Clause 19

Energy Bill – in a Public Bill Committee at 11:30 am on 26 February 2008.

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Terms and conditions

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

I beg to move amendment No. 12, in clause 19, page 10, line 27, at end insert—

‘(i) provision about obligations of a licence holder to advise the Secretary of State of any accidents, near accidents or leakages relating to the facility.’.

This clause sets out the terms and conditions that can be attached to a licence, and they are mostly sensible, nuts-and-bolts things. However there is nothing here about the rules relating to an accident. The Bill sets out an inspection regime, but an inspector will presumably make visits either at a given time or unannounced, but that will not necessarily coincide with something untoward happening at the facility. This amendment puts the onus, indeed a legal requirement, on the operator to advise if there have been accidents or near-accidents. We recognise that there could be legal difficulty in defining a near-accident, but it is right to be concerned about things that go wrong even if they did not actually result in a formal accident. They might indicate poor working practices that should be investigated.

We all recognise that we are entering uncharted waters with this technology and will be on a learning curve for many years to come. We do not know from whence the risks to the public or environmental safety might come, so we do need to take adequate precautions. Safety, of course, comes with experience and from learning from mistakes—where things have gone wrong, what steps have been put in place to make sure they do not happen again? Lessons learned in this way are so fundamental that they are, of course, the way we make sure that we make adequate precaution for the future.

It would be naive to think we could build in every conceivable safety element from the outset, so we need a precautionary approach in which the onus is on the operator to advise of accidents and near-accidents. Operators will be very concerned about safety, but in the early years of such technology, they will also be concerned about driving costs down, and cost reductions must not be allowed to win over safety. Similarly with leaks, the technology for identifying leaks is in its infancy. Mechanisms to identify leaks can be put in place, but it should be the responsibility of the operator to report any leaks that take place so that they can be fully investigated.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs 11:45, 26 February 2008

The hon. Gentleman’s amendment ties in with my comment earlier this morning about the omission from clause 19 of matters relating to leaks. I know that Government policy on leaks is normally to have a review that never reports, but I think that we need something better in this case. Therefore, the idea of a reporting requirement, as far as it goes, is not one I have a problem with.

This amendment, however, highlights a more general set of omissions from the terms and conditions set out in clause 19—and indeed, this part of the Bill—which relate to the whole issue of monitoring the security of the storage. We do not just want a report—that there is a big CO2 leak and the licensee reports it to the Secretary of State. That is fine, but does not quite seem to go far enough.

What other models are the Government looking to? Are they considering existing models that regulate, for example, mining, oil and gas, pollution control and waste disposal? A number of parallel activities have their own monitoring reporting regimes and which of them, if any, is being looked at—or is there a completely new approach being taken to the regulation of CCS?

I have no problem with the amendment, although I do not feel that it goes far enough in simply requiring reporting of accidents—and if they are as catastrophic as has been suggested, we will know anyway—but we need to go a lot further than it suggests.

I am puzzled, really, by the absence of much more detail in the Bill about the liabilities of operators and why the list of things a licence may include under clause 19(3)(a) to (h) has nothing about not only reporting requirements, but about penalties and monitoring in the event of leakages. I hope that the Minister can give us a fairly full response to the issues that have been raised by this amendment and clause 19.

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

I will do my best. Certainly the issue around accidents of different kinds is crucial, so I would like to thank the hon. Members for Wealden and for Billericay for tabling the amendment. I recognise that they raise an important point in relation to carbon dioxide storage. Given the nature of likely CO2 storage in our seas, I will not say more about the use of the term “uncharted waters”—I do not think that the hon. Member for Wealden meant that technically but I know what he means. I hope, however, that some of these waters are charted.

Existing legislation is not suited to licensing the storage of carbon dioxide under the sea bed, and chapter 3 of the Bill is intended to provide a comprehensive and adaptable legal basis for regulating such storage in the offshore area. I would like to explain why we have drafted the provisions in the way we have, and set out why we think the amendment to include a provision about notification of accidents, near-accidents or leakages relating to a CO2 storage site is unnecessary.

The clause allows licences for CO2 storage and related activities to be granted on such terms and conditions as the Secretary of State, or an authority to which the licensing function is transferred, sees fit. The power will allow the licensing authority to include case-specific requirements in relation to each carbon dioxide store. The clause provides a non-exhaustive list of examples of the sorts of conditions licences may contain, including financial security provisions; the right for the Secretary of State to modify the licence; and provisions about closure of the storage site and termination of the licence. In addition, we expect that all licences will include provisions relating to monitoring and remediation, reporting, record-keeping, notification obligations, and the requirement to have a valid lease from the Crown Estate for the relevant site.

The clause therefore gives the Secretary of State, or another licensing authority, unfettered discretion to grant licences on such terms and conditions as it considers appropriate, subject to any regulations about the terms and conditions of licences that may be issued under clause 20.

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

I think it would help the hon. Gentleman—and I like to be helpful, from time to time, anyway—if I made progress.

It would not be necessary to have express provisions in the Bill because subsection (3) is a non-exhaustive list. Our approach in subsection (3) is to set out examples of some of the less obvious provisions that may be contained in licences. Notification obligations, on the other hand, will be included in every licence as a matter of course, due to the importance of keeping the regulatory authority informed of any leaks or accidents or other significant developments in relation to the storage site.

Indeed, clause 22(1) specifies that that it will be an offence to fail to notify the regulatory authority as required by licence, which necessarily implies that notification requirements may be included in a licence. The Committee may also wish to note that my Department will be consulting on the licence arrangements shortly.

Consequently, I hope that I have provided some reassurance to the hon. Member for Northavon that provisions concerning the notification of accidents or leakages are sufficiently covered in this part of the Bill, without the need to add to the non-exhaustive list under the clause. I must confess that I can see why he raised the matter, but I am advised that it is a list of unusual provisions to be contained in the licences and that, by contrast with mediation and notification, will  be included as standard. I apologise if that has led to confusion on his part but, as my speech progressed, my own confusion started to evaporate.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

The Minister has brought forward an interesting doctrine whereby the Bill contains things that people might not have thought of, and omits the obvious, which is novel for Government legislation. Will he clarify as a set the status of the eight things under the clause? Is he really asking us to believe that they are in the Bill simply because we might not have thought of them, such as that the Secretary of State could review the licence, whereas reporting is so blindingly obvious that it does not need to be mentioned? Is that the Department’s strategy for legislating these days?

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

That statement does not quite summarise our approach. I have conceded to the hon. Gentleman that I can understand why he is confused. Our approach was such that some things were so blindingly obvious—for example, concern about accidents and leakages—that reference need not be made to them, but I hope that he is now reassured. My experience with the Department working with the oil and gas industry, which is an obvious comparator, through our partnership with the industry known as PILOT, which I attend regularly, has impressed on me the fact that the industry takes accidents most seriously. We have only to go on an oil rig to experience a 20-minute safety speech first. That takes place perfectly properly, and we are not complacent about it. I am convinced that my Department and many of the big players that are likely to be involved in carbon dioxide storage have accidents as well as leakages uppermost in their minds. I hope that I have reassured the hon. Gentleman to some extent.

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

The Minister has explained in general terms why some things as obvious as the environmental consequences are not set out in the Bill, although that might have been a good measure given that, when discussing earlier clauses, he suggested that environmental consequences would be paramount to the granting of licences under other parts of the Bill’s regime. He might therefore wish to comment on how important they are to the licensing regime that we are discussing.

My specific question is about whether the granting of licences will involve the calculation of the future cost of climate change. That is a relevant consideration at the moment, because it was used in the consultation on the third runway at Heathrow, when a strange new number invented by the Department for Environment, Food and Rural Affairs called the shadow price of carbon was used to calculate the future cost of climate change from carbon emissions on that project. That shadow price of carbon was three times lower than the one recommended in the Stern report for calculating the future cost of climate change. The difference was based on the assumption as to whether the various measures to tackle climate change would be successful. Stern was pessimistic, but realistic, about the prospects of that happening. Will the future cost of climate change be factored into the granting of licences for the facilities? If so, will we be committed to using the  rather dubious number that was invented by DEFRA perhaps to fiddle the outcome of the Heathrow consultation, which that would have changed, or will there be the potential for DBERR to plan a more realistic path on its own and use calculations based more closely on the Stern report?

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

If I did not know that the hon. Gentleman was one of the most disciplined parliamentarians in the House, I might have thought that he was trying to use my Bill as a little peg to make a point about Heathrow and DEFRA. I am sure that that is not the case. The importance of climate change is one of the reasons why issues about carbon dioxide storage are in the Bill. Tackling climate change is one of the major purposes of the Bill. If we are to stand any chance of tackling climate change—and we stand a good chance—we need to bring forward such technology. At this point, I think that I will leave the hon. Gentleman on the runway.

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

I am afraid that the Minister’s response is not good enough, although we have great sympathy for him. He was reading through his text and suddenly realised that he did not understand what he was saying. We have all been there before. I find that that can happen to me even when I have written my own speech notes. Alongside Murphy’s law and Parkinson’s law, we now have Wicks’s law which says, “Do not put in legislation anything that is obvious.”

If the Minister looks at the elements that could be included in the licence, they could scarcely be considered to be unusual or less obvious, which were the words that he used. The hon. Member for Cheltenham talked about the provision

“enabling the Secretary of State to review the licence”.

We also have the provision

“enabling the Secretary of State to modify the licence”.

There is also the provision

“about closure of a carbon storage facility.”

Those are very obvious elements to include. Therefore, the Minister’s main line of defence does not stand up.

In relation to what we do with the amendment next, will the Minister assure us that included in the licence—even if it is not in the Bill—will be an obligation on the operators to advise of an accident or a leakage? If they do not have that obligation, how will we know if one has taken place? If they do not have the duty to tell the Minister or the Secretary of State, how will anybody know that something has happened and how can we be in a position to enforce good practice?

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

I am happy to assure the hon. Gentleman that the issue of accident and leaks will be a very significant part of the Bill. I was slightly teasing myself about considering the question about the less obvious things in the Bill.

The hon. Gentleman made a quite good debating point. The substance of the matter is that this issue of accidents, relating both to personnel and to potential leaks, is crucial and will be a major component of the  licence. Is he reassured? I do not want him to be disappointed in me in relation to anything that I say in this Committee.

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

Indeed, I would hate ever to be disappointed by the Minister. Given the Minister’s assurances that the licences will include that point, I will not push the amendment to a vote. I beg to seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

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

I raise a small point in relation to clause 19(3)(d), which talks about the provision

“enabling the Secretary of State to modify the licence in specified circumstances (with or without the consent of the licence holder.”

I understand why the Government do not necessarily need the consent of the licence holder because the licence holder may object to what the Government want to do but the Government may feel that it is right to do that. Will the Minister assure us that such a decision will be made following consultation with the licence holder so that it will have a chance to ensure that its views and concerns are taken into account?

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

I put it to the Minister that brevity is everything.

Further to the point made by my hon. Friend the shadow spokesman on clause 19(3)(d), will the Minister say what the legal situation could be as regards somebody who has been granted a licence and suddenly the Secretary of State takes unto himself the powers to modify a licence that has already been granted in good faith? Is that feasible under law?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform 12:00, 26 February 2008

Clearly, as this debate shows, the licence is a key means of ensuring that the environmental impacts of the carbon dioxide stores are minimised. That, combined with the fact that this is an emerging industry in which technical and regulatory experience is still evolving, means that a degree of flexibility in prescribing and modifying licence terms must be retained. For example, much of the basis of the initial licensing of a store will be predictive modelling of the behaviour of carbon dioxide in natural geological formations. If those models prove to be inaccurate, the regulatory authority may need to modify the licence. I mentioned that we know a little about the behaviour of CO2 through the Sleipner project in Norway, but it is early days scientifically.

The draft EU directive on carbon dioxide storage also requires the regulatory authority to have the power to review and, where necessary, modify the licence. Existing offshore licensing arrangements contain similar provisions, for example, licences issued under part 2 of the Food and Environmental Protection Act 1985 include the right of the regulatory authority to attach additional conditions, where there is a risk of adverse environmental impacts.

I understand the hon. Gentleman’s concern, because someone signs a licence and they need some certainty, but I hope that he will also understand that in this new territory, when we are on the frontiers of a new science, a new engineering and new technology, some flexibility is required. I assure him, as I assured his colleague the hon. Member for Wealden, that consultation is important in this area and will be standard.

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

I do not want to labour the point, but if the Minister retains the right to modify the licence, there could be cost implications for the organisations or companies that have taken out that licence. In some cases the modifications, which are not specified in any great detail, could have a negative financial effect on the licensee.

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

I understand that there could be financial implications. Clearly, we want these new businesses to develop in the future, but I do not think that at this stage I can give the hon. Gentleman any assurances or reassurances on the financial implications of a modification of a licence.

Photo of Anne Main Anne Main Conservative, St Albans

Given that queries about certainty for licence holders are now entering the debate, does the Minister think it advisable to have a licence for a permitted period, which he might specify, rather than what seems to be a somewhat open-ended commitment to a licence, but one that can therefore be modified without the licensee’s permission?

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

I would need to reflect on that. This is a long-term business, is it not? I think I said earlier that we might be talking about something of the order of 40 years for CO2 storage. I keep repeating myself, but it is such early days, who knows what the length of these projects will be? They will be long projects. We have plenty of time to reflect, but I would need to reflect on what the hon. Lady is saying. Is she saying that it would be sensible to only grant a licence for 10 years, with clear details, as opposed to granting one for 40 years that might need flexibility later?

Photo of Anne Main Anne Main Conservative, St Albans

I just wanted to tease out the Minister’s thoughts. There are so many vagaries, not because anybody intends to make life vague, but because there are imponderables about the future. It may be that there will be a rolling programme of renewing, so that there is a guaranteed certainty unless the licences have been operated in an unacceptable fashion. Perhaps the Minister should look at that rather than putting into the Bill something which, depending on the political climate of the time, allows him to alter the licence at will or on a whim. With that vague possibility of future costs, the licensee would be left uncertain or unwilling to invest.

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

As I say, there will be time to reflect on such matters. No doubt when we reach that point—and I hope that we will reach it with our demonstration project, although that will be for one rather special project—we will consult with the relevant company or consortium. In the longer term, there will be opportunities for consulting with the new and  emerging industry. We certainly have flexibilities in the North sea with regard to oil and gas, which we want to ensure are being properly exploited. Where appropriate, we can take licences away and reallocate them to newer, often smaller, companies. I am not certain whether that is a useful comparison, but I understand the question. We are in very early days and I understand that companies need as much certainty, including financial certainty, as they can get. There will be great opportunities to explore these issues and consult with the companies concerned.

Photo of Anne Main Anne Main Conservative, St Albans

I thank the Minister for his answer. He spoke about taking licences away, and touched on oil and gas. If there are parallels, does he feel that there is enough detail about licensing to make a judgment as to whether to remove a licence?

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

No, of course I do not. It is a bit like talking about urban development on Mars when we have not even lit the fuse, or whatever we do. I am not saying that the hon. Lady is being unreasonable, but it is reasonable to say that these are early days and there will be time to consider these issues. We should look at this as a new industry that will emerge globally, with opportunities for companies to prove themselves and show that they are technically and financially on top of the job when seeking other contracts around the world. I think that many companies will understand that we need flexibilities. They will want to prove that they can be adaptable as we learn more about science, technology and engineering, so that they can win contracts in the future. Trying to look into the crystal ball, I doubt that companies will object to flexibility for licences, because they will want to prove themselves commercially adaptable to the emergence of technology as the decades roll past.

Mr. Swire rose—

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

Far from that, I may be coming to the Minister’s rescue on this point as he seems pretty unclear at the moment. The Minister referred to existing technologies and licences in the North sea with respect to the oil and gas projects. He said that the Secretary of State has the right to remove licences and reallocate them. Does the Secretary of State have the right to modify North sea oil licences, and can the Minister give any example of where such a licence has been issued and can be modified? That is the crux of the matter.

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

I will have to come back to the hon. Gentleman on the issue of modification, and I will do so. We do have some experience. Earlier I referred to what some call the, “Lose it or use it” approach to the North sea, which the industry as a whole rather accepts. Some big companies have decided that their priorities lie elsewhere in the world in terms of oil or gas exploration, and we now make those potential fields available to what are often smaller and  enterprising companies. That is possibly a little off course, but I repeat the point: there will be time to look at all those matters.

We must, of course, be careful to ensure that a company that takes on the responsibility of CO2 storage recognises that it is in the business for the long term. It is not a commercial activity for a year or two, and indeed, the ultimate responsibility for decommissioning lies with the company. If there were any transfer of a licence, we would have to make sure that all the financial certainty was there in agreeing to that. This is looking ahead.

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

The Minister appears to be slightly disagreeing with his own argument. Just now he was arguing for flexibility. Now he is arguing for some degree of certainty. Perhaps I can help the Minister.

The people applying for these licences are going to be those companies looking to operate a fossil fuel facility. If they are going to put in the many millions in costs for the carbon capture and storage facility to be adjacent to or an integral part of their power plant, and then potentially hundreds of miles of pipeline to a storage facility, they will want to know that the licence will apply for as long as they are running that power plant. If there were a risk that after 25 years they could lose the right to deposit the carbon they had captured in a facility that may stop them going for it in the first place. They would end up with a facility that they could not operate because by then the rules might have changed or the price of carbon would be so high. Surely they are looking above all for certainty rather than flexibility.

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

I think that we have said that this is a long-term project. I mentioned 40 years. Who knows whether that is an underestimate? Time will tell. This is the long term. The company investing will want to know that.

I have explained, however, that it is important that the Secretary of State has certain powers for flexibility, not least as we learn more about this technology. I could also envisage that a company might feel that after a number of years it did not want to stay in this business, and that its commercial priority had changed. Then, subject to lots of appropriate safeguards in terms of another company taking over the contract—all the financial safeguards that we could think of in terms of the ultimate costs of decommissioning and the financial arrangements that would be necessary between one company and another—I would not rule out the possibility of another company taking on not only the task and the commercial opportunity but also, subject to arrangements with the first company, the appropriate safeguards.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.