My Lords, the next group of amendments have been tabled under the heading of decommissioning and the risks associated with the,
“decommissioning of oil or gas infrastructure”,
and safeguards. In speaking to Amendment 19, I shall speak also to Amendment 77. As we have said previously, we are grateful to the Minister for listening to some of the concerns raised during the passage of this Bill. Under the previous group, we talked about carbon capture and storage and use. The other aspect of this Bill which we felt needed more attention was decommissioning. This afternoon, the noble Lord, Lord Howell, who is not in his place, kicked off by reminding us that the world is changing very fast. The very low prices, which look likely to be sustained, have had a big impact on the North Sea and the pipeline of investment into and operations within it. We are seeing a somewhat contracted timetable for decommissioning as a result of that change in the global oil price.
It is fair to say that the resource discovered in the North Sea in the 1970s has been an absolute mainstay of our economy and our public finance. It has paid a huge sum—some £300 billion, I think—in tax income since then. Obviously, it has helped to generate many jobs, to bring about world-class engineering and has been a considerable boon to the UK. However, all good things seem to come to an end and, particularly when it comes to fossil fuel reserves, that end can come
rather more swiftly than one might expect. That is partly because of oil and gas prices and the commodity market, but also because we are now entering a world in which we know that we can no longer burn and combust oil and gas without paying heed to the fact that that is contributing to global warming.
Obviously, the recent oil price reductions have not yet been directly related to policy interventions on climate change, but they may be a foretaste of things to come as more nations move to a low carbon economy. I am thinking specifically of the US, China and Europe—the three big economic blocs where it is clear that the commitment to tackling climate change is real and the desire to move to cleaner energy systems is starting to be witnessed.
We are now seeing decommissioning occurring. In tabling these amendments, our concern is that this is happening on a more condensed timetable than we might have expected or perhaps wished. On the one hand, we have a desire to develop a new industry in the form of carbon capture, storage and utilisation, which obviously requires the fitting of equipment to capture the gases that are transported and potentially stored in areas of the North Sea, or onshore in saline aquafers and other locations.
The move to deploy these projects has been very slow. It was way back in 2005, under a Labour Government, when we first said that we were going to pay for such projects. There have been several iterations of that policy since and here we are, 10 years later, still awaiting the first sods to be turned and projects to go ahead. We know that we now have a funding mechanism—at least, we hope we do—in the form of the contract for difference. We expect those projects to be successful and to see at least two, or possibly three, demonstration projects in the UK, which will then result in relatively large volumes of CO2 needing to be stored. But that is all taking rather a long time.
In the mean time, we see the major players in the North Sea wishing to withdraw. Therefore, the decommissioning of their infrastructure may happen sooner than we are able to reuse it through CCS, which poses quite a significant challenge. Our purpose in tabling these amendments is to explore the extent to which the OGA will have and should have powers to manage decommissioning, so that, if a large oil and gas operator wants to move out of the North Sea, it cannot simply begin the decommissioning process without giving due notice to government and considering the reuse of that infrastructure.
For avoidance of doubt, I am sure the Minister will explain that government Amendments 73, 74, 84 and 85 are relevant to this discussion and seek to address the misalignment between potential decommissioning and the need for that infrastructure, which is welcome. Our amendments are perhaps a little more explicit. Certainly, Amendment 19 would give the Secretary of State a specific power to direct,
“the OGA to postpone or prohibit decommissioning”.
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Of course, the next obvious question is: should costs be incurred, who should pay? We would need to explore where the balance of that payment should
rest, but in that context it is worth remembering that, although the oil and gas sector has paid handsomely into the public account over the decades, it is now in the very secure position of having tax rebates to help to pay for its decommissioning. Provisions created under the Finance Act have now been converted into private contracts between oil and gas operators and the Government, which essentially compensate for any changes in the tax regime. In essence, they have their own form of a contract for difference to pay for decommissioning. It does not allow the Government to change the tax breaks without providing compensation. It is an interesting model that I am not sure has had enough scrutiny.
Obviously, there are financial flows between the state and the sector. It is not as simple as it once was, when tax revenues simply flowed in, we thanked the industry and, by and large, left it to its own devices—not without some regulation, but it is not as highly regulated as energy is on land. We now see the subtle shift in the contract between the sector and government. Indeed, the creation of the OGA is another example of that subtle shift, where arm’s-length regulation is perhaps no longer fit for purpose. There is a need for independent intervention and government intervention to help manage what is happening in the North Sea. Again, if the Government are making loans or provisions—or, indeed, providing the staff of the OGA with pensions under Civil Service terms—that changes the nature of what is occurring in the North Sea, making the relationship between the Government and the private sector different and more fluid.
Clearly, there are ways that money could be found to enable this to happen. It is important that we debate this and get a clear sense from the Government of where we are going. Can the OGA postpone the removal of essential infrastructure if it is deemed necessary for reuse for other energy purposes? I know that the noble and learned Lord, Lord Wallace, the noble Lord, Lord Teverson, and the noble Baroness, Lady Maddock, will speak to a similar amendment. I know that they feel similarly that this is getting to the nub of what we can do with the OGA.
Amendment 77 relates to my worry that we are entering a phase where we have inadvertently—or perhaps knowingly—taken an unlimited liability on the public purse through the deeds of contract that have been agreed between the sector and the Government, which compensate for any changes in Finance Act tax arrangements. We need from the Government a clear sense of how much of a liability we have created. I have seen estimates that the loss of revenue from decommissioning costs that will fall to the Exchequer—to the public purse—will be in the region of £5 billion between now and the end of the decade. Those will rise swiftly thereafter, potentially reaching £20 billion or higher in the next decade. These are not insignificant sums when we live in a time of austerity.
As I said, we now have these contracts, which have been signed and essentially bind the hands of future Governments—they are not time-limited. Rather a large amount of tax will be paid back to the sector. Of course, the taxes were paid by the sector in the first instance, but you cannot have it both ways. You cannot
say, “We are the great providers and we have been paying in tax; aren’t we wonderful? Oh, by the way, we’d like it all back now because we have to pay for decommissioning”. That simply will not wash. It is not as if, during those decades of providing tax revenues, they were not also providing massive profits—huge profits—to their shareholders and all their investors.
It is fine to say that the industry is on its knees and running out of money. Times might be hard now, but times have been very good. It is prudent to plan for your future, knowing that you will be able to pay for your decommissioning and not be caught out. If you have prudent management, you should never find yourself unable to pay for the things you have caused to be created in the first place.
The reason for Amendment 77 is that we simply want to make the House, lawmakers and policymakers aware that this is the current arrangement: that there are these deeds of contract, that they are creating a liability and that we ought to be well informed of what the cost will be. This is obviously not the precise wording—it is very much a probing amendment—but I would like to hear from the Minister the Government’s thinking on these decommissioning costs and the liability they create.
To return to Amendments 19 and 21, which I am sure noble Lords from the Lib Dem Benches will speak to, what can we do to ensure that we are not simply rushing to decommission, and that we have a planned strategy? What can the OGA do and not do? Ultimately, I suspect that the hardest question will be: who pays? I look forward to hearing from the Minister and from other contributors to the debate.