I thank everyone who contributed to the debate. If the House will have a little patience, I will first take some time to set out and explain the government amendments in this group, before I come on to the non-government amendments.
Amendment 4 to Clause 9 ensures that, ahead of making any regulations under this power, there should first be consultation with the economic regulator and the appropriate devolved authorities.
Amendments 5 and 6 to Clause 19 preserve the independence of the economic regulator by removing the power for the Secretary of State to direct the economic regulator not to impose conditions in consenting to the transfer of a licence.
Amendment 7 clarifies that the requirement to provide information to the Secretary of State or the CMA under Clause 28 is in relation only to Ofgem’s functions under Part 1 of the Bill, not to any of its other functions.
Amendment 8 clarifies that, under Clause 29, disclosure of information to the economic regulator does not breach any obligation of confidence owed by the licence holder making the disclosure, or any other restriction on the disclosure of information. It also clarifies that this provision does not authorise a contravention of data protection legislation.
Amendment 9 provides updated definitions of a “final order” and “provisional order” in Clause 31—these are consequential on amendments made to Clause 32 in Committee, which inserted a new Schedule 3, setting out the enforcement measures in the Bill.
Amendments 10 to 12 and 15 concern the list of persons whom the Secretary of State must consult under Clause 46 before modifying the terms of a company’s licence in relation to a transport and storage administration order. These amendments make it clear that there should be consultation with the relevant storage licensing authority where a carbon storage licence is in place.
On Amendment 35, we must mitigate the risk that decommissioning liabilities fall to the taxpayer, given that the Government ultimately sit as the decommissioner of last resort. Section 29 of the Petroleum Act 1998 enables the Secretary of State to serve notices that require the recipient to submit a decommissioning programme for an installation or pipeline. The Section 29 regime is therefore a key lever in mitigating that risk.
Amendment 35 proposes amendments to Section 30 of the Energy Act 2008, which would enable modifications to Sections 30, 31 and 45 of the Petroleum Act 1998, in its application to the decommissioning of carbon storage installations. These modifications seek to ensure that the Secretary of State can issue a Section 29 decommissioning notice on entities with a licence for CCUS activities, under Section 18 of the Energy Act 2008. This will enable the Secretary of State to impose decommissioning obligations on CCUS licensees, among other persons.
Amendment 36 proposes an amendment to Section 29 of the Petroleum Act 1998. Under current legislation, a new Section 29 notice cannot be issued on assets that have already been included in a decommissioning programme, unless that programme is rejected or approval for it is withdrawn. This would mean that, if an oil and gas asset were subsequently repurposed for use in a CCUS network, the Secretary of State may not be able to serve a new Section 29 notice on the CCUS operators of that asset without first rejecting, or withdrawing approval for, the existing decommissioning programme. This could lead to a gap in liability for decommissioning a repurposed asset, which of course increases the risk to the taxpayer. The amendment seeks to ensure that the Secretary of State can issue a new Section 29 notice on assets that are already within an approved decommissioning programme, thus mitigating the risks.
Amendments 37 to 39 clarify the duties in Clause 92 for the Secretary of State and the economic regulator to carry out their respective functions with regard to considerations in a CCUS strategy and policy statement. The amendments clarify that these duties apply only to functions relevant to the strategic priorities set out in the statement, and related to carbon dioxide capture, usage and storage policy. The amendments seek to exclude other functions set out in Part 2, which relate to hydrogen production that may not rely on CCUS, such as hydrogen produced via electrolysis. They seek to expressly exclude hydrogen levy functions.
Amendments 41 to 47 to Clause 99 ensure that sufficient powers are available to the Secretary of State to be able to update or make new access to infrastructure regulations, should that be appropriate to ensure that access arrangements remain fit for purpose. In particular, updates to the existing regulations may be needed in light of the new economic licensing framework established in Part 1. These amendments are necessary because the existing regulations were made using the powers in Section 2(2) of the European Communities Act 1972, and there are currently no domestic powers to update, replace or make new access to infrastructure regulations.
Amendment 14 to Schedule 5 ensures that, where appeals are made to the Competition and Markets Authority in respect of a decision made by the economic regulator for carbon dioxide transport and storage, a “specialist utility” group is convened to hear such an appeal. This is consistent with provisions for licence modification appeals in the Gas Act 1986, the Electricity Act 1989 and the Water Industry Act 1991, as I am sure the House is aware.
I move to the non-government amendments. Amendment 33 requires CCUS decommissioning funds to be ring-fenced. I thank the noble Lord, Lord Teverson, for his contribution. The Government’s view is that the primary purpose of a funded decommissioning regime is to provide assurance that decommissioning liabilities for CCUS assets will be paid, mitigating the risk that these liabilities fall to the taxpayer—we share the noble Lord’s concern about this. The noble Lord asked me for reassurance that the funds will be ring-fenced. The Government agree that appropriate safeguards will need to be put in place to ensure that the funds carry out the desired function.
The Government’s 2021 consultation on establishing a funded CCUS decommissioning regime set out our proposals for access to the decommissioning funds and, in particular, the expectations for ring-fencing and regulatory authorisation for any withdrawals. The Government expect that the decommissioning funds will be overseen by the economic regulator, to ensure that the funds are accruing appropriately. In addition, the intention is that the Offshore Petroleum Regulator for Environment and Decommissioning will need to authorise any withdrawal requests made by the operator to ensure that use of the funds is restricted to decommissioning-related purposes.
The noble Lord will be pleased to know that the Government plan shortly to publish an update document, which will include further detail on regulatory oversight of the decommissioning funds, the holding arrangements and, crucially, the protection against insolvency. The Government intend to set out the requirements for
appropriate restrictions and safeguards for the fund in regulations and guidance. These requirements will be essentially technical in nature, so it is the Government’s view that it would be more appropriate to set these out in secondary legislation.
I move to Amendment 2, from the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes, who is not in his place, sadly—I was looking forward to debating with him. It is the Government’s view that this amendment is not necessary. The Secretary of State is already bound by law under the Climate Change Act to ensure that targets to reduce greenhouse gas emissions are met. Under Clause 1(6), the economic regulator is required to have regard to the need to assist the Secretary of State in complying with his statutory duties under Sections 1 and 4 of the Climate Change Act 2008, and to have regard to the statutory emissions-reduction targets in each of the devolved Administrations.
Anticipatory investment will be essential to scale up CO2 transport and storage networks to meet our CCUS ambitions and net-zero targets. However, this investment must be driven by the needs of the users of the network, both those already connected to a network and, of course, those wanting to connect.
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The principal objective for the regulator to protect the interests of both current and future users will achieve this aim. Anticipatory investment decisions will need to be well evidenced, and network expansion and development should provide value for all network users. There is a risk that an additional net-zero principal objective could inadvertently delay network developments; for example, the more principal objectives the regulator has to balance, the greater the likelihood of tensions arising between these objectives, leading to protracted or heavily diluted decisions, and potentially adding further costs and delay to the essential delivery of this infrastructure. Fundamentally, decisions on strategic priorities for CCUS are policy decisions, and a strategy and policy statement for CCUS is the appropriate means of providing strategic direction for the regulator regarding policy considerations and the role and contributions of CCUS in achieving net-zero targets.
I turn now to Amendment 3 tabled by the noble Baroness, Lady Liddell of Coatdyke. The CO2 transport and storage regulatory investment model has been designed to attract the investment needed to establish and scale up the transport and storage infrastructure crucial to establishing a CCUS industry across the UK. I am pleased to tell her that we are expecting to announce the outcome of the cluster sequencing process this week, with the track 1 project negotiation list. This is indeed a busy week. We will also provide an update on the expansion of the track 1 clusters and—this is crucial to her interests—our plans for track 2. At the end of her remarks, she asked me to sit down and talk to the industry, and I am pleased to tell her that I did exactly that on Monday. CCUS is now part of my ministerial portfolio, and I am co-chairman of the CCUS Council, which, coincidentally, met on Monday afternoon; we had a long discussion about many of these issues.
As carbon dioxide pipelines and storage assets have essential monopolistic characteristics, the economic regulation model also provides important and necessary
protections for users of the networks from anti-competitive behaviour, including monopolistic pricing. I am afraid that the amendment does not offer that protection. The regulatory model is also designed to facilitate our long-term vision of a CO2 transport and storage sector which, ultimately, is able to operate without subsidy. However, as I am sure the noble Baroness will accept, CCUS is currently a rather fledging industry, and government support is needed to enable the deployment of the first CCUS networks. To overcome the market barriers to investment which currently exist, there will be both capital and revenue support available for the initial networks, and the vast majority of industrial users connecting to the networks will be supported by either government funding or, in the case of CCUS-enabled power plants, consumer subsidies. It is essential, therefore, that transport and storage infrastructure development represents value for money to both taxpayers and consumers, and that charges for the use of transport and storage services are fair and proportionate. In our view, that is achieved through economic regulation and oversight by an independent economic regulator.
I share the noble Baroness’s desire to ensure sufficient flexibility in the regulatory framework to allow for future market expansion, and we have designed the legislative provisions with exactly that in mind. The power under Clause 8 to create different licence types, with different conditions, will enable the regulatory regime to respond to market developments and to facilitate a lighter-touch form of regulation for offshore activities in future, should that become appropriate. It is not the Government’s intention to inhibit market developments through a framework of economic regulation, but it is important that there are protections in place for users and consumers, and that we are able to respond to any anti-competitive behaviours, should they arise. It is the Government’s view that the alternative licensing framework that the noble Baroness refers to in her amendment does not provide for that.
I apologise for the long update but, reflecting on these points, I hope that the noble Baroness will withdraw her amendment.