Skip to main content

Grand Committee

Volume 702: debated on Thursday 12 June 2008

Grand Committee

Thursday, 12 June 2008.

The Committee met at two o'clock.

[The Deputy Chairman of Committees (Baroness Pitkeathley) in the Chair.]

Energy Bill

(First Day)

Clauses 1 to 3 agreed to.

1: After Clause 3, insert the following new Clause—

“Annual gas storage report

The Secretary of State shall make an annual report to Parliament giving an assessment of the appropriate volume of onshore gas storage to ensure long-term energy security and to set out the progress that has been made towards reaching that target.”

The noble Baroness said: I am happy to welcome the noble Lord, Lord Davies, to the arena. I understand that he was involved in the Energy Bill the previous time round and therefore brings great experience to our discussion today and throughout the days that we are without the noble Lord, Lord Jones, who is not well. We wish him well and hope to see him soon but, for the mean time, it is very nice to have such a heavyweight team to give in to all our amendments today.

Much of the Second Reading was spent discussing many crucial clauses that are not in the Bill. We seek to address that at the appropriate time. Meanwhile, we must not lose necessary additions or take our eye off what is in the Bill. What is in the Bill is, by and large, welcome and essential. We assure noble Lords that we do not intend to prevent the Bill proceeding through this House in a timely fashion. In order for it to do so we hope that noble Lords will join their open-minded scrutiny efforts with those of Her Majesty’s loyal Opposition to improve the Bill.

No single piece of legislation explicitly provides a framework for offshore gas supplies. We welcome an attempt by the Government to redress this issue. Gas storage is of crucial importance and was not debated comprehensively enough in another place. The UK is the third largest consumer of gas behind the United States and Russia. Recently we have become a net importer of gas and what we import seems likely to constitute half our supply by 2010. This has a substantial impact on our security of supply. As our dependence on foreign supply increases, so does our inability to meet our own demand. With any interruption to the flow in the interconnector, combined with a spike in demand in, say, a particularly cold winter, there is an increasing risk that there will be interruptions in supply. Gas storage is the obvious way to combat this problem.

Thus, it is welcome that the Bill provides for it. Yet what remains unclear is precisely how much is necessary. This amendment does what it says on the tin. It would place a duty on the Secretary of State annually to assess how much gas will need to be stored in order to avert such interruptions and make certain that we can provide long-term energy security. This is as self-explanatory as it is necessary. After assessing the appropriate need for storage, this report would outline what is being done to meet the appropriate volume or storage and what still needs to be done to ensure that we have energy security.

The amendment hits right at the heart of what many of the Bill’s provisions are trying to address: the future of the United Kingdom’s energy supply. If we are to understand how we can keep Britain warm and illuminated, we must start with an assessment of the required effort. I beg to move.

I support the spirit of the amendment. I also echo the noble Baroness’s words about the noble Lord, Lord Jones of Birmingham. I wish him a speedy recovery so that he can rejoin the proceedings at a later stage of the Bill.

The report is a good idea, particularly given the present situation with gas storage. Although the country’s ability to store gas and other methods such as those at Milford Haven for the storage of LNG are being increased and we have the storage capacity, it is becoming more apparent that we are not getting the gas to fill it. We talked about the interconnector from Norway. There is a real issue about why the Norwegians are not sending us gas and it is going to the Continent for the moment. I tried to find out why gas is being moved from one part of the Europe to another, but it is very difficult to get information because of contractual law.

Even though we have the capacity to bring gas into the country and are building our storage in this country, whether we actually have the reserves is a major problem. A big problem at the moment is the fact that the cost of gas is rising so dramatically. By the winter, this will have fed through to consumers with the requisite pain and suffering, especially for those who are suffering from fuel poverty at the moment, mainly due to the inability to store gas and we are therefore being dictated to by the spot price of gas on the market—one of the main reasons why we suffered so badly a year and a half ago. A report of this nature would not solve that, but it would help to bring before the House some of the reasoning behind the problems that are being solved in the gas market. There is always the cry that the market will sort them out, but even though we have dealt with some of the physical problems associated with gas storage, we will still have to face the very real problem of not being able to get the gas in the first place and the associated price.

I support the amendment and very much endorse what my noble friend has said from the Front Bench about the noble Lord, Lord Jones of Birmingham. The amendment gives us an opportunity to reflect a little on some of the problems of increasing the capacity for gas storage. One is very obviously the planning system. No doubt we will be told that this is being addressed in the new Planning Bill. Rather surprisingly, here we are in the middle of June but the Bill has not reached this House yet. Apparently there are delays in another place. I should make it clear, as I have to my colleagues, that something along the lines of the Infrastructure Planning Commission is necessary so that Ministers can identify gas storage as a priority, as successive Ministers have already done, that can be fully taken into account in the planning system.

I had experience recently of trying to keep abreast of two onshore gas storage planning applications. I was horrified by the delays, most of which occurred in the local authority and the Department for Communities and Local Government, before a decision could be taken. The second thing that distressed me about both applications was that very clear statements on the priority that should be given to gas storage projects had been made by Alistair Darling when he held the post in the then DTI and since then by Malcolm Wicks. Yet, in both cases, the reference to the priority was only one sentence in the 12-page decision by the Secretary of State at the DCLG. One hopes that that will be changed as a result of the planning legislation, because what is the point of having a government priority for vital infrastructure projects of this sort if when it comes to the planning system no one seems to pay a great deal of attention to it? That is my first point.

Secondly, I draw attention to the charts about gas storage in the winter consultation report, which was published two days ago by the National Grid. It has charts showing the gas storage withdrawals, the amounts from gas storage for 2007-08 and no doubt other noble Lords will have a chance to look at the charts to see what extraordinary peaks there were. That is the purpose of having storage: to be able to deal with peaks of demand that cannot be met by current supply. In the six months from October 2007 to March 2008 there were at least four or five major peaks, each covering a period of a few days when the storage was substantially drawn down, which is what it is for.

As for what it consists of now and the space that is available, by far the biggest storage site is the Rough gas field, which has a capacity of 3.3 thousand million cubic metres of gas. I think that that is right. The others are all very much smaller. There are the medium-range ones at 771 million cubic metres and the LNG storage at about a third of that. Withdrawal rates from all categories are approximately the same, so the difference is that the Rough gas storage provides one with long-term storage, which is extremely valuable, and at the moment the others are short or possibly medium-term storage. A later chart, table B3, shows what the consultation paper suggests may be the capacity and deliverability levels. Again, Rough is by far the biggest, and the deliverability of millions of cubic metres a day, from LNG, from medium-range storage and from Rough are all approximately the same—

I am grateful to the noble Lord for giving way. I am listening with interest to what he is telling us. Does he envisage the government report that is advocated in the amendment having any more information in it than the report from which he is copiously quoting at present?

I hope I am not quoting too copiously; I have referred only to two tables, and that is all I am going to do.

The report shows the huge importance of storage, of which the Government have never made any secret. They want more storage. The question—here I might satisfy the noble Lord—is what the obstacles are to getting more storage. I have already referred to the planning system, and I will not say any more about that. There is the question of the appropriate size of storage. As I said, most onshore storage is only for short and medium-term duration, for the most part in salt caverns. There is in total about 1 billion cubic metres of gas storage capacity—which amounts to only about one-third of the storage at the Rough gas field—installed and operating at present. It is just about sufficient to meet the peak demand which we have at the moment, and it is very necessary that it should be there. Everyone including Ministers—no doubt the Minister will confirm this in his reply—agrees that there is a great need to encourage more offshore long-duration gas storage. There is a range of offshore storage locations, which are mostly available in the southern North Sea and the Irish Sea.

On the economic issue, it is a paradox that when gas prices are low, no one needs storage, but when gas prices are high, no one can afford to build new storage capacity. The big cost in this is the need to pay for the “cushion gas”; that is, the need to have a certain amount of gas in your storage before you can put any substantial new supplies in, otherwise the system does not work and does not function effectively as a gas storage reservoir. I am told that typical costs would run to between £0.5 billion and £1 billion in the current environment just for the storage of gas on a large offshore facility.

Evidence of that has come to light quite recently. Only yesterday, the Tullow company announced the sale of the Hewett gas field and the onshore gas plant to Eni for £210 million cash. That is a measure of the value of an offshore gas field and of what Eni is prepared to pay for it. It is early days yet but it is thought that Eni might use it to build a new offshore gas storage facility. It is interesting that most of the commentators cannot see that it could be economic and that it could be justified to put the investment in. The announcement is that Eni has bought the gas field and therefore has the reservoir, but it will need to spend a great deal more to turn it into a working offshore gas storage reservoir.

My point about the amendment, and in response to the noble Lord, Lord O’Neill, is that this is what the report has to address. It must not be just the tables of figures that we get from the National Grid and to which I referred a few minutes ago—it may seem like years but it is only minutes. We would expect the report that my noble friend’s amendment calls for to highlight, deal with and discuss the problems and to indicate what the solutions to those problems might be.

The Government will now be able to say, “Look, Eni has paid over £200 million to buy the Hewett gas field and the appropriate onshore facilities, so that shows that the market is working”. This morning, the general view of people in the industry with whom I have been discussing this announcement, which was made only yesterday, is that they do not see how it can be economic. There are real problems if one is to get new large storage facilities offshore which are comparable to the Rough gas field. That is the only big gas field and the question is whether there will be more. At the present price of gas, the cost of providing the cushion to turn it into a working reservoir is very steep, to the point where some commentators say that it cannot be economic.

I hope the Minister may be able to give us some answers on that today, but my main point is that this is the kind of thing that the report that my noble friend’s amendment is calling for has to deal with. Without that information, it just becomes another table of figures, as the noble Lord, Lord O’Neill, rightly said. That is not what we are looking for. We are looking for a serious discussion of the problems of getting more gas storage, which is in accordance with the Government’s wishes. I warmly support my noble friend’s amendment.

I oppose the amendment, not because I do not want information but because the information is already available from a recognised source. Okay, it is a heavily regulated private monopoly—a natural monopoly in a number of respects—but the National Grid’s information is normally regarded as extremely accurate and reliable. It is unlikely that the Government would necessarily be any more accurate or reliable in producing something roughly the same.

The amendment has fundamental flaws arising from certain assumptions. The first is that the Government can give an assessment. I mean no offence to the beleaguered forces of the Civil Service and the various departments responsible for gathering that sort of evidence, but, regardless of political complexion, Governments’ assessments of energy need and demand over the past 50 years have been consistently wrong. They have never been effective in doing so. It was best when we had supplies of coal literally standing outside power stations in good weather and bad. In the event of the industrial dispute in 1984, they were used, as it were, to fight the miners.

The idea that Governments can understand the nature of the level of demand leaves a lot to be desired. I do not see that there much worth in that, particularly when one of the virtues of having a flexible energy portfolio is that if gas is too expensive and you can get clean coal technology, you would switch to coal. You would have to ask why we do not have a report for coal or uranium, or for the reprocessing of spent nuclear fuel.

The noble Lord will of course recognise that there is a government-imposed minimum storage requirement on petroleum products.

Yes, there is. It is not all that helpful because when there is a crisis the country just about runs out. The only time that high storage levels—levels such as those in the United States—are any use is when petrol prices are so high that stores are raided to moderate the price levels. My point is that this is guesstimating. Government guesstimates dressed up as “the assessment of the appropriate volume”, no matter how pompous the language, are not necessarily more accurate. We may get nothing worth while.

I have long argued that we have not given sufficient weight to the need for gas storage in this country. For many years it was unnecessary; you only needed to turn the tap that much harder so that more gas could come from the North Sea. We no longer have that luxury, which means that we must be more inventive in addressing the issue referred to by the noble Lord, Lord Jenkin. We might have to look at something like capacity payments, as we have in the past, or for coal-fired power stations to be used at specific times of the year, for example. However, that is a rather different issue, an issue of such complexity and seriousness that it will not be resolved by a tuppence ha’penny report coming out once a year and bearing the imprimatur of BERR or whatever government department has the unfortunate responsibility of trying to get the information together. I hope the Government will oppose the amendment.

I also convey my best wishes to the noble Lord, Lord Jones of Birmingham, and hope that he can join us fairly soon. I shall touch on the last topic—the question of capacity payments, forecasts and so on. I remember a few years ago, even when we still had 100 per cent North Sea gas supplies, which were clearly running out, one of our energy reviews under Brian Wilson was very dismissive of the need for storage and intervention. That is not that many years ago.

I agree with my noble friend Lord O’Neill that government forecasts of demand have never been right. The very first conference that I attended as a young economist was one forecasting the demand on the supply of coal. The amount of coal that the UK was forecast to need to produce turned out to be massively wrong—and it did every time that the coal industry was reviewed. However, the issue of capacity payment is a real one, and the value of these coal amendments is that they enable us to discuss important questions, rather than the particular wording itself. Are the Government of the view that the marketplace and the market mechanism will be adequate to provide enough storage or do they, given the experience of recent years, feel that some kind of non-market mechanism, such as a capacity payment, might be needed? Is that at all under consideration or review? That would be helpful to know.

I am grateful to all noble Lords who have spoken to the amendment. I am particularly grateful for the kind remarks about my noble friend the Minister. I cannot think of a greater stimulus to his recovery than for him to discover that he has been substituted by me and that I am in his place in dealing with these energy matters. The noble Baroness was kind enough to refer to my experience on the previous Energy Bill, an experience which I think that all those who spoke on the Bill regarded as an unalloyed pleasure throughout its long duration. That was a little while back. I am even worse at history than I am at energy and therefore have difficulty recalling that time. Consequently, I apologise for the fact that at fairly short notice I am substituting for what would have been the expert contributions of my noble friend. I, for one, will send him noble Lords’ good wishes, and mine in extenso, that he should return as soon as possible.

The noble Baroness has raised an interesting issue, as shown by the contributions of all noble Lords who have spoken to the amendment. This is clearly an important matter. The amendment seeks to define the volume of onshore gas storage—and I emphasise onshore, although I heard what the noble Lord, Lord Jenkin, said about the offshore position and will talk about that in a moment. But the amendment is about the report on onshore gas storage that will be needed to secure our long-term energy security and ensuring that Government report annually on progress towards achieving it.

The amendment establishes a target. I know that my noble friend Lord O’Neill said it graphically, and I am sure that every Member of the Committee shares with him some doubts about the capacity to establish effective and active targets on this. The Government present an annual report already, which presents the energy markets outlook that gives guidance to the industry. That is rather different from this amendment, which would identify a target. In a sense, it envisages a different principal position from the one that the Government adopt. We believe that the role of government is to establish a regulatory framework and create the right conditions for investment in a fully competitive and transparent market. Well functioning markets are the best way in which to deliver security of energy supplies and to diversify sources, supply routes and import points for energy. That also obtains to gas, which certainly involves the issue of onshore and offshore storage.

The amendment, however, concentrates on a target for onshore storage. That would interfere with the developing gas market by specifying the appropriate volume of gas to be stored. Within the UK’s energy market, it is not for the Government to specify how much one particular form of gas market flexibility might be appropriate to help secure energy supplies. I hear what the noble Lord, Lord Redesdale, says about anxiety regarding security of supply. We all share that anxiety, particularly in circumstances where our own indigenous sources of energy supply, both gas and oil, are clearly reducing. Of course Governments must be concerned about the issues of security of supply. The question is whether the amendment and the substantial change to the Government’s strategy that it envisages in target-setting for one aspect of the gas market would aid the situation.

In considering which investments to make, companies have to take account of a range of different uncertainties. We all recognise that every provision of energy has a range of expectation to it, some of it very long term as has been indicated. That includes uncertainties about relatively current prices and long-term prices especially for fossil fuels. The whole issue of energy demand is subject to great fluctuations. We also have the additional factor of carbon prices.

I believe that this amendment would send the wrong signal to industry that the Government have a clear concept that there is an ideal amount of gas to be stored and that this gas should be stored onshore. That looks like a very partial intrusion into the market without bringing any of the benefits suggested by the noble Baroness in moving the amendment. The noble Lord, Lord Jenkin, concentrated a great deal of his extremely interesting contribution on the problems of gas storage offshore, a very important and costly investment issue. I recognise exactly the points he makes. However, I am not sure whether he was suggesting that the position offshore would be improved by onshore targets in the way suggested by the amendment.

There are other ways in which companies can enter into long-term contracts, including contracts for liquefied natural gas. Britain increasingly has contracts for LNG and we are building terminals to provide increased storage for it. I accept that the noble Lord, Lord Jenkin, is worried about aspects of planning as regards LNG. That is a very important reason why the Planning Bill has been drafted as it has. Although the noble Lord indicated that he is a little impatient with the Bill’s tardy progress through the other place and arrival here, we expect that it will eventually arrive here for consideration. He is absolutely right that the way in which we facilitate planning consent for energy needs is an important concept behind that Bill. However, I do not think it is for the Government to second-guess the best or most cost-effective approach to gas supplies.

Lest it be thought that the Government regard this issue with anything other than the most extreme seriousness, I reassure the Committee that we want to ensure the long-term supply of energy, including sufficient supplies of natural gas. The difference between the Government and the noble Baroness and her amendment is the strategy by which that should be pursued. The market is already responding to the UK’s need to import and to store gas. Some 1.2 billion cubic metres of gas storage capacity are under construction, and there are 8 billion cubic metres in various stages of the planning and development process. Some of this could come on stream within four years, doubling the existing gas storage capacity.

I do not underestimate the foresight of the noble Lord, Lord Jenkin, and other noble Lords in the Committee. Indeed, the noble Baroness herself is addressing the question of how we guarantee long-term provision. However, I emphasise that there is a market response to what is already clearly defined as necessary changes in the British supply.

The Minister has given us interesting figures about the number of projects that are in the pipeline, as it were. Do the Government publish those figures anywhere?

I cannot give a direct answer, except to say that it would be surprising to make my contribution in the openness of this Committee if the Government had anything to hide with regard to these figures. I hope that I will be able to answer the noble Lord’s question. I am struggling with where the figures are published. It appears that they are published in Energy Markets Outlook, so the document to which I referred contains that information. I apologise to the noble Lord that I could not answer him as directly as I wanted to.

The key part of the Government’s role is to ensure that the regulatory framework is fair and fit for purpose so that projects do not face unnecessary obstacles and delays. That, as I indicated earlier, relates to the Planning Bill, which we will consider in this House in the not-too-distant future. In the Energy Bill, too, we have proposals for a new licensing regime that will enable offshore gas storage and importation projects to be built in the future. An important part of this Bill and its correlation with planning in those terms is to ensure that we increase storage and importation capacities.

The Bill does not deal directly with onshore gas storage, as the amendment seeks to do. I have it in mind that a number of the amendments seem to seek to add to the Bill rather than to amend it. In no way, shape or form am I expressing any reservation about that strategy; I am all too well aware of the fertile sources of ideas in both opposition parties and among Back-Benchers, but this is another amendment that seeks to add to the Bill rather than to amend it. The provisions for modernising and reforming the planning consents are already being catered for, as I have indicated. The Government and Ofgem have established a number of mechanisms that also help to ensure that the market is well prepared to meet the demand for gas.

Transparent, credible information is essential if markets are to function effectively, and energy suppliers need to be able to anticipate changes in energy needs sufficiently far in advance to provide the necessary supply capacity and delivery infrastructure. That is the purpose of Energy Markets Outlook. It is published by the department annually and therefore goes some way to meeting an aspect of the amendment that deals with the publication of information. It is certainly intended to provide information and analysis of future trends to help potential investors and others with an interest in the UK energy market to form a comprehensive overview of the likely development of the supply-demand balance in energy over the next decade or so.

In addition, shippers and suppliers that fail to provide enough gas to deliver their contracts on a daily basis must pay an imbalance charge or cash out price—in effect a high market price, exposing themselves to potentially high costs, such as in the winter of 2006 where the closing spot price rose to £1.65 per therm, which was 2.5 times the average closing price for that winter. The licensing conditions and network codes, implemented by Ofgem provide incentives on suppliers to ensure availability of supplies to domestic customers, even in the event of severe conditions.

Of course, I heard what the noble Lord, Lord Redesdale, had to say about the problems of physical supply and the fact that, obviously, storage will be necessary on greater levels than in the past, when we could call upon natural storage—namely, the ability to pipe gas from the North Sea, from its reservoirs there. We obviously have a massive change in perspective on our energy provision in those terms. However, Ofgem’s work is to guarantee that there are incentives to suppliers to provide adequate supplies of gas and to penalise where people fall short of contract.

Together, these measures from Ofgem provide a strong financial incentive for gas shippers to acquire a portfolio of contracts and assets, which will enable them to provide a sufficient, flexible and competitively priced source of gas when needed, even when demand is high—for example due to cold weather. The grid operates storage monitors, which are a tool to ensure that there is enough gas in storage, across all storage sites in the UK to underpin the safe operation of the gas transportation system in a severe winter. These monitors act to protect the gas supply of domestic customers and those whose gas supply cannot be safely interrupted.

I am aware that I have not answered all detailed questions at this stage and that there will be many opportunities as the Bill develops to flesh out a number of these arguments. This is a constructive amendment from the noble Baroness—it is a proposal designed to guarantee the increased security of supply. I hope that she will appreciate that the Government have a different strategy from that envisaged in the amendment, while at the same time sharing the broad objectives of two things that the amendment considers: first, security of supply and, secondly, the necessity of adequate information, so that there can be market responses that meet the nation’s needs.

I hope that within that framework my noble friend Lord Woolmer will also feel that I have answered his point on the Government’s broad strategy and that the noble Baroness will withdraw her amendment.

Before my noble friend does that—and, after all, as we are in Grand Committee she cannot do anything very much else—will the Minister look at two other problems which would justify maybe not this amendment but some other form of building greater market transparency? That was what he was asking for, and we would all support that.

First, we will come to this later in the Bill, but all that I will say at is stage is that we will find that the storage facilities that exist, whether onshore or offshore, are in increasing demand for storing CO2. I do not know why the Minister looks so puzzled as there is a whole bit of the Bill about that. We have not come to it yet, but one question that I will certainly want to explore is how far there will be availability of storage and some form of good transfer for CO2 that is separated or sequestrated from fossil fuel operations.

On the second issue, the Minister rightly referred to the amendment relating to onshore storage. One thing that I am told about that is that it is becoming increasingly difficult; most of it happens in salt caverns, with a saline cap over the top. They are encountering environmental problems in some instances where it proves difficult to dispose of the waste salt created when washing out the salt cavern. That is pushing the industry to look more at offshore storage because it does not have that problem. It has other problems—it is a great deal more expensive—but it does not have the environmental problem of having to deal with the salt that is washed out of the caverns. In addition, the salt caverns tend to be a great deal smaller than the depleted gas fields. The comparison is obviously with the Rough field and, in future, with the Hewett field.

These problems need to be brought out into the open. Some kind of report—perhaps not exactly the one that my noble friend’s amendment, to which I put my name, suggests—would be helpful. Somebody, whether in the department or in Ofgem, should provide the market and Parliament with a regular appreciation of the situation on these issues, because if we are going to have more gas storage as a desideratum or an objective, these issues need to be addressed. The market and Parliament will need to know what the Government are going to do to achieve their objective of more gas storage. We will want to come back to this at some stage.

We have raised a number of issues, including the important issue raised by the noble Lord, Lord Redesdale. They indicate that something of this sort is going to be necessary if we are going to take this forward and increase the amount of storage. The problems need to be addressed. At the moment, I am not entirely happy that it is being done in a way that might achieve the objectives that the Government have set themselves.

I am grateful to the noble Lord. My surprise at his reference to carbon storage did not arise because I was not aware that the Bill concerns itself with the issue. He rightly said that he has trailed points that we will have to discuss in considerable detail when we reach that part of the Bill. I was trying to think of the direct application of carbon storage to our critical storage facilities for gas at present. We have alternatives to thinking that there is direct competition for the Rough storage facility between gas and carbon storage, but we will discuss that in due course. The noble Lord is right that we have to provide for substantial carbon storage, and we will need to use space that otherwise might be used for gas storage. I hope I will be able to demonstrate by then that we have adequate provision.

On the question about the technical problems with salt caverns, I do not have an immediate answer. The noble Lord raised an interesting topic and we will need to think about that. I hope he does not raise the question too soon—that is, at the next Committee sitting—because I might not be able to answer it then either. I assure him that he has raised a point that we need to consider carefully, and we will provide answers to it in due course.

I thank the Minister for his carefully considered answer to our first question. I am enormously well served by having my noble friend Lord Jenkin of Roding with me on these Benches. I almost feel that there is not much I can add to what he said. We are all trying to face in the same direction on this and to come up with ideas that will put us in a better place than where we are now. The Government’s laissez-faire attitude to storage over the past 10 years has got us where we are today and has made us very nervous. The noble Lord, Lord Redesdale, referred to the difficult task we have with contract law in some European Union countries. We are not able to see what Norway sold to Germany, at what price or how. Germany had it, stored it, waited until the strike price came and found us in a difficult position. It is not a position that we want to find ourselves in again, which is the reason for the amendment. It might not be a perfect amendment, but it leads us to not finding ourselves in that position again.

I say to the noble Lord, Lord O’Neill, who opposed the amendment so vehemently, that I come with a little information behind me, having served for 10 years on the board of a company called Cadbury Schweppes, which makes rather a lot of chocolate. We really did have to work out how many beans we needed for the chocolate for that year, and we held our procurement officers to task on making a report to us for what we needed. It is not beyond our capability as a country to know what we need. If the noble Lord was a little more familiar with the private sector, he would understand that in that area you lose your job if you get it wrong, and so do an awful lot of shareholders.

If we are entrusting the work to British civil servants, given their record and the ability of politicians of all parties to interpret the information that is provided, experience suggests that they are singularly inept. Maybe it is better to employ other people when counting beans; but when it comes to counting cubic metres of gas, coal, or anything else, we do not have a very good record.

I would be very careful what I would ever say about our regulators; I think that the regulators that we have in this country are superb, and I am very proud of the independence that they have been able to maintain, with fights along the way at times. Our civil servants are as good as the instructions that they are given, and that has always been the case, whether it is my party, the noble Lord’s party, or anyone else’s in government.

I apologise for not having declared an interest in that I helped to establish and served for two years on the balancing and settlement code for electricity, so I know a bit about how much the price can go up when someone gets killed on “Coronation Street” and you move into strike prices. The noble Lord, Lord Woolmer, has come up with the idea of capacity payments. It is another idea and another way of looking at these things.

At this stage, although there is nothing else that I can do, I can at least say that I will be very keen to return to this on Report to see what the Government have come up with, having listened to the debates as we go forward. I thank all noble Lords who have given me more information to work on. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Licences]:

2: Clause 4, page 3, line 42, at end insert—

“( ) The Secretary of State shall consult with relevant environmental bodies, particularly in relation to marine plans, when granting licences.

( ) In this section, “environmental bodies” means government departments and their agencies with particular responsibility for environmental issues.”

The noble Lord said: Amendment No. 2 is grouped with Amendment No. 7, which is consequential. The purpose of the amendment is to question the Government on what progress they have made on making sure that the provisions in the Bill match up with the Draft Marine Bill. The Minister looked rather shocked when we brought in a copy of the Draft Marine Bill. I am overjoyed that I am not going to be dealing with that Bill; there are 497-odd pages and then a section on impact assessment at the back, which is another 100 pages.

The issue raised by the Marine Bill is that this is draft legislation. Some of the provisions in this Bill refer to future infrastructure, which might affect the Marine Bill. The Government will say that there is joined-up government on all those issues. However, there is a slight contextual issue in that a number of different departments are involved in this Bill, let alone with the organisations involved with the Marine Bill; that is, DBERR and Defra. Under which department will some of the provisions for carbon capture and storage fall?

When this amendment was raised in another place, the answer was that these provisions would all be protected under the habitats directive. Therefore, even if new and novel devices go through, the marine areas will be protected. However, the Marine Bill in draft form is now coming to this House. I notice that since it was drafted there has been a slight change on page 14 referring to coastal access. One of the provisions was the exclusion of gardens and parks, which we now hear are not going to be excluded. But that is a whole different area which many colleagues will deal with under the Marine Bill.

If Royal Assent is given to this Bill before the protected marine areas are designated by the Marine Bill, will any designation or licences that are given not be affected by the Marine Bill, as they would be retrospective? This amendment is to ensure that the Government can give us an assurance that all departments and/or their agencies will look carefully at that potential conflict. Structures on the seabed also fall under the Crown Estates and the operators. It would be interesting to know whether the Government have worked out precisely who will be responsible for dealing with any conflict of interest between areas designated for carbon capture and storage, and whether such areas would then be considered for protected marine status.

I could go further into it but this is just a questioning amendment rather than one to be pushed at a later stage. Are the Government happy that areas of carbon capture and storage will not change marine protected area designations? Of course, there might be a conflict of interest between the two groupings. Will this Bill, as it comes first, affect the protected area status? I beg to move.

We support the principle of these amendments. Energy policy of course interacts with environmental policy in many ways. Plans to produce energy from new renewable sources and to store and import gas might, for example, conflict with the need to minimise the impact on the environment, particularly on marine life. It is sensible to ensure that all perspectives are consulted. I will be very interested in the details of the Government’s plans to balance these concerns, particularly what sort of measures will be put into place to ensure consultation takes place with all the relevant bodies and parties.

I was slightly shocked when I saw the noble Lord, Lord Teverson, come in with such a heavy collection of documents. I had no idea what it included—the Marine Bill or other Bills. I was simply worried for his good health because he seemed to be carrying such a collection. But I was not shocked that it included the Marine Bill.

I understand the spirit in which the noble Lord, Lord Redesdale, moves Amendment No. 2. He has raised an important point on the interaction—which has just been mentioned by the noble Lord, Lord De Mauley—with environmental bodies when granting licences for offshore gas storage and unloading, on the one hand, and carbon dioxide storage activities, on the other. Through the strict wording of the amendment, the noble Lord seeks a requirement in the Bill that, before issuing offshore gas unloading and storage or carbon dioxide storage licences, the Secretary of State shall consult with the relevant environmental bodies, particularly on marine plans, when granting licences.

As Members of the Committee know, Chapters 2 and 3 of Part 1 of the Bill establish the framework for offshore gas unloading and storage and carbon dioxide storage within which the detailed regulatory provisions can be made. A key consideration in determining licence applications and terms and conditions will of course be the protection of the environment. We will be consulting early next year on the detailed provisions that will be required but we will also ensure that the resulting regime builds on the foundation provided by existing environmental legislation.

As the Committee knows, the offshore UK oil and gas industry is currently subject to a comprehensive and even robust legislative regime that is administered by my department, ensuring that environmental protections are in place. The framework includes strategic environmental assessments, environmental impact assessments and habitats and birds assessments as and when appropriate. We have committed to ensuring that existing requirements applicable to offshore activities will extend equally to the offshore gas unloading and storage and carbon dioxide storage regimes. These requirements already require duties of consultation with the relevant environmental bodies, such as government departments and their agencies with particular responsibility for environmental issues.

I turn to the issues of marine spatial planning, which is a focus of the amendment. As many will be aware, oil and gas activities are not covered in the Marine Bill. A major part of the thinking behind that is the unique regulatory challenge posed by this large and complex industry, which is best addressed by tailored specific legislation administered by a specialist team expert in oil and gas issues. However, the expertise of the specialist team within the department is not just confined to oil and gas issues. The department has also built up considerable expertise in regulating and understanding issues unique to the offshore oil and gas sector in the context of sustainable development. It must also deal with marine spatial planning concerns, including the impact of oil and gas installations on shipping and navigation. That expertise must be used to understand and determine the impact on the environment from any future licence applications for new technologies, such as offshore LNG unloading.

My department consults Defra, other government departments and the devolved authorities, or their relevant agencies, as appropriate, and is in regular contact with the Marine and Fisheries Agency, which will be replaced—as the noble Lord knows, of course—by the new Marine Management Organisation. This arrangement works well and provides the flexibility to allow for the department to consult, for example, the new MMO and the Maritime and Coastguard Agency on matters in which they have an interest. We are keen to avoid imposing a requirement that would effectively mean that the department must always in every imaginable circumstance consult environmental bodies on a statutory basis.

Where the MFA or the replacement Marine Management Organisation or any other similar organisation has a clear interest, we will of course continue to consult. However, where a licence application clearly complies with any environmental or spatial planning concerns—for example because the strategic environmental assessment, or other environmental assessments, has already ensured that the necessary consultation has taken place—we would not wish to impose an additional statutory consultation process and further delay the licence process. We are serious about ensuring environmental protection, but we are also serious about removing any unnecessary barriers delaying these important investments in infrastructure. As so often in these matters, the objective is to get that balance correct.

The noble Lord posed two questions and I shall do my best to reply. The first is who will regulate the carbon storage regime. Decisions on the appropriate regulatory authority for the storage of carbon dioxide will be taken in due course once the arguments about which authority is best placed to exercise licensing and other functions are carefully assessed. This will be part and parcel of a consultation that the Government are launching shortly. Meanwhile, as I have just argued, regulatory agencies will continue to work together to develop the detailed regulatory regime.

The noble Lord also asked how we will ensure that CO2 storage does not conflict with the proposed protected areas under the Marine Bill. I have gone some way, I hope, to answering him on that. Let me go further by saying that activities that involve oil and gas will be subject to marine planning and conservation zones. Any application to undertake activities in these areas will be subject to appropriate scrutiny and controls. Regardless of whether that applies retrospectively, we do not expect the first licence for CO2 storage to be in place before the Marine Bill is enacted and comes into force.

I hope that I have provided the noble Lord with some reassurance that the environment is being, and will continue to be, adequately protected, which is something that everyone concerned with the Bill is very keen to see. On that basis, I hope he will feel somewhat reassured.

I thank the Minister for that reply. Our intention in these amendments was not to impose a rigid bureaucratic burden on the regulators. The Minister’s reply has gone much further than could any earlier reply in another place because the Draft Marine Bill had not yet been published. I take on board the point that the licence for carbon capture and storage may well take place after the Marine Bill. However, some of us have been waiting so long for that Bill that I would not take that as an absolute given. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Clauses 5 to 7 agreed to.

Clause 8 [Offence to carry on unlicensed activities]:

3: Clause 8, page 5, line 8, at end insert “, or

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

The noble Baroness said: Perhaps I may digress a little before speaking to the amendment. We have had a change of Clerk and I think it would be a nice moment for us to applaud the way in which she trains for her work. On Tuesday she led the parliamentary women’s tug-of-war team to great triumph and I think that we should congratulate her.

Amendment No. 3 deals with the decommissioning programme. This clause relates to the licensing of gas importation and storage projects and, more aptly, it relates to the offences of carrying out unlicensed activities. Yet it is concerned only with the duration of the projects and makes no provision for decommissioning them. This may be a dangerous oversight. The intention behind this amendment is to level the playing field in the energy sector to ensure genuine competition wherever possible. Other parts of the energy sector, such as wind power, are required to have full decommissioning programmes established from the outset. We want to ensure that this is spread across the entire sector. Sometimes rigs are abandoned in very rough seas or stop being used for whatever reason. Before a facility could stop being used for the importation or storage of combustible gas, it would be required to have a detailed proposal in place for decommissioning the site, which would have to be signed off by the Secretary of State. This could specify things such as what is required to be removed from the site to prevent danger to shipping and the environment. It could also specify the establishment of a decommissioning fund similar to that proposed for the nuclear decommissioning programmes. That would make certain that decommissioning occurred regardless of the circumstances of the owners or users.

We understand that in Schedule 1 amendments are made to the Petroleum Act 1998 such that the decommissioning process will be extended to offshore oil and gas. I understand that we want to avoid conflicting penalty schemes and undue complication about what happens if the decommissioning programme is inadequate, but a few questions still need to be answered. Could the Minister explain the relationship between the extension of penalties and regulation under the Petroleum Act and the new licence arrangement that the Bill introduces? How will the licence programme in the Bill be integrated into the provisions in the Petroleum Act? The Petroleum Act allows the Secretary of State to require decommissioning security at any stage in the life of these facilities, but who decides this?

Is there a statutory obligation on offshore gas importation and storage facilities to have a comprehensive decommissioning programme from their inception? I beg to move.

I congratulate the noble Baroness, Lady Wilcox, on this amendment. You look at the Bill and see paragraphs (a), (b), (c), (d) or whatever and ask yourself: what can I think of that is not covered there and will show that I have paid attention in class? I am exceedingly impressed because clearly we need provision for decommissioning, which is an important part of almost any energy project, investment or installation in any sector. Therefore, I shall be interested to hear from the Minister whether the Government deem that this is already covered in other areas.

The noble Baroness asked a number of other questions. The matter in which I am particularly interested concerns paragraph (b), which refers to another person carrying on the activity on behalf of the person who has the licence. Having read the section on licensing, I should be interested to hear what approach the Government will take to granting licences to ensure that subcontractors—as I think of them from my industry days—have the right expertise and qualifications to undertake work for the person who holds the licence. Clearly, this is an area where the quality control or the original granting of a licence could fall down as regards large energy installations where quality and safety are particularly important.

I am grateful to both noble Lords who spoke on the amendment. I agree entirely with the noble Baroness, Lady Wilcox, that we need to ensure that the activities we are seeking to license in the gas unloading and storage regime are subject to a robust procedure for managing the final stage of the process, decommissioning. We shall hear a lot about decommissioning during the Bill’s passage, but this is the first amendment which specifically addresses the concept. I agree entirely with her sentiments that there needs to be an offence defined, if there is not a successful and proper carrying out of any decommissioning programme. What she wants is that the programme must be approved by the Secretary of State at the time when the offshore gas storage or unloading facility is operational and the offence potentially occurs.

We are extending through Schedule 1 to 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 persons, such as companies associated with the operator, as the noble Lord, Lord Teverson, said.

The problem with the amendment is that it would, in effect, create a different regime for gas unloading and storage from that which applies to oil and gas developments. We believe that there are virtues in consistency in the decommissioning regime across all types of offshore energy installations, which will help to ensure investors are clear about their obligations in respect of properly dismantling their structures. This has been a guiding principle and a strength of the proposals in the Bill, that we are continuing with existing tried and best practice on the issue of decommissioning.

Changing the requirements 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. For example, the decommissioning provisions in Part 4 of the Petroleum Act 1998, which will apply to offshore gas unloading and storage, provide 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 a conviction on indictment, an unlimited fine—that is, a lesser penalty regime than that of the relevant part of the Petroleum Act 1998. So we would be diluting what is already in place in relation to decommissioning regimes. By linking offshore gas with the existing regime, we provide an essential consistency, which is valuable to all those operating in the industry, and we make sure that changes made to the Petroleum Act regime, including the proposed changes in Part 3 of this Bill, flow through to the offshore gas licensing regime.

I assure the noble Baroness that we take the point about security of decommissioning very seriously, but we are providing consistency across regimes by continuing with the provisions on the Petroleum Act. We also have consistency in the operation of the regime. The changes that we are proposing to Part 4 of the Act under this Bill would apply equally to the offshore gas regime. Chapter 3 of Part 3 of the Bill amends the Petroleum Act, and noble Lords can identify exactly what it does. In several clear ways, it establishes clarity on the decommissioning regime for offshore gas holding.

I was asked what would happen if the contractor did not apply; that was the burden of the concern expressed by the noble Lord, Lord Teverson. We are channelling responsibility to the licence holder, which will in this case produce a more effective regulatory regime whereby the prosecuting regulator is not required to examine the relevant chains of command and allocations of responsibilities between the licence holder and the various contractors.

The regulator would be able to target the licence holder in all instances, which should surely guarantee compliance with the licence holder’s responsibilities. Due diligence will be found where the licence holder has done everything it can reasonably be expected to do to avoid a breach of the licence. Where a contractor is used to carrying out a particular operation, due diligence will be shown where proper steps have been taken to select a competent contractor and where there has been an appropriate level of supervision of the contractor’s operations. I hope that the noble Lord recognises that we have addressed ourselves to the question of when the contractor can be guilty potentially of producing as large a breach in the licence holder’s requirements as the licence holder itself. But we think that we have got the appropriate rigorous regulation in place.

The noble Baroness, Lady Wilcox, made a point on who decides when a decommissioning programme must be in place. The offshore environment and decommissioning unit of the department will serve a notice on the owner of an infrastructure as soon as it has been constructed, notifying them that the department will call for a decommissioning plan at a suitable time thereafter. This will be closer to the end-life of the facility when the best technology is known and available. If there were anxieties or concerns about the installation, the Secretary of State could insist on it being earlier. I think the noble Baroness will accept why we would want an element of delay before judgment of that. Clearly, decommissioning techniques evolve over time and the contractor would, we would hope, employ the best technology available when decommissioning is necessary.

Certainly, the department has the responsibility for serving the notice and the Secretary of State has the responsibility for ensuring that a decommissioning plan is operated. But the operation of that requirement would be as close to the point of decommissioning as possible to make best use of available technology. I hope the noble Baroness will feel that she can safely withdraw her amendment.

I thank the noble Lord, Lord Davies, very much for the time and trouble he has taken to allay not only my fears but the fears of the noble Lord, Lord Teverson, whom I thank, too, for his kind words. If these things had been clear, explicit and easy to understand, we would not have had to ask them. Naturally, at this stage, there is so little in the Bill and so much that will be in secondary legislation, which we cannot see right now. I have listened carefully to what has been said. It sounds good, although I should like to reflect on it. Perhaps some of our questions may also cause the civil servants behind the Minister to freshen up some of the things that he has said today. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendment No. 4:

4: Clause 8, page 5, line 15, at end insert—

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

The noble Baroness said: Amendment No. 4, which is grouped with Amendments Nos. 5, 6 and 10, concerns barring future licence applications for offenders. These amendments would add an extra penalty for offences regarding licences, and specifically they would bar offenders under this section from future licence applications. We are not entirely convinced that the fines are an adequate deterrent to the offences under this section. The statutory maximum fine, as mentioned in the Explanatory Notes, is £5,000 for England and twice that for Scotland. The companies developing these facilities have very deep pockets and it might even be worth their while to take the hit and continue in breach of the law. We are very keen to see the chance of that happening taken out of the Bill.

I understand that there may be some provision in regulation to place such a bar on bodies seeking future licences if they are in breach of the law, but does the Minister think that that is sufficient? How is it triggered? Does it require the Secretary of State to judge the nature of the offence himself and then personally decide to bar future applications? It seems that the Government are not opposed to the idea of barring future applications for offenders; it is merely the mechanism that we are discussing. Surely having something in the Bill would be the most effective way in which to deter such offences. If there is a quasi-subjective power for the Secretary of State to bar someone after they have committed an offence, this seems like a much weaker deterrent. At best, under the mechanism in the Bill as it stands, we can hope to close the stable door after the horse has bolted. Does the Minister not agree that deterrence is the goal here? If so, is not having something in the Bill the most effective deterrent? I beg to move.

I have a brief question on these amendments. As we are talking about very large contracts, is it a person or a company who is the licence holder? Can companies act as licence holders? I ask for personal information on that matter. If the company holds the licence, the provision and fine seem extremely small, since the companies could be very large.

I am grateful to the noble Baroness, Lady Wilcox, for raising these important issues and I hope that I can give her a satisfactory response so that she will feel confident in not pressing her amendments.

First, on Amendments Nos. 4 and 5, Clauses 8 and 9 relate to the enforcement provisions of the new offshore gas storage and unloading regime. In particular, Clause 8 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 4. Meanwhile, Clause 9 specifically covers offences once a licence has been granted—for example 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 unloading of LNG. We believe that the proposed penalties for failing to obtain a licence, or for non-compliance with licence conditions, are proportionate and sufficiently strong to deter licence holders from committing the offence. The penalties for any person found guilty under either Clause 8 or 9 consist of a fine of up to the statutory maximum, which as the noble Baroness said is currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland.

The noble Baroness has suggested we add to the existing offences to provide a power for the Secretary of State to stipulate that a person guilty of an offence under the gas unloading and storage regime will be barred from applying for future licences for a period of time to be determined by him. We have given some thought to those issues, and I am grateful to the noble Baroness for her amendment, as it gives me the opportunity to give voice to these points.

I am confident that we have the right penalties for these offences without the need for this particular amendment. The penalty provisions contained in Clauses 8 and 9 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. If the noble Baroness thinks that we are leaning too much on past experience, that is a tremendously important Act that has governed an important development in our energy supplies. We have that experience to draw upon. The risk of a potentially unlimited fine will act as an effective and proportionate deterrent to operators engaged in offshore gas storage.

However, if in future it was felt that a broader range of penalties were necessary—as the noble Baroness suggests with her amendment—including a bar on persons found guilty of an offence, the Bill already provides for that possibility. The power afforded to the Secretary of State by Clause 5(a) allows for regulations to be made detailing who may apply for such licences. These regulations could therefore adequately provide for such a measure of restriction if we deemed it necessary. Our intention is to consult on the regulations and the requirements for applying for a licence prior to their being adopted. This would be the subject of secondary legislation and full consultation will take place before any of that is proposed.

I hope the noble Baroness will recognise that we have thought seriously about these issues and that we have already catered in the legislation for the specific points she picks up on in her amendment. She wondered whether a fine was sufficient to guarantee that companies did not break licence conditions. Companies will be subject—to answer the noble Lord, Lord Redesdale—to a maximum fine but may also be subject on conviction or indictment to an unlimited fine. You cannot have a greater financial deterrent.

There was a question about whether the entity committing an offence may be a company rather than an individual. If it is a company, that company will be liable for the penalty. In certain circumstances, officers of the company would also be liable. We accept the noble Lord’s point that an individual and the company may bear the responsibility. Certainly the penalties we envisage in these terms apply to both.

I turn to the final set of amendments in this group, starting with an explanation of what Clauses 13 and 27 set out to do. I will then set out why we think the amendments to revoke a licence if an offence is committed against an inspector or other person acting on the directions of the Secretary of State, or Scottish Ministers in relation to carbon dioxide storage in Scottish territorial waters, are not necessary.

Provisions under Clauses 13 and 27 give the Secretary of State, or Scottish Ministers, the power to appoint inspectors to inspect facilities used for gas or carbon dioxide storage under the seabed, offshore unloading of LNG or related activities. They also provide a power to make regulations setting out the powers and duties of inspectors. Examples of powers that might be set out in regulations include the right of entry to premises and powers to carry out an investigation, to require information or to take samples. The regulations may also specify the assistance that must be offered to the inspectors.

To encourage compliance with these requirements, Clause 13(5) specifies that these regulations may also create offences relating to inspections. An example of an offence might be obstructing an inspector in exercise of his duties under the regulations. The clause lays down the penalties that may be imposed for such offences. Such offences would be punishable on summary conviction by a fine not exceeding the statutory maximum or a lesser amount specified in the regulations, and, on conviction on indictment, by an unlimited fine. As before, the maximum penalty provisions contained in Clauses 13 and 27 reflect the penalty provisions for offences against submarine pipeline inspectors in the Petroleum Act 1998. That enforcement regime has worked successfully to date. I believe that the threat of an unlimited fine will act as an effective and proportionate deterrent.

However, if it is felt that financial penalties are insufficient in relation to offences committed against inspectors, revocation of a licence is also available as an additional sanction. Under Clauses 6 and 20, the licensing authority could include a provision in a licence that specified that the licence could be revoked if the licensee committed any offence as set out in the relevant regulations. Moreover, in the case of carbon dioxide storage, the appropriate sanction might not be revocation of the whole licence, but rather withdrawal of the rights of the operator to continue storage activities. That is because we may wish the operator to continue to be bound by the monitoring and remediation obligations under the licence, even if it no longer has the right to continue storage activities.

I hope the noble Baroness will recognise that we have considered these issues very carefully and that the Bill and the Petroleum Act provide the necessary penalties and requirements that she identified in her amendment. I hope she will feel content to withdraw it.

Before my noble friend does so, perhaps I may ask the Minister one question. He indicated that he thinks that the exclusion from eligibility for a licence of someone who has previously been guilty of an offence could be covered by the regulations made under Clause 5(a), which states that the Secretary of State may by regulations,

“prescribe the persons, or classes of persons, by whom an application for a licence may be made”.

As I understood the noble Lord, he said that the regulations could specify as a class those who had previously been guilty of certain offences. I question whether that would be an appropriate use of that regulation-making power. It could be open to challenge on the grounds that that was not what the legislation had in mind. When legislators talk about classes of persons, they are not thinking of particular people who may have offended the law in another respect. I am not a lawyer—at least it is a very long time since I was involved in the law, and I do not claim any expertise—but I hope the Minister might be prepared to get his lawyers to look at this again and satisfy themselves that Clause 5(a) could legally be used to make a regulation that would exclude the kind of people that my noble friend’s amendment addresses. I wonder whether that would be a viable use of that regulation-making power.

I am grateful, I think, to the noble Lord. I respect the point he made. We would use Clause 5(b), but that may not change the burden of the noble Lord’s point. I shall respond to it in any case. We will look at the clause to make sure that it would be entirely appropriate that any regulations laid down by the Secretary of State about classes of persons could have this element of disqualification in it because the person had committed an offence under an existing licence, which would be the reservation that would be entered. We consider that to be appropriate at this point. He has raised his doubts. If he has doubts, so have I. I will ensure that we look at this further. I assure the Committee that we will be able to respond even more positively to the point if necessary at a subsequent stage of the Bill.

I am extremely grateful to the noble Lord for that. No doubt he will write to me before Report as I do not want to waste time later. He said that the matter would be covered by Clause 5(b). I think he was responding to a note that was passed to him by the wise people who sit behind him. Clause 5(b) states,

“prescribe requirements which must be met by”.

That seems to me to look to the future and to what the person will be required to do, which the regulations will set out. I should have thought that my original suggestion on Clause 5(a) and a class of persons who could be excluded by regulation from being given a licence is what he initially suggested. The noble Lord has undertaken to write to me and perhaps he can cover that point as well. It is very important that we get this right. I may have raised a hare but I am not yet convinced that the Minister’s response deals with it.

I apologise for that. I recognise that the noble Lord has genuine anxiety about this. When I said that I would ensure that we were clear about the matter before later stages of the Bill I envisaged writing to him before Report.

I thank the Minister for his reply, and for his reply to the question of the noble Lord, Lord Redesdale. I hope the noble Lord is happy with that reply. It clarified the point for us and for my noble friend Lord Jenkin. I also hope that we will get a copy of any letters sent to him so that we can be clear about the matter. I took on board the answers I was given, which clarified the relevant matter. However, I have an awful feeling early in the piece that we shall keep hearing the words “Petroleum Act” coming up again and again. I had not realised how often I would hear them. The £5,000 fine looks small for the offences and companies we are likely to be dealing with. In ignorance I must ask, how long ago was the Petroleum Act enacted? Has time moved on as regards these sums as it has for the price of houses? Are we working backwards to a fine that seemed a heck of a lot at the time? I am not a lover of retrospection but perhaps the Minister could return to the matter. He may not be able to respond to it now. If I am going to hear about the Petroleum Act I had better check when it was enacted and how relevant it is to the Bill.

I apologise if I referred to that Act at least twice in my responses to the noble Baroness’s amendments. It embodies a regime that governs very similar issues and has proved successful. I emphasise that this could become an indictable offence with unlimited penalties. Therefore, she need not worry about the constraints of the £5,000 fine if it is an indictable offence.

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 agreed to.

Clause 9 [Offences relating to licences]:

[Amendment No. 5 not moved.]

Clause 9 agreed to.

Clauses 10 to 12 agreed to.

Clause 13 [Inspectors]:

[Amendment No. 6 not moved.]

Clause 13 agreed to.

Clauses 14 to 17 agreed to.

Clause 18 [Licences]:

[Amendment No. 7 not moved.]

Clause 18 agreed to.

Clause 19 agreed to.

Clause 20 [Terms and conditions]:

8: Clause 20, page 11, line 15, after “holder” insert “following consultation with the licence holder”

The noble Baroness said: The amendment addresses the section which allows the Secretary of State to change the terms and conditions of licences for gas importation and storage. The Bill gives the Secretary of State the power to modify the terms and conditions with or without the consent of the licence holder. There may very well be circumstances in which that is necessary. However, this open-ended power still makes us on this side of the Committee shudder a little. Therefore, our amendment would make a simple change, requiring that there be consultation on changes to the licence arrangements.

It has been said before and will be repeated throughout our debates on this Bill that industry confidence will be a cornerstone to the success of the Bill’s provision. Thus we seek to provide another layer of transparency to make certain that concerned parties will have their say. If the goalposts keep moving, we will not see progress.

I suspect that the noble Lord, Lord Bach, will tell me that the amendment is unnecessary and that any sensible Government would consult on changes that are of any degree of importance. However, without such an assurance in the Bill we will never be certain—and I hope that the Minister will reassure me with a further explanation. I beg to move.

We support the amendment. Although CO2 has been pumped into the North Sea over many years to recover oil supplies and is therefore not a new technology, the scale on which we are looking at the recovery of CO2 from power stations onshore and pumping it through a line system down into a reservoir that shall be capped is a massive undertaking. Of course, one problem that has been highlighted with the move towards the competition for carbon storage and capture is that the whole process relies on government subsidy and a potential tax advantage to make it workable. That is why two of the schemes that went forward failed on that basis.

The purpose of the amendment is very welcome. One problem that many companies will face is that an enormous amount of investment will be needed to undertake this. If regulatory positions suddenly change without adequate consultation, and if the tax regime changes for one reason or another, the investment will be in jeopardy. If there is to be change in the regime, it seems only right and proper that in respect of the enormous amount of investment and risk that these companies are undertaking they should be kept informed of why any change in the regulation is taking place and how it should affect them. I know that the Minister says that this is all speculative, but there have been a number of complaints from companies in the North Sea about changes in the regulatory system that have changed the very nature of their investment opportunities and how they operate within the North Sea. This will be very detrimental in this new area of carbon capture and storage.

I shall want to comment on carbon capture and storage, but I shall reserve that for a debate that will follow on Amendment No. 15, to be proposed by the noble Lord, Lord Redesdale. I know that that refers to the competition, but it raises the whole issue of the policy for encouraging CCS and the alternatives that exist. I support my noble friend’s amendment, but I will not become involved in the fuller argument until a little later.

Like the noble Lord, Lord Jenkin, I, too, look forward to the discussions on the new clause amendment.

On Amendment No. 8, the nature of carbon capture and storage means that the facilities will have a very long life. Indeed in theory, as far as we are all concerned, they will have an infinite life, or at least hundreds and hundreds of years, which is their whole attraction. That gives rise to the question of the length of the licence. What length of licence is envisaged in this area? Secondly, the licence will carry certain obligations to deal with the maintenance of the facility. Once it is full, it is still storage and it still has to be maintained.

Things could go wrong over a very long time. If there is a similarity to anything, it is to nuclear waste disposal. It would therefore be helpful if, at this early stage—we may well come back to this later—the Minister could now, or later, tell us a little about the Government’s thinking on the length of the licences and how, given the peculiarly long lifetime of the investments in the facilities, they intend to deal with matters such as long-term maintenance, long-term reassurance about things going wrong and the kind of financial provision that would have to be made.

I thank all noble Lords who have spoken in this short debate. Let me deal first with what Clause 20 attempts to do. I will then look at the amendment and do my best to answer my noble friend’s questions.

Clause 20 allows licences for carbon dioxide storage and related activities to be granted on such terms and conditions as the licensing authority—that is, the Secretary of State or Scottish Ministers, as appropriate—or an authority to which the licensing function is transferred, sees fit. The power will allow case-specific requirements to be included in licences in relation to each carbon dioxide store. The clause also provides an inexhaustible list of examples of the sorts of conditions that licences may contain, including financial security provisions, the right for the licensing authority 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.

This general power in Clause 20 is in turn subject to regulations that may be made under Clause 21, which may prescribe the terms and conditions that must be contained in licences. In circumstances in which the licensing authority is other than the Secretary of State or the Scottish Ministers, regulations made under Clause 21 will help to ensure that provisions that the Secretary of State or the Scottish Ministers consider to be essential will be included in all licences.

Amendment No. 8 would insert a provision requiring the licensing authority to consult the licence holder prior to making any modifications. However, the licensing authority—the noble Baroness made this point—would retain the power to modify the licence without the operator’s consent, provided that the operator had been duly consulted. The noble Baroness will not be surprised to hear me say that we believe that the clause already allows for such consultation to be carried out, as it gives the licensing authority power to modify a licence “in specified circumstances”. Such circumstances, which would be specified in the licence, could include a requirement to consult the licence holder prior to introducing any modifications to the licence. Indeed, our intention is to consult the licence holders in any event, in keeping with the current practices in the oil and gas regulatory regime.

So far, I have not disappointed the noble Baroness; now I am going to surprise her. In the interest of regulatory certainty and to reassure the future operators of carbon dioxide stores, we recognise the benefit of making the intention explicit in the Bill. I hope that finds favour with all sides of the Committee. If the noble Baroness would be good enough to withdraw the amendment, we will consider it further and respond at the next stage of the Bill.

Before I sit down, I must do my best to answer the preliminary questions asked by my noble friend Lord Woolmer. He may not be entirely satisfied by what I have to say, but this is just a starting point. How long would a licence last? It is obvious to say that it would be decided on a case-by-case basis. While carbon is injected, which I am advised may be for 20 to 25 years, depending on the size of the store, the licence holder will be in charge of the store. That licence holder will also be in charge for a number of years after that, to ensure that the store is safe and secure, and the licence will then be terminated. On that basis, the licence would last for anything between 30 and 35 years in that instance, which certainly for all of us here is a long time; I agree with my noble friend.

My noble friend asked what happens with ongoing monitoring and maintenance of the store after it is effectively closed. The licence would stay in force until the Secretary of State is satisfied that the store is both safe and secure. After the licence has been terminated—which is the expression that is used—the responsibility for the store will pass to the state, and monitoring will continue for as long as is necessary and at such frequency as is necessary to ensure that the store is safe. Those are the kind of parameters, by way of example, that I can give my noble friend at this stage.

To clarify that, in this particular kind of investment, the businesses that are properly meeting our needs are making money setting up the store and storing the liquefied carbon dioxide. When that is full, the state will take on all obligations of risk and maintenance for ever, as it were, in this instance, as I understand it.

That is not so immediately the store becomes too full, as it were. There will be an obligation on the licence holder, as I understand it, who will be in charge for a number of years, to ensure that the store is safe and secure. So the licence holder’s obligations will not end on the day that the store is full; there will be obligations for that time.

The comparison with the nuclear industry is obviously in my noble friend’s mind. We will come to that in due course in debates on the Bill. The arrangements are intended to protect the taxpayer against long-term cost, so far as is reasonable. We think that it is reasonable for the licence holder to have an obligation for a number of years after a store is full, with the licence continuing, but the licence will be terminated once the store is safe and secure, and it will then become the obligation of the state.

To press the matter, for clarification, how many years do the Government have in mind? That is not in the Bill, so we do not know what it will be. We are agreeing to a particular system. If this was nuclear waste, a lot of questions would be asked about that kind of detail. How long after the storage facility is full would the ongoing liability, and hence a licence on different terms, be given for?

The best answer that I can give to that today is to say that there will, no doubt, be examination and inspection to the extent that when the store is considered to be safe and secure, consideration will be given to terminating the licence and moving on to the state. I hope that reassures my noble friend. Consultation is taking place on these points as we speak.

I thank the Minister for his reply. I listened to it very carefully, and I was pleasantly surprised by part of it, for which I thank him. I also thank the Liberal Democrats, who put the case better than I did. I was very convinced by their argument so, as it is my amendment, I am deeply grateful, because this is the one thing that the Government have kindly said that they will look at and will come back with their own adjustment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I have not done this before, but I understand that in Grand Committee it is now usual to invite the Committee to adjourn for 10 minutes at around this period. I do not think it is obligatory, but the general feeling might be that a 10-minute break in the middle of our proceedings may be suitable. I am in the hands of the Committee.

9: Clause 20, page 11, line 23, at end insert—

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

The noble Lord said: Apart from our concerns about consultation, to which my noble friend referred earlier and which the Minister said he would take up, Clause 20 seems to be perfectly sensible, so far as it goes. Yet, as with the Bill as a whole, it is missing some important components. Remarkably, I can find nothing in the licence rules that deals with events such as accidents or leakages, and I do not think that I heard anything about that in the list of matters which the Minister read out while responding to my noble friend’s Amendment No. 8.

We appreciate that there will be an inspection system, and we share the Government’s view that inspections should be thorough and robust, but Amendment No. 9 would place the onus clearly on the operator of a facility to report accidents and near accidents. The amendment stems from the firm belief that safety is paramount and that the risks to both the public and the environment must be minimised.

The second strand of thinking that generated Amendment No. 9 is that experience makes a vital contribution to safety. Mistakes, gaps in protocol and close calls are all revealed in the operation of these facilities. It is essential to ensure that all accidents can be lessons to make certain that future precautions are adequate. I think that we would all agree that it is impossible to foresee every problem before it rears its head. The most robust system of safety precautions will never be perfect, so a precautionary approach is favoured. It is therefore essential that the onus is placed on the operator to advise of accidents and near accidents. The technologies that we are talking about are, in some cases, in their infancy, especially those that detect leakages. We appreciate that operators will take safety extremely seriously, but they also have a duty to their shareholders to reduce, or to maintain, costs. We must be sure that cost reductions do not come at the expense of precautions.

When the amendment was debated in another place, a somewhat strange position emerged from the Government Benches. We quite understand that the specific provisions outlined in this clause as to the responsibilities of licence holders are not intended to be exhaustive but, during the debate in the other place, the Minister for Business said that operators would be obliged to report these things as a matter of course. He claimed that reporting leaks and accidents was,

“so blindingly obvious … that reference need not be made to them”.—[Official Report, Commons, Energy Bill Committee, 26/2/08; col. 226.]

Let us look at something that is specifically referred to: granting the Secretary of State explicit power to review the licence in subsection (3)(c). That seems to me equally, if not more, obvious, yet it is included. The Minister in another place gave assurances that provisions about accidents will be,

“a very significant part of the Bill”.—[Official Report, Commons, Energy Bill Committee, 26/2/08; col. 227.]

Why do the Government not think that this is the appropriate place in which to make such a provision?

There is a dangerous tendency toward the suppression of important elements of legislation into delegated powers and guidance notes. With an issue as important as accidents and leakages, even if it is obvious, it is important to try to defy that gradual shift and have it planted firmly and clearly in the Bill. I beg to move.

This is an interesting and important amendment. It would amend subsection (3), which starts, “A licence may include”. As the noble Lord, Lord De Mauley, suggested, “may” is almost too easy in that sentence. A reporting structure must be included in the Bill, so this is a positive contribution to the debate. I shall be interested to hear the Government’s response on why compulsory reporting of such matters is not in the Bill.

As this is the first time that I have intervened since we moved on to carbon storage, and as I am probably not entering into the areas on which the noble Lord, Lord Jenkin, will speak, I shall ask the Government more generally about these measures. First, on where storage can be licensed, Clause 17 in Chapter 3 defines a “controlled place”. Licences can be granted only for controlled places, which are defined in two ways —as a,

“territorial sea, or … waters in a Gas Importation and Storage Zone”.

Am I right to conclude from this that the Bill allows storage only offshore, below the sea? I am surprised that the clauses relate to temporary as well as permanent storage. It seems strange to me—although perhaps I do not understand the industry sufficiently—because there might often need to be temporary storage on land. I cannot see how the clause in any way allows for temporary storage to be licensed and therefore approved other than above or below the ocean or in the waters defined as an importation or storage zone.

Furthermore, have the various issues around international treaties been resolved by the British Government? I refer to the Ospar treaty and, I think, another treaty—maybe the Treaty of London—under which this is still seen as a pollutant, and storing and disposing of potentially environmentally dangerous or polluting products at or below sea is specifically prohibited. Have the Government resolved all those international treaty issues to allow carbon storage to take place, especially in areas such as the North Sea?

As I understand it, it is, in principle, possible to have carbon storage on the floor of the ocean, if it is deep enough. I also recall the Government saying that although that is technically the case, it is not their intention to do so, certainly in the early days. Is it possible to find areas within the 88-mile, or whatever, area away from our 12-mile limit where it would be technically possible to store carbon dioxide on the bed of the ocean at sufficient depth, or is that an interesting theoretical possibility that could not realistically apply within UK waters?

The noble Lord, Lord De Mauley, has raised an important issue. I shall try to explain why we have drafted the provisions in Clause 20 as we have and set out why the amendment, which would include a provision about notification of accidents, near accidents or leakages relating to a carbon dioxide storage site, is unnecessary. The noble Lord could have chosen other examples to put in, but we would equally have argued that they were unnecessary because they are so obvious.

Clause 20 allows licences to be granted on such terms and conditions as the licensing authority sees fit. The power will allow the authority to include case-specific requirements in relation to each carbon dioxide store. This clause provides a non-exhaustive list of examples of the sorts of conditions licences may contain, including: financial security provisions; the right to modify the licence; provisions about closure of the storage site; and provisions about the termination of the licence.

Notification obligations are not mentioned expressly in Clause 20(3) because the list of potential licence conditions in that clause is non-exhaustive. Trying to provide an exhaustive list would not be possible at this time, for reasons I will try to outline. Instead, Clause 20(3) aims to set out examples of some of the less obvious provisions that may be contained in licences. To a certain extent, it is a matter of opinion which are obvious and which are not, but in other circumstances it is obvious which are clear and which not.

There are two reasons why an exhaustive list of licence terms and conditions cannot be provided at present. First, there is only very limited practical experience worldwide of licensing the permanent storage of carbon dioxide, and the detailed arrangements will inevitably develop as experience grows. In the mean time, the relevant licence terms and conditions will need to be assessed on a case-by-case basis. Secondly, international legislative developments, which the noble Lord, Lord Teverson, asked about—for example, the EU proposal for a directive on the geological storage of carbon dioxide, which is currently under negotiation—mean that the licensing regime, including the applicable licence terms and conditions, will need to evolve and be adjusted with time. Therefore, because of the above flexibility that we require, we have restricted the list in Clause 20(3) to examples of the less obvious conditions that may be included in licences. We will also be consulting on our proposed licensing regimes in the near future.

We expect all licences to include as a matter of course—with the onus on the operator, too—provisions on monitoring, remediation, reporting, record-keeping and notification obligations. This is because these licence provisions will play a fundamental role in ensuring that the CO2 storage sites are run in a way that pays due care and attention to environmental and health and safety considerations.

I reassure the Committee, particularly the noble Lord, Lord De Mauley, that notification obligations 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 other significant developments in relation to the storage site. Clause 23(1) specifies that it will be a criminal offence to fail to notify the regulatory authority as required by a licence, which necessarily implies that notification requirements will be included in a licence.

I was asked about the clause not allowing onshore storage of CO2. I am advised that the onshore storage of CO2 is not permitted because of the EU landfill directive. That is why the Bill focuses on offshore storage. The other elements of CCS—capture and transport—can be licensed under the existing regulatory framework, so the Bill does not have to deal with them.

Although this will come up in a debate on a later amendment, deep underground depositories of carbon dioxide in saline aquifers next to power stations are presently prohibited, and an EU directive change would be required for that. Is that what the Minister is implying? Obviously I do not expect him to answer immediately, but perhaps he will do so at the end of his replies to other points.

I am grateful to the noble Lord. I will come back to him.

On international treaties, Norway has already ratified the amendment to the Ospar Convention, to which the noble Lord refers, to enable the UK to store CO2 in the near future. Contracting starts soon, and there has to be notification for it to come into force. The London protocol has also been amended so that carbon dioxide can be stored on the seabed.

My noble friend Lord Woolmer asked why CO2 is stored on the seabed and not under it and whether such opportunities exist in the UK. Again, under Ospar, the international agreement, this would not be permissible because it prohibits storage in the water column itself.

The noble Lord, Lord De Mauley, asked why the power in subsection (3)(c) was not blindingly obvious. This and other provisions are not obvious because they may affect the rights and expectations of licence holders in one way or another. This includes the power to require financial security or to modify a licence. Another group of not obvious provisions include provisions that are specific to CO2 storage.

In answer to the question of the noble Lord, Lord Teverson, the Bill states that interim measures prior to the permanent disposal of carbon will also require a licence. What situation is that intended to cover? While unlikely, we are not ruling out the possibility that it may be necessary to temporarily store CO2 offshore in one location before transferring it if, for example, an operator has a portfolio of sites that are in close proximity. As to the question of the noble Lord, Lord Redesdale, about details in relation to onshore siting, the best thing that I can do is write to him with a more exact position than I have been able to describe up to now.

I was extremely surprised—maybe I misheard or misunderstood him—when the noble Lord said that EU law precluded storage of carbon dioxide onshore. I cannot believe that that is right; I see that certain heads are nodding. That sounds patently absurd, because there are perfectly good saline aquifers in this country that would hold sequestrated carbon dioxide in perpetuity. I see absolutely no reason why Brussels should insist that we cannot do that. I hope that the noble Lord will take on board—as the noble Lord, Lord Redesdale, suggested—that this whole business needs to be firmly and swiftly revisited.

I remember playing a part in the landfill directives many years ago. This is part of the law of unintended consequences, because carbon capture and storage had probably never been thought of. I hope that the Government are pursuing amendment of that directive, which clearly is not meant to apply to this kind of storage.

Will the Minister clarify whether the Ospar Convention and the Treaty of London conventions have been concluded? I was not clear from his remarks whether those had now been tied up, done, ticked and finished, which would mean that we move on with the landfill directive and being able to implement the Bill once it receives Royal Assent.

I intervene to clarify one or two issues. I declare an interest as president of the Carbon Capture and Storage Association. First, to comment on the question by the noble Lord, Lord Woolmer, the possibility of storage of CO2 on the deep sea floor has been recently floated by respectable international scientists, simply because they were concerned at the slow pace of the proceedings with the rest of the sequestration proposals, such as saline aquifers and appropriate traps under the sea.

It only becomes practicable to store CO2 on the ocean floor at considerable depth. It becomes denser than sea water at depths of about 3,000 metres, so you must have that sort of depth before you can put in CO2 and it will sink to the bottom. The proposal is that it would pool. However, that is clearly precluded by the present law of the sea. It would require a really significant change in international opinion for that to happen. We have none of those depths within the UK jurisdiction, so it is not really relevant to our problem.

In terms of land storage, which the noble Lord, Lord Teverson, raised, the reason why not much attention has been given to that in the UK so far is that it is pretty expensive by comparison with disposing under the North Sea. All the attention so far has been directed at the North Sea where, in a number of cases, there is a possibility of secondary oil recovery to reduce costs. I simply do not know what the licensing procedure would be for storing CO2 in repositories on land in saline aquifers in the UK. I do not know whether the Minister knows that.

I am extremely grateful to the noble Lord whose comments, which displayed his obvious expertise, certainly educated me and perhaps other Members of the Committee. I hope that I can add to them.

I am advised that onshore storage is not permitted because of the current EU landfill directive but that negotiations are under way with a view to introducing a change in the policy by 2009. Under the new directive it may well become possible to store CO2 on land. I was right in what I originally said to the noble Lord, Lord Redesdale, but he was right to wonder why that was the case. It looks as if the EU may be catching us up. We are one of the countries proposing an alteration to the existing directive to allow a more flexible response.

The noble Lord, Lord Teverson, rightly pressed me on the extent to which Ospar and the London protocol have been agreed. The London protocol is completed but Ospar needs to be ratified by seven contracting states. Norway has already done so and we shall do so shortly. I am delighted to say that the helpful lesson that we have just had from the noble Lord in relation to storage on the open sea comprises exactly what I had to say, although not in the same words. I have tried to explain what we are trying to do. Including all the obvious measures in subsection (3) would not be nearly as useful as including some of those things which may become necessary because of the very nature of the CO2 storage that is in the process of being developed.

I thank the noble Lords, Lord Teverson and Lord Woolmer, for their contributions and the important questions that they raised in this context. I also thank my noble friend Lord Jenkin for highlighting a rather important point about onshore storage. I particularly thank the noble Lord, Lord Oxburgh, for his extremely interesting intervention. I could hardly have hoped that we would have got into such interesting and important areas with such a seemingly innocuous amendment. I thank the Minister for his response, which I shall consider closely. I could hardly expect him to have conceded a second opposition amendment so soon after the previous one. He has, however, used the same argument as his honourable friend in the other place. I was not entirely convinced by his explanation about why, for example, granting the Secretary of State explicit power to review a licence is not sufficiently obvious also not to need inclusion. I am sure that we will want to return to this point on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 agreed to.

Clauses 21 to 26 agreed to.

Clause 27 [Inspectors]:

[Amendment No. 10 not moved.]

Clause 27 agreed to.

Clause 28 agreed to.

Clause 29 [Requirement for public register]:

11: Clause 29, page 16, line 8, at end insert “unduly”

The noble Lord said: This group relates to the disclosure of commercially sensitive information. Amendments Nos. 11 and 12 simply change the wording of Clause 29(2)(b) to strengthen the protection of commercial interests. We propose to do that by removing the unreasonable degree test. We do not want to place the Secretary of State in the position of deciding at what point interference into commercial interest is unreasonable. The change in wording is slight, but we on this side feel that to have the subsection state that the information should not unduly prejudice them is a sufficient condition for protection.

Amendment No. 13 would have a more substantive impact than perhaps Amendments Nos. 11 and 12. It would change the period of confidentiality of commercially sensitive information otherwise due to be included in the public register. As it stands, the Bill would exclude from the register for four years information that,

“would prejudice to an unreasonable degree a person’s commercial interests”.

Projects of the nature that we are considering are typically very long term. Four years seems to us to be an inadequate protection. We appreciate that access to environmental information can be important to achieving sustainable development because it fosters a public role in decision-making in a transparent and helpful fashion.

However, that obviously must be balanced with the fact that some information is crucial to business competitiveness and to national security. The Minister in the other place noted that the period of confidentiality could be extended at the Secretary of State’s discretion following an application by the person who might be affected. But that, we believe, is inadequate. We support a flexible system, but that flexibility should be rooted in something that already provides adequate protection and can be adjusted when necessary. Four years does not seem to us to provide the adequate base position upon which changes or extensions might be granted. Commercial confidence depends on the knowledge that a participant’s interest can be protected and an extension, purely at the whim of the Secretary of State, might not be appropriate.

The Minister in the other place outlined the safeguard; that is, the Government’s,

“usual reasonable approach to these matters”.—[Official Report, Energy Bill Committee, 26/2/08; col. 255.]

That seems to me to be a matter open to debate. Regardless of this Government’s reputation for reasonableness on these matters, it is important to note that this is legislation for future Governments of whatever colour. To depend on a future Secretary of State to be reasonable does not seem the best course of action when the stakes are this high. A lack of commercial confidence could wreck these projects and protecting the information that needs to be protected is part of the foundation of this confidence.

I understand that the timeframe of this clause comes from the Food and Environment Protection Act, but does the Minister not think that, given the very long-term nature of many of these projects, the four-year period should be reconsidered? What consultation has occurred with respect to this time period? Does the Minister not see that there are substantial differences in the use of the time period governing the Food and Environment Protection Act and this Bill? A letter sent by the Government to my honourable friend Charles Hendry in the other place outlined the process to some extent, but they admit that the decision is up to the Minister. Is there anywhere to which these bodies will be able to appeal if their application for an extended period is denied by a Minister?

While the decision as to what is an adequate period is a subjective judgment, and we have suggested 10 years, we on these Benches feel strongly that the mechanisms regarding confidentiality need to be seriously reviewed and rethought. I beg to move.

I am grateful to the noble Lord for moving his amendment and speaking to the others. In keeping with the principle of public access to information on environmental matters, Clause 29 requires the Secretary of State to maintain a public register of specified information related to carbon dioxide storage licences. It replicates existing arrangements under Part 2 of the Food and Environment Protection Act 1985. Access to environmental information is required by international, EU and national legislation. Moreover, and importantly, the public’s right to be informed about certain environmental matters has long been seen by the Government as essential for achieving sustainable development because an informed public can play a more active role in effective decision-making. The information to be included in a public register will be set out in regulations, but is likely to be very similar to the types of information already made available under Part 2 of FEPA. As is the case with that Act, suitable protections will be put in place to exclude from the register commercially sensitive information and information that prejudices national security interests.

I shall take Amendments Nos. 11 and 12 together. They would change the test for establishing the grounds of commercial interest on the basis of which information may be excluded from the register of CO2 storage licences. This exclusion would be at the discretion of the Secretary of State. The proposed amendments replace the current test that the disclosure of the relevant information would have to prejudice a person’s commercial interests “to an unreasonable degree” with a new, and possibly less onerous, test that disclosure of information would have to prejudice a person’s commercial interests unduly. At first sight, and maybe even at second sight, this looks like a lawyer’s distinction, but we think that it is worth standing out on this. As I have already mentioned, the provisions of this clause largely replicate those contained in Part 2 of the FEPA, where the unreasonable degree test is used. I remind the Committee that the FEPA governs temporary depositions of materials on or under the sea bed and, while not suitable for regulating the permanent storage of carbon dioxide, it sets a valuable regulatory precedent for the test establishing commercial sensitivity. The test has been applied in the context of FEPA for a number of years and has worked effectively.

Moreover, by lowering the threshold for the commercial sensitivity test, if that is what we would be doing, the proposed amendments may have negative public rights implications. As I said, international, European and national legislation gives the public certain rights of access to information on environmental matters. Lowering the threshold for the test of commercial sensitivity, on the basis of which information may be excluded from the public register, would unjustifiably undermine those rights to some extent. Our view is that in relation to the register of carbon dioxide storage licences, only information that would prejudice the operator’s commercial interests to an unreasonable degree can be afforded protection. We do not agree, on this occasion, with the noble Lord.

Amendment No. 13 relates to the length of time during which information ought to remain excluded. The suggestion is that where information is excluded on the grounds of commercial sensitivity, it ought to remain excluded for 10 years rather than four years. It will be for the Secretary of State to decide what information ought to be excluded on the grounds of commercial sensitivity. The Secretary of State will also have the power to exclude information on the grounds of national security, and there is no time limit after which that exclusion is deemed unnecessary.

In the case of commercial sensitivity, there is a presumption that information that is excluded will remain excluded for four years only, but that period can be extended at the discretion of the Secretary of State on application by the person whose commercial interests are affected. I refer noble Lords to Clause 29(4) on that.

We do not think that the noble Lord’s amendment, which goes from four years to 10 years, is appropriate. First, 10 years seems too long. The four-year period provided for in the Bill strikes the right balance between, on the one hand, ensuring that companies’ commercial interests are not unreasonably prejudiced while, on the other, protecting the right of the public to access this information. I stress again that the provision replicates the equivalent provision of the FEPA, where, again, we argue that it has worked pretty successfully over the years.

Secondly, if in the future it transpired that information was still sensitive after four years, the Bill has adequate safeguards. Subsection (4), as I have said, gives the Secretary of State power to decide, upon application from the operator, whether the information ought to continue to be excluded. This is an important provision that will enable periodic reassessment of the excluded information and will help to ensure that where there are sound reasons for excluding information, that information will continue to be protected. Our response, which is to be found in the Bill, is a flexible one—even a reasonable one. I hope that provides sufficient reassurance that the Bill contains a number of safeguards that will ensure that commercially sensitive information is appropriately protected, including the ability to extend the period for which it remains off the register.

Regarding companies’ attitudes and responses to consultation, we have not had any opposition from companies to the four-year provision. Is the FEPA a reasonable or good precedent? The noble Lord pressed me on the length of information exclusion because, he pointed out, there are differences between the licences. My response is that both short-term and permanent disposal under the sea are environmentally sensitive in their own way, so this is not a bad precedent; in fact, it is quite a good one. Not only has it worked well in the past but the Bill allows for the flexibility that I think the noble Lord wants to see.

To whom can someone appeal if they disagree about extending protection? We have had a lot of discussions with industry about this whole matter, and as it happens that has not been raised as a concern, although that is not to say that he is wrong to raise it as a concern. Should this prove to be a problem, companies will be able to seek judicial review of the relevant decisions concerning information exclusion. However, we are pretty confident that that will not be necessary. The same arrangements, I repeat, have worked pretty well under the Food and Environment Protection Act 1985, so I hope the noble Lord will, at least to some extent, be reassured by what I have had to say.

I thank the Minister for his detailed response. I will study it carefully. In the mean time, while reserving my right to return to this, for today I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 12 and 13 not moved.]

Clause 29 agreed to.

Clause 30 agreed to.

Clause 31 [Termination of licence: regulations]:

14: Clause 31, page 17, line 21, at end insert “and about the examination by inspectors of the closing of the facility”

The noble Lord said: This amendment concerns the way that storage facilities will be closed and how this process will be inspected. It is a reaffirmation of the role of the inspectors in the closure of facilities and makes plain that it is the operator of the facility who will bear the cost. That point relating to the costs remains unclear in the Bill as it stands, and we hope that the Minister will be able to provide some clarification on the point, as well as the reasons for omitting this from the Bill.

We welcome the confirmation from the Minister in the other place that the liability and responsibility for the store will remain with the licensee. Yet he also said that the licence, and therefore the liability, would be terminated only when there was,

“sufficient evidence to confirm that it is safe and secure”.—[Official Report, Commons, Energy Bill Committee, 26/2/08; col. 257.]

Can the Minister explain the criteria in more detail? It seems that the people making such a judgment will be inspectors of some sort. Will the cost of the final inspection still be borne by the licensee?

Clause 27 gives the Secretary of State the power to make regulations specifying the powers and duties of inspectors. We do not seek to replicate those powers with the amendment or cause an instance of unnecessary duplication in the legislation, but we do think that this is the sort of assurance that ought to appear in the Bill. What assurances can the Minister give regarding the shape of these regulations? Will specific mention be made of inspection of facilities when the licences are being terminated?

Noble Lords will understand our concern on this point. A real danger is posed when these facilities are closed down and we want to be absolutely certain that all efforts are made to ensure the safety of the public and the environment. I beg to move.

I welcome the questions put by the noble Lord, Lord De Mauley. I should like some help from the Minister on the meaning of paragraph (b), which states that the licensing authority may by regulations make provision,

“imposing obligations on the licensing authority”.

I have not had much experience as a legislator, but I have never come across something that gives an organisation the power to impose something on itself. It is quite a strange approach. I would have thought it would say something on the lines of “imposing regulations by the licensing authority in respect of”. It is strange to give an organisation the right to impose obligations on itself. I would be grateful if the Minister could explain how this will work. If obligations are imposed on an organisation, they should come from another organisation, otherwise there is a clear conflict of interest.

The noble Lord, Lord Teverson, has put his finger on an important point of drafting. It reminds me of the story about the keebird, which flies around and around in ever-diminishing circles. In the interests of propriety, I shall not go any further than that. He is absolutely right in that you cannot have regulations imposing obligations on yourself. Something has gone wrong in the drafting. The noble Lord has raised an interesting if minor point.

I am grateful to noble Lords for contributing and I shall be even more grateful when I have an answer to the bumblebee or whatever analogy made by the noble Lord, Lord Jenkin. First, I shall address the amendment. As the noble Lord, Lord De Mauley, appreciates, inspectors will perform very important functions in relation to carbon dioxide storage sites, ensuring compliance with the relevant licence conditions and adherence to high standards of environmental protection. I therefore agree with him that the regime set up for inspectors in this chapter deserves our close attention. I shall briefly outline the provisions of Clause 31.

One of the key areas covered by the regulatory framework in the Bill concerns the closure of carbon dioxide storage facilities. The purpose of the framework is to ensure that carbon dioxide is stored permanently in geological formations. We have already discussed some of the existing constraints on this matter. However, operators as commercial entities cannot be responsible for carbon dioxide storage facilities indefinitely due to the geological timescales involved, a factor that I am sure is recognised by all Members of the Committee. We are talking about very long time periods indeed.

Clause 31 therefore provides the Secretary of State and, in relation to licences granted by them, Scottish Ministers, with the powers to make regulations specifying requirements for the termination of licences and the arrangements for the long-term stewardship of closed carbon dioxide stores.

We expect licences to include provisions requiring the carbon dioxide stores to be monitored for a period of time after closure to ensure the safety and security of the relevant stores. During this time, the responsibility and liability for the store will remain with the licensee for a reasonable time after closure. Only when there is sufficient evidence to confirm that the stores are safe and secure would we expect to consider terminating a licence.

If I understand the amendment correctly, it would include an express provision in this clause allowing inspectors to examine carbon dioxide stores following their closure. I do not believe that the amendment is necessary because there are already powers elsewhere in the Bill that would allow us to deliver the same objective. The noble Lord is concerned about the long-term security of the environment, and rightly so.

First, requirements for inspection of carbon dioxide stores, both during the operational phase, when carbon dioxide is being injected, and during the monitoring phase, when the carbon dioxide store has been closed but the licence has not yet been terminated, could be included in the specific licence terms and conditions of any carbon dioxide storage facility. The power for the licensing authority to prescribe such, and other, conditions is already in Clause 20, which governs the terms and conditions of licences.

Secondly, such a provision would duplicate powers in Clause 27, which would give the Secretary of State and Scottish Ministers the power to appoint inspectors and make regulations prescribing their powers and duties. That would allow the regulators to specify the inspectors’ responsibilities in relation to both operational and closed carbon dioxide stores and in relation to any inspections that may need to be carried out prior to the termination of a licence.

The noble Lord, Lord De Mauley, has clearly identified an area of concern. What is the nature of the powers of inspection? How do they relate to when carbon dioxide is being injected, and when the site has been closed but has not been rendered sufficiently safe and secure for the licence to be terminated? What happens after that? I assure the noble Lord that there are powers in the Bill that meet the anxieties reflected in the amendment.

Let me deal with the question about the criteria for closure of a store, which was asked by the noble Lord, Lord De Mauley. We need to consult on those issues, and we intend to do so shortly. The criteria will have to be decided on a case-by-case basis. We do not have any experience in regulating the closure of such stores, for obvious reasons. Therefore, international experience and evidence will have to be relied on, at least in the first cases. However, the guiding principles will be clear, well known and, I hope, acceptable to the Committee; namely the polluter pays principle, the essential protection of the environment and the necessary protection of the interest of the taxpayer regarding these issues.

We must consult on this. Noble Lords have raised anxieties about the issues, and we recognise that we are breaking new ground on them and that they are of profound importance. They relate to other issues regarding closure and safe storage, which we will debate later in the Bill. They are profoundly significant. In asking the noble Lord to withdraw the amendment, I also express gratitude that he has given us the opportunity to clarify that we have addressed the issues that he identified and that we will be consulting in due course on the crucial issue of the criteria.

Will the Minister clarify the question of payment? It was raised, but he has not really addressed it. He made a passing reference to “the polluter pays”, but am I right that the licensing authority will be a charging authority that will charge for the inspections functions that are carried out as part of the licence process? The question of cost does not really arise because it is part of the licence fee, which reflects it. The cost argument does not really enter into this, except when a licensee breaks the safety regulations and therefore incurs penalty charges.

I am grateful to my noble friend, who, as ever, is knowledgeable about these matters and has identified exactly the concept to which we are working. The licensing authority is a charging authority and, as long as the licence obtains, it will have the right to demand the necessary, appropriate and defined payments. That is the significance of the moment when the site is defined as closed and secure and the state takes responsibility for it thereafter. It means that the liabilities of the company are at an end at that point.

I do not remember—I may have missed it—getting an answer to my question on an authority’s conflict of interest in laying down regulations about itself.

The noble Lord’s interpretation is not quite right. If he looks again at the clause, he will find that the licensing authority fulfils obligations, some of which it is responsible for enforcing. We are describing the obligations of those who are being licensed and defining what the licensing authority will be obliged to do within that context. I cannot conceive why an external body should dictate that necessary role to the licensing authority.

I thank the Minister for his response to the amendment. I will consider it carefully. Like my noble friend Lord Jenkin, I thank the noble Lord, Lord Teverson, for his interesting question. It will be interesting to see whether a government amendment is forthcoming. I also thank the noble Lord, Lord O’Neill, for asking again about the bearing of cost. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 31 agreed to.

15: Before Clause 32, insert the following new Clause—

“Capture of carbon dioxide competition

In any competitive process relating to the capture of carbon dioxide initiated by the Secretary of State, equal status should be given to all technologies relating to the capture of carbon dioxide.”

The noble Lord said: I apologise to Members of the Committee because some of them like the sentiment behind the amendment but the wording causes some problems. The purpose of the amendment is to look at the question of the competition for carbon capture and storage. The Government announced that they were going to look closely at this and launch a competition for a technology that would bring about a working model for carbon capture and storage. This was welcomed by those on all sides of the House, and in many debates it was seen as an excellent situation. Indeed, knowing some of the civil servants from the DTI who were transferred to the competition team, I thought that it was excellent.

However, we see a problem. Due to costs—this is a capital-intensive process—the Government are looking at backing one technology. To a degree, that is putting all your eggs in one basket. Indeed, the Government are looking at post-combustion technology rather than pre-combustion technology. Post-combustion technology seems the more logical choice for carbon dioxide, but looking at only that in the competition rules out a number of other options, including clean coal. The issue is to what extent we are ruling out valuable technologies that will provide an enormous amount of cost and carbon savings.

These issues cannot be underestimated. At a Royal Society meeting, the figure given for the cost of carbon capture and storage was 40 per cent of the energy coming from the power station. I have been given many figures between 10 and 40 per cent. We cannot be certain to what extent there will be an energy and carbon cost in dealing with carbon until these technologies are tested. However, I hope that the Government will take this on board. We are not saying that all technologies should be assessed regardless of how abstract they are. There are issues with some of the more fanciful ideas about dealing with carbon; somebody put forward the idea that we should load nuclear waste into rockets and send it towards the sun. That is obviously not such a great idea.

Our issue is that the Government have talked about the value of carbon capture and storage as a new technology that many other countries will want to buy into. If we limit ourselves to one technology, which might turn out not to be the most effective over the short-to-medium term, would that not be an unfortunate position?

There were discussions in another place about post-combustion technology being applicable to developing markets such as China and India, which will rely on a raft of coal to meet their energy needs. We are not suggesting anything more than a widening of the Government’s ability to analyse other technologies. The current position is reasonably restrictive. If new technology comes on stream to deal with those issues, that might also fall foul of the Government’s position.

I declare an interest as a shareholder in a new technology looking at a post-combustion means of removing carbon; it will not come on line for quite some time. However, the whole issue is extremely interesting. The technologies we are now looking at might well change in very short periods of time because we are talking about such large programmes.

Finally, the Government deciding to go for one technology has put the stoppers on vast amounts of research and development in other areas. Whole teams have been pulled off looking at certain areas because of the Government’s position, which is unfortunate. We had an early opportunity of taking the lead in wind technology and becoming one of the leading players in its development. We lost that position to the Danes, who have created a massive number of jobs and put a great deal of investment in the country to deal with that technology. As we know that this will become one of the leading technologies in dealing with climate change, it would be very unfortunate if we limit ourselves to one technology and allow other countries to develop a range of other measures. I beg to move.

I oppose this amendment, but not because I disagree with the pursuit of carbon capture and storage technologies. If we are going to have a competition in which we have both technologies, we are talking about having two competitions with two winners. Arguments for both pre-combustion technology and post-combustion technology will be that no matter how good the “post” is, the “pre” will be just as valid. Governments have to make choices if they are constrained by resources. Some people would argue that this is harkening back to the old backing-winners approach to technology and all the problems that we have had over the years in that area.

However, there is a case for the Government to be of some assistance, but the way in which this has been portrayed is that if you do not back both technologies, the pre-combustion technology will never happen in Britain. There are more ways to attract capital, to seek tax relief, to get allowances and to get the kind of support that that technology requires. As I understand it, in a market economy, an element of risk is involved. It would appear that there is greater potential for post-combustion technology in so far as very few other countries are concentrating on it. The two countries—America, and I think Norway—that are looking at carbon capture have gone for “pre” and we are going for “post”. There is nothing to stop British companies joining Norwegian or American allies and getting involved. It is a gross overstatement on the part of the noble Lord, Lord Redesdale, to suggest that somehow it is being outlawed. Ultimately, if you do not win, you have had to spend the money anyway and you will lose anyway. The winning is a bonus. It is not a pre-condition of starting the game that you are going to win: there will be only one winner. Several companies, universities and utilities may well want to get involved in this.

This is a phoney debate. If you want to have “pre” and “post”, say that and tell us that there will be two winners. If you do not want that and you say, “Let us just go with ‘pre’ because one or two people have been trying that out”, we should get rid of “post”. To be honest, I do not think that this kind of ambivalence, this mugwump approach, is intellectually very robust. If we want to support carbon capture globally, we have to make choices. Governments have to shoulder that responsibility when they are resource-limited. This will not be cheap or easy and it might end up like fusion, but it is a great idea that will be realisable in anything from 20 to 35 years—that being a rolling timescale.

I am not cynical. It can be done, but we have to have priorities. We have taken a priority that does not always suit the commercial ambitions of some of the people who are already in the field. Let us face it, if it was that good an idea and the Government had not introduced a competition, these people would have been investing anyway.

Well, some of the companies were doing it. The noble Lord shakes his head but some of the companies were investing previously. However, when they discovered that the Government’s penny was not going to be made available to them, they took their bowl home and refused to do it. There is an idea that we have to have British technology and that it has to have the Union Jack wrapped round it, as Ernie Bevin said. To my mind we are in a global economy where alliances between companies from across the world present us with myriad opportunities. However, we are talking only in terms of the UK.

As regards Denmark and windmills, we did not need windmills because we had oil and gas. We did not need to get involved in it. No one thought about it. The Danes have a one-trick pony of an economy; they do not have much other than Carlsberg. They are doing rather well out of windmills. If there is such a demand for windmills in Britain, British business should set up plants to build them here. One was started in Campbeltown but folded because it could not get orders. Such was the state of the windmill industry in Britain. Let us talk about serious industry here. If Government have to get involved in it, they have to make choices and have priorities. This idea that there is a limitless pot of money that you can throw at every bright idea under the sun is not the way things are done.

I want carbon capture and storage to work. It seems ridiculous that we should not be able to make use of coal as one of the elements of our generating portfolio. Let us choose a model to produce this technology, but if a Norwegian or an American model works better, we can produce it under licence, as is often the case. I do not think it would make that big a difference to our economy one way or the other if we produced it under licence or if we got all the licence money ourselves. As I say, I think that we should throw this amendment out when the opportunity arises because I am sure it will reappear.

I believe that the carbon capture and storage competition was driven not by any urge to wrap a Union Jack round anything but by what was seen as a global need to develop carbon capture and storage technology in the shortest possible time, primarily on climate change grounds but also on energy security grounds. We have precious little time if we are to keep atmospheric CO2 down to a reasonable level by 2050, whether you choose 450 parts or 500 parts per million. It is often not appreciated outside the industry how long it takes to develop heavy engineering—we are talking about really heavy engineering here—which involves learning by doing.

The noble Lord, Lord O’Neill, rightly pointed out that all sorts of people were gearing up to do this. However, that occurred in anticipation of the competition. The competition was pretty heavily trailed with the industry and the sums that were trailed were significantly larger than the £100 million that was finally announced. The implication was that there would be two or three trials. In fact, a government spokesman said at a trade meeting that it might even be more. It was on that basis that a range of industrial partners said that they would give it a go. At present capture technology is simply not economic. It adds significantly to costs. No one knows by how much until someone has done it, but conservative estimates indicate an increase of about 30 per cent in the cost of electricity. People pre-invested large sums—tens of millions of pounds—in a combination of public and commercial spirit in order to kick-start their position in the competition.

There was considerable disappointment in the industry when the actual competition was announced, but one understands that we are in financially straitened times and if that is the money that is available, that is the money that is available. Personally I believe that the Government’s heart or head was in the right place when they looked at technology that could be retrofitted, particularly in developing countries which as we speak are putting coal-fired power stations at an enormous rate. Frankly, unless we or someone else come up with a technology that can control those emissions, we are in a very bad position to manage climate change.

The Government did not get it quite right in specifying post-combustion rather than retrofit. There are three main carbon capture technologies, two of which can be retrofitted. One is more obvious—the post-combustion technology—but the other, the oxyfuel or oxyburn technology, can be done as well. It would have been better if it had been specified as retrofittable rather than simply as post-combustion. But that is water under the bridge. Overall, the industry is delighted with the Bill and the reference made to carbon capture and storage; it is pretty happy with the provisions, and it sees the Bill as an important step forward.

I shall make a comment that is irrelevant to this debate but bears on what we were discussing before. There did not seem to be an obvious place to bring it in. I hope that it is a helpful comment. The Government may wish to consider the separate licensing of sites as distinct from the licensing of organisations. I may have missed it in the Bill but that is probably going to be quite important. There are two elements: you have to have a site that meets a range of geological criteria, which makes it a sensible place in which to operate. It could be operated by a range of different operators demonstrating particular skills and competences. The Government may want to think about making that distinction.

I hesitate to add anything after the words of the noble Lord, Lord Oxburgh, on this. I understand the points made by the noble Lord, Lord O’Neill. I read all the oral evidence that was given to the Committee in another place before it had its formal sittings and I found logical the arguments of Mr Wicks—the Minister who gave evidence as well as being a member of the Committee; it was a slightly strange process—that this technology was the one most likely to be sold.

What has not been recognised is the penalty for having gone down that road. I was given a briefing the other day by the oil company ConocoPhillips, which had the very large potential of a combined heat and power plant at Immingham, which would have involved pre-combustion technology. The company had taken that a considerable way, until the competition was announced and it was said that it would be post-combustion. I was told that the company has now moved its team of experts to California and will do it there instead. I shall not weary the Committee with all the figures that have been given, but it appeared to me, as a result of what the company said, that what it could have achieved in carbon reduction through combined heat and power using a pre-combustion technique was very substantially in excess of what could be achieved by any other process. When the Government took their decision, which Malcolm Wicks enlarged on in the other place, did they realise that that would be the consequence? Perhaps the Minister will say that this substantial plant would not be able to proceed at this stage. The noble Lord, Lord O’Neill, said that you can license the process from somewhere else, such as California, but that is not as good as doing it oneself.

There has been some discussion of the efficiency and cost penalties of CCS. The figures provided to me show that the efficiency percentage for an integrated combined cycle plant with no CCS is 38.4 per cent. If that plant must then have CCS, that figure falls to 31.2 per cent. In terms of increased costs, a coal plant will produce electricity at about £30 per megawatt hour, a gas plant at slightly more and offshore wind at considerably more. A CCS coal plant takes that cost up to £47. It must be realised that there is a substantial cost penalty with the technology as currently envisaged.

I am a strong supporter of developing this technology in one form or another, because the world has huge reserves of coal. As was pointed out in the International Energy Agency’s compelling report, as reported in last weekend’s Financial Times, coal demand in 2005 was equivalent to just less than 3,000 million tonnes of oil. By 2050, that has multiplied by three under the business-as-usual scenario. That will be an enormous increase because of economics and availability. In those circumstances, as the IEA says, to go ahead without carbon capture and storage would mean that there was no chance of reaching any of the CO2 reduction targets that have been mooted not only in the European Community but internationally.

I am not clear about what the noble Lord said about coal generation. Was it combined heat and power that cost £30, or was that simple generation?

I should have made it clear that I was talking about two different technologies. The main use of this will of course be with coal. As I was saying, the IEA has pointed out the huge reserves and the indication that they will be burnt over the next 20 to 30 years, come what may. To do that without CCS would jettison any idea of achieving the targets. The figures from ConocoPhillips I quoted earlier were based on its presumption of what it would be doing with the combined heat and power plant at Immingham.

One must recognise that Governments must make choices. Anyone who has been in government recognises that, and they are not easy choices. One cannot do everything. However, there is a price to pay for the Government’s decision. It will be seen to pay off only if the winner of the competition produces workable technology that can be sold in other countries. I am told that the Government are shortly to announce the candidates for the competition, and that it will be a further 12 months before a decision can be taken on which candidates should go ahead and, as it were, do the demonstration plant.

There is another aspect that I would like to touch on. What are the Government going to pay for in that competition? As I understand it, and I have seen the original presentation by Mr Hutton, they will pay for the CCS plant, for the transport of the sequestrated CO2 and then for the storage of the sequestrated CO2. I have been asking in Questions for Written Answer what plans the Government have for establishing some sort of a CO2 grid. Is this going to become a widely used technology? Some of the scenarios that the ConocoPhillips people have been talking about would involve a significant grid, whereby people producing CO2 can discharge it into the grid and it can then be transported offshore and go into the oil fields. As was said earlier, the depleted oil and gas fields seem to be the best possible location.

The plant that the Government are going to support will presumably have a pipeline to meet the needs of that particular plant. It is not like an electricity grid, where once you put it in it is there and can take a substantial expansion. This will be a pipe for that plant. How far are the Government going to recognise that, if the technology is going to take off, from the start there needs to be the beginnings of a CO2 grid? Otherwise, it is not going to work.

This final point, which has been made to me not least by Dr Chapman, the chief executive of the CCSA, is that there is a feeling in the industry that the Government, having now announced their competition, are simply now going to sit back and wait for the results. What I am being told is that there is at the moment no incentive for anyone else to do anything about it. When the Prime Ministers met at the European Council in the spring of last year, they produced the requirement, under “Energy Technologies”, which,

“urges Member States and the Commission to work towards strengthening R&D and developing the necessary technical, economic and regulatory framework to bring environmentally safe carbon capture and sequestration (CCS) to deployment with new fossil-fuel power plants … welcomes the Commission’s intention to establish a mechanism to stimulate the construction and operation by 2015 of up to 12 demonstration plants”.

The problem everyone else sees with that is that it may be an admirable aspiration, but the Community has done absolutely nothing to bring it about. Individual countries, like our own, are moving ahead with the demonstration project, and I applaud that. At the same time, under the previous paragraph, where is the economic framework to which other countries are going to be able to look to see where this all begins? The Bill provides a regulatory framework, which is certainly important, but there is no financial framework. That is what is lacking. If we are really to see carbon capture and storage move ahead, there has got to be a more positive approach to providing incentives and encouragement to companies to do the work. That may involve a lot of companies with different sorts of technologies that can then be put together. That is what we are lacking in this area. “We have a demonstration plant; let us wait and see what happens”; that is the feeling that there is. I do not find that very satisfactory.

There has been quite a lot of discussion about pre- and post-combustion technology. I share the views expressed by my noble friend Lord O’Neill. However, this competition is about looking not only at how to capture carbon but at how to bring together capture, transport and storage. Those issues will be addressed by the winners of the competition. How that is done is as important as the technology of capturing carbon. If you cannot transport and store it cost-effectively, it does not matter how efficient your capture process is. This is about much more than carbon capture; hence, it is to be warmly welcomed. I will come back to that in a moment.

There are questions about the financing of the successful competitor, and the noble Lord touched on many of them. In the end, however, this will work financially only if carbon is expensive enough. That is what this really comes down to. You can state-aid as much as you want in the experiment. I noted that the Government have ambitiously said somewhere that the financial support is for about 15 years, at the end of which they hope—rather than expect—that carbon capture, storage and transport will be financially viable.

Will the Minister update us on whether the Government are optimistic, now that the price of carbon looks as though it is firming up in the years ahead, that by the end of the period for the winner of this scheme—I think it is up to 15 years—these carbon schemes will be financially viable? Much depends on the price of carbon, but, as I understand it, carbon storage does not qualify under the European Emissions Trading Scheme for carbon credits. Am I right? If I am, will that change? If so, when will it change? If carbon capture does not qualify, it will clearly be a disaster. I assume that the latest Commission consultation paper says something about this. It is clearly an important issue.

This technology also bears on discussions that we had on the Climate Change Bill and on disagreements that were aired across the Chamber, not least between the noble Lord, Lord Teverson, and me, on whether CDMs will be allowable. China and India will be devastatingly badly hit if Europe and the UK limit the CDMs that qualify. Again, that will affect the financial liability of those schemes. These things are linked together in the end as they progress around the world.

On pipelines and a network, a number of schemes are being proposed, the most promising of which seem to be on new-build power stations rather than on retrofitted old ones. That is really quite interesting. I declare an interest as I was for a number of years chair of the Yorkshire and Humber Regional Energy forum, which brought together producers and users of energy. Earlier this week, I visited Drax with the All-Party Group on Energy Studies. In Yorkshire, there is a proposal for a new build in Hatfield and a pipeline across to the south of the Humber Estuary, but with the intention of linking it to Ferrybridge, Eggborough, Drax and Killingholme. In other words, it recognises that in a part of the country where something like 17 per cent of the UK’s electricity is generated by coal, if we do not retrofit carbon capture technology into the Yorkshire and Humber region’s power stations, we will not make a big dent in emissions from coal.

It is enormously important that schemes that come forward are able to make sense of the transport schemes that prevent every coal-fired power station having its own pipelines, outlets and so on. That seems to be madness. I would not expect the Minister to make any comment today because competitions are on and submissions will be in, but it is enormously important that proposals are considered that have a hope of building up a proper transport network as well as dealing with the technology issue. I would be grateful if the Minister could inform the Committee about where we stand on carbon emissions capped in this way in the Emissions Trading Scheme. That is a fundamental issue.

Without going back over the Climate Change Bill, perhaps I can point out where the noble Lord, Lord Woolmer, is not correct in his analysis. Most CDMs are traded by commercial organisations that have no interest in the UK carbon account concept, so it does not affect the demand for them among commercial organisations. The noble Lord, Lord Woolmer, is right—and I know the noble Lord, Lord Jenkin, has said this many times in this House—about the price of carbon. It is the only way that this will work within a market area, as the noble Lord, Lord Woolmer, rightly highlighted. I do not think it is in that scheme at the moment, but it needs to be in it post-2012.

To make sure that that price of carbon happens, are the Government insisting in the EU-ETS post-2012 negotiations that the power industry pays through auction for all its allocation of EU-ETS? Once that regulation is laid down at European level, that is the way the price of carbon comes in. I looked at the spot price a couple of weeks ago, and phase 2 of the EU-ETS is between 20 and 30 euros, which shows the credibility of that scheme. I know it gets more complicated outside the energy industry where there are international competition issues, but within the power industry we do not have them, and auctioning post-2012 EUAs is fundamental to making this technology work.

The Financial Times article to which I referred states that,

“the European Union’s trading scheme today”—

that was a week ago—

“is just $43 … per tonne”,

which is 27 euros. The headline to the article says that the IEA is arguing that if we are to achieve the CO2 reductions that are now being sought by 2050, that will have to rise to $200 a tonne, which will make it very expensive. We cannot get rid of CO2 without recognising that there are huge expenses. Would the noble Lord agree with that?

I absolutely agree, but moving in to auctioning allocations, particularly in the power industry, will be a major part of that. The noble Lord is right that this is not an easy thing. If all sides of the Committee accept that we need to move into that area, there is a heavy cost to pay. The only thing that one can say about it is that, given how little the big changes in the price of oil have affected the economy in the first stages, maybe the global economy can find a way. However, it is going to be quite a challenge.

So that the Minister can respond to a variation on the point of the noble Lord, Lord Teverson, one way of dealing with the risk that coal-fired generators will take if they install this technology would be to permit some proportion of allowances not to be auctioned and have free allocation if they are installing carbon capture technology. There is a risk, even after a competition and trial scheme, and emission allowances are effectively by plant. This is a way of providing risk capital. I am entirely in favour of substantial auctioning, but there is an argument for a proportion of allowances to be allocated free to power generators only if they spend money on installing carbon capture.

I am sure that the noble Lord, Lord Redesdale, will be grateful, as we all are, for the interventions of the noble Lords, Lord Oxburgh and Lord Woolmer, and my noble friend Lord Jenkin. We support the principle of competition, the purpose of which is to encourage a range of technologies. I agree with the noble Lord, Lord Redesdale, that it is important that a scheme designed to encourage innovation through a competition should not prejudice any particular approach.

While we are not yet convinced that the amendment is necessary, we support the principle behind it. It cannot be denied that dithering cost the United Kingdom the installation of the carbon capture and storage facility that BP proposed for Peterhead. We sincerely hope that more delay will not cost the United Kingdom the benefit of future projects, just as we hope that the Government will not engage in picking winners that might suppress better technologies from emerging.

I am grateful to all Members of the Committee who have spoken on this humble amendment, which has covered most energy policy—certainly that on carbon capture and storage. I am grateful for the range of contributions to the debate, not least that of my noble friend Lord O’Neill, who responded accurately to the noble Lord, Lord Redesdale, using phrases that would perhaps not be entirely appropriate from the more dispassionate position of the government Front Bench. Nevertheless, he gave a real riposte to some of the points of the noble Lord, Lord Redesdale.

At that time, however, we were still largely concerned with the amendment; I confess that we have subsequently been concerned with energy policy. I will do my best to answer the points of Members of the Committee, but they will forgive me for being ill equipped to deal with some of the more general ones. Initially, however, I must at least put the amendment into some kind of context, and give the noble Lord, Lord Redesdale his due. He has put forward an amendment which deserves a government response.

I am conscious that the ground has been prepared for detailed discussions, both in the other place and during the House of Lords debate on Second Reading, on the broad issues of carbon capture and storage, particularly the competition for the demonstration project. However, I emphasise again what the Bill is meant to achieve. The Government’s commitment to all carbon capture technologies is clear. The key reason for the Government making a technology choice for our competition for a commercial-scale demonstration project is obvious. The project already involves the Government committing hundreds of millions of pounds, and it is inconceivable for us to put the same level of investment into the range of potential technologies available. The noble Lord, Lord Jenkin, is absolutely right. As always, he identified with great accuracy aspects of the costs of the choice that is made. There will be the costs for those who are disappointed. We know immediately that one British company was severely disappointed at the origins of this, having taken a lead on this work. In its view, the way in which the competition was set up was not entirely appropriate. My noble friend Lord O’Neill identified why the Government are bound to make some choices, which is the nature of the exercise.

I want to emphasise that the Bill is an enabling framework which will allow the safe storage of carbon dioxide offshore, paving the way for wider deployment of carbon capture technologies. I think that the noble Lord, Lord Jenkin, expressed it in terms of the grid. I do not have anything positive to say in response to that, except that in the not too distant future, clearly, there is no point in getting the industry fitted with the necessary technology to capture the carbon if we cannot get it to safe storage. That implies the nature of the grid.

The Government are not out to regulate which technologies may be deployed in various ways or to regulate the activity of carbon capture at all. That is not what this Bill is about. It simply provides a regime to regulate the activity of the storage of carbon dioxide offshore. Although I respect entirely the opportunity which the noble Lord, Lord Redesdale, has brought forward to advocate other aspects of carbon capture, the provisions in the Bill are technology neutral. It does not specify what technology should be employed.

There is a unity among all sides of the Committee that the potential contribution that the technologies can make to tackling global climate change is very significant. The Stern review estimates that carbon capture and storage could contribute up to 28 per cent of the carbon dioxide reductions needed by 2050, if the aim of restricting the temperature increase to 2 degrees is to be achieved. We must remain focused on carbon capture and storage as a global solution to climate change.

My noble friend Lord O’Neill identified that other countries are pursuing different strategies. Certainly, it will be appreciated that in Norway and the United States there are different approaches. This Government support a range of carbon capture technologies through a variety of means. In April 2008, the Environmental Transformation Fund was set up to encourage and fund industry-led demonstration of carbon abatement technology projects, which includes components of CCS. To date, some £2.2 million has been granted as funding to one project. We have put £8.8 million into various research projects that are supported by the research councils and the Technology Strategy Board. My noble friend Lord Woolmer introduced the point that it is crucial that the Emissions Trading Scheme should take account of carbon capture and storage issues, which we are pressing for. We have some optimistic responses on that. I am not sure that I am able to quite commit the Government to a date of achievement on that or any matters relating to negotiations in Europe, but I emphasise that the directive on this was introduced on 23 January 2008 and we would hope that it will be negotiated by the end of the year. But my noble friend will recognise that that is bound to be an aspiration and not a government policy, as EU directives generally require a certain amount of negotiation.

The only area on which the Government have made a deliberate choice is in relation to the competition for a demonstration project. Of course, there are powerful reasons for having done so, and I am sure that noble Lords will have heard through debate in this Committee about the nature of those reasons. We have also seen the formation of the Energy Technologies Institute, which also considers CCS as one of its possible future technology themes. That has a budget of £1 billion and brings together government and some of the world’s biggest companies with a view to accelerating the development of low-carbon energy technologies towards commercial deployment.

Not all the eggs are in one basket. That is the point that I seek to emphasise. We also take on board the point that others may make breakthroughs in other countries from which we derive development. What is absolutely clear is that without this technological breakthrough the capacity to reach 2050 targets is greatly limited.

The noble Lord, Lord Redesdale, pressed me very hard, so I want to emphasise that we did look to see whether it was possible to have a competition inviting more than one technology. Of course, the issue came down to the question of cost. I understand what the noble Lord says on the pre-combustion techniques; there is potential within the competition for wider technological breakthroughs than the narrow one that he apostrophised. I am not able to avoid the obvious fact, when he complains that that choice was made, that there were costs involved. While companies were planning pre-combustion projects—the noble Lord, Lord Jenkin, identified exactly that fact—a choice had to be made by the Government, and it was so done.

I assure the noble Lord, Lord Jenkin, that the issue does not stop there, however. It is important that a range of initiatives are pursued; the Government will give what support they can in these terms. The only way in which the amendment might be relevant to the Bill is if the Bill circumscribed, checked and controlled the potential for other opportunities. That is not the Bill’s intention and it is not what the Bill does. That is why I congratulate the noble Lord, Lord Redesdale, on having taken advantage of this opportunity to present the case as he has for pre-combustion technology, but the Bill is not an inhibiting factor in those terms. That is why his amendment is not necessary and I hope that in due course he will withdraw it.

I was grateful to the noble Lord, Lord Oxburgh, for putting all these issues into an erudite context. He is right that the issue of choice involves costs and represents the cost bond by the Government, but he is right, too, when he says that on the whole the industry is supportive of this measure. It is aware that despite the fact that the competition involved a choice by the Government, the Bill itself is open-minded about the question of development of technologies. That is why it has the breadth that it has and why I would want to resist today any suggestion that the Bill provides a constraint on fertile developments, which must be grasped if we are going to make the necessary progress.

I am not sure whether I should be speaking on general energy policy, ill qualified as I am to do so; but I have been forced to do so by the nature of the questions addressed today. To go back to the amendment, it has been the trigger for a very significant debate and has raised very significant questions, which we all need to address. I hope that the noble Lord will recognise that it would not aid the Bill’s openness or its technology-neutral quality for the amendment to be accepted. I hope that therefore he will withdraw it.

The debate has been rather wider than I expected and has riled some noble Lords. The noble Lord, Lord O’Neill, said that the amendment should be thrown out. Some of his comments were extremely interesting, particularly as regards buying in technology from the States. However, that would add to the fuel costs for any generator in this country if the technology was not developed here. We could develop the technology here. That was one of the reasons for the competition. I am not against the role the Government have played in backing carbon capture and storage; I welcome it. I never suggested that the Bill’s provisions setting out a means for disposing of carbon dioxide in the North Sea were not very worthy. I did not question that at all, although the Minister gave the impression that I had.

The Minister mentioned Stern. The real issue here is that carbon capture and storage is seen as one of our main planks in dealing with carbon dioxide. I take him back about four or five years to a debate in which he said that carbon dioxide did not have a cost, which was the case at the time. However, it has a significant cost now. I was surprised when the tradable value of carbon dioxide was mentioned as I thought that was slightly wide of our discussion. However, this is becoming one of the main issues as regards energy generation. Later amendments deal with carbon dioxide being one of the main costs of energy generation.

We do not object to the Government holding a competition. We realise that there were very many reasons why they took the route they did down one avenue. I take the point made by the noble Lord, Lord Oxburgh, that the industry was slightly disappointed with the amount of money available. In one respect that is very unfortunate because this will take an enormous amount of pump priming. I say to the noble Lord, Lord O’Neill, that to develop some of these technologies requires government money; it does not come from industry alone. The risk factors are enormous. When we are talking about companies spending, and wasting, tens of millions of pounds—as has happened, especially with BP—that is a signal which the market takes on board. If schemes are abandoned, it will be much more difficult to get others started in future. The Minister made the fair point that the market is open for any company to come forward and produce this technology. However, given the problems that have arisen in the past couple of years, you would have to be a very brave chief executive indeed to take that route, especially in the current credit market. However, I take the Minister’s points on board. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 32 and 33 agreed to.