My Lords, again we have had some excellent contributions. I do not agree with the amendments which have been tabled by the noble Baroness and I will respond to them in due course, but I thought it would be helpful to respond first to the questions posed by my noble friend Lord Jenkin. He said that the industry feels that it has not been consulted on the government amendments. I hope that I can reassure him that the Wood review itself was the subject of nine months’-worth of detailed consultation with the industry and interested stakeholders, which welcomed the recommendations and called on the Government to implement them rapidly. However, we plan to consult further on the additional regulatory powers that the body will have and on matters such as how to apply MER UK to the onshore industry and the cost recovery mechanism to pay for the new oil and gas authority. We will therefore continue to consult industry, and I hope that my noble friend can take that back, saying that industry representatives will be very much part of the discussion.
My noble friend also touched on the issue of taxation. Clearly any sensible approach to maximising economic recovery for oil and gas needs consistency between the regulatory and fiscal regimes. This was a central recommendation made by the Wood review. The Treasury, the industry and the oil and gas regulator should commit to a tripartite strategy to deliver MER UK. In Budget 2014, the Chancellor announced that the Government would conduct a review of the fiscal regime and on 14 July the Treasury launched that review. We will publish interim conclusions with the Autumn Statement. He also mentioned that the scope of the body should include onshore projects such as shale. Although the Wood review focused on actions to maximise economic recovery from the UK Continental Shelf offshore, Sir Ian did note that there was a strong rationale for extending the remit to the recovery of oil and gas onshore—for example, to shale. I hope that that satisfies my noble friend.
The noble Lord, Lord Whitty, asked about the second phase. It is likely that additional legislation will be required to implement the regulatory powers that were recommended by the Wood review for setting-up the new arm’s-length body. Primary legislation will be brought forward as necessary.
I turn to the amendments tabled by the noble Baroness, Lady Worthington. Amendment 95ZAA would extend the maximising economic recovery principle objective into the important area of enhanced oil recovery. It would also extend the principle of maximum economic recovery to carbon dioxide transport and storage. These are clearly important technologies that must be developed and deployed appropriately, and which will require a significant degree of co-ordination and collaboration between industry, Government and the regulator. The EOR is a technique for increasing production from oil and gas reserves. As such, its exploration, development and co-ordination is intrinsic to maximising economic recovery and there is no need for specific provision on the face of the Bill.
The Wood review called for Government, industry and the regulator to develop six sector strategies to underpin the delivery of the MER UK strategy. These
include a technology strategy that would set out the key areas for progress and development of key technologies such as enhanced oil recovery to maximise economic recovery. The Government believe that the framework we propose is the best suitable means for doing so.
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Carbon dioxide storage and transport is not directly related to the recovery of hydrocarbons, and while there is a clear need for collaboration, this new industry is only just emerging and it is not yet clear how relevant the concept of maximising economic recovery of petroleum will be. The Government, in their formal response to the Wood review, which was published last week, said that they believed the licensing functions for CCS should move to the new regulator, the oil and gas authority. However, more discussion with industry and the relevant trade associations is needed before we can say with certainty how the MER UK principle should apply to areas such as CCS.
In relation to Amendments 95ZAB and 95ZAD, the Government are already required under the Climate Change Act to prepare proposals and policies to meet carbon budgets, and to report on these proposals and policies to Parliament. Most recently, Government met this requirement by publishing the Carbon Plan in 2011. The maximising economic recovery principle proposed in this legislation would do nothing to alter that requirement. Similarly, the system of carbon budgets leading to the 2050 80% carbon reduction target would not need any alteration to account for the changes proposed here. Furthermore, the CCC already has a formal role to report to Parliament on the extent to which government policies are sufficient to meet carbon budgets. Given this, Government do not think that there would be merit in requiring the Secretary of State to consult the Committee on Climate Change when producing or revising the MER UK strategy.
Amendment 95ZAC adds a number of additional requirements on the OGA, which were highlighted in Sir Ian’s report. However, we not believe that now is the appropriate time to legislate on these issues. Two of these, the data and meeting attendance aspects, are matters on which the Government intend to work closely with industry to pursue further before deciding what additional powers might be needed. With respect to collaboration with PILOT, this is a joint industry and Government programme where collaboration is implicit. As regards setting objectives and success criteria for the OGA, it will initially be set up as an executive agency that the Government plan to make operational by autumn this year. The agency’s framework document will set out the objectives of the body, and success criteria will be established once it is up and running, with input from industry.
In relation to Amendment 95ZBA, as I said in speaking to my own amendments, the Government announced last week that they would continue to contribute £3 million per year for five years from 2016-17. Therefore, we have already set out a medium-term outlook whereby Government will continue to fund the body. We have said that in the longer term we expect the industry to meet 100% of the costs. Government have proposed that the levy power be subject to a
three-year sunset clause to ensure that an effective and efficient cost-recovery mechanism is developed in consultation with industry during that time. We would expect to engage with industry on its preferred approach during the second half of 2014. There would then need to be more detailed dialogue on the exact mechanisms and processes around collecting revenues in the first half of 2015.
The noble Lord, Lord Whitty, thinks that we are putting in place a new licence regime in legislation. We would like to clarify that this is not the case. The licensing regime is set out in existing legislation. The MER principle will apply to licence holders, together with other persons, and will be levied on them. I will, however, pass on his thoughts to the strategic highways company, which the noble Lord mentioned in relation to highways and transport issues.
Having responded to the noble Baroness’s amendments, I hope that I have assured her that we are responding in a way that is conducive to positive engagement, and I hope that she will not press them.