No shale sovereign wealth fund til 2015+; Labour’s regulations rejected

Update on the progress of the Infrastructure Bill: Report Stage in the House of Lords

The government has blocked the early creation of a sovereign wealth fund from shale gas revenues. Despite favourable statements from ministers over the weekend, an amendment that would have added the establishment of a fund to the Infrastructure Bill was withdrawn last night. A treasury minister told the House of Lords the issue would have to wait until after the election.

Yesterday’s debate on the bill also saw the defeat of Labour amendments designed to increase regulation of shale gas extraction. Amendments proposing a contingency fund and controls on fracking in protected wildlife areas were also dropped.

The Infrastructure Bill, which proposes to give underground access to drilling companies without the owners’ permission, has now finished its Report Stage. There is a final chance to amend the Bill in the House of Lords at the Third Reading on 19th November.

Sovereign wealth fund

Lord Hodgson of Astley Abbots told the debate that Norway’s sovereign wealth fund, established from its North Sea oil and gas revenues, had grown to £500 billion in 20 years, generating an annual income of £20-25 billion. He proposed a UK fund that would take at least half government revenue from shale gas. The money would be used for what he called “long-term public objectives” and no more than 4% of the fund’s assets would be paid out in one year.

Over the weekend, the Energy and climate change secretary, Ed Davey, said the fund was “about storing the financial benefits of shale production and putting it towards a low-carbon energy future”. He said: “It’s part of this government’s broader strategy to strengthen our security of supply in a cost-effective way for future generations”.

But the Chancellor, George Osborne, speaking on BBC Radio 4’s Today, suggested the money could be targeted at the north of England, where much shale gas fracking is expected to take place.

In the House of Lords last night, the Commercial Secretary to the Treasury, Lord Deighton, said:

“It should be for future Governments to think about how such a fund could be designed, but we commit to the principle. The Chancellor will demonstrate his commitment to bring forward a proposal in the next Parliament in his Autumn Statement”.

Additional fracking regulations

The Shadow Energy Minister, Baroness Worthington, introduced a series of amendments, which she said were designed to address the government’s failure to enhance environmental protection in the light of fracking. The amendments required mandatory:

  • Environmental Impact Assessments for all fracking sites
  • Independent inspections of well integrity
  • Public disclosure of chemicals used in fracking
  • Consultation with relevant water companies
  • Monitoring of sites for 12 months before operations begin

Baroness Worthington said:

“We should take the time now to introduce a proper regulatory framework that enables the industry to get off to the right start and to learn from some of the mistakes that we have seen in the US, where patchy regulation has led to a number of pernicious scare stories being in the public mind when it comes to fracking.”

The former chief executive of the Environment Agency, Baroness Young of Old Scone, was among the supporters of the amendments. She said:

“This is a technology that is deeply distrusted by the public. Certainly, my experience of regulation in the environmental field is that if a degree of certainty can be given to both sides—the industry and the public—that is hugely beneficial in removing tension, distrust and suspicion”.

Baroness Farringdon of Ribbleton (Labour) told the Lords she had experienced one of the earthquakes caused by fracking at Cuadrilla’s well at Preese Hall. “I thought it was a bomb”, she said, “living as we do half way between both the aerospace centres, with planes going over all the time”.

She urged the government to agree to independent monitoring of well integrity to allay fears of people living near Cuadrilla proposed fracking sites near Blackpool.

“I need the Minister to say that the companies will neither choose nor be responsible in any way for the process whereby, for example, the integrity of the wells is judged… If the Minister cannot give that rock-solid guarantee, the people of Lancashire who have spoken to me will not be happy. That will delay the process, and nobody wants that.”

But Labour’s Lord Hollick was among those who spoke against the amendments.He said:

“If passed these amendments would add further complexity to an already devilishly complex and bureaucratic approval process, and will potentially extend the timetable by a further 12 months. Having lost the argument on the facts of the case, delay is now the main weapon of choice for those who oppose fracking. To add further delay to the exploration of shale gas would be a misstep”.

The Energy Minister, Baroness Verma, said existing regulations were robust and proportionate. She said the industry had publicly committed to EIAs for all exploration wells involving fracking. On well inspections, she said the current system, where an operator appoints an independent well examiner, was “flexible” but had “appropriate safeguards”.

Full disclosure of chemicals was already required for permit applications, she said, and the Environment Agency had said it would publish information. Lady Verma said legislation was also not needed to require consultation with water companies because the water and shale gas industries had signed a memorandum of understanding on engaging early.

On baseline monitoring she said: “Setting fixed requirements on monitoring will not strengthen these protections; they will simply impose unnecessary obligations in cases where environmental experts do not believe they are required.

“As we already have a robust process in place for reporting of fugitive emissions, and have plans in place to monitor and report any emissions from shale gas exploration and extraction once these activities start in the UK, additional reporting in this area would be redundant.”

Labour’s amendments were defeated in a vote by 114 to 237

Protected wildlife areas

Baroness Young introduced her amendment which would prevent fracking, except in exceptional circumstances, from nationally and internationally-protected wildlife sites. This would give them the same protection in planning guidance as Areas of Outstanding Natural Beauty, National Parks and World Heritage Sites.

She said her amendment would remove less than 12% of the areas currently and potentially available for shale gas extractions.

“The reality is that there are possible impacts on nature conservation and biodiversity as a result of fracking. We know about them; in terms of water abstraction and pollution, and habitat damage and disturbance”.

She said three wintering grounds for 85% of the world’s pink footed geese, included the Bowland area of the north-west, where Cuadrilla wants to frack.

“We need to give them [shale gas companies] very strong signals that it is going to be a lot easier and cheaper for them not to set their hearts on some of these highly protected biodiversity sites.”

Opposing the amendment, Baroness Verma, described important wildlife sites as “the jewels of our country” but said they already had the “necessary protection.

Amendment 113H was withdrawn

Contingency fund

Lord Whitty proposed that a contingency fund should be established to meet any loss caused by oil and gas activities. The fund should be protected in case a company became insolvent.

There had been accidents, leaks and impacts on the environment from all current forms of energy, he said.

“The failure of even a fraction of the number of wells that are being talked about could have a significant impact on the landowner, on the farmer, on the community close to the fracking site”.

He warned the government the tax payer would have to pay for damage from accidents or badly decommissioned wells if companies had financial problems.

But Baroness Verma said regulatory regimes were “sufficiently robust to ensure that, if a company causes damage, harm or pollution to the environment, operators can be required to remediate the effects and prevent further damage or pollution.”

She did promise an amendment to address concerns that an owner, whose land is accessed underground, might face claims from third parties for damage done by the operator.

Amendment 115 was withdrawn.

Not in Wales, not anywhere

Lord Wigley called on the House of Lords to take a first step towards a moratorium on fracking in Britain by refusing to accept the section of the Infrastructure Bill dealing with the right to use deep-level land

He urged peers, if they could not accept this, to approve his amendment to exclude Wales from this section, unless it was devolved to the Welsh Assembly.

“The Assembly has responsibility for virtually all aspects of town and country planning in Wales, it has total responsibility for the environment and agriculture, and it has responsibility for the healthcare services in Wales. All these are policy portfolios impacted by the effects of fracking. If Wales is to have coherent public policy, then control of fracking must also be devolved.”

He said the MP Hywel Williams was told in a written answer that fracking operations in north west England may look to Wales for water.

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

Baroness Verma said petroleum extraction was a non-devolved matter. But she added:

“All existing planning authority procedures and powers will remain in place. As such, the different UK planning regimes will continue to regulate shale gas or geothermal developments according to their existing planning procedures.”

Amendment 114 was withdrawn.

  • Many of the issues in the withdrawn amendments are likely to be discussed again when the Infrastructure Bill goes to the House of Commons.
  • Full transcripts of yesterday’s debat: Part 1, Part 2, Part 3

[Updated on 13/11/14 to include Lord Wigley’s amendment]

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