Clause 7

Energy Bill – in a Public Bill Committee at 1:45 pm on 21 February 2008.

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Offence to carry on unlicensed activities

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I beg to move amendment No. 7, in clause 7, page 4, line 29, at end insert—

‘(c) has a decommissioning programme for the facility, which has been approved by the Secretary of State.’.

Clause 7 relates to the offence of carrying on unlicensed activities. As it stands, it looks at the how a facility should be operated during its lifetime, but it does not look at how that facility should be decommissioned once it has stopped being used. My contention is that decommissioning needs to be included from the outset, so that we can put it on a level playing field with other activities in the energy sector—for example with wind farms, which have to have a decommissioning programme in place when they are established. Indeed, the hon. Member for Copeland has spoken about the need for a level playing field in relation to the requirements that the Government are proposing for nuclear facilities.

A failure to decommission a site effectively would lead to significant hazards, especially to shipping, if part of the rig or the injection system is left in position. Such facilities will inevitably decay over time if they are not being used or well maintained, especially in the rough seas that they are being proposed for. Amendment No. 7 would simply require that before a facility could start to be used for the importation or storage of combustible gas, there would need to be an approved decommissioning programme in place, which has been signed off by the Secretary of State. This could include, for example, a decommissioning programme to state what needs to be removed at the end of the period of use; the establishment of a  decommissioning fund, and perhaps in that fund, a charge on the parent or associated company—as is being proposed with the nuclear decommissioning programmes.

It would seem that this is a modest change, but it would avoid the need to address this issue at a later stage when a facility has perhaps stopped being used, and the original users have ceased to exist in their current form.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

The intention behind this amendment seems, sensibly, to make decommissioning a de facto part of the licensing process. My only qualification would be that there might be neater ways to do it than are in the amendment—perhaps even slightly less aggressive ways. It could perhaps mirror what is present in other parts of the Bill where the decommissioning programme seems to be more closely tied in with the licence application process, rather than creating what seems to be a new offence in operating without a decommissioning programme. That seems to be a rather punitive approach from Conservative Members, but perhaps that simply represents a temperamental difference between Liberals and Conservatives.

There also does not seem to be much detail about what actually constitutes a decommissioning programme. In the nuclear part of the Bill, it is referred to as a “funded decommissioning programme”. Of course, this may reflect the general consensus that nuclear waste having to be disposed of is environmentally bad—and an environmental risk in a much more serious sense than the gas being stored on this occasion, which is at least economically, if not environmentally, good. Perhaps there is a rationale to having a different basis, but I wonder whether the hon. Members for Wealden and for Billericay, who are proposing the amendment, or the Minister have considered how a decommissioning programme for these installations would be funded, and how those funds might be protected.

In general, I am sympathetic to the intention of the amendment, which incorporates decommissioning into the licence regime. I would be interested to hear from the Minister why this part of the Bill differs in that respect from other parts of the Bill.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art

I thought for one moment that the hon. Member for Cheltenham was going to suggest that the decommissioning programme or plan could be funded by a windfall tax on the existing companies, but that money has been pledged by the Liberal Democrats to so many different areas that probably the pot is, as we speak, empty.

This is a good proposal from my hon. Friends the Members for Wealden and for Billericay. I do not see how it is draconian. Decommissioning is just as interesting as the commissioning of these activities and licensing, and it is something that exercises hon. Members on both sides of the House in this day and age. Indeed, there are those of us—myself included—whose reservations, particularly about the nuclear programme, concern the aftermath and what happens to the material once it has been processed and so on. There are those of us who care passionately about the environment and want to see plans in place—before any commissioning is undertaken—that would show how a redundant plan could be implemented at the given time.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

I could understand us having this debate if it was on the next part of the Bill about carbon storage. But surely a decommissioning plan for a gas storage unit is to sell the gas and not put any more in.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art

Indeed, that may well be the case, but we are not just talking about gas storage. We are saying that written into the Bill should be the principle that there is a plan or a fund set aside that could be used in decommissioning. I think it is a fairly uncontentious amendment and I hope the Minister will address it, given the fact that it has been supported by the Liberal Democrats as well

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

This has been a useful discussion. I hope to persuade the hon. Member for Wealden that for the reasons I am about to outline the amendment is not required. I think that the problem can be tackled in another way.

The hon. Member for East Devon drew the comparison with nuclear decommissioning and I suspect that there may be an opportunity later to discuss that subject. I do not anticipate that the nuclear clauses will go through on the nod, so I hope that he will forgive me if I do not go down that path at the moment.

We need to ensure that the activities we are seeking to license through the gas unloading and storage regime are subject to a robust procedure for managing the final stage of the process, in other words decommissioning. Through this amendment the hon. Member for Wealden appears to be seeking a provision that would make it a criminal offence not to have a decommissioning programme approved by the Secretary of State at the time the offshore gas storage or unloading facility is operational. Although I agree with his sentiments, I cannot agree to this amendment for two reasons.

First, we are extending through schedule 1 of this Bill the existing decommissioning provisions in part 4 of the Petroleum Act 1998, to include offshore gas storage and unloading and related activities. This means that operators will be required to draw up and carry out an approved programme for the decommissioning of their installations. Such obligations can also be placed on certain other interested parties such as companies associated with the operator. This amendment would in effect create a different regime for gas unloading and storage from that which will apply to oil and gas developments.

We are proposing a number of changes to the decommissioning regime in the Petroleum Act under chapter 3 of part 3 of this Bill. These changes will allow the Secretary of State to require decommissioning security at any time during the life of an oil and gas field if the risks to the taxpayer are assessed as unacceptable.

We are also looking to protect the funds put aside for decommissioning so, in the event of insolvency of the relevant party, the funds remain available to pay for decommissioning and the taxpayer’s exposure is minimised. Once the Bill is passed the Petroleum Act regime, including the changes I have mentioned, will also apply automatically to offshore gas unloading and storage facilities. Changing the requirement for decommissioning projects on a piecemeal basis, which would be one of the implications of this amendment, would lead to inconsistencies across the different applicable licensing regimes. By linking  offshore gas with the existing regime we provide a single, consistent approach to decommissioning, with any changes made to the Petroleum Act regime flowing through to the offshore gas licensing regime. However, if the amendment were accepted a different requirement would be put in place for offshore gas unloading and storage, and regimes would start to diverge.

Secondly, this amendment could create confusion over which penalty regime would apply to decommissioning. For instance, part 4 of the Petroleum Act 1998, which will apply to offshore gas unloading and storage, provides a penalty in the case of a conviction on indictment of a term of two years’ imprisonment and/or an unlimited fine. However, the penalty for the part of the Bill where the amendment is suggested is in the case of conviction on indictment an unlimited fine. That is a lesser penalty regime than that of the relevant part of the Petroleum Act 1998.

I hope I have provided some reassurance to the hon. Gentleman that the provisions around decommissioning facilities are appropriately covered under this regime and explained the drawbacks to having a piecemeal approach to decommissioning obligations. I thank him for introducing an important debate on the significant topic of decommissioning but wonder whether he might consider withdrawing his amendment.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I thank the Minister for that extremely helpful response to the issues we have raised in this debate.

It is clear from the explanation that the Minister has given us that there are other elements of the Bill that address these issues in a consistent way and will provide the sort of coverage and protection that we were seeking to achieve through this amendment. It has essentially been a probing amendment to try to make sure the Committee had a full understanding of what is being proposed.

In the light of the assurances the Minister has given we do not wish to pursue this further. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform) 2:00, 21 February 2008

I beg to move amendment No. 8, in clause 7, page 4, line 35, at end insert—

‘(4) A person guilty of an offence under this section is liable to be subject to a bar on future licence applications, for a period of time to be determined by the Secretary of State.’.

Photo of Sir David Amess Sir David Amess Conservative, Southend West

With this it will be convenient to discuss amendment No. 9, in clause 8, page 5, line 24, at end insert—

‘(6) A person guilty of an offence under this section is liable to be subject to a bar on future licence applications, for a period of time to be determined by the Secretary of State.’.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

The two amendments relate to clauses 7 and 8. We are seeking to ensure that we have effective deterrents in place so that people do not breach this part of the Act.

The explanatory notes set out the penalties available, which are a fine of up to a statutory maximum of £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland on summary conviction or an unlimited fine for conviction on indictment. The high penalty is contained in the proposals, but I think it is worth including an extra penalty, which would be a bar on that organisation or person applying for a licence to import or store combustible gas for a time to be determined by the Secretary of State if they fall foul of this part of the Bill. The companies developing these facilities are very large with deep pockets for paying fines if they decide that they want to operate in breach of the law if it comes into force.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

They have a bob or two where necessary for dealing with these issues, although they will need a few more bob in Scotland because the fine is rather more expensive than it is in other parts of the Kingdom. The activities being carried out are potentially very dangerous and if anything goes wrong, there is a very serious risk to life, sea life and the environment. The Bill sorts out the activities that would not be permitted. These include, in clause 7, acting without a licence, or in clause 8, acting without prior consent where it is necessary to have such consent, or a failure to keep good records. Those penalties would rarely, if ever, be used, but would add an important further measure to discourage breaches and I hope that the Minister will consider them.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I am all for effective deterrence, especially when people and the environment are at risk, but I do see a potential problem with the way the amendment is framed, which perhaps reflects a weakness in the way clause 7 is framed. By holding individuals responsible, these fines or punitive measures could easily be evaded if the individual cannot be identified. Since we have a clear trend towards corporate responsibility, it seems odd that in this obviously corporate area, we are holding only individuals responsible. It is difficult to imagine a private individual surreptitiously indulging in a bit of gas storage on the side. There are visions of “Trotter’s Combustible Gas Storage Limited”—I think that we can all imagine how that episode would end. If the argument is that the corporate fines would never be large enough to act as a deterrent to large companies, who have a bob or two, we simply have to make the fines sufficiently cripplingly to make sure that they are a deterrent.

Amendment No. 8 has an unsatisfactory delegation once again of complete discretion to the Secretary of State. No disrespect to Ministers, but this an unfortunate trend in the legislation—everything seems to be left to the Secretary of State or to Ministers to determine at some later stage, instead of being in the Bill. It is crucial, because if the period envisaged is six weeks, that amounts to a slap on the wrist; if it is a lifetime ban on applying for a licence, that would close down the business. Clearly that is a critical consideration and I would be interested to hear what the Conservative spokesman feels might be the relevant time scale.

Amendment No. 9 seems more useful and is a logical extension of amendment No. 8, but again, there is a problem with the way it is framed in that it could be avoided if an individual was not identified as culpable. I see shortcomings with these amendments, but I am interested to hear the response of both the hon. Member for Wealden and the Minister.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

In response to the hon. Member for Cheltenham, I should say that when we talk about “a person” in clause 7, that could include a company and any corporate body. I think that that does ground it in corporate responsibility.

I am grateful to the hon. Member for Wealden for raising such an interesting and pertinent point with his suggested amendment. As hon. Members may know, clauses 7 and 8 relate to the enforcement provisions of the new offshore gas storage and unloading regime. In particular, clause 7 stipulates that it is an offence to undertake any of the activities set out in clause 2, such as the unloading of gas to an installation or pipeline, without a licence granted under clause 3. Meanwhile, clause 8 specifically covers offences once a licence has been granted, such as the breach of certain specified licence conditions.

The clauses form part of a suite of provisions designed to ensure that a licence is obtained for the activities listed in clause 2 and that the terms and conditions governing the licence are adhered to. Adherence to the terms and conditions of licences will ensure that the necessary safety, environmental and other protections are in place for the offshore storage of gas, and, indeed, the unloading of liquefied natural gas.

The currently proposed penalties for failing to obtain a licence, or for non-compliance with licence conditions, are, we believe, proportionate and sufficiently strong to deter licence holders from committing the offence. The penalties for any person found guilty under either clause 7 or clause 8 consist of a fine of up to the statutory maximum, which is currently £5,000 in England, Wales and Northern Ireland, and £10,000 in Scotland, on summary conviction, or an unlimited fine for conviction on indictment.

The hon. Member for Wealden suggests that we should add to the existing offences and provide the Secretary of State with the power to stipulate that a person guilty of an offence under the gas unloading and storage regimes should be barred from applying for future licences for a period to be determined by him. Perhaps I can provide some reassurance that we have already given those issues a great deal of thought. I am confident that we have the right penalties for the offences, without the amendment.

The penalty provisions in clauses 7 and 8 are based on an existing enforcement regime, which has worked successfully to date: the penalty provisions of the submarine pipelines regime in the Petroleum Act 1998. I believe that the liability to a potentially unlimited fine will act as an effective and proportionate deterrent to operators engaged in offshore gas or carbon dioxide storage.

If in the future it should be felt that a broader range of penalties was necessary, including a bar on persons who had been found guilty of an offence from holding a gas storage and unloading licence, the Bill would already  provide for such a scenario. The power afforded to the Secretary of State by clause 4(a) allows for regulations to be made detailing who may apply for such a licence. I hope that that goes some way to answering the point made by the hon. Member for Wealden about the responsibilities and duties of the corporation.

The regulations could therefore adequately provide for a measure of the kind in question, should we deem that necessary. Our intention is to consult on the regulations, and the requirements for applying, prior to the adoption of the regulations. In conclusion, therefore, I do not consider that the amendments are necessary, first because I am confident that we have adopted the right balance in our offence provisions, and secondly because the amendments would duplicate powers that we already propose to give to the Secretary of State under clause 4. I therefore ask the hon. Gentleman to consider withdrawing his amendment, which, again, has teased out a useful discussion.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I am grateful to the Minister, as always, for the clarity with which he has responded to the debate. I understand exactly what the Government have been seeking to achieve in the other provisions of the Bill. I think that there would be interesting legal challenges if it should be decided at some future date that a particular person or organisation might not apply for a licence because the Government had been unhappy with their performance elsewhere. However, that would be a matter for debate and legal challenge at the time in question.

In the light of what the Minister says, there would appear, in current circumstances, to be enough protections and penalties in the Bill, should those be required. However, if it were to emerge over time that those were not satisfactory, Parliament would clearly have to return to that issue subsequently. In the light of the Minister’s assurances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 ordered to stand part of the Bill.