Environmental Audit Committee
Oral evidence: Accelerating the transition from fossil fuels and securing energy supplies, HC 109
Wednesday 12 October 2022
Ordered by the House of Commons to be published on 12 October 2022.
Members present: Philip Dunne (Chair); Sir Christopher Chope; Barry Gardiner; Clive Lewis; Jerome Mayhew; Anna McMorrin; Claudia Webbe.
Questions 373 - 452
Witnesses
I: Rt Hon. Graham Stuart MP, Minister of State (Minister for Climate), Department for Business, Energy and Industrial Strategy; Vicky Dawe, Director, Energy Development and Resilience, Department for Business, Energy and Industrial Strategy; and Jonathan Mills, Director General for Energy Supply, Department for Business, Energy and Industrial Strategy.
Written evidence from witnesses:
Department for Business, Energy and Industrial Strategy
Witnesses: Rt Hon. Graham Stuart MP, Vicky Dawe and Jonathan Mills.
Q373 Chair: Good morning and welcome to the Environmental Audit Committee, where we have a session with Graham Stuart, the Minister for Climate Change, who is very welcome. I would like to invite you, Graham, to introduce your colleagues from the Department, please.
Graham Stuart: I am delighted to be joined by Vicky Dawe and Jonathan Mills. They will be able to supplement what I say as I have been in this role for just a little over a month now, Chair, and I think it is very important that we provide this Committee, which I know is filled with deep knowledge of the subject, with precise and full answers to its areas of inquisition.
Q374 Chair: Thank you. This is almost the culmination of our inquiry into accelerating the transition from fossil fuels and securing energy supplies. We are going to have one more oral evidence session next week. It would be helpful if Vicky Dawe could explain her role within the Department.
Vicky Dawe: Hello. I am Director of Energy Development and Resilience in the Department for Business, Energy and Industrial Strategy. That includes responsibility for emergency response, major energy infrastructure planning, oil and gas policy and shale, and I am also a shareholder member of the board of the North Sea Transition Authority.
Q375 Chair: Thank you. We have had evidence from the North Sea Transition Authority’s Chief Executive before, so that is very useful. Jonathan Mills?
Jonathan Mills: I am Director General for Energy Supply in the Department for Business, Energy and Industrial Strategy, and as that name suggests, in my role I have overview of the range of issues affecting energy supplies in the United Kingdom.
Q376 Chair: Minister, I appreciate you are new in post, but you are extremely experienced in matters to do with the climate. This is a subject of which you have a great deal of background to bring to the role, which is very welcome.
Could you kick us off by giving us a sense of the new Government’s approach to handling the energy crisis caused by Russia’s invasion of Ukraine, and what are the key planks of addressing that for UK households and businesses?
Graham Stuart: Thank you, Chair. I am very pleased to be here today, and I appreciate the importance of this inquiry. First, as the Prime Minister and the Secretary of State have repeatedly made clear, we are committed to delivering net zero by 2050. We have asked Chris Skidmore to deliver an independent review on how to achieve that in a pro-business and pro-growth manner. It is a major and complex challenge, as everyone here is deeply aware.
Decarbonising electricity will underpin the cost-effective decarbonisation of other sectors, such as heat in buildings, transport and indeed industry. There is good news here, in the way the price of renewable generation has dropped drastically. Back in 1991 renewables were just 2% of the UK’s electricity system and as late as 2010 they were only 6.5%, which is worth reflecting on. In 2020 under this Government, they were 43.1%, outstripping fossil fuels and reaching a new record, and that is something, I think, as a country, we can be proud of—certainly this Government are proud.
In particular our geography is especially well-suited to offshore wind, in which we are a world leader, with 12.7 gigawatts deployed to date. At the same time we are trying to do this long-term shift while managing the global energy crisis that the Chair has just referred to.
We acted fast to provide support to consumers and businesses over this winter and next, and I think it is the most significant, strategic and generous intervention anywhere in Europe. We do not want to be in this position ever again. Energy prices soared because of the interconnected nature of energy markets. We were not dependent on Russian hydrocarbons and these only ever formed a small part of our system—8% for oil, I think, and less than 4% for gas, which we have moved quickly to cut entirely. One hostile act of being able to create a global energy crisis is not a tenable situation.
The solution must be that we produce much more of our energy ourselves. We have set the ambition of being a net energy exporter by 2040. That means ramping up our ambition even further on renewables. It also means going big on nuclear, which is the most reliable low-carbon energy generator for when the wind is not blowing and the sun is not shining. Of course, because of our interconnectedness with our European neighbours, our moving in this direction and to that position will reinforce European energy security and support of our neighbouring democratic nations.
It further means increasing domestic oil and gas production, as hydrocarbons will continue to be needed throughout the transition. It is important to make that point, and I am sure we will return to it today.
The simple fact is that where we need oil and gas produced domestically, I would hope all members of this Committee are able to support that. We do need oil and gas; 75% of our energy today comes from fossil fuels. Producing it domestically creates only half the emissions around the production and transport of importing liquid natural gas from around the world. It is somewhat ironic to hear people outraged at the possibility that we might produce more oil and gas here, when it has much lower emissions around its production and utilisation than foreign imports, about which we do not seem to hear much in the way of complaint, even though in terms of jobs and in terms of the economy as well as the environment, clearly domestic production is good and we should all get behind that.
That covers the supply side, but of course managing demand is crucial to security, affordability and net zero. Some 46% of homes in England have now reached EPC band C and that is up from just 14% in 2010. Again, we are proud of what this Government have done in that space. We are investing at least £6.6 billion across the span of this Parliament in decarbonising heat in buildings and helping tens of thousands of households to save £400 to £700 on average from their bills. We are also enhancing advice and information services for consumers, helping households to reduce their energy use, and trying to make sure we do it through the right voices. Government is not always the right voice in which to provide that advice, and we always look to find the right voices who will be most effective.
I understand you have been looking in detail at the oil and gas industry and the North Sea Transition Deal, and as you said you spoke to the Chief Executive of the NSTA. I am sure you will have questions for me on our recent set of energy announcements, too. Thank you.
Q377 Chair: Thank you for that very comprehensive tour de raison of your portfolio and what the Government are doing. I am going to drill into many of those points in detail through this session.
You mentioned the Skidmore review. Chris Skidmore is a member of this Committee. He is not attending this session because he has been appointed to undertake the review for you. Can you clarify that the objective of the review is that you see it as a positive step to understand if we are going to achieve the pathway to net zero which the Prime Minister has committed to? There has been speculation from external sources that there may be some other, more sinister objective behind the review. Can you put the Committee’s mind at rest on that?
Graham Stuart: As he is a member of this Committee, you will know Chris Skidmore as well as anyone. I think I am not speaking out of turn to say that one of his proudest political achievements was that he was the Minister who signed net zero into law. He is committed to it. His are the safest possible hands while looking to maintain the coalition—we are quite unusual in this country by having maintained from right to left—behind this agenda by showing that it is pro-growth, pro-business and good for jobs and prosperity. We are looking to make sure that our path to net zero not just is the right thing to do environmentally, but enhances opportunity, not least in left behind areas. That is very much what he is going to look at. He will report by the end of the year, and we would expect the Government response by, I think, the end of March.
While there will be certain things that might wait for the Skidmore review before they come forward, I have been asked by the Prime Minister to accelerate what we are doing—offshore wind, onshore, solar, nuclear, AMRs, SMRs and so on.
Q378 Chair: That is good to hear. On one of the things that you just mentioned—nuclear and renewables—the Government are today I believe introducing to the House the Energy Prices Bill, which will impose much higher duties on nuclear and old renewable providers before contracts for difference come in. Can you explain what the rationale is behind that and how much that is expected to raise?
Graham Stuart: I am happy to. No firms should be unduly profiting from Russia’s invasion of Ukraine, which has driven global energy prices to unprecedented levels at the expense of UK consumers. We are bringing in a Bill that sets a temporary cost-plus revenue limit for certain low carbon generators, limiting the revenue they can achieve in the wholesale electricity market. This will be a short-term intervention to reduce the immediate impact of the unprecedented wholesale prices on consumers and the taxpayer. This will help to address the link between high global gas prices and the cost of low carbon electricity, allowing consumers to benefit from the green dividend of low-priced, clean energy. We are very similar to EU markets in this respect as well, wrestling how we break that linkage between the gas price and electricity prices in a way that is fair to producers, does not undermine our investment environment, which is so important given the tens, if not hundreds, of billions that we are looking to have invested here, and yet also recognises that this is off the scale of any prior projections by any of these companies of an expectation of revenues.
The scheme will help to pay for the cost of other schemes to reduce customers’ energy costs, and we are also legislating for powers that allow us to consider running a voluntary contracts for difference process for existing generators not currently covered by CfD to take place in 2023. This voluntary contract would grant existing generators longer term revenue certainty and safeguard consumers from future price rises, as CfD, which has been a triumphant piece of policy—under this Government, I am delighted to say, although it currently does not get a lot of press—has seen tens of millions of pounds paid by those on the CfD contracts back into the pot to reduce billpayers’ costs right now. That is why it has been mimicked all over the world. We are seen as a model of how best to lower the costs of capital into renewables and have a fair offer for investors that makes it investable while protecting consumers. I think we can be proud of that.
When implemented with the temporary cost-plus revenue limit, both options will limit the revenue the generator currently receives from the wholesale electricity market spot price, with the aim of protecting consumers from paying excessively high prices for low carbon generation and limiting the impact on the taxpayer.
Q379 Chair: How much will it raise?
Graham Stuart: It will ensure that consumers pay a fair price. In terms of the exact amount that it would raise, I do not have that immediately to hand.
Jonathan Mills: The legislation that is being provided today will set out the powers for the scheme to be put in place, but the details of how it will operate will be consulted on. Once those details have been finalised and the numbers set, it will be possible to assess the impact in terms of pounds. The legislation today will provide the powers, and the details will be consulted on, and those parameters will determine the impact on bills.
Q380 Chair: Would it be fair to characterise this as a windfall tax on renewables?
Jonathan Mills: No.
Q381 Chair: You said no, so how would you characterise it?
Jonathan Mills: This is designed to address an issue in how the market functions. As the Minister has said, the price of electricity in the wholesale market is set by the highest priced generation, which is gas. That is distortive because it leads to much higher prices being paid for low-cost, fixed-cost generation such as renewables and nuclear, so it is designed to address that price fact in the market rather than addressing issues of profits, which are what tax measures are generally targeted at.
Q382 Chair: We will move on. Others might want to come back to that. Are you expecting the Energy Security Bill of the previous Administration to be reviewed and is it going to return to the Commons in its existing form?
Graham Stuart: We introduced the Bill into the House of Lords, as members of the Committee will know. Scrutiny and the Lords Committee were suspended following the death of Her Majesty the Queen. We remain committed to the important measures in the Energy Security Bill to deliver change in the energy system over the long term. I do not know if you would like me to lay out the measures in it, but we think they are important and, given my brief to accelerate on these fronts, the enabling measures within the Bill are important.
Q383 Chair: The concern was that there was going to be widespread changes from what was discussed in the Lords before it comes to the Commons. Are you telling us that—
Graham Stuart: The new ministerial team is reviewing the Bill. We have had to move to bring forward this emergency legislation we have just discussed, so we are reviewing that. When I have more definitive points to share with the Committee, I will seek to do so.
Q384 Chair: We take it from that that at the moment you are not expecting to make wholesale changes to the existing Bill?
Graham Stuart: I can tell you that I think that many of the 26 measures in the Bill are fundamental to delivering what we need to do.
Q385 Chair: So we will look to see.
Ms Dawe, on the subject of shale gas I think you said in your introduction you are responsible for that within the Department. The evidence we had from the British Geological Survey was that they had done no more work on establishing reserves or the potential for reserves since 2013. Do you have any more recent data on the quantity of shale gas that could be technically or economically extracted?
Vicky Dawe: It is uncertain how much reserve is under the UK. It could be a small amount, or it could be incredibly significant, vastly outweighing our demands for gas, but the British Geological Survey has not done any research recently. There was an estimate in 2019 at 198 trillion cubic feet, and the 2013 estimate by BGS was from between 822 trillion cubic feet and 2,281 trillion cubic feet of gas. Reports vary significantly and I think what we need to do to understand further how much resource is available is to do more exploration.
Q386 Chair: You say the reports are variable. Have you had reports from Cuadrilla on what they found from their three exploratory wells?
Vicky Dawe: Cuadrilla made some progress in their early exploration. Oil and gas exploration across the whole industry, not just in shale but in the North Sea as well, is a difficult and challenging prospect. You can explore and find something, or you can explore and find nothing. I think Cuadrilla were optimistic about what they would find, but they ceased development at a point where they were unable, I believe, to determine exactly what resources were available.
Q387 Chair: Have they shown you the results from their drills?
Vicky Dawe: I have not seen the results from their drills.
Q388 Chair: Has that information been shared with the Department?
Vicky Dawe: I believe it may have been at the time that Cuadrilla was exploring, but I do not have that to hand. I can return on that point.
Chair: It would be very helpful if you could let the Committee know if it has been published or not, because if so, I think it is something that we would like to include in our report.
On the subject of fracking, I think Sir Chris Chope has some more questions.
Q389 Sir Christopher Chope: Before I come to them, can I ask the Minister about this semantic debate about whether today’s announcement is in relation to a new windfall tax? It strikes me that under the CfD system there is an equalisation system and we do not describe the burdens under that being placed upon producers as being a tax, because the money comes back into the system to help others get the cross-subsidy. The BBC today seem to want to try to suggest that this is a great U-turn by the Government, and we are now engaged in a windfall tax. Can the Minister confirm that this is not by any means a windfall tax, because the tax is not going to go to the Exchequer in the same way that it would otherwise do, for example, under the oil and gas tax?
Graham Stuart: A tax is something you do after the event and impose on the profits that have been generated. Limiting the revenue that somebody can extract from the market in the first place is structurally different and therefore—I am not an expert on the language of taxation—it seems from first principle, it is not a tax as such.
Jonathan Mills: To expand on that, as the Minister said, we have put in place over the last decade the system of contracts for difference, which aim to provide stable revenues for low carbon generation. That effectively breaks the link between the gas price and the revenues that those generators receive, but for projects that were initiated before that system came into place the stabilisation is not there. The mechanism that the Government are seeking to legislate for, through the legislation that is being introduced today, tries to extend that market reform to the older generation. We would characterise it as a market reform measure to change the way that prices are being set, which is distinct from a tax on profits.
Graham Stuart: It is breaking the link, as I touched on before. It simply seeks to break the link between the marginal cost of gas and then the cost of electricity provided by generators for which cost base and everything else is not remotely linked to the price of gas. That is why it is not a windfall tax.
Q390 Sir Christopher Chope: Turning back to the issue of fracking, and what Vicky was saying, the answer seems to be we do not know how long it will take to extract a significant amount of shale gas, although at one stage I think the current Chancellor of the Exchequer was suggesting that it might be 10 years before we received any real dividend. When do we think we could get the first real benefits from this relaxation of the rules in relation to shale gas?
Vicky Dawe: There are developers who stand ready and who are working to extract gas as soon as possible, and they are aiming to do that very quickly, but we will not know how much we will get out until the industry starts to move a little bit further forward in its extraction processes.
Q391 Sir Christopher Chope: It has been suggested that the Government are reviewing the support available for shale projects. Will the Government be offering financial support to communities to accept any disruption that there might be, including the threat of earth tremors?
Graham Stuart: We are looking into various models and recognise that where there is disruption to a community, that community finds a mechanism by which it should benefit while also ensuring that extraction only goes ahead where there is local support.
Q392 Sir Christopher Chope: Would it be unreasonable to say that the previous ban on fracking was a mistake?
Graham Stuart: The position we are in, and the British Geological Survey reinforces that, is that we do not know about the economic viability of our shale resources. As we have heard from the differing reports we do not know fully the scale, but given the position we are in now, and given the massive impact on families and businesses up and down this country, not to examine and gather the data on economic viability, on the seismic and other potential issues, as well as on how best to run things on the surface to minimise disruption and how we can provide community support for those who do suffer a level of disruption, would be irresponsible, not least because, as I touched on in my opening remarks, the liquid natural gas that we are bringing in now with so little fuss has twice the production emissions of domestically produced gas.
It is good for jobs and it is good for the economy. I have seen the headlines from my press appearances on Friday saying, “Climate Minister says exploring for oil and gas is good for the environment”, and even though that sounds counterintuitive, it is. We are a net importer. We will continue to be a net importer. This is the most important thing in this space. People point out the IEA saying we cannot be producing more oil and gas. With our basin in the North Sea, and whatever the success of any shale here, our production is declining. Our production is declining overall faster than the IEA says is required of oil and gas production around the world. Therefore, it is entirely compatible with that, and producing it at home involves lower emissions, is good for the economy, is good for jobs, stops us paying vast sums to sometimes dubious regimes, and helps remove us from a security point of view from the vicissitudes of the global energy system.
Q393 Sir Christopher Chope: I read somewhere that shale gas has a lower carbon content than gas from the North Sea. Is this correct?
Vicky Dawe: I am not sure whether I have read that, but it is more complex to extract oil and gas from the North Sea. When you are working offshore, it is significantly more difficult and complex from a technical point of view to extract it and therefore if you are working on the land, you face very different and much simpler technical challenges for extraction.
Q394 Sir Christopher Chope: Some people have speculated in the press that there is going to be a cross-party coalition against this. Is any more legislation needed for this policy to be implemented?
Graham Stuart: As I say, we are examining various aspects of this, and we are not clear if any legislation would be required. By which I mean I do not know. I should not say “we”. That is not a question I have so far come across.
Q395 Chair: Can I clarify one thing on the subject of locally produced gas as opposed to imported energy? I think 50% of the gas consumed in the UK comes from Norway. Do you regard that as an import or as local?
Graham Stuart: That is not correct, Chair. Some 45% of our gas is domestic, and if we take last year—it did vary quite a bit between 2020 and 2021—I think from memory 38% of our gas imports were from Norway. If you add that together, that is why—
Q396 Chair: To be clear, Norwegian imports are lower in emissions?
Graham Stuart: They are. The Langeled pipeline comes into my constituency. Norway is a world leader. If you look at the emissions around production around the world, you will find we are one of the best. The Norwegians are probably slightly ahead of us and that is partly to do with the structure of their system and the linking to hydro and electrification, but you will also be aware, Chair, that I think uniquely in the North Sea the producers have agreed to reduce on 2018 levels emissions around production, so things such as flaring and various other processes, by 50% by 2030 and significant progress has already been made. This further reinforces the case that if you are going to be burning oil and gas, and if your usage is falling but so is your production, the more you produce here the greener it is for the economy. It will be great to have learned members of this Committee going out and saying that. I can see the party political benefits of saying the opposite, but everyone on this Committee should know that is true. I would love to be questioned more by any Members who go out in public and suggest it is not, because I would like to understand how anyone can suggest that not producing more here, with a production fall that is faster than is required by the IEA, is anything other than an environmental good, as well as for the economy and jobs.
Chair: Thank you, Minister. We are going to have another question from Anna McMorrin on this briefly before we move on.
Q397 Anna McMorrin: It would be remiss of me not to point out that in Wales we continue with the ban on fracking, fortunately, as this is a devolved matter to Wales, and indeed the Conservatives in Wales wholly support that ban. I see that former Energy Minister, Greg Hands, said in March: “We are clear that shale gas is not the solution to near-term issues. It would take years of exploration and development before commercial quantities of shale gas could be produced”, whereas Liz Truss said you would be producing it within six months. This seems like a strategic ploy to distract and a bit of a PR effort from yourselves to play to the people who have been pushing this. Much, perhaps, like sending refugees off to Rwanda, this is never going to happen. Could you comment on that, Minister?
Graham Stuart: Well, I have laid out the case for it, given the pressures on us, if it can be done with local support, and if it can be done with lower emissions than imports. We have among us the most rigorous environmental regulations and effective regulators in the world. If their stringent requirements can be fulfilled and it is economically viable, on what rational basis would you not want to do more exploratory wells and find out the data, because the British Geological Survey said that we do not have it? In terms of playing PR games or being ideological, there are those who have scaremongered about the fact that somehow there is going to be some desperate imposition on local communities—
Q398 Anna McMorrin: We quite clearly see, Minister, that the facts are there that you are not going to be able to get this exploration up and running, and that many on your own side are ideologically opposed to this. You will not be able to extract within six months and it goes against your very own climate commitments, and your manifesto commitments.
Graham Stuart: It is not for me to throw questions back, Chair, and I know you step in to stop me, but the hon. Member suggests that it goes against our— I have just laid out in as clear a language as I am certainly capable of why it absolutely does not do so, and if the hon. Lady can inform me and the Committee, I would certainly be happy to indulge her—
Q399 Chair: We are not going to have a debate—
Graham Stuart: —in telling us in what it does not, because it clearly does.
Q400 Chair: Minister, can I conclude on fracking by asking you one further question about local consent, which follows up from what Anna was asking? Could you elaborate on what mechanism you expect the Government to encourage to secure local consent for such exploratory wells to take place?
Graham Stuart: We will look to the industry to work closely with local communities and will be considering the support seen for local projects, including when considering future proposals, as well as what kind of community benefits can be put in place. The Prime Minister has been clear that development will only go ahead where there is local support. We are working on precisely how best that should be put in place, and we will again ensure that this Committee are among the first to know when we have anything more concrete to show.
Q401 Chair: This may or may not be local authorities?
Graham Stuart: As I say, we are looking at various options and no options are off the table, while absolutely fulfilling the Prime Minister’s commitment that nothing will go ahead without community support.
Q402 Barry Gardiner: I was very pleased that the Chair pointed out that 38% of the imported gas is producing lower production emissions and corrected you on that point, but I agree with you that 17% may still be coming from what I think you characterised as “dodgy regimes”. I think that was the phrase you used. While we are on the subject of that, you also said, and this was in response to the Chair in the first question that he asked, that we should not be held hostage to one hostile actor, which of course is absolutely correct. But it is not just one hostile actor, is it? Saudi Arabia has refused to increase supply, despite the protestations of this Government, and it would be right to characterise this as a project by OPEC in the way in which they have constrained all supply to boost their profits, certainly taking advantage of Russia’s illegal invasion of Ukraine. Would you agree with that?
Graham Stuart: I think I did add that we should not be held hostage to one hostile actor, and we seek to remove ourselves from the vicissitudes of the global energy market. There were price pressures before the invasion of Ukraine—
Q403 Barry Gardiner: Indeed there were, arising out of Covid.
Mr Mills, you were keen to recharacterise what the Chair had called a windfall tax on renewables as a retrospective contract for difference. You said we have done contracts for difference and what we are doing is changing the regime here in relation to renewables, and you rightly pointed out that it was the marginal price of gas in the wholesale market that would set the price of electricity. Of course, the reason you have to do this, is it not, is that the marginal price of wholesale gas for electricity has increased exponentially as a result of the crisis that we have just talked about, and therefore the cost of gas—the price that we are paying for gas—is feeding into the profits of those oil and gas producers? Is that correct?
Jonathan Mills: I think the Chair asked me if it was a windfall tax. To be clear, I did not describe it as retrospective.
Q404 Barry Gardiner: No, you said it was an adjustment in the formulation of the market, but you characterised it by saying, “We have always done contracts for difference previously in other areas. We did this subsequently. This was before that and now what we are doing is trying to introduce that now in this area.” In effect, what you said was it was a retrospective contracts for difference-style mechanism.
Jonathan Mills: I described it as a market reform rather than a tax, and I set out that it was intended to address a distortive effect in the market on prices rather than addressing profits in the way that typically people characterise windfall taxes as doing, therefore it is different.
Q405 Barry Gardiner: If it walks like a duck and it quacks like a duck, it is a duck. Let us just cut through it.
Graham Stuart: If it is not a tax and if it is not invested on profits, it is not a tax.
Q406 Barry Gardiner: I am very happy to ask you a lot of questions, Mr Stuart, but at the moment I am asking Mr Mills.
Graham Stuart: It is never quickly in my experience of you, Mr Gardiner.
Chair: Can we just keep this civil? Barry, we need to move on to cover the topics that you were going to cover as well.
Q407 Barry Gardiner: Indeed. No, I am very happy to do that, but I just wanted to get clarity from Mr Mills on the point that the reason this is happening is because of the excess profits that oil and gas producers are making from that wholesale price of gas and as a result of that pushing up the electricity price, which benefits the renewables suppliers as well when they are supplying renewable electricity on to the grid.
Jonathan Mills: No, that is not what I said.
Q408 Barry Gardiner: I said, “Is it true?” I asked you the question if it was true, not whether it was what you said.
Jonathan Mills: As I made clear, this is targeting prices. It is targeting the way prices are set in the market. It is not targeting profits. Those are different concepts.
Q409 Barry Gardiner: I did not say it was targeting profits. I agree with you it is targeting prices in the market, but the reason it must do so is because the price of wholesale gas has been inflated by the crisis that Mr Stuart and I talked about, and that is feeding profits into the oil and gas producers.
Jonathan Mills: I am slightly struggling to seize any of your arguments. I am not quite sure of the question you are asking me.
Q410 Barry Gardiner: Mr Stuart, onshore wind is one of the cheapest and quickest renewable technologies to deploy. We have had many submissions to the Committee on this and it looks as if the Government are now removing the planning block on onshore wind. You have said that in relation to fracking you would look to see whether communities could be incentivised in some way to take fracking pads. Are there incentives that you are considering for communities for accepting onshore wind?
Graham Stuart: Vicky can take that one.
Vicky Dawe: We are looking at how communities can be engaged and supported through the process of erection and operation of new developments for energy across the board. That includes onshore wind as well as shale, so we are looking at it as a whole.
Q411 Barry Gardiner: So if one can bribe a community to have a fracking pad, you could bribe it also to have an onshore wind turbine?
Vicky Dawe: The industry has always looked at working with communities to ensure that there is support for all developments, and industry will continue to work with local communities around new developments of energy infrastructure.
Graham Stuart: Would you, Mr Gardiner, want to characterise any community benefit as some sort of bribe? Is that not rather offensive? Do we not want to see more onshore wind, and should we not go with the grain of the communities? I know it was the Government of which he formed a part who were very much involved in imposing these on communities. I remember that as someone who represents a community that had them imposed on it, and I warned the developers that not engaging in a serious way with communities and seeking to win them over, but instead relying on a distant inspectorate to impose it, was not a way of reinforcing onshore wind for the long term. I very much want to see community benefits. I want to see communities treated with respect and I want to see onshore wind hopefully grow while fulfilling those qualities, and I would hope that despite his inner London seat, he would agree with me.
Chair: Can we press on, Barry?
Barry Gardiner: Absolutely, Chair. I did not elicit the comment from the Minister. I believe he was questioning me, but I thought—
Chair: Let us not get into a ding-dong.
Q412 Barry Gardiner: The British Energy Security Strategy for solar promised an acceleration of solar. The Prime Minister has said that she does not want farmers’ fields full of solar panels and I understand that there has been a request from the new Secretary of State for Environment, Food and Rural Affairs to change the definition of land so that the land that would be protected from having solar panels on it would also include what is characterised as land that is 3b status, which extends it down to 1, 2, 3a and 3b. Can you indicate what that would mean for the change in use, and how it would affect the solar industry?
Graham Stuart: Solar photovoltaics is a cheap, versatile and effective technology that can be deployed in a range of locations, as the Committee will know—on the ground and on rooftops. It is quick to deploy and having more solar in the system will help limit household electricity bills and ensure that Britain is less affected by fluctuations in the volatile global gas prices that we have discussed so much this morning. We will need sustained growth in both rooftop and ground-mounted capacity in the next decade as we move to net zero, and ground-mounted capacity, as I understand it, is now the cheapest form of electricity there is, below the cost of onshore wind.
The Government recognise there is also a need to preserve our most productive arable farmland and it is important that the Government can strike the right balance between these considerations while securing a clean, green energy system for the future. That is why the planning system is designed to take account of these issues.
We encourage largescale projects to locate on previously developed or lower value land. Where greenfield sites are used, developers are required to justify using such land and design their projects to avoid, mitigate and where necessary compensate for any impacts. The weight given to these issues will depend on the project application. Factors such as whether the project proposal allows for continued agricultural use where applicable and/or encourages biodiversity improvements around the proposed solar arrays may be taken into account by decisionmakers.
My Department, as you have referred to, Mr Gardiner, is working closely with the Department for Environment, Food and Rural Affairs, as well as the Department for Levelling Up, Housing and Communities, which leads between them on planning on this issue. Although we are a closely involved party, it is of course those Departments that lead around the specific planning issues that you have just referred to.
Q413 Barry Gardiner: We are absolutely agreed that we want to have more ground solar. Are you aware that Carbon Brief fact-checked the arguments that were put forward and stated that ground-mounted solar panels that currently cover just 0.1% of land, even with the scaling up in line with the net zero target, would bring that only to 0.3% and that would be 0.5% of all land currently used for farming? Therefore, it seems strange that you are trying to diminish the amount of land that could be used, particularly when it is called middle and low-quality land, by including 3b in the prescribed areas.
Graham Stuart: That sounded more like a statement than a question, but I will take it that it has a question mark at the end.
The Growth Plan 2022 sets out Government’s plans to review frameworks for regulation, innovation and investment that impact farmers and land managers in England, and to ensure that Government and industry are working together to strengthen UK food security and maximise the long-term productivity, resilience, competitiveness and the environmental stewardship of the British countryside. We are going to work closely with DEFRA, and the British Energy Security Strategy set out in expectation for a fivefold increase in solar. We need significant growth in both ground-mount and rooftop solar to meet this ambition. As and when decisions are taken, we will again, of course, Chair, ensure that this Committee is one of the first to know.
Q414 Barry Gardiner: That sounded more like a statement than an answer.
With the Future Homes Standard, what discussions are you having as Ministers in BEIS with your counterparts in the Department for Levelling up, Housing and Communities about energy security issues? The cheapest energy is the energy we do not use and looking at the Future Homes Standard would be one way of ensuring that we do not need the same amount of energy, or fossil fuels certainly, if we are to do that. Are you having those discussions with your colleagues?
Graham Stuart: As you would imagine, we are in constant discussion with our colleagues across government. Moving to net zero, reducing energy costs and delivering energy efficiency are cross-government matters and we do work closely on this and other issues to deliver improvements.
Q415 Barry Gardiner: The Committee on Climate Change recommended that you had 900,000 as the yearly target for the installation of heat pumps. Your target is 600,000 a year, and yet by 2019 there was only a total of 250,000 installed. Can you tell the Committee what the yearly number to date is—the current 12 months we are in? How many have been installed in these 12 months and how do you propose to meet your target of 600,000 installations and the Committee on Climate Change’s 900,000 recommendation?
Graham Stuart: Mr Gardiner, you are quite right about the target of 600,000 and the importance of heat pumps. I think they use about a third of the energy that a gas boiler would use. I do not know whether either of my officials have up to date in-year—
Q416 Barry Gardiner: Perhaps you could write to the Committee with the current figures. That would help us enormously.
Graham Stuart: Assuming we have those, I will make sure that we do exactly that.
Chair: If we could have the latest figure, that would be very helpful. Thank you, Barry.
Q417 Jerome Mayhew: The Government’s British Energy Security Strategy, and very much what you have told us today, Minister, has focused on energy supply rather than the reduction in energy demand. First, do you think that is a fair criticism? If you are looking at policy as a whole, the Government certainly in recent months has been focusing very much on supply side reforms, rather than on the reduction of demand. If that is not a fair criticism, perhaps you could explain why.
Graham Stuart: It is a very fair point, Mr Mayhew, to say that the British Energy Security Strategy is primarily focused on new actions to secure a cleaner supply of sources of energy at home, but it also sets out how we have gone further than any previous Government on energy efficiency. We have committed an additional £3.9 billion of new funding for decarbonising heat in buildings, bringing existing Government spending to a total of £6.6 billion across the lifetime of this Parliament. This will fund the next three years of the Social Housing Decarbonisation Fund and the home upgrade grant scheme. Of course, the Energy Company Obligation, the ECO, has been extended from 2022 to 2026 and its value has been boosted from £640 million to £1 billion a year. This will help an extra 450,000 families with green measures, such as insulation, with average energy bill savings of around £300 a year, which in the current circumstances is more acute than ever and important.
Scaling up consumer advice and information services to help households to understand how to reduce their energy demand is also an important thing that we are doing, and we will enhance our independent, government-endorsed energy saving advice offer involving national, digital and telephone support alongside local advice demonstrator projects focused on key groups. As I think I said in my opening remarks, we are trying to find the best voices that are most likely to cut through with the public to help them understand how to reduce their costs, help with the cost of living and help with our net zero challenge.
Q418 Jerome Mayhew: One of the biggest incentives for a change of behaviour is, of course, price signals, and I hesitate to even begin to call this a silver lining to the current position, but the price signal incentive has become much more acute to encourage homeowners to retrofit their property. One of the challenges that people are facing is taking the next step from identifying this as a need to having access to sufficient people in the market to undertake the work. Do you recognise that there is a role for government to pump-prime the industry to get the sector to expand and to invest in increased capacity to start to solve the problem? We have the price signal and we have the latent demand in homeowners, but there seems to be a blockage in taking the next step, expanding the industry and making this an easier thing to do.
Graham Stuart: I am sympathetic to that, and I am co-chair of the Green Jobs Taskforce or group, although I have not yet sat on it. I need to get the nomenclature on that right, but we are very much looking at that. One of the triumphs economically of this Government, of course, is that we have such record levels of employment and low levels of unemployment. That is a fantastic social good and reinforced with the reduction of course announced in the mini budget of £430 in every working person’s tax. But we need to do more to understand and plan for the enormous industry that is involved in the green transition, which involves energy efficiency, insulation installation, and making sure that engineers who have routinely been used to fitting gas boilers are trained to be able to do the heat pumps that Mr Gardiner referred to earlier.
There is a lot to do in that space, but I think we can be proud of what we have done. The £6.6 billion in this Parliament is important. Going from the low numbers left by the previous Labour Government to there now being 46% of homes with an energy performance of C or above is significant, but it is not enough. We need to go further, and I find across the brief of energy and climate net zero, the skills piece is important, because you can have the best strategies in the world and you can have huge funding, private and public, but if you do not have the people to deliver it you have a problem.
Q419 Jerome Mayhew: Yes, and we saw that in the aborted Green New Deal. Interestingly you mentioned the ECO scheme and rightly recognise the Government’s increased funding for it, but I am interested in the relative performance of that scheme in delivering home improvements and increased energy efficiency. From my reading of it, in terms of number of houses improved, it peaked back in 2012 and since then there has been quite a significant decline in the number of houses being improved under that scheme, even though more money has been placed at its disposal. Do you or perhaps your officials have any insight as to why the numbers have declined? If you do, how is it going to be turned around?
Graham Stuart: I will let the officials come in, in a moment. Just to say going back to your previous point, Mr Mayhew, around having the people, one of the reasons I think ECO has been successful, notwithstanding your question, is that they have the capacity. They are major organisations with capability and therefore harnessing them has been an important part and keeping up continuity.
Going forward I am interested in how we get local areas to have a long-term apprenticeship scheme. They need to see the pipeline of work going ahead and young people need to see that there is going to be a career in entering into this stuff. I do not know who is best to respond to the specifics about that, the peak earlier last decade and then the recent rises.
Vicky Dawe: ECO has changed over time. It has targeted different groups. It has been a policy designed to target different policy objectives, so it has changed over time. At least half of the new obligation that was recently announced in the Growth Plan focuses on low-income homes—that means those on means-tested benefits or referred by a local authority or energy supplier, or those in fuel poverty. The rest is targeting those in lower council tax bands with an EPC of D or below. There is an intention to consult on the detail of the new obligation this winter, so that will be an opportunity to shape the new ECO obligation.
Q420 Jerome Mayhew: I know there have been a number of things that the Minister has already highlighted and actions that the Government are taking, but taken together, I have a concern that the level of ambition to deal with the demand side is just not going to be sufficient to deliver the significant change in energy usage, that I think we all agree is the direction of travel we need to go down. I would be interested in your views, Minister, if you could explain why it is that you think the level of intervention that has been announced today is going to accelerate the adoption?
Graham Stuart: I have shared the numbers, and it is lifting the figure from £640 million to £1 billion a year and extending it. I think one of the most important things is to have a certain level of consistency. I have not since I came to this role studied the past record of initiatives in this area, but from my faraway Back-Bench view of it over the years it did not look like a particularly brilliant area of policy as various schemes came and went with varying levels of success.
I take this as an underlying point that you are making, which I agree with, and that we need to take this very seriously. We need to create long-term confidence to get people to come into the industry, to get people to invest, the supply chain to improve, prices to come down and efficacy to be improved. Again, I have not seen the latest economic analysis, but every instinct and every past data I have seen suggests it is about the cheapest and best way of moving to net zero, as well if we can be more efficient while keeping the lights on and people leading fulfilling lives and all the rest of it.
I share that. My colleague, Lord Callanan, leads within the Department. Obviously we all work together but he leads in the Department on the energy efficiency piece and I know he is passionate about it. We will continue to work at it and I hope to see a more coherent, long term pipeline and the Government creating the frameworks and where necessary the financial support as well to make it affordable.
We have things such as making insulation and heat pumps VAT-exempt for a period of three years, which is helping trigger this. There are quite a number of initiatives but fewer sustained initiatives with you as a Committee able to keep a close eye on the delivery on the ground I think is something that I would like to see for the future.
Chair: To clarify, I think the ECO scheme funding of £1 billion is over three years. Is it coming in in April of next year?
Vicky Dawe: It is not my specific area of expertise, but I understand it has been extended from 2022 to 2026, boosting the value from £640 million to £1 billion a year.
Q421 Chair: A year—£1 billion a year?
Graham Stuart: Chair, if you are right, and I would never bet against you, I will of course immediately write to the Committee following this session to correct the record.
Q422 Clive Lewis: We have 38 new oil licences and gas projects in the pipeline and now your Government is allowing for a further 100 licences to be awarded. Do you think that will help us get through to net zero by 2050?
Graham Stuart: Yes.
Q423 Clive Lewis: Do you want to elaborate?
Graham Stuart: I think I already did. Why would it help us get to 2050? Because production even in a best scenario will still fall. You are commissioning all these new licences, these new blocks, Minister. You are going to be spilling oil and gas into the world, undermining net zero. That would be how every interview—I haven’t done that many yet but that’s how they start—well, no, because we are an importer, net, and we will continue to be all the way to 2050 when we will still be burning oil and gas, hopefully mitigating it, but as part of net zero, that is part of the plan. Our production is predicted to fall because the North Sea is such a mature basin, faster than the IEA says needs to happen globally, and we will be a net importer all the way to 2050. Given that in the North Sea basin, for instance, the industry has committed in a unique fashion to reduce emissions around that production by 50%, it also shows why support for the oil and gas industry in this country makes sense because it has committed to that voluntarily in a unique fashion. They have developed new technologies to minimise flaring and now you are seeing companies, like BP and Shell, exporting that to other parts of the world, helping to reduce the emissions around flare production and it is more profitable. If you can find the technology that cost-effectively stops you flaring gas and instead you can capture it and sell it, it is more efficient, it is good for emissions and it is us playing the leading role we should in the transition.
There is always the danger that people try to suggest that, “You should switch over to renewables tomorrow morning and if you don’t you do not care about the environment, you are not committed to net zero”. It is a transition. It would be a nonsense. That is one of the problems—as I am sure the honourable member knows, as a member of this Committee and therefore very knowledgeable—with the Labour Party’s pledge of total decarbonisation by 2030. Putting the lights out, putting businesses out and putting people into poverty would be the only result that would come from that.
Q424 Clive Lewis: Well, we will see whether the lights go out under your Government this winter, I guess, ultimately. Let’s not be too hasty on that.
I Want to come back to the International Energy Agency, IEA, that you have quoted. I have its chief executive here, one of the authors of the report, who said that, “The trajectory of oil demand in the NZE means that no exploration for new resources is required and, other than fields already approved for development, no new oil fields are necessary”. It is not just him. You have research by the UCL Energy Institute, “The development of new UK oil and gas fields are not compatible with limiting warming in line with the Paris agreement”. You have the Tyndall Centre for Climate Change Research, which has said that the output of oil and gas needs to be cut by 74% by 2030 with a complete phase out by 2034 for a 50% chance of not exceeding 1.5 degrees of global warming; a 50% chance.
Therefore, I hear what you are saying but it seems, from my perspective—and I imagine the public’s perspective—that you are talking about 100 new licences, more exploration, more oil coming out of the ground. It sounds like you are peeing on our heads and telling us it is raining, frankly.
Graham Stuart: Well, it is a mature basin and production is falling, as is our usage and—
Clive Lewis: Is it falling fast enough?
Graham Stuart: That production is falling faster than the IEA says needs to happen globally. You have given me these assertions from these various bodies.
Clive Lewis: Scientific research people call it.
Graham Stuart: I am giving you the underlying analysis. We are one of the lowest and, as we reduce emissions by 50% around production in the North Sea, we can hopefully improve our ranking even better from where we are now. How is it greener? I mean, if the professors were here as well as yourself, I would want to ask them. I do not understand. Our production is not going to spill over into the global market. Our production is going to fall faster than is required globally and, under net zero and the Climate Change Committee’s and BEIS trajectories, we are going to continue to need oil and gas.
In what way is producing greener domestic gas—which is good for jobs and the 100,000-plus jobs in the industry, many of which are in the north-east of Scotland—better for the environment? How is it contradictory to net zero for us to produce on that descending scale some of the greenest oil and gas production in the world with economic benefits for this country at the same time? I do not know what—
Q425 Clive Lewis: There are so many things to unpack there. Let’s look at Ireland. Let’s look at Denmark. Let’s look at France. They have all said no new exploration. They are oil producers and they have all said no new exploration because they understand what net zero implies, what the science is being very clear about, and it sounds to me here on this Committee that the Government are flying in the face of what the science is saying, flying in the face of where the vast majority of the world is heading before the ink is dry on the COP26 agreement, which we were chairing.
I understand what the Minister is saying. I understand you have a brief and you have to come here and you have to tell us that. However, for the vast majority of the experts, the scientists and the rest of the international community, this Government are going in the wrong direction. I know the answer you are going to give me but, nonetheless, I have to ask.
Graham Stuart: I have laid out the dynamics. With respect, Mr Lewis, you have not laid out yours. You have just collected various people and just said, “I understand”, as an Opposition politician who wants to make out we are not doing it. We are the global leader. We have led the negotiations. When Alok Sharma took over the presidency and the UK took over the presidency of the COP, just 30% of global GDP was covered by net zero pledges—30%. It is now 90%. The UK has done that, creating those demand signals around the world.
Look at the IEA predictions of what has to happen to be compatible with net zero, and they talk about the reductions that are required in oil and gas production. We are reducing our production faster than that and we are a net importer all the way, so we are absolutely not a net exporter into the global market of oil and gas, so we are not creating stranded assets.
I do not understand the point the hon. Gentleman is making, apart from the point that he, along with the more extreme, loves to paint us as the villains even when by every measure—
Clive Lewis: I am not trying to paint you as the villains. I am trying to get a truthful answer from you about the science.
Graham Stuart: Well, you are suggesting I am not giving you a truthful answer.
Clive Lewis: Not all those I have quoted are scientists. It is science versus Trussonomics. I am personally going to back the science. You might call them just people that I have quoted, but they are scientists with scientific research behind them and they are telling your Government that you should not be doing this, and you are telling us, “No, it is fine. We can do it,” because of all this list of excuses and explanations that, frankly, do not stack up. Now, I am going to listen to the scientists and not your Prime Minister. I will just come on—
Chair: Final question.
Q426 Clive Lewis: I know other people want to come in.
Given the leadership role that this country took and that your Government, or the last Government, took on the COP Paris Agreement, there is a recognition of common but differentiated responsibilities. The UK clearly has a lead responsibility when it comes to the issue of showing global leadership on carbon reduction and oil exploration, so would the UK be willing to set a clear date for ending oil and gas extraction from the UK continental shelf. Could you do that?
Graham Stuart: As I say, we will be burning gas in 2050 as part of our net zero, so we are going to need gas and, for the reasons I have given, we have—bettered only by the Norwegians pretty much at the moment—the highest standards of production in the world and there are jobs and, by driving forward those high standards here, we see those higher standards exported around the world. We are a force for good.
Clive Lewis: You see it going beyond 2050 then? You think oil production will end in 2050, is that what you are saying?
Graham Stuart: No, I did not say that. I am saying that we will still be burning gas in 2050.
Clive Lewis: Can you give a date of when it ends?
Graham Stuart: It is the sort of thing that should come out after a vast amount of analysis. I am not aware that any such date has been proposed, either by the Climate Change Committee or indeed by the Government to date, but my officials will correct me if I am wrong.
Chair: Thank you, Clive. Claudia Webbe.
Q427 Claudia Webbe: Thank you, Chair. Minister, I just want to ask: why is the voluntary agreement with oil and gas industries so unambitious in terms of the reduction of upstream emissions? Why is it so unambitious?
Graham Stuart: It is not my job to throw questions back but is the hon. Lady aware of anywhere in the world that is more ambitious? Anywhere at all? Any basin? Any country? Because I do not think there is one. You may correct me. I do not know. If we have the most ambitious target voluntarily agreed with our industry in the world, to most fair-minded people that would sound like not a bad position to be in but she may be able to put me right.
Q428 Claudia Webbe: You know that the Climate Change Committee says that a 68% reduction in upstream emissions is actually feasible, and it is actually necessary to cut oil and gas emissions in line with the Paris Agreement. We have a commitment to the Paris Agreement. Will the Government, therefore, reconsider their targets?
Graham Stuart: We need to reduce emissions from production. As I say, ours is the leading and most ambitious target, I believe, in the world—I stand corrected if I have that wrong—but we need to be realistic as to what is achievable over what timescale. As we move to net zero, oil and gas will play a smaller role in meeting UK energy demand. However, it will continue to be needed for decades to come, and even post 2050 we expect natural gas, whose carbon emissions are abated through capture and storage to play a role in our energy system, going back to Mr Lewis’s question.
The North Sea transition deal will help us to significantly reduce emissions, putting the sector on the path towards ensuring a net zero basin by 2050 and supporting our goal of decarbonising the wider economy. However, I do agree with the hon. Lady and I do agree with the Climate Change Committee that having a stretch target, such as 68%, is helpful, and I think we should aspire to do everything we can to find a way to reduce emissions around our production.
Were we to achieve that, I look forward to some of the members of this Committee—who perhaps, for party political reasons or otherwise, always decry everything we are doing in that basin—celebrating the fact that it is sensible that we should have the highest standards in the world and that we should produce our own energy for the security of our constituents, whose interests should be our top priority.
Q429 Claudia Webbe: Minister, you keep saying that we have the highest standards in the world. That kind of approach does not lead us to be any more ambitious. You already said in this Committee meeting today that you understand that Norway is already lower in terms of operational emissions than the UK. Therefore, you have already answered your previous question. The UK is unambitious in its voluntary targets. These are voluntary targets. Why isn't there the political will to do more?
Graham Stuart: With respect, Chair, I think I have answered that and the Norwegians have made a similar pledge to us, I think, in terms of seeking to reduce their emissions but they are finding that quite challenging. We all need to work together to be as ambitious as possible, so I agree with the honourable lady that having the 68% as a stretch target but, as far as I am aware, the 50% is world leading and I think we can be pleased with that.
Vicky Dawe: The North Sea Transition Deal was the first of its kind, an agreement between Government and industry to reduce emissions. With regards to Norway, I believe 92% of their electricity is from hydrocarbons, so decarbonising their oil and gas industry is simpler because they can simply connect to an already significantly decarbonised grid.
Graham Stuart: Hydroelectric.
Vicky Dawe: Yes, sorry, hydroelectric. I apologise.
Graham Stuart: Their electricity, because it is the nature of their electricity, links in. Therefore, their emissions are automatically lower because that is where they get their electricity from.
Q430 Claudia Webbe: Norway also banned flaring in 1971.
Graham Stuart: As I say, the Norwegians are world leading but we are up there with them. We are seeking—and I agree with the hon. Lady—to be as ambitious as possible, but we should not set—
Claudia Webbe: Including the banning of flaring?
Graham Stuart: Reductions in flaring are a significant part of making those reductions and the technologies around that, as I say, are now being exported around the world by our producers, so not only an environmental good at home but an environmental good abroad.
Q431 Claudia Webbe: What action would you like to see the regulator take when it identifies an oil and gas company that is failing to meet its production emission targets?
Graham Stuart: The North Sea Transition Authority—you have taken evidence from the Chief Executive—holds industry to account by monitoring its emissions and compliance with the targets in the deal, and there is a North Sea Transition Forum that keeps Ministers informed of progress in delivering the deal deliverables. It is comprised of Ministers and officials from both the UK and Scottish Governments, senior industry representatives, trade union spokespeople and regulators.
The Deal Delivery Group, co-chaired by industry and the Government, drives practical delivery of the deal and meets more frequently to ensure that the aims and objectives of the deal are met. We consider this the right approach. Earlier this year we published the “One Year On” report, which shows the progress made so far and sets out the key priority areas for the coming months.
Q432 Claudia Webbe: The North Sea Transition Authority—formerly the Oil and Gas Authority—as you know, has very little hard power. Why not enable it to name those operators that are the best and those operators that are the worst?
Graham Stuart: As I said, we have the various mechanisms in place, which I just laid out for the benefit of the Committee, to take us forward on what is a voluntary system and we are making significant progress to date. Commitment to the deal would help achieve 59 metric tonnes—reduction in greenhouse gas emissions, including 14.8 imperial tons through the progressive decarbonisation of UK production over the period to 2030. The North Sea Transition Deal, as Vicky said, is a first. It is an example of how countries with a significant oil and gas sector and dependence on fossil fuels—and we are 75% dependent on fossil fuels for our energy needs today—can achieve a managed transition via partnership between governments and industry that avoids causing major economic and energy security issues.
As I have set out earlier in my evidence, it is so important that we maintain the investability of our ultra-mature and fast-declining basin because otherwise we will be importing, with the loss of jobs, with an impact on the Exchequer, and with unpleasant impacts on the environment, we will be importing more oil and gas from elsewhere. I would hope the honourable lady would recognise the need to ensure that we maintain the investability of the basin.
Q433 Claudia Webbe: What I am seeking to do, Minister, is to ask the Government to consider change and action and for us to move forward. There are 277 offshore oil and gas operators, another 38 in the pipeline. We already know that the average emissions from produced oil in terms of carbon intensity increased to the equivalent of 25.4 kilograms of carbon dioxide per barrel. That is hardly a reduction that you claim so why not name those operators that are not delivering the upstream emissions reductions that we need?
Graham Stuart: Through the various mechanisms, of which I shared with the Committee, we continue to work closely with the NSTA to make sure that we have the optimum approach to it. If mandatory changes to a more mandatory system were thought beneficial we would consider doing so.
Q434 Claudia Webbe: The burning of hydrocarbons to power platforms is the biggest source of production emissions at present. Does the regulator have powers to insist that operators invest in fully-electrified platforms for all new projects at the concept stage? Would the Government support the regulator to do this?
Graham Stuart: What we have done, is oil and gas production in the UK was subject to more than twice the corporation tax rate of other businesses in the UK, even before the additional levy was raised. It is now 65%, so treble the rate of tax on other businesses in the UK. But of course what we want to do, because of the situation I have described, is incentivise investment, including into issues like electrification.
We believe that the taxation system and the fact that investments and things like electrification can be offset against those very high taxes is an incentive to help see the investment go in that will help deliver the targets for 2030.
Chair: We have two more quick sets of questions, starting with Anna McMorrin.
Q435 Anna McMorrin: I think I have heard among some of the rhetoric here today that you are still invested in addressing the climate emergency. The Office for Budget Responsibility normally presents detailed costings of the Chancellor’s fiscal plans alongside each budget, although obviously we know that this did not happen the other week. We are hoping that will be the case very soon. Is there not a case though for commissioning an assessment of emissions impact of energy and climate policy decisions made by Ministers. Andy King, from the OBR, said they normally do a five-year economic outlook but climate impact of taxation spending and resource decisions are not assessed. Would you not say that that would be a useful thing to do?
Graham Stuart: I think it is important to look at the frameworks that do exist. It is a bit like talking about whether scope 3 emissions should be included in the climate compatibility checkpoint; those emissions are captured elsewhere in the system. I feel that with the Climate Change Act, the independent committee and the five-yearly carbon budget—
Q436 Anna McMorrin: You are saying that decisions taken on extracting oil and gas, for example, should not have energy climate policy decision impact assessments at all?
Graham Stuart: Sorry, I do not know how the honourable lady leapt from what I said to that.
Anna McMorrin: Because that is what you have just said. You do not think there should be an assessment done of emissions coming from decisions made by Ministers?
Graham Stuart: I am saying that there are various frameworks and the primary—
Anna McMorrin: There is not anything.
Graham Stuart: The primary framework—
Anna McMorrin: There is not a framework that does that like the OBR. There just is not. That does not exist.
Graham Stuart: Government policy is considered by the Climate Change Committee so therefore—
Anna McMorrin: They say that this assessment does not exist. The Climate Change Committee has said that and so has the OBR.
Graham Stuart: Okay. The question is whether that—
Anna McMorrin: The question is: do you agree that that would be useful? Would you agree with the Climate Change Committee and would you agree with Andy King from the OBR that this would be a useful thing to have?
Graham Stuart: Did they say that it would be a useful thing to have?
Anna McMorrin: Yes, they did.
Graham Stuart: It is something that I will give consideration to.
Q437 Anna McMorrin: Excellent, thank you. Going back, you talked about the climate compatibility checkpoint and at COP26, chaired by UK Government, the UK Government pushed for strong commitments to keep the 1.5 degrees goal alive. The climate compatibility checkpoint does not test the impact that new oil and gas fields will have on overall emissions so how is that checkpoint without scope 3 emissions consistent with commitments that you pushed for at COP26?
Graham Stuart: Supporting our domestic oil and gas sector is not incompatible with our climate goals when we know we will need oil and gas for decades to come, as I have set out. As the energy crisis in the UK has shown, constraining supply and dramatically increasing prices does not eliminate demand for oil and gas. A faster decline in domestic production would mean importing more oil and gas at greater expense and potentially resulting in additional emissions, especially in the case of gas.
Anna McMorrin: How is that compatible with 1.5?
Graham Stuart: Because what the climate compatibility checkpoint, which itself is a world leader, seeks to do is to check the picture of the production. The end use of that oil and gas is not something that can easily be known and is captured by other mechanisms, such as our overall emissions, which are factored into the Climate Change Committee and the Climate Act, and the rest of it.
Q438 Anna McMorrin: Tests four, five and six were not included in the climate compatibility tests. Those included the scope 3 emissions and, coincidentally, they were the ones that were not supported by Shell, Harbour or BP. That is quite a coincidence.
Graham Stuart: Is there a question there?
Q439 Anna McMorrin: I am asking whether you agree; I was confirming that. But I think that we have seen the consideration of global production gap discrepancy between fossil fuel production and global production levels taken out as well. We even have the Chair of the Climate Change Committee, Lord Deben, saying that while there might be production emission savings from UK oil and gas displacing imports, UK production could increase the amounts of oil and gas globally. How is all of this consistent with keeping to 1.5? Would the Minister agree with the Glasgow Climate Pact, set out and agreed by his Government at COP26, to keep to 1.5 degrees?
Graham Stuart: I think I have already answered this, Chairman. We are a net importer—
Anna McMorrin: You have not.
Graham Stuart: On no scenario at all are we going to become a net exporter of oil and gas. We aim to be a net energy exporter by 2040 but not of oil and gas, and therefore it is entirely compatible.
Q440 Anna McMorrin: Do you actually believe then that increasing the global supply of oil and gas makes it more or less likely that the world will limit temperatures to between 1.5 and 2 degrees?
Graham Stuart: Meeting some of our needs in a declining way, because as I say production is expected to fall in a very mature basin, but doing so in a way with very low emissions around that production. I have laid this out endlessly, I can see why the honourable lady wants to make a political point—
Q441 Anna McMorrin: It is not a political point; this is against his own climate advice from his own climate advisers. Lord Deben also warned of the unquantifiable signalling effect of the UK continuing to extract oil, gas and coal. The diplomacy effort, the UK should be a leader in this and not extracting more oil and gas, fossil fuels, does he not agree? This is completely contrary to any sort of climate objectives that were set out and agreed at COP26.
Graham Stuart: I do not know, Mr Chairman, whether it is the hon. Lady’s view or her party’s view that we should switch off all oil and gas production tomorrow from the UK, and that the country would be better off—that seemed to be the premise of her question.
Anna McMorrin: No, that was not.
Graham Stuart: And that the country would—wait.
Anna McMorrin: I think the Minister is misunderstanding the question deliberately.
Graham Stuart: Not deliberately but the idea that importing oil and gas from abroad with overall higher emissions around it than domestically produced gas while we do not export it, we will not export it and it is declining faster than is required globally, is some kind of environmental evil. I have repeatedly gone round and round and round and, apart from assertions, I do not hear any answer. Unless the hon. Lady thinks that there is something greener fundamentally about foreign production as opposed to our own, I do not think her constituents any more than mine would understand what she was talking about.
Q442 Anna McMorrin: The Minister agrees then about the likely scope 3 emissions from extracting every last cubic inch of oil and gas from the North Sea—as his Secretary of State has set out, he wants to extract every last cubic inch. Have the Government made an assessment of the impact of that on global emissions, on the world and on the impact of rising seas and climate change?
Graham Stuart: We are reducing our oil and gas usage as set out in our path to net zero as underpinned by the law. It is a legal—
Anna McMorrin: As I have just set out with my questions, you are not and you have not been able to answer that fact.
Graham Stuart: Sorry, the production in the North Sea is going to make us use more oil and gas—
Q443 Anna McMorrin: Your very own adviser, Lord Deben, has said that there may be production savings. UK production could increase oil and gas globally, so that is not a reduction. I do not know whether you are aware of this but climate change is a global effort; it does not just stop at the shores of the UK.
Chair: I think it might be helpful perhaps if the Minister was to encourage his officials to prepare the Department’s estimate of the decline in net production.
Anna McMorrin: That would be useful.
Graham Stuart: It is declining, we are not going to be exporting any net and it is declining faster than is required globally. Yet we have people trying to pretend black is white. It is frustrating and frankly—
Chair: If that could be set out for our report. Last set of questions from Barry Gardiner.
Q444 Barry Gardiner: The cost of the windfall tax being paid for by the energy price guarantee is to be as much as £100 billion, according to the IFS. I think the growth plan suggested originally £60 billion. That of course is going to ultimately be paid back by bill payers themselves because it is a loan rather than a grant. Would the Government consider funding part of the energy price guarantee by increasing the energy profits levy, the windfall tax on the industry? Is that something that you have considered?
Graham Stuart: As I have set out there, the producers in the UK on that production are already paying 65% triple the rate of tax of anyone else, and that is raising significant sums that can be used to offset the cost to the Exchequer.
Barry Gardiner: I asked you whether you were considering raising the EPL in order to offset the cost to the British bill payers.
Graham Stuart: That is a tax and therefore that is a matter for His Majesty’s Treasury.
Q445 Barry Gardiner: In the representations that he makes to his colleagues in the Treasury, the Minister will be aware that at the moment without the EPL, which of course is a temporary measure—the windfall tax—the tax take from the oil and gas producers profits in this country was the lowest anywhere in the world. We were taking 37% as a total take whereas the average was 71%. Norway is above that at 79%. In the discussions that he has with colleagues in the Treasury, has he put forward the idea that if we were to raise our tax level on the industry, even just to the global average, that that would be a way of reducing the burden on the bill payer, and it would achieve an extra £13.4 billion to the Treasury every year? Not as a temporary measure but—
Graham Stuart: If what happened?
Barry Gardiner: If we were to raise the tax take on oil and gas producers to the global average. Prior to the windfall tax, which is a temporary measure being imposed, our total take was 37%, on profits it was 40%, the windfall tax has raised that now to 65% but, as you rightly said, Minister, that that is still 6% lower than the global average, which they take every year. We are only doing the 65% at the moment for two years as a temporary measure.
I am asking whether, in his conversations with colleagues in the Treasury, he would point out to them that we are way below the global average and that by increasing our tax take to the global average it would reduce the burden on bill payers who are currently going to have to pay back that £100 billion that the IFS estimates that the energy price guarantee is going to cost them?
Graham Stuart: In 2022-23 we expect to raise £7.7 billion, £10.4 billion in 2023-24. The level of tax is a matter for Treasury, but you have to look at our basin. At great length I pointed out this morning, and repeatedly, the importance of generating domestic oil and gas and—
Barry Gardiner: That is fine, I take your answer.
Graham Stuart: It is a material point. We have an extremely mature basin. You have to remember that production—I do not have a chart in front of me—is a marginal place. This is an ultra-mature basin. Comparing it with the global average where they are not in that position, we have to encourage and we triple the tax being taken than other companies and we have to get the balance right.
Barry Gardiner: The Chair has asked us to be brief because we are up against time, and I want to respect the Chair’s wishes on this.
Graham Stuart: My answer is still shorter than your question.
Q446 Barry Gardiner: If you wish to supply the Committee with information showing the difficulty that investors have in the North Sea of investing in the mature basin, then I am sure that that will be helpful to the Committee. You made the point that we would be raising £7.7 billion, that is over and against the original estimated £5 billion. But of course Shell reported—
Graham Stuart: Forecasts of course.
Barry Gardiner: Shell reported adjusted earnings of $11.5 billion in just the second three months of this year. They posted a record profit of $9.1 billion in just the first quarter of this year. I think when you say that the total we expect to take is £7.7 billion, I think over £28 billion over the four years, you can see that it does not compare with the excess profits that Shell and others are making.
Graham Stuart: May I briefly just say of course is what we do do—
Chair: You are here to answer the questions.
Graham Stuart: If there were questions I would find it easier to answer them. The point being that of course Shell is a global—
Barry Gardiner: The question I asked you, Minister—
Graham Stuart: Shell is a global company and these taxes, as set by the Treasury, apply on the UK production. In order to give a fair—which I know the hon. Gentleman would always want to do—view of it, it is important to differentiate between the global activities of a global player and the domestic activities, and not confuse people into thinking that they are one and the same. They are not.
Q447 Barry Gardiner: At the same time as imposing the windfall tax that you rightly said was £7.7 billion a year, your 80% investment allowance gives the oil and gas producers a 91p tax saving for every pound that they invest. At the Glasgow COP, the Glasgow agreement contained a pledge by our Government to phase our inefficient subsidies for fossil fuels. The IFS is clear that the investment allowance is so generous that loss-making projects could become viable. That is, I think, a definition of inefficient. Why should the taxpayer be paying companies against the pledge that the Government made in Glasgow?
Graham Stuart: I do not recognise that and, as I say, we have a super-mature basin given the—
Q448 Barry Gardiner: What aspect do you not recognise? You do not recognise the investment allowance gives that 91p in the pound tax break for investment by those companies or you do not recognise that it is an 80% investment allowance?
Graham Stuart: I do not recognise that that constitutes a breach of that which we set out in Glasgow. Companies in the UK’s North Sea oil and gas sector have plans to invest in the UK’s offshore energy between now and 2030, both to accelerate the UK’s oil and gas production but also while investing in renewable energy. We desperately need them to do that to bring the vast engineering and offshore expertise that they have. The North Sea is this phenomenal basin and there is a transition, and we need these major companies and their balance sheets to be harnessed in order to help lead the world, as we have—
Barry Gardiner: For once we are in agreement.
Graham Stuart: This will help to maintain the domestic resource that is essential to the UK’s energy—
Barry Gardiner: Sorry, Minister, I did not ask you for statements.
Graham Stuart: We are drawing on sector skills.
Q449 Barry Gardiner: I did not ask you for a statement. I simply asked you to answer the question about the investment allowance. But given that in that statement you have said that it is going to be important to be able to invest in renewables, I welcome that, because of course at the moment the investment allowance currently only applies to investments in oil and gas. Can I take it that that was a commitment from you to this Committee that the investment allowance should be extended, and will be extended, by this Government to renewables generation as well?
Graham Stuart: Because it is specific to oil and gas production then the tax investment incentives are also aligned to oil and gas production.
Q450 Barry Gardiner: Why, in the statement that you provided as an answer to my previous question, did you say that it was important that they should benefit renewables production?
Graham Stuart: Because they have a major part to play in delivering renewables investment and although the specific allowances can only be used against oil and gas production, of course on the broader basis of their balance sheet and their focus, it is relevant to and important to delivering the transfer. BP, Shell and others have made commitments to net zero and are looking to change their investment pattern over time, which we should applaud.
Q451 Barry Gardiner: To be entirely clear, the investment allowance, as you have characterised it, applies only to oil and gas producers but they can use it for any investment that they make into renewables however because, as you have said it only applies to oil and gas renewables, any renewable generator—specifically renewable generator—will not benefit from a similar investment allowance. My question then is: do you believe that it makes sense to have a similar investment allowance apply to renewables production?
Graham Stuart: I think I followed that. Just to be clear, as you say, it is limited to oil and gas; new investment in UK continental shelf oil and gas developments only. That is because we want to encourage that. What it can be allowed to do, which is important on the net zero point, is to invest in electrification in order to deliver, as the hon.—
Barry Gardiner: That is the electrification of the platforms to get—
Graham Stuart: To get rid of the diesel generators. We are seeking to ensure that they are in the best position possible to deliver on not only the 50% voluntary target but ideally a stretch target, which the Climate Change Committee and the hon. Lady raised.
Q452 Barry Gardiner: Far be it from me, Minister, to suggest that you may have misled the Committee in the statement that you made in response to the question, but you did imply that this investment allowance was important for renewables investment. It would appear that what you are now saying is, sorry, it cannot.
Graham Stuart: I do not think that was a question. That was not what I said. If the hon. Gentleman took that meaning from my words then—
Barry Gardiner: I will just get it off Hansard and print it out. Thank you very much.
Chair: If I can interpret my understanding of the exchange, the Minister was saying that the investment allowance can be used by oil and gas companies to invest in their own renewable projects and in decarbonising their platforms. That was my understanding.
Barry Gardiner: He said that originally but then backtracked from it.
Graham Stuart: Not in renewable projects except—I do not think I did but if I did, we are here and the session is trying to get to the truth. The point is that renewable projects around production would be covered. Of course electrification might include floating wind, but it has to be related to their oil and gas production because that is what the system is. I hope I have been clear about that. It was certainly never my intention to mislead.
Chair: Minister, you have been generous with your time both in answering questions and in extending your attendance here for 20 minutes beyond what we had asked you to do, so I appreciate that very much. Thank you, Graham Stuart, for joining us, and thank you to your officials, Jonathan Mills and Vicky Dawe.