My Lords, I shall speak to Amendments 2 and 9. Amendment 2 is the requirement on the Secretary of State to report to Parliament on an annual basis on the,
“estimated decommissioning costs for North Sea oil and gas infrastructure”.
This amendment has been tabled because an important facet of this debate is that the costs involved are hugely important, which the Minister mentioned earlier. Decommissioning is under way, it is likely to increase over time and we will see bits of infrastructure being removed, which will cause considerable costs to be borne. The upside is that we may well be about to invent a wonderful new industry in which we can get a global lead. The engineering excellence that we have demonstrated in the North Sea will be repurposed and we will apply that knowledge and expertise to the task of decommissioning, which I am sure will stand us in good stead both here and overseas.
However, through the course of my engagement with this Bill, it has come to light that those decommissioning costs will now partly fall on the taxpayer. The Treasury produced an estimate of the costs of decommissioning and how much will be expected to be a burden on the taxpayer. In the five years from now until 2020, HMRC estimates that something in the region of £9 billion will be expended, half of which will fall on the taxpayer. That is not an insubstantial amount of money, particularly as we hear, in the context of energy, an awful lot is made of the cost of the renewables subsidies and the green energy contracts. A levy control framework is applied to those costs. But here we have a liability on the taxpayer for essentially finishing off the job in the North Sea and assisting the oil and gas sector in bearing those costs.
Those costs are quite generous and the way in which they are calculated is that tax can be claimed back through the petroleum revenue tax, the PRT, and the ring-fenced corporation tax, the RFCT. Both provisions are very generous and enable costs to be claimed dating back throughout the time of the activity. They allow the use of retrospective taxation that has been paid to claim tax back against decommissioning costs. This evidently means a loss of revenue to the Exchequer, and therefore extra pressure on taxpayers to make up the difference somewhere else.
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I am not saying that the oil and gas sector has not been a great contributor to the British economy. However, as I said in my opening comments, although the oil and gas sector used to be left to its own devices, by and large, and generated a lot of tax revenue, the social contract between us and them is changing, and from now on we will revisit the topic of decommissioning often. The total cost is, of course, an estimate; it may be higher.
The purpose of the amendment is to require some transparency and give us an opportunity to debate the subject. The decommissioning costs would be regularly reported and we could debate the rightness, or otherwise, of continuing the arrangement whereby taxpayers foot the bill for a substantial amount of decommissioning, with a liability that appears—although I would be happy to be contradicted on this—to be relatively unlimited. Perhaps the Minister could clarify that. Is there a back-stop? Is there a point at which we say, “No, we will not pay”?
My second question on the amendment, to which I would welcome an answer from the Minister, is about what happens if a company goes bankrupt. It is unlikely that the big oil majors will disappear overnight—it might take a little longer than that—but we will probably see assets being transferred from some of the big oil majors to smaller organisations, perhaps companies with more appetite for risk or different funding profiles, which can continue to act when the majors might choose otherwise. That raises a risk: what happens if those entities are no longer with us, or get themselves in too deep and find themselves on the point of liquidation? Who will then take on the costs of decommissioning, and what provision is being made to protect the taxpayer in those circumstances? I hope that that will not be the case, but unfortunately we
have to imagine the worst—these are turbulent times, and things are changing fast. Amendment 2 is designed to probe on those issues, and I hope I can look forward to some words of reassurance from the Minister.
The second amendment in the group, Amendment 9, relates to the matters that the OGA must take into account under Clause 4. Many more amendments have been tabled to those provisions, and we will debate them in the next group, but Amendment 9 has been grouped under the heading of decommissioning, because it raises an important issue. Obviously some parts of the infrastructure will be able to be reused, both by people seeking to extend the lives of the wells and by those wishing to repurpose them and use them for storage of waste gases, but timing will be an issue. With lower oil prices, decommissioning may be more rapid than we first expected, which could mean infrastructure being removed sooner than we thought it would. We could then be out of step with what we hope will be a new industry to invest in to do with the transportation and storage of waste greenhouse gases.
We want to avoid a situation of accelerated gas decommissioning and possibly delayed carbon capture and storage, although I hope we shall not see that anyway because CCS has been rather slow to start with and should not be delayed any further. Such projects may well come on stream after the decommissioning decisions have been taken, which would be regrettable. I am sure that the Minister will say, as he said about the Wood review, that the OGA is fully cognisant of CCS, but CCS does not appear to be one of the key things to which it has regard. That is the problem. Where we want the OGA to focus on an issue, we should specify that issue in the Bill. A hierarchy of consideration, which requires it at least to think about potential reuse for carbon capture and storage before people press ahead with decommissioning, should be listed as one of the matters to which the OGA must have regard, and that is the purpose of Amendment 9. I beg to move.