Tuesday, 24 June 2008.
The Committee met at half-past three.
[The Deputy Chairman of Committees (Lord Haskel) in the Chair.]
I apologise for the fact that my speech may be a little slurred; that is not because I have had an excellent lunch but because I have had a long session with the dentist and the injection has not quite worn off.
If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.
41: Before Clause 42, insert the following new Clause—
“Nuclear Installations Inspectorate
The Secretary of State shall, in each calendar year following that in which this Act is passed, lay before Parliament a report on—
(a) his assessment of the appropriate levels of staff and resources in the Nuclear Installations Inspectorate,(b) the progress that has been made towards reaching that target, and(c) the effect on progress towards approval of new nuclear reactors.”
The noble Baroness said: A substantial part of the Bill is designed to allow nuclear installations to be built more quickly. As was mentioned by many noble Lords at Second Reading, the Bill is part of a three-pronged approach to establishing a secure low-carbon energy industry; the other parts consist of the Climate Change Bill and the Planning Bill. The Planning Bill is intended to streamline the planning process for large-scale infrastructure works. Nuclear build is undoubtedly part of that. It is therefore difficult to approach this matter in its entirety while scrutinising this Bill alone. However, the amendment addresses the problem of streamlining the process for nuclear development in a more general fashion.
We all agree that if new reactors are going to be built, they must undergo the most rigorous scrutiny to ensure long-term durability and safety. Considering the amount of growth that might be expected in the nuclear sector, it is important to make certain that we have the resources to keep up with this growth at a crucial stage in the development of nuclear build; namely, the approval of new reactors. This amendment would require the Secretary of State to assess what levels of staff and what resources would be required to ensure that the Nuclear Installations Inspectorate will be able to handle the potential growth in this industry.
In addition to assessing staff levels and resources, the Secretary of State would be required to report on what progress is being made to provide any support that is needed. This report would also come to bear on the effect of staffing levels on the efficiency of approving new reactors.
It is of paramount importance that new build should not be unduly held up only because there are not adequate resources to approve new reactors. If progress is going to be made in this direction, it would be sad to see the Government’s lack of foresight as the cause of delay; that might put off further investment and deprive the country of a valuable energy supply. I beg to move.
Despite the opposition of those on these Benches to new nuclear build, I am not opposed to the amendment. If new nuclear reactors are going through the planning process and are to proceed, it would be irresponsible to put planning requirements in their way. However, I question the staffing level; I refer to the problem encountered with new reactors that have already been built, especially those in Finland and certainly one in France. Both reactors have had major problems with the strength and durability of the concrete-containing vessels. That is a key component to any nuclear reactor and has delayed both reactors coming online. It would lead to significant reductions in the serviceability of the reactors. In view of the importance of each reactor and how long they are expected to last—our current reactors are expected to last a good 10 years longer than they were designed to do—cutting down on any safety requirements for the sake of bringing the reactors on line far quicker would be of concern, especially if that were due to understaffing. That could be an issue, although I take it that that was not the purpose of the amendment. I doubt whether the Government will accept the amendment but I hope that, if they are minded to do so, they assure us that safety is a priority in any new nuclear build.
I, too, support the amendment. The noble Lord, Lord Redesdale, referred to the French reactors being built at Flamanville and in Finland. I discussed this at some length last year with people from Areva, and the Finnish reactor is quite interesting. Their argument is that the delays—there certainly have been delays—and the additional costs that have flowed from them have been almost entirely due to very slow decision-making by the Finnish regulators. Areva has had to wait for long periods between the different stages of building that reactor, which I think is at Olkiluoto, and it felt that it was being not very well treated by the Finnish regulators.
So far as concerns the station being built at Flamanville—the other one that the noble Lord mentioned—I contacted EDF when the first complaint about the French regulator was announced a few weeks ago and, although it has recently been given much higher prominence in the British press, for reasons about which one can only speculate, the EDF people were not overly concerned about this. They agreed that they were not complaining about the activities of the regulators, which they recognise have to be thorough and persistent.
In connection with Flamanville, one understands that the French regulators have been concerned to ensure that there is no backsliding. As the design of the EPR reactor has become more settled and two plants are now under construction, EDF entirely recognises that it is appropriate that the regulators should make absolutely certain at every stage that all the safety and quality requirements that they lay down are being met. The French regulators have been quoted as saying that they had become aware of certain slapdash practices—I paraphrase their words; I am not sure what they were in French—and that they were very concerned to stop that happening. However, when I discussed this with the senior management at EDF a few weeks ago, they were not concerned that the regulators were acting in any way improperly. The noble Lord, Lord Redesdale, referred to the paramount importance of safety in this—the NII has had a remarkable record in this over the years—and it is right that they should be held to that.
Secondly, there was a good deal of publicity surrounding the visit of President Sarkozy to this country. There was talk of a lot of collaboration between the British and the French on nuclear matters and a reference to including regulation. I took that up through a Parliamentary Question, in which I asked whether this was likely to lead to a mutual approval process, whereby something that had been approved by a regulator in one country could be accepted by the other. If I were a Minister, I would be extremely cautious about that. That was the nature of the reply that I received—that there was no intention that there should be any mutual recognition of the standards. Without knowing all the details, it is difficult to work out exactly what this collaboration amounts to, or whether it is something that was put in as an embellishment or to add, as Gilbert would have said, “corroborative verisimilitude” to an otherwise unconvincing narrative of collaboration between the two countries.
My third point is the reason why I support the amendment. It has been well known in the industry for some time that the regulator has had difficulty in recruiting qualified people to fill the gaps. After all, the authorities broadly said for the best part of 10 years that they were not interested in nuclear power and that all that they would try to do was keep the nuclear option open. It may interest the Committee to know that Professor Robin Grimes runs a programme at Imperial College called KNOO—Keeping the Nuclear Option Open. When I suggested to him after last year’s White Paper that he might like to change the title, he said, “No, there’s far too much goodwill being invested in the name of KNOO”. So the KNOO it is. But this is the basis of the problem. With Ministers being firm in making it clear to their officials that they were not interested in nuclear new build, but only in decommissioning and the treatment of waste, it was hardly surprising that the chief inspector of the NII found it difficult to recruit. It was initially a problem of pay. However, after great fuss, he eventually obtained a significant uplift in the maximum that he could offer to future members of the NII, which has certainly helped matters. I hope that the Minister will reassure us that, with those enhanced rates of pay, the chief inspector, Mike Weightman, is able to recruit the people whom he wants for the work that he is now doing, which covers not just new build but decommissioning and the preparations for waste disposal and so on. But it is new build, particularly the approval of the new designs, which is taking a good deal of his time.
Mr Weightman made it clear to a meeting that I attended that the inspectorate was proposing to break with previous traditions. Instead of one announcement—“Yes, this is being approved”—he proposed that there should be a series of announcements as each stage of the approval process was reached, which would give greater certainty and enable potential investors in new nuclear build to take the matter forward without there being a long gap.
I am trying to put the amendment into context. Regulation, particularly of new nuclear build, is hugely important. I hope that the Government will smile on the amendment, because the public need regular reports on the process of regulation. That is what the amendment would achieve. I fully support it.
I, too, support the amendment, as all parties seem to do. The noble Lord, Lord Jenkin, made an important point about the regulator. Safety is of paramount importance, bearing in mind particularly how ill informed is the press on virtually all matters, particularly the future supply of energy. We need a regulator to make certain that safety is implemented to its fullest extent. I support the amendment wholeheartedly.
I am grateful to all noble Lords who have spoken to the amendment and to the noble Baroness for having introduced it. She triggered exactly the debate that I think she anticipated and hoped for about our preparations for the Nuclear Installations Inspectorate. It took on board the point which the noble Lord, Lord Palmer, emphasised: the crucial role of safety in these developments.
We are certainly not complacent about this issue. We recognise companies’ concerns about the assessment process. Steps are being taken to resolve the issue. I assure the Committee that the Government and the Nuclear Installations Inspectorate are committed to continuing to improve the recruitment and retention of inspectors where possible.
I am grateful to the noble Lord, Lord Jenkin, who generously said that there had been a pay increase to encourage greater recruitment of inspectors. He has been zealous over many years in emphasising the interim period before the decision on the development of new nuclear power.
There is no guilty party, so let us all proceed in our innocence, although we are dealing with an extremely sophisticated issue. I was going to commend the noble Lord, Lord Jenkin, for the assiduous way in which he has addressed himself to the issue of the continuation and recruitment of expertise over recent years in the nuclear industry against the possibility that there would be a second wave of new nuclear reactors. Through that period, he identified necessary measures which the Government were concerned to continue, especially in courses being continued in universities enhancing the skills of those who were to take up those roles.
He referred to the need for the pay rates which obtain at present to be competitive. I am grateful to him for having recognised that an initiative has been taken on that very recently—as recently as last November, there was an increase in the salary of the NII's nuclear inspectors. The purpose of that was both to retain those who work so competently in that crucial field and to aid the recruitment of new inspectors, who will undoubtedly be needed against the background of the increased level of work that we all anticipate.
Reference has been made to the work of Dr Tim Stone. One purpose of his review is to consider how the inspectorate is equipped to review the new build proposals through the generic design assessment process. Another is how to enhance the culture of the organisation for it to be able to adapt to the demands of new nuclear build. I recognise the challenge.
The noble Lord, Lord Redesdale, introduced one obvious aspect of that: anxieties expressed by the French about their installation at Flamanville. Our perspective on what the French have done is that it showed the French inspectorate in rather a good light. It was quickly on to the issue; the French regulatory oversight proved to be effective. It highlighted very early the areas of potential weakness in the management of construction, seeking improvement.
There is no evidence of basic design weakness in the reactor, but nevertheless that was important, especially given, as the noble Lord, Lord Jenkin, mentioned, the increased level of co-operation envisaged, not least by President Sarkozy on his visit to the United Kingdom. We want to find ways in which co-operation can take place. That will not lead to the sharing of respective regulatory decision-making. That is a matter of national responsibility and the French would be no more keen on such shared responsibility than we are, despite the effusiveness of the President about co-operation during his visit to United Kingdom.
The regulators may come to different regulatory conclusions regarding the acceptability of aspects of the EPR design, but they will share experience and technical findings from the safety and security assessment of the EPR design during the licensing process. They will look at ways of dividing up assessment work on specific aspects of the design as well as looking for opportunities to exchange staff. We all recognise the advantages that that can potentially bring. In other words, the collaboration is not the shelving of national responsibility for the safety of our reactors, but the likelihood that we will achieve the challenging GDA completion targets more readily and thus give greater confidence that new nuclear power stations will be up and running in line with the clearly defined energy targets for which the nuclear programme is intended to make its contribution.
I assure the Committee that the regulators are recruiting to build up their capacity to manage the greater workload that is anticipated. They are investigating other measures to help manage GDA more efficiently, such as closer working with and secondments from overseas regulators, particularly the French, and increased use of technical support organisations for their work. These issues are all part of the Stone review on what needs to be done.
We welcome French involvement in nuclear build, and we welcome the opportunities that the President of France indicated should be taken up in terms of collaboration between the two countries on the guarantee of safety. But that does not alter the fact that the Committee is concerned with a Bill that will regulate the British industry, for which the British Government will alone be responsible. We will merely benefit from the contributions from elsewhere.
Dr Stone announced his initial findings of the review at the investors’ conference on 12 June. He identified a number of short-term measures needed to help the NII to recruit, retain and support, and recommended that a human resource firm be appointed to support current recruitment activities, although we all recognise that a crucial aspect in that is the level of remuneration offered. He wanted a review of the existing employment terms and reward structures, and recommended that management-level secondees should be appointed to provide support functions for the national inspectorate in order to allow inspectors to concentrate on the roles that they alone can perform. After all, they have specific expertise and, as we all know, it is relatively rare expertise. That is why recruitment is challenging, although it is going on apace. It is important that those who are recruited have their skills, expertise and abilities directed towards the primary job, which is inspection with regard to the safety of the design and implementation rather than broader management strategies. People with other skills may be employed to fulfil that role, which is what Dr Stone was concerned to emphasise.
The proposed amendment would place—
Before the Minister moves on, I want to ask him about his reference to Dr Stone's interim report, published about a fortnight ago. When does he expect the final report, or will Dr Stone be involved in a continuing assessment? I can ask the question in different words if that would help.
No: I am grateful to the noble Lord. Whether Dr Stone will be employed continually may be a matter for later decision, but it is intended that following the interim report that has just been published, there should be a final report from him in the autumn. It will cover all aspects with which he has been charged, some of which he has been helpful in identifying himself as crucial issues to be considered.
I want to direct myself to the actual terms of the amendment, which, as noble Lords indicated, places an additional reporting burden on the inspectorate. The Government believe that most of the requirements of the amendment are already achieved through other means and we are concerned about the additional burdens that the report would place on the inspectorate.
I want to outline the nature of reporting that is already undertaken on both the nuclear inspectorate resourcing and the generic design process. The information that would be provided as a result of the amendment is already produced by the Health and Safety Executive as part of its business strategy. Information on HSE and nuclear inspectorate resources is also published in the HSE annual report. In addition, the nuclear directorate of the HSE produces an annual plan of work that sets out how the directorate intends to conduct its work over the coming period. All of that information is available online. The committee will recognise that of all the many responsibilities that the Health and Safety Executive has, the nuclear industry is bound to be of paramount importance. We all know that it is more demanding in terms of safety than any counterpart area for which the HSE has general responsibility.
With regard to reporting on the progress of the generic design assessment, the regulators produce public reports on each design being assessed at the end of each step. Those reports set out the findings of the regulators on each design and set out areas for further work as the generic design assessment proceeds. That process is not, as we would expect, carefully monitored but is reported at regular stages.
It is also worth noting that with regard to reporting arrangements, as the nuclear inspectorate is part of the Health and Safety Executive, through the relevant Select Committee Parliament can require the Secretary of State for Work and Pensions to report to it on matters that fall within that department’s remit. That gives flexibility for Parliament without adding an unnecessary burden on the Government or the nuclear inspectorate. That is already a line of responsibility to Parliament.
Turning to the generic design assessment process itself, I am pleased to say that step 3 of the process is now under way. This phase looks at the design safety overview of a particular reactor. As part of the process, the nuclear inspectorate has created a process review board that provides external scrutiny of the assessment process and suggests areas for improvement for its next stage. To enhance the process further, the inspectorate is also seeking to build on relationships with overseas regulators, of which the French relationship that I identified earlier is of very great significance. Building on information from overseas regulators will improve the inspectorate’s understanding of the designs and allow regulatory decisions to be made in a timely manner.
I am not sure any joy is ever derived from anxieties with regard to the nuclear industry, but if any is to be derived from the anxieties identified by the noble Lord, Lord Redesdale, and to which the noble Lord, Lord Jenkin, made reference, it is the fact that we can learn from the experience of others relating to new build. In the same way as the inspectorate does, potential operators and vendors can also help the process by ensuring that the inspectorate receives timely, good quality submissions when requested. We expect that that will occur.
We are well aware of the important issues that the noble Baroness’s amendment raises around the resourcing of the nuclear inspectorate. We are continuing to make improvements in this area and can point to some substantial ones that have been made in recent months. We are making good progress on the generic design assessment process, which will be subject to regular reporting. We believe, therefore, that the existing methods of reporting, including answerability to Parliament, are adequate. I hope the noble Baroness will feel reassured sufficiently to withdraw her amendment.
I do not know what my noble friend is going to say, but that sounded like a fairly good response. However, do the Government appreciate the anxiety that will build up in Parliament over the next six years as power station after power station shuts down and people begin to realise the danger of the situation? It is easy to talk about the facts, and of course they have to be thought about, but the anxiety in Parliament will probably focus on the problems identified by the inspectorate. That is why this particular amendment pinpoints what will be a big problem. Do the Government understand just how urgent this is?
The noble Baroness is right, but the Government would have to be living in a blind hermit’s cave not to recognise the increased interest in nuclear issues and the concern of the public. That is why the issue of the disposal of nuclear waste, for example, has been the subject of much debate in the press and the media generally. Given our programme for the closure of existing nuclear power stations, the public are aware of changes in the industry, and of course the development of new build will raise concerns. None of us is unaware of the fact that the nuclear industry promotes such anxieties and it behoves the Government to follow the pattern established by previous Administrations—after all, the nuclear programme existed for many decades before this Government—which is that the safety of the public is paramount in the design, commissioning, construction and maintenance of facilities, and of course in the legacy we inherit from existing reactors of nuclear waste that needs to be disposed of safely and satisfactorily. I recognise the validity of the points made by the noble Baroness and hope that in my response I have been able to give her some reassurance.
I thank the noble Lord, Lord Davies, for his very full answer. I am getting used to his very full answers—I have to listen carefully to see whether I have actually won anything along the way. We are all trying to achieve the same thing here. We want to get there safely, as quickly as we can and, I hope, in such a way that the general public do not feel excluded from the process. It is bad enough that more and more each day we feel that we are hostages to the rest of the world for our energy provision, so this amendment is one more way of trying to make sure that the Secretary of State would be required to report on progress so that we stay in the loop. The noble Lord, Lord Redesdale, talked about nervousness in this regard and gave the amendment his qualified support, although perhaps not to the principle. With his great experience and expertise, my noble friend Lord Jenkin will contribute a great deal to our debates in Committee over the coming days. I am also grateful to the noble Lord, Lord Palmer and my noble friend Lady Carnegy.
So much is going on in this area. We know about the Stern review and the interim reports, and I hear what the Minister says about collaborations with the French. In the midst of this tangled web of reporting, we will ask again and again for direct reporting and for things to be put in the Bill so that the people of this country, Her Majesty’s Government and the Opposition can see exactly what is going on and when, so that it is not too late. We have heard before and will hear again that we are in dangerous times.
I shall read exactly what the Minister has said, but it does not sound as if he is giving me anything I did not have before he stood up to speak. I shall withdraw the amendment, but not with any great joy.
Amendment, by leave, withdrawn.
On Question, Whether Clause 42 shall stand part of the Bill?
As we come to Chapter 1 in Part 3, I hope that it is in order if I ask the Minister a question which I asked at Second Reading, but to which I have not heard an answer from the Government. I would like to pursue it. Clause 101, the extent clause, states that this is the only part of the Bill that does not apply to Scotland. I understand that the reason is that the present Scottish Executive say they do not intend to allow any new nuclear power stations to be built in Scotland. They intend simply to refuse planning permission. Energy provision is, rightly, a Westminster matter, but under the Scotland Act, again rightly, planning is devolved to Holyrood.
The present Scottish Administration’s anti-nuclear stance is political, but it will not necessarily last for ever. A new Scottish Executive may want—indeed, they may find themselves impelled—to bring new nuclear power stations to Scotland. Even the present Executive may find that unavoidable. It seems not only sensible but properly responsible to include in the Bill now this provision for decommissioning and clean-up for the building of new nuclear power stations in Scotland, otherwise, if and when new nuclear build is back on the agenda in Scotland, new legislation will be required and vital time will be lost, when it is obvious that the situation is likely to be increasingly urgent.
I am not clear whether we at Westminster are free to make this change, or whether the Scottish Parliament would have to agree to it first. Under the Scotland Act, energy generation and health and safety are reserved to Westminster and environmental matters are devolved. Can the Minister tell the Committee where responsibility for this part of the Bill lies, as far as Scotland is concerned? I suspect it is, as it were, a hybrid part of the Bill—there are elements of both. It is important that we know that.
If responsibility is with Holyrood, that Parliament would have to pass a so-called Sewel motion to agree that we at Westminster should change the Bill now. It might well be that it would want to do that, given that there is a minority Administration who can be defeated on a vote. I note that the noble Lord, Lord O’Neill, is with us and he may have something to say about this which would be very interesting. I would be grateful if the Minister could cast light on the position. It is a pretty important matter which could become very urgent, and if we cannot change the Bill now, it would seem highly irresponsible of all concerned. I look forward to the Minister’s response.
I could not resist the opportunity to rise after the noble Baroness’s remarks. In the first instance, the separatist Administration at Holyrood want to pick a fight on energy in any way that they see fit. It is a question of political judgment as to whether or not we respond at any time—by “we”, I mean Westminster—and whether it is appropriate at the moment. One of the failures of the Scotland Act is that we left opportunities for the frustration of the execution of reserve powers to the Parliament by means of legislation that does not relate to the functions that might be exercised.
One could say that defence of the realm is a UK responsibility, but were we to seek to improve the facilities for the nuclear submarine fleet at Holy Loch, we might well find that that would be contrary to the separatist Administration’s interpretation of the planning legislation. One must consider the matter from a number of standpoints. In the short term, on the construction of new nuclear power stations, it is fair to say that Hunterston B will not be ready for decommissioning until the middle of the next decade and Torness will at the earliest be in about 2019-20. Whether or not Scotland requires two additional nuclear power stations or whether it requires two reactors of, let us say, 2,000 megawatts in total, is not for us to pass judgment on. It is for us to exercise our political judgment on whether we want to pick a fight on such an issue at this time.
One area has not been given anything like sufficient attention. That is the waste currently lying in Chapelcross station in the south-west of Scotland, just off the M74 and almost within sight of the English border—for that matter, probably as close to Sellafield as any nuclear installation in the country. It would be a toss-up between Heysham in Morecambe Bay and that station. There is waste there; there is concern about whether it should be stored there in perpetuity or whether it should be treated at the appropriate place—and certainly taken to Sellafield for storage.
At the moment, nothing is happening because of the anti-nuclear posturing of the separatist Administration. That is an issue, but, again, is it worth a fight? Those of us who—like the noble Baroness, I am sure—read the Scottish press at the weekend know that every weekend there is an energy press release from the Administration. Every third weekend, it is anti-nuclear. One is invariably about Scotland's oil; another is about anything in general relating to energy; the third is anti-nuclear. I am genuinely at a loss to know whether it would be desirable to pick a fight at this time. We should be looking at revisiting the devolution settlement and preventing the planning legislation being used in a vexatious fashion to undermine the legitimate authority of Westminster in areas relating to defence and energy in the round.
I have responded to the challenge, but I am not sure whether the Government need to act at present. There are fights that are worth having right away and others for which we would be better waiting for a little longer. One problem in Scotland is that we have not dealt with the need for additional nuclear power in a sufficiently aggressive manner. We have allowed the debate to be dominated by assorted well intentioned tree huggers and malign separatists. The issue requires rather more vigorous attention than it has yet received.
The words of the noble Baroness, Lady Carnegy, are extremely important. I was frightened to hear the noble Lord, Lord O'Neill, talking about a fight. My views about the Scottish Executive are well known, certainly on the Floor of the Chamber. The last thing in the world that anybody would want is a fight between Westminster and Edinburgh on the subject of defence or fuel, but we are in a serious position long term looking at our fuel security. I support very strongly what the noble Baroness, Lady Carnegy, said. I emphasise to the noble Lord, Lord O'Neill, that a fight between Edinburgh and Westminster is certainly the last thing I would want, living just 10 miles inside Scotland.
I hardly dare venture into this debate. I will try to be as brave as I can. I am grateful to the noble Baroness, Lady Carnegy, for raising this issue and for doing so with her usual courtesy. She was kind enough to write me a note about this. My officials have seen it and I hope that my response will be satisfactory, even if the issue is not satisfactory.
Devolved matters are waste disposal, environmental discharges and planning. Reserved matters are safety, electricity generation in the broad sense and nuclear security. It is important to get that straight at the start. Given the energy challenges that we face in the United Kingdom and the role that we believe nuclear power stations should and will play in meeting them, it is of course regrettable that the provisions in this chapter do not apply to Scotland. The UK Government’s position is that should the view of the Scottish Executive towards new nuclear power stations change, we will seek to apply these provisions as soon as possible. But not daring to go into the difficult, not to say dangerous, world of Scottish politics, I have to say that I am not as confident as the noble Baroness that any vote in the Scottish Parliament would necessarily lead to the result that she thinks, because the party that makes up the Executive in Scotland at the moment is not the only party that is opposed to a nuclear future. I have to make that point, although I do not know how it will turn out on the night, as they say.
It is established that some aspects of the clauses that we are considering relate to the disposal of radioactive waste, and the disposal of radioactive waste in Scotland is a devolved matter. Therefore, to apply these clauses in Scotland, as the noble Baroness rightly said, would require a legislative consent motion named after my noble friend Lord Sewel. The Scottish Executive have made it clear that, given their opposition towards new nuclear, that consent would not, to put it mildly, be forthcoming.
It may have been possible to gain that consent if the UK Government had been willing to dilute the powers in the forthcoming legislation. However, frankly, we are not willing to dilute the robust level of taxpayer protection that these provisions provide just in order to gain that agreement. Furthermore, as the Scottish Executive has made clear again, under devolved powers, any application to build a new nuclear power station in Scotland would require consent from Scottish Ministers under Section 36 of the Electricity Act 1989. The Scottish Executive is on record as saying that any proposal from the industry to build a new power station would need to be considered on its individual merits. However, the Scottish Executive have also said that it is unlikely that proposals for the industry for new nuclear generation would find favour with the Scottish Government. As I said, should the policy change, we would seek the agreement of the Scottish Parliament to extend this legislation at the earliest opportunity. The noble Baroness should know that we in government share the same frustration that she and the other speakers in this short debate in Committee made clear.
I thank those who joined in on this short discussion. It is extremely reassuring to know that the present Government in Westminster have drafted the Bill in that way not because that is how they want it but because they feel that they cannot do otherwise.
I was a little depressed by what the noble Lord, Lord O’Neill, said. He knows a thing or two. I listened to him with great care. He spoke about nuclear power in Scotland as if it applied just to Scotland. Everyone in Scotland wants the Scottish economy to grow; I doubt that anybody does not want to export energy—I am sure that the noble Lord does. To say that because we have two nuclear power stations we may not want to replace them is pretty bland. I rather hoped that we might have a number of nuclear power stations in Scotland, for which we are eminently well placed. I hope that the noble Lord does not really feel that Scotland has to be singled out in this way. I was grateful to the noble Lord, Lord Palmer, for what he said. I am a little discouraged: I hoped that it might be possible to make the change. It may still be possible, but I have not done the sums about how a vote would go. I just hope that the Liberal Democrats may recover from their surprising point of view, because it is very anti-Scotland. Scotland cannot survive in this way. I am grateful to the Minister for what he said.
Clause 42 agreed to.
Clause 43 [Approval of a programme]:
42: Clause 43, page 40, line 9, at end insert—
“( ) the Nuclear Decommissioning Authority, and( ) any relevant local authority.”
The noble Baroness said: I shall speak also to Amendments Nos. 43, 44 and 45. All the amendments in this group relate to different aspects of consultation on nuclear decommissioning programmes.
Amendments Nos. 42 and 43 are designed to specify who should be considered as an “interested body” during consultation on the approval of the programme. It is sensible to include in the Bill provision for the Nuclear Decommissioning Authority to be consulted. We understand that the NDA might play a role in any event and that it reports directly to the Secretary of State. However, specific inclusion would enshrine in law what might be intended as matter of course. We also feel strongly that the relevant local authorities should be consulted. Decommissioning programmes have the potential to have enormous impacts on them.
Amendment No. 44 would make a similar change to Clause 46 and include the local authority among those organisations invited to make representations about proposals to modify a nuclear decommissioning programme. It seems good practice to include the local authority before programmes are approved and formal submissions on changes to a programme are made.
The final amendment in this group would extend the consultation on guidance to include the Committee on Radioactive Waste Management, the Nuclear Decommissioning Authority and any relevant local authority. The impact of a programme on the local community could be wide-ranging—on transport, for example. The effects would best be understood by those in the local authority, who might be helpful in pointing out local concerns that would otherwise have been missed by centrally imposed guidance. I beg to move.
We support the amendment on the basis that local communities will be involved through the local authority. One of the problems with the privatisation of many of the companies with which we are concerned is that there do not seem to be many access points to long-term decisions, and we cannot get a great deal more long term than nuclear waste because it will be with us for generations to come. Therefore, I hope that the Government will add local authorities to the Bill, because it may make the process much more acceptable to local communities. Sellafield is very popular locally because of the jobs associated with it, but if storage were to take place in other places, one would have to make sure that the local population was happy with the situation. One of the most important aspects of that is ensuring that decision-making is inclusive and that information is spread through local authorities.
These amendments have been grouped together because, if accepted, each of them would place additional statutory consultation requirements on the Secretary of State in relation to this part of the Bill.
The purpose of a funded decommissioning programme is to ensure that the operator sets out the steps to decommission the power station and to manage and dispose of the waste that is produced. The programme will also have to contain the information that sets out the estimates for the costs of those activities and how those costs will be accrued.
As the Bill stands, in discharging his responsibilities in relation to a programme, the Secretary of State is required to consult with the Health and Safety Executive, the Environment Agency in England and Wales and the Department of the Environment for Northern Ireland, where appropriate, prior to making a decision about whether to approve or reject a programme or propose a modification to a programme or prior to making regulations or publishing guidance.
The purpose of the duty on the Secretary of State to consult with the interested parties is to ensure that a programme submitted for approval or any subsequent modification conforms to the safety and environmental requirements of the relevant regulatory body. The parties I have named have expertise in relation to nuclear safety, security and environmental matters. It is also to ensure that any decision that the Secretary of State might make—for example, to impose certain conditions or additional obligations or, equally, to issue guidance—does not adversely affect the existing regulatory structures for the nuclear energy sector. For example, it might not be helpful for the Secretary of State to approve a modification to a programme submitted by an operator that would not be acceptable, say, on environmental grounds to the Environment Agency.
I shall briefly set out how the various bodies referred to in the noble Baroness’s amendments are already involved in any potential new nuclear build, how their relationship to the provisions in this section of the Bill is different from that of the interested bodies and why, because of this, I am unable to support these amendments. I am going to talk about each body in turn, rather than speak to each individual amendment.
The amendments that concern local authorities would require the Secretary of State to consult with them when exercising his duties. We believe that they add an unnecessary layer of bureaucracy to the Bill’s provisions and would not enhance the level of scrutiny given to funded decommissioning programmes. We do not believe that local authorities always have the competence to assess the technical or financial content of funded decommissioning programmes, especially given that the primary focus of these provisions is about ensuring that appropriate financial security is put aside to decommission the power station and clean up the site on which it stood. In our mind, such a statutory requirement would simply place further burdens on already pretty burdened local authorities. These additional burdens would result from the local authority—on occasion, certainly, if not on the majority of occasions—having to seek external advice on the detailed content of the programme in order for it to engage in a meaningful way with the whole process.
Of course, we recognise the enormous experience that local authorities have in the field of planning and their role in assessing the impact of infrastructure projects on the local community and representing those interests through the planning process. However, there is a difference between these roles and the roles performed by the interested bodies that are more closely affected by decisions made by the Secretary of State under the nuclear provisions in the Bill.
Where a new nuclear power station is proposed, existing arrangements will allow local authorities to be involved in that process. In the future, when the independent Infrastructure Planning Commission is established through the Planning Bill, which is in another place as we speak, local authorities will continue to be consulted on the proposed development prior to construction. The local authority will be able to scrutinise all relevant aspects of the proposal, such as the impacts of transport and traffic flow.
Later, were a change to occur to a power station, for example, following a modification to a decommissioning plan, and that change amounted to a “development” within the meaning of the planning legislation—such as constructing or demolishing a building—then planning consent would be required and at that point the local authority would again become involved. However, there may equally be modifications which do not constitute a “development”—that is, they would not have an impact on the local community—and in those instances the local authority would, quite rightly, not need to be consulted. In other words, getting the appropriate involvement is important. We think that that is rightly through existing processes and not through the framework established under the Bill.
I believe it is appropriate that the Bill grants a statutory role only to the bodies that have a responsibility for health and safety, security and environmental matters. In our view, there is already the right balance of formal and informal consultations with local authorities to deal with concerns that they might have regarding a nuclear power station in their community. We think that the Bill as drafted strikes the right balance.
Local authorities and local communities are of course represented on British Energy and NDA site stakeholder groups, and we would expect new nuclear power stations to be similarly involved in local communities. These are important forums; they help to establish long-term relationships between local residents and operators of nuclear power stations throughout the lifetime of a plant.
As I understand it, they do not have a statutory basis. These are the engagement activities that the NDA and British Energy currently undertake with local communities. Before I sit down, I shall have a response for the noble Lord about what may happen in the future.
Amendments Nos. 42 and 45 affect the NDA. They propose that, similar to the position for local authorities, the Secretary of State should statutorily consult the NDA in relation to a funded decommissioning programme. However, because the NDA’s functions are different from those of the interested bodies, we believe that the amendments relating to consultation with the NDA do not align with the intended purpose of requiring the Secretary of State to consult the Health and Safety Executive and the environment agencies.
The requirement to consult the nuclear regulators is there to ensure that any programme, or modification to a programme, meets the health, safety, security and environmental requirements of the relevant regulator. Frankly, including the NDA in that as a statutory consultee would have no impact on this process, because the NDA has work within the regulatory framework set by the regulators. It primary activity is to decommission the public nuclear legacy programme at 19 designated sites and to progress work on the geological disposal facility.
In relation to waste and new nuclear power stations, the Managing Radioactive Waste Safely White Paper, published earlier this month, confirmed that the NDA will be the implementing body for the geological disposal of higher-activity nuclear waste. In undertaking that responsibility, the NDA will have to work within the constraints required by the nuclear regulators. For example, the waste acceptance criteria that the NDA will set for the geological disposal facility will involve input, and ultimately approval, from the regulators.
Only operators who package their waste to meet the waste acceptance criteria will be able to dispose of their waste in the facility. Therefore, developers will have to propose in their decommissioning programmes to package waste in a manner consistent with these criteria. Because the regulators will consent to the waste criteria, if any proposed programmes or modifications are inconsistent with them, the regulators will be able to register their concerns through the existing provisions of the Bill.
In short, we do not believe it is necessary to make the NDA a statutory consultee as well. The existing arrangements are sufficient to ensure the engagement of the authority where that is necessary. In addition, as an agency of my department, we are already in regular contact with the NDA and if the Secretary of State required any additional specific information, he could request it through the normal channels of government.
I turn now to Amendments Nos. 42 and 54, which relate to the Committee on Radioactive Waste Management. CoRWM’s primary task will be to provide independent scrutiny of the Government’s and the NDA’s proposals, plans and programmes to deliver geological disposal, together with robust interim storage, as the long-term management of the UK’s higher activity wastes. CoRWM’s role in relation to individual funded decommissioning programmes is analogous to that of the NDA; that is, it is strategic and not at the individual programme level. Given our policy on the disposal of waste, CoRWM will play an important independent oversight role in relation to new nuclear power stations through the existing mechanisms proposed in the White Paper I referred to a few minutes ago. It will undertake dialogue with the UK Government and the devolved Administrations, the NDA, local authorities and other stakeholders, and will liaise with appropriate advisory and regulatory bodies to provide annual reports of its work.
The structure and remit of CoRWM reflects the fact that to maintain its independent position, CoRWM itself cannot be part of the implementation machinery, neither should it assume any of the constitutional roles of government or the statutory roles of either the NDA or the independent regulators.
I want to take this opportunity to highlight briefly the other oversight mechanisms that we are putting into place. Where we approve or reject a programme, or a modification to a programme, the Secretary of State will be able to rely on the verification of detailed technical information and advice from the nuclear liabilities funding arrangements board—to be called, I understand, NLFAB—
I shall try—the nuclear liabilities funding arrangements board, known as NLFAB. Information will also come from trustees of the independent fund and other related specialists. The board is being set up to provide the Secretary of State with the right level of technical and financial scrutiny. It will be thorough and the advice provided by it will be made public.
I have spoken for long enough on these amendments. However, I need to come back to the noble Lord, Lord Redesdale, and the question he put to me about local engagement groups. We expect that the developers of new nuclear sites would want to form similar groups. They make good sense, especially in terms of enhancing public acceptance of what is going on in the interests of the developers themselves as much as anybody else. I want to stress that energy companies and we in government remain committed to openness and transparency in the development of new nuclear power stations through local community involvement.
For the sake of completeness and in case I got it wrong—I did—I point out that NLFAB stands for the Nuclear Liabilities Financing Assurance Board.
I am afraid that I have to disappoint the noble Baroness yet again in not accepting these amendments.
I thank the noble Lord, Lord Bach, for his response, and I thank the noble Lord, Lord Redesdale, for his support. I understand that the noble Lord, Lord Bach, will not give me what I would like; however, one learns along the way every time that nothing is ever really wasted. From this exchange I have had a clarification of the role of the NDA, which is helpful; I thank the noble Lord. I have clearly heard the government attitude towards, and the diminishing role of, local authorities—and I have not heard that previously. I shall read the debate carefully. For now, of course, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 43 not moved.]
Clause 43 agreed to.
Clause 44 agreed to.
Clause 45 [Modification of approved programme]:
43A: Clause 45, page 40, line 42, at end insert—
“and any such modification may either increase or reduce the amount of money specified in the funded decommissioning programme.”
The noble Lord said: Those who took part in the Second Reading will remember that I spoke at some length about the arrival on the scene of an American company called EnergySolutions. I gave the noble Lord, Lord Jones of Birmingham, notice that I would refer to it and after the debate he drew me aside to say two things: first, to express his gratitude that I had warned him that I would talk about this company, but he went straight on to say, “I think it would be very helpful if you were to meet some of my officials” to discuss matters arising from my speech. I had had such a meeting previously, which the noble Lord, Lord Jones, had suggested, on a different matter and I therefore readily agreed. Indeed, we have now agreed to a meeting at 1 Victoria Street, at which I hope to discuss these matters.
One of the points that I sought to make in that reference to this rather remarkable American company, based on the information that it has been kind enough to give me, is that it has an approach to decommissioning and waste disposal that in some respects differs from that which has been seen to be the accepted norm in this country. It occurred to me that the firm was asking people to think out of the box. At my subsequent discussions with EnergySolutions, I believe that that is what it seeks to do. It has held discussions with various regulators in this country, which are ongoing.
This matter suggested to me that the circumstance may arise when a company has set aside funds for decommissioning and its share of waste disposal—I shall come in a moment to the question of what is meant by “its share”—and it appears subsequently that the funds that that company has set aside are considerably higher than will actually be necessary. Technology advances, and EnergySolutions believes that it is at the forefront of technological advance in this field. Indeed, it has made a number of innovative approaches to this whole issue. The noble Lord, Lord O’Neill, was quite right to interrupt me in my speech to say that this will be required not only to be subject to regulation in this country, which is right, but to go through the normal testing and contracting system.
EnergySolutions already has a substantial contract with the Nuclear Decommissioning Authority for a number of the Magnox stations in the south of the country; so the company is not completely unknown to the authorities here.
If I had been more accurate I would have tabled the amendment to Clause 46, which is the one where the Government can respond to a proposal to modify an approval. Clause 45 is where someone can approach the Government for a modification, and Clause 46 is the process to be applied when that happens. I therefore have a question for the noble Lord, Lord Jones—and I express our wish that he may be restored to health.
I am sorry to hear that. We hope to see him before Committee stage is over. The advantage is that we have the pleasure of the presence of the noble Lords, Lord Bach and Lord Davies of Oldham.
The amendment sprang from what I had told the noble Lord, Lord Jones, I was going to talk about, and what I talked about at Second Reading. The question is, if you have a contractor who is able to come along and say, “Look, I can do this at significantly lower cost than you perhaps have thought would be necessary”, is it then open to the company that has set aside funds for decommissioning and waste disposal to go to the authorities and say, “We don’t think we’re going to need all this. We envisage arrangements that could be substantially less than that”?
What is meant by “the full share of costs”? There was a meeting upstairs a month or six weeks ago, addressed by the Minister for Energy, Malcolm Wicks, who had with him a senior official in the department. I raised that question, which had been put to me by one or two of the companies. It has been part of the Government’s proposal that all the costs of dealing with the legacy waste fall to the authorities—that is, to the Government—and huge estimates of those costs have been made so far, while the new-build companies would be required only to bear their share of the additional costs occasioned by the waste that they will produce. Some of them had wondered whether the full share meant that they would have to pay the full share of the total cost or only of the additional cost. On that occasion, and those who were there may remember this, I got different answers, one from the Minister and one from the official. I said after the meeting to Mr Wicks, “I think you’ve got to sort this out before the Bill comes to the Lords, because I shall certainly want to raise the matter there”.
As I understand it, and perhaps the Minister will be able to correct me if I am wrong, it is intended that the costs that a new-build company will have to provide for will be the costs of disposing of the waste that it produces and the additional infrastructure costs that that waste would occasion. I do not think there is any intention that the new-build companies should make any other contribution to the total cost of the repository. Perhaps the Minister will have a form of words that can put that beyond doubt; if not, we shall have to return to this at a later stage. There is clearly still some uncertainty out there about what is meant by “the full share”. There was discussion of it in the nuclear White Paper. I shall not bother to read the whole paragraph, but paragraph 2.132 says that some people have,
“questioned the meaning of the reference to the ‘full share of costs’ in the consultation document”.
The question then was whether that means simply by volume or by the level of radioactivity, which is another issue. I want to be quite certain that the new-build people are not going to be required to bear any of the costs which would fall to the authorities under the legacy programme and that they will be responsible only for the additional costs that their waste will occasion.
Another point that arose from the White Paper is that the Government are very keen that they should learn from international experience. EnergySolutions is a good example of a company with international experience in this area and therefore ought to be listened to. The White Paper goes on to the issue of the setting aside of funds. We have heard about the Nuclear Liabilities Financing Assurance Board, also referred to in the White Paper.
I wanted to see what is meant by all this. I do not know if noble Lords have had a chance to look at the consultation paper published last February entitled the Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations. Apparently, what is envisaged is that the sum required to be provided in this funding has a significant risk premium in order to cover the possibility that the costs may be higher, and that the advantage would be that companies could then be certain that they would not be asked for more if it turned out that in the long run the costs were much higher. However, paragraph 2.10 states:
“Should the actual costs of providing the waste disposal service prove lower than expected, these lower costs will not be passed on to nuclear operators”—
and says by way of reason for this—
“who would have gained from certainty of a fixed price and would not have been exposed to the risk of price escalation”.
I understand the logic, but one has to ask what advantage it is to the industry if someone innovative and with international experience—I said that a moment ago that the Government want to see—comes along and offers a significantly lower cost for the disposal of waste. There could also be a lower cost for decommissioning so that the sums that have been set aside are in fact higher than will be required. What happens then? Would it not be fairer in those circumstances, so as to encourage competition and the reduction of costs, if the companies that had been asked to make this provision to be monitored by NLFAB actually enjoyed some of the advantage of it?
My amendment is a peg on which to hang the argument and I do not suggest for a moment that in its present form it could be added to the Bill, but I have raised two questions of substance. First, what is meant by “their share of the costs” and does it include any possible share of the costs of dealing with the legacy waste; and, secondly, is it really the case that the Government intend that companies which can negotiate with an innovating international company, if I may put it that way, to achieve a substantially lower cost are to derive no benefit at all? I beg to move.
I thank the noble Lord for the amendment because it gives the Government the opportunity to clarify certain matters. It has to be said that in the intervening period since his first discussions with Ministers and officials, there have been attempts at clarification. Those of us who were fortunate enough to attend the investors’ conference held two weeks ago heard Dr Tim Stone, the adviser to John Hutton, deal with some of these points. As I recall, the full-cost concept does not necessarily mean full cost for ever and a day; rather, it will be subject to redefinition over time. In the context of decommissioning, storage and repository, the financing for legacy waste will have to cover the cost of the repository—that is, the NDA will be responsible for the construction of the waste facility and the storage of the old legacy waste. The waste created as a consequence of the new build will obviously be stored over time. In the initial stages, the cost of storage in the repository will be deemed to be full cost because that will be the original price. However, as time progresses and as the expertise of the decommissioning agent, whichever private company it is, improves, so the marginal cost will diminish. Therefore, in some respects, full cost means initial full cost but over time it will diminish.
I am looking through my mental notes as I speak but my impression is that the companies that run the power stations—the ones that are in first—will probably have to pay a bit more, and in effect they will probably charge more for their electricity, but as their expertise and experience are developed, so they will benefit from lower costs. Therefore, over the lifetime of this project—I admit that it is a very long lifetime—it is likely that the costs will even out. It is not certain that the new investors in new-build power stations will necessarily be punished in perpetuity because over time the costs will even out.
I realise that, although I have declared interests in the register, I have not declared them here and I am not sure whether I should have done so. I act as an adviser to the Washington Group and I am the chairman of the Nuclear Industry Association, so I think that I should put that on the record.
The noble Lord, Lord Jenkin, raised questions concerning the company that will carry out the clean-up work, but that will depend on the terms of the contract that the NDA enters into with it. However, I understand that a number of companies—I do not refer just to the one which employs me and to which I give assistance—have said, “We think that, once we get into the operation, we will be able to discover economies. We will be able to change the nature of the work pattern, which may well have stood BNFL in good stead in the past”. Indeed, it could be argued that as BNFL’s functions are being removed and it is being dismantled, it has not been that successful in a number of areas. However, if the new companies are successful—as has been said, some of them have extensive international records of achievement—they may well find that, because of their commercial acumen, they are able to create elbow room, which enables them to take on additional work and derive benefit from that. Frankly, the concept of doing the job for less than had been anticipated is only one part of this. In some respects, doing the job for less money merely liberates resource, which affords opportunities for investment in other matters related to the broader contract, meaning that the work can be done that much more efficiently and quickly. Therefore, there is an element of internal dynamics in the financing of these contracts. It would therefore be unfortunate to concentrate just on the idea that somehow by doing it more efficiently we can save money and pay it back. A number of ambitious companies want to expand their activities through the self-financing of their own efficiencies.
My understanding is that the economics of decommissioning is still fairly vague, because we do not know what the terms of the contracts will be—indeed, we might never know every dot and comma. Decommissioning and the work that the NDA will be allocating in the next three weeks might well enable the successful company to expand its role, rather than just take the money out, which would be regrettable. We would want the company to be encouraged to do more, rather than just do as much as it is saying. That would be a win-win situation for UK plc, for the companies involved and for the important task of getting rid of the waste.
I have a feeling that the Minister will be like the third judge in the Court of Appeal who says, “I agree with my learned friend and have nothing to add”. I hope that the Minister can respond positively to the amendment. The noble Lord, Lord O’Neill, has two advantages over me. First, he has obviously gone into this a good deal more thoroughly than I have and, secondly, he is being paid for it. It is much welcome that he has put his interests firmly on the record in Hansard. It has been recent and growing practice in the House to say, “My interests are all declared in the register”. I do not regard that as a sufficient declaration of interest, because you do not have the register in front of you. A Member may make a speech and you do not know what his interest is. I applaud the noble Lord, Lord O’Neill, for his declaration.
I appreciate that this matter may be a good deal more complex than I had thought. I yield to the noble Lord’s considerable expertise in this, but questions for the Government to answer still remain, although the Minister may find that the contribution of the noble Lord, Lord O’Neill, is extremely helpful. He attended that investors’ conference, which I was unable to go to. Nevertheless, the Minister may feel that he can add something. The noble Lord, Lord O’Neill, did not dispute that there are still uncertainties out there in the industry regarding what will actually be required of those companies under the provisions in the Bill and under the supervision of BERR. If the Minister can do anything to clear that up this afternoon, we would all be extremely grateful to him.
We are in deep financial and business waters in which I was floundering until the noble Lord, Lord Jenkin, threw me a lifeline by saying that my noble friend Lord O’Neill had so accurately identified the issues and clarified the noble Lord’s mind that there was nothing for me to add, except that I agreed with him. I do agree with him, but then the noble Lord, Lord Jenkin, said, “Yes, but I think that the Minister should add a little more” on a significant point that I should attempt to respond to, although I will base a great deal of my response on what my noble friend Lord O’Neill said. I am able to reduce my response because he has done a signal service to the Committee by outlining what he sees as the potential benefits from innovation and learning over time. It would be a strange industry—certainly it would be strange for the nuclear industry which is at the cutting edge of technology—that did not reap advantages over time in terms of technical innovation and improvement. I am grateful to my noble friend for identifying his optimism on that and the expectations of all of us. Our problem with the nuclear industry is that the timescale is always so surpassingly long that, in terms of decisions taken by business, it raises some very fundamental questions indeed. I will attempt to address those fundamental questions. The noble Lord, Lord Jenkin, will see whether I respond adequately to his points.
Clause 45 sets out who can propose a modification and what the proposal can consist of. Modifications to an approved funded decommissioning programme under this clause could include both financial and technical modifications. The persons who can propose modifications are clearly listed: the Secretary of State, the site operator and any other person who has obligations under the programme, provided that the site operator consents to the proposed modification.
The aim of the power is to allow for the principle about which the noble Lord spoke; that is, the modification of a programme after it has been approved. It is obvious that that is necessary; otherwise, we would be in a state of stasis which would ill befit an industry with capacity for significant development. The operator would be expected to propose modifications where a technical or operational change in the station had a significant impact on decommissioning or waste cost estimates. Modifications might need to be made also where there had been a breach in the programme.
It is important to stress that the Secretary of State can exercise his power to make a modification only in order to ensure that the programme continues to make prudent provision for technical matters and the financing of designated technical matters. The clause allows the Secretary of State also to impose new or additional obligations on any body corporate associated with the operator. This might be necessary where the level of security that a body corporate could provide had diminished in some way and there was a requirement for another body corporate associated with the operator to provide that additional security.
The Secretary of State’s power to make modifications or impose obligations is of key importance if a programme is to remain up to date and to ensure that the cost estimates, technical plan and financing arrangements remain prudent. It is also integral to the enforcement and sanction regime. In the event of a breach in the programme, the Secretary of State might choose to modify the programme prior to, or instead of, taking formal enforcement action.
Similar powers in relation to the modification of a decommissioning programme exist elsewhere. We have the experience of the oil and gas industry. The Petroleum Act 1998 gives the Secretary of State a power to revise a programme to decommission offshore oil and gas installations. The provisions of the Energy Act 2004 give the Secretary of State a similar power in relation to decommissioning of offshore renewables installations.
I speak by way of broad introduction to the important issues that the noble Lord, Lord Jenkin, raised with his amendment. The clause already enables the Secretary of State to increase or decrease the target sum or propose other technical modifications which do not alter the target sum that a fund will be required to meet, provided that it is prudent to do so. Therefore, I do not think that the amendment is necessary. However, the noble Lord is probably less concerned about whether the amendment is necessary than about the issues that he raised with regard to costs, to which I shall come.
I have described the Government’s powers, but it is fair to say that discussion to date has focused on the worst-case scenario, with an underlying assumption that costs will increase. It is arguable that as a Government we are obliged prudently to focus on that scenario. However, the amendment raises the valid question of what would happen if a solution to minimise the amount of waste or reduce the amount of moneys needed to meet the liability came forward.
As I have already said, the clause as drafted allows for modifications that decrease the target sum where it is prudent to approve them. The framework provided by the provisions allows for operators to propose effective ways of dealing with decommissioning and waste management other than those set out in guidance issued by the Government. But that answers only—I hope that the noble Lord will bear with me—the question on approvals for modifying the programme. Any proposal to decommission a nuclear power station and dispose of its waste will also need regulatory approval from, among others, the Nuclear Installations Inspectorate and the Environment Agency. Furthermore, any proposal from an operator to reduce their estimates of the costs of decommissioning, waste management and disposal liabilities would need the agreement of those managing the operator’s independent fund. Additionally, any proposal that involves the shipment of waste would need to conform to existing UK policy. Any proposal to decommission a new nuclear power station and to dispose of its wastes will have to conform to existing policy, as will any proposal to accelerate decommissioning. However, I want to emphasise that this approach does not rule out the consideration of alternative or new methods of decommissioning or waste management techniques, the point addressed by my noble friend Lord O’Neill in his contribution. It is for this reason that the Government have not taken a prescriptive approach to the technicalities involved in waste and decommissioning in the Bill. The guidance issued under the Bill allows operators to develop and propose innovative decommissioning methods.
The noble Lord, Lord Jenkin, asks: where is the gain and therefore the incentive for operators to do this? First, let us deal with the crucial point about the concept of the fixed unit price. The fixed unit price will reflect the most up-to-date estimates of costs available at the time when the price is set, and the level of certainty the Government have on those costs. Consequently, dependent on the date of construction of a new nuclear power station, operators of different stations may be set different fixed unit prices for waste disposal. For example, the fixed unit price for a power station to be constructed in five years’ time could be different from the fixed unit price agreed for a power station to be constructed 10 years hence. The difference may arise because over time it is likely that understanding of the expected costs of the geological disposal facility and associated activities will increase, and therefore at the time the agreement is entered into, the Government could be more comfortable attaching a different risk premium on the fixed unit price.
Of course the Government have a primary duty to safeguard the taxpayer’s position when they are bearing a very substantial risk. The fixed unit price will be set based on estimates of the costs of the geological disposal facility and the level of confidence we have in the cost estimates at the time a company comes forward. Business wants clarity and certainty, and has indicated that it would be prepared to pay a significant risk premium in return for having the certainty of a fixed unit price. It is that which the Government are seeking to respond to. If operators can carry out decommissioning more cheaply than originally envisaged, provided that all the regulatory steps have been taken, any surplus in the fund set aside for decommissioning will be returned to the operators—and there is the gain. A fixed unit price gives a guarantee to the operators of what their maximum costs could be against a background where the price needs to be set to safeguard the interests of the taxpayer, but if techniques and technologies are developed that reduce the costs, the fund set aside for decommissioning can be returned to the operators, who then gain from the position.
Perhaps I may add a supplementary to the question of the noble Lord, Lord Teverson. I hate interrupting the Minister when he is in such elegant flow, but what verification will we have of the costs of decommissioning and how will that verification be abundant to everyone concerned?
It would not. But, as I indicated, over time, a power station that is constructed in five years’ time might face a different risk cost unit price from one built later. The price is the one against which the station is built and which it recognises is the fixed unit price that it bears throughout its operation. I am merely indicating that the clause does not need the amendment of the noble Lord, Lord Jenkin, but it did need the stimulus of his amendment to provoke this debate, which I hope is clarifying the issues. If those costs can be reduced through improved technology with regard to decommissioning, the power station might find that it gets some return against the improved technology. What it does know is that that is the maximum fixed unit price which it will have to meet. That is the certainty and that is the guarantee.
Of course, it may be that over time the power station can see that it will get additional profits through the advantages of new technology, which reduces the decommissioning cost. But it cannot bank on that. The certainty is the price that it is given when it is constructed. Those costs will differ over time: it is not a fixed price for everybody, but depends on when one is engaging in that operation. The noble Lord, Lord Palmer, asked whether I was in a position to give anyone a fixed cost. The answer is no, not at all. I do not think that anyone would expect, within the framework of this Committee, that I could. But the intention is clear that when the first nuclear new build occurs, it will be building against a clear fixed cost, which will give certainty.
The Minister said that if it turned out that there was a surplus in the fund and that the fixed-price, as he called it, was higher than it needed to be, any surplus would be returned to the companies. I am sure that he said that. That is what I understood. But if that is the case, in layman’s terms that is not a fixed-rate mortgage; it is a capped mortgage. They are very different things. Surely, going forward, the funding agency will take a risk. It could turn out that there is not enough. At one time it might think that there is more than enough and at another, five years later, it may turn out that there is not enough. The fund would have to keep a healthy surplus against the possibility in the future that there may not be enough. It may have been underestimated. I would be extremely surprised—I may have heard incorrectly—that a surplus or what I would call a sunk cost in the past would be refunded if a company found that the cost was less than expected. I would be grateful if the Minister could clarify that.
What the Minister has described is a one-way bet against the taxpayer. I am trying to describe things objectively. History shows that things have cost more in that sector. We hope that technology will reduce costs in the future, but if the costs increase, which has been the whole history of this industry, the taxpayer will make up the difference, but if costs decrease, the companies get their money back. That cannot be good. It is certainly not good for the taxpayer. I also emphasise the point made by the noble Lord, Lord Oxburgh, about whether this is in fixed monetary terms or related to something. Presumably it is not related to the retail prices index, which would be quite inappropriate in this instance.
I said that our debates would be enormously helpful and, indeed, they have been. Perhaps I may make the position clear. As the noble Lord, Lord Teverson, said, the initial risk relating to waste disposal is borne by the taxpayer. There is a substantial element of the Government taking the risk for the construction of the facility and guaranteeing the security of the waste disposal. The industry will benefit from knowing what that cost is and for each new nuclear build it will know what the fixed costs are for waste disposal. I have no doubt that the industry will say that the Government are putting that cost at a high level, whereas the industry would obviously like it to be as low as possible.
The Government’s view is clear. The risk is being borne by the taxpayer for this crucial construction and the Government intend that the price will be fixed to guarantee that the taxpayer is not faced with increased costs that the Government have not bargained for. Therefore, the fixed-price cost for the nuclear power station, when constructed, will certainly be guaranteed but it will assuredly be high. However, that cost may come down for successive builds as technical developments in waste management accrue to the industry. Therefore, the fixed cost for subsequent power stations may go down due to technical developments but there is no guarantee of that; the cost may go up. It will not go up for those who have already contracted at the fixed price, because that is the concept of the fixed price, but the level of the fixed price may go up if the burdens on government and the taxpayer substantially increase due to an increase in the costs of waste disposal.
We cannot foresee which way the costs will move, although of course we share the optimism of my noble friend Lord O’Neill. The noble Lord, Lord Jenkin, indicated that enterprising companies may well reduce the development costs of power stations. If they do, the fixed cost will come down for future build. I do not have a detailed answer on the fixed cost—I do not think that that would be expected of me—but at the end of this year we will publish the methodology of establishing a fixed unit price for the disposal of intermediate-level waste and spent fuel. Whether the retail prices index will be regarded as the best measure for indexing, I do not know; nor do I know how many years will be involved. The noble Lord, Lord Teverson, is absolutely right: we are talking about an industry with a waste problem, the lifespan of which is beyond the range of analysis in those terms; that will have to be built into the methodology. However, that is the kind of problem with which Governments have to wrestle.
This industry knows that the one feature that it has which is unique—I hesitate to use that word because someone can always think of another example—or close to being unique, is that its waste product has a timeless concept which requires a particular form of disposal. That involves substantial costs and is critical to the community’s security, and that is why inevitably the Government become crucially involved.
I was also going to help the noble Lord, Lord Jenkin, on one of his discrete points. If the Committee will allow me, I shall deal with that before withstanding the rain storm of further questions that will no doubt follow my inadequate replies.
The noble Lord, Lord Jenkin, asked how the share of the funding for decommissioning and waste disposal is calculated. Operators must pay their full share of waste management and disposal costs, and are obliged to set aside sufficient funds over the life of the station to enable them to meet these costs as they fall due, as for decommissioning. “Full share” reflects the fact that the Government’s view is that waste from new build can and should be disposed of in the same geological disposal facility as legacy waste, to which we are approaching a solution. This means that some of the costs of building the geological disposal facility will rightly be for the Government, because they are the legacy costs of an industry that we have sustained during the past four or five decades. The cost of disposal of legacy waste is inevitably for the Government and the public to bear. However, we wish to ensure that operators of new nuclear power stations make the right contributions to the cost of the disposal facility for their waste. That is the concept of their full share. It will be governed by the fixed price. I accept that there is interest in how the calculation of that fixed price will be arrived at. I cannot define the methodology. The department recognises fully that the questions of the noble Lord, Lord Jenkin, will not be answered until that methodology has been identified and everyone can see how the calculations will be made. But that will have to wait for another day and rather more expert exposition than I can offer.
One of my colleagues sent me a note, which is perhaps unkind to the Minister, stating: “What he said was as clear as mud”. The Minister has done his best, but I shall two make points before I withdraw the amendment. First, he said that we will not know what is meant by the “full share” until it is finally clarified by the department. I will study his speech with great care between now and Report, but one would have to be a bit of an optimist to believe that he has answered that question effectively. We will wait till a later stage, perhaps well after the Bill has become law, to know precisely what is meant by that.
My second point has been followed up by a number of noble Lords. It is the question whether any of the excess or surplus—I quote the Minister’s words—“would be returned to the operators”. Paragraph 2.10 of the document that I quoted in my opening speech, Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations, made it quite clear that,
“these lower costs will not be passed on to nuclear operators”.
We got confused at one point because, as the noble Lord, Lord O'Neill, rightly said, this is a dynamic process, there will be successive nuclear power stations and the unit costs will not be the same for all. I am asking about the initial tranche—I do not know how many there will be—one, two, three or whatever. They will have a unit cost set and, over the life of the station, that may well turn out to be more than is necessary to deal with decommissioning and waste. Will they get any of that back, or will only future nuclear power stations benefit from a lower unit cost? There must be an answer to that question. I will carry on for as long as is necessary for the Minister to consult his oracles.
I am grateful to the noble Lord, who has shown the greatest understanding and maximised my chances—although they are still not high enough. The industry will know the unit price that it is facing, fixed cost, for the disposal of its waste. A component of that is the Government’s, because of legacy, but for all additional waste, it will know its fixed price. It will be different for power stations according to when they are constructed. It may go up; it may go down; nevertheless, that is the fixed cost on which they operate. Where they may benefit from technological advance is in decommissioning costs. Through advance in technology, we may reduce the decommissioning costs of a power station, and each of them may benefit from that. That is really the best that I can do.
Before the noble Lord, Lord Jenkin, withdraws the amendment, I must point out that I feel terribly strongly about this, especially living so close to a nuclear power station in southern Scotland. We are looking so terribly long term—there is so much uncertainty involved when one is looking 30 or 40 years in advance. There may be a very strong case to bring the amendment back at the next stage.
I understand the point that the noble Lord is making, but there are only two major problems to be resolved—I say that to be simplistic—to which the amendment is addressed. One is the disposal of waste, which is not a localised problem for anyone who lives in the area until we know how that localised waste is to be dealt with. We cannot say whether anyone would have anxieties about where they live, except when they will need assurances about the site to be developed for the disposal of nuclear waste—the guarantee that the process will be entirely safe.
As the noble Lord will recognise, the decommissioning of power stations is an ongoing programme. By 2035, we will have decommissioned all the power stations built in the 20th century. This is an ongoing problem. Over the next 10 years, all but one of the existing nuclear power stations will be shut down, but we have not yet shut any down completely; they are shut down, but they are not yet fully decommissioned. Over the next 25 years, and in the years since the process has been begun, we are seeing and will see the decommissioning of the nuclear power stations built in the 20th century. They raise all sorts of issues of cost and safety, but not safety in terms of the locality. I do not think that anxiety is expressed about the decommissioning process. The noble Lord may want to contradict me on that, but I merely say to him that there would be no question of new nuclear build if we were not entirely confident of the fact that we can decommission the 25 stations that we must by 2035 because their useful life is over.
As I said earlier, we will want to study carefully what the Minister said in his various replies. I think we can be pretty certain that we will want to come back to this at Report, in the hope that the matter will have been to some extent clarified. I repeat that I am meeting officials in BERR later this week; I have given them notice that this is one of the issues that we will want to look at. In the mean time, the right course for me is to withdraw the amendment, and I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 45 agreed to.
The Committee will adjourn for 10 minutes until 14 minutes to the hour.
[The Committee was adjourned from 5.36 to 5.46 pm.]
Clause 46 [Procedure for modifying approved programme]:
[Amendment No. 44 not moved.]
Clause 46 agreed to.
Clauses 47 to 50 agreed to.
Clause 51 [Nuclear decommissioning: regulations and guidance]:
[Amendment No. 45 not moved.]
Clause 51 agreed to.
Clause 52 agreed to.
Clause 53 [Protection of security under approved programme]:
46: Clause 53, page 46, line 43, at end insert—
“( ) In this section “security” includes—
(a) a charge over a bank account or any other asset;(b) a deposit of money;(c) a performance bond or guarantee;(d) an insurance policy;(e) a letter of credit.”
The noble Lord said: I shall speak also to government Amendments Nos. 50 and 52. They have been grouped as they all relate to the definition of security for decommissioning nuclear power stations, offshore renewable energy installations and offshore oil and gas installations and the protection of that security in the event of insolvency. Clauses 53, 67 and 71 respectively aim to ensure that moneys set aside for decommissioning by way of security cannot be accessed by creditors in the event of a company becoming insolvent.
The provisions do that by disapplying the relevant insolvency legislation. That ensures that moneys set aside for decommissioning will be restricted or prevented from being used for anything other than their intended purpose of fulfilling decommissioning objectives and obligations, even if the company with those objectives and obligations becomes insolvent.
If we did not have those provisions and a company with decommissioning obligations became insolvent, it might be possible for creditors to access moneys set aside for decommissioning. That could mean that insufficient moneys remained to pay for the full cost of decommissioning and, in the case of new nuclear, the operator’s full share of waste management costs.
The amendments clarify the meaning of the term “security” as used in relation to those provisions. To take each amendment in turn, Amendment No. 46 relates to the decommissioning and clean-up of new nuclear sites. As Clause 53 is drafted, there is a risk that if an operator was to become insolvent the courts could construe the term “security” by reference to the narrow legal nature of any arrangements in place, rather than their broader economic effect. For example, if a performance bond was provided as security for decommissioning funds, a court might determine that this would not amount to a security, and therefore in the event of insolvency the bond could be accessed for creditors for purposes other than decommissioning. In such a situation there would be a high risk that the taxpayer would have to meet any resultant shortfall in decommissioning funds. That could put funds set aside for decommissioning at risk as they would not then fall within the protection from insolvency provided by in the clause.
Through amendment, the Government want to ensure that operators have access to a full range of instruments which, if acceptable to the Secretary of State, might be put forward as part of the programme. That could include instruments that do not yet exist but might be developed as the market matures.
Amendment No. 50 amends the offshore renewables provisions in Clause 67. Like Clause 53 for nuclear, Clause 67 provides protection against insolvency. The Energy Act 2004 defines security in relation to decommissioning programmes for renewable energy installations. This amendment amends the definition given in the Energy Act 2004 to include an insurance policy within that definition. This brings the definition of security in offshore renewables into line with the regimes for nuclear and oil and gas, and ensures a consistent regime. Amendment No. 52 relates to oil and gas installations. It replicates the previous nuclear amendment so that insolvency protection under Clause 71 has a consistent definition of security.
I hope that the Committee acknowledges the importance of ensuring that funds set aside for decommissioning are available for the purpose for which they are set aside, even in the event of a company becoming insolvent. We also hope that it is accepted that these amendments should be supported, because they strengthen the protections for the taxpayer by providing greater clarity to the courts of the definition of a security. The amendments also ensure that we have consistency of protection for decommissioning funds across the three regimes. I beg to move.
These amendments concern the definition of security. They are important and helpful as far as they go. We agree with the Minister that security must remain if a company becomes insolvent.
Clause 53(4) states that, for the purposes of subsection (3), no regard is to be had to the Insolvency Act and the Northern Ireland equivalent to the extent that it would prevent or restrict the protected assets being applied as necessary to cover the cost of decommissioning. Is this the right way of doing that? Whether or not regard is so paid, if we get to a point at which the site operator becomes insolvent, it is too late—the horse has bolted. I would go further: this must not be dependent on whether the company goes bust. The security set-aside must remain set aside, completely independent of the solvency of the site operator. Perhaps the noble Lord can help me.
I was particularly interested in the list in paragraphs (a) to (e) of the amendment. I was wondering, when I turned the page, whether (f) would be lottery tickets and (g) sub-prime mortgage special instruments. It is a strange list which raises a number of questions, one of which is fundamental and comes back, in a way, to what the noble Lord, Lord De Mauley, said. If there is a fixed payment, such as that which we ascertained in the previous amendment, and if the operators know that they have to pay it—it is related, I presume, to something like a production unit—I would have thought that it would be much easier to transfer the money into another body that is nothing to do with the business. Maybe I have misunderstood this. Why does the fund remain within the potential legal circumference of the operator? Under the simplified payment system that the Minister outlined earlier on, there seems to be no reason why it should remain there at all. The problem disappears because the money is held elsewhere. We do not want it go to the Treasury because we all know that it would then disappear and our sons, daughters and grandchildren would all miss it. There must be some way of holding the money, just like money is held in sovereign funds elsewhere.
More seriously, we have a list of assets here, but is it specified what assets these operators are allowed to invest in and where they can be held? Do they have to be held in the United Kingdom? It is fine to talk about UK insolvency law, but what if it is an international business? I presume that a lot of these funds could potentially be held elsewhere. These organisations are subject to all sorts of international and multinational legal requirements regarding creditors in other jurisdictions, which we have absolutely no control over.
If there are these different assets, how do we judge their value? Are we going to get ourselves into some sort of pension fund problem in terms of the value of the assets that the businesses hold in the various ways that they might hold them? If the markets move down or if certain other market changes happen, are we going to have annual valuations of these funds that then have to be made up over time? We are talking about such large amounts of money that this could have big effects in the area that we are talking about. I take the Minister’s point that the Government, and we as an economy, already have the experience of the offshore petroleum industry, but I am sure, as the noble Lord, Lord Oxburgh, would say, that those amounts themselves are high. We must be into a different league with nuclear liabilities, however, so this is a whole different area that has to be managed in a different way.
I shall do my best to answer the two noble Lords who have asked questions, but I am sure they know that the principal aim behind these proposals is that the taxpayer should not suddenly find himself or herself faced with a considerable bill because the company involved, either through its own fault or not, has become insolvent. We were concerned, insolvency law being what it was, that unless it was set out clearly, there would be a danger that money in the fund itself could be seized or might legally belong to the creditors of that company. I hope that the general principle behind this clause is accepted; the noble Lord, Lord De Mauley, said that.
The noble Lord asked why the Bill refers to insolvency. Is that not after the fact? The advice I have received is that funds are set up in advance so the necessary finances would be there. That would protect those finances; in the event of insolvency occurring at that stage, the funds would have been set aside beforehand.
The noble Lord, Lord Teverson, asked what assets can be invested in. The Secretary of State would expect the funding arrangement plan to include something called a statement of investment principles, an SIP, which sets out the fund’s investment policy, designed to ensure that the money that the fund receives from the operator will be appropriately invested to generate the funds necessary to meet the operator’s liabilities when they fall due. As a minimum, before the Secretary of State would agree to a fund being set up, he would expect the SIP to include the fund’s investment objectives, the attitude to risk and how risk is defined, the asset allocation strategy, the decision-making authorities, performance measurement criteria, benchmarks, the policy on realising investments, the policy on exercising rights, the policy on the extent to which social, environmental and ethical considerations are taken into account, the mandates to all advisers and reporting requirements. Those, among others things, would be expected under statement of investment principles. Those are the circumstances under which we bring forward these amendments to deal with the situation, which may or may not arise, of a company going bust and creditors wanting to seize all possible assets.
I shall need more advice on the international point raised by the noble Lord. It is an important question and I should welcome the opportunity to write to him and to other Members of the Committee with a response. As I understand it, we are setting up funds of this type for UK energy here, as opposed to elsewhere. The noble Lord made the point about globalisation very well, but whether or not the company has assets in other parts of the world, what is left in the fund is, as Clause 42 sets out, specifically for nuclear and other plants in this country. That money is protected from the danger of insolvency, thus, it is hoped, saving the taxpayer what could be a very large bill.
I may be being stupid but I did not hear the Minister answer the question put by the noble Lord, Lord Teverson. He asked what is wrong with the money being put into a completely separate piggy bank which has nothing to do with the company or the Government and where it can sit in case it is required.
As I understand it, that is not how this system works. The fund is set up under this scheme in order to deal with the costs of getting rid of waste material and of achieving decommissioning. Clearly, lawyers thought that there was a danger that the fund might be liable in cases of insolvency. Obviously, we like the scheme that we are setting up and, from the general consensus in the Committee, it seems that noble Lords like it too. We think that changing the way in which the fund is operated would be rather a far step to take when, as we are doing here, we can easily change the position regarding insolvency.
I do not understand the case put by the Minister. If you want to de-risk the decommissioning fund, which is a key thing that we all want to do, the easiest way to do so is to take it out of the legal circumference of the operator altogether, and that can be done by paying cash to whichever fund it goes into at the time on a per kilowatt hour basis, an operational time basis or whatever the basis needs to be. That would solve the whole problem and taxpayers would have certainty. It would mean that the public sector had to manage the fund but I am sure that it could delegate that as effectively as an energy operator—it is not the core business of either the public sector or energy operators. I do not understand why that is not seen as a straightforward solution. Certainly, as a taxpayer, I would feel far better about that solution than I would about trying to put national laws around international operators. It seems a simple principle to me.
The best I can do is to say that funds will be expected to be established in a manner that maximises what is described as their insolvency remoteness, which is what Clause 53 does; it simply provides further assurances in this regard. However, the noble Lord has raised a significant point, so in the letter I will write to him about international obligations, perhaps I may include a fuller answer to the question he and the noble Baroness have pressed.
On Question, amendment agreed to.
Clause 53, as amended, agreed to.
Clause 54 [Offence to fail to comply with approved programme]:
48: Clause 54, page 47, line 27, leave out “2” and insert “5”
The noble Lord said: Clause 54 concerns the rules that govern decommissioning and waste handling programmes. There could scarcely be a more serious issue, and the most robust measures need to be in place to ensure that the whole process of decommissioning is handled in the safest possible manner. This is why we feel that there should be stringent penalties for anyone who breaks the laws concerning decommissioning and nuclear waste. The penalties should reflect the seriousness of such an offence.
Amendment No. 48 would increase the maximum prison sentence from two to five years. Breaking the laws on nuclear decommissioning would not only put the safety of the community at severe risk but would represent a breach of trust in terms of the assurances concerning the proper handling of disposal. We feel that two years is simply not stringent enough. Considering the degree of risk, we feel that five years is more appropriate, while admitting that it is a subjective judgment.
Amendment No. 49 in the group concerns those who might have provided false information to the Secretary of State. Anyone who intentionally gives misleading information should be subject to the full might of the law. However, we propose to omit the word “misleading” to avoid the chance of someone being prosecuted for unwittingly providing misleading information. The term is subjective. Misleading information can be provided knowingly, negligently or innocently. The latter, we feel, should be free from prosecution. The wording of the clause, if amended in this way, would still be absolutely clear that anyone who knowingly or recklessly supplies false information to the Secretary of State in response to a requirement under this chapter would be committing an offence. It would leave no room for manoeuvre. It would be sad indeed if someone was locked up for providing information that was deemed misleading by a court when they had absolutely no intention of misleading the Secretary of State. I beg to move.
I agree with the noble Lord, Lord De Mauley, about the increase from two to five years. However, it would usually be a corporate body that would fall foul of these rules rather than an individual, so I am not sure how it would relate to such a body. I presume that normally this would relate to paragraph (a), which imposes a fine, and I want to ask the Minister as a point of information what the maximum fine would be. We are talking about major implications both monetarily and in terms of the large size of the industry. What sort of maximum level of fine might there be in relation to the major sums we are talking about?
I thank both noble Lords. Clause 54 makes it a criminal offence for an operator or a person with obligations under an approved programme not to comply with the programme unless they prove that they exercised due diligence to avoid committing the offence. Failing to comply could in extreme circumstances result in the taxpayer being called on to meet the costs of decommissioning and therefore in our view warrants the use of criminal sanctions. No one seems to have disputed that.
Is it right that the two-year maximum period should be increased to five years? The message we want to send is that where there is a breach, the operator will have to demonstrate that they did everything they could to avoid committing that breach. We think that this is what the clause as drafted achieves, and we believe that two years maximum is an appropriate penalty with a sufficient deterrent effect. We do not think that increasing the maximum sentence to five years—basically, just for the sake of it—would materially change the deterrent effect of these provisions. Instead, it is the existence in the first place of the potential for imprisonment itself that is likely to influence the behaviour of individuals with obligations under a decommissioning programme. The penalty is consistent with the penalty regimes for offshore renewables and oil and gas installations decommissioning. If we are to alter that to make it inconsistent with those other regimes, we ought to have good reason for doing so.
The criminal offences in this chapter have been created only for the most serious infringements that could undermine the effectiveness of the structure as a whole. In order to do that, my department sought the advice of the Ministry of Justice in relation to the creation of the new criminal sanction. Its experts were content that the proposed two-year imprisonment term was appropriate.
It is important to remember that the Bill encompasses civil sanctions as well as criminal offences. The Secretary of State may seek a court order to compel a person to provide him with information about the programme under Clause 50 of the Bill. It is true that there are higher penalties in other areas of legislation, such as Section 2(2) of the Nuclear Installations Act, which creates a maximum penalty of five years’ imprisonment for enriching uranium or extracting uranium or plutonium from spent fuel without the relevant licence, and the Health and Safety at Work Act 1974, which set the criminal sanctions for breaches of certain nuclear matters where the offence could put public health at risk. We do not think that they are on all fours with this.
The deterrent effect of Clause 54 of the Bill, however, is to ensure that the operator puts money aside to pay for the full costs of decommissioning and the full share of waste management costs. The Government believe that this framework creates the necessary powers to ensure that funds are accrued to meet those costs, and that any offence should be consistent with the overall purpose and aims of this legislation.
I shall explain how we see the sanctions process operating. Where there is a failure to comply, it is our intention that where time permits, or where the gravity of the breach is not too severe, the Secretary of State would seek to enter into discussions with the operator in order to understand why and how the breach occurred and see if informally it could be put right. In normal circumstances we would seek recourse through the provisions in the Bill to correct the breach only after we had failed to do so using these methods. I think the Committee would be broadly in favour of that approach.
Where the breach is more serious or significant, however, or where informal agreement cannot be reached, the Secretary of State may seek to impose a direction under Clause 55. In other words, a failure to comply with a programme would not necessarily result in the immediate initiation of criminal proceedings. It is also likely that in practice, before beginning criminal proceedings, the Secretary of State would, among other things, consider whether or not it was in the public interest to prosecute. However, that does not prevent the Secretary of State from commencing a prosecution without first imposing a direction to remedy the breach. The clauses as drafted provide the Secretary of State with the flexibility to respond to a variety of situations. We think that this flexibility is an important part of the procedure and of ensuring that programmes are adhered to.
Amendment No. 49 seeks to remove the term “misleading” from Clause 57. Again, we are unable to support the amendment; frankly, it would undermine the deterrent effect of the provisions as currently drafted. “Misleading information” can be taken to mean information that a person knowingly or recklessly includes in, or omits from, the material submitted to the Secretary of State. That would mean that the information or material misled, or did not provide an accurate or full picture to, the Secretary of State.
The Government believe that the proposed amendment is much too wide and would mean that it would be acceptable for an operator to submit information that was not necessarily false, but perhaps did not provide the full picture—and I suggest that it is that full picture that is important to the general public—about a particular issue. For example, that could result in the submission of information that deliberately provides an incomplete picture, such as including information about investments that are performing well but omits to mention other factors—changes in discount or interest rates—that may negate these gains.
In our mind, the act of “misleading” is a deliberate act and not the result of a clerical error. Of course there would be discretion, as there always is in these cases, for the prosecuting authorities. To put it in a nutshell, we are convinced that the public would not feel comfortable for a Minister to say that it was acceptable for a person knowingly or recklessly to submit misleading information without facing any sanction. Therefore, we think that the amendment would undermine one of the foundations of the regime, which is that the Secretary of State must be able to take decisions on the basis of full and accurate information. It is best that companies should know that from the start.
We hope that Clauses 54 and 57, to which the amendments apply, send a clear message to operators about what is and is not acceptable behaviour. On that basis, we cannot accept either amendment.
In Clause 54, it is an offence,
“to fail to comply with an obligation … imposed by an approved … decommissioning programme”.
Will a failure to comply involve a public health risk? Could it involve escaped radioactivity in an area? If so, what the Minister said does not really apply. I understand what he said about his other points.
Those obligations are imposed in any case, but I venture to think that if the alleged offence were against the health and safety regulations or legislation, the relevant body would seek to bring enforcement proceedings against the failure. The noble Baroness has been sharp enough to notice what I said: there might be a higher maximum sentence than under these provisions. These provisions are not necessarily to deal with that type of obligation; we are talking about a different type of obligation. If it is a health and safety obligation, the Health and Safety Executive is the right body to consider prosecution.
I am grateful to the noble Baroness but the provision is,
“to fail to comply with an obligation imposed on the relevant person by an approved funded decommissioning programme”.
Those are the crucial words. It is the obligations under the programme that are important. There are other obligations that we all have, including operators in nuclear science, to ensure that the health and safety rules and regulations are enforced, but they are unlikely in themselves to be part of funded decommissioning programmes.
I am sorry; the noble Lord is too polite—he did not catch it because I did not say it. I am advised that for these offences the maximum under summary jurisdiction will be £5,000, but let us not forget that these matters are also indictable. On indictment—I venture to think that if there were a serious breach, a serious offence, it may well be indictable—the Crown Court has the power to impose an unlimited fine.
I am most grateful to the noble Lord, Lord Teverson, and my noble friend Lady Carnegy for their interventions, which led to some rather interesting revelations. I am also grateful to the Minister for his response. I shall not detain the Committee further today but I propose to take away this matter and to consider the noble Lord’s response to both these points. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 54 agreed to.
Clauses 55 and 56 agreed to.
Clause 57 [Offence of supplying false information]:
[Amendment No. 49 not moved.]
Clause 57 agreed to.
Clause 58 to 66 agreed to.
Clause 67 [Security for decommissioning obligations]:
50: Clause 67, page 56, line 5, at end insert—
“( ) In section 114(2) of that Act (interpretation), in the definition of “security” after paragraph (c) insert—
“(ca) an insurance policy;”.”
On Question, amendment agreed to.
Clause 67, as amended, agreed to.
Clause 68 agreed to.
Clause 69 [Persons who may be required to submit abandonment programmes]:
51: Clause 69, page 58, line 38, leave out “may” and insert “shall”
The noble Lord said: Amendment No. 51 seeks to amend Clause 69(7) by leaving out the word “may” and inserting “shall”. First, perhaps I should declare an interest in that I am currently, through the auspices of the Industry and Parliament Trust, studying energy matters, and consequently I have had briefings of various kinds from the oil and gas industries.
It may help the Committee if I give a brief history of subsection (7). It was not in the original Bill but was inserted via an amendment moved by the Government on Report as a result of representations from the oil and gas industries and also as a result of the debate that took place in Committee in the other place. The problem that had been identified and which the Government sought to address in the amendment, which is currently subsection (7), was how one defined a “beneficial interest” in an installation that was being decommissioned. As noble Lords will know, many of the original licences go back to the very beginning of the exploration and exploitation of our North Sea oil and gas reserves. The interests of the companies and persons named on many of those original licences have now long gone. However, because no one has updated or amended the licences to exclude those who no longer have beneficial interests in them, the question arises of whether those companies or persons will be caught by the decommissioning processes.
As a result of representations made by the industry and the debate that took place in Committee in the other place, it was agreed to define “beneficial interest” and to exclude those companies that might have originally been named on a licence but which hold no interest of any kind and derive no benefit from it today. That was the origin of subsection (7) and the amendment produced by the Government. However, when the industry saw the proposed subsection, it felt that it did not fully meet its concerns in defining someone with a beneficial interest. For example, does the concept of “beneficial interest” catch companies that only transport production from another installation across or around the installation that is being decommissioned? Would it catch companies and persons whose only interest would be in the purchase of cargos of production from the decommissioning installations? It was appreciated that the Government had responded to the representations of the industry, but it was felt that the subsection did not fully cover all the concerns and issues. As a result, discussions took place between Ministers and Members of Parliament, including Mr John Robertson, who had spoken in Committee in the other place, and it was indicated that either an amendment or clarification of what was meant by “beneficial interest” would be brought forward to meet concerns expressed about the deficiency in subsection (7). I understand that there was a high degree of agreement and that it was hoped that the matter would be addressed properly on Report in the Commons in the form of a clarifying statement, an amendment or an assurance that the guidelines accompanying the Bill would make it absolutely clear that “beneficial interest” would not catch those persons or companies who use decommissioning installations to transport their oil.
Unfortunately, the truncated programming of Bills in the other place—it is a long time since my days there—meant that although the amendment was tabled it was never debated. Therefore, assurances of the kind that I think Ministers and officials had given the industry never materialised. I therefore take this opportunity to seek that assurance and clarification of what is meant and not meant in subsection (7) in the way that I have suggested.
Ministers have gone a considerable distance already to try to offer that assurance. I have a copy of the letter that Minister Malcolm Wicks sent to Mr John Robertson a little while ago, answering the concerns of the industry. I shall quote directly from it, because it makes it clear that there is no disagreement between government and the industry on this issue. He wrote:
“I would like, therefore, to make clear that the benefit must arise from the exploitation or exploration of mineral resources or storage or recovery of gas from the installation in question. That would not include persons who are only transporting production from another installation via the installation in question”—
that is, the installation that is to be decommissioned—
“nor persons who only buy oil or gas produced from the installation”.
It was exactly that kind of clarification and assurance that the industry was seeking, and it was certainly given in the letter.
However, will the Minister go a little further and say that he will look at whether subsection (7) should not be amended further to put it beyond doubt that it will not catch people or persons who are using the installations for peripheral reasons? If he cannot, perhaps he can give the other assurance that has been sought: that the guidelines accompanying the Bill will make it absolutely clear that what was written in the letter from the Minister to Mr Robertson MP applies.
Perhaps I may speak briefly to the amendment that prompted this debate. I have been around long enough to know that substituting “shall” for “may” is the most common form of amendment. I have done it many times, as have many others whom I know. However, there is as good a case for doing so in this subsection as anywhere else, because the Government are saying loudly and clearly to the industry that they will not give notices in relation to the types of company or people in question and make them liable. That is what the subsection is for. Therefore, why not insert “shall” instead of “may”? I beg to move.
I must admit that I did not understand this clause one little bit. When a parliamentary clause gets into algebra involving a person called “P”, frankly, in any other walk of life we would set up a PowerPoint presentation on it. I will be absolutely delighted to hear the Minister explain what it actually means and I congratulate the noble Lord, Lord Rowlands, on raising the matter.
I do not have a PowerPoint presentation to give because they are not allowed in our Committee. I was hoping to address the concerns of my noble friend with some clear definitions, and I hope helpfully. The noble Lord, Lord Teverson, has broadened the debate by asking me to explain the clause, which is a rather more daunting prospect. I shall give some context to the issue because my noble friend has followed the argument in the other place with more diligence than perhaps other Members of the Committee have been able to. He has alighted on a specific point to which I want to respond constructively. As he indicated, the Government had every intention of responding constructively when the Bill was considered in another place. However, I am not as critical as he is about the processes that have developed since he and I were last there. Suffice it to say that on this occasion, it was not possible to make quite the full response he seeks, and I hope to do that for the benefit of the Committee today.
The obvious point is that the UK has benefited from our reserves of oil and gas from the North Sea for many decades, and it has been necessary to update the provisions that apply to the obligations of the contractors. Part IV of the Petroleum Act 1998 consolidated provisions in the 1987 Act, and in this Bill we seek to bring up to date Part IV of the 1998 Act in order to meet the existing abandonment regime which, as my noble friend said, has different structures from the companies. The original structures were clear. Large multinationals with huge resources at their disposal carried out the initial exploration and exploitation, but as the industry developed it has become more sophisticated and the companies now involved are much smaller. The question of who bears the burden, therefore, has to be defined and updated with greater accuracy.
First, the clause extends the list of persons who may be required to provide a decommissioning programme upon receipt of a Section 29 notice under the Petroleum Act 1998. This list will include licensees which have transferred their rights to another company without the consent of the Secretary of State. Companies should not be able to avoid their decommissioning liabilities by such unconsented action, so this is an attempt to ensure that, despite changes that may have taken place in recent years regarding where decommissioning liabilities should rest, they will continue to do so.
Secondly, the clause clarifies the Petroleum Act provisions so that it is clear that they apply to limited liability partnerships in the same way as they apply to limited companies. This includes the provisions for making associates such as parent companies responsible for decommissioning where there are concerns about the financial strength of a company. I am sure that noble Lords will recognise the importance and significance of ensuring that we are able to put responsibility where it lies; that is, with the organisation that is able to meet its obligations.
Thirdly, the clause will ensure that all those involved in a development share the decommissioning obligation from the same time. The wording of the current legislation means that the operator can be made responsible for decommissioning when construction of the platform starts, but his fellow licensees cannot be made responsible until one of the activities specified in the Act has commenced; for example, production. That may leave a significant period when the liability rests on a single company, which is not equitable.
Finally, the clause will prevent the Secretary of State from placing a decommissioning obligation on a licensee or a party to a joint operating agreement if that licensee or party is not entitled to derive, and never has been entitled to derive, any benefit from the installation. Consequential changes for associate companies of licensees are also included to reflect this change. The point is, as I indicated, that over the years, oil and gas companies have created a patchwork of commercial arrangements by splitting licensed areas into sub-areas. As a result, some companies which have received no benefit at all from a particular commercial sub-area are still a party to the licence that covers that sub-area. It is not right that they should bear that responsibility.
I now come to a point that I hope my noble friend will recognise is especially helpful. The wording of Section 30 of the Petroleum Act 1998 brings all the companies on the licence for a given area into the scope of the Secretary of State’s power to make them responsible for decommissioning an installation in any part of that licensed area. Naturally, companies which have never been entitled to derive any benefit from an installation are reluctant to carry a liability for its decommissioning. In our discussions on the clause with companies that might be affected, it was clear that there could sometimes be doubt about whether a company would be seen as being entitled to derive a benefit from an installation.
My noble friend is asking us to define who does not receive the benefit and therefore ought not to fall within the range of liability, so I want to make it clear that the entitlement to a benefit must arise from the exploitation or exploration of mineral resources or storage or recovery of gas from the installation in question. We do not regard that as including persons who are only transporting production from another installation via the installation in question, nor persons who only buy oil or gas produced from the installation. It would also not include persons whose only benefit is derived from trading the installation’s carbon dioxide allowances or from the supply of goods or services to the installation. We intend to consult the companies concerned further on this issue and will publish revised guidance notes on the department’s website, but I hope that my noble friend will recognise that he was seeking what the Government intend to happen. We will, of course, issue guidance after consultation.
I hope that the explanations that I have given assure the noble Lord, Lord Teverson, of the virtues of the clause in general and particularly on the position of companies which have never derived a benefit from an installation, which was the burden of my noble friend’s anxiety. Changing the wording from “may” to “shall” would not alter the way that the clause limits the Secretary of State's powers, so it is not necessary. I hope he will recognise that we intend to meet the anxieties that he expressed when moving the amendment.
I find that reply totally satisfactory. I would love, one of these days, to get “shall” instead of “may” into a Bill at some stage in my parliamentary lifetime, but in light of the very positive assurances given by my noble friend and the fact that they will be included in guidelines and have full force, as it were, in any form of interpretation, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 69 agreed to.
Clause 70 agreed to.
Clause 71 [Protection of abandonment funds from creditors]:
52: Clause 71, page 60, line 39, at end insert—
“(3A) In this section “security” includes—
(a) a charge over a bank account or any other asset;(b) a deposit of money;(c) a performance bond or guarantee;(d) an insurance policy;(e) a letter of credit.”
On Question, amendment agreed to.
Clause 71, as amended, agreed to.
Clauses 72 to 74 agreed to.
Schedule 3 agreed to.
Clauses 75 to 79 agreed to.
53: Before Clause 80, insert the following new Clause—
“Use of biomethane
(1) In section 32(8) of the Electricity Act 1989 (c. 29) (obligation in connection with electricity from renewable sources), in the definition of “renewable sources”, insert at the end “and shall include the use of any gas drawn from a gas network to which premises supplied by the supplier are connected where, at the time the gas is drawn from the network, the supplier has arranged for the shipping to the consumer at those premises of the same quantity of renewable biomethane gas and that quantity has been introduced to the gas transmission or distribution system to which the consumer’s premises are connected;”.
(2) In section 124 of the Energy Act 2004 (c. 20) (imposition of renewable transfer fuel obligations), after subsection (5) insert—
“(6) For the purposes of this section, “supplied” shall include supply of any gas or other fuel drawn from a gas or other fuel network to any premises where, at the time the gas or other fuel is drawn from the network by a consumer, the supplier has arranged for the shipping to the consumer at the same premises of the same quantity of renewable transport fuel and that quantity has been introduced to the gas transmission or distribution system to which those premises are connected.””
The noble Lord said: I have the happy experience of moving an amendment on an issue that should be clear to all noble Lords, because it is a main component in the plot of “The Archers”. Why I need to continue, and not sit down at this very moment, is that the Minister will stand up and say that because it has been explained carefully on “The Archers”, he will immediately accept the amendment, because it would be beyond the wit of man to do otherwise. However, just in case the Minister is not a great fan of “The Archers”—and it looks like we will miss today’s instalment, anyway—perhaps I should explain the purpose of the amendment.
We come to the odorous subject of biomethane—that is one of the issues in the plot of “The Archers”. It is a serious issue and it is unfortunate that it has not been dealt with in the Bill, because it needs to be dealt with quickly, as it will be a major component of many aspects of waste recycling and our use of waste and landfill in the future. The purpose of the amendment is simple, although many noble Lords, when they read an amendment, ask, “Does it actually do what you think it does?” because of the language it is dressed up in. The purpose of the amendment is that biomethane should attract renewable obligation credits. Why is this important? We are looking at a very important future source of energy; however, to kickstart that energy, we have to find a way for biomethane to be injected into the grid and for its economics to work.
Where does biomethane come from? It comes from three main sources: anaerobic digestion plants, manure—a number of farm plants deal exclusively with farm manure—and landfill sites. The importance of taking biomethane from those sites relates not just to the energy that it can produce but also to the fact that, left to rot on its own, it will escape to the atmosphere. It is a major greenhouse gas and causes problems associated with greenhouse gases. Biomethane can be dealt with by being extracted and purified, and the CO2 can be taken out of the system. The methane is not released directly to the atmosphere, but will be converted into carbon dioxide. It is not a great solution, because of the problems associated with carbon dioxide, but it is a great deal better than releasing methane into the atmosphere.
Can we describe biomethane as “renewable”? That is another issue that has to be looked at. I would argue that it is one of the major renewables, especially if it comes from manure. I have had many arguments in the context of agriculture about greenhouse emissions from the methane produced by cows and sheep. One of the major problems, which is interesting, is that it is difficult to tell what those emissions would be, unless you attached a bag to both ends of the animal. That would mean that you would end up with a dead cow or sheep, but you would know what the biomethane output was. I raise that only because the climate-change ambassador for New Zealand and I had lunch. I was surprised to hear that New Zealand claims that it has less flatulent sheep than we have here. I find that very hard to accept, because its criteria are based on the intensive rearing of sheep which means that there is a higher methane output. In Northumberland, where there is at worst one sheep in every two acres, that is not the case at all. However, we still have the problem of the methane, and biomethane removes that.
As a renewable, biomethane has major benefits because it is very energy-efficient, especially if it is added to a CHP plant. We will be coming on to combined heat and power, which makes the use of any gas far more efficient. One problem, however, is that these processes, as has been expressed in “The Archers”, are quite odorous in their nature, so you do not want to stick the plants close to tower blocks where a district heat system could be used. You might win on one side but lose the support of many of the residents in another aspect.
Much of the methane is losing out on its major benefit through CHP because it would have to be transported from site and therefore injected into the gas grid. This is the important aspect of the Bill. The attraction of renewable obligation credits is that they would allow biomethane to be injected into the localised grid, over and above being dealt with by local energy electricity generation—or, as in the case of landfill, which is a major problem, by sometimes being flared off directly into the atmosphere. The latter has been banned on offshore oil and gas rigs, and it seems incredible that we allow it to take place on landfill sites, which are a direct result of human activity.
We need to look at the benefits of what is happening in other parts of the world. Within Europe, it has been estimated that if the sustainable production of biomethane were optimised at 500 billion metric cubic whatever it is—I love it when they give you a briefing and you have no idea what the unit you are measuring represents. I apologise; I have just realised that they have a different measuring system in my notes. The calculation is that optimisation would result in a reduction of 15 per cent of Europe’s CO2 emissions.
Although I have a number of examples from within Europe, the scale of this should be looked at with regard to the situation in America. Huckaby Ridge in Stephenville, Texas, claims to be the largest biogas production facility in the world with an output of approximately 650,000—whatever it is you measure biogas in—which is the equivalent of 1 billion cubic feet. That is the energy equivalent of more than 4.6 million gallons of heating oil, and it uses the manure of 10,000 dairy cows and waste from the agriculture industry. That is important; if the manure were not being treated in that way then that methane would be released into the atmosphere. It is such a successful scheme that they are looking to introduce it in other, vast areas.
I find it incredible that, with the industries we have in this country such as the dairy industry, where so many farmers could benefit from that scheme as an added source of income, we are not looking at adopting it. It might cause a problem for the renewable obligations credits but would have massive benefits, not only for the country but in our fight against climate change. I beg to move.
I declare an interest as a farmer who might consider getting involved in the production of biomethane, but my question is on a separate subject—a question to the noble Lord, Lord Redesdale. I am interested that he has limited his amendment to biomethane, because, presumably, the same problems and opportunities arise on the question of naturally produced methane. In fact, the methane from waste sites needs no incentive to be captured and fed in to the grid if the power is there to do so. If he reconsiders his amendment, he may consider whether to include coal mine methane, which comes out in very large quantities, from both operating coal mines—not that we have many—and abandoned coal mines. Perhaps that should be considered further in the amendment.
I have listened with great interest to the agricultural nature of this debate, but I think that it is now recognised that methane from abandoned coal mines is in fact biomethane. Those are not discrete pockets of methane lying there to be tapped but are the result of biological activity on the environmental coal faces. Here we have a considerable potential source of energy that, at the moment in this country, is hardly being tapped.
To compare that with the position in Germany, the Germans have for some years given significant support to their coal mine methane industry, with the result that firms have invested substantially. I do not have a figure, but I have always been told that that is making a significant addition to the energy requirements of that country. This is not a carbon-free source; on the contrary, it is clearly carbon; but at the same time, it is a source of energy. It is a source that in effect utilises the coal without the deleterious consequences of burning the coal which, as we discussed the other day, until we have a proper economic carbon capture and storage process, gives rise to substantial emissions.
Why are the Government so chary of giving support to what is at the moment in this country a fledgling coal mine methane industry? I have pursued this on an all-party basis with the noble Lord, Lord Ezra, and other noble Lords who, sadly, are no longer with us. We got enormous encouragement from Mr Michael Meacher, who was then the Minister—not at Defra. The noble Lord, Lord Whitty, will put me right. He was not shouted down, because they do not do that, but the civil servants sitting with him made it absolutely clear that there was no way that he could be allowed to support the coal mine methane industry in this country. We should be able to have an effective coal mine methane industry. If not, why not?
My only other point, following up the points made by my noble friend, is that when the Liverpool Garden Festival site was prepared, it was on the site known in Liverpool as the Cassy, otherwise the cast iron shore. It had been the dumping ground for waste of all kinds over centuries. When it was covered up to build the Liverpool Garden Festival on top of it, the methane generated by that waste was sufficient to provide a supply for 20 years.
I am sure that the same happens elsewhere in the country, but the noble Lord, Lord Redesdale, is right to say that methane could be an important addition to our armoury of energy sources—one which would be significantly less damaging than burning coal and which could, I believe, make a significant contribution to our well-being. I should like an answer from the Minister to the following question. If he cannot give it today, perhaps he will be kind enough to write to me. Why cannot the Government provide the same sort of support to the coal mine methane industry in this country that the German Government have given to their industry in that country?
I cannot speak to the detail of the amendment, but fundamentally it is very sensible and we ought to do something along these lines. It is unfortunate that methane is flared off, but we have to bear in mind that methane is a much more potent greenhouse gas than CO2—depending on the circumstances, somewhere between 20 and 60 times more potent. Therefore, if there is no way of using it locally, it is much better for the methane to be flared off rather than allow it to escape directly into the atmosphere. However, at root I agree completely with the noble Lord, Lord Jenkin.
It is sensible to trap coal bed methane—biomethane—not only for environmental reasons but also because it is a valuable source of power. The thing about coal bed methane is that it continuously seeps into the atmosphere in a diffuse way. If we were to take steps to trap it and pipe it up from underground, we would get a double benefit by reducing the national greenhouse gas burden and acquiring an extra source of energy. I hope very much that something can be done in this general direction.
I was not going to intervene in this debate but the noble Lord, Lord Jenkin, reminded me that I was present at one of his meetings with Mr Michael Meacher. He is absolutely right that there was some deep resistance, particularly in what is now my noble friend’s department, to what seemed to me to be a very sensible proposition. I support the biomethane approach outlined by the noble Lord, Lord Redesdale, but the Government need to look again at the broader issue of methane. A number of prejudices seem to have been overcome in government departments in relation to renewable and low-carbon energy, but some remain. Like the noble Lord, Lord Jenkin, at that meeting I was completely bamboozled as to why the officials advising us took such a strong line. I do not expect my noble friend to respond today but perhaps he will make a few inquiries.
Perhaps I should answer the question put to me by the noble Lord, Lord Jenkin. The amendment talks about how to deal with the renewables obligation and biomethane, and it does not actually exclude coal-based methane. In fact, it could be described as biomethane. I just did not mention it, which perhaps I should have done.
This has been an interesting discussion. The noble Lord, Lord Redesdale, spoke at length about biomethane from manure, which surprised me slightly because if you do not return manure to the soil, you have to use artificial manure. On the farm where I live, all the manure is returned to the soil. I know that dairy farmers have to get rid of a great deal of slurry, but it is strange to hear the Liberal Democrats, who are so green, suggest that manure should not be returned to the soil but be turned into biomethane.
The uses for manure are rather limited. The noble Lord confused us by talking about flatulent sheep in New Zealand. That is a different issue and concerns how methane gets into the atmosphere. We have a responsibility to try to alter what cattle eat so that less methane is released into the atmosphere, but that is a different point.
As ever, I have enjoyed the debate, although I am not sure that I will engage in “The Archers” dimension of it too much, despite the fact that the definition of a traffic jam when I was young was outside broadcasters going to the village next to us to film Grace’s wedding for “The Archers”. I have some historic link to the programme but I shall not complete my submission before the programme is over this evening, so I cannot adopt the novel suggestion of the noble Lord, Lord Redesdale, on how I should reply to the debate.
I am also reeling from the shock of my noble friend Lord Whitty suggesting that departments harbour prejudices. Informed judgment, which may differ from the one that he follows is one thing, but the idea that departments harbour prejudices is deeply shocking, and I hope that I can prove to him that our position is not established on the basis of prejudice but a real concern about the implications for the renewables obligation of accepting this amendment.
Let me start on points of disagreement before getting on to the more difficult issues. We accept what the noble Lord, Lord Redesdale, maintains as his major proposition that biogas is renewable when it is derived from plant and animal matter. It is therefore already eligible for reward under the renewables obligation. We are not in conflict at all on that part of the issue. I shall come to the difficulties that we have in a moment, but I emphasise that we have always recognised the importance of biogas and its versatility, which is why the Department for Environment, Food and Rural Affairs announced earlier this year that £10 million would be made available for the construction of new commercial-scale anaerobic digestion plant. The Government are acting towards stimulating development.
Electricity generated from biogas will be eligible for two ROCs per MWh under the proposed changes to the renewables obligation, and biogas can receive support under the renewable transport fuel obligation. It can also be used to generate heat, as noble Lords have indicated in this short debate, and therefore may be eligible to receive support under any future mechanism to support renewable heat, which will be the subject of later discussions in Committee.
By removing the carbon dioxide and other impurities, biogas can be used to make biomethane, which could be injected directly into the gas network. It is theoretically possible to inject biomethane directly into the gas network in the UK provided that the biomethane can meet gas quality standards and the pressure requirements of the national grid.
So far, so good. We recognise the advantages that biogas could bring across electricity, heat and transport, but there are difficulties with this amendment that I hope are based on rational judgment and not prejudices within the department. If accepted, the new clause would mean that biomethane gas was fed into the gas grid and then an equivalent amount of gas used by a specified consumer could be treated as renewable—even if it had been supplied from a gas-fired station—for the purposes of the renewables obligation if used to generate electricity, or the road transport fuel obligation if used as a transport fuel.
Such a move would widen the definition of a renewable source of electricity but break the direct link with the award of ROCs for actual generation. That is a fundamental principle of the renewables obligation. Even if it is contended that this is a well-known prejudice of the department, I shall defend the principle against the amendment.
Far be it for me to say that the department is not principled in its objection, and it is certainly steadfast in it. However, I take issue with the generation of electricity from renewables being fed into the grid and somehow moving immutably from a wind turbine offshore, of which I am a great supporter, to the consumer buying that green electricity, who might be anywhere. You cannot tell where electricity is because you feed from renewable sources into the national grid. There is no colour coding system to make the electricity come out green. Even though ROCs are being used for wind turbines, the electricity could have been generated from a nuclear power plant, coal power station or gas power station. It could have been generated from a wind turbine, but that cannot be proven, exactly like biomethane. If you feed biomethane into the grid you do not know what will come out the other end. I find it interesting that the Minister is saying that there is a direct link between green electricity production and use, and biomethane production and then biomethane use.
No, I am saying that there is a direct link between the actual generation and the award of ROCs and I worry that this amendment would abrogate that principle, which is crucial to the Government’s strategy. Far from conceding the point, I am enthusiastic about the contribution that biomethane can make.
Let me say to the noble Lord, Lord Jenkin, that we have problems with the coalfield position. There is obviously an issue of how clean the gas is in terms of carbon dioxide, and that is why it is not supported under the renewable obligation. But we are offering an incentive through explicitly exempting coal methane from the climate change levy.
I am aware of that. There is nothing new under the sun and certainly not from this Dispatch Box. I know that the noble Lord wants us to move on and I will listen carefully to his argument, but I am not sure about the noble Lord’s case to change the concept of the renewable obligation in order to produce this particular stimulus as far as coal methane is concerned. That is the nature of the problem. The noble Lord will recognise that the Government and the noble Lord, Lord Redesdale, are on the same side of the argument about how we can generate electricity from increasing numbers of renewable resources, but I ask him to recognise that this amendment is flawed because it breaks the link that is crucial to the Government's position.
Let me seek to elaborate the principle—or, as my noble friend Lord Whitty might say, the prejudice—of the department in this area. We believe that it is important that the consumer does not support generation that is not from renewable sources. For other plants which burn fuels such as biomass, the renewable obligation has always required both delivery of the actual fuel to the station and that the biomass content of the fuel can be determined on the site. Breaking that link opens significant scope—and I hope that this answers the noble Lord, Lord Oxburgh—for double counting or even fraud, as audit of the arrangements would be very problematic indeed. For example, it would be possible for the renewable biomethane gas in theory to be shipped and premixed with fossil fuel from overseas as part of the load from a liquefied natural gas tanker. How would Ofgem tell whether that was the case? Arranging for the shipping might also be a low hurdle to clear to benefit from the renewables obligation and it would be difficult to audit to ensure that consumers received value for money. It is possible that those issues may be resolved, but we do not think that that is the case at present. We are not sure that we would be able to control the operation of the renewables obligation.
The noble Lord, of all people, ought not to seek to occasion the Government to pursue a strategy which might open the door not to the increased consumption of renewables but to their substitution through the subsidy and to the destruction of the crucial relationship between the renewables obligation and the generation of electricity. Once we depart from that point, we come up against difficulties.
Noble Lords will anticipate all sorts of potential developments. I shall listen very carefully to them and shall take up the invitation of the noble Lord, Lord Jenkin, to write to him if I can reply further. However, the noble Lord has to establish why he thinks that it would be of benefit to break that crucial link; he must recognise that it is a basic principle of the Government’s approach to the development of renewable generated electricity.
It would be strange to break the link. By its very nature, biomethane has to be cleaned and scrubbed of CO2 before it can be injected into the grid network. Therefore, any gas produced in that way could be measured very carefully and, once it was pumped into the network, he would have a figure that showed how much biomethane was going into the grid network. It would not be beyond the wit of man then to work out that, if that was the amount of power going in, the amount of power coming out could be linked to it, and there would be a direct link between the two systems.
That is the current system under which offshore wind turbines are used and their electricity is fed into the grid. Wind turbines produce electricity that is measured and pumped into the national grid and is then used by companies that want to buy green electricity. Perhaps the Minister can say where I am wrong, but I do not see how that is not breaking the link, because the electricity is fed into the national grid. I do not understand why the controlled and measured dispatch of biomethane from the cleaning process into the grid network cannot be measured and dealt with in the same way.
Earlier, I sought to show one way in which the link might be broken. We would be concerned about our ability to track the movement of biomethane gas in this way. I return to the principle. Surely the noble Lord accepts that ROCs are awarded according to the generation of electricity—not on the use of the electricity nor on the production of the fuel but on the generation of the electricity—but his amendment would open up a crucial change to the ROCs concept. The principle of ROCs and the renewable obligation within the framework are critical to our strategy. That is why we find the amendment unacceptable.
I am grateful for the Minister’s offer to write a letter. He said that there would be nothing to add, but it would be very helpful to have a proper statement from the Government setting out why they cannot give the same kind of support to the coal bed methane industry in this country as the German Government have for some years given to the industry in Germany.
With regard to the link between the consumer’s bill and the source of the energy, I have never understood—I have never gone for it myself because I think that it has always been slightly bogus—how people can opt to buy electricity from a green source by paying a bit more. I do not know how it works, but if gas is going to enter a gas grid, it should be perfectly possible to deal with it in exactly the same way as electricity being fed into the electricity grid.
I have to say that I feel that the noble Lord has not so much scraped the barrel as he has scraped what in polite society I should not repeat. The arguments simply do not add up. It is the same old story that we have seen in Bill after Bill, of desperately trying to protect the narrow field of activity that qualifies for the ROC. In an earlier Bill I described that as losing sight of the objective and concentrating on the means. The means and the objective are being confused. The objective is to reduce carbon and to supply energy, it is not to protect an artificial concept like ROCs. This is where the Government really have gone quite sadly wrong.
I will not make any progress if I seek to reply to the noble Lord’s points any further, but I recognise that there is considerable concern among Members of the Committee about the argument I have presented today. I do not doubt that a letter should be written to him and all Members of the Committee, particularly the mover of the amendment. Of course I will do that and no doubt we will return to the debate better informed.
I thank the Minister for the proposed letter. The noble Lord, Lord Jenkin, is right because we tend to think of these things in financial terms. We are thinking about how to stick to ROCs, but the whole basis for a renewables obligation and the reason so many of us are interested in this field is because we are running out of fossil fuels—this is a way of bringing forward a renewable source of energy—and we are worried about carbon. They are the issues that concern us most. We are hidebound by ROCs, so a situation has developed where enormous amounts of methane are allowed to escape into the atmosphere, yet we are stopping ourselves from using such sources developed on a local scale in order to reduce the amount of fossil fuel we use. Given that situation, there is a fundamental flaw in ROCs.
I cannot take the issue any further at this stage. I shall withdraw the amendment, but it is very depressing to think that while we are looking at ROCs as a way of promoting renewable energy, the Minister has just repeated an argument that the noble Lord, Lord Whitty, said is not new. It simply shows how the department is working in a way that actually destroys the very basis on which some of these industries will depend in the future. That does not mean just methane, but in other areas of microgeneration. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
54: Before Clause 80, insert the following new Clause—
“Company annual reports
Companies involved in the generation of electricity must show in their annual reports the amount and value of any allocation they have received from the European Union Emissions Trading Scheme and the amount that has been paid for such an allocation.”
The noble Lord said: This amendment, which may be less exciting if less odorous than one or two that have gone before it, would oblige companies that generate electricity to disclose the amount and value of any allocation they have received through the European Union Emissions Trading Scheme. Noble Lords should understand that we are not seeking to impose unnecessary and costly extra burdens on business, but publishing this information would be advantageous to consumers and investors—and, we consider, should not be too costly to administer. Each round of the EU ETS will become more stringent. It is likely that soon the UK’s allocation of credits will be auctioned off rather than simply passed on free to companies, so putting a clear price on them. This proposal should provide a higher level of transparency.
The Minister in another place said in response to a similar amendment that this is an issue that time would resolve. I would like the Minister to be more specific about exactly how time will resolve it. What form does he see company reporting mechanisms taking? As a price will be attached to allocations on their initial auction, it seems to me that a company will have to report its allocation for tax purposes, for example. What other powers are there to impose that reporting responsibility on business; and what is the Government's attitude to using those powers? I beg to move.
I welcome the amendment about transparency in the EU ETS. I was very disappointed that since the Climate Change Bill moved to the other place, the Government have sought to take out the corporate reporting clauses that were accepted by the Minister in this House. I approach the amendment with some concern about the Government's response. The EU ETS is a very important instrument, and one that we will talk about under other amendments that we will propose from our Benches. The amendment leads to greater transparency and I very much welcome it.
The proposed new clause pertaining to an amendment to the EU emissions trading scheme and company reporting was debated in another place. We thought that we had gone a great way to reassure honourable Members on the other side in another place that it was not necessary. Let me see whether I can reassure the noble Lord tonight.
The amendment is drafted with the aim of identifying the so-called windfall profits of companies participating in the trading scheme. Let me say a few words about the EU ETS—not many, I promise—before addressing the new clause specifically. As the Committee knows, the EU ETS was launched in 2005 and in its first phase, which ended last year in 2007, companies were allocated carbon credits that could then be traded. The carbon credits and trading system established a market for carbon. The scheme was very ambitious; some might describe it as revolutionary; and, let it be said, it faced some problems in that first phase, most of which got pretty wide publicity.
For example, we recognise that generators have profited from the ETS. However, we in the UK and, I believe, in the EU generally, have learnt from those problems and are now attempting to improve the scheme from the experience that we have gained. Phase 2 began in January this year. It has reduced the overall allocation of carbon credits and raised the expected price for carbon from 2008 to 2012. It is currently at about €25 per tonne. In the second phase, the UK will auction 7 per cent of allowances to the large electricity producers. We are in discussion with the Commission about the post-2012 phase 3 of the scheme. We announced in this year’s Budget that we would auction 100 per cent allowances to the large electricity producers in phase 3. We believe that auctioning, as well as being the most efficient way to make allocations, will address the issue of windfall profits.
I turn to the amendment. As the noble Lord will know, the amount of carbon allocations that companies receive is already published by Defra on its website. Likewise, the market price for the allocations is already published. Therefore, requiring the generators to publish this information would create duplication and an unnecessary administrative burden.
The amount paid for the carbon allowances which generators buy from other EU ETS participants is not published, but is commercially sensitive information. The generators are not, for example, expected to publish the price they pay for coal, gas or oil, or the rates they pay their contractors, which we happen to believe—I hope that the noble Lord does, too—is absolutely right in a competitive market. Requiring suppliers to publish such information could lead to a distortion of the market.
For those two distinct reasons—first, that some of the information, which is not sensitive, is already published; secondly, that that which is commercially sensitive should remain so—the amendment should be withdrawn.
If under phase 2 of the EU ETS the units are subject to auction, surely the price will be different in each transaction, according to what the individual company offers. However, as the Minister said, one might wish to withhold that simply on the basis of commercial confidentiality, but I cannot see how the price will be known, because each company will strike its own price in every deal.
The Committee stands adjourned until tomorrow.
The Committee adjourned at 7.27 pm.