We need to see a reprioritisation of renewables and energy efficiency. That would reduce our overall energy demand and make us much more able to fulfil our agreement under the Climate Change Act. Energy efficiency and renewables are already delivering jobs. They are very good at supplying employment and will do much more for energy security, lower bills and reduced emissions than an unacceptably risky shale gas industry can ever do.

The Bill contains some very worrying new measures that will, if given the green light by Parliament, threaten the UK’s wildlife. No one seems to take that into account. It will also promote the unfettered extraction of unconventional fossil fuels, which will undermine the Climate Change Act and our ability to avoid, as one nation among many nations, dangerous climate change.

The coalition talks endlessly about its supposed concern for future generations when it comes to reducing the budget but the same level of commitment is, surprisingly, absent when it comes to the environment and handing on a planet fit to live on. The next generation will be given a very degraded natural world if we do not understand the sort of damage that fracking can do.

If we want any more evidence that this is not the “greenest Government ever”, we need look no further than Clauses 32 to 37 and the deeply worrying and hugely unpopular new provisions to give companies the freedom to frack under our homes without letting us know. The Government have pushed ahead with this change despite recent polling showing that 75% of people are against it and the fact that 99% of respondents to the consultation rejected the proposals. I remind noble Lords that those people are voters.

If we look at just how much we have to do if we are not to allow the world to heat by more than 2 degrees—although it is probably already too late to avoid that—it is clear that fracking cannot be part of it. It is not even as though shale gas will bridge the gap that we keep hearing about between now and a future based on renewables. Shale gas will not be online until about 2020, or even well into the 2020s, so if the Government stick to our commitments under the Climate Change Act and coal is offline by the early 2020s, shale gas will not be replacing coal. We will see exactly what we have seen happening in the United States, which is that it is simply able to export more coal when shale gas fills its own energy needs. Shale gas merely displaces fossil fuels; it does not replace them. Professor Dieter Helm of Oxford University has told us that there is enough

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gas and coal to fry the planet several times. But of course we cannot use it. It must stay locked up. That is the most efficient form of carbon capture: leave it as coal.

These clauses will also allow fracking companies to undertake activities that have not yet been assessed for their environmental safety, including the keeping of substances within infrastructure on the land with no limits on what can be kept or for how long. Injection wells could be extremely damaging. They have caused problems in the United States, particularly in Ohio, where there have been earthquakes.

We know that the existing regulatory framework is full of gaps. Rather than continue the obsession with deregulating fracking and allowing the industry—an industry that the Chancellor proudly stated has the most generous tax regime in the world—to regulate itself, the Government should see this as an opportunity to introduce regulation that is fit for purpose in order to safeguard the climate. Balcombe, which has been the scene of a lot of interest in the context of fracking, has now decided to go carbon-neutral. If Balcombe can do it, the rest of us can do it.

Lord Lipsey (Lab): My Lords, I was a member of the Economic Affairs Committee, whose report, I am pleased to say, has received considerable praise today. When we started on our inquiry, I did not know what fracking was. I would have been hard pressed to distinguish it from another word beginning with “f” and ending with “ing”. However, in the months over which we heard evidence on the subject from every expert from every quarter, we had a clear impression of where the facts lay. The facts are reflected in a carefully balanced report, which says, quite clearly, that fracking must be allowed to go ahead for its enormous economic and social benefits but that we must have the right regulatory system in place. The report defines in some detail what that regulatory system should be.

That brings me to these innocent-looking amendments. If it is the mover’s intention merely to probe the Government’s intention, then I would go further and say that they are welcome amendments. In particular, the new clause proposed by Amendment 113G insists that the integrity of wells used should be independently assessed rather than it being possible for firms to use their own preferred consultants. I hope that the Minister heard the consensus around this House that that was a sensible recommendation and the disappointment that the Government have rejected it.

We need to set our arguments in a broader context. In the committee, we heard from the leading environmental groups, and I am afraid that the speech just given by the noble Baroness, Lady Jones, confirms that they were not really interested in whether the wells were integral, how much methane should lapse out or whether there were any risks of earthquakes. Instead, they sought to raise every empty canard about fracking and treat it as if it were a genuine concern. Their aim was transparent—to surround fracking with regulations and planning constraints to ensure that in practice it never happened without having, in theory, to oppose it. For example, I asked a question of Mr Molho, the spokesman for the environmentalists. I said that,

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“if there was no threat of global warming in this gas, would you still be against it, or would you say … that if the regulatory framework is right, it could be a goer?”.

He said:

“We would revise the position accordingly, yes”.

In other words, what the environmentalists want is to stop fracking, and the Trojan horse they use to hide their armies is more and more regulation, which is in danger of killing the whole thing.

That was the environmentalists and, unfortunately, they are not heavily represented in this House, so it is always a delight to hear from the noble Baroness, Lady Jones. Unfortunately, their philosophy has popped up within these amendments. Amendment 113G specifies a 12-month period for groundwater baseline monitoring. It pops up in Amendment 115A, which demands a monitoring programme, including on fugitive methane, to report within six months of the passing of the Act—not, as the committee did, a report only when extraction begins. The amendment sets up a whole new system designed to ensure that fracking is compatible with climate change aims.

Those features make me worry about the position of our Front Bench. It says that it is not opposed to fracking. Indeed, I hope that the noble Baroness will say when she responds to this debate that she is in favour of fracking with the right regulation. However, in practice, it wants to make it more difficult than even your Lordships’ Economic Affairs Committee wanted. We are somehow left trying to ride two horses at once—no doubt, cheers from some environmentalists, although, in my experience, they are never satisfied by whatever concessions you make to them; not the extreme environmentalists. We are saying that we are in favour of fracking in principle but want to make it harder in practice. The noble Lord, Lord Maxton, is not in the Chamber but his predecessor, Jimmy Maxton, said that if you could not ride two horses at once you should not be in the circus. In this particular case, the trick becomes a little demanding when the horses are galloping in opposite directions. Are we for fracking or against it, subject to the right regulation? At the end of reading these amendments, I was in great doubt.

5.45 pm

The energy future of this country is a grave matter and may be one of the biggest issues in the years to come. On the one hand, there is global warming, and man’s contribution to it, and Britain’s contribution to man’s contribution. On the other hand—this should matter to the party of working people—there is energy security, industrial costs that feed into jobs, and the amount that people have to pay for their fuel. These complex considerations have to be balanced, as the Economic Affairs Committee balanced them. That balance will not be totally upset if these amendments are carried. It will not be the end of the world. It will just make it a tad more likely that the next generation will pay more for its fuel, a tad more likely that our industry will be less competitive relative to other nations, and a tad more likely—I put it no higher—that one hard winter the lights will go off in the homes of those who would have liked fracking to take place as well as in the homes of environmentalists.

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As I say, if they are merely probing amendments, it is excellent that we have had this constructive debate about them and I look forward to the Minister’s reply. However, if our Front Bench was so unwise as to press them to a vote, I shall be in the Government’s Lobby.

Lord Marland (Con): My Lords, it gives me great pleasure to re-engage in this debate. In particular, I wish the noble Baroness, Lady Worthington, better health and applaud her braveness for coming in today. I had the great pleasure of opposing her, or being opposed by her, for quite some time, as Members will know. There was never anything between us. In fact, when we took the Energy Bill through the House, there was very little between us—and there is not now with these amendments. I am taken by the noble Lord, Lord Lipsey, who believes that these are probing amendments. I, too, believe that they are probing amendments.

There is nothing between us because, as the noble Baroness said in her opening remarks, she was in favour of fracking. She also said that it had to be properly regulated. We have heard in the debate, particularly from the noble Lords, Lord Teverson and Lord Jenkin, that we have the best regulation in the world for this part of the industry. To overdo regulation is to kill it. What it will kill is our ability to progress economically as a nation, as the two noble Lords on the opposite Benches have said; it will not enable us to have fuel security, which fracking gives us the opportunity to have; and it will not enable us to have cheap fuel in our homes. For people in this country these are the critical things that matter to the future of this economy and country. I am therefore delighted that the Government have taken on the work started four-and-a-half years ago in this field. It is fundamental to us all that we press on with it. The longer we debate it and get carried away in different directions from the core issues, the longer it will take to get this country back and going.

The Earl of Caithness: My Lords, I share the concern of the noble Lord, Lord Lipsey, as to where the heart of the noble Baroness, Lady Worthington, lies on fracking. Her heart on this subject is a little closer to that of the noble Lord, Lord Wigley, but she is putting on a very brave front, because she has to, and says she supports fracking. We have been at hydraulic fracking in this country for more than 50 years. As so many of your Lordships have said, this is a highly regulated industry and Britain is a world leader in it. It is totally inappropriate to compare our standards and form of regulation with some of the scare stories from America. However, it is about presentation and, at the moment, the industry and the Government are losing the presentation battle, although that might be beginning to change. As my noble friend Lord Deben will remember only too well, it is fine to say, “I wish the Government would improve their PR”. It is difficult to do that in practice because if it is a good news story our press do not want to know about it. All they want to know about are the bad news stories.

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I made my comment about the noble Baroness, Lady Worthington, because these amendments will make the whole process much more difficult and time-consuming. For example, new subsection (1)(a) in Amendment 113G requires all sites to,

“carry out an Environmental Impact Assessment”.

We know that environmental impact assessments are hugely important. They cover a range of other industries. However, European standards have been agreed on for fracking. Within those standards are certain exemptions for the small fields and for some experimental wells, but there are also restrictions. It is not a total blanket; it is a limited exemption. Why does the Labour Party want to gold plate what is already in existence and covers the whole of Europe?

When I was on Sub-Committee B and we inquired into energy, what came over abundantly clearly was that the rest of Europe—which has quite a lot of shale gas, too, particularly Poland—is looking to Britain for a lead. When Britain does it, the rest of Europe will get on and do it. We in Europe can all benefit from that. If we do not take the lead, the others will not do it by themselves. That is why I support all those who have said that we must get on with it, regulate it and make transparent who is regulating what and why, so that we can give the maximum amount of reassurance to the public.

Lord Young of Norwood Green (Lab): My Lords, in taking part in the debate, my only interest is that we should make a judgment based on supported evidence, rather than on allegations. If nothing else, the amendment is important because there is a battle of ideas on fracking that we need to win. Noble Lords have said that we are not currently doing so well on public opinion. Unfortunately, the scare stories are believed. There has been an important event since we debated this in Committee: the publication of The Economic Impact on UK Energy Policy of Shale Gas and Oil. It is a very important report. No one has questioned its integrity or the evidence it contains. I stress that point again and again.

Like many others, I looked at Amendment 113G. I was pleased to hear my noble friend Lady Worthington say that she was not opposed to fracking. I suppose the amendment is a bit like the curate’s egg: it is good in parts. It is probably better than the average curate’s egg because most of the parts are good. I support an environmental impact assessment—I agree with the noble Lord, Lord Teverson, that that is something that needs to be done. I support independent inspections of the integrity of wells used; I am pretty sure the fracking companies would as well. They are also prepared publicly to disclose the chemicals used for the extraction process. Again, read the report: they are in there. For the most part they are used in tiny amounts, and for the most part there is no problem with them whatever.

It is true that some practices that went on in the States were not helpful to the process of fracking. That is not to say that everything that happened in the States was bad, because it was not—there are plenty of good examples from there. We should not forget that fracking substantially reduced emissions in

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the States. It did and has created jobs and it has brought industry back to the States. We should not forget that important aspect.

Lord Wigley: The noble Lord quotes the economic impact report, which I have with me. Paragraph 269 says that the Government,

“must also explicitly address the safety issues”.

The committee that produced that report was clearly not entirely happy on that count.

Lord Young of Norwood Green: Of course, we have to address the safety issues. I am not seriously saying that anybody in the Chamber is recommending that we embark on a process of mining or whatever activity without addressing safety issues. I listened carefully both to the noble Lord, Lord Wigley, and to his companion sitting next to him, the noble Baroness, Lady Jones. They both expressed a deep-rooted opposition to fracking, which frankly puzzles me. If we do not have fracking we will still be dependent on LNG, on which I think about 27% of our energy is based. I do not understand the basis of their opposition. I sometimes do not understand the green analysis of a number of issues because it is not always evidence-based. I could say the same about GM foods, but that is another issue.

To return to this important subject, I, too, want to hear what the Minister has to say. I heard it once in Committee, but it is worthy of repetition. I listened to and understand the concerns of my noble friend Lady Farrington, but I direct her to the report. It said that when people talk about earthquakes, it might be better if we talk about tremors. There was one in Wigan in Greater Manchester, which was of a 1.5 magnitude. It was about the same as a heavy lorry passing.

Baroness Farrington of Ribbleton: My Lords, I thought it was a bomb, living as we do half way between both the aerospace centres, with planes going over all the time. The noble Lord was not in my bedroom.

Lord Young of Norwood Green: That is an indisputable fact and I am glad it has been affirmed. I may not have been there when the earth moved for the noble Baroness, but I am going by the evidence of the recorded seismic shock. I again appeal to the House: that is what we must do if we want to win the battle of ideas. It is a really important one.

Of course we need to get the regulation right, but it needs to be proportionate and evidence-based. We have the capacity to do that. If we do not, we will see what has happened in Balcombe and in various other parts of the country. Instead of fracking being seen as a perfectly valid contribution to energy security, the cost of energy and the capacity to create a significant number of jobs, those who are opposed to it will succeed in creating the view that it is something to be feared. I do not believe that that is the case. Noble Lords do not need to look just at the evidence of the report. Durham University, in a totally independent survey, addressed the issues in a serious way. The industry is not financing it; it is totally independent research.

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I welcome the amendments because it is important that the House debates this issue and makes clear what we expect from regulation. We and the public expect a safe, regulated, transparent and accountable process. I look forward to the Minister addressing those concerns.

Lord Donoughue (Lab): My Lords, these amendments are useful as probes, as my noble friend Lord Lipsey said. They also have important political and economic implications for the whole process of fracking. I will not explore the political side at this hour; I will point out on another occasion how very unproductive it is for the Labour Party to appear—I stress “appear”—to oppose shale fracking by artificial regulatory delay when shale offers the hope of 70,000 new jobs, billions of pounds of investment in the regions, lower energy prices, keeping our energy-intensive industries alive and here, and providing energy security. That seems to me to offer hope, which is still to be fully proved, to millions of ordinary British people. I do not think that Balcombe necessarily represents the majority of them. Public confidence is a factor that is repeatedly raised. In the polls, 75% of the public either support or, to a greater extent, do not oppose fracking.

Leaving the politics reluctantly on one side, I shall focus on the amendments. I support my noble friend Lord Hollick in his argument that all these environmental concerns are apparently covered by existing regulations. They need to be properly implemented, which I fully support. But if there is some need for further gold-plating—my noble friends Lord Hollick and Lord Lipsey mentioned that possibility—that can be pursued later. We should not use the very mixed regulatory experience of the United States to go into this bureaucratic jungle to delay fracking for ever. If one reads some of the official reports that have investigated it—I particularly call attention to that of the Geological Society—one will see that these matters put into perspective the statement that our British regulatory regimes are the best in the world and that we can rely on them. However, we cannot always rely on local authorities to have the resources to pursue them, which is a factor that should be pursued further.

I direct my next point especially to my Front Bench. It has not been explained to me in prior discussions why on earth we need a vote today. These excellent probing amendments explore the matters fully but I do not see the need for a vote. This jungle of bureaucratic regulations, including the existing ones, which I accept have already given excuses for the delay in extracting these precious reserves, mean that we have only one well today. We can express our views and Members have taken part in an impressive debate on all aspects. We can explore the matter but such a vote from this side—I am speaking very much as a lifelong Labour man—will send the wrong message. It will send the message that Labour wants to delay the great shale gas contribution to our economy. Conveying that message, which is hostile to job creation, lower energy prices and energy security, could push me, with my noble friend Lord Lipsey and perhaps others, into the very unfamiliar territory of the government Lobby. I trust that we will not get to that point.

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The Government should agree tonight to explore further how genuine concerns about fracking can be allayed. I stress again that our concerns are genuine and that I am not referring to fictional scaremongering. However, we need to bear in mind that the Green Party’s concerns will never be allayed. I think that we are all grateful to the noble Baroness, Lady Jones, for confirming that tonight. They will never be allayed because, in reality, however disguised, the Greens want to stop shale gas because it threatens their beloved windmills. With great reluctance, I shall vote against this amendment if, unfortunately, it is pressed to a vote.

6 pm

Baroness Verma: My Lords, I am extremely grateful to the noble Baroness for putting forward the amendment and to all noble Lords who have contributed to this very informative debate. We are absolutely clear that shale development must be safe and environmentally sound. We agree with the Opposition that the issues they raise should be thoroughly addressed but that the existing regulatory regime does so in a robust and proportionate manner. I am minded to repeat some of the contributions that have been made already today because it is necessary and important to do so. I hope that over the next few minutes I am able to allay the fears of those noble Lords who are supportive of these amendments.

As noble Lords have said, we must ensure that the public are properly informed. I agree with my noble friend Lord Deben that fracking must not be seen as a silver bullet. It can offer huge potential to ensure that we have a home-grown supply in a diverse range of energy mixes. It has been pointed out by my noble friend Lord Deben and others that evidence in the United States referencing shale developments has, on occasion, led to public mistrust. However, it is important to note that the latest evidence continues to show that such cases in the States are due to faulty surface operations or faulty well construction rather than hydraulic fracturing.

On another issue again rightly raised by most noble Lords today, it is important to emphasise that in the UK we have an entirely different regulatory system to the US. The UK benefits from a comprehensive and stringent set of statutory and non-statutory requirements. My noble friend Lord Jenkin and other noble Lords rightly pointed that out. In the US, practice between different states varies considerably and regulation is in some respects less stringent. For example, unlike some US states, we do not allow open-pit storage of chemicals or waste fluids and we require independent verification of the design of the wells. I will respond to the questions raised towards the end of my contribution.

The UK’s globally recognised expertise in the offshore oil and gas industry is well known. Noble Lords, including, I think, my noble friend Lord Caithness, referred to the fact that the UK has more than 50 years’ experience in regulating onshore oil and gas production. We are confident that the regulatory system will continue to provide robust protection for the environment. Our position is backed up by reports from the Royal Society, the Royal Academy of Engineering and Public Health

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England. These reports have considered a wide range of evidence and have looked at the UK regulatory system. Their advice has outlined the risks and concluded that, overall, as my noble friend Lord Jenkin pointed out, they can be managed or are low if industry meets all regulatory requirements.

I will now turn to each of the areas raised by the noble Baroness. First, where there are likely to be significant effects of a proposed scheme on the environment, environmental impact assessments are prepared by companies at an early stage in the development of proposals. They have a key role in informing regulators, planning authorities and the public about the likely significant effects of a proposed scheme on the environment. They enable mitigation measures to be identified to reduce or avoid significant effects. If the significant environmental effects cannot be mitigated, planning permission could be refused.

The UK has a strong track record in assessing the potential environmental impacts of development and in ensuring that they are appropriately mitigated. This is based on more than 20 years’ experience of adopting a proportionate, evidence-based approach to the environmental impact assessment. But what is proposed here misunderstands its purpose. Existing regulations already require the assessment of all proposals which are likely to have significant effects on the environment. Legislating to force mandatory environmental impact assessments on all shale sites, even where significant effects are not considered likely—bearing in mind that hydraulic fracturing may not even be proposed—would be disproportionate and unnecessary. Not only would it slow down or delay development for no discernible environmental benefit, it would create a damaging precedent for other new industries in the future, both in the energy sector and beyond.

The proposal to make EIAs mandatory for all shale gas activities was discussed during the recent negotiations on the revision of the environmental impact assessment directive and was roundly rejected by member states, including the United Kingdom. We appreciate the importance of building public confidence in the shale gas sector and the fact that this includes being open about environmental impacts and how they are to be addressed. The existing EIA regime is already well suited to meeting these requirements.

Changes here would also affect other areas of development. There is an ongoing issue with planning authorities taking an overly cautious approach to environmental impact assessment. To gold-plate the requirements of environmental impact assessment in this way could significantly impact upon developments such as housing. We are therefore keen to maintain the existing rigorous and consistent approach across all sectors of the economy. We welcome the industry’s public commitment to carry out environmental impact assessments for all exploration wells that involve hydraulic fracturing. This commitment has already been seen through in the planning applications that have been recently submitted by Cuadrilla in Lancashire and we will support the industry in delivering on this commitment over the coming years.

The second area concerns well inspections. The integrity of the well is critical to ensuring the safety of

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the site and protecting the environment. For this reason the Health and Safety Executive checks the design of all wells and approves them prior to any construction taking place. The HSE also monitors well construction based on weekly reports to its well specialists. It is the well operator’s responsibility to appoint an independent well examiner separate from the immediate line management of the well operations. This allows a scheme of quality assurance and quality control, where an operator’s employee is not responsible for verifying their own work. This approach is flexible in that it allows in-house checks but only where the appropriate safeguards are in place. In this context, it is the competence of the well examiner that is most important. In reality, due to the size of shale gas operators, the well operator will generally appoint a company to act as its well examiner.

The third area relates to chemical disclosure. One of the problems we have seen in parts of the United States is where companies have refused to disclose the chemicals used in their fracking fluid, which raises safety concerns and alarms the public. In the UK in contrast, full disclosure is already required of every chemical the operator proposes to use, ahead of any fracking being allowed to take place. The environmental regulator requires this information when companies apply for the relevant permits to assess the safety of what is proposed and any potential risks to the environment. The Environment Agency has confirmed that it will publish the permit with this information, including naming each chemical and the maximum concentration of each at each well. In addition, the industry has committed to publish this information itself at each well along with the total volume of fluid used.

The fourth area concerns water companies. We recognise the importance of ensuring that water companies are fully engaged in shale gas development. Their role underpins the strict controls that are in place to protect the quality and availability of water supplies. The environmental regulator is already required to check the potential impact on groundwater of any shale gas proposal for which permission is sought and will not grant a permit where our water supplies could be affected. The Opposition are seeking to ensure that oil and gas operators will consult with the relevant water company. However, the water industry and shale operators have already agreed a memorandum of understanding to engage early and share plans for water demand and wastewater management. Making this a legal requirement does not add any value to an existing arrangement.

The fifth area is baseline monitoring of environmental indicators, including methane levels in groundwater. Good quality baseline monitoring, prior to operations, is essential to enable a rigorous assessment of any subsequent changes. It also provides local communities with information on the current state of their environment, potentially preventing those unfounded scare stories later. The UK already has a good set of regional groundwater data, thanks to the work conducted by the British Geological Survey since early 2012. At the more local level, the Environment Agency has confirmed that it would typically require baseline monitoring of groundwater methane for each specific site proposing to undertake fracking. It would not normally require this where no fracking is proposed, because there is

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no discharge to the environment. Moreover, the environmental regulator has the powers to require baseline monitoring of those environmental indicators it considers appropriate and for the length of time that it deems suitable for each site.

6.15 pm

For fracking sites, the precise length of the period of monitoring the Environment Agencywould require would depend on its expert assessment of the characteristics of that particular site and any risks associated with it. Typically, this would be a minimum of three months, not 12 months, although the regulations afford the agency the flexibility to require a longer period of monitoring should this be deemed necessary. For other indicators, such as surface water and biodiversity, the degree to which these will be relevant and the time required to monitor them will vary so much between sites that any fixed requirement would be inappropriate. Setting fixed requirements on monitoring will not strengthen these protections; they will simply impose unnecessary obligations in cases where environmental experts do not believe they are required.

The sixth and last area is fugitive emissions reporting. We already report the UK’s greenhouse gas emissions annually as part of our international reporting obligations to the UN Framework Convention on Climate Change and under the EU’s monitoring mechanism regulation. This reporting includes an estimate of fugitive emissions from onshore energy extraction, is done in accordance with guidelines produced by the Intergovernmental Panel on Climate Change and is audited annually by a group of international experts. Our obligations mean that we will be required to include emissions from shale gas exploration and extraction in this reporting once these activities begin in the UK. Fugitive emissions from conventional onshore oil and gas extraction were estimated at around 0.03% of the total UK greenhouse gas emissions in 2012.

The MacKay-Stone report entitled Potential Greenhouse Gas Emissions Associated with Shale Gas Extraction and Use responded to a request from the Secretary of State in 2012 to assess potential greenhouse emissions associated with shale gas extraction and use. The report found that if properly regulated—as the noble Lord, Lord Young, highlighted—local greenhouse gas emissions would represent a small proportion of the carbon footprint. In April 2014, my department accepted the recommendations in the MacKay-Stone report, four of which relate to emissions monitoring, and a research project is planned to measure on-site emissions in line with the development of UK shale gas operational activity. The research will address uncertainty relating to fugitive emissions and inform decision-making on future monitoring. As we already have a robust process in place for reporting of fugitive emissions, and have plans in place to monitor and report any emissions from shale gas exploration and extraction once these activities start in the UK, additional reporting in this area would be redundant.

I hope that noble Lords have been reassured that we have examined closely each of the concerns in detail and are confident that these are fully reflected

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in the existing regulatory system, which has been operating well for decades for onshore oil and gas development.

The noble Baroness asked how the regulators would be funded, as did my noble friend Lord Deben. The regulators have confirmed that they have sufficient inspectors to deliver the regulatory regime they are responsible for during the current shale gas exploratory phase. If large numbers of wells are drilled to produce shale gas, the regulators may need to increase their resource accordingly, and they have plans in place to review that at relevant times.

The noble Baroness, Lady Farrington, asked how confident we are that fracking will not cause earthquakes, although there was a difference in the definition of whether they would be earthquakes.

Baroness Farrington of Ribbleton: My Lords, I said that this was one of the stories that is circulating. I asked the Minister for an assurance that the companies that are drilling and maintaining the wells would not appoint the people who will judge their safety, either while they are being built or when they are being used.

Baroness Verma: My Lords, I am grateful for the correction, and I think I mentioned that issue in my response on independent well operators. Perhaps I may clarify the position as regards the concerns of the noble Baroness. The Health and Safety Executive scrutinises well design and monitors progress to ensure that the operator is managing risk effectively, and will continue to do so throughout the life cycle of the well. An independent well examiner will also review its design and construction. To date, onshore operators have used separate companies to provide this service; they have not delivered in-house.

Lord Young of Norwood Green: As I understand it, seismic monitoring is done on a continuous basis. While I cannot remember the exact figures, I think that if a tremor registers 0.5, the operation is stopped. That is a very low-level seismic shock and reflects a high level of safety precaution. Can the Minister confirm that?

Baroness Verma: I am extremely grateful to the noble Lord, Lord Young. He is absolutely right to point out that exploration is immediately stopped once the level of 0.5 is reached. However, I will clarify the point and write to him, and put a copy of the letter in the Library.

With these reassurances, I hope that I have been able to convince the noble Baroness to withdraw her amendment.

Baroness Worthington: My Lords, I am grateful to the Minister for her comments and to noble Lords on all sides of the House who have spoken in this illuminating debate. As is characteristic of this place, it has been based on fact and has reflected the care and understanding that is always applied to these issues. However, having listened to the noble Baroness’s response, I have to say that she has not reassured me that the Government are listening on the very important issue of the need, for

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the industry’s own sake and for the economic benefit of this country, to be absolutely certain that, while we have a world-class regulatory system in place today, we will not see it become overwhelmed as the use of this form of extraction of the UK’s natural resources expands. There is an absolute and clear link between requirements in statute and the resources that are made available to meet those legal standards. I think it was the noble Baroness, Lady Young of Old Scone, who pointed out that it is imperative that we have a clear and transparent regulatory system so that we know what is required of everyone and so that adequate resources are made available to ensure that, in the future, fracking has the best chance of proving to its detractors that it can be done safely. It is not correct to say that everything is in place for a world-class regulatory system today. There are loopholes and, while the noble Baroness has sought to give us some reassurances on independent inspection, I do not believe that she has addressed all the questions that have been raised in the debate. On that basis, I will not withdraw the amendment and I seek to test the opinion of the House.

6.24 pm

Division on Amendment 113G

Contents 141; Not-Contents 237.

Amendment 113G disagreed.

Division No.  1


Adams of Craigielea, B.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Bach, L.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Bhattacharyya, L.

Blood, B.

Borrie, L.

Bradley, L.

Brooke of Alverthorpe, L.

Campbell-Savours, L.

Carter of Coles, L.

Cashman, L.

Chandos, V.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

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6.37 pm

Clause 32: Petroleum and geothermal energy: right to use deep-level land

Amendment 113H

Moved by Baroness Young of Old Scone

113H: Clause 32, page 38, line 8, at end insert—

“(c) outside—

(i) Special Areas of Conservation as designated under European Council Directive 92/43/EEC;

(ii) Special Protection Areas as classified under European Council Directive 2009/147/EC;

(iii) land which is functionally linked to Special Protection Areas and Special Areas of Conservation;

(iv) Sites of Special Scientific Interest;

(v) National Parks;

(vi) the Broads;

(vii) Areas of Outstanding Natural Beauty; and

(viii) World Heritage Sites.”

Baroness Young of Old Scone: My Lords, I am slightly nervous about speaking to Amendments 113H and 115 in my name on the Marshalled List. The mood of the House appears to be that if you dare to utter a word that strengthens environmental protection in any way you are immediately regarded as an anti-fracker. In my case, nothing could be further from the truth. I hope that my track record in having managed a good balance between business and the environment for many years in the Environment Agency and before that is an example of how environmentalists can be keen on ensuring good levels of protection, while not then getting in the way of progress or commercial activity.

The two amendments are about the need for protection of our most important conservation areas. Amendment 113H is similar to one about which we talked in Committee but has some significant differences. I thank the Minister for meeting me last week to discuss my concerns and to debate the best way forward in addressing them. The reality is that there are possible impacts on nature conservation and biodiversity as a result of fracking. We know about them; in terms of water abstraction and pollution, and habitat damage and disturbance, they have been rehearsed adequately here and in another place.

I will give an example—which I am sure is absolutely uppermost in your Lordships’ minds every minute of the day—and that is pink-footed geese. The pink-footed geese in this country in the winter comprise about 85% of the global population. We are hugely important for the survival of the species on a global basis. They are highly dependent on three parts of the UK for their wintering grounds and at least one of those, if not more, is a key site for shale gas extraction; that is, the Bowland area in the north-west. We really have to get this one right, not just for us and the pink-footed

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geese but for global conservation. If we expect other countries to look after their biodiversity in order to prevent species going extinct, we have to play our role with those species for which we have a huge international responsibility.

That is the whole purpose of some of those protected areas, to ensure that important habitats and important species are not put into jeopardy as a result of other activities. So there are areas where, when push comes to shove, their biodiversity importance has to take predominance. Less than 12% of the area currently potentially available for shale gas extraction comes under such designations, so we are not talking about huge areas. The amendment is seeking to demonstrate that we need to make special provisions and avoid extraction in those areas or where it would impact on land that is functionally linked to those areas, which would also create detriment as a result of that linkage.

Apart from the biodiversity and conservation importance of the amendment, it is vital to try to put up front what the key requirements are so that the industry is clear about what it needs to steer away from. In the very early stages of the offshore wind debate there were a number of sites in the North Sea that were, quite frankly, barking in terms of their biodiversity impact. To give them their due, organisations interested in biodiversity conservation and the industry worked together to identify the areas where it would be crazy to try to get offshore wind developed and, therefore, the areas where by default it was a sensible idea to press ahead. That good piece of work demonstrated very clearly where the industry could get ahead, get licences and start to generate power in a way that was not going to be stultified by conflict with the conservation movement. That is the approach we should be taking with shale gas extraction, to ensure clarity about those areas where it is really not a good idea to be proposing this, so that people can get ahead and move much more quickly in the areas where there is not that potential for conflict.

That is Amendment 113H. I know that the Minister is not inclined to accept it but there it is, for what it is. I am sure the Minister will say that there is the National Planning Policy Framework, which puts in enough controls, and that there is other European-linked legislation that will put in other controls, but I believe that it is worth putting it in the Bill, in one place, so that nobody is in any doubt about the areas that both the Government and the public would like shale gas extraction steered away from so that other areas can be much more rapidly exploited.

Amendment 115 is a fallback proposition—plan B, as it were—should the Minister not be inclined to accept the list, which is actually a shorter list than in my original amendment in Committee; I have taken out all the local wildlife sites and kept only the nationally and internationally important sites. If the Minister is not too thrilled with Amendment 113H, Amendment 115 might be a more practical proposition.

There is already precedent. There is planning guidance that the Government, in a very welcome fashion, have put down with regard to applications for development within AONBs—areas of outstanding natural beauty—and national parks. What I am asking

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for in Amendment 115 is a degree of consistency across all the landscape and conservation designations, with other protected areas being brought into that planning guidance. If not, there will be a feeling in the industry that if the Government think it is so important to give planning guidance for AONBs and national parks, and since they have not thought it as important to give planning guidance for SACs, SPAs, Ramsar sites and sites of special scientific interest, there is some sort of hierarchy and that the areas of outstanding natural beauty and the parks are more to be steered away from than the other designations because the Government have given additional guidance on them.

It would be useful if the Government would acquiesce to Amendment 115 and expand the planning guidance that has already been given to some protected sites to others in order to send a signal that the Government believe—and I absolutely accept that they do—that all these protected sites are important. I beg to move.

6.45 pm

Lord Judd (Lab): My Lords, I thank the noble Baroness for introducing the amendment. I do not need to tell the House that I am a passionate defender of the areas of outstanding natural beauty and the national parks. We have to be vigilant all the time on that. There is no room for complacency because the pressures against what we believe in are always there and we have to beware of erosion. The point she has made about a wider application of those principles is very important.

As I listened to the previous debate, I felt my blood pressure rising because it is a travesty to suggest that environmentalists are against economic progress. Of course we are in favour of economic progress. We want to see it effective and driving as hard as it can. But we are equally determined, as custodians and trustees of all that we have inherited in terms of the environment, scenic beauty, biodiversity and the rest, to keep those issues as equally important. Therefore, it is a matter of rational, strategic decision-making about how you have clear areas for driving ahead, so that people are not worried about constraints of one kind or another but know that they have got green lights going all the way, and areas where we are saying, “Yes, but there are other considerations to be taken into account and if we want a Britain worth living in and if we want our children and grandchildren to inherit a country worth living in, these other issues are crucial”.

When I listened to the noble Lord, Lord Deben, in the previous debate, my feeling was that, yes, I do believe that the market has a key part to play in our economic affairs, of course it has. I happen to believe, rather traditionally—and I am not ashamed of that—in a mixed economy. But having said that, I believe in a managed market and I will take the opportunity to say why. The trouble is that the market operates from a short-term time perspective and these other issues of the environment, scenic beauty and the inheritance by our children of a country worth living in do not have the same immediacy in play in the market as other factors of a more essential economic character. Therefore, one must make sure that those points are on the table, being seen to be taken seriously and being given the muscle to be taken seriously. From that standpoint, I

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am very glad indeed that the noble Baroness has raised the point that what we want to apply to parks and areas of outstanding natural beauty should not be exclusively limited to them.

Lord Jenkin of Roding: My Lords, neither the noble Baroness who has moved this amendment nor the noble Lord, Lord Judd, appears to have recognised that what we are talking about in Clause 32 is developing land 300 metres below the surface. Looking at the list of the various sites in the noble Baroness’s amendment, I cannot of think of one of them which could remotely be affected by horizontal drilling 300 metres below the surface. I am surprised that neither the noble Baroness nor the noble Lord seems to have acknowledged this. We are not talking about actually drilling down in a special area of conservation or a site of special scientific interest which implies development on the surface. We are talking here about horizontal drilling 300 metres below the surface and I just cannot understand how either the noble Baroness or the noble Lord can think that this could affect these important sites. Perhaps I have missed something.

Lord Wigley: My Lords, first, I thank the noble Baroness, Lady Young of Old Scone, for introducing these important amendments. Perhaps I could immediately pick up the points made by the noble Lord, Lord Jenkin, a moment ago. Yes, there will be drilling across—of course there will be—but somewhere they have got to drill down. If he is saying there shall be no drilling down at all in these areas, just drilling across into them, then at least I would understand what he was saying, but he appears to say that there should not be any rules whatsoever appertaining to these special areas because the drilling can only come from the side. Well, it cannot only come from the side, and I would have thought that that is something that perhaps could be addressed later if this amendment was accepted.

I wholly welcome this amendment—

Lord Jenkin of Roding: The noble Baroness had an amendment in Grand Committee which addressed the question of whether there should be downward drilling and whether pads for developing shale gas could be located in any of these places. Although we did not vote in Grand Committee, the argument was perfectly clear that it would depend on the site. You have got planning permission and you have got a whole range of other things. I must confess I have not reread the noble Baroness’s debate on that occasion, but what we were talking about here is 300 metres below.

Baroness Young of Old Scone: Perhaps I may give just a couple of examples. Water pollution and the impact on aquifers in general could be quite a substantial issue. We already know that the volume of wastewater coming from shale gas extraction sites is substantial. For the most part that will be brought back to base, but where aquifers are involved we are not absolutely clear about that. There are a number of issues which are not just the site-based issues on the surface. They are about what is happening in terms of underground processes as well.

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Lord Wigley: As I was saying before such diverse interventions, I welcome these amendments. They exclude important parts of these islands from the impact of fracking.

I come back to the experience of the United States—I will be talking more about that in the next group of amendments. The experience of the United States has been scorned in our previous debates, but it teaches us to be extremely careful before allowing such developments in our more sensitive rural areas. I accept that perhaps the rules will be different in the United Kingdom compared to the United States. That is one of the reasons why we need to have rules in the United Kingdom to look after these areas. Most certainly in the United States, to my knowledge, there are areas that have suffered not just from the effects underground but also very badly on the surface.

Noble Lords will be aware of the classic book Rape of the Fair Country by Alexander Cordell. We in Wales know what such extractive industry can do to our beautiful countryside and its effect on all sorts of wildlife. My only reservation with this amendment is merely that it does not go far enough and that many sensitive environments are excluded from being governed by it.

Lord Borwick: My Lords, I only wish that I could agree with the noble Lord, Lord Judd, that it is a short-term exercise to get planning permission for this sort of development. The planning permission process will take many months, probably years, and cost a large amount of money. It is not a short-term exercise, and that is why I think this amendment is unnecessary because it will be up to the local council or local planning authority to grant the planning permission, with all the pressures put upon them to make the decision to protect the environment. With these sites listed in this amendment, I do not think they are going to get the planning permission which the noble Baroness fears they will. I really do not think it is going to be possible.

Secondly, I am sorry that—despite trying to listen to it—I am not sure I fully understood the meaning of “functionally linked”. How wide a definition will that actually be in practice? I wonder whether the noble Baroness could help in explaining that?

The Earl of Caithness: My Lords, I rise to oppose these amendments. I understand the principle behind them but, as my noble friend Lord Jenkin has reminded us, we are talking about something that is going to happen well below the surface. Having taken that into account, and while I agree with him that the amendment is in the wrong place, I also think that the principle of the amendment is quite important. However, what the noble Baroness has totally failed to do, and what the noble Lord, Lord Judd, has failed to do, is to explain why the present system of controls is not adequate.

I do not class myself as an environmentalist; I class myself much more as a countryman. I have a much broader range of interest than an environmentalist would have. The house that I used to own very recently up in Caithness was right beside an SSSI, and on that SSSI there wintered whooper swans and lots of geese

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and ducks. Around us there are now eight wind turbine farms. This is a huge area—an important one for nature—but the argument was looked at for every single one of those turbines. More recently, a planning application was made for four wind turbines to be sited much closer to the SSSI. My house was perhaps one of the nearest that was going to be affected by that and I lodged my objection on the grounds of nature and what effect the four wind turbines—which are considerably bigger than anything we are talking about in the fracking process and would be at a higher level for much longer—might have on the flight path of geese and swans.

The planning process worked perfectly and the decision was turned down. It has gone to appeal and I do not yet know what the result of that is, but my point is that the existing procedures are there now to protect such sites as these. I used the existing procedures and the planners looked at the existing procedures and agreed with all of us that had objected to these four wind turbines. I believe that what we have got in place is sufficient and we do not need any more.

Lord Judd: Before the noble Lord sits down—

Lord Gardiner of Kimble (Con): My Lords, I am looking at the Companion in terms of rules of debate on Report. We are getting quite close to contravening them and I would just like to say to noble Lords that we should be cautious of that.

Lord Judd: Before the noble Lord sits down, would he not agree that, whatever the value of the regulations and the means of implementing them that exist at the moment, it would be of considerable assistance to industry and those behind this important and vital initiative for the British economy to see clearly on the face of Bills such as this the areas on which they can and cannot concentrate their attention?

7 pm

The Earl of Caithness: My Lords, it is clear now. Industry does not need further clarity. It works.

Lord Whitty (Lab): My Lords, those who oppose these amendments are missing the point. The amendments may well be in the wrong place; they may well be too wide. I did not intervene in the previous debate because I thought that it was becoming far too polarised. Public opinion on the issue of fracking is polarised, but public opinion is not polarised in relation to the protection of our national parks and our areas of outstanding natural beauty. Unless the Government in some way recognise within the overall approach to fracking that there are certain sites which have to be protected—whatever provision exists elsewhere in terms of general planning law and so forth—the outcry against fracking will grow rather than be reduced.

The Government should at least have the grace to recognise that that is a reality. In terms of public acceptability of fracking, protection of our protected areas is an important element which needs to be in the regulations and in the Bill. Whether the amendments

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in the name of the noble Baroness are technically in the right place or not, the politics and the PR for fracking need to make that point. If they do not, the 25% of people who fundamentally oppose fracking will grow in number. The Government have the opportunity to ensure that that does not happen. I hope that, if not now then in the process of this Bill through the Commons, the Government will put that right.

Baroness Worthington: My Lords, I am grateful to noble Lords who have contributed to this debate, which has been another interesting exchange of views on how best to get the fracking industry off on the right foot and to minimise the degree of public opposition that might arise.

I recently visited the Lake District, which is one of my favourite parts of the country. I visited a mining museum and, in doing so, I realised that we often see such parts of the country as having a great value now in terms of tourism, wildlife and appreciation of scenic beauty, but that they have in previous times been quite diversely economically active and been able to accommodate different activities within the boundaries of the parks as we know them today. Therefore, I for one am not of the opinion that these special places need to be preserved in aspic but that it is about achieving the right level of balance.

That said, it is absolutely clear that, when you have a Government who say that they are all out for fracking and that it will be the silver bullet that solves all our energy needs, and slightly overhype it, you can see why people get nervous that all due consideration and care are not being taken. I shall be interested to hear the Minister’s responses to the two amendments. The second of them, Amendment 115, points to something of an inconsistency, with planning guidance having been issued for national parks and AONBs but not for other nationally significant sites. Such sites, because they tend to be smaller, more fragmented and under considerable pressure from a wide range of economic activities already, arguably deserve even greater levels of protection than those larger national parks and AONBs, which I think can accommodate economic activity within them and generate jobs and economic benefits. I look forward to hearing the Minister’s response.

Baroness Verma: My Lords, I welcome the commitment of the noble Baroness, Lady Young, to protected areas and was grateful for our meeting prior to today. Such areas are nationally and internationally important in terms of their environment, and all noble Lords who have contributed today, from whichever perspective, have highlighted their significance.

As the noble Baroness made clear in Committee, these areas are the jewels of our country and we agree that they need to be accorded appropriate protection. While I recognise the intent behind the noble Baroness’s amendments, which is to ensure the necessary protection for habitats and species in or near to protected areas, I assure her that such areas are already offered a high level of protection derived from EU directives transposed into domestic policy and through the planning system, as noble Lords have alluded to today. The National Planning Policy Framework, the supporting planning

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guidance and a government circular on biodiversity and geological conservation all recognise that there are areas designated for natural conservation and biodiversity value, including sites of special scientific interest, special protection areas, special areas of conservation and Ramsar sites, and that they should be given a high level of protection. They are clear that protected areas need to be fully and appropriately considered by mineral planning authorities when exercising their planning duties, both in preparing local plans and determining planning applications.

The planning authorities assess each application for shale and geothermal development on a case-by-case basis. For example, the National Planning Policy Framework makes it clear that development should not normally be permitted if, either individually or in combination with other developments, it is likely to have an adverse effect on a site of special scientific interest. That applies even if the development is outside site of special scientific interest boundaries.

The Conservation of Habitats and Species Regulations 2010, which transpose the EU habitats and wild birds directives, ensure strict controls on any plan or project that might affect European sites such as special protection areas and special areas of conservation. Development cannot occur on or near such protected areas unless it can be shown to a high degree of scientific certainty that there will be no adverse impact on the integrity of the site. This is a very high bar for securing development in such areas. In addition, the Natural Environment and Rural Communities Act 2006 and the Nature Conservation (Scotland) Act 2004 place a duty on all public authorities, including the Secretary of State for Energy and Climate Change, when exercising their functions, to have regard to the purpose of conserving biodiversity. Public bodies also have comparable duties relating to national parks, areas of outstanding natural beauty and sites of special scientific interest.

It is important to note that the regulatory system in the UK fully recognises these protections. Before any oil or gas operations can begin, operators must gain a permit from the environmental regulator, the Environment Agency or an equivalent agency. The Department for Environment, Food and Rural Affairs is currently preparing revised guidance on protected wildlife sites as part of a wider project to make all the department’s guidance quicker to use and easier to understand—the noble Baroness raised that when we had our meeting the other day. This will help ensure that these requirements are clearly communicated to developers and regulators.

The noble Baroness, Lady Worthington, said that the Government looked on shale as being a silver bullet. We have always maintained that we do not see it as a silver bullet but that we see its potential for ensuring that we have home-grown supply and energy security and for helping drive down costs to the consumer. The debate should be in that context rather than shale being taken out of context in the wider arena.

In drawing the attention of the noble Baroness, Lady Young, to the robust regulatory regime that is already in place and the full recognition that the planning system already gives to protected areas, I hope that she is reassured that such areas are already accorded significant protection and, on that basis, will withdraw her amendment.

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Baroness Young of Old Scone: My Lords, I thank the Minister for her words, and all noble Lords who have contributed to this debate. I am reassured that there is already strong environmental protection for these sites, but I am not reassured that it is necessarily always going to work.

There are two dimensions. First, I was interested in the experience of the noble Earl, Lord Caithness, and his wind farms. There was an example where there were environmental considerations that should have given a strong signal to the developer that it was not a sensible place to put a wind farm, but he nevertheless barrelled on. One assumes that it will go to appeal. So we are not giving the right signals to potential developers of sites that it is a waste of their time, effort and money to get into disputes in areas where there is a very strong case for the protection of the biodiversity interest, and where it is therefore going to be a struggle for them to get permission. We need to give them very strong signals that it is going to be a lot easier and cheaper for them not to set their hearts on some of these highly protected biodiversity sites.

We also have a case in Kent at the moment, for a housing development being proposed to the local authority. I am earnestly hoping the planning authority will turn it down. It is a proposition for 5,000 houses to be built on 300 hectares of a site of special scientific interest. If the development goes ahead it will be the largest loss of SSSI land for the last 30 years in this country. It will be a complete outrage. But the developer has been barking enough to set themselves on that site. That is an example where the developer is simply not reading the signals, so the signals need to be absolutely explicit.

I very much appreciate the point that the noble Lord, Lord Whitty, made. This is an effort to try and make sure that fracking gets off on the best possible foot, with a really clear commitment linked specifically to shale gas extraction about environmental protection being absolutely paramount. We should not rely just on other pre-existing legislation but gather together the real requirements that this industry needs to take account of, so that we can reassure the public and move ahead.

I was hoping that the noble Baroness might give me hope for Amendment 115 at future stages of the Bill, because the situation seems totally anomalous. I would like to understand from her why the Government felt it necessary to issue guidance on areas of outstanding beauty and national parks, which have strong environmental protection requirements already, but not on the other nature conservation sites. However, I beg leave to withdraw the amendment and hope the Minister might think more kindly of the amendments in pushing the Bill to another place.

Amendment 113H withdrawn.

Amendment 114

Moved by Lord Wigley

114: Clause 32, page 38, line 15, at end insert—

“(6) This section shall not extend to Wales unless an order authorising it has been passed by the National Assembly for Wales.

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(7) An order under subsection (6) may contain any conditions which the Assembly deems appropriate.”

Lord Wigley: My Lords, I shall speak to Amendments 115B, 115C and 123, which also stand in my name and are grouped with Amendment 114. First of all, could I say a word about the whole issue of fracking? Noble Lords will be aware that when this Bill was given its Second Reading there was no reference to the provision it now makes in relation to fracking. When we first started in Committee, there was no sign of the amendments we knew were being prepared. Ostensibly, we had to wait until the conclusion of the consultation process in August, before amendments were formulated. But since little notice seems to have been taken of the overwhelming opposition to fracking expressed by the general public, this seems to have been little short of a charade. It is not good enough to take an arrogant and disparaging attitude to those who harbour genuine fears.

Now that we have the amendments in the Bill and the provision for fracking is likely to be confirmed as part of it as we move forward from Report, unless we challenge it rigorously tonight, then the fears that people have will be underlined and reinforced. That is why I have tabled my amendments. But before I address the detailed wording, I will make it clear why I unreservedly oppose the application of fracking technology to extract underground gas. I have grave reservations about this technology. I do not express these doubts and concerns on the basis of a nimby approach. There are no identified areas of potential fracking activities in my home county of Gwynedd, nor do I harbour doubts about any form of modern applied technology.

7.15 pm

My university degree, many years ago, was in physics, and I rejoice in the progress of science in making life so much better for millions around the world. But science needs to be applied with a degree of the precautionary principle. We all remember the tragedies of thalidomide, the dangers of radiation exposure, and the potential disaster which was associated with CFCs in the atmosphere. It is just as stupid to blindly accept the application of science as it is to blindly apply a knee-jerk reaction against the wonders of modern science, and what it can bring us. We need a balanced approach, and that means asking awkward questions and challenging glib assumptions. That is what I want to do in regard to our apparent acceptance of fracking technology.

The dangers associated with fracking can be summarised under five headings: first, direct dangers to human health and to animal and plant life arising from the chemicals used in the fracking process and the likelihood of them entering our water supply systems; secondly, the possibility of fracking technology triggering seismic tremors, as we have heard about in earlier debates tonight, and in the extreme, earthquakes, as apparently happened not so far from Blackpool in 2011; thirdly, the implications, by building a cheap gas economy, of worsening our carbon footprint at the very time when we should be putting every priority into reducing our fossil fuel usage and investing in reducing demand for fuels by insulation and fuel efficiency

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programmes, and re-orientating our energy systems into using renewable low-carbon technologies; fourthly, the highly questionable principle of giving developers carte blanche to enter people’s property or dig under their land under a blanket assumed permission to do so, undermining the checks and balances which have been carefully crafted into our town and country planning systems; and fifthly, the environmental squalor which fracking has left in its wake in so many of those communities in North America which have been blighted as a result of the fracking invasion of their countryside, and now this Bill will allow fracking companies to walk away from their clapped-out equipment, which they leave under the ground after them.

We are told of the economic benefits which will flood into these areas as a result of fracking, but all experience shows this to be a total nonsense. Only a handful of jobs are created, and they usually go to migrant workers who move from location to location as the fracked-out wells are exhausted, leaving behind them the industrial squalor so often associated with the extractive industries. We are told that there will be immense wealth from exploiting these untapped reserves of gas. But that wealth does not go to the communities which have suffered the ravages of exploitation; it goes to the supranational corporations, which are only too ready to respond to the Government’s inducements. Of course, the money will go into the Treasury to bail out a near-bankrupt economy, with the danger of being squandered in the same way as has happened to the UK’s North Sea oil reserves. Local families, local communities and local environment pay the price, and distant pockets bulge with the proceeds.

All these are matters of concern to me. But let me concentrate, in the limited time we have available on Report, on the dangers of chemicals contaminating the water systems of those areas where fracking takes place. In Wales, we provide water not only for our own communities, but for many English conurbations: in north-west England, in the Midlands, and in probably increasing quantities to southern England. The purity and safety of those water supplies have been taken for granted. Let me mention just some of the chemicals used in the fracking process. Each fracking “job” requires between a million and 8 million gallons of water, and each such job uses 40,000 gallons of chemicals, involving as many as 600 different chemicals, including carcinogens and toxins such as lead, uranium, mercury, ethylene glycol, radium, methanol, hydrochloric acid and formaldehyde.

In the United States, there have been over 1,000 cases of contaminated drinking water in locations next to areas of gas drilling, and these have led to cases of sensory, respiratory and neurological damage which have been attributed to ingesting contaminated water. Less than 50% of the fracturing fluid is recovered; the remainder of the toxic fluid is left in the ground. Overwhelmingly, it is not biodegradable.

In the United States, waste fluid is often left in open-air pits to evaporate, releasing harmful, volatile organic compounds into the atmosphere, creating contaminated air, acid rain and ground-level ozone. A whole plethora of legal cases have arisen in the United States. In April, the Parr family in Texas were awarded

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$3 million damages against the Aruba fracking company for the pollution of air, water and soil which had seriously impacted on the family’s health. The following month, in May, there was a rig blow-out in Morgan County, Ohio, with a spillage of 184 barrels of toxic fracking fluid, which apparently reached the nearby waterway. In Pennsylvania in June, a fracking company was fined almost $200,000 for a toxic hydraulic fracking fluid spill of over 200,000 gallons into the local environment that led to the evacuation of local families from their homes. In Texas in August, it was reported that in a survey of 100 water wells up to three kilometres away from the fracking locations, over 30% had arsenic levels above the safety limit. A survey by Dale University said that water sources—again in Pennsylvania—showed an elevated level of methane in locations a kilometre or more distant from drilled areas. In some instances, the methane concentration was so high as to be explosive.

Britain is much more densely populated than the United States, with consequently higher likelihood of water sources used for human or animal consumption being polluted. Given this sort of experience, it is of little surprise that states such as Vermont have banned fracking since 2012. They did so, in the words of the state governor, Peter Shumlin, in order for Vermont to,

“preserve its clean water, its lakes, its rivers and its quality of life”.

I was told graphically when in America in August by Eluned Jones, Professor of Economics at South Dakota State University, that the economic benefit gained in her state by fracking had been attained at an environmental and social price that was a profound disaster. Other parts of America are waking to the dangers of fracking. Only last Tuesday, as we heard earlier, the city of Denton in Texas—in the heart of fracking country—voted in a referendum to ban any new fracking operations. Civilised European countries that put the safety of life and the environment above commercial profiteering have banned fracking. France has done so since 2011. Both Germany and the Netherlands have placed a moratorium on it. That is what my party, Plaid Cymru, has also called for.

In these amendments I urge the House to take a first step towards a moratorium throughout Britain by refusing to carry forward Clauses 32 and 33. They were inserted in a blind moment in Committee and I urge the whole House to reject them emphatically. If, for whatever reason, I cannot carry the House with me—as I suspect may be the case having heard earlier debates—then I implore the House to at the very least agree Amendment 114. That would allow this clause to be applied in Wales only if it was so approved by the National Assembly, and allows the National Assembly to impose whatever conditions it deems fit on any fracking development. My hope would be that, irrespective of what happens in England, it would say no to fracking in Wales.

However, there are cross-border issues relating to fracking. My parliamentary colleague, Hywel Williams, MP for Arfon, was told in a Written Answer that fracking developments in north-west England may well look to Wales for the enormous supplies of water they will need for those purposes. As noble Lords will be aware, water is an incendiary substance in Wales.

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Any suggestion of the drowning of further valleys in Wales to provide water for fracking in England—no doubt without any compensatory payment—will generate a howl of outrage the length and breadth of my nation. Water is to Wales what oil is to Scotland, so let there be no misunderstanding whatever that the exploitation of water resources in Wales, without the sanction of the National Assembly or adequate payment, is a non-starter and will be fought every step of the way. I cannot make it clearer than that.

In many ways, it would be totally perverse not to devolve to the National Assembly responsibility for allowing, banning or putting conditions on fracking in Wales. The Assembly has responsibility for virtually all aspects of town and country planning in Wales, it has total responsibility for the environment and agriculture, and it has responsibility for the healthcare services in Wales. All these are policy portfolios impacted by the effects of fracking. If Wales is to have coherent public policy, then control of fracking must also be devolved. Indeed, the Government have tacitly admitted this in their response to the House of Commons Welsh Affairs Committee’s report on energy generation in Wales. The committee recommended that the UK and Welsh Governments should co-operate on regulatory and planning matters, including the “environmental risks” associated with hydraulic fracking. The Government’s response was that planning was a devolved matter. That being so, surely the Government must accept the thrust of my amendment.

Incidentally, I would be grateful to the Minister if we could have some clarification as to whether these draconian provisions will apply to Scotland directly, or whether the Scottish Parliament has some control over their applicability. I suspect that if you were to tell Mr Salmond that Scotland will have to allow fracking willy-nilly and by Westminster diktat, there would be such an eruption north of Hadrian’s Wall as to re-open the whole relationship between this place and Holyrood. Yet if Westminster were to allow a Scottish veto over fracking, then on what earthly basis is such a provision to be denied Wales?

My preferred outcome of this debate would be for the Government to withdraw or the House to vote these appalling clauses out of the Bill. In the event of failure to do this, I implore the Government to either accept my Amendment 114 to allow the National Assembly to determine these matters in Wales or undertake to bring forward their own clause in another place for the same purpose. Whichever way they proceed, this issue will not go away. I beg to move.

Lord Teverson: My Lords, I do not want in any way to suggest that Wales should not have its own authority over this area. As a citizen of Cornwall, I absolutely agree with the noble Lord—though I do not know enough about what the relationship is here.

On the attack on fracking, down in Cornwall our geology does not support shale gas but it does support deep geothermal, in which fracking plays an important part. I think that the noble Lord spoke on the whole about fracking in relation to shale gas, but there are issues around fracking for whatever purpose, and seismic events are one of those. In one of the early EU-funded

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geothermal tests in Alsace, there were seismic events and a lot has been learnt from that. There were also events in Blackpool, but as I understand it the industry is able in the right locations to make sure that such matters are very well controlled.

I make the point that fracking can be good. It can be good for renewables. I hope that in the longer term fracking will be available for deep geothermal in terms of power generation. At the moment, it looks like we will go through a heat revolution with not quite so deep geothermal, but in the long term we may get to generate baseload electricity through deep geothermal. I wanted to make that point, because fracking is not just around shale gas; it has those other benefits as well.

However, Wales should be able to steer its own course.

Baroness Worthington: My Lords, I rise briefly to ask the Minister for her comments on the issue of devolution and fracking. I am particularly interested in the Scottish question raised by the noble Lord, Lord Wigley. As I understand it, Holyrood already controls planning permission and the permitting regime, so it would not be a huge step to devolve this aspect of the control of fracking and rights of access. I just ask that question.

I am also grateful to the noble Lord, Lord Teverson, for drawing the attention of the House to the fact that, when we talk about these provisions and rights of access, they apply to more than just the extraction of petroleum. Indeed, they apply to deep geothermal, which arguably needs the loophole to be changed more urgently than in the case of fracking for oil and gas. It may change the view of the noble Lord, Lord Wigley, on this that you can frack for coal as well. Fracking of deep-mine coal might bring a degree of economic development back to Wales. I am not saying that that is the only way that Wales should develop; I am much more interested in some of the marine technologies, biomass and wind in a Welsh context—those seem to have huge potential. However, I would never rule out the idea that deep coal mining could come back as an economic activity if done in combination with carbon capture and storage.

In summary, these clauses potentially relate to more than just oil and gas extraction, and I am interested in the noble Baroness’s response on the Scottish question.

7.30 pm

Baroness Verma: My Lords, I note the clause stand part amendments and the amendment proposed by the noble Lord, Lord Wigley, regarding the application of the right to use deep-level land for the purposes of exploiting petroleum or deep geothermal energy in Wales. The Government support the development of shale gas and oil. Natural gas from shale could play a crucial role in supporting UK energy security, as well as an important role as a part of the transition to a low-carbon economy, and that was well debated previously. The carbon footprint of UK-produced shale gas would likely be significantly less than coal and lower than imported liquefied natural gas. Domestic shale gas

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could also benefit the UK in terms of jobs, tax revenues and growth, mitigating some of the falling revenues from the North Sea.

However, it has become clear that difficulties in obtaining underground access pose a barrier to exploring this new industry. The same problem also applies to the deep geothermal industry, which is likewise at an early stage of development in the UK. New lateral drilling methods that can cover much larger areas underground mean that existing processes for obtaining underground access can be disproportionately costly and time consuming in relation to the potential benefits. Currently, companies must negotiate rights of access with every landowner living above underground drilling. If these negotiations fail, an oil and gas operator can make an application to the Secretary of State, who may refer the matter to the courts. This process gives a single landowner the power to delay a development significantly and, in the case of geothermal, it is likely to stop the project entirely.

The right to use deep-level land would help unlock exploration for shale gas and deep geothermal as we move towards a low-carbon economy. However, let me be clear that we are not proposing any changes to the regime for surface access, and the regulatory system that deals with the potential risks associated with drilling and hydraulic fracturing will remain the same. I can reassure noble Lords that a company looking to develop shale or geothermal would still need to obtain all the necessary permissions, such as planning and environmental permits. The onshore oil and gas industry has committed to engage with communities at the early stage of operations, as well as consulting through the planning application process. Our robust regulation will protect residents while allowing this source of homegrown energy to develop in a way that is fair to communities.

EY has estimated a thriving industry could mean 64,500 jobs nationally. Locally, that could mean cementing contracts, new facilities and jobs for local companies. Communities that host shale development could see a share of this, which is why we welcome the developers community benefit package, similar to other technologies such as wind. This will pay communities £100,000 per hydraulically fractured well site at exploratory stage and 1% of revenue if it successfully goes into production. As with wind farms, wider communities will benefit too, as local councils will also be able to retain 100% of the business rates that they collect from productive shale gas. Therefore, there are many potentials of this industry to communities in Wales if shale production takes place.

Petroleum extraction is a non-devolved matter. As such, the proposals for oil and gas will apply across England, Wales and Scotland. The proposals on deep geothermal energy also cover England, Wales and Scotland, where in Scotland deep geothermal energy is exploited for the sole, or main purpose of electricity generation. Schedule 7 to the Government of Wales Act 2006 sets out the conferred subjects over which the Welsh Assembly can exercise legislative competence. Oil and gas are clear exemptions from the conferred list of economic development and, furthermore, the

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exploitation of deep geothermal resources could not be considered to have been conferred under any of the subjects in Schedule 7.

Although deep geothermal and oil and gas activity may impact upon conferred subjects such as environmental protection, that is not what they properly relate to for the purposes of the legislative competence test in the Government of Wales Act 2006. In addition, the right of use clauses are not removing any existing regulatory requirements. We therefore see no ground on which this measure would be within the legislative competence of the Welsh Assembly. On that basis, there is no rationale for requiring approval by the Welsh Assembly before the section can apply in Wales.

It is also worth noting that, while oil and gas are non-devolved matters, all existing planning authority procedures and powers will remain in place. As such, the different UK planning regimes will continue to regulate shale gas or geothermal developments according to their existing planning procedures. I have reflected on the noble Lord’s amendment and in response to his concerns I have offered him a government perspective. Therefore, I hope that the noble Lord, Lord Wigley, will withdraw his amendment.

Lord Wigley: I am very grateful to those who have taken part in the debate and to the Minister for her response. Quite clearly, I would be unlikely to carry the House on the amendment that the clause should not stand part of the Bill. Although my heart would want me to go down that road, I suspect that I would come to a blind alley. Therefore, I will not press it on this occasion because there will be opportunities in another place. I have no doubt that many Members of all parties in the other place will wish to come back to this because there is deep concern outside.

Even if one was in favour of fracking in principle, I would have thought that it would be very wise to pay attention and take the maximum possible notice of the reservations that exist outside, because these are the real fears of real people in real communities, and they need to be addressed. Members in all parts of the House have expressed that in the series of debates we have had tonight.

Turning to the lead amendment in the group, which relates to the powers of the National Assembly for Wales, I think that it is ironic that at a little earlier than this time tomorrow—as the noble Lord, Lord Bourne, on the Government Front Bench, will be well aware—we will consider an amendment that would change the model of devolution for Wales to a reserved-powers model of the sort that exists for Northern Ireland and Scotland. This was a recommendation of the Silk commission, of which the noble Lord, Lord Bourne, was a member, and which appeared to have all-party support in Committee in this House. The Report stage of that Bill takes place tomorrow. That being so, unless there was a specific exemption made for these purposes, it would not be enough to rely on the 2006 Act, which the Minister has relied on in the debate tonight.

However, rather than argue technical, legalistic points arising out of legislation, I put this to the Minister in conclusion. When the National Assembly for Wales

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has responsibility for the environment, particularly for town and country planning, transport, and economic development within Wales, as well as health proposals, then surely it makes all sense to put the responsibility for this area also into its hands—at the very least to make sure that there is a working together. That surely was the intention of the Government when they responded to the Select Committee on Welsh Affairs report. I will not quote it again, but it underlined the fact that planning policy is a devolved matter and that planning is integrally involved in the decisions we are talking about in regard to fracking.

Therefore, I ask the Minister whether she will take this away between now and the debates in another place and give further thought, particularly in the light of the debate we will have on the Wales Bill tomorrow, as to whether there is a mechanism to make sure that the National Assembly for Wales and the Government of Wales are totally on board in a dialogue on these matters so that, in keeping with the principle of subsidiarity, the decisions affecting communities can be taken as close as possible to those communities—in this context, decisions affecting Wales can be taken by the National Assembly where possible. On that basis, I beg leave to withdraw the amendment.

Amendment 114 withdrawn.

Amendments 115 to 115B not moved.

Clause 33: Further provision about the right of use

Amendment 115C not moved.

Clause 34: Payment scheme

Amendment 115D

Moved by Lord Whitty

115D: Clause 34, page 39, line 18, at end insert—

“( ) The regulations must require contributions to the contingency fund or funds from relevant energy undertakings which are sufficient to meet—

(a) any loss caused directly or indirectly by the operation of the oil and gas activity;

(b) the costs of—

(i) remediation;

(ii) enforcement action against the relevant energy undertaking;

(iii) other measures taken by a public authority in respect of, or in consequence of the loss, or the activity which gave rise to the loss.

( ) The regulations must ensure that the contingency fund is protected in the event of the insolvency of a relevant energy undertaking which has made payments to the fund.”

Lord Whitty: My Lords, I am trying to help the Government out here. This is yet another part of the jigsaw that is necessary to ensure public acceptability of fracking in appropriate circumstances. The amendment deals with the issue of damage caused by fracking and who is liable for it.

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We have had a debate about the nature of the regulations, whether or not they are effective and whether there are enough resources to enforce them. Even if we accept that we have world-class regulations and regulators in this area, if fracking takes off in the way in which its proponents—and, to some extent, I—hope it will, then there will be hundreds of sites across Britain and, however good the regulatory process, however vigilant the regulators themselves and however well motivated those companies that are responsible for those operations, there will be problems. There is no prior form of energy where there have not been some accidents, leakages or effects on the environment, on neighbours, on businesses or on the water supply.

The failure of even a fraction of the number of wells that are being talked about could have a significant impact on the landowner, on the farmer, on the community close to the fracking site, on individual households or indeed on individuals, or it could have an effect on other businesses, whether small local businesses or giant water companies. We therefore need to have an effective liability arrangement that ensures that the cost of such damage and its remediation do not fall on the public purse. We have historic examples here in the energy field. Whether you are talking about deep coal mining, opencast mining or the nuclear industry and the cost of decommissioning there, the reality has been that the costs of damage, waste and pollution have been borne almost entirely by the taxpayer. I want to see a provision in the Bill whereby that does not arise in the case of substantial development of the fracking industry.

My amendment would therefore deal with the Secretary of State’s obligation to bring forward regulations to ensure that any operator within this field, whether in the exploratory or subsequent stages, has sufficient resources to cover any loss arising from the operation, the costs of remediation and the costs incurred by the public authorities in enforcing that. That may require a separate fund within the company or a common fund. I leave that to the Secretary State in the regulations. However, such provision is necessary.

I am afraid that the Minister’s reply, when I referred to this issue in rather similar form in Committee, raised several concerns. It was argued by the Minister that companies can be required to remediate the effects and prevent further damage from pollution under existing regulations. However, in general, that applies only if land itself is contaminated in the strict terms of those regulations. It is not clear that funds need to be available from the outset to foot the cost of this remediation activity.

The Minister made a big point of saying that we should not treat fracking differently from other industries and that existing law is robust. However, one has only to look at one of the examples that I mentioned: opencast mining in Scotland cost £200 million in Scotland alone, and the entire cost fell on the public purse. My amendment also therefore seeks to ensure that that would not arise in this case and that a fund would be provided in advance, as it were, and in effect would be bankruptcy-proof.

The Minister also argued that environment regulators already have the power, although not the requirement, to require up-front financial bonds to address the risk

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wherever they deem that necessary. Article 14 of the European mining waste directive is relevant here but it is limited; it relates only to the situation where the waste itself is hazardous or is managed at a category A site. Neither of those things needs to apply for substantial damage to be caused if there is some leakage or other damage caused by the fracking operations.

7.45 pm

The amendments are fairly straightforward. They require anticipating what has happened in other industries at the same time as we are designing the permitting system for fracking operations. It would be a substantial piece of foresight by the Government to introduce such requirements and to ensure that the operators in this field had sufficient resources to meet such contingencies. However, probably more importantly, to outline a point that I made in my brief intervention earlier, it is also a vital part of ensuring that the public, the businesses, the communities and the landowners who are anxious about the effects of fracking are reassured from the outset that if something goes seriously wrong, their interests will be respected and it will not be the taxpayer who pays but the operator. The noble Lord, Lord Deben, who is no longer in his place, said at an earlier stage that it should be clear in relation to the enforcement of regulations that the polluter pays. That must be true also in relation to any negative effects that require action and remediation as a result of these operations.

This would be a reassurance, and in extremis it might become an absolutely necessary reassurance, so that we do not go through the sequence of events that followed earlier generations of energy exploitation in coal and nuclear power, where no such liability was placed on the operator and where, in fact, the taxpayer has paid and is continuing to pay. In the case of nuclear in particular, the taxpayer will continue to pay for many generations to come. Let us anticipate that and at the same time reassure large sections of the community who may not have any fundamental objections of the type that the noble Lord, Lord Wigley, has to fracking but nevertheless are anxious about their own interests and the effect that this may have on their own businesses and their way of life. I beg to move.

Lord Jenkin of Roding: My Lords, when I saw the noble Lord’s amendment, my immediate reaction was to say, as he has done, “Look at what’s happened in other industries, notably the nuclear industry, and then look at what has been happening recently in relation to offshore oil and the measures that are now being taken there”. That led me to approach the trade association that covers the fracking industry, which was extremely helpful. My noble friend’s department has produced a very long paper of financial guidance on the whole question of petroleum licensing. At this hour of the night, when there is further business to come, I will not go into that in great detail, but the fact is that, having read that and the paper that has been produced by the trade association, UKOOG, I am satisfied that the difficulties that the noble Lord, Lord Whitty, has raised are in fact being addressed very positively. It is not only the question of whether the company that will get a licence will have the resources

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to carry out the work and continue to operate any shale gas well that it constructs. The papers address very specifically the questions that the noble Lord has made most of—the decommissioning of plant and financial liability if things go wrong. The existing regime provides for the remediation of environmental damage and contaminated land, and that includes water. If we take all the regulations together, if a company causes damage, harm or pollution to the environment, it can be required under the regimes in force to remediate the effects and prevent further damage, which is the same approach as applies to other industries.

Furthermore, the Government appear to have very clear powers: they can require financial evidence that there are resources available to pay for that. UKOOG has relieved my anxieties in that regard. Unlike the earlier industries to which the noble Lord, Lord Whitty, referred, the approach to this industry, which is still at a very early stage of its development, as he rightly said, has been extremely responsible. I shall be very interested to hear from my noble friend what those measures are. I am satisfied, but I will listen to my noble friend’s reply.

Lord Judd: My Lords, I have been glad to put my name to this amendment, which is very wise and prudent. It has been suggested in recent years that the interpretation of welfare capitalism has changed. The original concept was that capitalism had a social responsibility that it should discharge for the well-being of society as a whole. It seems that quite a lot of people have come to believe that perhaps welfare capitalism is about ensuring that while wealth generation and profit is privatised, risk is nationalised and is the responsibility of the taxpayer. The point in the amendment that is particularly important in this context is what happens in the case of insolvency, when all the best predictions can be blown away in the wind in the chaos that follows.

If a scheme is put forward and is being properly costed, the cost of dealing with potential damage, closure or the consequences of that is an essential element in the calculations. We are concentrating today on this new and exciting aspect of shale development but we are beginning to see infrastructure across the country in connection with power generation and its distribution that is no longer required. We need to be very careful that we are ensuring that any adverse results of that are not left just for the taxpayer to settle, but that they are the responsibility of the people who, while they are operating, are receiving the profits that come from that.

Baroness Worthington: My Lords, I am grateful to my noble friend for tabling his amendment and for continuing the discussion that we started in Committee. I am sympathetic to the intention behind these amendments and am particularly interested in the aspect of liability arising from orphaned sites. We are talking about a potential new industry that will see a large number of distributed sites developed. We may well see smaller companies that perhaps do not have the assets or deep pockets of more traditional extractive companies, and there would be considerable potential

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for orphaned sites. I am very interested to hear from the Minister how we would address any liability arising from such orphaned sites.

I think my noble friend Lord Whitty said that he is seeking for the Government to demonstrate foresight. It strikes me that the Government are demonstrating foresight in some respects of fracking, in imagining the future benefits and future economic wealth that will come. Over the weekend, we even heard comments about the imagined spending of all this great tax revenue. We shall debate that aspect shortly. That foresight is possible, but perhaps we should apply it in the slightly more realistic context of learning from previous experiences of extractive industries in trying to plan for what happens if everything does not go according to plan. I would have thought that companies would be able to take out insurance against some of these liabilities. Again, I would be interested to hear from the Minister about what type of insurance she might expect companies to undertake and what liabilities would be insured. We are entering uncharted territory in the types of company, the types of project and their distribution across the country. It is right that we should proceed with caution.

There is a lot of merit in the amendments tabled by my noble friend Lord Whitty. He started by saying that he was trying to help out the Government. A number of us have tried to help out the Government during tonight’s debate. However, I suspect that the Government are not listening and do not want to be helped out, but there we are. I look forward to the comments from the Minister in response to this amendment.

Baroness Verma: My Lords, I am always grateful to the noble Lord, Lord Whitty, for trying to help out the Government. I have listened very carefully and of course I recognise his concerns and those raised by the noble Lord, Lord Judd. However, as my noble friend Lord Jenkin very eloquently put it, there is already a lot in place that addresses the concerns raised by the noble Lord, Lord Whitty. The existing regulatory system covering onshore oil and gas is robust. We already have more than 50 years’ experience of regulating the onshore oil and gas industry. There are controls and regulations in place to ensure on-site safety, prevent water contamination, mitigate seismic activity and minimise air emissions.

While the Government are keen for shale and geothermal exploration to go ahead, shale gas development must be safe and environmentally sound. I agree with noble Lords that we need to be sure that we are responding robustly to the perceived concerns that the public raise. One of the central aims of the current regulatory framework is to ensure that wells are appropriately designed and operated, and that when operations cease they are properly decommissioned.

A petroleum licensee cannot search for, bore for or get petroleum without a petroleum exploration and development licence, the terms of which are in the model clauses set out in secondary legislation. All drilling or production operations, and the abandonment of any well, require the consent of the Secretary of State. In addition, there are regulators and controls

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that can be relied on to minimise risk and any impacts associated with oil and gas activities. Those controls include conditions attached to environmental permits issued under the Environmental Permitting Regulations 2010 in England and Wales and the equivalent regime in Scotland, as well as safety scrutiny by the Health and Safety Executive.

The current regime, as it applies to shale gas, includes the management of mining waste and naturally occurring radioactive minerals, the scrutiny of well design and construction, the suitable restoration of sites, the protection of habitats and 10 different EU directives addressing environmental concerns. In addition, the Environmental Protection Act 1990 and the domestic Environmental Damage (Prevention and Remediation) Regulations 2009 provide for the remediation of contaminated land and serious environmental damage. This regime, together with the operators’ responsibilities under their licences and permits, is sufficiently robust to ensure that operators are required to remediate any damage or pollution to the environment.

If, for any reason, these controls were not enough—we have no reason to think that this would be the case because the UK has a well developed and very strong regulatory regime—and if any damage were to occur, in accordance with statutory requirements and government policy, remediation of the damage would be dealt with under the main regimes for dealing with contamination. These regimes are sufficiently robust to ensure that, if a company causes damage, harm or pollution to the environment, operators can be required to remediate the effects and prevent further damage or pollution. This is the same approach that applies to other industries, and we believe that the existing law is robust.

8 pm

As noble Lords rightly highlighted, the environmental regulators have powers to require upfront financial guarantees to address this risk in circumstances where they deem this necessary. In addition, mineral planning authorities can require a financial guarantee to cover restoration and aftercare costs, although this will normally be justified only in exceptional cases. The Government have also been working with the industry’s trade body, UK Onshore Oil and Gas, to ensure the development of a mutual industry scheme that would, where necessary, step in and pay for necessary remedial action in the event that the liable company is unable to do so. My department has powers that can be exercised to require membership of such a scheme, where one exists, or the provision of equivalent security by other means. This range of financial securities, along with the statutory regime for dealing with damage or pollution, provides the reassurance that taxpayers or landowners will not be left to foot the bill for liabilities.

Since the noble Lord, Lord Whitty, raised these concerns in Grand Committee last month, I have given this issue particular consideration. While I am confident that we have a strong regulatory system for managing liabilities, I have heard concerns regarding unintended impacts of the right to use deep-level land on landowners, specifically, the situation whereby a landowner whose land is accessed through our proposed legislation might face claims from third parties for

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damage done by the operator. I have reflected on that and intend to bring forward an amendment on that issue.

I hope I have been clear on other issues that the noble Lord has raised. Given the reassurance that we already have a very robust framework in place—

Lord Judd: I am sure that my noble friend shares my gratitude for the full way in which the Minister is replying. However, there is just one point she made which intrigues me. She said that the regulator has powers that he can use in these contexts. However, if the taxpayer is faced with the possibility of having to foot the bill, why is it not compulsory to require that these things are covered?

Baroness Verma: My Lords, I hoped that I had reassured noble Lords that we do not wish to see the taxpayer foot the bill or any bill, and that there will be processes in place to ensure that that is the case. Having gone through the amendment of the noble Lord, Lord Whitty, and his concerns, I hope that he will see fit to withdraw it.

Lord Whitty: My Lords, I am very grateful to the noble Baroness for her full reply and for the matters that the noble Lord, Lord Jenkin, drew to our attention. It has always been clear to me that the Government and the regulatory authorities have the powers to require remediation. The issue I was attempting to cover was if sufficient funds were not available to do that. The Minister said that the authorities, in granting a licence, have the ability to say, “You have to provide some money upfront”. There was also reference to a mutual industry scheme. It seems to me prudent for the Government to make that a condition of the licence—either that a fund is established or that the relevant body is a member of the scheme being established by the industry. Otherwise, we will end up with a situation whereby, as a result of an unforeseen accident combined with financial problems for the company, or, as a result of a situation whereby, many years hence, there is an abandoned site, orphan site or a site that has been badly decommissioned, there is damage but there are no funds available to cover it, so at the end of the day the taxpayer will pay for that.

I accept a lot of what the Minister and the noble Lord, Lord Jenkin, said but unless this is a condition of a licence, either through insurance or by establishing a fund, we will not have the situation entirely covered, and that is not entirely reassuring to those who are worried about the potential impact of that on their environment, business or dwellings. The Minister has gone some considerable way on this issue and I will certainly not press the amendment any further tonight, but her reply was not quite as reassuring as I had hoped. Nevertheless, I thank her and others who have contributed to this debate. I beg leave to withdraw the amendment.

Amendment 115D withdrawn.

Amendment 116

Moved by Baroness Verma

116: After Clause 37, insert the following new Clause—

“Renewable heat incentives

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(1) Section 100 of the Energy Act 2008 (renewable heat incentives) is amended in accordance with subsections (2) to (4).

(2) After subsection (1) insert—

“(1A) Regulations under this section may confer any function on any person.

(1B) Regulations under this section may provide for a function conferred on a person to be exercisable on behalf of another person.”

(3) In subsection (2)—

(a) in paragraph (a), for the words before sub-paragraph (i) substitute—

“(a) make provision giving any of the following persons entitlements to payments (“RHI payments”) in specified circumstances—”;

(b) in paragraph (b), for “such payments” substitute “RHI payments”;

(c) after paragraph (b) insert—

“(ba) make provision about the circumstances in which, and descriptions of persons to whom, the whole or a part of an entitlement to an RHI payment may be assigned (whether the person has the entitlement by virtue of regulations under paragraph (a) or regulations under this paragraph);

(bb) authorise or require the Secretary of State, the Authority, designated fossil fuel suppliers, or any person with any other administration function, to make an RHI payment—

(i) to the person who is entitled to the payment by virtue of regulations under paragraph (a), or

(ii) where that entitlement has been wholly or partly assigned in accordance with regulations under this section, to the person or persons for the time being enjoying the entitlement or any part of it;”;

(d) in paragraph (c), for “such payments” substitute “RHI payments”;

(e) for paragraph (d) substitute—

“(d) authorise or require a person to provide specified information;”;

(f) in paragraph (e), omit “to the Secretary of State or the Authority”;

(g) in paragraph (h), omit “for the Secretary of State or the Authority”;

(h) omit paragraph (i);

(i) at the end insert—

“(j) authorise the Secretary of State to make payments to a person in respect of the exercise by the person of functions under regulations under this section;

(k) make provision about the resolution of disputes relating to the exercise of functions under regulations under this section, including provision about arbitration or appeals (which may, in particular, provide for the person conducting an arbitration or determining an appeal to order the payment of costs or compensation).”

(4) In subsection (3), after the definition of “fossil fuel supplier” insert—

““other administration function” means a function relating to the administration of a scheme established under this section, other than a function conferred by regulations under subsection (2)(bb);”.

(5) Section 105 of the Energy Act 2008 (Parliamentary control of subordinate legislation) is amended in accordance with subsections (6) to (8).

(6) In subsection (2)—

(a) in paragraph (a), omit sub-paragraph (vi);

(b) after paragraph (aa) insert—

“(ab) regulations which contain (whether alone or together with other provision) affirmative resolution provision made under section 100 (renewable heat incentives);”.

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(7) In subsection (3), after “(2)(a)” insert “, (ab)”

(8) After subsection (3) insert—

“(3A) Provision made under section 100 is affirmative resolution provision if—

(a) the provision is made under any of the powers which always attract the affirmative resolution procedure, or

(b) the provision—

(i) is not made under any of those powers, and

(ii) meets condition A, B, C or D.

(3B) The powers which always attract the affirmative resolution procedure are the powers conferred by—

(a) section 100(2)(c), (e), (f), (g), (h) and (k),

(b) section 100(5), and

(c) section 100(6).

(3C) Provision meets condition A if—

(a) it is made under the power conferred by section 100(2)(bb), and

(b) it requires a designated fossil fuel supplier to make a payment under an RHI scheme.

(3D) Provision meets condition B if—

(a) it confers an administration function on a person who is not the Secretary of State or the Authority, and

(b) the time when the provision comes into force will be the first time that an administration function under the RHI scheme concerned is exercisable by a person who is not the Secretary of State or the Authority.

(3E) Provision meets condition C if—

(a) it is made under a power conferred by paragraph (ba) or (bb)(ii) of section 100(2),

(b) it is made in relation to an RHI scheme that was in existence immediately before the coming into force of this subsection, and

(c) it is the first provision to be made under that power in relation to that RHI scheme.

(3F) Provision meets condition D if—

(a) it is made under a power conferred by paragraph (a), (b), (ba), (bb), (d) or (j) of section 100(2),

(b) it is made in relation to an RHI scheme that was not in existence immediately before the coming into force of this subsection, and

(c) it is the first provision to be made under that power in relation to that RHI scheme.

(3G) In deciding whether provision meets condition B, the following matters must be ignored—

(a) for the purposes of subsection (3D)(a): any provision which confers a payment function on designated fossil fuel suppliers;

(b) for the purposes of subsection (3D)(b): any payment function under the RHI scheme concerned which (before the time when the provision comes into force) is, or has been, exercisable by designated fossil fuel suppliers.

(3H) The fact that provision is to some extent made under a power conferred by section 100(1), (1A) or (1B) does not prevent that provision from being taken (for the purposes of subsections (3A) to (3F)) as being made under any other power conferred by section 100.

(3I) In subsections (3B) to (3H) and this subsection—

“administration function” means a function relating to the administration of an RHI scheme;

“designated fossil fuel suppliers” has the same meaning as in section 100;

“payment function” means a function of making a payment under an RHI scheme (whether the function authorises or requires the making of the payment);

“RHI scheme” means a scheme under section 100 to facilitate and encourage renewable generation of heat.”

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(9) In section 105 of the Utilities Act 2000 (general restrictions on disclosure of information), in subsection (3)—

(a) in paragraph (a), omit “or section 100”;

(b) after paragraph (a) insert—

“(aa) it is made for the purpose of facilitating any functions of any person under section 100 of the Energy Act 2008;”.”

Baroness Verma: My Lords, as noble Lords know, this Government are committed to ambitious action to reduce carbon emissions and increase renewable energy generation in the UK. To this end, the non-domestic renewable heat incentive was introduced in November 2011 and followed with a domestic scheme in April this year. These schemes are the world’s first long-term financial support programmes for renewable heat. Switching to renewable heat can in some circumstances bring significant bill savings to businesses and households and helps the Government meet their challenging targets on climate change.

The government amendment before the House responds to one tabled by the noble Baroness, Lady Eaton, in Grand Committee, on which I undertook to return to noble Lords on Report. The new clause proposes three changes to Section 100 of the Energy Act 2008, which provided for the creation of the schemes. I shall take each of the changes in turn. As noble Lords will be aware, administration of the schemes is currently limited to either Ofgem or the Secretary of State. While Ofgem is successfully administering both schemes, our inability to run a competitive process is a constraint on achieving best value for money. The Government, therefore, signalled their intention to seek the necessary legal powers to enable an alternative administrator to be appointed in their consultation on the domestic scheme in 2012.

Ofgem will continue to administer the scheme for the time being and in making this change the Government will retain the power to appoint Ofgem to administer the scheme in the future. The ability to appoint a new administrator means that the Government will require the flexibility to adapt the appeals processes to any new administrator and to ensure that these remain robust. The amendment therefore also allows the Government to make regulations covering dispute resolution through appeals processes.

The second change deals with payments. Payments under the scheme must currently be made to the owner of the renewable heat installation or to the producers of biomethane, biogas and biofuels for heating. The amendment will allow the schemes to be redesigned to mean that these parties can have the option to assign their payments to a third party. For the domestic scheme, this would mean that the upfront cost of renewable heating systems could be funded by third parties for households unable to afford them, with scheme payments then made directly to the third party, making this an attractive opportunity for investors. For the non-domestic scheme, assigning rights to payments may allow for simpler financial arrangements between parties, reducing the costs of, and barriers to, the installation of renewable heating. By incentivising new funding arrangements, this change could lead to an increase in both demand for and supply of renewable heat technologies and a mix of higher deployment and lower costs.

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Implementing changes would require secondary legislation, on which we intend to engage with stakeholders. In making any changes, we will also work with the scheme administrator and other parties to ensure appropriate design of the consumer protection framework and to integrate the assignment of rights into the scheme’s existing cost control mechanism.

The amendment would also allow some changes to the schemes to be made by the negative resolution procedure. At present, all changes must be made by the affirmative procedure, regardless of their complexity or materiality. In practice this is much slower than the negative procedure. The Government have found that their inability to make changes to the schemes quickly, in response to market changes and other factors, may risk undermining confidence in them. For example, we cannot update regulations quickly to allow them to reference updated technical industry standards.

The amendment tabled by the noble Baroness, Lady Eaton, proposed that all secondary legislation in relation to the schemes be made by the negative procedure. I have considered the comments made in Grand Committee in response to that proposal. The amendment now before us aims to achieve greater flexibility while still ensuring appropriate parliamentary scrutiny. It stipulates that some uses of the powers in important areas remain subject to the affirmative resolution procedure. For example, this would include making provision covering sanctions, enforcement and appeals, establishing requirements on fossil fuel suppliers to fund the renewable heat incentive, or amending Section 100 of the Energy Act to change the general type of heat-generating methods that can be funded through the scheme.

For other powers, the amendment stipulates that the first use of the power should be via the affirmative procedure, but allows for use of the negative resolution procedure for subsequent uses of the power in relation to the same scheme. This will allow for appropriate scrutiny where powers are first used, such as to provide for assignment of payments in the schemes, but means that minor subsequent changes can be made by negative resolution.

The Government expect that future changes to the existing schemes are likely to be straightforward and uncontroversial—for example, measures to reduce red tape, or technical changes to allow the schemes to keep pace with market innovation. I do not consider use of the affirmative procedure necessary in these circumstances. The negative procedure, while still allowing for adequate parliamentary scrutiny, provides flexibility to address issues as they arise, rather than delaying matters while suitable legislative opportunities are sought.

Together, these changes will allow significant improvement in the efficiency and cost-effectiveness of renewable heat incentive schemes, allowing the UK to meet its carbon reduction and renewables targets, while also making efficient use of taxpayers’ money. I beg to move.

Lord Teverson: My Lords, I welcome these moves, which will make financing much more flexible, and mean that money really can flow into the RHI. I therefore congratulate the Minister on the amendments, and on moving this matter forward.

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8.15 pm

Baroness Worthington: My Lords, I am grateful to the Minister for speaking to her amendments. As she said, there are three aspects to this group. The first is the potential for somebody other than Ofgem to administer the RHI. I am intrigued by this aspect and I wonder whether we may be creeping towards a bit more joined-up government in terms of renewable energy. There is always a tendency to equate renewables with electricity, whereas under the EU mandatory targets agreed for 2020 we are required to move forward on renewable energy, which means electricity, transport and heat. There has been rather a stop-start process of renewable transport fuel support, and a separate body oversees that. Under the RO the renewable electricity side has been the responsibility of Ofgem, and it is now moving to the department, for the Secretary of State specifically to oversee, while Ofgem has been given the RHI to look after. It would seem sensible to me to have one consolidated agency to deal with all renewable energy, so that we could properly assess the best application of our renewable resources to the different markets.

If we apply a biomass unit of energy to the generation of heat we get far more efficiency and far more displacement of carbon in the heat market than we would by going into electricity—or, indeed, into transport fuels. We need a bit of joined-up thinking on our various ways of supporting renewable energy. I wonder whether this gives us an opportunity to have a look at the regulatory framework.

On the second part, about third-party payments, I am very supportive of the amendment. It will help to overcome a barrier about which people have personally petitioned me, and said how much of a barrier it is.

On the third point, however, I am afraid that I am not quite so supportive. I do not want to detain us too long, but the Minister and I have spent many a pleasurable afternoon in Committee discussing the RHI. It has not been unnecessarily time-consuming or difficult—we generally tend to get through SIs quickly—but it gives us an opportunity to revisit the RHI and see how it is doing. It would be a shame if we were to create any uncertainty in the industry by moving to the negative resolution procedure. I seek clarification from the Minister. She speaks of uncontroversial straightforward changes and describes them as technical. If that group of potential changes included changes to the subsidy levels for different technologies, that might cause alarm for some people in the sector—particularly if they felt that they would not have the opportunity to petition Members on both sides of the House, to discuss and to raise concerns.

This is an industry that has seen quite a lot of changes, and is subject to rigorous derogations and price control mechanisms. They are incredibly complex, and I do not really want to spend any more afternoons debating them—but I would do so if that would give comfort to the industry. It is a new and growing industry, and we are not quite on track yet for meeting our targets. We need to see considerably higher growth in renewable heat if we are to meet the challenging targets that we have set ourselves. I am seeking reassurances from the Minister that these negative

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resolution procedures will not increase uncertainty in an industry that we need to see getting stuck into the job of delivering and putting us on a strong footing with regard to our EU targets.

Baroness Verma: My Lords, I agree completely with the noble Baroness that we must ensure that there is proper parliamentary scrutiny. I assure her that the amendment aims to achieve greater flexibility while retaining appropriate parliamentary scrutiny. The amendment stipulates that some use of the powers is important in areas that remain subject to the affirmative resolution procedure. We will not move away from that where there is cause for it. Where we just want to make some minor, technical changes is where it is probably more likely that we would wish to use the negative resolution procedure.

Baroness Worthington: Will the noble Baroness write to me? What I am most interested in is change to the level of subsidy given to different technology bandings.

Baroness Verma: I of course undertake to write to the noble Baroness and place a copy in the Library.

Amendment 116 agreed.

Clause 38: Consequential provision

Amendment 117

Moved by Baroness Verma

117: Clause 38, page 41, line 36, leave out from “under” to end of line 40 and insert “this Part (other than section 29).”

Amendment 117 agreed.

Amendment 118

Moved by Lord Hodgson of Astley Abbotts

118: After Clause 38, insert the following new Clause—

“Revenue from shale gas: sovereign wealth fund

(1) The Secretary of State may, by regulation, establish a sovereign wealth fund to receive and deploy revenue from the extraction and sale of shale gas.

(2) The regulations shall provide—

(a) that the fund shall receive no less than 50% of any revenue received by the United Kingdom Government from any activity connected with the extraction and sale of shale gas;

(b) that the assets of the fund shall be deployed to serve long term public objectives other than those connected with monetary and exchange rate policy;

(c) that the assets of the fund may be deployed in the United Kingdom or overseas;

(d) that no more than 4% of the assets of the fund may be paid out in any one year; and

(e) for the governance, independent oversight and transparent reporting of the activities of the fund.”

Lord Hodgson of Astley Abbotts (Con): My Lords, the purpose of the amendment is simple, although the policy implications are perhaps more complex. It is to insert a new clause that will provide a statutory framework

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for the establishment of a UK sovereign wealth fund to receive a proportion of the Government’s revenues from fracking and shale gas.

I tabled a similar amendment in Committee on 14 October and I hope that my noble friend will forgive me if I say that I did not find her response entirely convincing. I have therefore retabled the amendment. It is primarily a Treasury matter, of course, and I am therefore pleased and grateful to see that my noble friend Lord Deighton has taken up the cudgels and will reply to this debate. I am grateful also to my noble friends Lord Jenkin and Lord Teverson, and the noble Lord, Lord Whitty, for adding their names in support.

The background to and reasons for my amendment are as follows. This country has been blessed with a wide range of natural assets. These can be divided into two parts, the finite and the infinite. The infinite includes the sun, rain and wind—all of which we can harness in various ways. However, there are finite resources. For example, our huge reserves of coal that powered the industrial revolution for a time made this country the workshop of the world. In the 1970s, we discovered another great gift from nature—North Sea oil. At the time of the original discovery, it was expected that by now it would all have run out. In the event, because of improved technology and higher oil prices, despite our having extracted some 40 billion barrels of oil, it is estimated that at least some 16 billion barrels remain recoverable. But—and this is the important but—one day the oil will inevitably run out and this gift from nature will have been entirely consumed.

Successive Governments and the country have benefited hugely from this oil. Estimates of the overall revenue run as high as £400 billion, but every penny of that revenue has been spent. A debate on whether it has been wisely or foolishly spent would occupy your Lordships’ House for many a long day. That is not the point this evening. The point this evening is that the revenue has all been spent and nothing has been put aside for the future.

On the other side of the North Sea, Norway, which has also benefited from North Sea oil, had an extremely fierce political debate about how to use its proceeds. In the end, it was decided that it should establish a sovereign wealth fund. Norway has a much smaller population than we do—about 10% of that of the United Kingdom—and its oil and gas reserves are commensurately larger. Therefore, I do not wish to push the metrics too far. The fact is that in the 20 short years since revenue started to flow to the Norwegian sovereign wealth fund, it has grown to $800 billion—£500 billion. At this point, I should apologise to Members of your Lordships’ House because when trying to send a letter to you from Chicago I mixed up my “millions” and “billions”. The figure is, in fact, £500 billion, not £500 million, as in my original letter. That is not the end of it. It is confidently expected that the $800 billion will reach $1 trillion in the next few years. The fund generates between £20 billion and £25 billion every year. That is a lot of money. It is roughly two-thirds of our annual defence expenditure or what we expect to spend on our nuclear deterrent over its life. It is roughly 10 times what the Leader of

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the Opposition thought was necessary to save the National Health Service. He referred to £2.4 billion in his speech at his party conference.

In this country, we took a different approach, and the decision is irrevocable. Every penny that we receive in future will be spent until the oil finally runs out. But we now appear to have received another potential gift from nature: natural gas extracted as a result of the development of the new fracking process. I argue that we should learn from the decisions of the past, as well as from the example set by Norway, and provide for the establishment of a sovereign wealth fund to receive at least part of the proceeds from shale gas exploration and development. I do so on three principal grounds. First, the costs of infrastructure projects, which are so essential to this country’s long-term prosperity, are notoriously difficult to forecast. The returns from a sovereign wealth fund would help to plug some of these overs and unders.

Secondly, a sovereign wealth fund would provide some insurance against future uncertainties. Governments are constantly urging us as private citizens to save more to guard against the rising costs of our increasingly long lives. We are told that we must forgo current consumption individually for our long-term benefit. It would surely be no bad thing if the Government occasionally practised what they so assiduously preach.

Thirdly, and most importantly, it is about intergenerational fairness and equity. These gas reserves have built up over millions of years. Are they properly ours to plunder and spend in a couple of generations? Should we not ensure that some parts of the proceeds are left for those who come after us?

Lord Forsyth of Drumlean (Con): In his amendment, my noble friend says that no less than 50% of any revenue received should go into the fund. Can he indicate what he expects that revenue to be and why he chose 50%?

Lord Hodgson of Astley Abbotts: If my noble friend waits for one minute, I shall explain the detail of the amendment. That will take care of the 50% point. Since I think there is possibly an indication that other uses should be made for this revenue, I will come to that immediately after that point. If I have not answered those questions in a couple of minutes I invite him to intervene again.

I turn to the details of my amendment. As I have said, it is an enabling amendment. It does not require the Government to do anything now, but it does indicate a direction of travel. The enabling provision is subject to five provisos. The first, as my noble friend Lord Forsyth has just pointed out, is that the Government should get 50% of the revenue from shale gas. That is part of the fairness argument: 50% for us, knowing that at least some of it will be spent on projects that will benefit future generations, and 50% put aside for those generations directly.

Secondly, the fund should support long-term public policy objectives. That underpins the philosophy and approach behind it.

Thirdly, the fund may invest overseas, as well as in the United Kingdom. That is necessary to ensure that the fund obtains the best returns. In that context, it is

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worth noting that the Norwegian sovereign wealth fund now owns more than 1% of the entire world’s quoted equities.

Fourthly, no more than 4% of the fund may be paid out in any one year. The need for a limit is obvious. Without one the fund would almost certainly be drained very quickly indeed. My proposed maximum level of withdrawal, 4%, is calculated based on a 2% long-term rate of real return and a 2% allowance for inflation. That level should mean that a well managed fund should be able to operate long into the future.

Finally and most importantly, proposed subsection 2(e) provides that the operation and activities of the fund must be transparent and open to public scrutiny. If noble Lords read the literature, it is clear that transparency has been a vital part of creating trust and confidence among the Norwegian public in the operation of their fund.

So much for the reasons for the fund and the detail of my amendment. Before I conclude, let me briefly address the reasons given for not having a fund, which I think underlie the intervention from my noble friend Lord Forsyth. There are essentially three of them: first, this is not the right time to do it because we do not yet know how large and profitable the shale gas development will be. That is absolutely true. My answer is that the amendment is permissive—it requires only an indication of the direction of travel. I hope the House will not think me unduly cynical if I say that, in the absence of any specific prior commitment, I believe the chances of establishing a sovereign wealth fund once the revenues are beginning to flow are even closer to zero than the chances of the Government accepting my amendment tonight.

The second reason is that any revenue from shale gas should be used to reduce the deficit. Again, that is a perfectly understandable argument, but one that undermines the concept of intergenerational fairness. In any case, under my amendment, half the proceeds are available to reduce the deficit. However, to suggest that all should be used for that purpose is akin to me saying to my children, “I was going to leave you a decent sum of money, but I’m afraid I’ve been living beyond my means and I’ve run up debts. I don’t wish to take difficult decisions to reduce my standard of living, so I’m afraid that if you want your inheritance, you’ll have to take all my debts with it—or, of course, I could use your inheritance to pay off my debts”. We need to face the consequences of our own actions and not slide them on to a future generation.

The third and last reason revolves around the most feared word in Treasury-speak—hypothecation, the sin that dare not speak its name. If one consults the Oxford English Dictionary, hypothecate is defined as:

“Pledge … by law to a specific purpose”.

I argue that the establishment of a sovereign wealth fund which has no specific purpose would require an unusually broad interpretation of the concept of hypothecation. Of course, in reality, this is all a smokescreen. The real reason for Treasury opposition is that it always opposes policies that in any way diminish its direct day-to-day control over every aspect of our national life.

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To conclude, this enabling amendment is designed to balance the long-term national interest against short-term political expediencies, to enable future generations to share in this potential windfall and to encourage Governments to follow the saving practices they so urgently suggest we individually adopt.

8.30 pm

Lord Forsyth of Drumlean: My noble friend has not answered my question on what he anticipates the revenue to be.

Lord Hodgson of Astley Abbotts: I think I answered it by saying that the reason given for opposing a fund at this stage is that nobody knows quite how much money is going to flow. No one can know. I pointed out that if you do not get something in principle in place now, once the revenue starts to flow, the chances of having a sovereign wealth fund are very low. If we do not get a peg in the board now, when revenue starts to flow there will be a million reasons as to why it should not be put in place at that stage.

I was most encouraged by the remarks of the Chancellor of the Exchequer over the weekend about the advantages that a sovereign wealth fund would bring. I hope that my noble friend will put some flesh on these bones when he winds up. The very last word must rest with Jens Stoltenberg, the then Prime Minister of Norway. In September 2013, at the John F Kennedy School of Government, he said:

“The problem in Europe with the deficits and the debt crisis is that many European countries have spent money they don’t have. The problem in Norway is that we don’t spend money we do have”.

He went on to say that to achieve this happy state of affairs needs actions to be taken that require “political courage”. It is that political courage that I am looking for from the Minister tonight. I beg to move.

Lord Jenkin of Roding: My Lords, I added my name to my noble friend’s amendment and I congratulate him on the way in which he moved it. I want to make two points. First, I was the Minister for Energy in the very early stages of our North Sea oil and gas. I was the Minister for only seven weeks when we lost the election at the end of February 1974. At that stage, no one had the remotest idea of setting up a sovereign fund. I do not remember the thought crossing my mind or my desk. As my noble friend Lord Forsyth has indicated, we did not have the slightest idea of how much it was going to be.

In a sense, I take issue with my noble friend Lord Hodgson for saying that it was a massive mistake. I find it difficult to accept that. There may have come a time when one should have seen that the prospects were going to be as bright as they have been and one might have done something to meet my noble friend’s wish. But to have expected that to happen in the very early stages when the oil and gas had scarcely begun to flow is a little unfair. At the time, when BP was investing in the Brent oilfield, which became the most important oilfield, its financial director said that he had established a law; namely, that, however much is spent in developing a North Sea oilfield, the amount

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still to be spent would be constant. It stands constant. It does not go down. That was the climate in which the oil industry was operating then. The Government, I think, gave it every opportunity to develop and we have enjoyed the success.

Secondly, I hesitated to put my name to my noble friend’s new clause because of the figures. My noble friend Lord Forsyth has already raised this. Nevertheless, I think the principle is sound, particularly what was said about intergenerational equity. Where you have the prospect of major wealth, is it right that it should all be spent on the present generation? It seems to me that there is a principle here that it is desirable to support. My noble friend referred at the end of his speech to what my right honourable friend the Chancellor said over the weekend about,

“making sure money is not squandered on day-to-day spending”.