First, I thank all noble Lords for their valuable contributions to this debate. It is not often that I come along with charging instruments to
have people complain that we are not increasing the fees enough but, as always, the noble Baroness, Lady Jones, provides a contrary view to established practice in this House. Nevertheless, it was an interesting debate.
As I said during my opening remarks, the fees regulations will enable OPRED to recover its costs for the provision of regulatory services under the offshore oil and gas environmental legislative regime, as opposed to such costs being passed on to the taxpayer. In response to the noble Lords, Lord Oates and Lord Grantchester, let me set out the position on OPRED’s budget and fees income. As they both said, OPRED’s annual fees income is £6.2 million on average. This represents around 65% of the cost of running its environmental operations unit. The total costs of around £10.6 million a year include that of the office in Aberdeen and corporate support provided from London.
On chargeable activities, OPRED considers the environmental implications of all offshore oil and gas operations before issuing permits and consents covering areas as diverse as seismic surveys, marine licences, oil pollution emergency plans, chemical permits, oil discharge permits and consent to locate permissions for offshore installations. To this end, OPRED reviews around 5,000 applications for permits and consents annually. In addition, there is a regular programme of monitoring and inspection to ensure compliance with the environmental regulations.
As the noble Lord, Lord Grantchester, said, in line with Her Majesty’s Treasury’s Managing Public Money guidance, OPRED does not charge for policy work—for example, the enacting of new, or revisions to existing, offshore environmental legislation. Nor is OPRED able to charge for enforcement activity, such as prosecutions. Let me also point out that OPRED had originally planned to implement the changes to its hourly rates through the Oil & Gas Authority (Levy and Fees) Regulations 2021, which were laid before Parliament under the negative resolution procedure and entered into force on 1 April 2021.
However, OPRED is relying on a power that requires an affirmative procedure. This is because the increases allowing it to recoup the costs for the provision of regulatory services are not alterations to reflect changes in the value of money. The OPRED provisions were therefore not suitable for the Oil and Gas Authority’s regulations, hence the proposal to introduce these fees regulations.
In response to my noble friend Lord Bourne, who asked about UK progress on the deployment of carbon capture and storage, let me highlight the following. CCS will be essential for meeting the UK’s 2050 net-zero target, playing a vital role in levelling up the economy, supporting the low-carbon economic transformation of our industrial regions and creating many new, high-value jobs. In November 2020, we announced a £1 billion CCS infrastructure fund, which will provide industry with the certainty required to deploy CCS at scale.
In addition, CCS will play an important role in the Government’s industrial clusters mission, which sets out the ambition to establish the world’s first net-zero carbon industrial cluster by 2040, backed by £170 million from the Industrial Strategy Challenge Fund, with the
spend profile running between January 2021 and March 2024. In February this year, BEIS published a consultation seeking stakeholder input on a potential approach to determining a natural sequence for locations to deploy CCS. Close to 100 responses to the consultation were received and BEIS recently published guidance for organisations wanting to take part in phase 1 of the CCS cluster sequencing process, which helps to meet the Government’s commitment to capture 10 million tonnes of CO2
per annum and have 5 gigawatts of low-carbon hydrogen capacity by 2030.
In response to the noble Baroness, Lady Jones, who asked why the costs were rising by such a very small sum and appear, as she said, to be subsidising the industry for government service, I remind her that, as I said earlier, the fees are calculated in accordance with Her Majesty’s Treasury’s Managing Public Money guidance, of which I am sure the noble Baroness is a great supporter, and any revisions to OPRED’s charges that result from annual reviews can cover only the actual cost of providing its regulatory services. OPRED is not permitted to make a profit under Treasury rules. I know that the noble Baroness will be a strong supporter of Treasury rules, so our hands are tied in this regard.
When conducting future annual reviews of the fees-charging regime plus associated functions, OPRED will ensure that the fees being charged fully reflect its regulatory activity and, in turn, the level of offshore operations in any given year. It is important to emphasise that, while the offshore oil and gas industry transitions to a net-zero basin, a comprehensive environment regulatory regime will be applied to its operations to ensure that a high level of protection for the marine environment is maintained. As we move towards net zero, the noble Baroness, Lady Jones, will also no doubt be delighted to hear that oil and gas will play a smaller role in meeting UK energy demand; however, it will still continue to play a role.
In response to my noble friend Lady Altmann, OPRED is an integral part of the Department for Business, Energy and Industrial Strategy. It is based in Aberdeen and currently has 97 staff. Those staff are civil servants. The calculation of the fees includes the full economic costs of the staff, including superannuation costs, which are also taken into account.
Questions were asked by, I think, the noble Lord, Lord Oates, about decommissioning costs. They are recovered through separate fees regulations. Currently, about 50% of the cost of running this unit is recovered through fees, and a consultation opened on 24 May on a proposal to increase fees recovery to around 80%.
My noble friend Lady Altmann also asked about transition. I would like to mention the North Sea transition deal, which will help significantly to reduce emissions, ensuring a net-zero basin by 2050 and supporting our goal of decarbonising the wider economy. Commitments in the deal will help to achieve a reduction in UK greenhouse gas emissions of 60 million tonnes, including 15 million tonnes through the progressive decarbonisation of UK production over the period to 2030. If the UK stopped producing gas, we would then need to import it and would therefore have little control over the carbon intensity of those inputs while losing the benefits of a domestic natural resource.
In response to the points made by my noble friend Lady McIntosh, I am sure that she is well aware that the wind farm fee regime is not part of these regulations. I will write to her on the main points she asked about. The North Sea transition deal will harness the existing skills of the offshore oil and gas sector supply chain to help to deliver our new low-carbon technologies, such as hydrogen and carbon capture usage and storage, helping the UK to meet its net-zero targets.
I think I answered the questions asked by the noble Lord, Lord Oates, in the early part of my speech.
On the question from the noble Baroness, Lady Altmann, the fee increase mainly comprises two elements: an increase in staff costs as a result of a pay award and an increase in corporate costs relating to IT, HR, finance et cetera, which is allocated on a per head basis. As I explained earlier, it is all in line with the Treasury’s Managing Public Money guidance, which does not allow OPRED to make a profit on its activities.
In response to the points made by the noble Lord, Lord Grantchester, although it might be helpful to the industry to have a form of indexing, again, this would fall foul of the favourite document of the noble Baroness, Lady Jones: Her Majesty’s Treasury’s Managing Public Money guidance regime, which provides that charges should be set to recover the full costs of the service being provided. This approach is intended to ensure that the Government neither profit at the expense of the industry nor make a loss for taxpayers to subsidise. OPRED’s fees are reviewed annually to ensure that, year on year, the full costs of the service are recovered. If costs were to reduce, the fees would also reduce; however, if the costs increase, the fees will also increase so that the burden does not fall on the taxpayer but remains on those benefiting from the service.
I think I have dealt with most of the questions asked by noble Lords and I therefore commend the regulations to the Committee.