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Session 2005 - 06
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Standing Committee Debates

First Standing Committee on Delegated Legislation

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First Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


†Mr. Eric Illsley

†Abbott, Ms Diane (Hackney, North and Stoke Newington) (Lab)
†Barlow, Ms Celia (Hove) (Lab)
†Barron, Mr. Kevin (Rother Valley) (Lab)
†Bruce, Malcolm (Gordon) (LD)
†Davidson, Mr. Ian (Glasgow, South-West) (Lab/Co-op)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
†Fabricant, Michael (Lichfield) (Con)
†Francis, Dr. Hywel (Aberavon) (Lab)
†Gibson, Dr. Ian (Norwich, North) (Lab)
†Jenkin, Mr. Bernard (North Essex) (Con)
Lamb, Norman (North Norfolk) (LD)
†Laxton, Mr. Bob (Derby, North) (Lab)
†Penning, Mike (Hemel Hempstead) (Con)
†Vaizey, Mr. Edward (Wantage) (Con)
†Villiers, Mrs. Theresa (Chipping Barnet) (Con)
†Wicks, Malcolm (Minister for Energy) (Lab)
Mrs Emily Commander, Committee Clerk

† attended the Committee

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Monday 4 July 2005

[Mr. Eric Illsley in the Chair]

Draft Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005

4.30 pm

The Minister for Energy (Malcolm Wicks): I beg to move,

    That the Committee has considered the draft Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005.

These eagerly anticipated draft regulations, made under the Pollution Prevention and Control Act 1999, are designed to provide a statutorily based requirement for the United Kingdom offshore oil and gas industry to continue to reduce the quantities of oil discharged into the sea during offshore operations. To give the Committee an idea of the quantities that I am talking about, I am advised that, in 2003, 5,190 tonnes of oil were discharged in 266 million tonnes of water. The draft regulations achieve our objective by introducing a more robust and effective approach to the management of oil discharges.

Some background to what is inevitably a fairly technical set of regulations might be of help to the Committee. Virtually all oil discharged into the sea as a result of offshore oil and gas exploration and production activities is contained in the water that is produced in conjunction with the oil. Although the total amount of oil discharged is comparatively small when compared with inputs from rivers or an event, such as a tanker casualty, the Government believe that the time has come to introduce regulations that will encourage industry’s efforts to reduce further the volume of oil discharged.

As the Committee might be aware, since United Kingdom oil production first began in 1975, oil discharges have been regulated under the Prevention of Oil Pollution Act 1971. That Act was implemented to regulate either accidental or intentional oil discharges from shipping. Although the Act anticipated oil exploration and production, the Government believe that it lacks the necessary flexibility to cope with the nature of today’s environmental demands. Those demands arise as a result of changing environmental attitudes in the United Kingdom and among contracting parties to OSPAR, the Oslo/Paris convention for the protection of the marine environment of the north-east Atlantic. The new regulations are therefore required to remedy the deficiencies of the 1971 Act and to give the United Kingdom more wide-ranging powers to fulfil its national and international obligations.

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Members of the Committee might have seen from the regulatory impact assessment that there are four reasons for making the regulations, the first of which is to introduce a more comprehensive definition of oil to include all relevant materials likely to be encountered in offshore oil and gas exploration. The current definition of oil under the 1971 Act is now inadequate. In the 1970s, oil pollution risks centred on spillage of crude oils and fuel oils from shipping, which could lead to pollution of coasts and wildlife.

The introduction of offshore oil production in 1975 led to a wider range of operations and oil types, including operational discharges, but with a lower overall risk. The spillage of crude oil from offshore installations is still a risk, and the regulations clearly address that issue but, for example, the discharge of water containing low concentrations of oil also merits control. The more comprehensive definition of oil under the draft regulations will allow discharges of all types to be addressed.

The second reason for the regulations is to provide my Department’s offshore environment inspectors with stronger and more explicit inspection, investigation and enforcement powers in the event of unlawful oil discharges or potentially hazardous operations. Inspection powers under the 1971 Act were mainly written for shipping operations and, over the years, many investigations relating to offshore installations have been possible only with the co-operation of the various parties involved. Powers of inspection need to be made more explicit and tailored to offshore installations. The draft regulations will confer powers on offshore inspectors to conduct inspections, including routine monitoring and to carry out investigations following an incident. The regulations will also allow offshore inspectors to issue written notices to offshore operators specifying action that should be taken to minimise the risk of pollution.

The third reason for making the regulations is to introduce a permitting system for operational discharges, which will replace the issue of exemptions under the 1971 Act. A permitting system is seen as a readily understandable and positive means of control. Operators of offshore oil and gas installations will be required to apply to my Department for permits to cover all operational discharges of oil. It will, of course, be an offence to discharge oil without a permit, or in contravention of a permit’s terms and conditions.

The final reason for making the regulations is to authorise the setting up of a trading scheme for dispersed oil in produced water from 1 January 2006. That will help us to achieve our OSPAR target, which for 2006 is a 15 per cent. reduction in the volume of dispersed oil in produced water discharged in 2000. It was agreed with the industry that the most effective way of achieving the target was to introduce a trading scheme. One document that the Committee will have seen is the rules of the scheme, which set out in detail how it will operate.

The regulations require operators of offshore installations to report all discharges of oil into the sea. That obligation extends to discharges permitted under the regulations and to accidental spillages. Accidental
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discharges or instances of a breach of permit conditions will be required to be reported immediately, and all such incidents will be subject to a formal review with a possibility of a full investigation. An investigation may result in prosecution if the discharge is considered to be wilful or negligent.

Of course, there has been wide and extensive consultation on the drafts of the regulations, the trading scheme rules, the accompanying guidance notes and regulatory impact assessments. Meetings have been held with representatives of the industry and environmental groups. Most of the comments received related to the guidance notes and were constructive, supporting the trading scheme. The guidance notes are, of course, in their final version, but experience of implementing new regulations has proven that further questions requiring amendment will doubtless arise. Any further amendment will be agreed with the industry beforehand. In addition, the trading scheme rules can be changed in light of experiences following consultation.

In line with the Government policy that all new regulations should involve charges to cover the cost of their administration, the consultation addressed the issue of costs in detail. The permitting process and trading will be carried out electronically to reduce the administrative burden. The industry does not consider the proposed costs excessive. It has been agreed that they will be reviewed with the industry, following a period of operation, and adjusted as and when necessary. In putting together the regulations, we have sought to keep the burden on the industry to a minimum, and I believe that that has been achieved.

4.37 pm

Mr. Bernard Jenkin (North Essex) (Con): It is a pleasure to serve under your chairmanship, Mr. Illsley, and I hope that the Committee need not detain you too long; I do not think that the regulations are too controversial.

In this day and age, we are all against regulation in principle, although in practice we find ourselves supporting particular regulations that are a necessary adjunct to health and safety, environmental protection and so on. These regulations are no exception to that. I make no apology for questioning the Minister about them, because it is a feature of the North sea oil industry that the greater the burden of regulation and taxation on it, the more quickly its oil will run out. That may seem a strange thing to say, but the more marginal production will only be extracted if it is economic to do so. The more expensive marginal production is to extract and the more taxation and regulation applied to the North sea, the more marginal production will be left underground and not extracted. If we are looking to the long-term viability of the industry and the best-case scenario for the run-down of our North sea oil assets in future, we will want to keep the burden of regulation to an absolute minimum.

I point out that the current legal limits for oil that is permitted to be discharged into water is 40 parts per million. That, to the layman, seems a very slight
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concentration. Despite that, the industry has imposed an average of just 20 parts per million, which demonstrates, to its credit, how merely the threat of regulation—certainly no absolute regulation—can still see an industry taking its environmental responsibilities seriously for the benefit of the environment.

First, will the Minister explain what damage this diluted discharge causes, because it is not something that any environmental group has lobbied me about? In fact, I would be interested to know if any Committee member has been lobbied about this slight concentration of oil in what is known as produced water discharged into the North sea. Having said that, however, I regard 5,000 tonnes per year as quite a large amount of oil.

Secondly, by how much will the oil discharge be reduced by the application of the regulation? At no point in the explanatory information that the Minister has helpfully provided to the Committee is the figure, which he mentioned earlier, given relating to the quantity of oil produced and discharged in this way, nor is there an indication about how effective the regulation will be. We are about to impose some considerable extra costs on the industry about which it has expressed some concern to me, although it is not objecting to the regulation in principle. How many bangs are we getting for our buck? Can the Minister explain whether the figure is to be reduced to 4,000, 3,000 or 2,000 tonnes?

The cost of administering the scheme will be £693,000 to the public Exchequer, but I imagine that the cost of administering the scheme for the industry will be considerably higher than that. The permit trading scheme will entail a cost that will not be shown in the Government’s figures. What is the total cost of the regulation and what is the total reduction in oil discharges that we are hoping to achieve? One might then arrive at a useful figure and find out how much it will cost for one tonne of discharged oil, according to the costs in the regulation. If the Minister cannot answer those questions, he has not provided the information that the Committee needs to evaluate the effectiveness of the regulation.

I will not press the Minister to a vote on this issue, but it would be bad practice for a Government who say that they are in favour of less and better regulation to whack through a regulation whose positive effect we do not know, or what the cost per tonne of oil not discharged will be as a result. There might be many things that we could spend the money on that are more effective in the environment than achieving a marginal reduction in oil discharges into the North sea at disproportionate cost.

Will there be some review process of the regulation when it comes into force, perhaps a year or two down the line, so that we can measure its effectiveness? There may not be any serious consequence of such a diluted discharge among so many billions of tonnes of water, which naturally dissipates in the North sea. There may not be so serious an environmental problem that it needs to be tackled in this way.

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4.44 pm

Malcolm Bruce (Gordon) (LD): I, too, welcome you to the Chair, Mr. Illsley. I do not intend to delay the Committee unnecessarily, but I want to follow up the questions that have already been asked, partly to back them up and to probe a little bit further.

On reading the proposals, it is not clear who has raised the concern about the current level, as the hon. Member for North Essex (Mr. Jenkin) said. One might argue that no oil should be produced, but that, of course, is not feasible. The industry has achieved a 33 per cent. reduction in six years and has been asked to achieve another reduction of 15 per cent. between 2000 and 2006. The industry has expressed the view that that will cost it in excess of £100 million.

The Government’s own briefing notes suggest a figure of up to £130 million, but then say that most of that would have been incurred by the companies in any case, a point that does not seem to concord with the briefing provided by the industry to Committee members. That seems to imply that meeting the regulation would involve an additional cost that could exceed £100 million. We have no clear indication of why the regulation is needed, other than the fact that it is nice to have good environmental regulations and minimal pollution.

In his opening remarks, the Minister acknowledged that there is the bigger problem of oil being discharged from rivers into the North sea. What action is he, or are his colleagues in other Departments, taking to deal with that? The briefing notes refer to the fact that the impact study did not consult small businesses, claiming that no small businesses are involved with the North sea. I assure the Minister—he already knows this—that many small businesses are so involved, and that a significant additional cost on a few operators could have unintended consequences for other areas of contracts or business and thereby could affect small businesses.

I should declare an interest. As Committee members will know, my constituency of Gordon covers the northern part of the city of Aberdeen and its hinterland and houses BP’s North sea operational headquarters. Many, many thousands of my constituents depend on North sea activity for their livelihoods. A $50, $60 or $70 oil price makes for a lively market. What consideration have the Government given to the oil price in applying the regulation? Nobody at the moment is forecasting this, but not that many years ago the oil price was $10. At that price—or at a price higher than that, but lower than the present one—such regulations can start to have a real effect. In other words, they can cost jobs and contracts.

It is very important that the Minister demonstrates that his Department understands the competitiveness of the industry internationally. The OSPAR convention includes Norway; by definition, because it is the Oslo-Paris convention. For our purposes, Norway is the main comparator, although there are operations in the Dutch and Danish sectors. What standards are being applied in the Norwegian sector? That would be a direct comparison.

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I understand that the industry has no objection in principle to the permit system and acknowledges that that is a fair and reasonable method of control, but it is concerned about the imposition of a target that seems not to have come from any external justification or analysis, and is simply a figure that has been produced.

I welcome the Minister to his post, and I hope that he will be there for longer than his predecessor. He is an able Minister and a quick learner. However, the energy industry—the oil and gas industries in particular—has many big issues. It is frustrating to have spent time working with Ministers and getting a good rapport with them, only to find that they move on and that that whole process has to begin again.

Will the Minister have a word with his colleagues in the Ministry of Defence and ask whether they can justify their plans to close the met office in Aberdeen? It is a major provider of information to the oil industry. [Interruption.] I shall not stretch beyond the bounds of order, Mr. Illsley; I have made the point.

I hope that the Minister will correspond with the hon. Member for North Essex in good faith. We are entitled to ask about the justification for the regulation. Does the Minister accept the cost implications? Will he review them? How do they compare to the conditions applied on operators in other comparable sectors, particularly the Norwegian sector?

4.50 pm

Malcolm Wicks: Our discussion has been brief, but it has also been useful, and it is appropriate that the regulations are subject to this kind of scrutiny.

I am not responsible for how long I stay in post—the Opposition may have some responsibility for that in the future—but it is my understanding that the term renewables should not always apply to Ministers. However, in my early weeks in this post, I have had a good deal of contact with the North sea oil industry. When I visited the Elgin Franklin field as a guest of Total, I was tremendously impressed by everything, including the skills of the work force and the commitment of the company, not least to having as clean an operation as possible. People understood that the new targets were demanding, but on the day that I visited I did not encounter any real opposition to the idea that we should try to keep our seas as clean as possible. I will say a little more about that shortly.

The hon. Member for North Essex properly made the point that we should do all in our power to ensure that future exploitation of the UK continental shelf is as effective as possible, not least in the North sea. Since arriving at the Department, I have been impressed by the way in which the country and the industry are working closely together through the PILOT partnership, which I chair. We are regularly in dialogue with the industry about how we can effectively exploit the North sea, and it is a partnership that is working. Some people talk about the North sea being in decline, and it is clear that the amounts of oil and gas coming from the North sea are falling, but this
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is a major British industry that will be around for several decades to come, and I have been impressed by what I have seen.

I have been asked about the evidence for what damage there is and why we are doing this. There is no great body of scientific evidence to show that this amount of oil being spilled or returned to the sea in this way is greatly damaging. We are trying to achieve a very high standard, and I have been impressed by the fact that many in the oil industry agree with it. Also, the UK has signed up to an international target aimed at reducing the volume of oil discharged into the sea, and we are committed to achieving that target. The oil companies are also committed to constant environmental improvement. We are working together to achieve these aims. Therefore, I agree that we are trying to achieve a high standard when the scientific evidence is not clear-cut, but in this day and age I do not think that we should apologise for trying to achieve a target that is impressive.

Mr. Jenkin: If the Minister had another £100 million in tax revenue available to hand out to clean engine technology projects or renewable energy research, he would not give that £100 million up lightly. However, on the basis of not very much evidence he is requiring the industry to give up that amount of money, because that is what it will have to invest in order to comply with this regulation.

Malcolm Wicks: I have admitted that we are aiming for a high standard, and I have said that we are not alone as there are international obligations that we need to abide by. I am advised that we are aiming for a 15 per cent. reduction to be achieved, which amounts to a total reduction of 900 tonnes. We are not anticipating further reductions at present. I hope that that answer gives the hon. Gentleman some of the information that he seeks.

I have said that our regulations, and particularly the rules that come into force under them, will be kept under review. That is not the normal Whitehall phrase; it will be an active review with the industry. The overall position will be reviewed by OSPAR in 2008, when we will consider what further action might be required. I
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am advised that the cost to the industry of the equipment it will need to put in and so on is about £130 million, which is not an insignificant sum. However, the industry is investing large amounts of money and is proud of the investment that it is making in the North sea.

I think that I have dealt with most of the points, except those on Norway, which represents the obvious comparison in terms of the North sea. I am advised that Norway is subject to the same OSPAR reduction target of 15 per cent. by 2006 measured against a 2000 baseline. Norway will also be required to reduce oil level to 30 parts per million. That will also be introduced in 2006. Although Norway might be achieving the objective in a different way, it also has the target.

Malcolm Bruce: The briefing notes that I received suggest that Norway’s performance is lower than ours and we are therefore imposing a deeper cut on a lower base. The industry says that the average we are talking about is 20. The hon. Member for North Essex made that point. If the average is 30 in the Norwegian sector and 20 in the British sector but we are both imposing a 15 per cent. reduction, clearly we are being a lot tougher on the industry than is the case in the Norwegian sector. That is the way it appears.

Malcolm Wicks: May I consider that and write to the hon. Gentleman about the comparisons with Norway, so that the data can be set out and made available, and we can ensure that we compare like with like? I know that some of these things depend on the length of time that oil fields have been in operation, in terms of the quality of the materials.

Given that we have had this useful debate and that I have promised to come back to the hon. Gentleman on the Norwegian point, I hope that the Committee will agree to pass the regulations.

Question put and agreed to.


    That the Committee has considered the draft Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005.

Committee rose at three minutes to Five o’clock.


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