Energy Bill


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Clause 14

Interaction with the petroleum licensing requirements
Question proposed, That the clause stand part of the Bill.
Malcolm Wicks: Where a gas storage development intends to use a geological feature that contains hydrocarbons, in addition to a gas unloading and storage licence, a developer will also need to obtain rights under a petroleum production licence. That is due to the inevitable production of indigenous hydrocarbons, which will be mingled with the stored gas when it is recovered. Where the intention is not to use a geological feature containing hydrocarbons, such as a salt feature, no rights would need to be obtained under a petroleum production licence.
However, in some cases, a developer with a gas unloading and storage licence may discover trace amounts of hydrocarbons that could not in any way be considered as suitable concentration for their production. In such cases, the gas storage licence holder can seek a direction for the avoidance of legal doubt, stating that a petroleum production licence is not required. The clause empowers the Secretary of State to make such a direction where he is persuaded that the concentration of hydrocarbons is insignificant.
Dr. Iddon: I am a little concerned about subsection (4):
“A direction may be given only if the Secretary of State is satisfied that the amount of petroleum which exists in its natural condition in the relevant stratum is so small that it ought to be disregarded for the purposes of that Part.”
My question is: how will the Secretary of State know? Will the evidence come from the company that has previously been extracting petroleum oil from the reservoir, or will independent soundings be taken—that will obviously be more difficult?
When the Science and Technology Committee carried out an investigation into carbon caption storage and published a report in February 2006, we discovered that enhanced oil recovery is the only way of clearing out considerable oil reserves that are in the interstitial cavities of the rocks. That is the only way to ensure that the oil is completely evaporated, or that it is as evacuated as possible of petroleum oil. If enhanced oil recovery has not been carried out, there will be substantial petroleum oil reservoirs down in those cavities.
During the evidence-taking session I had a conversation with Mike Tholen, the Director of Economics at Oil & Gas UK—that is at columns 105-6 of the transcripts for 19 February 2008. He gave the impression that enhanced oil recovery is very common these days, and that most of the reservoirs that would be used for the storage of gas, and later carbon dioxide, would be empty of petroleum oil. However, the evidence that we took in this report suggests otherwise. It is important that whoever polices subsection (4), is aware of those facts.
Martin Horwood: I hesitate to follow the hon. Gentleman, who clearly speaks from a very expert and knowledgeable perspective. However, I too, was intrigued to know how on earth this could literally be done. We have talked about the powers of the Secretary of State being very wide, but the power to give a direction in respect of a “relevant stratum” of a geological storage area, seems an extraordinarily technical power to give to a Secretary of State. I would be interested to know in respect of subsection (3)—I am not sure that the Minister quite explained this and I am not familiar with the Petroleum Act—[Interruption.] perhaps my researcher is not familiar with it. What exactly is the significance of being regarded or not being regarded as
“ resulting in the boring for or getting of petroleum”
for these purposes? What is the practical relevance of that? If the extraction of oil from a geological area of this type constituted boring for petroleum, what would that mean in practical terms for the operation of this facility?
That reflects an underlying worry that this is an example of gold-plating—that there is a rather extreme level of detail in the provision that might be better dealt with in more flexible regulation. The worry is that we run the risk that if, for instance, enhanced oil recovery becomes viable unexpectedly in the course of the operation of one of these facilities, the Secretary of State will have almost boxed themselves into a situation in which a particular regime applies to that and there is not sufficient flexibility to allow it to take place on a viable or commercial basis. I would therefore welcome clarification if possible of exactly what the implications are of this near overlap with the petroleum licensing requirements.
Malcolm Wicks: My hon. Friend the Member for Bolton, South-East has introduced an important discussion. However, as he knows, we have a great deal of expertise in this type of territory. I recognise that in relation to carbon capture and storage—we shall move on to that aspect of the Bill shortly—it is relatively new territory. However, I am advised that the companies themselves will be required, under the terms and conditions of their licence, to provide the information that he seeks. Tests and drilling information will provide the company with the relevant information.
Earlier, I said that certain powers would not come into effect where the Secretary of State was persuaded that the concentration of hydrocarbons was insignificant. It might be helpful if I say that if circumstances change and the amounts of hydrocarbons increase substantially, the Secretary of State must issue a notice to the licence holder revoking the direction. Again, this comes down to the proper and appropriate management and inspection of what is happening over what is often a very long period. The prime function is for the companies themselves, but I reiterate the importance of the inspectorate that we are putting in place.
Question put and agreed to.
Clause 14 ordered to stand part of the Bill.
Clause 15 ordered to stand part of the Bill.

Clause 16

Prohibition on unlicensed activities
Question proposed, That the clause stand part of the Bill.
Malcolm Wicks: We now move on to carbon capture and storage. The debate has often been ahead of me on this one and, indeed, ahead of the Bill, although there have been one or two cases in which it has been appropriate to discuss CCS alongside other activities relating to gas. Therefore some background will perhaps be helpful.
CCS with power generation involves capturing carbon dioxide that would otherwise be released from fossil fuel power stations and storing it permanently in geological formations such as depleted oil and gas fields. Although CCS is considered a promising climate change mitigation measure, it has yet to be demonstrated in relation to a commercial-scale power station. CCS has the potential to reduce CO2 emissions from fossil fuel power stations by up to 90 per cent., which is a key reason why it has created such interest, not least in Parliament.
Steve Webb: Will the Minister give way?
Malcolm Wicks: I am willing to concede that it is 90.5 per cent.
Steve Webb: I have not put my anorak on yet today. No, my question for the Minister is this. Does he know whether that 90 per cent. figure is broadly the same for pre-combustion and post-combustion technologies, or does one have greater potential than the other?
Malcolm Wicks: Let me see whether I can return to him later with the answer, as I do not have it in my head.
The Government, as the Committee knows, have announced their commitment to the development of CCS by supporting one of the world’s first commercial scale demonstration projects. We had a useful evidence session on that very subject. This chapter of the Bill is intended to provide the regulatory framework for storing CO2 under the sea bed. The next 20 clauses that we shall be debating relate to this important part of the Bill, which will enable this important technology to go forward here in the UK.
The Committee will notice some similarities with the provisions of offshore storage of natural gas and the unloading of LNG. We have these provisions as a different part of the Bill because CO2 storage is a separate issue from offshore natural gas storage or the unloading of LNG. Moreover, there are some differences between the regimes and some additional clauses that reflect the specific issues relating to CO2 storage. These provisions are necessary because existing legislation is not suited to licensing an underground storage of CO2.
The provisions in this chapter are intended to address these shortcomings. They provide a comprehensive and adaptable legal basis for regulating the storage of CO2 in the offshore area. The offshore areas thought to have particularly promising geology for the storage of CO2 are the depleted oil and gas reservoirs of the North sea. This clause prohibits the storage of CO2 and related activities beneath the UK sea bed potentially out to 200 nautical miles, unless it is carried out under a licence and in accordance with the provisions of that licence. In addition to the storage of CO2, the prohibition also extends to the exploration of a site to assess its suitability for storage, the conversion of a site to make it suitable for such storage and the building of relevant installations.
Martin Horwood: The Minister has raised the important point of the appropriateness of the geology. That is clearly an important potential advantage for Great Britain in pursuing carbon capture and storage technologies because we have a great deal of experience in exploiting these kinds of geological features. But he will recall that it was pointed out during the evidence session that some of these geological features, such as the Miller field, are exhausted. Unless they are exploited for carbon capture and storage on a relatively quick time scale, they will be capped and lost as a potential facility. The time scale of this is critically important. If we have a regime that extends the time scale too far, we will find that that advantage from geology starts to reduce quite sharply with geological features becoming less available as they are capped and effectively removed from the possibility of exploitation for these purposes.
Malcolm Wicks: I do not understand why the hon. Gentleman feels that this regime—presumably the one we are discussing now and in the forthcoming clauses—will unnecessarily extend the time scale. We are all anxious to tackle global warming and reduce CO2 emissions here in the UK and worldwide just as quickly as possible. Time is not on our side. I certainly wish that CCS had a history of 20 years and we would be talking more about its universal deployment. But we are not there yet scientifically and technologically. The costs, as we noted the other day in Portcullis House, are obviously considerable. Perhaps the hon. Gentleman can return to this theme on another occasion. I do not want to stop him intervening again, but we have hours of delicious debate on this subject ahead of us.
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Malcolm Wicks: I will return to the clause in a moment, but with your permission, Mr. Amess, I feel that I should answer that point. The Liberal Democrats are asking for more and more and for more and more money to be spent because of urgency. I am genuinely proud that the United Kingdom, alongside only a few other countries— Norway and perhaps the United States—is ahead of the game. I think that I said in the evidence session that I wish that we were not ahead of the game and that there were 15 or 20 countries with us, given the urgency of climate change policy. No one has demonstrated the whole project—the whole chemistry set. We have useful evidence from around the world and examples of good practice, and we have mentioned Sleipner gas fields where CO2 has been stored successfully. As I understand it, and I think that I do understand this part, no one has built a power station with CCS technology and then demonstrated the stripping out of the CO2, the transportation and the successful storage.
Although, to some extent, I share the frustration of the hon. Member for Cheltenham about the time scales, it is important that we in the United Kingdom, on behalf of the taxpayer, have said that we will spend considerable amounts. His colleague, the hon. Member for Northavon, teased out of me that we are probably talking about a total of hundreds of millions of pounds—not a few shillings or a few bob—to demonstrate the technology. Even the Liberal Democrats have to have regard to costs from time to time.
Martin Horwood rose—
Malcolm Wicks: I will give way to find out whether that is true.
Martin Horwood: I completely accept that we need to have careful regard to costs when dealing with such projects. The Peterhead project alone could have requested a subsidy of hundreds of millions of pounds over a long time, so we have to be cautious about cost. We have heard the phrase “as soon as possible”. Does the Minister dispute that BP and others expected that the Peterhead project would have been online by 2011, which would have been at least three years ahead of the time scale envisaged under the competition now planned by the Government?
We are not being insular in terms of post-combustion, which we have chosen, and coal. We are looking at global problems. Of course, if money were no object, it would be wonderful to have four or five projects, but given that we are among one or two in Europe that are ahead of the game, I do not think that we are doing too badly. I hope that in the hon. Gentleman’s fairer moments, which I know are many, and the fairer moments of his research assistant, that point will be recognised.
Mr. Jamie Reed (Copeland) (Lab): The Minister said in the evidence session the other day that we have no choice other than to go for CCS, irrespective of the state of the technology at the moment. Does he agree that this issue is about the status of the science and the ability of industry to achieve and effect those solutions? It is not about the regulation, as we were discussing under the previous clause.
Malcolm Wicks: Yes, of course I agree with that, but we need to set up an appropriate regulatory position in anticipation. We are ahead of the game—perhaps alongside one or two other Governments and some Australian states, I believe. The useful collaboration with the Norwegians is important here because we are doing a lot of technical and important work with them. Anyway, we will not say how we look forward to the Liberal manifesto commitment on expenditure on the matter, although I think that Liberal Members now understand how expensive the technology is, given the current state of the science and technology.
I know that you would encourage me to move forward with discussing the clause, Mr. Amess. I am told that there will be a Division at some stage—not here, I hope, because this clause is so wonderful, but elsewhere in the building.
The clause applies to operators who carry on carbon dioxide storage activities. The provision does not apply to the suppliers of carbon dioxide. Those persons who provide CO2 to the operators of carbon dioxide storage facilities will not require a carbon dioxide storage licence. We recognise that with the advent of the single electricity market across Ireland, there are increasingly different considerations in respect of proposals in Northern Ireland from proposals that might come forward in the rest of the UK. To reflect the differences, therefore, I believe that it would be prudent for my Department and for the Department of Enterprise, Trade and Investment in Northern Ireland to pursue a formal memorandum of understanding setting out how we would work with the relevant authorities in Northern Ireland before granting any consents for carbon dioxide storage facilities in Northern Ireland territorial waters. That rather complements an earlier proposal that I made about a memorandum of understanding with our colleagues in Northern Ireland.
The provisions in the clause are similar to those covering combustible gases in clause 2, which concerns the licensing of offshore gas storage activities for the purposes of offshore gas storage and LNG unloading.
Charles Hendry: We are moving on to one of those parts of the Bill on which there will be the greatest amount of discussion, not because of inherent flaws in the clauses, but because of the background of the debate that we need to have to understand their implications. While I have some particular concerns about this clause, it highlights what I would call the failings of the Government’s general approach towards carbon capture and storage.
None of us is in any doubt that carbon capture and storage could be the great hope for energy in the 21st century, or could be the great white elephant. It is quite possible that in 10 years we will have established that it is, as we all think, technically feasible to capture and store carbon, but we might have decided that it is not economically viable to make that happen without masses of taxpayers’ money or a very high price for carbon. Our primary concern is that the Government would be issuing licences that focus on one type of CCS technology, rather than looking at the whole range of CCS technology that is out there.
In one evidence session, Tom Burke had a few words to say about carbon capture and storage—no doubt they greatly pleased the people who pay his salary—and its role in enabling us to get electricity and energy from fossil fuels without the damaging carbon emissions.
Steve Webb: On a point of order, Mr. Amess, I wonder if you could advise me, but I think that the hon. Member for Wealden implied that one of the witnesses before our Committee was prejudiced in what he said to us and was favouring his paymasters. As we know, his interests were before the Committee, and I hope that the hon. Gentleman might be asked—or encouraged—to withdraw that allegation.
The Chairman: I was listening carefully to what the hon. Member for Wealden said and I do not think that he impugned the honour of the gentleman mentioned. I think that he was in order.
Charles Hendry: I am grateful for your guidance, Mr. Amess. I think that the spokesman for the Nuclear Industry Association did a fine job for the nuclear industry. The spokesman for the British Wind Energy Association did a fine job on its behalf, and the spokesman for Rio Tinto Zinc did a fine job on its behalf, too.
Martin Horwood: Mr. Amess has made it clear that up until now the hon. Gentleman has not been out of order. It was quite explicit in briefings that we received, and from the remarks by Mr. Burke, that he was not acting as a spokesman for Rio Tinto, but in a personal capacity. I think that it would be gracious of the hon. Gentleman to withdraw that allegation.
Charles Hendry: I am not going to prolong this discussion. I understand where the hon. Gentleman is coming from. I perceived Mr. Burke’s remarks in one way, but if he perceived them differently, we will have to disagree. This is a bit of distraction from clause 16, on which we should be focusing.
Most of the witnesses from whom we heard in the evidence sessions were quite clear about the way forward. It is worth reminding ourselves of what some of them said. The spokesperson from the Trades Union Congress, Mr. Philip Pearson, said:
“We believe that all options should be explored. There is a question about resourcing, and if there are limited Government resources then the Government have clearly made a particular kind of decision. If resources are that thin, you could argue for post-capture, pre-capture or a regional network, if only one of three major options is to be chosen. The trouble is that the CO2 challenge is too enormous to restrict to the development of one option only.”
Those views were echoed by Mr. Roger Salomone, of the Engineering Employers Federation, who said:
“For example, we do not know exactly what the competition criteria are right now, but we could have had criteria around retro-fitting and global applications and there could be other important ones such as cost-effectiveness. I do not see how narrowing that down now does the situation any favours.”——[Official Report, Energy Public Bill Committee, 5 February 2008; c. 11, Q21-22.]
Malcolm Wicks: I did not want to interrupt the hon. Gentleman so early on, but does he recognise that although a perfectly proper and reasonable debate is to be had about whether we were right to choose post-combustion technology for our demonstration project, this Bill is technologically neutral in that respect? It sets up a regulatory framework for the storage of CO2 that does not depend on whether it is pre or post-combustion.
Charles Hendry: I agree with the Minister. However, that should be seen against the background of what the licensing regime will achieve. Owing to the way in which the Government are going about the programme, it will achieve less than if the pilot scheme had been done in a more all-embracing manner. I am not going to continue quoting from the evidence sessions because I think that you would rule me out of order, Mr. Amess, for straying away from the clause. However, similar representations were made by Centrica, Scottish and Southern and others. The only people who spoke in favour of the Government’s approach were from E.ON and Npower, which indicated that they wish to bid for contracts under the proposed pilot scheme.
I understand the Government’s argument, which the Minister has just made, about the importance of the export potential to China. However, we are doing that at the expense of our nation’s domestic interests. There would be massive potential for exporting pre-combustion technology. It is one of the most exciting energy technologies around. To some extent, we are closing the door on that opportunity because of the Government’s approach. Their message seems to be, “You might be developing one of the most exciting energy technologies on the planet, but do not expect any help from us in doing so”. Through pre-combustion, CO2 can be captured in its totality at much less expense than can be the case for post-combustion. However, as we have heard in interventions, the pilot scheme in Peterhead closed down through lack of support.
Time is not on our side—literally, I see, looking at the clock. The pilot scheme is unlikely to be up and running before 2014. It will then take us some years to evaluate and learn the lessons, so commercial exploitation of the technology is unlikely before 2020—five years after we will get hit by the energy gap. What that means in the short term is that we will be seeing applications for new dirty coal-powered plants being brought forward—they will be significantly cleaner than their predecessors, but still very dirty.
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In many cases, those plants will be replacing the 10 GW of coal that will be going out of commission by 2020, but we should be trying to move away from burning coal where we can. We are understandably concerned that that is the way in which we are going to go.
The truth is that we will be in a mess if we cannot get carbon capture and storage to work. We should be looking at how we can work with others to make that happen, and that is the background against which these clauses need to be considered. There are many hon. Members who, on Second Reading and during our discussions in the evidence sessions, have made it clear that they want a broader approach to be taken on this.
I also have concerns about the general licensing approach. The witnesses from the Carbon Capture and Storage Association said that they need a single licensing agreement. How will the Government help them to achieve that? In their written submission they said:
“Recognising that offshore CO2 storage will have many technical and operational parallels with current hydrocarbon exploration and production activities, for which substantial regulatory expertise already exists within the Department for Business, Enterprise & Regulatory Reform (BERR), the Association would strongly favour a comparable ‘one stop shop’ licensing arrangement for CCS projects over which BERR has singular responsibility.”
Will the Minister give us assurances that the approach that he is putting forward in this Bill will help to achieve that? Oil and Gas UK made the same sort of representations:
“On the issue of carbon capture and storage (CCS) and natural gas storage, Oil & Gas UK is concerned that the new licensing scheme does not properly take into account the interaction with the existing petroleum licensing regime or respect the legal rights already conferred, especially on any transfer of a petroleum licence. We believe there needs to be a clear and unambiguous statement within the Bill on the primacy of vested rights under existing Petroleum Production Licences in the event of any conflict between these and the terms of new CCS or gas storage licences.”
I hope the Minister can give some clarification on that.
Will the Minister say something about the use of saline aquifers on land? Subsection (3) defines a controlled place as being at sea, but some of the witnesses indicated that the best use of saline aquifers would be where most of the potential storage would take place. I think they said that 14 billion gigatonnes of CO2 could be held there out of a 24 billion gigatonnes storage requirement. Some of that would be on land. How do the Bill and the licensing arrangements relate to land-based saline aquifers?
Finally, will the Minister say something about enhanced oil recovery? At the moment, carbon capture and storage applies where there is an enhanced oil recovery capability. There are international treaty obligations that tie us into that and stop us from simply using the sea bed as a dumping ground for carbon dioxide. What are the Government proposing to relax those treaty obligations so that this technology can genuinely move forward and we can achieve the most from it?
The Minister will be aware that we are supportive of the general principle, but we are disappointed by the narrowness of the Government’s approach. There is more that we could achieve in a shorter time scale than will happen as a result of the Government’s approach. I hope that it is not too late to make some corrections to these failings.
Steve Webb: I feel that my pearls of wisdom may be interrupted, but I will give it a go.
I start by asking a general question about this chapter of the Bill on the storage of carbon dioxide. I would like to ask the Minister what I call my idiot’s question. Carbon dioxide is one greenhouse gas. Presumably there are other greenhouse gases that could possibly be captured and stored. I appreciate that this is the biggest one and the one we are talking about now, but would it not be better to legislate generally rather than to legislate for this gas and then find ourselves coming back when we have some technology for liquefying or storing methane, or whatever else it happens to be? Why did the Minister not—and why does the Bill not—legislate in general terms because presumably the structural issues of licences and so on would apply to any other greenhouse gas?
If I may digress a second, I think that I should put on record my concern about the remarks that were made about one of the witnesses. I have a lot of time for the hon. Member for Wealden. I do not know him very well, but when I have come across him, I have found him to be very fair minded and constructive. I hope that when he leaves today he will reflect on maligning a witness. I think that suggesting that he was special pleading is really not appropriate and I hope that the hon. Gentleman will reflect on that.
The Chairman: Order. I understand the point that the hon. Gentleman is making, but I should have been much firmer earlier. I will not allow us, when we are debating clause 16, to revisit arguments that were dealt with in private. There was eventually full disclosure of the interests of the gentleman concerned. I know that the hon. Gentleman was making his remarks in a placatory fashion, but I would now ask him to leave the matter there.
Steve Webb: Thank you, Mr. Amess. I am very happy to do that. The interest was in fact declared up front, as you rightly say, before the evidence was given.
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Sitting suspended for a Division in the House.
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On resuming:—
Steve Webb: In the debate so far, Mr. Amess, you have allowed us to start off a whole section on carbon capture and storage and to range somewhat more freely than I am sure we will do on subsequent clauses. In that spirit, I have a couple of observations triggered by the Minister’s comments and by the thoughts of the hon. Member for Wealden on carbon capture and storage.
The important context for the Liberal Democrat position is, and I hesitate to say this, from a European Union briefing that makes the following interesting assertion:
“While energy efficiency and renewables are in the long term the most sustainable solutions both for security of supply and climate, EU and world C02 emissions cannot be reduced by 50 per cent. by 2050 if we do not also use other options such as carbon capture and storage.”
That is a clear statement from an organisation that presumably has no commercial axe to grind that carbon capture and storage is absolutely essential to meeting these targets. I was genuinely interested in the comment made by the Member for Wealden that in a few years time, we might decide that carbon capture and storage is uneconomic. I suppose that it depends on what is meant by “uneconomic”. The Stern report said that unless we tackle the problem now, it will be far more expensive to tackle it in the future. I am not aware of a plan B on this and although the costs that we are talking about may be frightening, the costs of not acting may be more frightening still. That is why we need to get the licensing regime right.
I take the Minister’s point that the licensing regime in the Bill is technology-neutral. The Bill itself does not favour one technology or another, but clearly Government policy has done so, and he referred to the competition that the Government have initiated. He said that we need to get on with CCS as quickly as possible. What my hon. Friend the Member for Cheltenham was saying—and I do not really think that the Minister has addressed this point—is that Government policy has actually obstructed getting CCS up and running sooner. That is demonstrably true. The Minister shakes his head, but the Carbon Capture and Storage Association said in evidence to the Committee that not only the Peterhead project, but four others—all of them pre-combustion technologies—are now on “go slow” because they are not eligible for the competition. Had the Government included those projects within the competition, there would have been a strong incentive to get going, get moving, get them in competition and then we could have been applying the licensing regime to post- and pre-combustion technologies.
Charles Hendry: Does the hon. Gentleman agree that it is not right for there to be a race between individual countries in this area, with each trying to win some sort of championship at the end? The scale of these projects is so huge that countries ought to be working together internationally to decide which is going to work on pre-combustion and post-combustion and how we ensure that a range of technologies is tried so that we can work out which has the most promise.
Steve Webb: I absolutely agree with the hon. Gentleman: I know that the Conservatives are great on European co-operation, internationalism and on Governments co-ordinating things rather than just leaving them to the markets. I agree that what he has just described is necessary in this case. It is another example of why constructive co-operation across Europe is such a good thing. That is the approach that we need.
The Minister will probably tell us repeatedly during the course of the Committee’s proceedings—he already has twice—how good Britain is, but does he not realise that the consequence of the policy that he has just described has been to drive CCS projects out of Britain to other countries? For example, I asked BP what it will do now that the Government have scuppered the Peterhead project, and it said it would move them to Abu Dhabi. In other words, the projects will go elsewhere, as will the technology, potentially, and Britain will lose out.
The problem with carbon capture in that regard is that the licences that we are talking about will effectively only be implemented in the first instance on the Government’s demonstration post-combustion project—if the Government think that that is the first thing that will happen, I presume that it is the first application we will have. Our worry relates to the time scale.
Malcolm Wicks: I want fully to understand the argument. I am not sure whether the hon. Gentleman is saying that we should have abolished the idea of a fair competition between companies and given it to one company—and I think that he has BP in mind. Is he arguing that we should have done that, or that we were wrong to make that judgment between pre and post? Given that considerable amounts of money from companies go into those exercises, we felt that it was only fair to make our judgment about the technology, and we choose post. Does he think that we should have kept all of them going, given that we could only fund one project? Maybe the Liberal Democrats could fund five, but because we can only fund one, at some stage a judgment has to be made.—[ Interruption. ] And he will start receiving notes from the researchers.
We received advice that the rate at which coal power stations are being built in China means that they will hopefully one day require post-combustion, so does the hon. Gentleman think that that advice was wrong and that the Government were wrong to follow it and to reflect on the global issues, not least of which is China? Does he think that we should have reflected only on the UK? Those were difficult judgments, and I think that we made the rights ones. I will be interested to hear, in the real world, what judgments he would make.
Steve Webb: I am grateful that the Minister anticipated a day when I shall have ministerial responsibility, so I shall practise now. In answer to his question on whether it should have just been given to one company, it clearly should not. However, my critical point is that I do not think that the Government’s approach is up to the scale of the problem. The Minister’s argument is, “We are a bit strapped for cash. We will fund one, but we could not possible fund two, so we had to choose one technology.” His argument is that there is not enough money to have a look at two major technologies.
Although the Carbon Capture and Storage Association told us in evidence quite how exciting the potential for pre-combustion technology is, I do not dispute the potential benefit of the other technology and the international dimension, which is clearly also important. However, I shall give an example of where money might come from to enable both technologies to be pursued. There might be two competitions or two approaches. In our evidence sessions, we talked about the £9 billion that the energy companies are getting from the European decision to hand them a free emissions trading permit, which the Government had a part in. A person as sober and grounded in the real world as the director general of Ofgem has said that that was a £9 billion windfall. That is not the hundreds of million that the Minister talked about for the Government’s competition on post-combustion, but a £9 billion windfall.
Given that the Minister thinks that the companies should—I almost quote—get off their backsides and do some of this stuff themselves, why do not the Government not ensure that, having given them that windfall, some of the money is used precisely for that purpose? That way, we would not have to make this false choice between two technologies, both of which could be critical, dare I say it, to the future of the planet. My point is that if, as their planet slowly fries, our grandchildren say, “If you had gone for two technologies that were actually up to the scale of the problem, we might not be in this mess. But you couldn’t find the money so you only chose one and, as a result, we haven’t achieved the critical improvements we need”, I think that they would hold us responsible.
Mr. Binley: In the light of what seems to me to be a sizeable declaration in favour of a windfall tax on energy companies, would the spokesperson for the Liberal party consider saying that it would forgo that, provided that the companies spent the money on working out a project—
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The Chairman: Order. The hon. Gentleman is making an interesting point, but I am afraid that it has absolutely no relevance to the clause that we are debating.
Mr. Binley: Point of order, Mr. Amess. It is relevant to the greater world outside, and I wonder whether you might reconsider so that I might finish.
The Chairman: I have heard what the hon. Gentleman has said, but my ruling is final.
Steve Webb: I am more than happy to be bound by your strictures on that point, Mr. Amess.
I want to ask the Minister about another closely related aspect and that is the work—which the Minister mentioned—that the Government are doing in co-operation with China. That work is the UK-China near-zero emissions coal project with which I am sure he is very familiar. I do not know whether he was on the plane with the Prime Minister when he went to China; I do not know whether he gets to go on those jaunts.
My understanding is that the EU and China are working together on a near-zero emissions coal agreement, which incorporates demonstrating and building carbon capture and storage technology in China. I wonder how that squares with what the Minister says. I am not suggesting it is inconsistent—I think it is great. The Minister seems to be saying that we need that approach in the UK because we can sell it to the Chinese, but are we not already working jointly with the Chinese, separately on the demonstration projects that he talked about? How do those two things fit together? Does he know—I do not—which CCS technologies are being considered for the UK-China near-zero emissions coal project? I think that somebody in the room probably does, which is a help. Can he clarify how all of those things fit together?
My specific question on the clause is: we are doing a whole section just on CO2; are there other gases that we would want to bring in at some point, and could we be doing that now rather than having to legislate again? My general contextual question is to try to stress that our view is that although competition and public money are welcome, the scale of the problem means that picking one technology and putting all the public’s eggs in that basket with no public money in the other basket is profoundly mistaken.
Dr. Iddon: I will try to be as brief as possible. I am a chemist and so I start from the premise that I would not be burning fossil fuels in the first place, because particularly coal, but also oil, are sources of chemicals for generations well into the future. Petroleum oil will run out far earlier than coal. I accept that we have enormous coal resources throughout the world, particularly in places such Australia but also of course in this country.
On the question of pre-capture or post-capture, I am also slightly worried about what the Government are doing. I will read out the conclusion that the Science and Technology Committee came to in its February 2006 publication, HC 578 volume 1:
“Although it is clearly important that pre-combustion, post-combustion and oxyfuel capture technologies be developed, we believe that for new plant pre-combustion capture offers a significant advantage, in a carbon constrained world, as a potential source of hydrogen. As the technology develops, the Government should take into account the potential strategic importance of polygeneration systems based on pre-combustion capture technology and consider the case for putting in place incentives to promote the use of this technology in new build plant.”
I emphasise that that is “in new build plant”. Obviously it will not be cost-effective to retrofit post-carbon capture technology. That would be too expensive in a plant that has only a few years to live. We therefore dismiss those because Britain will be closing its older plants shortly. I do not know about China or the rest of the world; I suspect that in the rest of the world, particularly in developing countries, those plants will be made to last as long as possible. Perhaps post-carbon capture on older plants in other countries is a possibility.
We are by no means sure about the relative costs of post-carbon and pre-carbon technologies. Post-carbon technology relies on the fact that the carbon dioxide coming out of the plant is separated from all other gases, such as oxygen and nitrogen, by forming a complex diamine carbonate, and then heating the solvent, as it is often called, which boils off the carbon dioxide so that it can be transferred to storage. Diamines are not cheap chemicals and large amounts will be necessary to capture the huge volumes of carbon dioxide coming out of a coal-fired generating plant. Those are getting bigger and are not the small plants that we had post-1940. They are huge and one can see them when driving around the countryside. The cost of that will not be insignificant in my view.
The Select Committee was also quite clear about pre-carbon capture technology. If we are building new plants anywhere in the world, especially in this country, they should be carbon capture-ready. The Science and Technology Committee, after taking a lot of evidence, recommended that pre-carbon capture technology is the only answer because it generates hydrogen. Anyone who went to the Hitachi “Inspire Life” exhibition either yesterday or today will have seen how the Japanese, who are leaders in all technologies, regard the hydrogen technology for driving cars in particular.
I think that hydrogen will be one of the transport fuels of the future because it does not produce carbon dioxide. The Japanese have realised that and are developing the hydrogen economy quite significantly. If we do not jump on this opportunity and encourage pre-carbon capture technology now, I do not think that the hydrogen economy in this country will be kick-started. Therefore, our transport economy will still rely on hydrocarbon fuels to generate the electricity that drives the cars. We will miss a trick and will lose out in competition to the Japanese if we do not kick-start the hydrogen economy. The only way to do that is to have pre-carbon capture technology on all new fossil fuel burning plants.
Martin Horwood: I am very grateful to the hon. Gentleman for the very expert argument that he is making. From his point of view or from the Select Committee’s report, is there any comparable project on post-combustion carbon capture and storage that is as advanced as Peterhead, Immingham, Hatfield or any of the pre-combustion projects in terms of planning or implementation?
Dr. Iddon: I can tell the hon. Gentleman that pre-and post-carbon capture technologies are not new. In the Algerian desert, oil is being extracted with huge quantities of carbon dioxide in it. It is called the In Salah field and that carbon is now being captured and stored in the desert in the way that I have described. Pre- carbon capture technology is also well known in the chemical industry. The technologies are not new, but using them in the electricity generating industry with coal burning plants is. I do not know—I suspect that nobody knows—whether post or pre-carbon capture technology will win out, but the difficulty with the Government’s decision is that we are not going to be able to test that, as the hon. Member for Northavon said. I would have preferred, as I said in the evidence-taking sessions, at least parallel competitions, if not one competition involving pre and post-carbon technology.
As a scientist, my difficulty is that, if we take the line that the Government are obviously taking—I agree that retrofitting of existing plants is extremely important and I do not disagree with what the Government say about it—it will send the wrong signals on the other technology. As has been said, the danger is that the technology will go elsewhere, but we cannot afford to lose it, because it produces hydrogen.
Malcolm Wicks: I was listening with such care to my hon. Friend—he is clearly a great expert on science. I am merely a relatively ignorant former science Minister, so I learned a great deal from him.
I shall not trespass too much at the moment into the pre and post-combustion discussion again—I have made my comments on that. If it is appropriate, I might say more next week. I shall respond to a number of the remarks in the limited time available in no particular order. I suspect that I shall continue with my dissertation in response next week.
The hon. Member for Wealden asked about international collaboration. The UK plays a significant role in a number of international initiatives with the aim of accelerating the deployment of CCS technology. For example, we have a memorandum of understanding with the United States that provides for working together on joint R and D projects, and we expect that the relationship will lead into CCS demonstration, co-operation and sharing. We are also actively participating in the carbon sequestration leadership forum, which is led by the USA.
Co-operation within the EU is wide-ranging and includes work on the zero-emissions fossil fuel power plant technology platform. As has been mentioned, the UK has an energy memorandum of understanding with China, under which we are jointly developing R and D projects. The near-zero emissions coal initiative was announced as part of the EU-China partnership on climate change at the EU-China summit in September 2005. Also, co-operation with the North sea states, particularly Norway, focuses on the work of the North sea basin task force. There is quite a strong international dimension to what we are doing.
The hon. Gentleman asked about the European Union. We hope that other member states step into the arena, as it were, on carbon capture and storage. The EU has spoken of the need for perhaps 10 to 12 demonstration projects, which it aims to deliver by around 2015; as we know, we have promised to deliver one of the projects. I repeat that we, alongside Norway, are very much leading on such matters in the continent of Europe.
I obviously welcome the fact that a number of companies have a strong interest in the different technologies. The point I made in the evidence session the other day was that it does not need to be Government alone who demonstrate the project. It would be good for corporate social and environmental responsibility if one or two of the world’s big energy companies could demonstrate projects.
Martin Horwood: Will the Minister give way?
Malcolm Wicks: Perhaps the hon. Gentleman has details of the projects.
Martin Horwood: The Minister made the point that the energy companies should be prepared to put their own money in, but BP put tens of millions of pounds into the Peterhead project. The truth is that none of the projects will be viable without some measure of public support. They will clearly ask for the largest possible amount of public support and we might want to minimise it, but it is important to recognise what they put in.
4 pm
Malcolm Wicks: I suspect that in certain parts of the world companies will do that without Government support in future, and we will be able to test that hypothesis. In clause 1(5), there is a power to designate one or more areas as gas importation and storage zones. In exercising that power, it will have to be considered whether to designate a single zone covering the whole of the relevant offshore area or adopt a step-by-step approach.
I was asked about other greenhouse gases, which was a perfectly reasonable point. CO2 is the most applicable greenhouse gas in the context of fossil fuel burning, including in power generation, but we do not rule out the need to consider measures for emissions of other greenhouse gases. Given the challenge of climate change, CO2 is public enemy No. 1, if I can put it like that.
We have talked about offshore storage, but the hon. Gentleman asked me about onshore storage. I am advised that it is currently prohibited by the European Union. [Interruption.] Was it the hon. Member for Wealden? There are so many Euro-enthusiasts on the Opposition Benches that I could not quite recall. We hope that a forthcoming EU directive will remove that prohibition; the use of a saline aquifer on land will be assessed when the directive comes forward.
I was asked about enhanced oil recovery, which is important and helps to make CCS more cost-effective. The development of the emissions trading scheme and a higher price for carbon is another important development, but enhanced oil recovery is critical. Through clause 32, we will have the power to define the circumstances under which it will require a CO2 storage licence, and we expect to use it.
I was asked about the need for a clear statement in the Bill about the primacy of vested rights under existing petroleum production licences. The Bill is an enabling framework, and it would therefore not be appropriate for it to contain the detail of our proposed regulatory arrangements, on which, as hon. Members know, we shall shortly consult. We expect the consultation to cover, among other things, the proposed interaction between petroleum rights and CO2 storage licences, but in any event, there is no possibility of taking away vested rights. For instance, if a petroleum licence holder already has consent to drill in a particular area, we could not take it away by granting a gas storage licence over the same area. We are, however, amending section 47A of the Petroleum Act 1998 to ensure that, in deciding to give such a consent, we can take into account gas storage and CCS activities. That is already the case for wind farm activities, and we shall consult on guidance that we will issue in relation to the new activities.
I apologise if there were other questions that I have not dealt with, and I hope that I have persuaded the Committee to support the clause.
Question put and agreed to.
Clause 16 ordered to stand part of the Bill.
Further consideration adjourned.—[Alison Seabeck.]
Adjourned accordingly at five minutes past Four o’clock till Tuesday 26 February at half-past Ten o’clock.
 
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