to be made on a case-by-case basis.

Carbon capture and usage technologies typically involve the capture of carbon dioxide and its subsequent use as an alternative to directly captured carbon dioxide that is stored permanently underground. As has been said, CCU has a variety of potential applications across industrial sectors in the UK, including fertiliser production, cement, lime and food and drink. However, not all those applications result in the permanent abatement of carbon dioxide. Carbon capture and usage resulting in the permanent abatement of carbon dioxide presents only a relatively small abatement potential when compared with carbon capture, which is disposed of by way of geological storage. Therefore, we are prioritising support for the deployment of carbon capture and storage in the UK in order to incentivise large-scale abatement of carbon dioxide and the establishment of transport and storage infrastructure essential for net zero.

We anticipate that those who may wish to off-take carbon dioxide from the network for the purposes of carbon capture and usage are likely to have alternative options available, such as off-taking directly from an emitter. Therefore, it is considered that economic regulation is not currently needed for networks transporting carbon dioxide for non-geological storage or for usage purposes. I hope therefore that I have offered sufficient reassurance to noble Lords on that matter and that they will not press their amendments.

Photo of Baroness Worthington Baroness Worthington Crossbench 5:15 pm, 5th September 2022

I have a point of clarification. Are the definitions different because regulation over transportation is not needed or is the Minister saying, “We have picked a winner. It is going to be storage through this mechanism and we are not interested in the innovation that is coming through in these other sources of permanent storage.”? If it is the latter, I would find that very hard to understand in a Bill that is seeking to support new technologies.

I think it is the case—the noble Baroness, Lady Bennett, mentioned it—that there is a company in the UK already doing this, with limited support from government. It can scale. It is not a silver bullet by any means but there is not a single operational carbon capture and storage facility in the UK apart from that one, and yet the Bill does not seem interested in supporting it. I would like to understand: if the Government is interested in supporting new technologies, can we make that as broad as possible?

Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

The Bill is intended to establish an economic means of support for geological formation. Of course, I commend the company referred to by the noble Baroness, which is managing to find ways of—I hope—permanently storing carbon dioxide in a form other than geological formation; indeed, there are other potential support mechanisms that could be deployed towards that. There is lots of research and development funding through UKRI and there is a whole range of other advanced technologies that we are supporting. In this case, in relation to economic regulation, the market mechanism that we want to set up on CCUS is dedicated principally towards geological long-term storage; we think that is the area that needs support under this system. That would provide the vast majority of storage that we can envisage at the moment but, of course, we are always willing to consider other methods. If this company is proving to be a success, that is great and I would be very happy to look at alternative ways of supporting it.

Photo of Lord Foulkes of Cumnock Lord Foulkes of Cumnock Labour

I hope the Minister does not think I have gone soft—heaven forbid. It may be that I am not putting my foot on the pedal at the moment because of the reshuffle that is under way. I would like to see the Minister back so that we can re-engage in our usual hostilities, which we both enjoy. His reply has been very full but it needs careful consideration, looking at what he said in more detail in Hansard and discussing it among ourselves; I will discuss it with my noble friend Lady Liddell. The noble Baroness, Lady Worthington, has made some very good points that need to be taken account of. I hope that the Minister will continue discussions with the Carbon Capture and Storage Association about the points that it has been making. In view of the further discussions that might take place, I am willing to withdraw my amendment.

Amendment 8 withdrawn.

Amendments 9 to 16 not moved.

Clause 1 agreed.

Clause 2: Prohibition on unlicensed activities