Energy Bill [HL] 2022-23, parts 1, 2 & 3: carbon storage, hydrogen, and new technologies

The Government’s Energy Bill [HL] 2022-23 was introduced in the House of Lords on 6 July 2022. It makes provisions affecting the energy sector, focused on three areas:

• Leveraging investment in clean technologies
• Reforming the UK’s energy system and protecting consumers
• Maintaining the safety, security, and resilience of the energy systems across the UK

This briefing covers leveraging investment in clean technologies and relates to parts 1 to 3 of the Bill: carbon dioxide (CO2) transport and storage, hydrogen production and new technology.

Second reading of the Bill in the House of Commons is scheduled to begin on 9 May 2023.

Parts 1 to 3 of the Bill

The Bill’s explanatory notes state that parts 1, 2 and 3 of the Bill aim to ensure a low carbon energy system is developed. This would reduce emissions and provide low carbon power. Measures include:

• Establishing an economic regulation and licensing regime for CO₂ transport and storage with the Office of Gas and Electricity Markets (Ofgem) as the economic regulator.
• Enabling the Government to implement and administer hydrogen and carbon capture business models including introducing a new hydrogen levy.
• Enabling the establishment of a market-based mechanism for low-carbon heat.
• Enabling the effective and safe delivery of a village scale hydrogen heating trial.
• Excluding fusion energy facilities from nuclear site licensing requirements under the Nuclear Installations Act 1965 (NIA 1965).

Debate during Lords stages Purpose of the Bill

During Lords committee stage there was some debate about the Bill’s overall purpose. Amendments were tabled calling for the Bill to be more closely linked to the UK’s climate objectives, or to go further in securing the UK’s energy supply. However, these amendments were either withdrawn or not moved.

Carbon capture, usage, and storage

Government amendments on carbon capture, usage, and storage (CCUS) were all agreed to. These were predominantly minor technical amendments with the exception of amendments 36 and 65. Amendment 36 inserts new schedule 3 into the Bill which provides for the enforcement of CO2 transport and storage licence conditions. Government amendment 65 inserts new clause 84 which provides the Secretary of State with powers to modify the licences of gas and electricity market participants.

Hydrogen levy

Government plans to introduce a hydrogen levy have been met with scepticism from some stakeholders who feel it would place an unfair economic burden on consumers during increasing energy and living costs.

On report in the Lords, an opposition amendment which would remove the Secretary of State’s power to impose a levy on gas and hydrogen suppliers was added to the bill.

Hydrogen village trial

There was debate during Lords stages about the viability of hydrogen as an option for decarbonising heat based on its efficiency, cost, environmental impact and safety.

The Government acknowledged concerns but set out that the hydrogen trial will provide evidence for strategic decisions on the future of heat decarbonisation. Clauses relating to the hydrogen grid conversion trial were retained in the Bill.

Low-carbon heat scheme

Heat pumps are a low carbon heating technology. They use electricity to extract heat from the surrounding environment to provide heating to buildings. Common types of heat pump include air source heat pumps (ASHPs) and ground source heat pumps (GSHPs).

To meet the Government’s target to reduce UK emissions to ‘net zero’ by 2050, heating systems in homes will need to be decarbonised. Heat pumps are one of the main technologies being proposed by the Government to achieve this.

In October 2021 the Government published the Heat and Buildings Strategy. This set out a range of plans to promote the use of heat pumps, including:

• A target to grow the market for heat pumps from the (then current) rate of around 35,000 installations per year to 600,000 per year by 2028, to help put the UK on track to meet the Government’s 2050 ‘net zero’ target.
• The introduction of a market-based mechanism for heat pumps, placing an obligation on fossil fuel boiler manufacturers to achieve the sale of a number of heat pumps proportional to their UK boiler sales over a given period. The obligation would be set in line with the trajectory required to deliver the 2028 target.

Part 3, chapter 1 of the Bill would contribute to the plans in the Heat and Building Strategy by introducing powers to enable the introduction and regulation of a new low-carbon heat scheme. This would obligate manufacturers of fossil fuel heating appliances to meet a rising standard for low-carbon heat pump sales as a proportion of their total appliance sales.

During the Lords stages Government amendments were agreed that would clarify how targets in the scheme apply to manufacturers, and would require regulations to provide for the right to appeal against financial penalties for non-compliance with the scheme.

Opposition amendments which included a proposal to set a timeline for implementing the low-carbon heat scheme were either withdrawn or not moved.

Nuclear energy

The Bill would amend section 1 of the Nuclear Installations Act 1965 to explicitly exclude fusion energy facilities from nuclear site licencing requirements. No amendments were made to the single clause on nuclear energy.