Energy Bill

Public Bill Committee, 26 February 2008.

Clause 17

Malcolm Wicks (Labour, Croydon North)

Good morning to you, Mr. Amess, and to the Committee on this sunny day. We discussed much about carbon capture and storage last week, but we now have the opportunity to consider it in more detail. While clause 16 will prohibit the storage of carbon dioxide without a licence to ensure that such storage is carried out in a safe and responsible manner, clause 17 will give the Secretary of State, or an authority to which the licensing function has been transferred under clause 33, the power to license the carbon dioxide storage-related activities.

In addition to such a licence, a lease or an authorisation in respect of the relevant offshore space to be licensed by the Secretary of State must be granted by the Crown Estate, because it has ownership rights within 12 nautical miles of the territorial sea and relevant rights—possibly up to 200 nautical miles—will also be vested in the Crown under clause 1. The Crown Estate will grant leases or authorisations on commercial terms to operators for the storage of carbon dioxide within those areas. Such leases or authorisations will prescribe the geographical space in which the CO2 can be stored, as well as specifying the period during which the site can be utilised.

The clause will ensure that the areas covered by the licence and the Crown lease can be easily co-ordinated. In the absence of such co-ordination, there would be a risk, for example, that the licence would continue to apply when the lease had expired. In such circumstances, the operator would have to discontinue its activities, as it would be on the Crown Estate’s land without the necessary authorisation from the Crown Estate.

Martin Horwood (Liberal Democrat, Cheltenham)

At an earlier sitting, the hon. Member for Southampton, Test made some interesting points about the Crown Estate and how much co-operation was guaranteed in the delivery of policies such as the licensing regime from the Crown Estate. Has the Minister had time to reflect on the issues raised by the hon. Gentleman, as they seem directly relevant to the clause?

Malcolm Wicks (Labour, Croydon North)

I am still reflecting on such issues and have asked for advice. I am minded to write to my hon. Friend the Member for Southampton, Test with some detail, a copy of which I shall give to all members of the Committee.

Stephen Ladyman (Labour, South Thanet)

Good morning, Mr. Amess. I want to make a general point about the whole chapter, and our discussions on the clause is probably the most appropriate place to do so. I refer my hon. Friend the Minister to our final evidence session and question 196, which was asked by my hon. Friend the Member for Copeland. It received an answer from Mr. Chris Mansfield, who said:

“In principle, if you look at the provisions in the Bill and the proposals put forward by the European Commission in a draft CCS directive in January, the intent, which is very much supported by industry, is that that is a liability that should be taken on—at an appropriate point in time—by the state.”—[Official Report, Energy Public Bill Committee, 19 February 2008; c. 102, Q196.]

He goes on to say that he does not think that it is reasonable for businesses to have to assume the liability for ever, that businesses do not last for ever, but that the state goes on, so the liabilities must fall eventually on the state.

As a consequence of that intent, the clause and the related clauses in the chapter have been drafted in benignly. The business is regarded as benign and one that we wish to encourage. We do not wish to put barriers in its way, as we do not want to scare people away from it. I contrast that point with the later chapter that deals with nuclear energy and the liability that comes from the necessity to store nuclear waste and to have a decommissioning proposal. That chapter is written with an entirely different tone, along the lines of, “This is a very dangerous business. You’re in it to make money, and we’re going to lock you down and make sure that you pay every penny.” It includes clause 60, which I call the “We’re going to hunt you down to the ends of the Earth to make sure that you pay up” clause. It also includes clause 62, which I call the “Don’t you think you’re going to get tricky with us, because we’ll come after your neighbours and your friends as well” clause. Effectively, it is written in a completely different tone to this package of clauses, including clause 17, which is written from the point of view that the matter is benign.

Yes, this is a benign business, but people will be in it to make money. It involves the capture of a dangerous material that will have to be stored for a very long time, for which people will have to be responsible for a long time. Although I entirely accept the benign tone of the chapter, I raise the point now because when we consider the chapter on nuclear energy, the decommissioning of nuclear energy resources and long-term storage, I will wish to talk to my hon. Friend the Minister about the difference in tone in that chapter and ask whether we have got it right, or whether it would be better to make amendments to encourage investment in nuclear energy, in the same way as this chapter is phrased to encourage investment in carbon capture and storage.

Malcolm Wicks (Labour, Croydon North)

That was an interesting speech. When examining aspects of climate change and energy policy, I often reflect that if the well-known saying of Harold Wilson that “a week is a long time in politics”—we have had one or two of those weeks recently—is at one end of the continuum, looking at targets for CO2 reduction, the effects of carbon emissions on our planet and the longer term issues about CO2 storage and the storage of nuclear waste is right at the other end. Here we are in 2008, trying to do our best to make policy for decades and centuries ahead—perhaps millennia ahead as regards CO2 storage and a long time ahead for nuclear waste—so my hon. Friend the Member for South Thanet has raised an interesting point.

Nuclear energy is, or should be, a profitable business. It is not unreasonable to ensure that the companies in the business pay the full costs. We will have some debate about the full costs, and how we calculate them is a perfectly legitimate discussion to have. However, we have always recognised that there comes a point, when the geological repository is sealed, when the state takes over that responsibility for the long term—no one else can. No one can quite predict what the state will look like in half a million years.

Charles Hendry (Conservative, Wealden)

You will be out of government.

Malcolm Wicks (Labour, Croydon North)

It is that kind of time sequence that we are planning, yes.

The reason why Governments such as our own have to find taxpayers’ money for demonstration projects is that there is, as yet, no money to be made out of CO2. It is not yet a profitable business, although it could well become a commercial business in the future, and it will need to. Hence, perhaps, the benign tone that my hon. Friend refers to.

Stephen Ladyman (Labour, South Thanet)

If my hon. Friend is not in power in half a million years, I at least expect there to be a large portrait of him on the Committee wall, staring down at the people who follow us. He is absolutely right that carbon capture and storage is not yet a profitable business, but nobody is proposing that the Government subsidise it for ever. It is intended that it will become a profitable business. It is a good business, we want people to be in that business, but nuclear energy has an equally important role in reducing carbon dioxide and fighting climate change. However, just as people in that industry need to be responsible for their liability, so do those responsible for carbon capture and storage. I want to see an even playing field for the two industries.

Malcolm Wicks (Labour, Croydon North)

I take my hon. Friend’s argument. Last week, I implied that, in my judgment, the nuclear clauses of the Bill will not go through on the nod—that is my political instinct—and I am therefore sure that there will be an opportunity to discuss those matters. To sum up from that interesting intervention: there are things in common between CO2 and nuclear in that the commercial entity must take responsibility for eventual decommissioning. Similarly, in the very long term, only the state can take responsibility. However, there are also differences, which we will no doubt return to.

Clause 18

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss new clause 18—Provision for regulations for a carbon dioxide performance standard on electricity generating stations —

‘After section 36B of the Electricity Act 1989 insert—

“36C Generating stations: carbon dioxide emissions performance standard

(1) The Secretary of State may by regulation prescribe a carbon dioxide emission performance standard applying to any generating stations requiring consent for construction or extension under section 36.

(2) Regulations under this section must prescribe a carbon dioxide emission performance standard that is in no case greater than 400 kilograms of carbon dioxide per megawatt hour of electricity generated at any individual generating station.

(3) Regulations under this section may prescribe—

(a) the ways in which proposed generating stations are able to demonstrate compliance with the carbon dioxide emission performance standard including by way of carbon capture and storage;

(b) the information that must be submitted with an application under section 36 to demonstrate compliance with the carbon dioxide emission performance standard;

(c) how compliance by generating stations that have demonstrated compliance with the prescribed performance standard and are granted consent under section 36 shall be monitored and enforced, including appointing and conferring powers on an appropriate agency to carry out such monitoring and enforcement;

(d) any sources of electricity generation that are deemed to be compliant with the carbon dioxide emission performance standard including electricity generated from renewable sources.

(4) The Secretary of State shall not grant a consent under section 36 for any generating station that does not comply with any prescribed standard.

(5) Before making regulations under this section (including setting the level of performance standard), the Secretary of State shall consult—

(a) electricity generators;

(b) the Gas and Electricity Markets Authority;

(c) the Gas and Electricity Consumer Council;

(d) the Environment Agency with regard to England and Wales;

(e) the Scottish Environmental Protection Agency with regard to Scotland;

(f) other persons or bodies representing the interests of the electricity industry, local government and the environment, and

(g) any other persons or bodies as he may consider appropriate.

(6) The Secretary of State must make regulations under this section no later than 12 months from the date on which this Act is passed.

(7) Any regulations under this section shall not be made unless a draft at the instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.

(8) In this section—

“carbon dioxide emission performance standard” means a standard prescribed by regulation setting the maximum amount of carbon dioxide that may be emitted from a generating station.”’.

Malcolm Wicks (Labour, Croydon North)

I am looking forward to hearing about new clause 18, but first, I will speak briefly by way of introduction to our clause. The clause will enable the Secretary of State to make regulations by the negative procedure that prescribe the circumstances in which carbon dioxide storage licences may be granted. The Liberal Democrats worry about the burdens placed on the hard-working Secretary of State, but he has some support, so I do not want them to get too anxious.

The clause states that the regulations may prescribe who may apply for licences, what information would have to be supplied by the applicant, the financial security arrangements and other requirements. Having such regulations in place will help to ensure that only appropriately qualified and financially sound operators engage in CO2 storage activities and that certain conditions are satisfied before a licence to commence operations can be obtained. I now look forward to hearing the arguments in favour of new clause 18.

Martin Horwood (Liberal Democrat, Cheltenham)

I shall first address the stand part debate, particularly in respect of clause 18(2)(e). The impact assessment signed by the Minister raises an interesting question on page 19 about carbon caption storage falling within the European Union emissions trading scheme. Future leakages or losses of carbon dioxide from geological or other storage facilities will attract financial penalties, because permits are technically required for such carbon emissions.

As the Minister has pointed out, we are talking about very long-term prospects. He almost issued the phrase, “A millennium is a long time in politics”, and I wish that he had; as it would have been a good one. I want to ask about the licensing regime and whether the future obligation not to lose carbon dioxide from storage facilities will be incorporated within the licensing regime. From the impact assessment, it seems as though it should be, but it is obviously a challenge to design that licensing regime to cope with the very long time scales that might be involved.

The hon. Member for South Thanet was right to draw a comparison with the nuclear clauses, although we would make the obvious distinction between one industry that we would rather discourage and another that, in this case, we would rather encourage. That legitimises a different approach. After all, when instantly released, CO2 does not start poisoning anyone or making their hair fall out.

Stephen Ladyman (Labour, South Thanet)

First, I take issue with that final statement. If there was ever a massive release of CO2 from one of the carbon storage places, it would be catastrophic. Secondly, the Liberal Democrat position might be to discourage nuclear energy. If these two chapters had been phrased in a distinct way, I could understand it. My position and that of my hon. Friend the Minister is that we see nuclear energy as having a positive and benign role in fighting climate change. So, in those circumstances, the two chapters should be written on a more even keel.

Martin Horwood (Liberal Democrat, Cheltenham)

The hon. Gentleman makes a perfectly legitimate point. We look forward to the Minister’s further comment.

The new clause addresses another crucially important issue in terms of carbon capture and storage. For many organisations and observers of our debates, there is a glaring omission: for all the commitments to store CO2, once it has been captured, there is nothing in this Bill that mandates its capture or puts in place a regime with powers for the Secretary of State to enforce, strongly encourage or incentivise its capture.

In one of the evidence sessions, the hon. Member for Copeland asked whether we were betting the house on carbon capture and storage and whether it would be the cornerstone of future energy policy in tackling climate change and without which the whole project might fail. To be honest, the answer could be yes. We hope that energy efficiency and, in some cases, nuclear power or at least renewable energy, will do something to close the energy gap, but they will all struggle to do that within the time scales we have in front of us. Carbon capture and storage is therefore a vital component of the campaign to meet our emissions reductions in the medium term.

If a new generation of coal-fired power stations such as Kingsnorth is to go ahead, that cannot be done without a regime in place that would at the very least enforce carbon capture and storage as soon as it is available. The sooner that regime is enabled, the better for industry and for investors to plan for it.

The risk is that we commission new power stations and then later, once the technology is up and running, we spring the regulatory regime on the industry. That is the kind of thing that industry persistently tells us is bad for investment and future planning. The clear direction of the Stern report is that action now to incentivise and make clear the strategic direction of the Government provides certainty for investors and reduces costs in the long term. We need to lock ourselves into a regime that will make carbon capture and storage an inevitable part of any new generation of any fossil fuel powered stations.

There is a good precedent. California has introduced a greenhouse gas emissions standard, including a facility-based element that targets particular power stations. The standard sets a level of carbon dioxide emissions per megawatt-hour. In new clause 18 we suggest a level of 400 kg of carbon dioxide per megawatt-hour. That figure is not plucked out of the blue; it is based on the current performance standard of the best modern combined-cycle gas turbine power station. That should be the baseline against which the Secretary of State will have the power, as the technology comes on stream, to reduce and enforce lower emissions of carbon dioxide from fossil fuel powered stations.

Malcolm Wicks (Labour, Croydon North)

I was struck by the phrase, “as the technology comes on stream”. I thought that was significant, so will the hon. Gentleman say more about that? At first sight, I thought his new clause might be saying that no coal-fired power stations would be allowed until they could be capture-ready. Is he saying this power would come in only once CCS had been proven?

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful for the Minister’s intervention. Perhaps I have not made myself sufficiently clear.

We need to set aside the debate as to whether Kingsnorth goes ahead without carbon capture storage technology in place right now. Many of us might be sympathetic to that but it is outside the remit of the clause in front of us and perhaps even the Bill. We are seeking to establish a clause that would give enabling powers to the Secretary of State and would give him the mechanisms with which to enforce carbon capture and storage, at the very least as the technology becomes available. In other words, a clear strategic direction and a clear direction of travel for industry and investors would be set out. They would be very clear that if and when the technology became available—and we all hope it will become available sooner rather than later—the Secretary of State would already have the powers in place to reduce acceptable amounts of carbon dioxide per kilowatt-hour and to enforce an increasingly stricter regime so that it became cripplingly expensive to run a fossil fuel powered power station without carbon capture and storage.

Charles Hendry (Conservative, Wealden)

I am listening to the hon. Gentleman with great interest, may I take him to the actual wording of his new clause? Subsection (2) says:

“Regulations under this section must prescribe a carbon dioxide emission performance standard that is in no case greater than 400 kilograms of carbon dioxide per megawatt-hour of electricity generated”.

That is a very prescriptive approach and does not seem to tie in with his talking about “when this technology becomes available” and “when it comes on stream”—the two do not seem to tie in together.

Martin Horwood (Liberal Democrat, Cheltenham)

Again, I must have not quite sufficiently explained my thinking because I thought I had addressed that issue already. The number has not been plucked out of the sky and I have some sympathy with the view that it should not be too prescriptive—that is something we have argued in other clauses.

The number is based on the Californian model of taking the best emissions performance of the best modern power stations. In this case, modern combined-cycle gas turbine power stations emit 400 kg per megawatt-hour, so that is where the standard has come from. The new clause says we should do no worse than we do at the moment and would give the Secretary of State the power, in due course, to reduce that level on a progressive basis, as the technology allows. It sets out the opportunity for the Minister to emulate Governor Schwarzenegger, to become “The Terminator” of dirty coal-fired power and to be the champion of clean coal and gas-fired power stations in the future.

Charles Hendry (Conservative, Wealden)

I will talk firstly to new clause 18 and then ask questions about the clause as it currently stands. No doubt the Minister “will be back” in a Schwarzenegger way to respond formally to the points that have been put forward.

I think there is mixed thinking in what we heard just now from the hon. Member for Cheltenham. This approach has been taken in California and the companies there know that they cannot build a power station unless they are going to adhere to very strict standards of emissions. However, they are part of a nationwide structure so they can always import energy from other parts of the US if coal-fired power stations do not get built in California. I see the attraction of having an absolute limit; it gets us away from the target culture, and as the Minister will have heard me say before, I think the target culture is fundamentally flawed because it just means that, in 15 years, somebody else can come along and explain why the target was not met. An absolute limit does not provide that wriggle room, but there is an inherent contradiction in what the hon. Member for Cheltenham has been saying.

Martin Horwood (Liberal Democrat, Cheltenham)

The hon. Gentleman seems to be criticising the Californian system, but the Californian level is established very specifically at 1,100 lbs of CO2 per megawatt-hour, which is about equivalent to 500 kg, and it is on a state-wide basis. It does not depend on any national scheme, because there is not actually a national emissions trading scheme in place in the US yet.

Charles Hendry (Conservative, Wealden)

I am not criticising the Californian system—it has different sources of energy from those we have available to us—but I am not sure it is immediately applicable to us. I am particularly intrigued by some of the language. The hon. Gentleman said that Kingsnorth would be built, but on the condition that carbon capture and storage would be implemented “as soon as it is enabled”. That would mean asking those who are investing in that power plant, E.ON, to build a power plant without knowing what the costs would be and probably assuming that the technology would be available, but certainly not knowing whether Government support would be available to help them meet the costs. My expectation is that if Kingsnorth were to have carbon capture and storage technology built in from the outset, it would add an extra £400 million or £500 million to its construction costs. The investors would have to gamble that they might get some of that money back from somewhere. They would not do that; they are part of a global company, so they would go and invest in other forms of energy elsewhere in the world. We would therefore find that the hard-line approach that the new clause suggests would drive away investment in some areas.

I have great sympathy for the concept that we want carbon capture storage to be applied to Kingsnorth but I do not believe that the new clause will achieve that—it is far too prescriptive. The hon. Gentleman has also got to tell us how we are going to fill the energy gap.

Steve Webb (Liberal Democrat, Northavon)

The specific example of Kingsnorth is very germane to this new clause. Could the hon. Gentleman verify his own view on the criteria—should it be a cap of the sort envisaged here? If he were Secretary of State, would such a project go ahead without any conditions? How would he try to achieve these goals?

Charles Hendry (Conservative, Wealden)

I find the prospect of Kingsnorth without carbon capture storage quite horrific. It is clearly a cleaner technology than the old coal-fired power stations. The idea of building a massive new fleet of power stations when we could be using other technologies or when CCS could be involved would be profoundly disturbing. I therefore wish very much that CCS is part of the Kingsnorth project and that will no doubt be part of the bidding in the pilot scheme. We will have to see what the Government decide in due course but if Kingsnorth does not get financial support under the pilot scheme, the Government will have to address the problem. Without such support at the outset, I doubt whether the investment would go ahead.

We will need at some point to discuss how we fill the looming energy gap. The Liberal Democrats are not in favour of nuclear power; they are not in favour of some of the new-build coal that is being suggested; they are not keen to have imported gas; and Liberal Democrat councils are stopping wind applications. Are we going to go backwards? We are going to have a rather dark, cold future, presumably sitting in a hut, waiting for somebody to rub some sticks together and invent some heat for us.

Stephen Ladyman (Labour, South Thanet)

Will the hon. Gentleman give way?

Charles Hendry (Conservative, Wealden)

I will give way because I believe that Kingsnorth will be built adjacent to the hon. Gentleman’s constituency, or at least very near it.

Stephen Ladyman (Labour, South Thanet)

I was going immediately to declare that interest: Kingsnorth is not very far away from my constituency in Kent and many jobs are going to be dependent on it. Like the hon. Gentleman, I very much hope that it will include carbon capture and storage. However, if we did something that would discourage the development of the new Kingsnorth, would that not mean that the existing plant—which is dirtier and produces far more CO2—is likely to be further extended into the future? It is in the interest of the environment that we give E.ON the support it needs to develop these new technologies and, in addition to that, press it to include carbon capture and storage at a later date.

Charles Hendry (Conservative, Wealden)

My understanding is that the current facility has to close down because of EU requirements in any case and that the new plant proposed by E.ON would be much cleaner than the old one. However it still would not be acceptable unless CCS can be involved at some stage. That is why the way in which the pilot project is going to go ahead will be fundamental to deciding whether that happens; coal can have a future, but only if carbon capture storage can be made to work. My concerns about this new clause is that, by laying down at this stage such a prescriptive approach, people will be asked to invest without knowing what the costs are going to be and without knowing what Government support might be available. In those circumstances they will simply walk away.

Martin Horwood (Liberal Democrat, Cheltenham)

I cannot let the hon. Gentleman’s criticism of Liberal Democrat policy remain unanswered. He asserted that we are against the import of natural gas. I do not remember having said that and nor do I remember any of my hon. Friends saying such a thing. The import of natural gas may be not be desirable, but we certainly would not be in favour of stopping it. In terms of carbon capture and storage for fossil fuel powered power stations, he seems to take a view that is supported by comments from the right hon. Member for Witney (Mr. Cameron). If the hon. Gentleman rejects the new clause on technical grounds, I would therefore be interested to know what he suggests in its place.

Charles Hendry (Conservative, Wealden)

If I have misunderstood the Liberal Democrat position of expressing concerns about being heavily reliant on imported gas—in particular, the proportion that comes in from Russia—I apologise if I misinterpreted their stance.

We have said that it is clearly desirable for carbon capture and storage to be part of the pilot project at Kingsnorth. If it is not part of that project, the Government have to find another way of supporting it. If the CCS plan is not involved from the outset, the environmental costs of Kingsnorth are almost too great to contemplate. However, new clause 18 is not the right way to deal with that. Setting such a strict target—or such a prescribed limit—at this stage would drive away investment, rather than enabling the partnership approach to develop.

Steve Webb (Liberal Democrat, Northavon)

This has been a very worthwhile debate, and I just want to add a couple of brief comments and questions. I am interested in an issue that has arisen, which I would call double jeopardy: if there is leakage from stored carbon, my understanding is that a permit is needed under the emissions trading scheme—so, effectively, it must be paid for—but can the Minister clarify whether a separate penalty regime will apply? I have been looking through the clauses in this series, and there are all sorts of penalties for not keeping the books properly, but I am slightly confused about whether there is a penalty for allowing CO2 to leak. The penalties do not seem to include one for actually letting the stuff out. Is that because a permit is needed under the ETS and there is the penalty, or is there a penalty in the clause in respect of licenses? I am unclear about that.

More generally, on giving the go-ahead to new plants, our new clause includes a specific figure as an upper boundary. If a figure were not put in the new clause, it would simply say that the Minister could set any ceiling. If the Minister set a very high ceiling, it would be a non-binding constraint and have no impact. We did not think it sensible to table a new clause that would have no impact if the Government just decided that it would not have one. We are trying to beef up what the Government do. That is why we have included a specific figure.

It seems to me that the right approach to new applications, whether at Kingsnorth or elsewhere, is that we first need a public inquiry, as it will be the first of many and this is of strategic national importance. I hope the Minister will tell us whether or not we will get an inquiry. We should not give the go-ahead in the hope that the technology is on stream, although many of us have understandably expressed such hopes. We should not give the go-ahead for an indeterminate future point at which the stuff that is going to be spewed out might be captured. We should not give the go-ahead with that degree of uncertainty.

Personally, my judgment would be that the go-ahead should not be given to any new coal-fired power station until there is a determinate period in which carbon capture can be applied. Indeed, the requirement should be that, when the go-ahead is given, the power station is CCS ready in a very specific sense—ready for a technology that we know will work in a realistic time scale. That seems to be the right way forward.

In response to the hon. Member for Wealden, I suggest that the industry would then have certainty; it would know the time scale over which it had to put CCS in place; it would know the technology required to implement it; and it would have some idea of cost, because the technology would be near market. That is probably the right balance to strike. I hope the Minister can clarify the Government’s strategic approach, because our new clause is all about the limits and conditions on a new generation of coal-fired power stations, and it would be helpful to get a steer at this point from the Minister on the Government’s strategic approach.

Malcolm Wicks (Labour, Croydon North)

This has been a useful discussion. May I say from the outset that it would be inappropriate for me to comment on any live application for a power station—or indeed on the timing of any decision by the Secretary of State. The Secretary of State operates in a semi-judicial world in that respect, and I am afraid that our hands are tied. Obviously, for any application, the Secretary of State would want carefully to consider all representations.

The licensing regime for CCS will be flexible enough to cover liabilities for leaks, among other things. The European Union’s ETS liabilities will therefore also be covered for as long as the licence is in place. After that—as I think we were teasing out earlier—the liability in the long, long term will have to pass to the state.

I was also asked whether, if there were a leakage—of course, we hope there will not be any—there is a penalty regime in the Bill. I am advised that clause 19 explains what can be contained in a licence, although the list of terms and conditions is not exhaustive. We expect requirements to remedy and to notify of a leak to be included in every licence, as standard. Failure to notify of a leak will be a criminal offence under clause 22. The operator will also be liable for damages under the environmental liability directive.

Steve Webb (Liberal Democrat, Northavon)

Clause 19(3) contains a list of the things in the licence, but the Minister appears to be saying that leakage is not yet included. I am puzzled about why that was not put in the Bill; it seems to be fundamental to a licence to store carbon.

Malcolm Wicks (Labour, Croydon North)

I have said that the list is non-exhaustive, and we expect such things to be included, but perhaps I can say more about that in the debate on clause 19. Committee sittings may be exhausting, but the list is non-exhaustive.

I have listened carefully to the hon. Member for Cheltenham speak on the new clause, but I have also listened to the hon. Member for Northavon, and I am not sure whether there was consistency. I think of myself as a conviction politician, but I have a weakness for searching for consensus. The consensus is—surely, this is a happy situation—that we all want carbon capture and storage to work, because of its importance to contributing to CO2 reductions. We are all frustrated that CCS is not on the shelf, ready to take off and apply to fossil fuel power stations. The issues that confront us are probably about timing, and of course, energy supply and security are crucial.

I see myself as more of a spectator in the discussion between the two Opposition spokesmen, and as the only Minister on the Committee, I welcome that distraction from time to time. I enjoy it, and it is often interesting. Nevertheless, supply is important. The climate change and energy world is full of sometimes well-qualified people who say no to things—they are the Dr. Nos. They say no to nuclear and no to fossil fuel power stations, and they say yes to other things in principle. However, I am afraid that the hon. Member for Northavon is right. I use the word “afraid” because the Liberal Benches are often full of Liberal MPs who, in practice, say no to wind farms in their constituencies. The simple truth is that, unless we are going to jeopardise our security of supply and unless we become even more reliant on gas imports than we will need to be anyway, we must start to say yes to things.

I do not think therefore that it is unreasonable if, either during debates in Committee or on the Floor of the House, serious political parties say serious things about where the stuff is going to come from. That is a perfectly legitimate point that the hon. Gentleman raised. I was searching for consensus and I have spoilt it, but there we are. The consensus is that we want carbon capture and storage to work, but we have to confront a timing problem. It is not unreasonable that we have different views about that problem.

I can understand the motivations behind the new clause. I shall explain why we have not included provisions in the Bill similar to those recommended by the hon. Members for Cheltenham and for Northavon and why we believe that it will not be appropriate to do so. Section 36 of the Electricity Act 1989 requires a development consent to be obtained from the Secretary of State in England and Wales and from the Scottish Executive in Scotland for all new power stations of 50 MW or more.

The new clause suggests that no such consent should be granted unless the relevant power station is capable of meeting a prescribed standard for the emission of greenhouse gases. Although I am still confused about the timing of when the new power will come into force, but perhaps that is a detail. The Government do not believe that prescribing emission limits in that way is the most effective route to low-carbon power generation. Such an approach goes against the Government’s fundamental approach to energy policy, as set out in the 2007 White Paper. In the UK’s competitive market framework, the choice of fuel and technology for a new power station is a matter for the energy company. The Government’s role is to set the right framework to incentivise private sector investment, consistent with meeting our energy goals of tackling climate change and providing energy security.

Martin Horwood (Liberal Democrat, Cheltenham)

Will the Minister give way?

Malcolm Wicks (Labour, Croydon North)

Yes, although I have a lot more to say, which I am sure will meet the hon. Gentleman’s requirements, but of course I give way.

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful to the Minister for giving way. He is doing a good job of answering many of the points that we have raised. If not under this regime, how does he imagine that existing gas and coal-fired power stations will be incentivised to adopt carbon capture and storage? Is that set out in the Bill?

Malcolm Wicks (Labour, Croydon North)

By some happy coincidence, I am going to touch on that in the next few pages of my speech. It is the Government’s view that the EU ETS has an important role to play in reducing greenhouse gas emissions from new and existing power stations. We believe that it is the most cost-effective way to make the transition to a low-carbon economy.

The EU ETS is a market-based mechanism that sets an overall EU cap on carbon dioxide emissions. It operates by setting an absolute cap on the CO2 emissions that can be emitted by the installations covered by the scheme—for example, a cement factory or a power station. The cap on emissions is distributed to installations via allowances that are either given or auctioned off to individual installations. The allocations of allowances specify how much carbon dioxide may be emitted by each installation. Installations that emit less carbon dioxide than their allowance and therefore have an excess can sell it on the market, and those that emit above their individual allocation must purchase the allowances from installations with a surplus.

We believe that the EU ETS is the best way to tackle this issue for two reasons.

Martin Horwood rose—

Malcolm Wicks (Labour, Croydon North)

Would the hon. Gentleman mind if I make some progress? First, the in-built scarcity in allowances that results from the imposition of the cap creates a price for carbon, thus encouraging investments in generating technologies that emit less carbon dioxide, which is the same objective as that in the new clause.

Secondly, the EU ETS provides flexibility for the market to identify the most cost-effective way to reduce emissions. The ETS allows companies to use credits derived from the so-called Kyoto flexible mechanisms—the clean development mechanism and the joint implementation mechanism—to offset carbon emissions in the UK. Thus, where this is cheaper than reducing emissions in the UK, project developers will take action to set up emissions-reducing projects in the developing or transition countries and will sell the emission reduction credits derived from such projects to entities covered by the EU ETS.

Given the flexibility in the EU ETS, we can therefore reduce emissions at the lowest economic cost, while facilitating technology transfer to developing countries. The new clause would be to remove that flexibility. For example, in the short term, an operator may build a coal power station in the UK and buy allowances through the clean development mechanism. With the benefit of a proven technology, such as CCS, the same operator may then choose to retrofit CCS and benefit from the emission reductions. Carbon emission reduction is a global objective and we need to deliver it through the most cost-effective means. That is a lower cost way of reducing emissions, and I believe that it is right that developers should have that option.

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful to the Minister for indulging me again by giving way. I want to question him before he sits down and allows me to speak substantially on the issue. He is describing the process by which carbon pricing is achieved through the emissions trading scheme. That was quite specifically addressed by Sir Nicholas, now Lord Stern in his report. He said:

“Carbon pricing alone will not be sufficient to reduce emissions on the scale and pace required”.

The reason for that is pretty clear, from the way in which the ETS is operating in practice. The carbon price that it is generating is not sufficient to drive investment into clean technologies. This is an explicit problem with emerging emissions trading schemes and one with which we are all familiar. Does the Minister now disagree with Sir Nicholas Stern’s assessment that something more than simply an emissions trading scheme and carbon pricing is required to drive forward such technology?

Malcolm Wicks (Labour, Croydon North)

I agree with Nick Stern’s analysis, although I want to say a little more about the ETS. It is part of the answer and becomes a more significant part if the carbon price increases as we become tougher in phase 3 of the ETS. I certainly concede that, as far as we can tell at the moment and for the foreseeable future, it is not the whole answer, just part of it.

We have outlined our commitment to consolidating the EU ETS in the energy White Paper and we are currently working closely with the Commission to ensure that the revised EU ETS directive continues to play a key role in ensuring that the EU and the national emissions reduction targets are reached. I hope that members of the Committee agree with the Government’s view of the ETS as a cost-effective means of delivering our goals in achieving emissions reductions. It does that while, at the same time, allowing progress towards achieving all our energy policy goals, including maintaining reliable supplies.

As the Committee will be well aware, without new electricity capacity, the United Kingdom potentially faces a growing gap in its generation capacity. The hon. Member for Cheltenham has made that point. It is significant that nine fossil fuel power plants, comprising 12 GW of capacity, which is about 20 per cent. of peak demand this year, are scheduled to close by the end of 2015. Six nuclear power plants with the combined capacity of about 6.3 GW are also scheduled to close by 2016, with another 4 GW in later years.

We are not therefore in the position to rule out key elements of the UK’s energy mix, which is what the hon. Gentleman’s new clause would effectively achieve by setting greenhouse gas emission standards at approximately half of what is currently emitted by a new super-critical, coal-powered station. Currently, coal accounts for about one third of our electricity supply, but that proportion will reduce during the next five to 10 years as stations close. Coal-fired electricity generation plays an important part in reducing and managing the risks of growing dependence on gas, such as in the winter of 2006 when gas supplies were tight and prices were extremely high, and the market was able to reduce gas emissions by generating electricity from coal. Indeed, during that winter for several months some 50 per cent. of our electricity was generated by coal in a difficult global gas market.

We should not prevent the market from providing such flexibility as we become more dependent on gas. Although the Government are committed to meeting EU renewable energy targets and have paved the way for new nuclear, neither technology is currently well suited to providing large-scale, flexible generating capacity on the time scale that can respond quickly to changes in the supply-demand balance. Fossil fuel power stations are presently the only means that we have of ensuring the flexible and responsive back-up capacity that we need.

Therefore, instead of ruling out one type of energy supply, the approach favoured by the Government is to maintain a diverse energy mix and to support the EU ETS that sets absolute caps on carbon dioxide emissions, and thus sends a clear carbon price signal to the market. That incentivises the industry to bring forward cost-effective investments to drive carbon dioxide emissions reduction.

Charles Hendry (Conservative, Wealden)

I have listened to the Minister with great care. He will be well aware that the price of carbon as set out under the EU ETS has fluctuated enormously. It has been up to €30 a tonne; it has been down to a few cents a tonne. Will he clarify the Government’s thinking on a floor price of carbon in the event that they decided that the EU ETS was not doing enough to switch people away from carbon because the price was too low? Will they consider a floor price?

Malcolm Wicks (Labour, Croydon North)

The short answer is yes, as we have said in our documentation. We are reluctant to have to get to that place. All our efforts are in developing and making stronger the ETS, so that CCS can be brought in, as can aviation and so on. We can have some confidence that, as the phases progress—phase 3, for example—we will see a stronger price for carbon. That is kept in reserve as a possibility.

On my understanding, the new clause tabled by the hon. Member for Cheltenham asks for regulations on emissions standards and for carbon capture readiness to be made within 12 months of the Bill’s enactment. The fact is that the technology will not be ready by then. It will not have been tested in the UK or anywhere else. Again, that raises the issue of what timing the Liberal Democrat Members have in mind. This is not a debating point, it is a serious matter—I am still slightly hazy about whether they envisage a number of years when no fossil fuel or coal power stations would ever be allowed because the technology would not be ready. I am genuinely unclear about that.

The issue of carbon capture and storage readiness is an important point referred to in new clause 18(3)(a). I would like hon. Members to note that we are currently considering whether we should require future fossil fuel power stations to be built “capture ready”, and if so, what the options would be for doing that. We will be launching a consultation on carbon capture readiness later this spring. The consultation will take into account the recent draft EU directive on CCS that promotes mandatory carbon capture ready conditions. It will consider the capture readiness requirements that may need to be contained in future applications for consents and how practically we might deal with the UK’s consenting process. It would therefore be premature to refer to carbon capture readiness in the Bill prior to the outcome of the consultation.

Paddy Tipping (Labour, Sherwood)

I accept that that is a sensible approach, but there is currently one planning application—Kingsnorth in Kent—and the Minister will have to be careful how he talks about it. Presumably that application precedes the consultation and will not be affected by the statement that he has just made.

Malcolm Wicks (Labour, Croydon North)

My hon. Friend might have been out of the room; indeed, I know that he was attending another Committee when I said at the beginning that I would not comment on any one application for reasons that he will understand. However, I have heard his comment.

Charles Hendry (Conservative, Wealden)

Can the Minister define what he means by carbon capture ready? My understanding is that being carbon capture ready could mean having better scrubbing facilities for sorting out the SOx and NOx, because if they are not removed from the system one cannot apply the carbon capture technology at a later date. Also, it is about having additional space for building a carbon capture facility adjacent to the power station. Is that also his understanding or does he have something more fundamental in mind?

Malcolm Wicks (Labour, Croydon North)

I invariably have more fundamental things in mind. The answer is yes: we want to consult because this, like many other questions, is not as simple as it sounds. We want to consider the capture readiness requirements that may be contained in future applications. In other words, we want to consider exactly what we mean by capture readiness. We want to have a consultation so that we can answer the hon. Gentleman’s question properly and technically. The issue deserves some technical work, hence our consultation.

In summary, I hope that I have reassured the hon. Members for Northavon and for Cheltenham that the provisions contained in the new clause are not necessary. The EU emissions trading scheme offers the most cost-effective means of ensuring that greenhouse gas emissions are reduced. However, I have always been happy to concede that, in the foreseeable future the ETS is unlikely to be the whole answer as it will depend on the price of carbon. Therefore, the consultation is important, as is the development of the CCS demonstration project as soon as we can.

Martin Horwood (Liberal Democrat, Cheltenham)

I warmly welcome the Minister’s announcement of a consultation on readiness of carbon capture and storage. That is a very positive development that Liberal Democrats welcome.

It is a moot point whether locking in carbon capture and storage to the licensing regime in respect of new power stations is premature, or whether it is premature of the Bill to go ahead before that consultation has taken place. We can leave that to one side.

The Minister is also right to identify the major problem facing energy supply in the UK, which is that tens of gigawatts of power are to go off stream by the middle of the next decade. That is why carbon capture and storage is critical and why it is essential that a regime that locks in carbon capture and storage—not just in terms of storing the carbon but of mandating its capture—is so important. With the best will in the world, energy efficiency, renewables and nuclear—whichever we prefer—are not going to be ready in time to meet our emissions targets by the middle of the next decade when this large-scale generating capacity is lost.

Malcolm Wicks (Labour, Croydon North)

I seek clarity from the hon. Gentleman. I could understand an argument that says that as soon as the technology is ready it should be a requirement. I am not saying that that would be the Government’s position, but it seems a logical argument. Is he saying that, or is he saying that until the technology is there a Liberal Democrat Government would never approve a coal-powered or fossil fuel powered station? What is the position on timing?

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful for the Minister’s question and the opportunity to clarify. We are seeking to lock in a process whereby it will be clear to investors that absolute mandatory conditions, of the kind that he just seemed to open the door to, will be part of the regime and will be in the Bill to give the Secretary of State powers to mandate reductions in specific carbon dioxide emissions from power stations, including fossil fuel powered ones. It will be for the Secretary of State to judge when the technology has reached the point at which those powers can be exercised and the restrictions introduced. The Minister suggested that the exact limit on emissions set by the clause would stop the development of all new fossil fuel powered stations, but in practice that could be a matter for debate. If the level is wrong, we can have the same essential regime with a different level, if that needs to be negotiated.

Similarly, the Minister questioned whether the technology was ready to put this kind of regime in place. The point is not to prejudge the technological developments. We are trying to avoid that. This is technology-neutral. We are trying to send a clear signal to investors and the industry—as requested by Stern and in so many other arenas—that this will be the regime, the landscape, the policy and the clear strategic direction. At the moment, there is nothing about that area in the Bill. There is nothing in the Bill that reflects the comments that the Minister has just made about being open to the idea of setting limits on individual power stations. We are trying to introduce that.

The Minister’s broad position at present, as I understand it, is that measures outside the Bill, in particular the emissions trading scheme, are a sufficient incentive to industry to bring forward the new technology. That is a respectable and logical position. It is one that I hope, under some pressure, he might be persuaded to modify.

I find the Conservatives’ position less logical. They seem to support in principle the idea that we need to lock in some process to mandate carbon capture and storage, but to criticise the only practical and positive suggestion on the table, which is the new clause. There is no Conservative alternative. If Conservative Members are not going to support the proposal in front of us, I have to concede that it is unlikely to go forward.

Brian Iddon (Labour, Bolton South East)

My difficulty is that if we disincentivise the industry operating in this country, we may get a greater volume of imported energy, whereas the EU ETS scheme at least applies to neighbouring countries as well as to Great Britain.

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful for the hon. Gentleman’s intervention, which was well informed as ever. He raises a legitimate concern, but we could debate the level at which the restrictions are set and whether the Californian model on which the new clause is based works well in practice. Such debates could all be had. At the moment, the new clause is the only practical suggestion for locking in capture, as opposed to storage, that is being suggested in the Committee.

As I said, I find the position of Conservative Members unsatisfactory because they are not proposing any alternatives despite appearing to support the broad approach in principle. I hope that consensus will emerge at a later stage in the Bill, but for the moment I concede that the new clause is not going to receive support. Therefore, I beg to ask leave to withdraw the motion standing in my name.

Sir David Amess (Conservative, Southend West)

Sometimes procedure in Committee can be confusing. Perhaps I should have made it clear at the start that although we are debating that clause 18 stand part of the Bill and new clause 18, the moving of new clause 18 will not happen until the end. That is when new clauses are moved and when there can be a Division on them. None the less, I have taken note of what the hon. Member for Cheltenham has said.

Charles Hendry (Conservative, Wealden)

Thank you, Mr. Amess, for that clarity. I think that we are all much wiser—well probably no wiser but certainly better informed.

The debate has gone to the heart of the energy challenge that we face. We know that, in 20 years, there are going to be many new sources of energy. Marine and tidal technology will have proved what they can achieve, and we will know what other forms of renewable energy, such as photovoltaics, can deliver. We have a massive energy shortfall coming down the line and we have to make decisions on how we are going to address that at an earlier stage. The challenge is that we do not know what technology can deliver economically.

We probably all believe that CCS is technically possible, but the challenge will be to ask industry to invest in new coal technology and coal-fired power stations when it does not know what the cost will be or who will pay for it. Industry will be aware that it will cost hundreds of millions of pounds to add CCS to each power station. If the Government were going to come forward with the money, by using some of the credit from the EU ETS for example, that would make a completely different investment environment from the one there is now. Although I am sympathetic to and understand what Governor Schwarzenegger has achieved in California, my concern about the new clause is that it would introduce too many uncertainties into people’s investment decisions in this area.

I want to raise with the Minister a number of general points about clause 18; there are areas where greater clarification will be helpful. Is he seeking to have international agreements and standards on these matters, rather than the UK going it alone? It would be a matter of concern to us, if we felt that the UK had different standards to other countries, particularly if those countries were adjacent to us. I hope that he will take a generally global view on that. The countries that may be able to do most in this area are those such as Norway and the United States, so we should not just be looking at an EU solution but to genuinely international standards.

Who does the Minister think will be able to apply for a licence under clause 18(2)(a)? What restrictions does he have in mind? Are there categories of people who will be likely to be barred from making applications? He has indicated in the past that it was unnecessary to bar people from making future applications, because if they did not adhere to the rules and regulations, this is the area where they could be ruled out. Are there other categories, particularly international ownership of organisations, where that may be the case? Would that give him grounds for anxiety? What will the fund, as set out in clause 18(2)(e), be used for? Will it deal with problems during the facility’s operation? How will financial security be provided? Will it just be from funds contributed, or will there also be a duty on parents and associated companies? Does that also take account of any decommissioning costs?

The store itself will clearly not be decommissioned—the intention is that the CO2 will be there for all time—but a small amount of apparatus will be necessary for injecting the CO2 into that facility. Who will be responsible for the decommissioning of that and will it be covered from this fund? Further, who will look after the fund—will it be ring-fenced? Will that be managed by the Government, or will it be invested elsewhere? Could it be used, for example, to offset levels of Government debt? Greater clarity as to how the fund will be looked after would be helpful.

Finally, I refer the Minister back to the comments made by my hon. Friend the Member for Northampton, South, who sadly cannot be here this morning. He talked about the need for a financial security test. At the time, the Minister said that that related more specifically to CO2 than to gas storage elements, so perhaps this would be an appropriate moment for him to comment on that. My hon. Friend said:

“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.”——[Official Report, Energy Public Bill Committee, 21 February 2008; c. 160.]

I hope the Minister will respond to those details, but in general, it seems to be a benign clause that we will certainly support.

Malcolm Wicks (Labour, Croydon North)

I thank the hon. Gentleman for that intervention. I think I indicated last week—certainly there will be an opportunity later this morning, or later today—to say more about the international framework that we are developing. However, he is obviously right that there is no point in us just developing ideas about CCS or any other proposals on carbon reductions here in the UK. We have got to play our part. We are responsible for 2 per cent. of the world’s CO2 reductions but given that that means—if my arithmetic is right—that 98 per cent. is the responsibility of other countries, we need to work internationally. Without going over territory that I can cover later, we are, for example, working very hard with the Norwegians on carbon capture and storage, including the reform of international conventions that have prevented the dumping of waste at sea. They clearly need modernising and we are making great progress on that. We are, of course, working within the framework of the European Union but I will say more about that in due course.

The classes of persons and who can apply for licences under the clause will be prescribed by regulations. Those persons will have to be financially sound and sufficiently expert to undertake the activity of carbon storage. In essence, all the normal safeguards will apply. We obviously have to be scrupulous about the criteria; we have to make sure that those companies coming forward are fit for purpose in all sorts of ways—in terms of finances and technologies.

The hon. Member for Wealden asked how the funds will be provided—will parent companies pay? We will be consulting on the nature of financial security. Our aim is to provide protection for taxpayers at least cost to the operator; we do not want to regulate for the sake of it. The operator will be responsible for decommissioning facilities and we will bear the cost—as is the case for other offshore facilities. Will the hon. Gentleman be happy for me to write to him about the precise nature of the fund? I understand the points that he is making and I can assure him that this will of course not be used as a pot for our friends at the Treasury. However, we need to have appropriate safeguards in terms of setting up the fund to make sure that it is there for its purpose.

Anne Main (Conservative, St Albans)

I should like some elaboration on what is required for people decommissioning offshore facilities. Is there enough clarity over what will be left when this is capped off—I cannot think of a better way of putting it? What structures will remain, will there be ongoing observation of the state of the site and what can people expect? These structures, as we know with the North sea, often end up in some fjord as a crumbling wreck. Exactly what do we imagine remaining in perpetuity for shipping, wildlife and the marine environment as a whole?

Malcolm Wicks (Labour, Croydon North)

We have much experience to draw on and will do in the coming few years—from the decommissioning of our oil and gas rigs in the North sea and the wider UK continental shelf where we have very clear procedures on what we mean by decommissioning. We discuss that regularly with the industry. We were saying last week that the company will have the prime responsibility, not the only responsibility, for monitoring the operation while it is live and before it is finally sealed off and capped, but we also said that our own departmental inspectors, whose experience is in oil and gas, will have a major responsibility, but with all the extra technical assistance that will be required. When the carbon dioxide storage is concluded—when it is finally sealed or capped—the state will, in one way or another, have the ultimate responsibility for long-term monitoring.

The hon. Lady will appreciate that the details will need to be finalised at the appropriate time. At the moment the UK has no direct experience of this kind of storage of CO2, but we are able to draw on the experience of the Norwegians in the Sleipner gas field, where CO2 storage has now occurred for 10 or so years. I have done my best to answer all the questions, but I will write to the hon. Gentleman about the fund.

Clause 19

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 12, in clause 19, page 10, line 27, at end insert—

‘(i) provision about obligations of a licence holder to advise the Secretary of State of any accidents, near accidents or leakages relating to the facility.’.

This clause sets out the terms and conditions that can be attached to a licence, and they are mostly sensible, nuts-and-bolts things. However there is nothing here about the rules relating to an accident. The Bill sets out an inspection regime, but an inspector will presumably make visits either at a given time or unannounced, but that will not necessarily coincide with something untoward happening at the facility. This amendment puts the onus, indeed a legal requirement, on the operator to advise if there have been accidents or near-accidents. We recognise that there could be legal difficulty in defining a near-accident, but it is right to be concerned about things that go wrong even if they did not actually result in a formal accident. They might indicate poor working practices that should be investigated.

We all recognise that we are entering uncharted waters with this technology and will be on a learning curve for many years to come. We do not know from whence the risks to the public or environmental safety might come, so we do need to take adequate precautions. Safety, of course, comes with experience and from learning from mistakes—where things have gone wrong, what steps have been put in place to make sure they do not happen again? Lessons learned in this way are so fundamental that they are, of course, the way we make sure that we make adequate precaution for the future.

It would be naive to think we could build in every conceivable safety element from the outset, so we need a precautionary approach in which the onus is on the operator to advise of accidents and near-accidents. Operators will be very concerned about safety, but in the early years of such technology, they will also be concerned about driving costs down, and cost reductions must not be allowed to win over safety. Similarly with leaks, the technology for identifying leaks is in its infancy. Mechanisms to identify leaks can be put in place, but it should be the responsibility of the operator to report any leaks that take place so that they can be fully investigated.

Steve Webb (Liberal Democrat, Northavon)

The hon. Gentleman’s amendment ties in with my comment earlier this morning about the omission from clause 19 of matters relating to leaks. I know that Government policy on leaks is normally to have a review that never reports, but I think that we need something better in this case. Therefore, the idea of a reporting requirement, as far as it goes, is not one I have a problem with.

This amendment, however, highlights a more general set of omissions from the terms and conditions set out in clause 19—and indeed, this part of the Bill—which relate to the whole issue of monitoring the security of the storage. We do not just want a report—that there is a big CO2 leak and the licensee reports it to the Secretary of State. That is fine, but does not quite seem to go far enough.

What other models are the Government looking to? Are they considering existing models that regulate, for example, mining, oil and gas, pollution control and waste disposal? A number of parallel activities have their own monitoring reporting regimes and which of them, if any, is being looked at—or is there a completely new approach being taken to the regulation of CCS?

I have no problem with the amendment, although I do not feel that it goes far enough in simply requiring reporting of accidents—and if they are as catastrophic as has been suggested, we will know anyway—but we need to go a lot further than it suggests.

I am puzzled, really, by the absence of much more detail in the Bill about the liabilities of operators and why the list of things a licence may include under clause 19(3)(a) to (h) has nothing about not only reporting requirements, but about penalties and monitoring in the event of leakages. I hope that the Minister can give us a fairly full response to the issues that have been raised by this amendment and clause 19.

Malcolm Wicks (Labour, Croydon North)

I will do my best. Certainly the issue around accidents of different kinds is crucial, so I would like to thank the hon. Members for Wealden and for Billericay for tabling the amendment. I recognise that they raise an important point in relation to carbon dioxide storage. Given the nature of likely CO2 storage in our seas, I will not say more about the use of the term “uncharted waters”—I do not think that the hon. Member for Wealden meant that technically but I know what he means. I hope, however, that some of these waters are charted.

Existing legislation is not suited to licensing the storage of carbon dioxide under the sea bed, and chapter 3 of the Bill is intended to provide a comprehensive and adaptable legal basis for regulating such storage in the offshore area. I would like to explain why we have drafted the provisions in the way we have, and set out why we think the amendment to include a provision about notification of accidents, near-accidents or leakages relating to a CO2 storage site is unnecessary.

The clause allows licences for CO2 storage and related activities to be granted on such terms and conditions as the Secretary of State, or an authority to which the licensing function is transferred, sees fit. The power will allow the licensing authority to include case-specific requirements in relation to each carbon dioxide store. The clause provides a non-exhaustive list of examples of the sorts of conditions licences may contain, including financial security provisions; the right for the Secretary of State to modify the licence; and provisions about closure of the storage site and termination of the licence. In addition, we expect that all licences will include provisions relating to monitoring and remediation, reporting, record-keeping, notification obligations, and the requirement to have a valid lease from the Crown Estate for the relevant site.

The clause therefore gives the Secretary of State, or another licensing authority, unfettered discretion to grant licences on such terms and conditions as it considers appropriate, subject to any regulations about the terms and conditions of licences that may be issued under clause 20.

Steve Webb (Liberal Democrat, Northavon)

Will the Minister give way?

Malcolm Wicks (Labour, Croydon North)

I think it would help the hon. Gentleman—and I like to be helpful, from time to time, anyway—if I made progress.

It would not be necessary to have express provisions in the Bill because subsection (3) is a non-exhaustive list. Our approach in subsection (3) is to set out examples of some of the less obvious provisions that may be contained in licences. Notification obligations, on the other hand, will be included in every licence as a matter of course, due to the importance of keeping the regulatory authority informed of any leaks or accidents or other significant developments in relation to the storage site.

Indeed, clause 22(1) specifies that that it will be an offence to fail to notify the regulatory authority as required by licence, which necessarily implies that notification requirements may be included in a licence. The Committee may also wish to note that my Department will be consulting on the licence arrangements shortly.

Consequently, I hope that I have provided some reassurance to the hon. Member for Northavon that provisions concerning the notification of accidents or leakages are sufficiently covered in this part of the Bill, without the need to add to the non-exhaustive list under the clause. I must confess that I can see why he raised the matter, but I am advised that it is a list of unusual provisions to be contained in the licences and that, by contrast with mediation and notification, will be included as standard. I apologise if that has led to confusion on his part but, as my speech progressed, my own confusion started to evaporate.

Steve Webb (Liberal Democrat, Northavon)

The Minister has brought forward an interesting doctrine whereby the Bill contains things that people might not have thought of, and omits the obvious, which is novel for Government legislation. Will he clarify as a set the status of the eight things under the clause? Is he really asking us to believe that they are in the Bill simply because we might not have thought of them, such as that the Secretary of State could review the licence, whereas reporting is so blindingly obvious that it does not need to be mentioned? Is that the Department’s strategy for legislating these days?

Malcolm Wicks (Labour, Croydon North)

That statement does not quite summarise our approach. I have conceded to the hon. Gentleman that I can understand why he is confused. Our approach was such that some things were so blindingly obvious—for example, concern about accidents and leakages—that reference need not be made to them, but I hope that he is now reassured. My experience with the Department working with the oil and gas industry, which is an obvious comparator, through our partnership with the industry known as PILOT, which I attend regularly, has impressed on me the fact that the industry takes accidents most seriously. We have only to go on an oil rig to experience a 20-minute safety speech first. That takes place perfectly properly, and we are not complacent about it. I am convinced that my Department and many of the big players that are likely to be involved in carbon dioxide storage have accidents as well as leakages uppermost in their minds. I hope that I have reassured the hon. Gentleman to some extent.

Martin Horwood (Liberal Democrat, Cheltenham)

The Minister has explained in general terms why some things as obvious as the environmental consequences are not set out in the Bill, although that might have been a good measure given that, when discussing earlier clauses, he suggested that environmental consequences would be paramount to the granting of licences under other parts of the Bill’s regime. He might therefore wish to comment on how important they are to the licensing regime that we are discussing.

My specific question is about whether the granting of licences will involve the calculation of the future cost of climate change. That is a relevant consideration at the moment, because it was used in the consultation on the third runway at Heathrow, when a strange new number invented by the Department for Environment, Food and Rural Affairs called the shadow price of carbon was used to calculate the future cost of climate change from carbon emissions on that project. That shadow price of carbon was three times lower than the one recommended in the Stern report for calculating the future cost of climate change. The difference was based on the assumption as to whether the various measures to tackle climate change would be successful. Stern was pessimistic, but realistic, about the prospects of that happening. Will the future cost of climate change be factored into the granting of licences for the facilities? If so, will we be committed to using the rather dubious number that was invented by DEFRA perhaps to fiddle the outcome of the Heathrow consultation, which that would have changed, or will there be the potential for DBERR to plan a more realistic path on its own and use calculations based more closely on the Stern report?

Malcolm Wicks (Labour, Croydon North)

If I did not know that the hon. Gentleman was one of the most disciplined parliamentarians in the House, I might have thought that he was trying to use my Bill as a little peg to make a point about Heathrow and DEFRA. I am sure that that is not the case. The importance of climate change is one of the reasons why issues about carbon dioxide storage are in the Bill. Tackling climate change is one of the major purposes of the Bill. If we are to stand any chance of tackling climate change—and we stand a good chance—we need to bring forward such technology. At this point, I think that I will leave the hon. Gentleman on the runway.

Charles Hendry (Conservative, Wealden)

I am afraid that the Minister’s response is not good enough, although we have great sympathy for him. He was reading through his text and suddenly realised that he did not understand what he was saying. We have all been there before. I find that that can happen to me even when I have written my own speech notes. Alongside Murphy’s law and Parkinson’s law, we now have Wicks’s law which says, “Do not put in legislation anything that is obvious.”

If the Minister looks at the elements that could be included in the licence, they could scarcely be considered to be unusual or less obvious, which were the words that he used. The hon. Member for Cheltenham talked about the provision

“enabling the Secretary of State to review the licence”.

We also have the provision

“enabling the Secretary of State to modify the licence”.

There is also the provision

“about closure of a carbon storage facility.”

Those are very obvious elements to include. Therefore, the Minister’s main line of defence does not stand up.

In relation to what we do with the amendment next, will the Minister assure us that included in the licence—even if it is not in the Bill—will be an obligation on the operators to advise of an accident or a leakage? If they do not have that obligation, how will we know if one has taken place? If they do not have the duty to tell the Minister or the Secretary of State, how will anybody know that something has happened and how can we be in a position to enforce good practice?

Malcolm Wicks (Labour, Croydon North)

I am happy to assure the hon. Gentleman that the issue of accident and leaks will be a very significant part of the Bill. I was slightly teasing myself about considering the question about the less obvious things in the Bill.

The hon. Gentleman made a quite good debating point. The substance of the matter is that this issue of accidents, relating both to personnel and to potential leaks, is crucial and will be a major component of the licence. Is he reassured? I do not want him to be disappointed in me in relation to anything that I say in this Committee.

Charles Hendry (Conservative, Wealden)

Indeed, I would hate ever to be disappointed by the Minister. Given the Minister’s assurances that the licences will include that point, I will not push the amendment to a vote. I beg to seek leave to withdraw the amendment.

Charles Hendry (Conservative, Wealden)

I raise a small point in relation to clause 19(3)(d), which talks about the provision

“enabling the Secretary of State to modify the licence in specified circumstances (with or without the consent of the licence holder.”

I understand why the Government do not necessarily need the consent of the licence holder because the licence holder may object to what the Government want to do but the Government may feel that it is right to do that. Will the Minister assure us that such a decision will be made following consultation with the licence holder so that it will have a chance to ensure that its views and concerns are taken into account?

Malcolm Wicks (Labour, Croydon North)

Yes.

Hugo Swire (Conservative, East Devon)

I put it to the Minister that brevity is everything.

Further to the point made by my hon. Friend the shadow spokesman on clause 19(3)(d), will the Minister say what the legal situation could be as regards somebody who has been granted a licence and suddenly the Secretary of State takes unto himself the powers to modify a licence that has already been granted in good faith? Is that feasible under law?

Malcolm Wicks (Labour, Croydon North)

Clearly, as this debate shows, the licence is a key means of ensuring that the environmental impacts of the carbon dioxide stores are minimised. That, combined with the fact that this is an emerging industry in which technical and regulatory experience is still evolving, means that a degree of flexibility in prescribing and modifying licence terms must be retained. For example, much of the basis of the initial licensing of a store will be predictive modelling of the behaviour of carbon dioxide in natural geological formations. If those models prove to be inaccurate, the regulatory authority may need to modify the licence. I mentioned that we know a little about the behaviour of CO2 through the Sleipner project in Norway, but it is early days scientifically.

The draft EU directive on carbon dioxide storage also requires the regulatory authority to have the power to review and, where necessary, modify the licence. Existing offshore licensing arrangements contain similar provisions, for example, licences issued under part 2 of the Food and Environmental Protection Act 1985 include the right of the regulatory authority to attach additional conditions, where there is a risk of adverse environmental impacts.

I understand the hon. Gentleman’s concern, because someone signs a licence and they need some certainty, but I hope that he will also understand that in this new territory, when we are on the frontiers of a new science, a new engineering and new technology, some flexibility is required. I assure him, as I assured his colleague the hon. Member for Wealden, that consultation is important in this area and will be standard.

Hugo Swire (Conservative, East Devon)

I do not want to labour the point, but if the Minister retains the right to modify the licence, there could be cost implications for the organisations or companies that have taken out that licence. In some cases the modifications, which are not specified in any great detail, could have a negative financial effect on the licensee.

Malcolm Wicks (Labour, Croydon North)

I understand that there could be financial implications. Clearly, we want these new businesses to develop in the future, but I do not think that at this stage I can give the hon. Gentleman any assurances or reassurances on the financial implications of a modification of a licence.

Anne Main (Conservative, St Albans)

Given that queries about certainty for licence holders are now entering the debate, does the Minister think it advisable to have a licence for a permitted period, which he might specify, rather than what seems to be a somewhat open-ended commitment to a licence, but one that can therefore be modified without the licensee’s permission?

Malcolm Wicks (Labour, Croydon North)

I would need to reflect on that. This is a long-term business, is it not? I think I said earlier that we might be talking about something of the order of 40 years for CO2 storage. I keep repeating myself, but it is such early days, who knows what the length of these projects will be? They will be long projects. We have plenty of time to reflect, but I would need to reflect on what the hon. Lady is saying. Is she saying that it would be sensible to only grant a licence for 10 years, with clear details, as opposed to granting one for 40 years that might need flexibility later?

Anne Main (Conservative, St Albans)

I just wanted to tease out the Minister’s thoughts. There are so many vagaries, not because anybody intends to make life vague, but because there are imponderables about the future. It may be that there will be a rolling programme of renewing, so that there is a guaranteed certainty unless the licences have been operated in an unacceptable fashion. Perhaps the Minister should look at that rather than putting into the Bill something which, depending on the political climate of the time, allows him to alter the licence at will or on a whim. With that vague possibility of future costs, the licensee would be left uncertain or unwilling to invest.

Malcolm Wicks (Labour, Croydon North)

As I say, there will be time to reflect on such matters. No doubt when we reach that point—and I hope that we will reach it with our demonstration project, although that will be for one rather special project—we will consult with the relevant company or consortium. In the longer term, there will be opportunities for consulting with the new and emerging industry. We certainly have flexibilities in the North sea with regard to oil and gas, which we want to ensure are being properly exploited. Where appropriate, we can take licences away and reallocate them to newer, often smaller, companies. I am not certain whether that is a useful comparison, but I understand the question. We are in very early days and I understand that companies need as much certainty, including financial certainty, as they can get. There will be great opportunities to explore these issues and consult with the companies concerned.

Anne Main (Conservative, St Albans)

I thank the Minister for his answer. He spoke about taking licences away, and touched on oil and gas. If there are parallels, does he feel that there is enough detail about licensing to make a judgment as to whether to remove a licence?

Malcolm Wicks (Labour, Croydon North)

No, of course I do not. It is a bit like talking about urban development on Mars when we have not even lit the fuse, or whatever we do. I am not saying that the hon. Lady is being unreasonable, but it is reasonable to say that these are early days and there will be time to consider these issues. We should look at this as a new industry that will emerge globally, with opportunities for companies to prove themselves and show that they are technically and financially on top of the job when seeking other contracts around the world. I think that many companies will understand that we need flexibilities. They will want to prove that they can be adaptable as we learn more about science, technology and engineering, so that they can win contracts in the future. Trying to look into the crystal ball, I doubt that companies will object to flexibility for licences, because they will want to prove themselves commercially adaptable to the emergence of technology as the decades roll past.

Mr. Swire rose—

Malcolm Wicks (Labour, Croydon North)

I think that I have provoked the hon. Gentleman.

Hugo Swire (Conservative, East Devon)

Far from that, I may be coming to the Minister’s rescue on this point as he seems pretty unclear at the moment. The Minister referred to existing technologies and licences in the North sea with respect to the oil and gas projects. He said that the Secretary of State has the right to remove licences and reallocate them. Does the Secretary of State have the right to modify North sea oil licences, and can the Minister give any example of where such a licence has been issued and can be modified? That is the crux of the matter.

Malcolm Wicks (Labour, Croydon North)

I will have to come back to the hon. Gentleman on the issue of modification, and I will do so. We do have some experience. Earlier I referred to what some call the, “Lose it or use it” approach to the North sea, which the industry as a whole rather accepts. Some big companies have decided that their priorities lie elsewhere in the world in terms of oil or gas exploration, and we now make those potential fields available to what are often smaller and enterprising companies. That is possibly a little off course, but I repeat the point: there will be time to look at all those matters.

We must, of course, be careful to ensure that a company that takes on the responsibility of CO2 storage recognises that it is in the business for the long term. It is not a commercial activity for a year or two, and indeed, the ultimate responsibility for decommissioning lies with the company. If there were any transfer of a licence, we would have to make sure that all the financial certainty was there in agreeing to that. This is looking ahead.

Charles Hendry (Conservative, Wealden)

The Minister appears to be slightly disagreeing with his own argument. Just now he was arguing for flexibility. Now he is arguing for some degree of certainty. Perhaps I can help the Minister.

The people applying for these licences are going to be those companies looking to operate a fossil fuel facility. If they are going to put in the many millions in costs for the carbon capture and storage facility to be adjacent to or an integral part of their power plant, and then potentially hundreds of miles of pipeline to a storage facility, they will want to know that the licence will apply for as long as they are running that power plant. If there were a risk that after 25 years they could lose the right to deposit the carbon they had captured in a facility that may stop them going for it in the first place. They would end up with a facility that they could not operate because by then the rules might have changed or the price of carbon would be so high. Surely they are looking above all for certainty rather than flexibility.

Malcolm Wicks (Labour, Croydon North)

I think that we have said that this is a long-term project. I mentioned 40 years. Who knows whether that is an underestimate? Time will tell. This is the long term. The company investing will want to know that.

I have explained, however, that it is important that the Secretary of State has certain powers for flexibility, not least as we learn more about this technology. I could also envisage that a company might feel that after a number of years it did not want to stay in this business, and that its commercial priority had changed. Then, subject to lots of appropriate safeguards in terms of another company taking over the contract—all the financial safeguards that we could think of in terms of the ultimate costs of decommissioning and the financial arrangements that would be necessary between one company and another—I would not rule out the possibility of another company taking on not only the task and the commercial opportunity but also, subject to arrangements with the first company, the appropriate safeguards.

Clause 20

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss new clause 7—Carbon capture competitions —

‘In any competitive process relating to carbon capture initiated by the Secretary of State, equal status shall be given to all carbon capture technologies.’

Malcolm Wicks (Labour, Croydon North)

I was so busy listening to you, Mr. Amess, I did not understand that this meant that I should now speak. I am enjoying this dialogue so I am looking forward to other people having the opportunity to speak.

Clause 20 allows the Secretary of State to make regulations prescribing the terms and conditions that must be included in licences. It is necessary to have this power to make regulations prescribing the contents of licences for several reasons. For example, it will allow the Secretary of State to specify the minimum provisions that must be included in every licence, and whether they are to be issued by the Secretary of State himself or herself or another authority to which the licensing function has been transferred under clause 33, as we discussed previously, thus ensuring that the key standards and conditions are contained in all licences. Moreover, this power will allow specific provisions prescribed by EU legislation or international guidance to be incorporated in all licences.

Steve Webb (Liberal Democrat, Northavon)

I would like to address my remarks to new clause 7, which is a very simple one. It says that where there is a competitive process related to carbon capture, the Secretary of State’s approach should be technology-neutral. That is what we are driving at. I anticipate that the Minister will accept our amendment because of something he said earlier this morning. When he was talking about alternative strategies for carbon reduction, he said that choice of technology is a matter for companies to determine. I wrote it down as quickly as I could and the record will bear me out, but perhaps the Minister will correct me if am misquoting him. He said that in the context of the energy mix and the best strategy for reducing CO2 and I agree with him.

That is consistent with our new clause, which says that there are three main approaches to carbon capture and storage. The hon. Member for Bolton, South-East ran through this so I will not go over it again at any length, but we have talked quite a lot about post-combustion technology and pre-combustion technology, and rather less interestingly—I would be interested to hear the Minister’s view on this—about oxyfuel combustion, in which the fuel is burnt in oxygen rather than air.

It seems to us that there are three possible technologies that could have been a source of competition and a range of approaches that the Government could have taken. One is that they could have said, “Our goal is reducing CO2 emissions through some method of carbon capture. We will therefore invite submissions from anybody who can do this by any means. We will evaluate them against each other—both within technologies and between technologies—and the one that seems to give us the most bang for our buck is the one we will go for”.

Therefore, there is a one-competition approach. The Minister, in his gently mocking manner, suggested that we were calling for four or five competitions. There is a one-competition answer to this, which is simply that, if public money is to be spent and the Government feel that they do not have the money for more than one technology, at the very least different technologies will be allowed to compete against one another—and may the best carbon capturer win.

That would have been one way. Another way, as we suggested at the previous sitting of the Committee, would have been to have had separate competitions for the different technologies. If the Minister’s argument, as I understand it, is that, like oranges and apples, they cannot be compared, then perhaps there could have been separate competitions. We have suggested that what Ofgem regards as the windfall profits of the energy companies might have been a source of revenue to fund additional competitions. We are not prescriptive about it but, given the importance of the matter, it might have been a better way of doing things.

The Minister has said that this is potentially one of 12 EU-wide demonstration projects. To be fair to him, the Government deserve some credit for trying to take the process forward. I hope that he will update the Committee on where he thinks the other 11 are up to. The Minister shrugs his shoulders worryingly.

Malcolm Wicks (Labour, Croydon North)

It is hard enough being a Minister of State in the UK without being responsible for all the other nations.

Steve Webb (Liberal Democrat, Northavon)

There is a serious reason that I ask the question. Are the Government confident, first, that those other schemes are going to come forward at all, and secondly, that they will cover the diverse range of technologies? With the Government having decided to be technology-specific—which we are not happy about—the purpose of our new clause is to make sure that the other technologies are tested in the other demonstration projects.

I hope that the Minister is doing more than just shrugging his shoulders. I hope that when he talks in his fluent Polish, or whatever, to his European counterparts, he is saying to them, “How about getting on with your projects and how about these other technologies being looked at?” The Government have locked the UK in for one demonstration project on one technology, but are they using their influence, such as it is, with our EU partners, to ensure that in the 12 we are at least trying to ameliorate the problem we have created for ourselves by ensuring that other demonstration projects test other technologies?

Stephen Ladyman (Labour, South Thanet)

I am slightly worried that the hon. Gentleman’s new clause will have the perverse effect, which I do not think that he intends, whereby the Government will be required to give equal weighting to different technologies. Therefore, even if the UK becomes expert in one particular technology and other countries become experts in a different technology, we would not be allowed to favour those technologies that the UK has become expert in.

Steve Webb (Liberal Democrat, Northavon)

I understand the hon. Gentleman’s point, but it is not true of the new clause, because it refers to competitive processes initiated by the Secretary of State—now and at the start of the process when expertise is in short supply. If, at a later stage, we get very good at a particular technology, nothing in the new clause would prevent the UK Government from favouring it, because the Government’s approach to such technologies would not necessarily involve a competitive process. The new clause relates to the competitive process now being initiated in this country.

Stephen Ladyman (Labour, South Thanet)

Were the new clause to have the interpretation that the hon. Gentleman has suggested, it would need some sort of sunset clause whereby the Government would only have to be even-handed about such matters up to a certain point. After that point, the Government would not have to be even-handed. As it stands, they would be required to be even-handed for ever.

Steve Webb (Liberal Democrat, Northavon)

Were the Minister to say that he accepts the principle, but it must end at some point, I could live with that. I am not too worried about the principle applying for ever. The new clause does not bind any non-competitive process—it refers only to competitions, and its title is “Carbon capture competitions”. In my judgment, it does not cover the much wider range of issues such as future Government incentives for carbon capture, but if the only problem with the new clause is that it needs a sunset clause, I am happy to accept that further amendment.

The worry is the impact that the Government’s decision to favour one technology has had on the technology that is out there. Time scales are terribly important, as the Minister would accept. My understanding is that the EU 12 projects have to be in place and with results by 2015—I believe that that is the date that has been given. But the DBERR website says that the competition that it has set up requires something to be in place by 2014. I looked at the website this morning and I think that that is right, but it would be helpful if the Minister could clarify why that is the case.

We have to refer to the expert evidence that we were given from the director of the Carbon Capture and Storage Association at the start of our process. We might say, “He would say this, wouldn’t he,” but he is pretty knowledgeable about the subject. He referred to four pre-combustion products and, at column 100, said that they were all

“on a go-slow now.”——[Official Report, Energy Public Bill Committee, 19 February 2008; c. 100.]

Does the Minister accept that the consequence of his decision to be technology-specific has been to undermine several other projects that are actually up and running, because that is clearly the view of the industry?

The witness, Dr. Chapman, said to us that pre-combustion technology is very important. I think that the hon. Member for Bolton, South-East reminded us that we talk about the hydrogen economy—we have all used that expression in speeches about the dim and distant future—but here and now we have a by-product of pre-combustion technology that is a source of hydrogen, which could help to fuel the hydrogen economy. If not through that route, how does the Minister envisage the hydrogen economy getting going?

Dr. Chapman said

“This—

pre-combustion technology—

will be the most efficient way to make hydrogen in the future, and with carbon capture and storage, there will be clean energy using hydrogen as a vector. That is very important for pre-combustion technology; it is a very important place, and we in the UK need to be there.”——[Official Report, Energy Public Bill Committee, 19 February 2008; c. 100.]

But his view is that the selection of a technology has potentially undermined something very important.

Malcolm Wicks (Labour, Croydon North)

When we discussed this previously, I spoke, as I will when I contribute to the debate later today, about the application of post-combustion technology to the situation in China. I have raised that issue with the Committee and the hon. Member for Northavon before. Has he factored into his analysis the pros and cons of pre and post-combustion when it comes to the real challenge of coal-fired power stations and the consequently huge emissions in China?

Steve Webb (Liberal Democrat, Northavon)

The Minister makes a perfectly fair point—I have been perfectly happy to accept that on the record in the past—but he was happy to admit to the Committee that we are talking about the expenditure of hundreds of millions of pounds of taxpayers’ money. My question to him is, where is the cost-benefit analysis of the different sorts of carbon capture technology that has led the Government to pick one? They have made a big decision, which will have implications for years to come, on the technology used for carbon capture.

The Minister implies that the Government have—and I hope that they have—weighed up the pros and cons of the different technologies. Will he place in the Library a copy of the document in which they did that? Have they looked at all three? Have they looked at how long it might take? Have they tried to put some sort of value on the potential for retrofitting Chinese coal-fired power stations, as against the potential of a hydrogen economy if we have pre-combustion technology? Surely, if the Government have taken a decision to favour one over another, it has been based on a coherent, rational, structured cost-benefit analysis, which the Minister will place in the Library at our request. I certainly hope so.

Brian Iddon (Labour, Bolton South East)

The analysis that the Science and Technology Committee were aware of and which the Government responded to on 27 April 2006 is the so-called MARKAL modelling analysis. As far as I am aware, unless there is some more recent data or analysis, that is what the Government based the choice of post versus pre-carbon capture technology on. However, as the Government said in their answer to the Science and Technology Committee’s report:

“Subsequently some generators have indicated that the cost balance between refurbishment and new build is closer than implied by the MARKAL analysis, which did not take account of lost revenue during the refurbishment shutdown and space limitations at some sites.”

That means that on some generator sites there is not room to build a pre-capture plant or to fit retrospectively post-carbon capture technology. Space limitation is one issue, but the other is that to fit retrospective post-carbon capture technology, the plant has to be shut down for a considerable period. I ask the Minister, why was that not included in the MARKAL analysis? It would probably have altered the balance between pre and post-capture technology.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for that well-informed intervention. That is the kind of analysis that I hope that the Minister will place in the Library: the analysis that the Department has done for all three technologies, taking into account not just the range of costs and benefits, which might be of a more commercial nature, as the hon. Gentleman suggests, but wider matters. As an economist, I struggle to think how one can put a cash value on the benefit of facilitating the hydrogen economy, but that appears to be a potential benefit of one of the technologies. Have the Government done that? My sense is that they have not. They have had a think about it, they have looked at some of the papers, which the hon. Gentleman gave, and they have taken a punt on one technology. The Minister is shaking his head. It would be nice to think that there is a comprehensive, rigorous and thorough analysis of the costs and benefits of the three technologies and that he will publish that analysis so that we can look at it.

Malcolm Wicks (Labour, Croydon North)

Let me press the hon. Gentleman on this point. This is an extremely complex field. I think that he was conceding that although it is an interesting and intellectually stimulating debating point to say, “Here is a technology that can produce a hydrogen economy. Here is another one. Let’s do a cost-benefit analysis, ” that could not, I suspect, be done in great detail. In any case, one would want to factor into the analysis that others are developing hydrogen technologies; there is a lot of interest in that in the United States. With respect, he is dodging my point about China. We know the rate at which the Chinese are building coal-fired power stations to fuel their economy. I am advised that it is post-combustion technology that could be retrofitted there. Given the huge carbon emissions from China in the future, is he really quarrelling with the advice that I have received that, as we had to choose one technology, post-combustion was the best?

Steve Webb (Liberal Democrat, Northavon)

I am querying the Minister’s premise that we had to choose one technology—that we had to pre-select. That is the fundamental point. It may be that a competitive process with a proper evaluation of what the Minister calls the pros and cons would have resulted, if there was to be a single project, in a post-combustion project. That may have been the outcome, but pre-empting the outcome in the way that the Minister has seems to be the problem. He implies that the Government could not do a cost-benefit analysis, so I am trying to work out what they did do. Has he weighed up the costs from the go-slow on the four pre-combustion projects, which he has undermined by picking a different technology? Surely, just as I should take account of the potential benefits of retrofitting Chinese coal-fired power stations, the Minister should take account of the costs of undermining commercial projects to develop alternative technology. That has been the impact of his decision.

Our argument is that if we are to have one competition, the Government should not pre-empt its outcome by picking a technology. The Minister was right when he said to the Committee this morning that the technology was a matter for the companies not for the Government; the Government should set the framework, enable the competing technologies to compete and show which is the best across the board. My concern is that by picking a winner, as it were, the Government have undermined other valuable technologies that could have been well worth looking at.

Charles Hendry (Conservative, Wealden)

This has been a very interesting and useful exchange so far. I agree with the hon. Gentleman’s analysis of the Government’s pilot project and the fact that the Government have made a mistake in the way that they have gone about it. However, I do not believe that his new clause is the right solution, because to go down the route of stopping the Minister deciding on the right type of technology in future competitions is too prescriptive.

The hon. Member for South Thanet put his finger on the key issue. The perverse consequence of this new clause would actually make it more difficult for us to encourage areas where the technologies might best be explored further. If we make good progress with the post-combustion project that the Government are supporting and then in a few years the Government decide to launch another project to see whether they could bring pre-combustion technology up to the same status, this new clause would make that illegal. It would mean that they could not say “We now want to do a pre-combustion project”, because this new clause says that equal status should now be given to all carbon-capture technologies. It would end up being counter-productive and we would need a new Act of Parliament to allow the Government to put in place a competition for one type of technology.

The Minister asked last week if the Liberal Democrats wanted two, three, four, five different projects to run at the same time. With respect, he asked the wrong question—that was always Ted Heath’s response on “Newsnight” when he was asked a question he did not like. He would say “With respect, Mr. Paxman, you are asking me the wrong question” and he would answer the question he would have liked to have been asked. The Minister has asked the wrong question because rather than going alone on this issue, this should have been a genuinely international exercise. The UK should be part of an international consortium trying to develop post-combustion carbon capture and storage and also be part of an international consortium trying to develop pre-combustion carbon capture and storage. We would then find that there would be reduced costs for us as part of that process and we could genuinely compare the benefits that could be derived from different technologies.

It goes back to what the chairman of Shell was saying about going for a “blueprint approach” to this rather than a “scramble approach”. It is a matter for concern that the Minister does not actually know what the other 11 projects in Europe are going to be about. He would not necessarily need a detailed understanding of all 11, but even if he knew what two or three of them were, it would be helpful. We should be looking to co-operate on these issues, rather than Britain trying to go it alone because we want to secure an international lead in these areas.

Malcolm Wicks (Labour, Croydon North)

The earlier shrug of my shoulders—I do not know how a shrug is recorded in Hansard—was because I really wish there were 11 other projects I could detail to the Committee. We are ahead on this and, at one level, I am proud of that but, at another level, I am frustrated because we need to bring the European target of 12 into the real world. It will be our endeavour in the European Union to encourage that. I am unable, I fear, to detail even three or four because, as far as I know, the details of three or four are not actually there. We are, sadly, very far ahead, together with our colleagues in Norway who, while being close partners, are not actually members of the European Union. That is the reality.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister, but I think this is an issue, above almost any of the others we have discussed, where international co-operation would have been sensible. We should have been looking at the technologies being developed in different parts of the world and we should have been co-operating on a post-combustion project in one area and a pre-combustion project somewhere else so that we could genuinely evaluate them.

The Minister asked on two interventions about the situation in China. To go to China and be able to say “We have mastered pre-combustion technology so please, in future, with your coal-fired power stations every week, look at doing it on a pre-combustion basis rather than a post-combustion basis” would have been a fantastic opportunity. So on both sides of this technology, there were major international opportunities for Britain in terms of trade and there were major opportunities for British science and British genius. We have narrowed things down in a way that is regrettable. My concern about the new clause is that, when we want to reconsider the issue and to have a project whereby pre-combustion could be made to work more effectively and be mastered, it would rule it out.

Paddy Tipping (Labour, Sherwood)

The new clause has real relevance to my constituents and those who work in the coal industry at Welbeck and Thorsby collieries in Nottinghamshire. Those miners are the most efficient in Europe and have reduced costs. Burning coal is important economically as is getting the cost right to enter the market. It is important to burn coal in an environmentally sensitive way, which is what the new clause covers.

I understand that generators in the United Kingdom wish to replace some coal-fired power stations with new coal-fired power stations. When I last looked at matters, there were about a dozen propositions for new coal-fired power stations. To meet our environmental concerns and worries about carbon, those new coal plants must be more efficient and effective than they are at present. That is the substance of the new clause and our debate about carbon capture and storage, and the technologies that we need to introduce.

The matter is important nationally as well as internationally. As the Committee has recognised, in terms of the environment, it does not matter where a tonne of carbon is produced because it is still the same pollutant wherever it is. If we can therefore influence new design and new build in China and India, that will be important and significant.

The hon. Member for Northavon made a number of points, such as that clean coal demonstration plant post-combustion will clearly not be sufficient. The EU aspires to a dozen such plants and it makes sense, as the hon. Member for Wealden has just said, to have a real and meaningful discussion within the EU. I accept that the Government are in the lead, but there needs to be a realistic, rational discussion about using the 12 projects throughout the EU to develop other forms of clean coal technology—pre-combustion or post-combustion.

A lot of discussion has taken place about China. The Minister will know more about such matters than I do, but I remind the Committee that a new coal power station is being built in China at the moment with financial support from the EU. We are involved in the partnership to which the hon. Member for Wealden referred, and we need to do more of that because, if it is right that carbon capture and storage is a real new technology for the future, we must demonstrate it and bring forward the right sort of technology.

I am sceptical about carbon capture and storage; it has not been done yet. We can do it in the laboratory and we can do small-scale plants, but building a plant and making the science work is a big leap. I am not confident that we can do that in the time frame that is talked about, so it is important that we investigate as many technologies as possible.

Generators know that they must replace plant and generators know of the opportunities overseas. It is recognised that they are big international companies, such as RWE, E.ON and EDF Energy. None of them is British-based; they are European companies that operate internationally. They are not scot-free in respect of such issues. They recognise that coal has a place in the future, so they must invest, too. There is a rose-glassed view from the generators that the Government will take the total cost of clean coal technology, and carbon capture and storage. If the generators have an eye to the future, they should use their own profits, balance sheets and ability to borrow to go forward and be active partners. I should like to see the plea accepted that there be more than one demonstration plant in the UK. However, let us be realistic—that will not happen.

Companies such as Centrica, which last week announced enormous profits, must know that to invest in the future and to survive, they, too, have to invest in the new technologies, such as carbon capture and storage and clean coal technologies. It is not just a matter for the Government, but a challenge for us all. We need to set up partnership arrangements in the UK and internationally to ensure that that happens.

Brian Iddon (Labour, Bolton South East)

I will try to be brief. I do not envy the Minister or his advisers in setting up competition in this area because of the difficulties involved. First, there is pre-combustion or post-combustion capture of carbon dioxide. Secondly, there are gas and coal-fired power stations and possibly also oil, although that is unlikely. Thirdly, there is the difficulty of transporting the carbon dioxide after its capture.

Obviously, transporting carbon dioxide to the Scottish coast from the east or west midlands where some of the generators are will be far more costly than what BP was proposing, which was to build a gas-fired plant at Peterhead pretty much adjacent to the oil wells down which the carbon dioxide would be pumped. I have mentioned that one difficulty with the MARKAL analysis for post-combustion capture of carbon dioxide was that it did not appear to take into account the downtime of the plant while the retrofitting took place. I doubt that it has, but I wonder whether the MARKAL analysis has taken into consideration the length of transportation for the carbon dioxide from the point of capture to the oil wells off the Scottish coast. That will complicate the cost analysis extremely.

I wonder whether the transport of carbon dioxide is possible at the moment without putting new infrastructure in place. When we did the analysis, the assumption was that some of the gas lines that transport gas from the sea would become available because of the running down of gas provision from the North sea field and that those could be converted to transport carbon dioxide up the country to the very wells from which gas had been coming down the country to the consumers—whether they were generators or domestic consumers.

This is a terribly complex business and I do not envy the civil servants or their advisers in reaching a conclusion. In conclusion, I ask the Minister how many of those difficulties have been taken into account while he has been led to the judgment between post-combustion and pre-combustion carbon capture.

Malcolm Wicks (Labour, Croydon North)

Again, this has been a very useful debate. I listened with great interest to my hon. Friend the Member for Bolton, South-East and I am grateful to my hon. Friend the Member for Sherwood for giving us a timely reality check on where we are in terms of this technology. I mentioned on another occasion that although there is some excitement about the bidding process and whether we should build two, three or four and whether they should be pre-combustion or post-combustion, those discussions are often not very financially literate. My hon. Friend the Member for Sherwood has given us the reality check that the whole chemistry set, as I think of it, has not yet been tried. Our demonstration project will be one of the first.

I will try to deal with many of the points that have been raised but, first, I remind the Committee that the Bill provides an enabling framework that will allow the safe storage of carbon dioxide offshore, paving the way for the wider deployment of carbon capture technologies. As such, it does not make provision for Government competitions or for CO2 storage demonstrations and it does not regulate the types of technologies that may be deployed via such competitions or the activity of carbon capture at all, as opposed to the activity of storage. In other words, the provisions in the Bill are technology-neutral for offshore carbon dioxide storage and for carbon dioxide capture. I hope that that gives comfort to those who are in favour of one technology rather than another.

I sometimes think that in a parallel world there might be a Government who have chosen pre-combustion storage, and I can now see the hon. Member for Northavon in that parallel world arguing passionately about the importance of post-combustion and how outrageous it is that the Government have ignored the realities in China—I jest, but only in part.

The Government already support a range of carbon capture technologies through a variety of means, including a £35 million fund to encourage industry-led demonstrations of elements that contribute towards carbon abatement technologies, including CCS; almost £9 million for various research projects supported by the Research Councils and the Technology Strategy Board; and pushing for the EU ETS to take account of CCS. The newly formed Energy Technologies Institute considers CCS as one of its possible future technology themes. With a potential £1 billion budget over 10 years, it is bringing together Government and some of the world’s biggest companies, with a view to accelerating the development of low-carbon energy technologies towards commercial deployment.

All those initiatives give equal status to all carbon capture technologies, exactly as the hon. Member for Northavon and perhaps other hon. Members have specified. I hope that he and the hon. Member for Cheltenham accept that the Government see CCS as a priority and are showing global leadership in facilitating its demonstration and deployment.

The only area in which the Government have made a deliberate choice regarding a capture technology relates to our competition for a demonstration project, and there are powerful reasons for having done so. The potential contribution that CCS technologies can make to tackling global climate change is significant. The Stern review estimates that CCS would contribute up to 28 per cent. of the global CO2 reductions that are needed by 2050 if the aim of restricting temperature increases to 2° C is to be achieved. We must remain focused on CCS as a global solution to climate change. For CCS to be deployed on such a scale, the technology first needs to be demonstrated on a commercial scale. That is why the Government are supporting one of the world’s first projects demonstrating the full chain of CCS technology in relation to a commercial-scale power station.

We considered carefully whether it was possible to run a competition that was open to all technologies, but we concluded that to run a fair and transparent competition, it was necessary to decide on the capture technology at the outset. It would be difficult to develop evaluation criteria that could fairly assess the different technologies against each other—each has different benefits. Our decision to focus on post-combustion capture technology in relation to a coal-fired power station will allow us to achieve the key objective of our demonstration project, which is to demonstrate a technology that is relevant and transferable to global markets. We need to ensure that actions taken in the UK can also help other countries to take steps towards tackling their emissions.

The arguments for examining CCS in relation to a coal plant are clear. Coal will remain a significant part of the world’s energy mix over the next decades. The recently published “World Energy Outlook 2007” projects that demand for coal will increase by more than 70 per cent. over the period from 2005 to 2030. China and India alone already account for more than 45 per cent. of world coal use and are projected to drive more than 80 per cent. of that increase in demand. In 2006, China built one coal-fired 1 GW power station every four days, which is equivalent to two new Drax 4 GW power stations every month.

The new build coal-fired power stations in China alone could emit about 260 megatonnes of CO2 each year, although that will depend on the type of power station being built and the rate of build. That is staggering when compared with total UK CO2 emissions in 2006, which were about 150 megatonnes. The ability for post-combustion technology to be retrofitted to existing power stations enables us to tackle such carbon dioxide emissions that would otherwise be locked in right now through existing and planned new build power stations.

It is important to recognise that pre-combustion technologies are used in conjunction with integrated gasification combined cycle power stations—IGCC power stations. These are not yet widely deployed, nor are they expected to be deployed for many years to come. For example, the “World Energy Outlook 2006” report says that between 2015 and 2030, IGCC will account for less than 20 per cent. of new capacity to be added globally. That is why early demonstration of post-combustion capture, which can be readily retrofitted, is so important for tackling global carbon dioxide emissions. Although I do not pretend to be an expert, I understand that it is far more difficult to retrofit pre-combustion.

I am confident that we have made the right decision in focusing the competition on post-combustion, and stand wholeheartedly behind our decision. The focus on post-combustion, however, is purely in the context of the competition. We recognise that all CCS technologies have a potentially significant role to play in helping to tackle climate change. That includes the use of pre-combustion capture technologies, which, as the hon. Member for Northavon said, could have an important role to play in producing hydrogen for emission-free transport.

In addition to the measures I outlined at the start, we are exploring a range of options aimed at promoting widespread deployment of all CCS technologies and hope, as I have said on a number of occasions, that UK companies will show the same enthusiasm and leadership in this area as has been shown by the Government to date. I noted the comments of my hon. Friend the Member for Sherwood on that issue of corporate and environmental responsibility.

The Government have been criticised for supporting only one commercial-scale demonstration project. Yet sponsoring one project alone represents a significant investment of potentially several hundreds of millions of pounds of public support, and a scale of commitment that only two other countries in the world have made. To say that the Government should be supporting two or three demonstrations is simply not realistic. We are doing more than just about any country in the world in this area, and we should be proud of that, not critical.

The UK truly is a global leader in this technology, but one country cannot tackle the challenges involved in making CCS commercially deployable. That is why, as I mentioned in the last sitting, we are working closely with other countries such as the US and Norway—I was asked by the hon. Member for Wealden about this—and through multilateral institutions to encourage others to make similar commitments. Indeed, I was discussing this with my Norwegian opposite number only a couple of weeks ago. It is only by doing so that we can help bring about widespread deployment within the time scales required to tackle global climate change.

Brian Iddon (Labour, Bolton South East)

I am now clear that this is coal only, and that it will be on an existing power station, but I am still not clear about what the competition will be based on. Will it be a cost analysis of the different projects, and will it include or exclude the transportation of the carbon dioxide?

Malcolm Wicks (Labour, Croydon North)

It will include the whole project: the stripping out, in layman’s terms, of the CO2 , the transportation and the storage. It will have to include everything and, indeed, frustrating though it is, we anticipate that it might take a year or so for us to do the technical assessments required on the different projects coming forward to us. We will be doing a full appraisal.

Faced with those who say that the Government have made slow progress in our approach to CCS, I would say that the case is quite the contrary: The decision to launch a demonstration project was taken in May 2007. The competition to select a project was launched in November 2007, as we promised. We expect our demonstration to be operational by 2014. Only two other countries—Norway and the US—are currently committed to funding similar scale projects, both of which are likely to be operational within the same time frame. Rather than dragging our feet, we are actually sprinting ahead and leading the way.

Our competition for a post-combustion commercial scale demonstration project is already under way in line with our commitment, and would not be affected by the new clause. The new clause would have the perhaps unintended consequence of precluding any future competition that could be focused on pre-combustion technology, if it was determined to be necessary, given that the Government would have already supported the demonstration of post-combustion. Given what Opposition Members have said about pre-combustion, that would surely not be the intention of the hon. Member for Northavon.

In summary, while I have discussed issues that—

Steve Webb (Liberal Democrat, Northavon)

Before the Minister sits down—

Malcolm Wicks (Labour, Croydon North)

I was about to sit down, actually.

Steve Webb (Liberal Democrat, Northavon)

He said “In summary”.

Malcolm Wicks (Labour, Croydon North)

I know, but it is quite a long summary. I am happy to give way to the hon. Gentleman, but he will look at the clock as much as I do.

Steve Webb (Liberal Democrat, Northavon)

The one specific thing that I do not understand about the competition, which is important in the context that we are discussing, is if one company wins and it learns everything that there is to know or a great deal that is of commercial value to it, is there any onus on it to share that with everybody else, or is it private knowledge? How does that process work? A competition with one winner does not, potentially, disseminate the technology. How do we ensure that the winner plays fair with everybody else?

Malcolm Wicks (Labour, Croydon North)

That is a good point, and I do not have a crisp answer, except to say that we clearly need to balance concerns about intellectual property rights against the more important concern of knowledge transfer. Given all that I have said about China, knowledge transfer is the crucial thing here.

I will not be able to address the comments of one or two colleagues now, but I may find another opportunity of doing so. I understand hon. Members’ frustrations about where we are, but let us remember that, as my hon. Friend the Member for Sherwood said, this is brand new technology; not tried, not tested. We are ahead of the game. The Bill provides a regulatory framework that will enable the different technologies to come to fruition, but I make no apology for the fact that, in the demonstration project, for a number of different reasons, we felt that we should choose one technology. That was fair to some of the different companies that were coming forward, because developing proposals for competition is itself quite expensive. With that, and looking at the clock, I urge the Committee to support the clause.

Steve Webb (Liberal Democrat, Northavon)

A lot of what the Minister had to say was explaining the case for the winner of the competition being post-combustion technology. My point was not that there was not a strong case for that, but that it is wrong to pre-empt it, so I am not sure that he addressed my point.

I asked the Minister to comment on the third technology, oxyfuel technology, which he did not mention at all. I asked him to comment on the go-slow on existing pre-combustion technologies, which he did not mention at all. He said that it was difficult to assess the relative merits of different technologies on a transparent basis, so the Government have done it on a non-transparent basis, by simply picking one behind closed doors. It seems that that must be inferior to inviting competing technologies, but I take the general observation that the new clause, without a sunset clause, might have undesirable effects. When the relevant time comes, I will not press the new clause.

Clause 21

Malcolm Wicks (Labour, Croydon North)

This clause is a particularly important clause, which I am pleased to have the opportunity briefly to introduce as the referee reaches for his whistle. It makes it an offence to carry on carbon dioxide storage activities without a licence. It also sets maximum penalties for an offence committed under the clause. The purpose of the clause is to ensure that any carbon dioxide storage related operations are carried out only by—

Malcolm Wicks (Labour, Croydon North)

Good afternoon, Mrs. Humble, and welcome to the Chair. Later on, perhaps this afternoon, we will come to the debate about renewables and the renewables obligation, so we have prepared a handout that is now available to Committee members. It will save me from giving a rather long and pedestrian speech; it will enable me to give a short and pedestrian speech instead. [ Interruption. ] I always knew that the Liberal Democrats had their uses, and I am grateful to the hon. Member for Northavon for passing out the handout.

I shall touch briefly on a few issues that came up this morning about carbon capture and storage, to provide some clarification for Committee members, before focusing on the specifics of clause 21. The hon. Member for Northavon asked about the Government’s position on oxyfuel technologies. He knows that oxyfuel combustion involves burning fossil fuels in a highly oxidised environment as a means of stripping carbon dioxide. For the purposes of the Government’s competition, oxyfuel is included in the definition of post-combustion, and therefore oxyfuel products will be able to enter the competition. The hon. Gentleman raised a further issue about the go-slow on projects that will not be able to participate in the Government-sponsored competition for the full-scale demonstration of CCS. We are aware that several companies were planning pre-combustion projects, but the Government cannot sponsor all demonstrations, as I argued this morning. Sponsoring one project alone will already represent a major investment of hundreds of millions of pounds, so the Government have concluded that it is important and immediate to demonstrate post-combustion on coal technology, which is relevant to the vast majority of plants being built now, particularly in developing economies. We recognise, however, that different CCS technologies are likely to be valuable in helping to tackle climate change, and we welcome and support the development and deployment of all CCS technologies. We hope that private companies will join us in our leadership and initiative.

My hon. Friend the Member for Bolton, South-East asked several interesting questions about CCS. First, he asked whether transportation costs will be considered when assessing projects for the purpose of the demonstration. I am advised that the Government will support up to 100 per cent. of the additional capital and operating costs for the full chain of capture, transport and storage of carbon dioxide. Therefore, transportation costs will form an integral part of the evaluation of the bidding projects.

Secondly, my hon. Friend raised some specific and technical points about the MARKAL economic model. For the benefit of other Committee members, I shall provide some context to the MARKAL modelling, which was undertaken for the 2007 Energy White Paper. The UK MARKAL macro model is one of the few models in existence that allows us to examine how energy use in the whole UK economy might evolve under a carbon constraint. It provides technological detail about the entire energy system, including electricity, heat and transportation. For the Energy White Paper, the model was constrained to deliver the 60 per cent. reduction in carbon dioxide emissions by 2050, which is consistent with our energy goal for carbon emission reductions. Once the data and assumptions are fed in, the model chooses the most cost-effective combination of technologies throughout all sectors over time to deliver the carbon reduction goal by 2050.

As with any model of that type, the outcomes are necessarily based on the input data and assumptions. In recognition of the fact that the future is impossible to predict with any great or detailed certainty over such long time scales, the analysis for the Energy White Paper was undertaken for a range of scenarios and assumptions, including different fuel prices and electricity generation cost estimates. Seven scenarios were considered, with sensitivities explored for each scenario. I emphasise that the model is not a predictor of the future; rather, it can be used to help provide useful insights and inform thinking and longer term policy making. It is only one of a range of considerations that informs Government thinking and policy making.

I wish to look at the process by which the cost estimates and assumptions that were fed into the MARKAL modelling were arrived at. It is one of the main issues raised by my hon. Friend the Member for Bolton, South-East. The cost estimates and assumptions were formulated following expert peer review from both internal and external experts, including companies engaged in power generation. Those assumptions were based on the best available information at the time of the analysis.

Finally, the hon. Member for St. Albans raised the issue of responsible arrangements proposed in relation to carbon dioxide stores. I will cover those issues in greater detail during the stand part debate for clause 30 and we will consult on that very shortly. However, I would like to clarify one of the points that I made this morning on the topic. While carbon dioxide is being injected into the store, the operator will be solely and fully responsible for that store, including any liabilities that may arise in connection with it. Security may need to be provided to ensure that the operator is able to comply with its obligations. Such liabilities will continue even after the store is closed, so that for a period of time the operator will continue to be responsible for a store that has been closed to any further injection. That period of post-closure liability must be sufficient to establish, on the basis of regular monitoring and inspections, that the store is safe and stable. Only once the licensing authority is satisfied that that is the case would the operator’s licence be terminated, providing that the site had been fully decommissioned in compliance with the decommissioning programme. Upon termination of the operator’s licence, the long-term stewardship of the store, including any liabilities that may arise, would be managed by the Crown Estate that will monitor the closed store for as long as necessary.

That is a clarification because I think that in my remarks this morning, my suggestion that the injection would finish, the store would close and it would pass to the state was an over-simplification. I am now clarifying the matter by talking about what I am sure hon. Members will agree is an obvious interim period where the company maintains responsibility.

Anne Main (Conservative, St Albans)

I thank the Minister for that clarification. Would the reasonable period of time that he has outlined be the same for every store that was used, or would each store be judged on its own merits?

Malcolm Wicks (Labour, Croydon North)

The hon. Lady always expects me to predict the detailed future for an emerging technology. As I said this morning, we are only into the first pages of chapter one on this technology and I cannot predict the footnotes for chapter six. I am sorry, but I do not know the answer. I guess that it might vary from licence to licence and from store to store but until we get into greater detail and consultation, I will not have the answer to that. Someone else may, however, and if I change my mind about it, I will let members of the Committee know. It will be judged on its merits once it reaches a stable state, and whether that stable state might vary because of the geology is only an assumption. I am grateful to the hon. Lady for asking that question.

I now turn to the specifics of clause 21. As I began outlining this morning, the clause makes it an offence to carry on carbon dioxide storage activities without a licence, and it sets maximum penalties for an offence committed under the clause. The purpose of the clause is to ensure that any carbon dioxide storage related operations are carried out by appropriately licensed operators, thus minimising the potential negative effects on the environment, health and safety or other uses of the sea. Currently, the deposition of substances in the marine environment, including the sea bed, is governed by provisions in part 2 of the Food and Environmental Protection Act 1985. In the clause, we have sought to achieve consistency with the penalty arrangements that would have applied had the licences been issued under that Act. However, the provisions in the clause ensure that lower penalties will apply to exploring or building installations for the purposes of exploration without a licence, as the environmental risks associated with such activities are lower than those associated with storage.

We had a major debate on CCS this morning, and the next few clauses—up to clause 26 or so, I think—are in many ways similar to the ones that we discussed on gas storage. It is up to the Committee whether to debate them, but I intend to move some of them formally. I give early notice of that in case others would like a debate on them.

Joan Humble (Labour, Blackpool North and Fleetwood)

The Minister has been helpful to the Committee in answering questions that were asked earlier, but I remind any other Members who wish to contribute to the debate that they should limit their contributions to clause 21.

Clause 23

Charles Hendry (Conservative, Wealden)

The clause seems generally fine, but I have a question about subsection (6), on the payment of interest. Can the Minister clarify how widespread such a provision is in Government policy? I know that they have always stood firm against firms being able to charge interest on the late payment of bills, and have not been prepared to legislate to allow that, but if we do not pay our tax on time, a statutory rate of interest applies. What is the general principle on the payment of interest on late payments?

Malcolm Wicks (Labour, Croydon North)

I think that I had better write to the hon. Gentleman on that if I may, or I might be able to find a way to provide an answer later this afternoon. I want to get it absolutely right.

Clause 24

Charles Hendry (Conservative, Wealden)

Again, I have only a slight concern. The clause refers to penalties both on conviction and on indictment but not to dishonesty. It mentions due diligence, but my concern is that somebody who has not been dishonest could face jail or an unlimited fine. Will the Minister clarify whether the clause will apply only in cases in which there has been an intentional act or an element of dishonesty, without somebody who had inadvertently got themselves into the position described in the clause also being covered?

Malcolm Wicks (Labour, Croydon North)

I would have thought that that would be the case, but as I might write to the hon. Gentleman on his previous point, I shall write to him on this matter as well.

Clause 25

Malcolm Wicks (Labour, Croydon North)

There might be circumstances in which it is necessary to seek to restrain a person from exploring for carbon dioxide storage sites or from storing carbon dioxide. They might arise, for example, if someone began exploratory drilling activity without a licence. They should be required to stop their activity until they have obtained a carbon dioxide licence. The clause will allow the Secretary of State or the relevant regulatory authority to seek an injunction in such circumstances. In the absence of such a provision, an injunction could be sought only by a person whose private interests were affected or by the Attorney-General. There is precedent the provision in section 187B of the Town and Country Planning Act 1990, which gives a similar power to a local planning authority. We propose corresponding provisions for offshore gas storage.

Clause 26

Malcolm Wicks (Labour, Croydon North)

It would be useful if I briefly introduce the clause. The clause gives the Secretary of State the power to appoint inspectors to inspect facilities used for carbon dioxide storage or related activities. It also gives the Secretary of State the power to issue regulations setting out the powers, for example, powers to enter premises, to carry out an investigation, to require information, and to take samples. The clause also sets out the duties of inspectors and other persons acting under the Secretary of State’s direction, for example surveyors or other contractors. As well as the facilities and assistance that must be offered to the inspectorate, the Secretary of State may also make payments to inspectors appointed under the clause, which will be of great relief to the inspectors who are employed. Inspection arrangements are an important means of ensuring the effectiveness of any licensing regime because they allow the regulatory authority to physically inspect the relevant premises and to ascertain compliance with the licence and other applicable regulatory provisions.

Clause 27

Malcolm Wicks (Labour, Croydon North)

It would be helpful if I briefly introduce this procedural clause, which ensures that an offence under this chapter can be tried in any part of the United Kingdom—we had a similar clause in relation to gas storage—regardless of the location in which the offence may have been committed. It also sets out which authorities can institute or give permission to institute criminal proceedings in respect of the offshore area. The clause makes the prosecution of offences committed under this chapter more effective as it allows the prosecution of such offences to be carried out anywhere in the UK, without having to ascertain which court has jurisdiction. It gives the Secretary of State, among others, the power to prosecute offences committed offshore.

Clause 28

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 23, in clause 28, page 15, line 8, leave out ‘4’ and insert ‘10’.

This simple amendment would change the period of confidentiality from four to 10 years. Essentially, this is a probing amendment that we have been asked to propose by those involved in the industry. The Bill currently states that information can be excluded from the register if it would prejudice to an unreasonable degree a person’s commercial interest. However, that requirement expires after four years. In relation to the issues that we are talking about and the technologies that are involved, it seems that commercial confidentiality should in many cases last for more than four years. I would be grateful if the Minister could clarify why four years has been chosen when it might be appropriate to have a longer period in which that information could be treated as confidential.

Malcolm Wicks (Labour, Croydon North)

I thank the hon. Gentleman for moving the amendments. For the benefit of other Committee members, I will explain what clause 28 sets out to do. I will then say why I believe that the amendment to extend the period of time for which information excluded from the register of carbon dioxide licence is presumed to be commercially sensitive is unnecessary.

Clause 28 requires the relevant regulatory authority to maintain a public register of specified information related to carbon dioxide storage licences. That provision is in keeping with the principles of public access to information on environmental matters. Access to environmental information has long been seen by the Government as essential to achieving sustainable development because an informed public can play an active role in effective decision making. The requirement for a public register replicates existing arrangements under the Food and Environmental Protection Act 1985—indeed, I recall that it is under part 2 of that Act. The information to be included in a public register will be set out in regulations and may include, for example, details of the licences issued and the parties to such licences, licences that have been revoked or modified, enforcement action taken, and other prescribed types of information. As with 1985 Act, suitable protections will be put in place to exclude from the register commercially sensitive information and information that prejudices national security interests.

It will be up to the Secretary of State to decide what information should be excluded on the grounds of commercial sensitivity. There is a presumption that information that is excluded will remain excluded for only four years, but that period can be extended at the Secretary of State’s discretion, on application by the person whose commercial interests are affected.

In tabling the amendment, the hon. Gentleman wishes to extend to 10 years the period for which information is presumed to be excluded. However, the amendment is unnecessary for two reasons. First, 10 years is perhaps excessive, and the four-year period in the Bill strikes the right balance between ensuring that companies’ commercial interests are not unduly prejudiced and protecting the public’s right to get at the information. I stress again that the clause replicates the equivalent provision in the earlier Food and Environmental Protection Act, which has worked successfully for a number of years.

Secondly, if it transpires that information is still sensitive after four years, the Bill will contain adequate safeguards. Subsection (4) gives the Secretary of State the power to decide, on application by the operator, whether the information should continue to be excluded after the four-year period. That important provision will allow for periodic reassessment of the excluded information and will help to ensure that information will continue to be protected where there are sound grounds of commercial sensitivity for doing so. Our proposed approach encourages the flexibility necessary to maintain the balance of interests for and against disclosure.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister, and that is very helpful. In the event that the company involved wanted the period to be extended, but the Secretary of State did not, the Secretary of State’s wish would presumably prevail. What would be the process for reconciling such differences of opinion?

Malcolm Wicks (Labour, Croydon North)

If there is a more formal process, my increasingly long letter will contain the answer. One would rather hope, however, that the company’s views could be fully taken into account through discussion and consultation.

Notwithstanding that, I hope that I have given the hon. Gentleman some reassurance that the Bill already contains safeguards, that we can go beyond the four years if necessary and that we would apply our usual reasonable approach to these matters.

Charles Hendry (Conservative, Wealden)

I was doing quite well at following the Minister until his final sentence. He referred to the Government’s usual reasonableness, but that is not the term that springs to mind when talking about the way in which the Government operate. Obviously, that is a reflection not on the current Government, but on all Governments.

The Minister has given us assurances, and I would be grateful if he could spell out in slightly more detail how the process would work if the Government felt that it was not necessary to continue excluding information from the register, but the company involved felt that it was. I would also be grateful if he could spell out in his letter how long the subsequent periods might be—one year, two years or three years?

None the less, the Minister’s response will give the industry assurances about how the process will move forward. I beg to ask leave to withdraw the amendment.

Clause 29

Charles Hendry (Conservative, Wealden)

We are cantering through the Bill at such a pace that I wish I had the army of back-up support that the Minister has immediately available to him.

My questions on the clause relate particularly to the explanatory notes, which state that

“the operators of such installations may be required to decommission them in a timely manner after operations have permanently ceased.”

I am concerned that the explanatory notes say that operators

“may be required to decommission”,

rather than that they will be required to decommission. I cannot imagine in what circumstances they would not be required to get rid of the installation in the way described.

Will the Minister also give us some clarity on how such things will be paid for? Will it be from the fund that will be set up, or will there be other ways in which the Minister can ensure that funds are available for decommissioning work?

Malcolm Wicks (Labour, Croydon North)

May I say that the hon. Gentleman would make a useful member of my proof-reading team? I am advised that he is right and that we should have been talking about “will be”.

Charles Hendry (Conservative, Wealden)

I have a range of children, aged 11 and nine, who do support work for me. Obviously, they could be seconded to the Department if that would be useful. I am grateful for the Minister’s clarification on that matter.

Clause 30

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 15, in clause 30, page 16, line 3, after ‘facility’, insert

‘and about the examination by inspectors of the closing of the facility.’.

This important amendment concerns the way in which facilities will be closed, and the examination by inspectors of such closures. It reaffirms the role of inspectors in examining a facility that has been closed for any reason, and says that the operator should be responsible for all such costs. The Bill does not make it clear that when inspectors need to go in to ensure that work has been done properly, that cost will be reimbursed by the operators. I seek the Minister’s assurance that they will be required to pay for that.

Malcolm Wicks (Labour, Croydon North)

Again, I thank the hon. Gentleman. My speaking note always says thank him before seeking to persuade him that I cannot possibly accept his amendment, however well intentioned. As he knows, a key area covered by the regulatory framework in the Bill is the closure of carbon dioxide storage facilities. Operators, as commercial entities, cannot be responsible for carbon dioxide storage facilities indefinitely because of the geological time scales involved, as we discussed this morning. Clause 30 provides the Secretary of State with the power to make regulations specifying requirements for the termination of licences and the arrangements for the long-term stewardship of those closed stores. We expect licences to include provisions requiring the carbon dioxide store to be monitored for a period of time after closure to ensure its safety and security. That is provided for in clause 19. During that time, responsibility and liability for the store will remain with the licensee. Only when there is sufficient evidence to confirm that it is safe and secure would we expect to consider terminating a licence. I made that clarification earlier.

The amendment would include in the clause express provision to allow inspectors to examine closed carbon dioxide stores. That is not necessary, because there are already powers in the Bill that will allow us to deliver that aim. First, requirements for the inspection of carbon dioxide stores during both the operational phase, when carbon dioxideis being injected, and the monitoring phase could be included in the specific licence terms and conditions of any carbon dioxidefacility. The power for the licensing authority to prescribe such conditions is contained in clause 19, which governs the terms and conditions of licences.

Secondly, the amendment would duplicate powers in clause 26, which gives the Secretary of State powers to appoint inspectors and make regulations prescribing their powers and duties. It allows the Secretary of State to specify their inspection responsibilities regarding both operational and closed carbon dioxide stores, and in relation to any inspections that might be needed prior to the termination of a licence. In summary, I am confident that the provisions in the Bill will provide the necessary environmental, safety and financial protection properly to regulate the inspection of closed carbon stores prior to, or as part of, the termination of licences. I therefore ask the hon. Gentleman to consider withdrawing his amendment.

Charles Hendry (Conservative, Wealden)

Given the Minister’s assurances, I am happy to beg to ask leave to withdraw the amendment.

Charles Hendry (Conservative, Wealden)

I am glad to have the opportunity to raise a couple of additional questions.

Clause 30 talks about the circumstances in which a licence may be terminated. Would the Minister clarify the circumstances? Would he give us examples of what he has in mind? Operators need to have that level of guidance, given that they are to invest tens of millions of pounds in these facilities. They need to know in what circumstances the licence could be removed from them. We are not looking for an exhaustive list but some indication of the level of offence that would result in such a draconian step.

The Minister said earlier that one did not include the obvious in the Bill; one only included the unusual and less obvious. The challenge to him is to come up with a range of less obvious activities and offences that might require the licence to be revoked in these ways. It would be important for those being asked to invest to have greater clarity.

What about compensation where a licence is withdrawn? Licences could be withdrawn because a new technology comes forward which gets rid of CO2 in a different way—maybe a science which we do not yet understand. The hon. Member for Bolton, South-East may say it is impossible that this might be developed, based on his own scientific knowledge but, on the grounds that we should not rule things out, it could be that a day will come when the Government deem that capture and storage is no longer the appropriate way to deal with CO2.In such circumstances would it not be right for operators to be entitled to compensation where they have invested millions of pounds in good faith but the Government have changed their policy for dealing with CO2?

Malcolm Wicks (Labour, Croydon North)

I will see how far I can progress in tackling the hon. Gentleman’s specific questions in the time allowed.

Operators as commercial entities cannot be responsible indefinitely for carbon dioxide storage facilities, as we have discussed, due to the time scales and the geology involved. We expect licences to include provisions requiring the carbon dioxide store to be monitored for a period after closure to ensure their safety and security. Only when there is sufficient evidence to confirm that the stores are safe would we expect to consider the termination of licences.

Carbon dioxide storage licences provisions under clause 19 of the Bill may stipulate the procedure for terminating the licence after certain requirements are satisfied, relating, for example, to the safety and security of the store or the payment of a surrender fee. I might be able to answer quite quickly. However, where the licensing function is being carried out by another authority, the Secretary of State may wish to restrict by regulations that authority’s discretion in accepting termination of licences, for example, by placing the licensing authority under an obligation not to agree to the surrender of a licence until it is satisfied that the store is safe and secure. The regulations may also prescribe circumstances additional to those stipulated in the licence in which termination may be accepted.

It is important to provide that, after termination, the long-term stewardship of the carbon store is undertaken by a responsible entity in order to ensure that risks associated with such stores, if any, are minimised. The Crown Estate has agreed to take on this function, which is an inherent part of its ownership of the rights of the geological space in which the carbon dioxide is stored. The regulations would allow the Secretary of State or another body to which this function may be transferred—for example, the Crown Estate—to undertake commitments both of a non-financial and financial nature in relation to the stores that are no longer subject to a licence. Such commitments may include the duty to carry out monitoring or to remediate any leaks.

The Crown Estate may have to be reimbursed for any costs incurred in carrying out the long-term stewardship of the closed carbon dioxide stores. This clause gives the Secretary of State the power to take on financial obligations in relation to such stores, which may include providing an indemnity to the Crown Estate.

There may some misunderstanding about the meaning of termination. This clause relates to the surrender of a licence. We would consult on when the termination takes place but it is likely to be when it is safe and secure.

The hon. Gentleman asked me about compensation for licences that are withdrawn, and the clause deals with the termination of licences at the end of their operating periods. Compensation falls outside the scope of the clause, so we must consider the matter a little further. I see the point of his question, and, with his permission, it may become part of the increasingly impressive letter that I will write to him.

Clause 34

Malcolm Wicks (Labour, Croydon North)

I beg to move amendment No. 1, in clause 34, page 17, line 33, at end insert—

‘( ) An Order in Council under section 126(2) of the Scotland Act 1998 (c. 46) (apportionment of sea areas) has effect for the purposes of this Chapter if, or to the extent that, the Order is expressed to apply—

(a) for the general or residual purposes of that Act, or

(b) by virtue of this subsection, for the purposes of this Chapter.’.

Joan Humble (Labour, Blackpool North and Fleetwood)

With this it will be convenient to take Government amendments Nos. 5 and 6.

Malcolm Wicks (Labour, Croydon North)

I think this is the first Government amendment to this Bill, which is testimony to its soundness. The last major Bill that I was responsible for taking through the House was the Pensions Bill, which set up the Pension Protection Fund and which the hon. Member for Northavon remembers with longing. I recall that because of the urgency of the action that we needed to take to establish a Pension Protection Fund and a pensions regulator, we had to amend our own Bill heavily. Indeed, the number of Government amendments approached 1,000, and it is with some relief that I introduce the first Government amendment in this Committee. I assure the Committee that we shall proceed with few such amendments.

These are technical amendments, but it will help if I explain them, and I hope that this introduction will convince hon. Members that they are important. The Bill contains a number of provisions that refer to certain areas of the sea to which the Bill will apply, or that will fall outside the scope of the Bill. Where we have excluded such waters, we have done so to preserve the position of the devolved Administrations. It is therefore important that the boundaries of the waters referred to in the Bill correspond with the established boundaries set out in statutory instruments. Those instruments have been made, respectively, under the Scotland Act 1998 and the Government of Wales Act 1998. I have therefore proposed the following three technical amendments, which will help to achieve our aim.

Amendment No. 1 amends clause 34, which is the definitions clause for the Bill’s carbon dioxide storage provisions, to ensure that the boundaries of the Scottish territorial waters that fall outside the scope of chapter 3, which covers carbon dioxide storage by virtue of clause 16, are those set out in an Order in Council made under section 126(2) of the Scotland Act 1998. The current order is S.I. 1999/1126.

Amendment No. 5 amends schedule 1 to the Bill, which in paragraphs 1 to 3 provides for the disapplication of the Food and Environment Protection Act 1985 in relation to the Bill’s gas and carbon dioxide storage provisions. In this case, the necessary clarification relates to the territorial waters adjacent to Wales. The amendment accordingly specifies the boundaries of the Welsh territorial waters within which the Food and Environment Protection Act 1985 will continue to apply. The boundaries are set out in an Order in Council made under or by virtue of section 158(3) or (4) of the Government of Wales Act 2006.

Amendment No. 6 will produce similar consequences in relation to the extension of the power to apply civil law to the offshore area under section 11 of the Petroleum Act 1998, in relation to gas storage, liquefied natural gas unloading and carbon dioxide storage. For the purposes of extending that power to carbon dioxide storage activities, activities within Scottish internal or territorial waters are excluded. That amendment will ensure that the boundaries of such waters are those set out in an Order in Council made under section 126(2) of the Scotland Act 1998.

To reiterate, these technical amendments will help to achieve the dual objective of ensuring consistency with the boundaries defined for the purposes of the Scottish and Welsh devolution settlements, as well as removing any doubt as to the exact boundaries of the internal or territorial waters covered by the relevant provisions of the Bill. I hope that members of the Committee will acknowledge the importance of establishing clear boundaries in regard to such waters and of ensuring that they match those drawn for the purposes of devolution. I duly ask hon. Members to accept these technical amendments.

Schedule 1

Charles Hendry (Conservative, Wealden)

On a point of order, Mrs. Humble. I wonder whether you can clarify what is happening, because you have lost me. That is obviously not difficult to do, but I should be grateful for some clarification. The Government amendments relate to clause 34, and we have now moved beyond that clause and agreed to clause 35. I am not quite sure how we can dip back into Government amendments to clause 34.

Joan Humble (Labour, Blackpool North and Fleetwood)

Government amendments Nos. 5 and 6 relate to schedule 1. The Minister spoke to them previously, but now is the time to call them for decision under schedule 1 and the Committee has agreed to them. I do not think that I heard anything when I asked whether any hon. Member was not of the opinion that amendment No. 6 should be made.

Clause 36

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 24, in clause 36, page 19, leave out lines 5 to 12.

Thank you, Mrs. Humble, for the helpful explanation that have just given. It has been a while since I served on a Bill Committee and the details sometimes slip away. I thought I had found a way by which we could dive back into issues that we had discussed some time ago and bring them forward again, but that is clearly not the case.

Amendment No. 24 takes us into discussion of the provisions on the renewables obligation, and it may be helpful to give some background. We broadly welcome the clause. It has to be accepted that the renewables obligation certificates are a hideously complicated mechanism. One of my aims when I took on the role of shadow Energy Minister was to end up with a simpler system of financing such aspects of energy that is transparent and simple. ROCs are anything but transparent and simple, but they have delivered significant investment in some sources of renewable energy. However, those investments have been overwhelmingly in onshore wind and methane, because those are the cheapest forms of renewable energy. Only a small amount of investment has gone into offshore wind and virtually none has gone into photovoltaics and wave and tidal technology.

It is right that we should review the ROCs and move towards a banding system. Our goal must be to encourage emerging rather than mature technologies. However, that needs to be viewed against a backdrop of a poor take-up of renewables so far in the United Kingdom. Just 4 per cent. of our electricity production comes from renewables, making us the second worst in the European Union after Malta. We have 40 per cent of Europe’s wind. [Interruption.] My hon. Friend the Member for Billericay thinks that much of that wind is in this room. We have only 2 GW of installed wind capacity, with three times as much stuck in planning, compared with 18 GW of wind power in Germany. We are tied in to ambitious targets for renewables. Some 15 per cent. of all our energy must come from renewables, according to the EU’s targets for this country. We need a dramatic transformation of the process in order to achieve that.

Amendment No. 24 was brought to our attention by Drax Power in relation to its concerns that caps on the volume of non-energy crops will result in less biomass being burnt, which will mean more CO2 being released into the atmosphere. Drax Power is concerned that

“the threat of a cap will lead to the price of non-energy crop co-fired ROCs being discounted and will increase the risk associated with investment in the technology.”

It has advised us further that that will

“hit the public through deterring development in the cheapest form of renewables technology, leaving end customers to pay yet higher electricity prices for more expensive alternatives to enable the Government to achieve its target.”

Drax Power tells us that

“a cap is unnecessary under a banded Renewables Obligation regime, and particularly as there is provision for a review of the bands. The safeguard which allows for an early review of RO bands, should certain circumstances arise, is entirely appropriate.”

Hugo Swire (Conservative, East Devon)

My hon. Friend is making a good point. Further to that, a lot of farmers are being encouraged to grow non-energy crops for such power stations. Putting a cap on that will be a disincentive and many farmers will feel that they have been misled, having invested money in something that will now be worthless.

Charles Hendry (Conservative, Wealden)

My hon. Friend is right. That is an important point. The first time that I debated with the Minister was on a Statutory Instrument Committee relating to ROCs. Co-firing with biomass was an important element in that debate. The Minister was struck by the strength of opinion from all parties in the House. I was grateful to him for the way in which he reviewed that matter.

The amendment would delete proposed new section 32A(2)(d) to the Electricity Act 1989.

Steve Webb (Liberal Democrat, Northavon)

I have been quiet so far this afternoon. I am just warming up. I have some sympathy with the amendment, although not for the reason that the hon. Gentleman has given. I have seen the briefing that he properly refers to. My understanding of what the clause would do is different from his, although that does not necessarily mean that it is right.

The proposed new section that the hon. Gentleman wants to remove allows the Government to require the energy companies to buy particular sorts of ROCs. It says:

“a specified number, or a specified proportion, of the renewables obligation certificates produced by”

the

“supplier...must be certificates in respect of electricity generated”

in various ways. As I understand it—I hope that the Minister will correct me if I am wrong—that gives the Government the power not simply to ban ROCs and let the market get on with it, but to superimpose on banded ROCs a further requirement. For example, let us suppose that we had ROCs from a particularly obscure renewable that the Government decided suddenly that they wanted to favour. Rather than just change the banding, they could require the energy companies to buy ROCs from that renewable source. That is how I read the provision. If that were right, it would bother me.

The whole principle of banding ROCs and picking technologies, for which I can see the case, makes me nervous. The idea that subsequent to having banded and picked technologies, and given them different rankings, the Bill would give power for indeterminate meddling—in specified ways, or other specified cases or circumstances—does not create the certainty that generators would want. That is what worries me about the lines that the amendment tabled by the hon. Member for Wealden would take out. They might create additional uncertainty and, given that we are talking about long-term investments in some cases, even having the banding reviewed, which we shall deal with under subsequent amendments, is a source of uncertainty. My worry is that the subsection is another source of uncertainty, and I hope that the Minister can clarify why the powers are needed, because I am not yet convinced that they are.

Malcolm Wicks (Labour, Croydon North)

I am grateful for the chance to talk about a part of the Bill that raises some issues, and to explain how we arrived at the formulation before us. We shall be talking about the renewables obligation at some length today, so I wish to provide the Committee with some brief background information about how it works.

The renewables obligation or RO requires licensed electricity suppliers to source a specific and annually increasing percentage of the electricity that they supply from renewable resources. The current level is 7.9 per cent. for 2007-08, increasing to 15.4 per cent. by 2015-16. It is expected that the obligation, together with exemption from the climate change levy for electricity from renewables, will provide support to industry of up to £1 billion per year by 2010. Suppliers will fulfil their obligation by presenting renewables obligation certificates, often known as ROCs, which are awarded by Ofgem to generators for renewable electricity. The generators then sell the ROCs either together with their electricity or separately. At present, all renewable generators are rewarded equally with one ROC per megawatt-hour.

The key reform in our proposed package of measures, which the Bill will give us powers to carry out, is the introduction of banding, so that technologies will be grouped and awarded with different numbers of ROCs per megawatt-hour. I am sure that we shall discuss the provision in more detail but, for now, I wish to focus on the amendment.

Amendment No. 24 would remove the power under proposed new section 32A(2)(d). The power is intended to enable the Secretary of State to require electricity suppliers in meeting their obligation to source a minimum proportion of their electricity from specified sources, descriptions of generating station or means of generation. It is necessary and should be retained. I want to describe first how the power is drafted and then deal with the concerns expressed over how it will be used.

Proposed new section 32A(2)(d) is a translation of an existing power. In reforming the RO under the new Energy Bill, we are repealing all the existing legislation and replacing it with proposed new sections 32 to 32M. I hope that that makes considering the entirety of the reformed RO legislation much easier. However, we have carried forward the existing legislation into the proposed new sections where the existing powers are still relevant. The subsection that we are considering now is one such case.

In the Electricity Act 1989, existing sections 32A(1)(b), (c) and (d) give the Secretary of State the flexibility to make provision so that only renewable electricity from certain forms of generation or renewable source can be used to satisfy the obligation. In other words, under the existing powers of the 1989 Act, the Secretary of State already has powers to focus the obligation on specific technologies or renewable sources if that is appropriate. To take a purely hypothetical example for illustration, he could use the power to require that a certain amount of the renewable electricity that electricity suppliers supply to meet their obligation must come from wave power.

Our challenge in creating the proposed new sections under consideration today is to ensure that the powers are translated so that they remain relevant to the new reformed RO, the changing renewables market and fast-developing renewables technologies. We have done that in two ways.

First, the references to the specified amounts of electricity counting towards the obligation need to be changed to reflect the fact that in future suppliers’ obligations will be expressed in numbers of ROCs, rather than the amount of electricity. The new provisions allow the Secretary of State, in an order, to specify that a number or proportion of the ROCs produced by an electricity supplier, in discharging the obligation, must be certificated in respect of certain types of generation.

Secondly, where the law previously allowed the Secretary of State to identify sources or descriptions of stations, we now need to be more flexible in order to take account of how technologies and ways of generating renewable electricity are developing and of how distinctions are becoming more subtle. Certainly, we need to do that in order to introduce banding. For instance, in the new RO we will make distinctions between on and offshore wind, energy crops and regular biomass, large and small installations, and so on. As we move forward, we might need to make further distinctions.

That is why we wish to allow scope for the Secretary of State to identify specific types of generation and to focus the obligation on them. That means that the power requires sufficient flexibility to allow him to pin down the types, sorts or means of generation, if any, that he wishes the RO to focus on. The references in proposed new subsection 32A(2)(c)(iii) and (iv) to

“specified ways, or...specified cases or circumstances”

provide us with that scope.

I hope that that explains how the new formulation of the power has been arrived at. Electricity companies want to know what it will be used for. I can confirm that it is not currently our intention to use it in order to focus the obligation so that suppliers would have to, for example, present a certain number of ROCs in respect of a single renewable technology, such as wind power. To a large degree, we anticipate that banding will allow us to provide the correct level of support to different technologies. However, given that the move to banding in the development of new technologies will add complexity to the renewables picture, we cannot rule out wanting to consult on using the power to boost a particular renewable type of generation as our policy evolves in pursuit of challenging targets. We certainly recognise that, before 2020, we will need to do more to support renewables in a changing and more complex environment.

Steve Webb (Liberal Democrat, Northavon)

Presumably, if the Minister decided that he wanted to support a particular renewable technology, the alternative would be to whop up the banding. Why does he need, therefore, what appears to be a meddling power? We can do that by changing the banding, but the provision before us represents super-meddling, which is beloved of the Prime Minister. Why can the Government not just use different banding to achieve the same goals?

Malcolm Wicks (Labour, Croydon North)

Banding is our desired instrument and the one for which we are legislating, but it is difficult to anticipate the future of emerging technologies. We just want to keep our options open. I have said that at the moment it is not our intention to use the power to support a particular technology. Rather than removing one of the tools at our disposal, we should retain it, as I have been saying, in case we need it in the future. I stress, of course, that if we consider using it, a decision would continue to be subject to consultation and parliamentary scrutiny through the affirmative procedure. For those reasons, I wish to retain the power in the Bill.

I was asked about Drax’s call for a cap on co-firing to be removed. The amendment in question would not have the proposed effect. We have consulted on the cap on non-energy crops biomass. There is considerable concern that co-firing is particularly volatile, because the fuels are readily available. We have taken the view that the cap makes RO more reliable for investors and, therefore, should be retained. I was asked by the hon. Member for East Devon about farmers and their encouragement to grow energy crops. We encourage the growth of energy crops, which are defined by legislation for the purpose of—sorry, I have lost my train of thought on a definition. Certainly, however, a cap on non-energy crops biomass—I think that I shall have to write to the hon. Gentleman. For some reason, my powers of scrutiny of notes have been lost. [Interruption.] The energy is there, but the handwriting is not helping me.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for most of that answer, at least. He has reassured us to some extent, but I wonder whether, if organisations such as Drax Power continue to have concerns after hearing what he has said today, it would be possible for them to meet with officials in his Department, and whether he could facilitate that to ensure that their views are fully taken into account and they can be properly reassured. Based on what the Minister has told us, I beg to ask leave to withdraw the amendment.

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 16, in clause 36, page 23, line 47, after ‘sources’, insert

‘and research and development costs involved in enabling the industry to make efficiency gains;’.

Joan Humble (Labour, Blackpool North and Fleetwood)

With this it will be convenient to discuss the following amendments: No. 21, in clause 36, page 24, line 9, at end insert—

‘(g) the possible impacts on the environment associated with generating electricity from each of the renewable sources or with transmitting or distributing energy so generated.’.

No. 17, in clause 36, page 24, line 30, at end insert

‘, providing that such a review is undertaken at least every four years.’.

Charles Hendry (Conservative, Wealden)

The first of the two amendments in my name and that of my hon. Friend the Member for Billericay examines the research and development costs in enabling the industry to make efficiency gains.

The Bill outlines factors that the Secretary of State must take into account in considering banding provisions, which predominately make a great deal of sense. It looks at the costs, including capital costs, the income of operators of generating stations and who is exempted from the climate change levy, and the desirability of securing the long-term growth and economic viability of the industries associated with a generation of electricity from renewable sources. The amendment would simply add a factor to that last one, which is designed to help the industry develop as quickly as possible.

Challenging targets have been set for the growth of the industry. The evidence is that it will follow a traditional S-curve, with a slow start-up, then rapid growth before tailing off subsequently. It is in all of our interests to have rapid growth coming through as quickly as possible, and therefore we should actively be encouraging research and development work to make efficiency gains and to achieve economies of scale. That is a different issue to proposed section 32D(4)(d) of the Electricity Act 1989, which relates to the long-term growth and economic viability of the industries involved, as that does not specifically involve trying to do anything to encourage early growth. The amendment would add an extra element to encourage and reward research and development. It would also help to encourage that work to be done in the UK and, as it is research and development, such work would not be affected by EU rules on state aid.

Amendment No. 17 is a rather different issue and relates to the regularity with which reviews should be carried out. As I said earlier, we support the principle of banding, but we recognise that technology is changing fast and levels of bandings need to reflect that. Having already seen how the current ROC system has encouraged some technologies, such as methane and onshore wind, over others, we recognise that there needs to be change. ROCs have helped to mature the lower-cost industries relatively quickly and now it is right to channel extra help to the more expensive technologies. The Bill gives the Secretary of State the right to alter bands, either at intervals set in secondary legislation, or when there has been a specific change that he believes would justify a reassessment. The amendment would put on the face of the Bill a requirement that there should be a reassessment of the banding levels at least every four years. If the Secretary of State decides to carry out a review less than four years after the previous review, it would not prevent him from doing so, but it would mean that we could not simply stumble on without a review for several years. With the best will in the world, things take longer than we might wish, but having talked about banding for at least the last two years that I have been doing this job, we owe it to those investing that they should have clarity about how the process will move forward.

The Minister may say that the order will specify the appropriate length of time between reviews, but orders cannot be amended readily in Committee and there is a strong case for the Bill to set down clearly when reviews will take place. That would also make it easier for different industry groups to make representations about the appropriate level of the ROCs and it would drive forward investment if business knew when the next change was likely to happen.

Martin Horwood (Liberal Democrat, Cheltenham)

The hon. Gentleman is addressing an important idea with this amendment, which is locking in incentives to research and development. That is a laudable aim and we would be entirely happy to support the amendment, should he press it. That is a legitimate thing to take into account, and the Liberal Democrats generally would support an amendment to the banding system.

In order to address amendment No. 21—and I am treading cautiously, having been corrected this morning—I would like to comment on why we think this would be a good idea. We also want to add a paragraph (g) to proposed section 32D(4), so that the Secretary of State would be asked to take into account the possible impacts on the environment associated with generating electricity from each of the renewable sources or with transmitting or distributing the energy so generated.

It is worth remembering that the environmental movement has been around for a long time, discussing many issues other than climate change. We can become so focused on carbon emissions that we can sometimes forget that there are other, wider environmental impacts that should also be taken into consideration. The development of different, renewable technologies, while obviously broadly a very positive development that we absolutely support, can have environment impacts of their own and those ought to be taken into account when banding is developed. This simple and elegant amendment would ask the banding process to take into account those wider environmental impacts.

Charles Hendry (Conservative, Wealden)

Can the hon. Gentleman clarify what he means by environmental impact? Would it, for example, also include the visual impact? That would be seen to be an environmental concern in many people’s eyes. How does one then assess wind turbines, for example, which some people think are fantastic and wonderful while others loathe them?

Martin Horwood (Liberal Democrat, Cheltenham)

The hon. Gentleman raises an interesting point. I had not been thinking particularly of the visual impact, which I think is dealt with by planning law—perhaps the Planning Bill might be the place to address that particular issue.

I will, however, give one example. We all know that if properly exploited, the Severn estuary could contribute some 5 to 7 per cent. of the UK’s electricity generating supply. In terms of carbon emissions it is an entirely good thing that that should proceed and that either a barrage, lagoon system or some other form of exploitation of the energy resources in the Severn estuary should proceed. But there will be inevitable environmental impacts—on the flow of the Severn and affecting biodiversity and wildlife habitat—and it is very proper that we take account of such impacts when banding different renewable power sources .

There are indeed concerns about their environmental impact of wind turbines, although not so much their visual impact. I think that they are very beautiful things. I have stood in many a Liberal Democrat supported constituency, where the wind turbines have been supported by both the local council and the local MP, and I have been underneath the wind turbine and listened for this alleged noise and disruption that it is supposed to cause people. I have heard very little that would disturb me; I am an enthusiast for wind turbines. However, if they are insensitively located and if the base of the turbine is rooted in an environmentally sensitive habitat, such things would be taken into account under the scope of our proposed amendment. It is quite proper, even for those of us who support wind turbines, to acknowledge that there are real concerns and I hope that the Minister will look kindly on our amendment.

Anne Main (Conservative, St Albans)

I am listening with a huge interest to the possible impacts that the hon. Gentleman is discussing. I suggest that they are so wide ranging that they would be almost unenforceable if they are all put within this particular banding. Perhaps he would like to touch on that, because there are so many visual, environmental, marine, and biological impacts—the footprint of the wind turbine—that I fail to see how they could all be encapsulated elegantly, as he put it, in this amendment.

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful to the hon. Lady for her intervention but I do not think she is ambitious enough. A wide range of policy tools that have already been developed from the EU’s wildlife and habitat’s directive and from environmental impact assessments are designed to tackle precisely such difficult problems. This is an enabling provision that would allow the Secretary of State to design a banding system that could take into account environmental impacts of that kind—the technology and the systems behind assessing environmental impacts are already well established so I do not think that would be too much of a challenge.

Anne Main (Conservative, St Albans)

We often see from an environmental assessment whether something will have a mild or moderate or severe impact, and many of us will have seen that in the planning process. How will the hon. Gentleman evaluate the differences between the benefit and the harm? It will be a very fine and difficult line to tread and this Bill is perhaps not the right place for it.

Martin Horwood (Liberal Democrat, Cheltenham)

I am grateful to the hon. Lady, but she is creating mountains out of molehills. All the other clauses in this part of the Bill are similarly simply phrased relating to costs and, of course, they will hide great complexity in the implementation. The same applies to our amendment, but nevertheless I commend it to the Committee.

Malcolm Wicks (Labour, Croydon North)

This has been a useful discussion. Amendments Nos. 16 and 21 propose new matters that the Secretary of State should have regard to. Amendment No. 16 seems designed to ensure that the Secretary of State takes account of individual technologies’ research and development costs when setting the banding regime. Few renewable technologies that we brought forward under the RO are completely mature and most have scope for technological development and efficiency gains. Driving these gains is, of course, important, but I believe this amendment is unnecessary as the Secretary of State will already need to take account, under new section 32D(4)(a), of the costs associated with generating electricity from each renewable resource. Any well managed equipment manufacturer will set the price for their equipment at a level that includes their necessary research costs. Therefore R and D costs will already be covered in the banding regime, because these costs will form part of the costs that a developer will pay for the equipment that they use to generate electricity.

Furthermore, for those technologies that are not yet competitive, even under the banded RO, this Government have set up the Energy Technologies Institute and the environmental transformation fund. In many cases, we believe that high-risk projects, such as demonstration of wave and tidal-stream technologies, are better supported by grant schemes that can mitigate the initial capital risks, rather than simply by relying on operating support under the RO, which will leave companies exposed to high levels of technology risk. I therefore do not believe, on reflection, that this amendment is necessary, but perhaps I can still be persuaded.

Charles Hendry (Conservative, Wealden)

The provisions look at rather different things. Subsection (4)(a) looks at the costs, including capital costs, associated with generating electricity from each of the renewable sources while our amendment covers the R and D costs involved in making efficiency gains. That involves the understandable R and D that has to be gone through anyway in order for the project or particular source of renewable energy to be developed, but that does not necessarily mean that we would carry forward that technology as fast as possible so we can help to meet the target the Government have set for themselves or have had set by the European Union. The provisions are fundamentally different and our amendment is specifically about how we would achieve efficiency gains and would not deal simply with the R and D costs that would be involved in any case in bringing the technology forward.

Malcolm Wicks (Labour, Croydon North)

Is this not a case in which the periodic reviews of banding, which are the subject of another amendment, would allow such consideration to be taken? If the technology has developed in such a way, can we not look at it under future banding?

Brian Binley (Conservative, Northampton South)

My concern is the front-end costs. The costs of creating the technologies we need to create in order to set all this renewable and alternative energy will be very front-ended and we need to give all the help we possibly can if we are to hit the targets we need to hit. It seems to me that the suggestion of my hon. Friend the Member for Wealden would aid that process and would be in the interests of the Minister’s objectives. I am not sure that the Minister has really taken into account that front-ended nature of the research and development, but that is necessary if we are to progress in the way that we need to.

Malcolm Wicks (Labour, Croydon North)

As I said earlier, I hope that we have some capital grant schemes to enable R and D. I mentioned the new Energy Technologies Institute, which is particularly important, but I could also note the support we are giving to marine technologies, supporting them in an early phase and then again in order to get them through what some people refer to as “the valley of death”, which is the period between R and D and commercialisation. For marines, we have a support fund, I think, of up to £50 million, so I understand the critical importance of that early phase and what the hon. Member for Northampton, South calls front loading.

Certainly, learning effects are integral to technology development and cannot readily be separated out under a banding regime. That is why, as I have said already, we have the other support schemes that I have mentioned, such as the Energy Technologies Institute, that support R and D. This has been a useful discussion but I was about to say that I do not think that the amendment is necessary.

Amendment No. 21, proposed by the hon. Member for Cheltenham, has been cast slightly wider, and seems designed to ensure that the Secretary of State takes account of individual technology’s impact on the possible environmental impact of new generating stations when setting the banding regime. It is an interesting point. I hope to persuade him, however, that sadly his amendment is not necessary, but I have some sympathy with the intention behind it. It is a question of whether we can proceed in better ways.

The amendment seems difficult to use for its intended purpose, and potentially risks confusing two different processes. First, the amendment is drawn very widely—the Secretary of State is asked to look not at the likely environmental effects of a particular technology, but rather at the possible effects of the generation, transmission and distribution associated with a generating source. This could be defined in terms of all possible positive impacts, such as carbon saving, or all possible negatives, such as visual amenity, land use or impact on agriculture. If we are into visual amenity, we are into difficult territory—because the hon. Gentleman wanders and sees a host of wonderful wind farms, whereas others seem to see the devil incarnate. Assessing a visual impact objectively is not always easy, although I am rather on his side, by the way, on that argument. It is difficult to see how such a comprehensive assessment could be reached, and then how it could be reflected in the banding structure, without acceptable levels of complexity and bureaucracy, and indeed, disagreement.

Secondly, we need to bear in mind the possible impact on renewable deployment of adding this additional requirement. We have set out our banding structures to increase total renewables growth, increase RO efficiency and help to bring forward developing technologies. The bands will therefore be set to maximise renewable generation towards our targets at best value for money. Future reviews would follow the same principles. Therefore, introducing an additional environmental assessment now would muddle the objective, and could even reduce the ultimate level of renewable generation. If, as a result of this, we reduce the incentives for some renewable technologies, rather than seeing alternative greener renewables taking their place, we risk seeing even greater levels of generation coming from fossil fuel stations.

That does not mean that we are not concerned about the effect on the environment of renewable technologies. A number of elements in the Bill demonstrate that we take this very seriously. For example, we will be introducing powers through the proposed new section 32J to the Electricity Act 1989 in clause 36 to enable Ofgem to require biomass generators who receive ROCs to provide information about where that biomass comes from. Indeed, we are increasingly concerned about sustainability issues around biofuels and biomass. So that is an important measure.

We will ensure that Ofgem publishes the information. This reporting requirement will have the express purpose of ensuring that we have an accurate picture of how sustainable a given source of biomass is, and that this is exposed to public scrutiny. There is also the power to exclude certain renewable technologies or sources from the benefits of the RO, and this is laid out in clause 36, and proposed new section 32C(1)(a).

However, the environmental effect of individual generating stations—which will vary according to geography, business plan and supporting infrastructure—is better addressed on a case-by-case basis, primarily of course, through the planning system and environmental impact assessments. A developer will have to satisfy the local authority or the infrastructure planning commission—should the Planning Bill go through—that the environmental impact is appropriate and limited. This is the correct stage at which to undertake a full environmental assessment. Will the hon. Member for Cheltenham consider not pressing his amendment in the light of my description of these important issues?

Finally, amendment No. 17 concerns the timing of reviews of the RO banding provisions. It is clear that, once implemented bands, should not be set in stone and that will allow us to respond to technological and other changes, thereby ensuring that the RO remains an effective and efficient tool to promote renewable generation. For that reason we have made provision in the Bill, in proposed new section 32D(8)(a), to allow the bands to be reviewed. However, in considering the appropriate time for and interval between reviews, we need to balance ensuring that the RO remains cost-effective and efficient with the need to give investors confidence and certainty about the support that they will receive under the RO.

The timing of those reviews will be set out in the secondary legislation and, in the Government response to the consultation, we have made the commitment that the first of these will coincide with the start of EU ETS phase 3 in 2013. The timing received strong support during the consultation process because in future the support levels required for renewables will be increasingly dependent on the carbon price under the EU ETS.

As I have already indicated, our job is to balance the need for a stable and predictable system for investors and developers with the need to change support levels over time to reflect changes in the cost of renewable technologies and other market developments. The approach in the Bill achieves this. Setting out the review timetable in secondary legislation provides investors with the considerable certainty that I have argued for, but still allows for flexibility. Any changes to the secondary legislation are subject to statutory consultation. Given the strong industry support for linking the review of the EU ETS timetable and the sufficient safeguards provided by setting the timetable out in the secondary legislation, will the hon. Member for Wealden consider withdrawing his amendment?

Charles Hendry (Conservative, Wealden)

The Minister has responded to amendment No. 17, but my sense about the banding decisions is that they go into the “it’s all too difficult” box for a while. There is lots of discussion and there is plenty of opportunity for people to make contributions, but decisions keep being put off. That has been the history of the past couple of years.

The Bill provides an important opportunity to put the banding provisions in place, but we have been talking about that for a very long time. Amendment No. 17 would provide greater certainty so that people knew when a decision would be made on changing the banding arrangements. That said, I think that the Minister’s point about the next banding decision being taken in 2013 to tie in with the next stage of the EU ETS makes sense. Clearly a four-year rule would not work with the 2013 date. I understand the sense of the his point, so I will not press amendment No. 17 to the vote.

I remain disappointed by the Minister’s response to amendment No. 16. There is a difference between the terminology, which he has referred to about costs and capital costs required to bring in a new technology, and the different research and technology costs involved in trying to bring about efficiency gains so that one can speed up the development of that technology. I am sorry that he has not seen that distinction and has not been prepared to agree with it. On that basis, we will seek to push this amendment to a Division, because all we are arguing for is research, development and efficiency. I am sorry that he cannot support that.

Martin Horwood (Liberal Democrat, Cheltenham)

Of the amendments tabled by the hon. Member for Wealden, we remain sympathetic to amendment No. 16 and from what we have heard during the debate if the hon. Gentleman wishes to push that to a Division, we will happily support him. I missed the opportunity to express further sympathy for amendment No. 17, which also seemed a sensible issue to address. There is almost an outbreak of cross-party consensus now.

Continuing that theme, I was pleased with the Minister’s remarks on our amendment No. 21, where he made very encouraging remarks and seemed to be, at least, expressing support for the spirit, if not for the letter of the amendment. If he is concerned that the amendment is too broadly drawn, or that it might have unintended consequences—that seemed to be the essence of what he said—I suppose that in a spirit of hope we would be happy not to press it so that he would have an opportunity to introduce one that was even better and that went a little further than he went and explicitly made wider environmental concerns part of the banding process in the Bill.

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 18, in clause 36, page 29, line 30, after ‘“biomass”’, insert

‘and to set out acceptable circumstances for the growing of biomass;’.

Joan Humble (Labour, Blackpool North and Fleetwood)

With this it will be convenient to discuss the following: New clause 15—Extension of Marine Renewables Deployment Fund

‘The Secretary of State shall make regulations to extend the remit of the Marine Renewables Deployment Fund to include support for the early development of wave and tidal technologies that need to complete pre-competitive research and development through deployment and demonstration.’.

New clause 17—Use of biomethane

‘(1) In section 32(8) of the Electricity Act 1989 (c. 29), in the definition of “renewable sources”, at end insert—

‘(2)

“and shall include the use of any gas drawn from a gas network to which premises supplied by the supplier are connected where at the time the gas is drawn from the network the supplier has arranged for the shipping to the consumer at those premises of the same quantity of renewable biomethane gas and that quantity has been introduced to the gas transmission or distribution system to which the consumer’s premises are connected.”.

(3) In section 124 of the Energy Act 2004 (c. 20), after subsection (5) insert—

“(6) For the purposes of this section ‘supplied’ shall include supply of any gas or other fuel drawn from a gas or other fuel network to any premises where at the time the gas or other fuel is drawn from the network by a consumer the supplier has arranged for the shipping to the consumer at the same premises of the same quantity of renewable transport fuel and that quantity has been introduced to the gas transmission or distribution system to which those premises are connected.”’.

Charles Hendry (Conservative, Wealden)

After that moment of excitement, we move on to yet another exciting amendment. I am certain that this one will have even more support on both sides of the Committee.

The clause provides for a definition of biomass, which is certainly necessary. One of the principal concerns about biomass relates to the conditions in which it is grown. Clearing food stocks to grow it could potentially do more harm than good if food prices for those in developing countries increase, just as clearing rain forests to grow biofuels would do more harm than good. Biomass and biofuels have an important role to play, but not at any cost.

The technology is moving fast. We are seeing the development of cellulosic biomass, which uses different parts of the same product for food and for biomass. We are also seeing biomass being grown in terrains, particularly those adjacent to deserts, which could not sustain other crops. Over time, technology will resolve some of the concerns, but it seems sensible that the Bill should give the Government the power to decide which methods for growing biomass are acceptable and which are not. The amendment simply seeks to make that small change.

Steve Webb (Liberal Democrat, Northavon)

We have a group that includes one amendment and two new clauses, all of which deal with different sorts of renewable technologies. New clause 15 relates specifically to marine renewables. I hope that the Committee will bear with me. I want to deal with the new clause in some depth, as it is important.

The Minister will have been well briefed and will know that the wording of our new clause, which involves extending what the marine renewables deployment fund does, has been modelled on a similar scheme in Scotland. The wording is taken directly from the objectives of the Scottish scheme, which, unlike the Westminster Government’s scheme, has succeeded.

At present, there is a £50 million budget for the fund—the Minister gave the figure earlier—and £42 million of that has been allocated for what are called

“multi-device early stage commercial generation facilities using technologies that have completed their R&D and are ready to move into a commercial environment.”

The final words,

“ready to move into a commercial environment”,

are the key. Certainly as of about a fortnight ago, the amount that had been allocated under the heading was zilch, zippo, nada, nothing. In other words, despite the fund having been announced almost a year ago, I understand—again, I hope that the Minister will correct me if I am wrong—that there have been just two applications for the £42 million section of the fund, and they have both been turned down.

I am concerned that this is one of those Government grant schemes—the Department for Environment, Food and Rural Affairs is very good at them—that sound great and get a good headline but do not deliver. The fact that they have not spent the money is some indication that they have not achieved anything yet. Our new clause would expand the scope of the fund to bring in somewhat less commercially developed technologies. In this context, we should examine tidal lagoon technologies.

I said at the beginning of my contribution that our new clause is modelled on Scottish Ministers’ wave and tidal energy support scheme, which also funds—this is the crucial word—pre-commercial projects: the early development of wave and tidal technologies that need to complete pre-competitive research and development through deployment and demonstration. The Minister has referred to Orkney and the European Marine Energy Centre. If I remember rightly, the Scottish scheme has already funded about half a dozen projects, which have already taught us things about those alternative technologies.

Why are we so concerned to see pre-commercial technologies supported more effectively? My hon. Friend the Member for Cheltenham mentioned earlier the Severn barrage issue and that by 2020, we could get 5 per cent. of the nation’s electricity from that source. However, many people are concerned that a full-blown barrage might be environmentally too high a price to pay. The principal alternative, which the Department for Business, Enterprise and Regulatory Reform’s own feasibility study is examining, is tidal lagoons.

Interestingly, when the Sustainable Development Commission considered the issue, it said that

“there is little authoritative evidence”

on the technology, which again indicates how preliminary it is. To clarify, tidal lagoons, to quote from the SDC, use

“hydropower turbines in an offshore impoundment”,

and the,

“lagoons could potentially be developed in a number of shallow coastal areas with sufficient tidal range.”

That is what we are talking about, and the SDC said that it

“would like to see the Government investigating their long-term potential by funding a demonstration project”

Malcolm Wicks (Labour, Croydon North)

Just one?

Steve Webb (Liberal Democrat, Northavon)

The SDC continued:

“This would allow a full evaluation of the costs and the potential environmental impacts.”

That is what the SDC recommended, and if I am right, the Government set it up to advise them on such matters. In due course, I should therefore be interested in the Minister’s response to that recommendation. There is already a fund lying dormant, because the Government cannot even find anybody to give the money away to, so £42 million has been set aside and they have not given anybody a penny yet.

Malcolm Wicks (Labour, Croydon North)

Does the hon. Gentleman not recognise that the money has not been spent because no project has yet satisfied the criteria? One does not just give money away—even in a fantasy Liberal Democrat Government. One does so when the project meets the criteria. One must do things properly.

Steve Webb (Liberal Democrat, Northavon)

I can always tell that we are making a good point when the Minister gets narky.

The whole point of the new clause is that the criteria are too restrictive. Nobody has been found to give £42 million to, because people cannot meet the criteria. The new clause would expand the criteria so that the Minister could not only get another nice headline, but achieve more and spend his £42 million analysing technology that is not quite as advanced as the scheme that he set up is looking for but has yet to find. There is a sort of Bermuda triangle problem at the moment.

The reason that we must expand the fund’s scope is, to quote the SDC, that

“there is a lack of evidence with which to assess the long-term potential of tidal lagoons.”

Given the nature of the British isles, it says that

“there is potentially a significant resource in shallow water areas around the UK.”

The commission also talks about an “information gap” and

“a strong public interest in developing one or more tidal lagoon demonstration projects.”

There is the Minister’s answer:

“one or more tidal lagoon demonstration projects.”

The Minister urges me to be realistic, but I am being exceptionally realistic. We do not call for additional public spending or money that has not already been allocated; the money is in the Department’s budget, allocated for marine renewables deployment, but it cannot spend it because nobody can leap its hurdles. We therefore suggest broader criteria, and the evidence north of the border is that when broader eligibility criteria are applied, schemes get in. Lessons are being learned north, but not south, of the border.

John Robertson (Labour, Glasgow North West)

The hon. Gentleman has obviously done much more inquiry north of the border than I have. Can he tell me what the likelihood is of a return on the money that we put into such renewables? I am a Labour Member, and we do not have many rural or coastal seats. What are the chances of the councils in those areas allowing us to develop lagoons?

Steve Webb (Liberal Democrat, Northavon)

I am slightly surprised by that intervention, because part of the point of the technologies is that they are deemed more environmentally friendly than some of the alternatives. A number of Labour seats are not far from the Severn estuary, and a number of Labour Members attended the meeting about the Severn barrage that the Secretary of State organised a few days ago. This is not a rural Tory-Lib Dem issue; it is one for all of us. Lagoons are regarded as potentially a more environmentally friendly way of meeting our renewable energy needs without the damage caused by bigger schemes.

To answer the hon. Gentleman’s specific question, I believe that the Government are considering an application for the Humber estuary. I have a suspicion that there might be some Labour seats in that area.

John Robertson (Labour, Glasgow North West)

And we would probably have the problems that we seem to have in other areas. I return to my first question—what are the chances of getting a return for our money? There is no point putting money into such developments because the hon. Gentleman wants to expand the criteria if, by doing so, we develop a form of energy that is not sustainable and that is of no use. If we are going to spend money on promoting energy policies, should it not be along the lines that we should actually get a return for the taxpayer’s money?

Steve Webb (Liberal Democrat, Northavon)

The nature of the schemes that we are discussing is that they are pre-commercial. The short answer is that we do not know; if we did, we could make a commercial judgment, people could get renewables certificates and a whole mechanism could kick in. We are not at that stage; the point is that there are technologies that have potential. In principle, tidal lagoons could give a return—whether it would be a commercial return, I do not know. It might well need the sort of subsidy that we are giving other renewables.

I do not understand where the hon. Gentleman is coming from. The technology is at an early stage and we do not know whether it is the answer. There are schemes to subsidise early-stage research on it, which will help us to answer the hon. Gentleman’s question, but if nobody can get money from the fund in the first place, that must be crazy. A fund of £42 million has been set aside and the Government cannot even give it away because nobody can clear the hurdles. That cannot be a rational strategy.

Jamie Reed (Labour, Copeland)

The hon. Gentleman is making interesting points. Does he share my fear that there is a risk that we might spread our public money too thinly, on too broad a range of potentially accessible and productive renewable resources? Does he have any indication of the costs that lagoon projects might entail?

Steve Webb (Liberal Democrat, Northavon)

I do have that concern, because I understand that the Scottish scheme, which is obviously on a smaller scale, has funded nine projects. I do not know the precise details, but that might be spreading the money a bit too thinly, as the hon. Gentleman says. We might be able to learn more by giving a bit more money to fewer schemes. There is a trade-off. A substantial sum of £42 million has been earmarked, and a fair amount of pre-commercial research and development could be done with that.

As I indicated earlier, tidal lagoon technology is critical because the big-bang Severn barrage scheme, which could account for 5 per cent. of all our electricity, has environmental objections attached to it. Lagoons are the principal alternative, and we need to know as soon as we can how viable they are. The Government have set up a feasibility study, which will report in two years. If it says, “We are worried about the environmental impact of barrage, but we have no idea whether lagoons are any good,” because there is no demonstration project anywhere, we risk yet more delay and decades rolling by.

Jamie Reed (Labour, Copeland)

In response to that point, surely we would know what alternatives to the Severn barrage were available to us by dint of the fact that projects would have taken place in Scotland.

Steve Webb (Liberal Democrat, Northavon)

No, because the things that have been funded in Scotland are pre-commercial developments. That is the problem. The title of the fund is the marine renewables deployment fund. It is intended to fund things that are ready to be deployed on a commercial scale. The technology is not yet there, and it is unlikely—looking at the sorts of schemes that have been funded in Scotland—that by the time the feasibility study is finished they will have gone through all the early research and development, got to the stage of commercial deployment, been deployed and be ready for evaluation. That is why I want to try to remove the obstacle. If the money is sitting there now waiting to be used, it seems criminal not to do so.

John Robertson (Labour, Glasgow North West)

The hon. Gentleman has been very generous with his time, but I still want to get my head around what he is saying. The £42 million is there to be used. Is he saying that we should keep opening up the criteria until we have spent £42 million just for the sake of spending it? I could be wrong, but if a Government did that, would it not be the duty of the Opposition to call attention to the fact that £42 million of taxpayer’s money had been wasted? Should we not look at several criteria that suggest that there is a chance that we will get a return for our investment, or do we throw the money away and hope that some day we might get something back?

Steve Webb (Liberal Democrat, Northavon)

Let me take the hon. Gentleman through the steps of my argument. Step one is that the Government have set up a Sustainable Development Commission to advise them on sustainability, renewable energy and similar matters. Step two is that the Sustainable Development Commission has said that tidal lagoon technology is very interesting, and that the Government should consider it as part of their renewable energy objectives. Step three is that that same commission has said—I think that I quoted this earlier—that there is a huge information gap about that technology. I started at the end, with the money, and perhaps I was not clear about it, but my sequence of reasoning is that the technology has potential. Expert advisers employed by the Government have said that that is the case and that there is a gap in our knowledge. We need demonstration projects and money for those projects. Where could the money come from? There is a marine renewables deployment fund that has not spent its money. With a tweak that we know gets schemes in north of the border, why do we not apply that available money to something that needs doing? I assure the hon. Member for Glasgow, North-West that I am not desperate to spend the £42 million on just anything lying around. Independent respected advisers say that there is a need to progress such schemes; there is no obvious source of funding beyond this, and it seems to be a good way to spend the money.

Charles Hendry (Conservative, Wealden)

The hon. Gentleman has made an extremely interesting case, for which I have a great deal of sympathy. It seems that many of the Government funds have not been used adequately to encourage microgeneration, photovoltaics and so on. Has he examined whether the banding of ROCs could be used to help achieve the right result? Were the banding set at the right level—two is suggested for marine and tidal, but that might not be enough—would that not have the same result?

Steve Webb (Liberal Democrat, Northavon)

I am grateful for that intervention. The hon. Gentleman asks a fair question. However, no one can get ROCs until they generate on a commercial scale. Getting to that point is the barrier that we wish to overcome.

Charles Hendry (Conservative, Wealden)

The valley of death.

Steve Webb (Liberal Democrat, Northavon)

Indeed, the valley of death. We are trying to overcome that hurdle and barrier and get to the point at which the renewables obligation can kick in. The fact that the Government offer two ROCs, or doubled ROCs, for wave and tidal stream technology, suggests that they want to encourage it. However, if we do not get to the starting block—or the starting ROC—we will face that problem. I hope that I have given a flavour of what we are trying to achieve through new clause 15. We support the fact that the Government have a marine renewables deployment fund, and we would like to see it deployed on pre-commercial technology, which is critical to the whole renewable electricity strategy of the country.

Malcolm Wicks (Labour, Croydon North)

This has been a useful debate. I hope that I can persuade colleagues that the amendments and new clauses are not necessary—I might need to speak at some length on this.

On amendment No. 18, the Government believe in the importance of ensuring that the most sustainable forms of renewable electricity are incentivised over the long term. We are aware of the interest in the sustainability of biomass. Earlier, the hon. Member for East Devon asked me a question, and I managed to muddle up my answer through no one’s fault but my own. By definition, crops grown principally for energy production are known as energy crops, which seems perfectly sensible. Non-energy crop biomass is any other biomass type. Energy crops include short-rotation coppice willow and poplar, as well as elephant grass, also known as miscanthus. Non-energy crop biomass includes crop residues such as straw. No farmers should be left unable to sell their crops as a result of the cap, which does not apply to energy crops. If I am able to supply the hon. Gentleman with more information to provide even greater clarification, I shall attempt to do so.

Amendment No. 18 would allow secondary legislation to set out acceptable circumstances for growing biomass. The Government take sustainability seriously. In 2006, we published research into the sustainable impact of the major biomass fuels used under the RO—mostly co-fired alongside coal. The study by Themba, an external consultancy that specialises in the sustainable use of biomass, examined those major fuels and found that the net carbon balance for the production, transport and use of biomass for co-firing was positive in all circumstances for both imported and domestic biomass. Clearly, as the use of biomass grows, the potential for other fuels to be used and for some of them to raise issues of sustainability, will also grow. That is why the Bill contains provisions to introduce sustainability reporting for all generators of more than 50 kW that use biomass.

Our approach to sustainability of biomass is the right one, and the amendment is therefore unnecessary. As I have mentioned, the renewables obligation order will require generators to report on the nature, quantity and source of the biomass, what land has previously been used for and whether production meets any of the other existing or planned sustainability standards. That information will be published by the authority, Ofgem, to bring transparency to the issue. Clearly, we must balance the benefits of regulating sustainability against the administrative complexity involved and any evidence that such regulation is necessary.

We believe that having a transparent reporting requirement is an appropriate approach to monitoring the sustainability of biomass under the RO. Implicit in our approach is the recognition that this is a developing area; as such, we must keep it under review. If industry practices develop that have a significant, negative impact on sustainability, we will, of course, act. It would not be appropriate to introduce speculative legislation specifying criteria for biomass when we have no compelling evidence that its use in electricity generation is unsustainable. Our proposals under proposed new section 32J(3) will allow us to build an evidence base to help us to decide whether action is necessary in future.

The amendment is unnecessary. However, we recognise that there might be a case for ensuring that the Government have powers to take further account of sustainability issues relating to biomass. In terms of reporting to Ofgem, to which the amendment seems to relate, we already have the ability, under proposed new section 32J(3)(a), to specify the information relating to biomass that must be provided.

If we need to act, we have other powers generally under the Bill that allow us to take appropriate measures through secondary legislation. First, under proposed new section 32A(2), the Secretary of State may limit the eligibility of specified renewable sources under the RO. Secondly, under proposed new section 32D, the Secretary of State may allocate renewable sources into different bands. Those powers allow for a range of responses. For example, we might consider excluding certain forms of biomass if we had concerns about their sustainability. That has been our approach to peat, which is an excluded fuel. Such responses will, as ever, be subject to consultation. For those reasons, I ask the hon. Member for Wealden to withdraw his amendment.

Moving on to new clause 15, I think that all Committee members are aware of the importance of marine energy technologies and the part that they could play in our overall renewable strategy. If marine energy technologies can be successfully developed to the point at which their costs are reduced sufficiently to allow them to compete alongside other forms of large-scale renewables, they have the potential to make a very significant contribution towards achieving our medium and longer-term renewable energy and emission reduction goals.

The MRDF, to which the new clause relates, was designed to assist with a commercial demonstration of the marine energy technologies that are ready for full-scale deployment. Some £50 million has already been allocated to that fund in order to support the first large-scale commercial demonstration of marine energy technologies. Although no technology developers have yet met the fund entry criteria, owing mainly to a lack of data operating in real-life marine conditions—not enough of the kit has been in the water for long enough—we expect at least two developers to be in a position to apply later this year.

New clause 15, tabled by the hon. Member for Northavon, suggests that we move the focus of the MRDF scheme away from commercial demonstrations of new marine energy technologies towards pre-competitive research, which could duplicate other research funding. Perhaps it would help if I briefly set out what we are currently doing on R and D for marine technology.

Brian Iddon (Labour, Bolton South East)

I was slightly concerned to read last Sunday in The Observer that Edinburgh-based Pelamis Wave Power is about to take its machine offshore in Portugal, after trialling it in the Orkneys. As a result of the lead that the Government have taken so far, I thought that this country might be the first to begin the large-scale generation of electricity from wave power. According to The Observer, an Ernst and Young study recommended three ROCs, instead of two, which might have kept Pelamis Wave Power, and perhaps other developers, in Britain. Will the Minister comment on that Ernst and Young report and the claims last Sunday in The Observer on Pelamis Wave Power?

Malcolm Wicks (Labour, Croydon North)

First, let me pursue my own analysis. I, too, read the article. I did not agree with all of it and hence checked the football results in another newspaper in order to verify them, because of my doubts about that particular article.

Funding of R and D for marine technologies has been available from our technology standards board—I think that that should be the Technology Strategy Board, but I stand corrected—the research councils’ SUPERGEN marine programme and, of course, will be available under the new Energy Technologies Institute. At the moment, we are at the R and D phase, which we are taking very seriously. However, I hope that we are approaching the deployment and demonstration phase.

Hugo Swire (Conservative, East Devon)

I know that the Minister is not responsible for other countries, and least of all European countries, as he has pointed out already. However, does he have any idea of how much other European countries are spending on R and D in marine technology? Are we at the top of the pile, or further down?

Malcolm Wicks (Labour, Croydon North)

I believe that we are somewhere near the top, but if I can get accurate data to send to the hon. Gentleman, I shall do so. There is a militant tendency, of which I appreciate that my hon. Friend the Member for Bolton, South-East is not part, to suggest that other countries are way ahead on everything. They are not. We are one of the leading nations, partly for geographical reasons—we are an island people—in marine technology.

The ETI was formed specifically as a collaboration between industry and the Government in 2007 to take forward R and D work in the energy sector. In December last year, it launched two calls for expressions of interest, one of which focuses on marine technologies. Since 1999, more than £35 million has been committed to research and development, which had led to a number of marine technologies being developed and tested at full scale. The Government have also invested in the European marine energy centre in Orkney, which I had the good fortune to visit and which is a £50 million dedicated test facility for wave and tidal technology developers. The South West of England Regional Development Agency’s £28 million wave hub project is also important. It is a purpose-built proving ground for larger-scale demonstrations.

The hon. Gentleman would not want to give the wrong impression because he is an optimist by nature, but already our country is doing a great deal on research and development. It is important to keep the MRDF to support larger-scale demonstration for the next important phase of the innovation process for the development of marine technologies. To repeat a phrase, of which I am not the author, there is always an interim period. Sometimes the money is available for research and development—I am arguing that we have put a good deal in—but the gap between that and deployment is often the difficulty before it becomes commercial and profitable: the so-called valley of death.

That is why there is a strong argument for keeping the fund for its original purpose, rather than, as the hon. Gentleman seeks to persuade me, to push it early into the process for further research and development to compete with the other technologies. I want to keep the fund to support larger-scale demonstrations for the next important phase, and in my view the proposed changes would dilute that focus and risk duplication with other research and development funding available from the Government.

I understand the hon. Gentleman’s question about Pelamis, which is not to be confused with the old refrain, “Och, och, och, there’s a monster in the loch”, which I think was Polaris—I must not go back to my radical youth. At that stage I had a quarrel with another form of nuclear technology. The Ernst and Young report did not recommend three ROCs. I am advised that for wave and tidal stream, it assessed only the costs of technologies. I am told that it made no recommendations.

We expect schemes to come forward in the UK over the next few years to exceed the level in Portugal, helped in part by the support offered through our banding proposals, but if there is an opportunity now with Pelamis to test the technology and in simple terms to have it in the water for long enough to prove its effectiveness, I rather welcome that. I am a patriot and, as someone reminded us the other day, a patriot is someone who does not hate other countries. I rather welcome Portugal’s interest in the technology, and I hear that the contract is a commercial one.

That is the situation, and I am sure that I have persuaded the hon. Gentleman that we are doing enough for him to consider withdrawing his amendment. That does not bring me to his new clause, so I shall sit down and hope that someone moves us on to new clause 17.

Alan Whitehead (Labour, Southampton, Test)

I will indeed move on to new clause 17 so that my hon. Friend can respond to it. Its purpose is simply to draw into the renewables obligation mechanism supplies of biogas when they are placed in the distribution network. Do we want to encourage the development of biogas? My view is that we do, for a number of reasons. The most important is that the targets for renewable energy that we have agreed in the EU suggest that we should produce 15 per cent. of our energy from renewable sources by 2020. At present most of that target will have to be achieved from renewable electricity because, since the target talks about energy, the other part of that is heat and road transport fuel.

Heat is overwhelmingly supplied by gas. At present there are no significant mechanisms for introducing a renewable element into gas supply and therefore the target for about 15 per cent. of renewable energy will almost all have to be borne by the generation of renewable electricity. So widening the ability to reach that target by including the way that gas can supply heat from the grid appears a sensible way forward.

We have had debates recently about whether there should be a renewable heat obligation. Following that, we had considerable discussion about how one measures what goes into a renewable heat obligation. Since the overwhelming majority of heat is produced by gas, having a renewable gas obligation is a good proxy for renewable heat obligation. It is measurable and, as my amendment suggests, can relatively easily be incorporated into a renewable obligation arrangement.

The problem is that biogas can get an ROC if it makes electricity. The very helpful guide note which has been distributed to accompany this clause sets out on page 6:

“If an anaerobic digestion plant is receiving two ROCs from now on, it will keep that level of support even if the bands change and support for anaerobic digestion drops down to 1.5 ROCs.”

Support for anaerobic digestion is based on the gas coming from the anaerobic digestion plant making electricity, effectively on a private wire arrangement, directly from the plant to electricity production. If the gas goes into the grid or does not go to make electricity, it does not get any ROCs. That appears to be an anomaly especially because all analyses show that if biogas goes into the grid, it saves 72 per cent. more carbon dioxide by being used for heat and other purposes than if it were used to make electricity in the way that I have described.

The question we have to ask is whether it is possible for that biogas to go into the grid It is technically possible and very straightforward. Many people will have heard of Schmack Biogas, the largest biogas company in Germany, which has undertaken numerous developments in biogas and now has a capacity around Munich of almost 4 million cubic metres of bio-methane per year. It is cleaned, goes through a process and goes into the grid. It is relatively straightforward.

Hon. Members will not be surprised to know that the managing director of Schmack Biogas is Ulrich Schmack. He suggests that within five years his biogas, with rising energy prices, will be comparable in price to imported gas supplies. It is not a technology which is way beyond the boundaries of cost; it could contribute substantially to our renewable targets. Biogas is readily available both in rubbish bins via digestion and, of course, standing in fields around the country. The technology could be encouraged and could make a substantial contribution if it were introduced into the renewables obligation system. In the same way, we are banding ROCs to try to bring forward renewable technologies so that they are able to play their part in a much larger renewable energy economy. Doing that for biogas seems eminently sensible and straightforward.

I have no doubt that my hon. Friend the Minister will suggest that it would be a good idea if I did not press the new clause. I trust that he will underline the importance of biogas to the energy economy and the understanding that methods might be considered to introduce some form of renewable gas obligation system, either through the mechanisms in the Bill or otherwise in the near future. However, I shall pre-empt my hon. Friend by asking leave to withdraw the amendment. The new clause is not a complete amendment because it would be necessary to introduce further clauses to ensure, for example, that the Minister was able to set levels of renewable gas that gas suppliers would be obliged to produce, in the same way as the technical details of clause 36 do for electricity.

I hope that my hon. Friend will provide considerable encouragement on the principle of the new clause and about providing a way to allow him to play a role in renewable energy through biogas in future. I beg to ask leave to withdraw the amendment.

Martin Horwood (Liberal Democrat, Cheltenham)

Thanks to the mysteries of parliamentary procedure, I find myself supporting a new clause that the hon. Member for Southampton, Test intends to withdraw. Nevertheless, I shall press on in the hope of influencing the Minister in the spirit of the new clause, which we Liberal Democrats support.

At a time when questions are being raised in public about various forms of bioenergy, not least by the Environmental Audit Committee, of which the hon. Gentleman and I are both members, it is important to identify sources of bioenergy, including biomass, that are highly efficient at reducing carbon emissions and highly sustainable. Biogas anaerobic digestion is one of those sources and it also has commercial potential.

I am told that the injection of methane into the national gas grid is not only viable, but is growing apace across Europe with a 25 per cent. per annum growth rate. The Department for Environment, Food and Rural Affairs has already identified biogas produced by anaerobic digestion as one of the best ways of dealing with food waste. That will please the hon. Member for St. Albans and others who have raised great concerns in the House about the future of the collection of putrescible waste. Providing that important energy source, which is also sustainable, is an important way of contributing to the handling of food waste. If DEFRA welcomes it and wants to see it developed, it would be a good example of joined-up Government if DBERR also picked up this opportunity to look kindly on the general thrust of the new clause, which we Liberal Democrats support.

Malcolm Wicks (Labour, Croydon North)

I wonder whether I can trespass on your patience slightly, Mrs. Humble, by replying to the point that the hon. Member for Northavon made about lagoons before talking about gas. I was going to save it until the end of my speech, but I have realised that I shall not be able to finish it for procedural reasons.

I listened carefully to the hon. Gentleman. Lagoons are supported under RO, as he knows. There are plans for lagoons off Rhyll and Swansea bay. My Department has been in discussions with companies that are interested in bringing forward these projects. Our banding proposals will provide two ROCs for tidal lagoons. As the hon. Gentleman probably knows, although he did not mention it, tidal lagoons are covered by the Severn barrage feasibility study. We are looking not only at the barrage, but at all tidal ranges—I think that is the technical term.

I turn now to new clause 17. As members of the Committee know, when finalised in spring 2009, our EU renewable energy targets will be fulfilled through renewable electricity, heating and transport fuel. The way in which we support each element will be subject to careful analysis, but there are some areas where they overlap. Biomethane certainly seems to be one of them. The new clause is drafted to enable electricity generated from natural gas to be treated as a renewable and therefore eligible for ROCs as long as the electricity supplier has a contractual arrangement with a renewable gas supplier and that an amount of biomethane equivalent to that supply has been introduced to the grid. It would further enable a supplier of transport fuel to fulfil their renewable transport fuel obligation without actual delivery of the fuel from renewable sources, but introduction to the grid of an equivalent amount of gas.

The Government recognise that biogas produced from the anaerobic digestion of organic materials may be an important part of the fuel mix going forward, but also that it has a number of uses. By way of digression, I must say that, in my family, it is not me who is the fan of “The Archers” on Radio 4. However, I was home the other day listening to the news on the wireless after which the familiar refrain came on the air. I was about to turn it off, when suddenly I heard those magic and exciting words “anaerobic digestion”, which seem to be creating some concern in Ambridge. That goes to show how such matters are now becoming mainstream in our media.

Biogas can be burned to provide heat and/or electricity or it can be used as a transport fuel and, as such, could qualify for support under the renewables obligation or the road transport fuel obligation. It therefore has a role to play in meeting our renewables targets. However, I am unconvinced that the new clause is the correct way in which to proceed. I was encouraged that my hon. Friend the Member for Southampton, Test seemed slightly unconvinced, too, towards the end of his speech. He was conceding that it was not necessarily perfectly formed, although I thought that it was a good work in progress.

The renewables obligation has always been based on electricity actually generated by renewable sources. The new clause would break that link. We therefore need to tread carefully and to consider the impact that such a proposal would have on the RO and the implications for its administration. It is also important that we should not end up double counting. Once the link between actual delivery of the renewable fuel and generation is broken, that becomes more of a risk. For example, if such a provision comes into effect, we will need to be careful not to allow the same gas to count towards both the RO and the RTFO.

We will also have to deal with the potential for subsidy shopping, whereby the producers of biomethane will sell simply to whichever—the RO or the RTFO—provides the greatest reward. That could maximise the cost to the consumer and lead to potential disruption of the supply chain to downstream industries if support levels change. Furthermore, as I said, renewable heat will very much be part of our renewables strategy. More work is being undertaken at EU and national level, which will have an input.

As my hon. Friend knows, the Government published a call for evidence on heat generation in January to continue developing a strategy in the area and that document specifically includes questions on the use of biomethane. Indeed, should we introduce a support scheme for renewable heat, there would be a further opportunity for double or even triple counting and further subsidy shopping if we did not carefully consider the issues and support structures in the round.

Although I can therefore express some sympathy for the intention behind the new clause, while work on all the issues is being undertaken in the context of the renewable energy strategy, it would not be appropriate to accept it. I was therefore grateful to my hon. Friend the Member for Southampton, Test who suggested that he might consider withdrawing it.

The rest of the debate is in Hansard.