Consideration of amendments on Report resumed.
Clause 51 [Nuclear decommissioning: regulations and guidance]:
8: Clause 51, page 46, line 18, at end insert—
“(c) the way in which the Secretary of State will interpret the phrase “prudent provision” for the purposes of sections 43(4) and 46(7).”
The noble Lord said: My Lords, I hope I can explain this at not too great a length. The nuclear industry has argued that effective rights of appeal should be available in the Bill in relation to Ministers’ decisions to approve, reject or modify funded decommissioning programmes. The Government, however, have declined to provide an appeals machinery because Ministers believe that the industry is already well protected by the availability of judicial review.
On the Planning Bill I took exception to the number of occasions when any appeal to the courts was being left to judicial review, and I consider that it is now a seriously misused procedure. It used to be that only if a decision was made that was so unreasonable that no reasonable man would have made it that the courts would entertain a case for judicial review, but in an interesting chapter in his book about the constitution, Anthony King, professor of history at the University of Essex, has drawn attention to the fact that whereas in 1981 there were 356 non-criminal cases involving judicial review, by 2005, the latest year that he was considering, there were 5,131—an increase over that period of about 14 times. It used to be regarded as a threat hanging over the heads of Ministers; in the debates on the Planning Bill I drew attention to the Civil Service publication called The Judge Over Your Shoulder. However, both in the Planning Bill and here—and this is a good example of it—instead of establishing an appropriate right of appeal within the executive framework that governs these clauses, it is simply being left to the courts.
The nuclear industry believes that judicial review is a wholly inadequate process for challenging the complex technical and commercial judgments that are likely to characterise Ministers’ decisions about funded decommissioning programmes. This is normally because, as I have explained, judicial review can be used to challenge Ministers’ or regulators’ decisions on fairly limited grounds, such as a clear failure to observe due process, rather than on the actual substance of the decisions that follow full and detailed scrutiny. The powers of a Minister to approve, reject or modify a funded decommissioning programme can be exercised only,
“with the aim of securing that prudent provision is made”,
by the site operator in relation to both the technical matters in the programme and the financing of those matters. The concept of “prudent provision” and the assessment of what it means and whether the site operator’s programme satisfies the concept, will clearly be critical elements in the ministerial decision process.
It is upon that issue that the industry’s exposure to risk will be most significant because of the scope for Ministers over a long period to define, and perhaps redefine, the concept of “prudent provision”, perhaps in an upwards-only manner, destabilising what have been Ministers’ long-term intentions—namely, to establish the long-term certainty that is needed to support major nuclear new-build investment. I believe that Ministers recognise this danger and have therefore taken powers under Clause 51 to issue guidance about the content and preparation of funded decommissioning programmes. This guidance has been published, following consultation, and it is helpful in telling operators and the wider industry how Ministers will aim to interpret the concept of prudent provision. However, Clause 51 does not require the guidance to include such assistance.
Therefore, bearing in mind that any guidance issued by Ministers under Clause 51 must be laid before Parliament, the industry would be able to accept the Government’s rejection of an appeals option with an easier mind if the clause could make clear that one of the matters that the guidance will be expected explicitly to deal with is how the concept of prudent provision is to be applied to the assessment of funded decommissioning programmes.
This is what my amendment is intended to achieve; that the guidance must contain,
“the way in which the Secretary of State will interpret the phrase ‘prudent provision’ for the purposes of sections 43(4) and 46(7)”.
I hope that I have made my case clear. I beg to move.
My Lords, I am grateful to the noble Lord for the way in which he has moved his amendment, and I will fulfil the promise I made before the dinner break to be somewhat more constructive with regard to this amendment than I was with regard to the previous one.
The noble Lord was kind enough to indicate that we had consulted over the guidance to be issued in relation to Clause 51 and the powers therein. He also fairly expressed the fact that some in the industry are concerned that if there is scope for Ministers to redefine the concept of prudent provision over the long term, we will be likely to see the ratcheting up of the requirements in the interests of protecting the taxpayer. They argue that that in turn runs the risk that the existing approach in the Bill would create uncertainty in respect of the long-term planning that is clearly needed to operate a power station. The noble Lord emphasised that in regard to his previous amendment and I fully recognise that we are talking about long-term issues. I also agree that we should seek to avoid uncertainty about the concept of prudent provision.
There is no doubt that the amendment achieves greater clarity for the industry and I accept the basis on which he has moved it. However, we are not too sure about it and perhaps I may explain our anxieties. We are not sure that it is entirely appropriate because it is not for the Secretary of State to set out how we will interpret the meaning of the term in statute. Interpreting terms in statute is the role of the courts and it is not for Ministers to second-guess or usurp the role of the courts in that regard. The guidance sets out to give as much clarity as possible on the meaning of the term, given that it sets out the factors that the Secretary of State may take into account when exercising these powers. They necessarily include the crucial concept of prudent provision.
I accept that the industry wants greater clarity, and that is what the noble Lord seeks in his amendment. However, it would constrain the important flexibilities afforded to the operators and to the Secretary of State which exist under the clauses as they stand. I recognise that the concept of prudent provision, and the assessment of it, is a critical element in the approval and modification process. For the reasons I have indicated, we cannot accept that “prudent provision” should be in the Bill. However, the noble Lord rightly emphasises the importance of striking the right balance between certainty for the operator and the necessary flexibility for the Secretary of State and the operator to fulfil their duties under the Bill. We will therefore look further at the principle behind the amendment, and at the noble Lord’s argument, and we will search for greater clarity. That is also his objective. I promise to bring back a government amendment on Third Reading which I hope will meet those objectives. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.
My Lords, the Minister has been as good as his word before Dinner, when he said that he would be more forthcoming on this amendment than on the previous one. I am happy to accept his undertaking to bring back an amendment at Third Reading and will be interested to see what it is. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 57 [Offence of supplying false information]:
9: Clause 57, page 49, line 11, leave out “false or misleading information” and insert “information that is false or misleading in a material particular”
The noble Lord said: My Lords, the clause rightly makes it an offence knowingly or recklessly to supply false or misleading information to Ministers in response to any statutory requirement relating to the decommissioning and clean-up of nuclear sites.
The offence thus created is an absolute offence, with no materiality threshold. This is likely to cause problems of due diligence and practicality in the supply of information, since almost any statement could be held to be misleading in any one of hundreds of immaterial respects.
There is a great deal of precedent for dealing with this problem, which qualifies the offence by being false or misleading in a material particular. These precedents include Sections 117 and 201 of the Enterprise Act 2002, and Sections 119, 350, 501, 795 and 1112 of the Companies Act 2006—I was quite glad not to be involved with that Bill; it was a very long business. There are many others.
The amendment would therefore insert the normal materiality test, so that the clause read,
“information that is false or misleading in a material particular”.
That would bring the offence into line with the approach which is more generally used, and of which the financial and legal community has good experience and knowledge. It would be more practicable in operation while maintaining what we would all agree should be very severe sanctions for lying. I beg to move.
My Lords, it seems like a sensible amendment with recent legislative precedent. If the Government do not accept it, I shall be interested to know why this legislation is different from the offences that my noble friend mentioned in the Enterprise Act 2002 or the Companies Act 2006. The necessary safeguards that the Bill sets around nuclear decommissioning will already give people quite enough to do without asking them to prove the unprovable.
My Lords, I am grateful to the noble Lord, Lord Jenkin, for the way in which he moved the amendment. The noble Baroness must know that all amendments proposed by the noble Lord are sensible—otherwise, he would not move them—so we take that as read. The issue is whether they pass other tests as well as being sensible.
Clause 57 makes it an offence to provide false or misleading information to the Secretary of State in response to a requirement under the nuclear decommissioning chapter of the Bill. False or misleading information in this context can be taken to mean false or misleading information which a person knowingly or recklessly includes in, or omits from, the information submitted to the Secretary of State. The result of submitting such false or misleading information would be that the Secretary of State would not be in receipt of information that is accurate enough or sufficient for him to discharge his functions under these clauses. We are therefore talking about very serious issues.
We debated these issues in Committee, and an amendment along these lines was considered in the other place which sought to remove “misleading” from the clause. We resisted that attempt because it was felt that it would have the effect of allowing for the submission of information that was misleading, which would inevitably weaken the significant layers of protection that we are putting in place in this framework. Moreover, the Government argued at the time that the action of “misleading” the Secretary of State was a deliberate act. It cannot be acceptable for the necessary robustness of this regime that a person should be able to knowingly or recklessly submit misleading information without there being any sanction. The issues are far too serious for that.
We want to encourage transparency and openness in the framework that we are creating but, where there is a deliberate attempt or reckless failure to mislead, it is only right that the framework should be backed up by sanctions, which the Bill contains. We do not think that the issue of whether there could be a “clerical error” would fit within this framework. No prosecution is going to be brought on the basis of a clerical error for such a serious issue. We are talking about “misleading” rather more significantly than by some fault in the document that is just a slip.
The noble Lord’s amendment would clarify this issue in the Bill by setting a materiality threshold for the offence and, as he rightly said, there are precedents for that. He mentioned several Acts: suffice it to say that I am becoming increasingly familiar with the Financial Services and Markets Act 2000, which looms fairly large in our present considerations. I know that the noble Lord is testing accurately when he refers to that Act as well as to others. His amendment seems to be an attempt to bring Clause 57 into line with the approach more generally used in the situation he defined; as he rightly said, the financial and legal communities both have good experience and knowledge of operating the law in those terms.
We can see merit in the proposal, so for the second time this evening I will ask the noble Lord to withdraw his amendment on the basis that we will look further at this issue. I am sure he will recognise that we intend to have a robust offence regime locked into this Bill. That is of critical importance, given the potential size of the liability involved in such a critical and significant industry, but we also want the regime to be practicable. We will, therefore, look at the amendment and come back with a further amendment on Third Reading, if he would be so good as to withdraw his amendment.
Once again, my Lords, I must express my gratitude to the Minister, who has clearly looked at this carefully. His promise to bring back a government amendment on Third Reading seems to meet the case, and we will look at that with great interest. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 69 [Persons who may be required to submit abandonment programmes]:
9A: Clause 69, page 59, leave out lines 12 and 13 and insert—
“(a) P is not entitled to derive, and never has been entitled to derive, any financial or other benefit by means of P’s use of the installation for the exploitation or exploration of mineral resources or storage or recovery of gas, and”
The noble Lord said: My Lords, Amendment No. 9A is a rather more complex matter than the last two I have discussed, and I hope that the House will bear with me for a moment if I describe a little of the background. We are dealing here with the decommissioning of oil and gas equipment, where the same broad principle applies; that the operators—I use that word in its widest sense—or licence holders are, for instance, to be responsible for the decommissioning and clearing up of an oil rig when it has reached the end of its life. I will not describe this background in great detail, because the noble Lord, Lord Rowlands, went into it at some length in Committee on 24 June, at col. GC 599. The noble Lord, Lord Davies of Oldham, responded in cols. GC 601-02.
The problem is not who should be liable. There is general agreement that the clause should be drawn in such a way that anybody who has had an actual operating interest in the rig should share the cost of decommissioning. The problem has been how to achieve that in a way that meets the Government’s objective of protecting the taxpayer from having to pick up the bill or any part of it at the end of the day. As I understand it, it has primarily been a problem of drafting.
When the noble Lord, Lord Davies, replied to the noble Lord, Lord Rowlands, he spelt out the matter using identical language—perfectly reasonably and properly—to that used earlier by Mr Malcolm Wicks, the Minister, when he wrote to John Robertson MP a letter dated 14 May. I have the letter but I shall not weary the House by reading it out. He set out to describe the type of activities undertaken from an installation that will give rise to a potential decommissioning obligation on a person. The amendment seeks to reflect word for word exactly what Mr Wicks wrote to Mr Robertson. As the noble Lord, Lord Davies, will recognise, they were also the words that he used when he replied in Grand Committee.
The purpose is to rule out any future conflict between the Petroleum Act 1998 and what was in the Minister’s letter. If such a conflict were to arise—and one can never be sure that one has sewn up everything exactly—and it was a matter of law that came to the courts, the courts would have to apply the legislation and what is actually in the Bill. They are now, under Pepper v Hart, allowed to look at the intention, but if there is no ambiguity in the Bill then whatever the Minister may have said or written is not relevant to the construction. It is something that has given rise to a great deal of uncertainty for companies when they are making decisions about trading of assets and co-operation on the use of the infrastructure.
It is a question of trying to define who the people are to whom a notice can be given under Section 29 of the Petroleum Act 1998 so that they would be liable for decommissioning and maybe abandonment but, anyway, the cost of getting rid of and clearing up the installation. Intended to be excluded are people who have never had any kind of direct interest, financial or otherwise, other than perhaps as a contractor or a subcontractor of one of the operators of the licence and the installation. If somebody has a contract to provide food and sustenance to the crew of the rig, for example, they would not be expected to bear any costs of decommissioning, although it might be said that they derive a financial advantage from being involved with the rig. It is simply a question of how you draw the line between those who should be liable and those who clearly should not.
As the noble Lord, Lord Rowlands, said, these arrangements of ownership and sub-ownership can be immensely complicated as they develop over the years. That is what gives rise to the problem that we address here. Simply to refer, as subsection (7) does, to,
“any financial or other benefit”,
is unclear. It could be argued that it covered a wide group of licensees who have not been involved in activities relating to the exploitation or storage of hydrocarbons using the installation in question. Therefore, that definition in the Bill needs to be modified by the insertion of the qualifier set out in the Minister’s letter to John Robertson, and repeated by the noble Lord, Lord Davies, on 24 June—specifically, that the person who may be served with a notice under Section 29 must be, or at some stage have been,
“using the installation to exploit or explore mineral resources or storage or recovery of gas”.
Without that amendment, people who happen to hold an interest in an unrelated part of the licence, or who have received an incidental benefit through the use of the installation—of course, numerous examples could be given for that—may be inadvertently captured within the ambit of Section 29. One could imagine the situation. If you have a number of licensees who are responsible and one of them becomes insolvent for any reason, of course the authorities are going to try and get the money back from whoever they can. It is really very important at this stage that one should be absolutely clear who can and who should not be caught.
Since the debate in Grand Committee, there have been, as I think Ministers recognise, long discussions. It appears that there is complete agreement on the principles; the difficulties lie in finding the right drafting. The department has made it clear that my amendment does not sufficiently protect the taxpayer. As I understand it, the Government intend to bring back their own amendment at Third Reading, having taken advice from parliamentary counsel as well as from the people in the department responsible for the matter. It has been represented to me that I shall not get everything I want. We will have to see. Once again I ask whether the Government’s amendment could be tabled in good time so that there can be consultation with the trade association, Oil and Gas UK, so that we can really satisfy ourselves that it will meet its requirements. What it is not prepared to do—and what I think at an earlier stage Ministers were asking—is to rely solely on the ministerial undertaking and letters. Given what I said earlier about how a court would interpret that, that is not acceptable and would not give the certainty necessary for the people who deal in these licences.
I will not dream of pressing the amendment tonight; it is there to give Ministers an opportunity to explain to the House how they now intend to deal with this and to undertake—and I hope there will be a very clear undertaking—to bring back their own amendment at Third Reading. I beg to move.
My Lords, that was a remarkable tour de force by the noble Lord. Not only did he eloquently put his own case, he also anticipated my response. I shall, none the less, respond in detail. The noble Lord is absolutely right: there is no disagreement in principle, but there clearly continue to be drafting problems. I agree that we need to avoid ambiguity if we possibly can.
I do not need to go into the detail of the matter; the noble Lord has already done that. We have been in regular discussions on the clause with the companies that might be affected. It was clear at an earlier stage that there could be some doubt about whether a company would be seen as being entitled to derive a benefit from an installation. The Government have sought to make it clear that 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. I understand, and the noble Lord, Lord Jenkin, has confirmed, that there is still doubt and uncertainty within the industry, which he has sought to resolve by adding further clarity to the provision. Our discussions with the industry this week indicate that its concern is that licensees should only be liable for decommissioning if they have benefited from the exploration and/or the oil or gas production of the installation in question.
An issue that has been raised is that many licence areas are very large and may include a number of separate field developments. A small field may often be developed by linking it to the installation on another field; this is known as a “tie back” to a host installation. The Government take the view that it would be unrealistic to expect the companies responsible for the tie back to bear the liability for the host installation and vice versa.
I know that the noble Lord has taken the response of my honourable friend Mr Wicks, when he was Minister for Energy, and used it as a basis for his amendment. Alas, sometimes Ministers’ letters do not easily translate into legislation. My advisers have concerns that the amendment is not specific enough. We are therefore going to have another go between now and Third Reading at seeking the clarity that all agree must be achieved. I take the noble Lord’s point about wishing to see that amendment as soon as possible, and will certainly do everything that I can to ensure that he does so.
Clearly, the balance is that we want clarity while having to protect the taxpayer. However, I agree with the noble Lord that we must avoid ambiguity. I hope that, on that basis, he will be satisfied that we are dealing with this matter in a sensible way.
My Lords, I was asked to make two points. First, the industry is in fact extremely grateful for the amount of time and trouble taken on this matter. Secondly, the noble Lord, Lord Rowlands, asked me to tender his apologies for not being able to be here this evening; I am sure that he would have wished to join in the discussion.
Once again, the Minister has said that the Government will bring back an amendment, and kindly said that he will try to produce that as soon as possible so that it can be consulted on and, if necessary, amendments tabled. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
10: 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 the 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: My Lords, I do not intend to go into huge detail, as the noble Lord, Lord Jenkin, has done so impressively on the past three amendments. The tables for renewable energy production in the United Kingdom show, always surprisingly, that biogas plays a major part. We all think of wind power, solar and all the other, very visual, technologies. Anaerobic digestion will, we hope, be even more important in the future and, again, continental Europe—particularly Germany—is well ahead of us. Waste tips have been a major source of biogas. In the past that has been a considerable problem because it involves methane, which is both a powerful greenhouse gas and very explosive. That has been dangerous for people living near waste tips that have not been well looked after, although that is not so much of a problem now. The other area is farm waste.
Biogas sometimes has been quite considerably wasted by flaring. As my noble friend Lord Redesdale said when a similar amendment was spoken to in Committee, we do not now allow flaring on oil installations. It is quite staggering that we still now waste this resource by, on occasion, burning it off on land.
The amendment would ensure that the renewables obligation regime is applied to biogas. I noted the Government’s comments in our previous debate but we seek further reassurance. We need to be able to feed biogas into the local grid and take advantage of the renewables obligation certificates. We should harness this form of renewable energy. It should be allowed to thrive and take its rightful place in the country’s renewable energy mix. The amendment’s provisions would be particularly useful as regards combined heat and power. I beg to move.
My Lords, this amendment sparked an interesting debate in Committee when the noble Lord, Lord Redesdale, moved it. I was pleased to hear the Minister confirm then that biomethane was considered a renewable. The noble Lord, Lord Teverson, was right to stress the part that biomethane could play in meeting our CO2 reduction targets. We have already had a debate on the role of heat as regards renewables, and biomethane plays an important part in that. I should be interested to hear more from the Minister about what work is being done on the feasibility of injecting methane directly into the gas network. As I understand it, there are still some technical issues to be worked out. I hope that he can indicate when these are likely to be resolved.
My Lords, I am grateful to the noble Lord for raising this important matter. Noble Lords will know that earlier this year my department announced that £10 million will be made available for the construction of new commercial-scale anaerobic digestion plant, and we have proposed doubling the amount of support that it has received under the reformed renewables obligation.
My Lords, I do not have the details but I shall be happy to write to the noble Lord about that. The important announcement concerned the money. I do not know how far the initiative has developed, but I shall find out and let him know.
Of course, there is great potential in this area and we all have high expectations. However, while in principle we agree with supporting biomethane, we do not believe that supporting its use in the gas transmission system should be achieved through an amendment to the renewables obligation. Electricity from biogas is already supported in various forms under the renewables obligation, and some forms, such as landfill gas, have made significant contributions to the growth in renewable electricity generation over the past few years. Proposals in the Bill will help us to make further progress with the use of biogas for electricity generation. Our new banding proposals mean that electricity generated directly from the gas formed by the anaerobic digestion of wastes such as manures and waste food will receive two renewables obligation certificates for each megawatt of electricity generated.
I think that we are all agreed about the benefits of such a measure, but the proposed new clause would mean that, if renewable biomethane gas were fed into the gas grid, an equivalent amount of gas used by a specified consumer could be treated as renewable for the purposes of the renewables obligation, even if supplied to a fossil-fuel gas-fired station. Such a move would risk widening the definition of a renewable source of electricity while breaking the direct link of award of ROCs to actual generation. That is the fundamental principle of the RO system, which is important for investor confidence in renewable electricity generation projects.
As noble Lords will know, two-thirds of the gas supplied through the grid is used for heat and not for electricity generation, so most of the biogas injected into the grid would be used for heating purposes and could be an important source of renewable heat. Here comes the constructive point. An alternative to supporting biogas through the renewables obligation would be to support it through any financial mechanism to support renewable heat. We are already reflecting further on how we could bring forward a financial mechanism for renewable heat, with the aim of returning to the issue at Third Reading. I wonder whether the noble Lord would let me take this away to see how we might include biomethane as part of any financial support mechanism for renewable heat, rather than deal with it in the way suggested.
On the technical issues, all I can say tonight is that we are continuing to work with the national grid to overcome some of the technical issues concerned with injecting biomethane into the gas transmission system. When I am in a position to update noble Lords, I will write to them on it.
My Lords, I am grateful to the noble Lord for giving way, because inspiration has just reached me about the question that he asked me at the beginning. I am glad to say that the demonstration programme is open for bids until 9 December. I hope that bids are being made, as we would encourage them.
My Lords, that is good news. I look forward to seeing the response and the outcome. I do not know whether there would be pre-combustion anaerobic digestion as well as post-combustion. The point about the heat side is important and I accept that the Government now take it seriously. If there was a way of integrating that into the solution, we would find that acceptable. Given the Government’s wish to do that, which is positive, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
11: Before Clause 80, insert the following new Clause—
“Provision for greenhouse gases emissions performance standard for electricity generation
(1) The Secretary of State may by regulations, make provision for a greenhouse gases emissions performance standard to set the maximum level of carbon dioxide that may be emitted per unit of output by any generating station requiring consent for construction or extension under section 36 of the Electricity Act 1989 (c. 29) (consent required for construction etc of generating stations).
(2) Regulations made under subsection (1) may include provision specifying—
(a) how proposed generation stations may comply with any greenhouse gases emissions performance standard and demonstrate compliance with any regulations made under this section, including by the capture of carbon dioxide at the generating station and its transport to and injection into geological storage provided that such activities are licensed in accordance with applicable laws and regulations;(b) the basis on which emissions of greenhouse gases from combined heat and power generating stations shall be calculated such that the unit of output includes useful heat produced in addition to electricity generated by any such generating station; and(c) any sources of electricity generation, including electricity generated from renewable sources, that are deemed to be compliant with any greenhouse gases emissions performance standard. (3) No consent shall be granted under section 36 of the Electricity Act 1989 for any generating station that does not comply with regulations made under subsection (1).
(4) Before making regulations under subsection (1) (including setting the level of the greenhouse gases emissions performance standard), the Secretary of State must consult such persons as are, in his opinion, likely to be affected by or have an interest in the regulations.
(5) Regulations made under subsection (1) shall be made by statutory instrument, and shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(6) In this section “greenhouse gases emissions performance standard” means a standard prescribed by regulations setting the maximum level of carbon dioxide that may be emitted per unit of output from an individual generating station.”
The noble Lord said: My Lords, many amendments have been tabled to this Bill, but it seems to me that this area is one of the most obviously important and straightforward in terms of concept, in terms of being able to deliver it and in terms of the positive effects that it would have on future greenhouse gas emissions. We are very clear and we understand very well that for ordinary capital goods such as you and I might buy, such as motor cars, there are regulations about emissions. One of the successes, and one of the ways in which Europe is starting to lead the world, is in emissions regulations for motor vehicles. In doing so, it leads the world and the rest of the world catches up, because Europe is such an important market in that area.
Cars produce a certain amount of carbon dioxide, and transport is important; but the energy generation sector is even more important in terms of emissions. Why do we not then apply emissions standards to power stations? That is hardly a eureka moment; it seems so totally obvious that we should do that. To make that reasonable, since power stations have long lives, it would be unacceptable to apply such a standard to existing power stations, because it would be very difficult to make them comply. We do not want to allow the lights to go out across the nation.
This amendment makes the straightforward proposal that the Secretary of State should have powers again to set such standards. This is one of the areas in which we could again show leadership within Europe; more than that, it is particularly important because power stations are pieces of capital equipment that have very long lives indeed. If you build them and you start operating them, they will operate to those standards for many decades, and it is, therefore, important that we get the standards of emissions of such power stations right now.
There is an argument, which the industry makes, that none of this is necessary because the EU Emissions Trading Scheme has a carbon cap which should solve the power sector’s issues around carbon emissions by itself. That is a completely erroneous argument. The EU ETS is extremely important, but we all know—and this has been accepted on all sides of the House in many other ways—that just relying on one type of instrument is not sufficient in the area of climate change. We have to use a number of those instruments.
If the power sector used up a large number of the carbon units allowed under a cap-and-trade system, that would technically work, but it would mean, because of the inelasticity of the demand for energy, that the rest of the economy had to deal with a hugely lower number of carbon credits, because the rest would have been used up by the energy sector, given that it was unable to respond quickly enough because of its old technologies. That would create a situation that everyone, from the Stern review to the Government, wished to avoid. It would force the rest of industry to go through a forced and accelerated decarbonisation process in the main part of the economy, whether it be manufacturing, services, mining or farming—all of those areas—particularly in terms of the EU ETS. Large areas of industry would have to adjust even quicker to those caps coming down.
The answer to that is to have other instruments as well. Regulation, which is accepted for every other sector of product design and installations, should be applied to this area. Should we really allow power stations that will last for some 50 years to be built to the wrong standards, when they cannot necessarily be modified? That would be unacceptable. Even in terms of the timescale for the 2050 targets under the Climate Change Bill, power stations that are built now will still be operating at that time. That time is not far ahead.
When I researched this subject, I was interested to note that the EU Large Combustion Plant Directive—the Minister probably knows far more about this than I do—covers noxious substances such as sulphur dioxide, nitrogen oxide emissions and particulates. Nitrogen oxides are some of the worst greenhouse gases. Yet, strangely, that directive does not include carbon dioxide. I would say to the Government that there is a route. There is an organisation that I did not realise existed called the UK National Emission Reduction Plan, NERP—which I noted from the Defra press release was a rather unfortunate term; I would not work for an organisation called that—whose secretariat has an important role. If the Government cannot accept this type of enabling amendment, I would at least like to hear that they would lobby the European Council and the Council of Ministers very strongly to widen that directive to include emissions that are equally important in terms of climate change and carbon dioxide. I beg to move.
My Lords, I have listened to the noble Lord with interest, having refreshed my memory of what was said in Grand Committee on this subject. I was amused by his description of the National Emission Reduction Plan. It is just as well it was not called the British emissions reduction programme as the acronym would be even less attractive.
Following the debate that took place in Grand Committee, I too have tried to find out what lay behind the Minister’s reply. I found that there are some quite powerful arguments against what the noble Lord, Lord Teverson, proposes. There is a widespread recognition that the most efficient way to control CO2 emissions is at least to do so on a Europe-wide basis and eventually there may be a more international—a more global—system. At the moment, it is run through the EU Emissions Trading Scheme. That is what the Government, against much criticism in which I have not joined, have taken as the basis for how they will ensure that this country plays its part under that scheme.
Cap-and-trade schemes are the most efficient way of achieving that. That is the ETS. The noble Lord mentioned the Stern report, which I quote to support my case rather than his. It emphasises the importance of using market instruments to reduce CO2 emissions and states:
“In practice, cap-and-trade systems … control the overall quantity of emissions, by establishing binding emissions commitments. Within this quantity ceiling, entities covered by the scheme—such as firms, countries or individuals—are then free to choose how best—and where—to deliver emission reductions within the scheme”.
In effect, I think that is the basis of the argument against individual cap and trade.
I understood what the noble Lord said about refrigerators, cookers and so on. You have a system of graduated test approvals. Like most people, we have just had to replace a dishwasher and we got an A-rated one because that is the most energy efficient. However, it is quite impossible to run power stations like that. Within the system as a whole, the noble Lord made the point that a power station which emits CO2 means that everyone else has to cut their emissions by more. The answer is if it is emitting too much CO2 it will be uneconomic because of the way in which the Emissions Trading Scheme works: it will have to pay very large charges on that, therefore, it will be less competitive than those which do not emit. In a sense, nuclear power is bound to become much more effective because it has a very low emissions trajectory.
I think Stern supports the case I am making, rather than the case made by the noble Lord. Emissions standards will also add to regulatory risk as the ability of regulators to change standards progressively will create additional uncertainties.
I have also heard it suggested that if what the noble Lord suggests were to become law, it would promote a second dash for gas, because that is a relatively low-emission technology, at a time when, as we all know, we are going to import more and more gas from increasingly unreliable sources. I find myself coming down against the noble Lord’s amendment, and I hope the Government will share my view.
My Lords, I hope the Government will not share that view because if the increased numbers of coal-fired power stations that are looming in the wings come forward, we will experience probably the greatest failure of the EU ETS and British energy policy for a considerable number of decades. I find it inconceivable that, when climate change is clearly the biggest threat and is an acknowledged part of government policy, we are even contemplating the idea of a number of coal-fired power stations when carbon capture and storage is an untested remedy and, even if it comes on stream, it will be possibly 10 to 15 years away. We know from the work of the climate change committee and from previous reports that the important thing is fast reduction of emissions. The 80 per cent target is important, but the most important thing is reducing total emissions in the early years. Having unabated coal technology coming on stream and pouring out carbon until such time as carbon capture and storage may come on stream will do nothing to resolve the problem that we have very little in the locker to reduce these early carbon emissions.
We have a failing of the EU ETS and of energy policy at this stage, although a number of things can happen. This amendment is one thing that needs to come into place. We need to get these early emissions down. The climate change committee highlighted the importance of decarbonising the power sector by 2030 and, as the noble Lord, Lord Teverson, said, many of these capital-intensive investments in coal-fired technology will be here for the next 40 to 50 years. Where will we be in 2030 if we still rely on coal-fired technology? If by then the EU ETS has made them uneconomic, are we seriously suggesting that investors should put their money into a technology that we know that economics will knock out of the market within the next 10 or 20 years? I do not think that is a wise proposition for the investment market.
What do we need to do? It is not unknown in the rest of the world for emissions performance standards to be brought in. They have them in some of the US states, Canada, New Zealand and Denmark. The noble Lord, Lord Teverson, raised the large combustion plant direction, for which, until recently, I was the regulator. It has emissions standards for a variety of pollutants, excluding CO2, and the coal industry accepted that as inevitable. The noble Lord, Lord Jenkin, put forward the idea that there is regulatory risk from ratcheting up standards, but business is well used to that from a string of European directives over the past 20 years and, provided it gets enough warning of ratcheted-up standards, it is relaxed about them.
The noble Lord, Lord Jenkin, quoted the noble Lord, Lord Stern. I shall quote in the opposite direction. In his original report, the noble Lord, Lord Stern, stated that:
“Carbon pricing alone will not be sufficient to reduce emissions on the scale and pace required”,
“In this transitional period, while the credibility of policy is still being established and the international framework is taking shape, it is critical that governments consider how to avoid the risks of locking into a high-carbon infrastructure, including considering whether any additional measures may be justified to reduce the risks”.
We are clearly running the risk of locking ourselves into a high-carbon infrastructure. The Government need to take additional measures. The amendment would be one of them, but they should do other things as well. If clean coal is genuinely a global technology that we must embrace because other countries will continue to rely on coal, let us look at ways in which we can accelerate the carbon capture and storage proposition both at a European level, where it should be accompanied by a directive, a timetable and a funding plan, and at a UK level, with our demonstration projects.
We need to ensure that the lights are not turned off by looking at how we deal with the energy gap and at the energy security arguments. A considerable amount of work is being done that shows that if we were serious about the energy efficiency and renewables policies which the Government have adopted, there would be sufficient energy to meet UK base-load capacity in the delicate periods between 2012, 2015 and 2025.
The Institute for Public Policy Research produced a recent report called After the Coal Rush—I declare an interest as a trustee of the institute—which looked at the policy options for coal-fired electricity generation. Its view was that if the government strategy for meeting the renewables targets and the energy efficiency targets were achieved, the commercial case for conventional base-load coal was extremely weak. The arguments are clear. We are in a weird position in which the only propositions that are being made apace are for the most carbon-intensive energy-generation methodologies that will be set in concrete for 40 to 50 years, and I commend the Government to think very seriously about whether an emissions performance standard for all new generation should be put into place. It would not be wildly out of kilter with policies elsewhere in the world.
My Lords, I find this somewhat embarrassing. I fear that I am not going to agree with my good friend, who is sitting behind me and who has such knowledge on these subjects. I hope that he will forgive me.
As I said in Committee, we support the amendment. An emissions performance standard would send a clear and much needed signal to the market about the future direction of UK energy production. It would prevent any more wobbles in the Government’s commitment to their CO2 reduction targets and to the recommendations of the Stern review—wobbles that would result in unabated coal plants being given the go-ahead. I believe that six are being considered. It would also encourage the long-term investment in carbon capture and storage that is needed if the UK is to develop the technological expertise that will become ever more critical as climate change moves up the international agenda.
The Government explained in Committee that they supported a carbon cap only when it was applied at an EU level. Their argument was that a cap delivered through the EU Emissions Trading Scheme, the level of which is of course decided with the involvement of all EU members, would result in a credible and effective framework for the reduction of CO2 emissions, but that a cap on individual UK power stations, set entirely at the discretion of the Secretary of State, would lead to a crisis in our energy supply.
As the noble Lord, Lord Stern, warned, the ETS will not make a sufficient impact on the power generation sector soon enough to prevent us from being locked into a high-carbon infrastructure. Why have the Government decided to ignore his recommendation that they take further steps to prevent this from occurring? Other countries have seen the danger of allowing new unabated coal-fired power stations and have imposed moratoriums of various sorts, so why not us, as the noble Baroness, Lady Young of Old Scone, has just said?
In further discussions, the Government have suggested that an emissions performance standard would be of no value because it would not automatically lead to the reduction of CO2 emissions from other EU countries. Will the Minister explain the value of the Government’s commitment to making all schools zero-carbon by 2016 and to reducing carbon emissions immediately in newly built schools by at least 60 per cent? Such policies will not directly improve the carbon emissions from other building development and will of course impose a cost on the taxpayer. Yet, in this example, the Government thought it worth while. I look forward to the Minister’s response and I hope that he will be more receptive to this enabling power than he was when it was last discussed.
My Lords, this has been an important and fascinating debate. Let me make it absolutely clear that the Government, the noble Lord, Lord Teverson, and other noble Lords who have spoken are of one mind. Of course we want to have effective mechanisms in place for controlling carbon dioxide emissions. The point of difference between us is the mechanism by which we achieve that. The noble Lord indicated that we need a range of mechanisms to tackle climate change and his amendment is structured around one dimension of that approach, but the Government’s position is in line with that expressed by the noble Lord, Lord Jenkin, which is that we have the right mechanism for tackling CO2 emissions through the European Union ETS. The scheme will ensure that emissions are capped at EU levels and that the industry has the incentive to make reductions.
The mechanism is the point of difference between us. The noble Lord, Lord Teverson, supported by the noble Baroness, Lady Wilcox, in her contribution from the Front Bench opposite, has said that we should deal with this in terms of individual power stations and new build. I listened carefully to the noble Baroness, who reinforced the argument put forward by the noble Lord, Lord Teverson, but we must not be facile about the issue of energy production in this country.
Earlier today my noble friend responded to a Question that expressed anxiety about the margins on which we operate in terms of electricity generation in this country. The noble Lord, Lord Ezra, who tabled the Question, said that he had been asking it at around this time for four or five consecutive years; indeed, I can recall that I was obliged to furnish him with an Answer on at least three occasions. What he identifies is that the margins are a good deal narrower than they were a decade or two ago. That is for good reasons in so far as we are more cost-effective in our energy production, but that does not alter the fact that we must have due regard to the energy that we require—we cannot get into a position where there is a risk to supply. The whole House will appreciate the fact that inevitably, with the decline of the resources of North Sea oil and gas that we can control, we are dependent on imports, which means that we must consider the issue of security of supply.
My Lords, that is certainly so, but the noble Baroness will appreciate that we are rather more secure in our sources of supply of coal to this country than we are in other sources, particularly of imported gas. We have had difficulties in recent years because effectively we are at the end of the pipeline for Russian supplies and we all remember the enormous tensions that built up two years ago when market imperfections caused the price of gas in the United Kingdom to rise very high indeed. All noble Lords will be greatly concerned about energy costs at the present time and particularly how they impact on the less well-off in our community. These are real issues, to which there is no single easy solution. We cannot jeopardise the electricity generation resources that we have.
Of course I agree with the noble Lord, Lord Teverson, about the necessity for the cap, but he wants to put the cap on greenhouse gases on particular productive units and I want a cap that applies at the level of the economy. The Government maintain that this is the most marked and effective way in which we will be able to apply costs to productive techniques that have a high carbon content. It is the basis of the Government’s approach to this issue.
We appreciate that this country cannot tackle on its own the issue of controlling carbon dioxide and getting effective reductions; it clearly needs international action. That is why we invest such a great deal of our commitment in the EU Emissions Trading Scheme. The noble Lord has to face up to the fact that, with his proposal, he may merely control certain kinds of electricity generation in this country, with the option of the use of coal—and the carbon that that represents—being taken up by other countries, with no net advantage, therefore, either to Europe as a whole or the world in its entirety; it would merely transfer the potential of power stations.
Of course we are committed to meeting greenhouse gas reduction targets. The Climate Change Bill, which the House debated earlier this year, means that the United Kingdom will be the first country in the world to set a framework for achieving carbon reductions through legally binding targets and carbon budgets. The noble Lord, Lord Teverson, and the noble Baroness, Lady Young, with her particular knowledge of the matter, referred to the large combustion plant directive. The directive does not include CO2—it concentrates on sulphur dioxide, nitrogen oxide and other noxious substances—because the European scheme for CO2 emissions provides a framework for dealing with that dimension. It sets Europe-wide greenhouse gas emissions targets but allows companies to identify the most cost-effective means of delivering them.
My Lords, the EU ETS has provisions to include the other greenhouse gases, including some of the greenhouse gases contained in the large combustion plant directive. If one was consistent in the argument that the Minister has just used, one would have CO2 as part of that directive.
My Lords, we regard the Europe-wide ETS scheme as effective, with the capacity to meet the powerful and important objectives that we have established. I was emphasising that not only are we in the lead on these issues but, only this year, we announced that we intend to reduce emissions by 80 per cent of the 1990 baseline by 2050. It has met with much approval across the nation and across all parties that the Government have stiffened these targets and objectives. There is no questioning the Government’s good faith in terms of their objectives; we merely disagree with the noble Lord about the methods by which we attain the targets that we have set out to meet.
The ETS is at the heart of our global efforts to tackle climate change. We have worked with the EU Commission and other member states to ensure that in phase 3 and beyond, as we move towards that stage, it is strengthened and consolidated with increased transparency and improves stability in order to make it a more effective tool to tackle climate change.
The noble Baroness, Lady Young, and the noble Lord, Lord Teverson, referred to the fact that similar regulations to the one enjoined in the amendment obtain in California. There are aspects of the development of these issues in California which we all applaud. Several cities in California have, if not blazed a trail, then set a lead in terms of the way in which cities can respond to carbon pollution. These initiatives obtain in California because they do not have a scheme such as the ETS. The very fact that there is no overarching policy or framework means that they are obliged to pursue these extremely interesting initiatives, none of which I would do anything but applaud. The noble Lord says that the Californian experience ought to be translated to the British one, but we are operating in an entirely different context and the analogy does not hold.
The amendment is clearly targeted at energy generated from fossil fuels and at coal in particular. For the foreseeable future, fossil fuels are bound to play a part in the UK energy mix. That is why the Government’s existing framework for tackling carbon emissions is the right one and why the development of the new fossil fuel power stations can be compatible with an overall drive to reduce emissions. The noble Lord says that this will mean other parts of the economy bearing the strain. That may well be the case; in fact, the noble Lord is right—it is the case. That is against a background of the Government’s proper regard for the security of energy supply. In order to reach that target and offer that security—and I cannot think of a greater obligation upon Government than to foresee for the future the guarantee of energy supplies—these compromises may need to be made. That is the concept behind the trading scheme: it gives the opportunity for balance within an economy rather than suggesting that the issue can be tackled by action against one particular source of pollution.
The noble Lord, Lord Jenkin, referred to the danger of a potential dash for gas if coal is closed down. We would have to look at other energy sources as alternatives. Studying the recent history of gas—its prices and the security of supply—would surely counsel us against repeating the concept of a dash for gas when the dash would be not for our indigenous resources, as in the 1980s, but for gas that is supplied in rather different circumstances and from very limited sources.
The Government share all the objectives that the noble Lord expresses when he says that this is what we need to achieve. He says that the amendment is directed towards that, but it is not acceptable to the Government. We believe that a strategy limit on carbon dioxide emissions from individual new fossil fuel power stations would not give us additional help in our efforts to reduce greenhouse gases; on the contrary, the effect would be to constrain the possibilities for delivering the diverse energy mix that the UK requires for ensuring the security of supply. That is an important dimension. It does not mean at all that the Government are doing anything else except meet, in an intensified form, the objectives that have been set, originally in terms of the Stern report but also of targets that the Government have indicated they are prepared to increase and substantiate. I hope that the noble Lord will therefore appreciate that we are discussing means to an end when we share those objectives, that he will accept that the Government have clearly identified the necessary means for the nation and that he will withdraw his amendment.
My Lords, I thank the Minister for that interesting reply. I know he did not mean to, but he misrepresented my argument to a large degree, in that I am one of the House’s greatest advocates of the EU ETS. However, as most environmental reports say—including, I believe, the Stern review—it is not the only instrument that needs to be used.
I did not mention California; I meant to, but I forgot. I am glad the Minister did, though, because when I was on the climate change committee for the draft Bill we received evidence from California. One of the main objectives there was to introduce, along the west coast of the United States and into British Columbia and other western provinces of Canada, an emissions trading scheme based on the EU ETS, which is seen as the leading international cap-and-trade system. It is a priority of California to introduce such a system for carbon emissions in addition to, not instead of, a regime for regulating emissions standards for its power stations. It sees the need to have more than one policy instrument in this area.
I was interested to hear the arguments of the noble Lord, Lord Jenkin. Normally I treat his advice and comments very positively, but one of the few issues I disagree with him on in this area is the “dash for gas” argument. I was surprised, too, that the Minister used it. It is clear that the reason there might be another dash for gas is that coal will not be able to be used so much. But that is exactly the purpose of the EU ETS; there is no difference between the outcomes of this instrument and the EU ETS, particularly as the Government themselves wish to put carbon units out for auction for the energy industry. That will have exactly the same effect in terms of any preference for construction of gas powerhouses as emissions standards regulations will have.
With regard to uncertainty, I have agreed many times with the noble Lord about the fact that carbon pricing has been so variable that that is very unuseful to industry and long-term investment in terms of carbon pricing and the decisions it has to make. We accept that. It is one of the problems in terms of a market-based EU ETS, but we know it is the right way to go. With regard to government regulation, you can give signals to industry with either a stepped regime or announcing well ahead, as happens in the automotive and many other industries; those show much more clearly than pricing mechanisms what is expected of it in the future. When it comes to major investment, what will concern the power industry is not the major regulations that go through a proper consultation procedure, start at a particular time in the future that is reasonable and have sensible stepping thereafter. That is not generally an issue with industry; rather, this is about the unknowns and the risk factors. As I said previously, one of the issues that came out of the Stern review was that you cannot have just one policy instrument for various areas: you need more than that.
We talked earlier about carbon capture and storage, and the noble Baronesses, Lady Young and Lady Wilcox, were right in saying that sensible, future regulation will stimulate carbon capture and storage investment far more than the competitions that we have been talking about.
Lastly, I think that the Minister missed my final paragraph. In his response, he said that there was a problem; that such action needed to be taken at a European level; and that there was a risk that if we went ahead with the proposal, energy from elsewhere in Europe might undermine our own industry. I made an offer to the Government accepting that, saying that one of the ways out was to give a commitment to use the national emissions reduction plan and the large combustion plant directive, and to take it on in the Council of Ministers. That meets the Minister’s point exactly and, in a way, I would accept that as at least an act of good faith towards my proposal.
I believe that this issue is fundamental to the way in which we move forward. It is related to investment in energy plant that will exist beyond our tight 2050 targets, which I welcome. I think that on this issue the Government need to bite the bullet and I wish to test the opinion of the House.