Clause
4
Applications
Question
proposed, That the clause stand part of the
Bill.
Malcolm
Wicks:
On the Government side of the Committee there is
probably a hackneyed new clause 4 quip, but I will not make it. The
clause makes provision for the Secretary of State to make regulations
under the negative procedure, which will set out who can apply for a
licence, requirements that must be satisfied by or in relation to the
licence applicant, how the application for a licence must be made and
the information that an application must contain any accompanying
documents. Additionally the regulations under the clause may require
the payment of an application fee, which will be assessed in line with
the Treasury’s fees and charges guidance. That is in line with
our other licensing regimes such as for oil and gas licensing under the
Petroleum Act 1998.
1.15
pm
Charles
Hendry:
It is a pleasure to serve under your chairmanship
this afternoon, Mr. Amess. The Minister will be delighted to
know that new clause 4 is in my name, but he will have to wait a little
longer for the chance to discuss that. I imagine that it will cause the
Labour party as much consternation and debate as the original clause
4.
The clause
that we are discussing seems very straightforward. It sets out who may
apply for a licence, what requirements must be met in relation to that,
the
manner in which the application should be made, the information that
should accompany it, and the fee. I wonder, however, whether the
Minister has also considered whether it should contain a reference to
the appropriate time for which a licence should last. I imagine that
there have been discussions about that in his Department. One would
clearly expect licences to last for a period of years, but does he have
it in mind that they should last for five, 10 or 20 years? Some
guidance on that would be
helpful. Also, what
about making stipulations with regard to who is responsible for the
maintenance of the facility? This would seem to be a good point in the
Bill at which to set those out. I should be grateful if the Minister
would respond to those two
points.
Martin
Horwood (Cheltenham) (LD): It is very good to be serving
under your chairmanship once again, Mr. Amess, at this
clause 4 moment. Perhaps you will permit me to rephrase a question that
I asked a little earlier, which is also directly relevant to the clause
that we are now considering, about a risk identified in the impact
assessment. That is the possibility that the time scale for
introduction of the licensing regime might act, in the words of the
risk assessment, as a disincentive to developers in the short term. The
impact assessment also raises again the possibility that the narrowness
of the licences will discourage innovation in storage
technology.
Perhaps,
bearing those two matters in mind, the Minister will suggest the time
scale on which the licensing regime is expected to come into force, and
reassure us that there will not be a slow grinding of the wheels of
Government, to the point at which the industry becomes disenchanted and
frustrated with the current, less adequate
regime.
Malcolm
Wicks:
The hon. Member for Wealden raised the question of
an appropriate duration for the licence. I imagine that that could vary
to an extent, but I am advised that we are talking about quite a long
time scale. Licences might possibly typically last for 40 years, or
something of that kind. There will be different issues perhaps for
carbon capture and storage, which we shall come to. I am hoping to give
the hon. Member for Cheltenham some advice on the question that he
raised this morning.
I was asked who would monitor
the regime, and the answer is that it would be one of our departmental
inspectors.
Mr.
Hugo Swire (East Devon) (Con): The Minister has just
informed the Committee that licences may be granted for up to 40 years.
Presumably the value of that licence will depend largely on what is
being licensed. For that period it might vary enormously, in terms of
supply, and so forth. What mechanism has been built into the licensing,
or indeed the Bill, that would allow the value of the licence to be
readdressed at any point while it was in
force?
Malcolm
Wicks:
I think that on that one I may need to come back to
the hon. Gentleman. There may be an opportunity later to consider that
matter.
Our general
approach is that once a licence is granted, although certain things may
change, we do not want to change existing licences retrospectively. I
have heard the question about the possibility that values may change,
and I will try to find an opportunity to return to the matter for the
hon. Gentleman. I think that I had also better find another opportunity
to return to the matter raised by my Liberal Democrat
colleague.
Charles
Hendry:
I wonder if the Minister will also provide greater
clarity on another matter. Is it his expectation that the licences will
be tradeable? If, for example, Exxon decides to apply for a licence to
store gas in one of these facilities, and then wishes to sell it on to
Conoco, could that happen in a straightforward way or would the licence
have to be returned to the Government and a new licence
issued?
Malcolm
Wicks:
Yes, they will be tradeable in that sense. From my
experience of this, through the pilot partnership with the industry, we
can see that some of the bigger players are phasing down their
operation in the North sea and some of the smaller more enterprising
companies are taking over the licences. The hon. Gentleman raises an
important point about the regulatory regime that we need to put in
place in practice as well as in principle. There is the idea of
“use it or lose it”. We need gas storage and it is
important that these facilities stay in
operation.
Mr.
Swire:
The Minister has gone some way towards answering my
original question. By definition, if these licences are tradeable, we
will need to establish a value at the time of trade. Will that be up to
the free market, or do the Government see themselves as having a role
at that
time?
Malcolm
Wicks:
It has to be up to the market within the regulatory
framework. If the hon. Gentleman is asking whether we would put forward
certain ideas about costs and prices, I would say that those are not
things for us to decide. Such things are always best left to the
market.
The hon.
Member for Cheltenham asked what the risks and disincentives were in
delaying the legislation. We expect the first application for licences
to take place in January. We understand that on the back of our
proposals, potential developers are already preparing their
applications. I hope that those words reassure the Liberal Democrats
that we intend to move very
quickly.
Question
put and agreed
to.
Clause
4 ordered to stand part of the
Bill.
Clause
5
Terms
and
conditions
Question
proposed, That the clause stand part of the
Bill.
Malcolm
Wicks:
It might be helpful if I briefly
introduce the clause. It makes provision for the Secretary of State to
grant a licence on such terms and conditions as he or she sees fit. For
the most part, standard terms and conditions will be appropriate to all
licences of a
particular type. Others might be peculiar to the circumstances of a
particular licence. The conditions will seek to ensure that appropriate
environmental protections are in place, or they will provide for the
licensee to submit information to the Department to enable it to
perform its regulatory functions. For example, the conditions may place
an obligation on the licensee to undertake the licence activities in a
way that does not interfere with other uses of the sea or the sea bed.
The licence may include a duty to consult and to maintain effective
communication with fishing interests, or to refrain from activities
that unjustifiably interfere with navigation or fishing interests. We
will consult fully on the proposed standard terms and conditions and
hope to start this consultation in the summer. When making regulations
prescribing model clauses under clause 6, there will be an opportunity
for interested parties to put forward their views before the regime
comes into effect.
Mr.
Brian Binley (Northampton, South) (Con): May I say what a
pleasure it is to serve under your direction, Mr.
Amess?
Although I
welcomed the support of the hon. Member for Glasgow, North-West on an
earlier occasion, I took some exception to the fact that he was happy
that companies could afford a bob or two with regard to the provisions
on licensing. The truth of the matter is that the Committee would be
doing a disservice if it did not take into account the need to preserve
good cash flow in companies. That means that they do not want to tuck
away resources when it is unnecessary to do so. Companies need to use
all their resources to the best possible advantage. Those two
considerations alone—and there are many others—overtake
the comment about this being just a bob or two. I hope the hon.
Gentleman will forgive me, but I felt that I needed to get that on
record.
I understand
the need for a financial security test with regard to the financial
standing of certain licensees when that test suggests that their
ability to meet their obligation may be at risk. However, we need to
temper that with an understanding that this should not be an automatic
presumption to ensure that companies do not make unnecessary financial
provision over a sizeable period of time. That would tie up financial
resources that I believe are necessary to develop what is a relatively
new industry. I know the Minister would not want that to
happen.
We know that
industry is going to have to pay a sizeable investment price if we are
to crack the question of global climate warming. We know that we have
to make several changes with regard to infrastructure, how we run our
businesses and transportation—the list is endless. I do not want
to tie up money unnecessarily in a Government holding somewhere that
detracts from the ability to move on to make the investment necessary
to deal with climate warming. I hope that the Minister will agree that
it should not be an automatic presumption that, during CO2
storage operations, there should be financial provision whereby
money is lodged and held right across the piece as a matter of ongoing
procedure.
I
ask that there is not such an automatic presumption. It would place a
massively onerous obligation on the balance sheets of companies and
take up significant capital. More importantly, it would be immensely
damaging to medium and smaller companies that might wish to
be involved. We need to get all the resources we can involved in this
procedure. The presumption would place a proportionally greater
disadvantage on those people than on the very big operators. I am sure
the Minister would want to be aware of that concern. I hope that he
will give me the reassurances that I
want. There
is considerable concern about the amounts that we might be talking
about to allay the risk, from the Government’s perspective. I
know from people to whom I have talked that if they do not know what
that financial implication might be, it might stop plans proceeding. We
need to know the amounts and the timings, so perhaps the Minister can
give us some thoughts in that
regard.
Finally,
there is a question of when it might become necessary to make some
financial stand-by to alleviate the risk from the Minister’s
perspective, which I understand. I have spoken about the considerable
financial cost involved and that will be particularly grave if it has
to be made at the time of the permit application. There is some leeway
to allow that provision to be made either before construction starts,
or before the storage operation itself starts. I ask the Minister for
guidance because this impacts on a number of organisations that might
wish to be a part of the infrastructure that the Minister is trying to
create, but could be put off by that lack of
knowledge.
Martin
Horwood:
Following on from what the hon.
Gentleman has raised, particularly in terms of the impact on smaller
companies that might wish to engage in this business, there is mention
in the impact assessment of Petroleum Act 1998 costs. I am not familiar
with the Petroleum Act, so perhaps the Minister could expand on what
that is based on. There is talk of a price for the licence of
£3,000, but a potential cost to the companies developing it of
£31,000 a project. I think that that underlines some of the
concerns that the hon. Gentleman might have had, although I remember
raising earlier the possibility of perhaps extracting a little more
money from those companies that are enjoying windfall
profits.
The other
points I was going to make were regarding some of the conditions that
might be attached to
licences.
1.30
pm
Mr.
Swire:
I think that it is the hon. Gentleman’s
party’s policy to do something about what he sees as levying a
windfall tax on the profits of the existing companies. He has just
stated that perhaps some of that money could be used towards helping
other companies to get into the business. Would not that be a strange
precedent, and is that really what he is trying to
say?
Martin
Horwood:
I was asking questions, not setting out party
policy—I should make that very clear. I was seeking a response
from the Minister on the potential funds available in the energy
companies for various
purposes.
The issue
that I wanted to address regarding this particular clause relates to
the conditions that are attached to licences, particularly those
relating to the environment. I was rather reassured by the
Minister’s promise of full consultation on the conditions, which
is
a very positive commitment, and I hope that there will be engagement
with many organisations that are concerned about the
environment. Earlier
today, the Minister talked about the environmental impact being
“paramount”—I think that that was the word that
was used. Is he able to expand on that? Does that mean that
environmental considerations will, in effect, supersede all commercial
considerations? Will considerations be attached particularly to public
health? The gases set out in the earlier part of this chapter of the
Bill make a rather explosive list. Presumably public health
considerations—in terms of leakage and so on—might be a
major consideration. Will those be the kind of things that might attach
to conditions?
What is the
type of time scale over which these conditions might apply, and how
flexible will they be if evidence of a public health risk or, indeed,
environmental damage, emerges? As we have established, we are talking
about time scales of possibly as long as 40 years for the operation of
these licences. If such evidence emerges, will the conditions attached
to the licences be flexible enough instruments to allow for action to
be taken to mitigate or eliminate those
risks?
Charles
Hendry
:
This clause seems very straightforward and
sensible, but the Minister’s opening remarks raise a couple of
questions in my mind, which I would be grateful if he could
answer.
In setting
out the sort of terms and conditions that might be relevant here, I
think that the Minister said that the installation should not interfere
with other users of the sea bed. I am not quite sure what he means by
that, so could he expand on it further? How will that be
achieved?
By
definition, I would have thought that putting hundreds of millions of
tonnes of concrete into the sea bed is going to interfere with what
goes on there. Who does the Minister have in mind? Other users of the
sea bed? Are these fishermen, trawlermen or other people who earn their
living in that respect? Otherwise, the thought going through my mind
that an assortment of crustaceans might be affected—crabs and
lobsters and so on—as users of the
seabed.
Malcolm
Wicks:
We will consult
them.
Charles
Hendry:
If the Minister intends to consult them, which
they will be incredibly relieved about, they will be able to go back
and say, “Well, on 21 February 2008, the Minister gave us an
assurance that we would not be interfered with.” Judicial review
has happened too often with energy issues
already.
Will
the Minister expand a little more on what he has in mind? Is this
something that he sees as being a permanent structure because there are
risks of things going calamitously wrong with some of these
installations? We are talking about combustible gases. Clearly, in the
event of an emergency, the lobsters would come out ready to eat. The
point here is that the Minister has flagged up an issue, but exactly
what he has in mind is far from
clear.
The
Minister has spoken about “use it or lose it”. Is that
one of the terms and conditions that he might have in mind? Is he
saying that if someone applies for a licence but does not actually use
it, it would be revoked? Perhaps the Minister will expand on his
thinking.
Will the Minister talk a little
more about the implications of clause 5 for decommissioning and, in
particular, whether he would use this as an opportunity to set out how
a facility should be left at the end of its operating life, and how it
should be decommissioned? What will happen about ensuring that
necessary funds are available to carry out that decommissioning work at
particular
installations?
Malcolm
Wicks:
This has been a useful discussion. Let me try to
cover some of the points that have been made. My response will probably
not be as coherent as I would like, if I had more
time.
The
terms and conditions that are likely to be in the licences include
placing an obligation to retain the gas within defined geological
boundaries, placing the operator under a general obligation to protect
the marine environment from pollution, requiring a licensee to obtain a
lease from the Crown Estate, and placing an obligation on the licensee
to undertake licensed activities in a way that does not interfere with
other users of the sea or sea bed—the hon. Member for Wealden
noted that remark in particular. What does that mean? There is a duty
to consult and to maintain effective communication with fishing
interests—not necessarily fishes themselves, I suppose, although
I had better be careful—to refrain from activities that
unjustifiably interfere with navigation or fishing interests, to deal
promptly with compensation claims, to give the Ministry of Defence
notice of installation movement and seismic surveys, and to maintain
and install underwater beacons to MOD specifications. Those are some of
the things that we have in
mind.
Mr.
Swire:
On the question of settling any insurance claim,
and if one subscribes to the enduring principle of the polluter pays,
will it be incumbent on companies applying for a licence—and
indeed being awarded an operating licence—to prove that they
have sufficient insurance to meet any claim for compensation that might
be made against
them?
Malcolm
Wicks:
Subject to further consideration,
that would seem eminently sensible. We will try to clarify that, and
there is ongoing discussion about the nature of the licences. I have
indicated some of the criteria and some of our objectives, but that was
a useful point.
In
terms of the point about use it or lose it, I made the comparison with
the UK continental shelf—the North sea—where we have
brought this in. I would guess that the matter is ultimately for the
Crown Estate, but we will be consulting on this issue, among others, in
due course. My judgment would be that on gas storage, for example, if a
company decided after 10 years that it wanted to enter another market,
it would seem sensible to ensure that where there was commercial
interest, another company would take that over, not least because of
national security
considerations.
I was
asked about the costs of licences and I think the hon. Member for
Cheltenham recognises that the difference is that the figure of
£3,000 or thereabouts could be for submitting the licence, which
covers the administrative costs to our Department. The larger fee
mentioned is just an estimate of the internal cost to the company of
preparing their application, and that needs
to be weighed against the potential benefits of up to £400
million to companies and the economy from such a
proposal. On
environmental considerations, when I use the word
“paramount”, I am simply saying we are not going to play
fast and loose with the environment—that is crucial. We have to
comply with EU legislation on environmental matters, but on other
matters raised regarding terms and conditions, we intend to consult
with industry before any of these regimes come into place. There will
be plenty of time for discussion on these
matters.
Martin
Horwood:
I am beginning to sense that the Committee does
not seem to have a great consensus on exactly what these terms and
conditions might be and where they might be directed, although there is
a broad sense that they might have a strong environmental focus. We do
not really have a sense of the price levels, although the impact
assessment had those numbers that the Minister quoted, which were based
on the Petroleum Act 1998. It might be helpful if he could explain
where those costs come from. Would it not have been better to have some
sense of the conditions in the Bill rather than leaving all this to
secondary legislation? For instance, should the primacy of
environmental considerations be set out? Would he consider that
suggestion as a possible amendment at a later
stage?
Malcolm
Wicks:
I always consider suggestions from Liberal Members
most carefully before reaching a judgment, and that would apply in this
case.
I have done
my best to outline some of the key points that would be covered by a
licence. To be fair—the hon. Gentleman is a fair man and I
always like to be fair to myself on these occasions—we have not
passed this Bill yet, although I hope that Parliament will enact it. We
are working hard on some of these details. I do not think—this
is a general issue around the law—that being ultimately specific
in the Bill is sensible, if only because this is a fairly fast-moving
technology and sometimes one can be
over-specific.
The
hon. Member for Northampton, South made some interesting remarks, much
of which were about carbon capture and storage. He made some important
points to which I will return when we consider the clauses concerning
carbon capture and storage. I hope that that will be
sensible.
As for terms
and conditions, I am reminded that we will be consulting on this in due
course and publishing a consultation document in June. One would
probably get into trouble with parliamentary colleagues if one
consulted before a Bill had received its Second Reading. One has to do
these things in the appropriate order.
The hon. Member for Cheltenham
talked about a worry that we could be too narrow in terms of licences,
given the technological developments that will take place. For that
reason, we are setting out enabling powers for the licensing regime. We
want to encourage innovative new technologies in relation to offshore
technology to come forward under this regime. We feel confident that in
a fast-moving territory—in terms of liquefied natural gas, gas
storage, and later CCS—it is important to put in place a
regulatory framework that we think will be fit for purpose in the long
term.
Martin
Horwood:
I also raised the issue of whether public health
considerations, such as evidence of public health risk, over time might
be included in the conditions. Does he have that as a possible
objective?
Malcolm
Wicks:
Yes, I do. Again, drawing on the helpful though not
exact comparison with the UK continental shelf—the development
of North sea oil and gas into the mid-sixties—the Government and
relevant agencies, such as the Health and Safety Executive, and the
companies themselves have always put a huge premium on the safety and
mainly the safety of the workers. We saw an incident the other day when
people took no chances in evacuating an oil rig.
I understand the public
concerns about gas storage and CCS. We need to ensure that we are
protecting the public health through the appropriate agencies such as
the HSE. That is a very significant point, not least when some of these
technologies are fairly new to most of us, let alone our constituents.
We need to reassure people and make sure that these issues are covered
in the appropriate regulations.
1.45
pm
Charles
Hendry:
I am very grateful to the Minister. He has given
us a much greater understanding of the way his mind is working on this.
I understand why he cannot set out a prescriptive list of the
conditions in the Bill.
One thought on competition
rules occurs to me. Can the Minister clarify how competition rules will
apply to the people who set up and operate such facilities? Would there
be the normal ability to refer a matter to the Competition Commission
if there were concerns about vertical integration in terms of who owns
different aspects of the supply chain? If the starting point is to
provide greater security of supply, there would be concerns if people
could own a gas storage facility and chose not to use it so as to pump
up prices of gas elsewhere in the supply chain. I do not expect that to
happen, but I will be grateful for reassurance from the Minister that
it will not be able to happen.
Malcolm
Wicks:
That raises an important point.
My off-the-cuff response would be that Ofgem, the regulator, would be
able to look at those aspects. Ofgem is not the regulator for offshore
installations and all that—not the ones that we are discussing
here—but we have a regulator of the market and its effective
operation is in place. The regulator will need to be mindful of the
changing territory, both literally and metaphorically, in relation to
this matter. I understand the hon. Gentleman’s example of gas
storage. Effectively, although it is new territory, normal competition
rules would apply, which is what I said in a less prĂ(c)cised way a
few moments ago.
Question put and agreed
to.
Clause 5
ordered to stand part of the Bill.
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