Explanatory Notes

Introduction

1.These explanatory notes relate to the Energy Act 2008 which received Royal Assent on 26 November 2008. They have been prepared by the Department of Energy and Climate Change in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.

2.These notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So, where a section or part of a section does not seem to require any explanation or comment, none is given.

Overview

3.The Act is implementing legislative aspects of: Meeting the Energy Challenge: A White Paper on Energy (May 2007) and Meeting the Energy Challenge: A White Paper on Nuclear Power (January 2008). It covers the following main areas: offshore gas infrastructure, carbon dioxide storage, Renewables Obligation, feed-in tariffs for small scale low carbon electricity generation, renewable heat incentives, decommissioning of energy installations (nuclear, offshore renewables, and offshore oil & gas), offshore transmission, smart meters as well as several other areas. A number of the policy areas covered have been preceded by full public consultations.

4.The principal objective of the Act is to update the legislative framework to make it more appropriate for today’s energy market.

5.The Act is in six Parts with six Schedules:

Part 1: Gas Importation and Storage: This contains provisions designed to cover the offshore storage of natural gas and the offshore unloading of Liquefied Natural Gas (LNG), as well as the offshore storage of carbon dioxide for the purpose of its permanent disposal.

Part 2: Electricity from Renewable Sources: This makes a number of changes to the Renewables Obligation to increase its efficiency and increase the deployment of renewables in the UK.

It will also amend the existing powers under the Electricity Act 1989 for the Gas and Electricity Markets Authority to run tender exercises to select offshore transmission owners to manage the conveying at high voltage of electricity generated by offshore generating stations.

It will introduce a power enabling Government to introduce feed-in tariffs for small-scale low-carbon electricity generation with a maximum capacity cap of 5 megawatts.

Part 3: Decommissioning of Energy Installations: This contains provisions to ensure the person with such an obligation meets the costs of decommissioning energy installations in three sectors: nuclear, offshore renewables and oil and gas.

Part 4: Provisions Relating to Oil and Gas: This makes some changes to the regime for petroleum licences under the Petroleum Act 1998. It also makes a number of changes to the existing third party access dispute resolution procedures in relation to upstream oil and gas infrastructure under the Petroleum Act 1998, the Gas Act 1995 and the Pipe-lines Act 1962 and introduces a similar procedure in relation to oil processing facilities.

Part 5: Miscellaneous: This contains various provisions covering reporting on energy requirements, smart meters, renewable heat incentives, the duties of the Authority, transmission access powers and costs relating to network connections, gives effect in legislation to earlier administrative transfer of responsibilities for certain aspects of energy regulation, and contains provision relating to nuclear security.

Part 6: General

Annex A is a glossary of terms used in the Act and these explanatory notes.

In the commentary on sections below, explanatory notes to cover each Schedule are included with the section which introduces the Schedule.

Part 1, Chapter 1: Gas Importation and Storage Zones. Summary and Background

6.The United Nations Convention on the Law of the Sea 1982 (UNCLOS) is an international agreement which defines the rights and responsibilities of nations in their use of the world’s oceans. Under Part V of UNCLOS, coastal states can claim rights within an area, known as the exclusive economic zone, which forms part of the area of the continental shelf and extends from the edge of the 12 nautical miles limit of the territorial sea for a further distance of 188 nautical miles. Within this area, the coastal state can claim exclusive sovereign rights over all natural resources, including storage space under the seabed. Under this Chapter, the UK will claim rights relating to the unloading and storage of gas, and to related exploration activities. This is a precursor to the regulatory regimes to be established under Chapters 2 and 3 of Part 1, relating to the importation and storage of combustible gas, and storage of carbon dioxide.

Commentary on Sections

Section 1: Exploitation of areas outside the territorial sea for gas importation and storage

7.Article 56(1) of UNCLOS provides that the rights of the coastal state in respect of the exclusive economic zone include, amongst other things, the exploration and exploitation of the seabed and its subsoil, and the waters above it. It also provides jurisdiction for the establishment and use of installations and structures in the area.

8.The United Kingdom has previously claimed a number of rights under Article 56(1), but has not yet claimed rights in relation to the unloading and storage of gas. The purpose of this section is to claim those rights, by providing for their ownership to be vested in the Crown within areas designated as “Gas Importation and Storage Zones”.

9.Subsection (1) vests in the Crown the rights defined by subsections (2) and (3). The rights are those relating to the following activities:

10.Subsections (4) and (6) define what is meant by “gas” for these purposes. The definition covers, in particular, both combustible gases (for the purposes of activities within Chapter 2 of this Part – Importation and storage of combustible gas), and carbon dioxide (for the purposes of activities within Chapter 3 – Storage of carbon dioxide).

11.Subsection (5) provides for Her Majesty to make an Order in Council designating an area as a Gas Importation and Storage Zone. Such Orders will be subject to negative resolution procedure (see section 94).

12.This approach reflects the one taken in section 84 of the Energy Act 2004 (c.20) (exploitation of areas outside the territorial sea for energy production) to establish Renewable Energy Zones for the purpose of offshore renewable electricity projects such as offshore wind farms.

Chapter 2: Importation and Storage of Combustible Gas. Summary and Background

13.In 2004, the UK was virtually self-sufficient in the production of natural gas for heating, electricity and business processes. However, gas production from the UK Continental Shelf (UKCS) is declining and it is expected that the UK will be reliant on imported gas to meet well over half of demand by 2020. Without sufficient and timely new storage and import infrastructure, there will be increased risks of a tight gas supply demand balance in the UK in the future. This could result in high UK gas prices during periods of peak demand and a higher risk of involuntary interruptions.

14.Companies have already responded to declining UK gas production by investing in new gas storage and import infrastructure. However, as the UK’s production declines, additional investment will be needed in gas infrastructure. Companies investing in the UK have sought a clear and stable regulatory framework to reduce the uncertainty, delays and costs associated with the UK’s consenting processes.

15.The UK’s current legislative regime offshore was chiefly designed for licensing oil and gas production. It therefore does not easily lend itself to the types of gas supply projects that the UK will need to come on-stream as indigenous production of natural gas declines.

16.As a result, there is no single piece of legislation that explicitly covers offshore gas supply activities. Consents have to be sought under a number of pieces of legislation, creating complexity and uncertainty for the investor. Developers may require consents under some or all of the following pieces of existing legislation (this list may not be exhaustive):

• The Petroleum Act 1998

• The Food and Environment Protection Act 1985

• The Coast Protection Act 1949

• The Transport and Works Act 1992.

17.This Part of the Act creates a new regulatory framework specifically designed for offshore gas storage and Liquefied Natural Gas unloading projects. The regime is intended to simplify the consenting process, reduce the administrative burdens on developers and create certainty over the legal operation and construction of new facilities. The aim is to encourage timely investment in offshore gas supply infrastructure and to contribute to security of supply in the longer term.

18.As part of simplifying the consenting processes for offshore gas storage and Liquefied Natural Gas unloading projects, the proposals in this Act will disapply the requirement on developers to apply separately for a licence under the Food and Environment Protection Act 1985 (c.48) to inject gas into the seabed, except where functions under that Act are exercised by the devolved administrations in Scotland, Wales or Northern Ireland. Sections 21, 23 and 24 of the Petroleum Act 1987 provide for the automatic establishment of safety zones around oil and gas installations and set out offences and the applicable penalties in connection with such safety zones. Paragraph 4 of Schedule 1 to this Act extends those provisions to installations used for offshore gas storage and Liquefied Natural Gas unloading projects.

Commentary on Sections

Activities requiring a licence

Section 2: Prohibition on unlicensed activities

19.This section prohibits specified activities from being carried out, except in accordance with a licence granted under section 4.

20.Subsection (3) specifies the activities for which such a licence is required. These include the use of a “controlled place” (as defined in subsection (4)) for gas storage or unloading; the recovery of the gas stored; the conversion of natural features (such as salt domes) for use as storage space; and related exploration activities. Such activities also include the establishment and subsequent maintenance of installations (which by section 16 may be fixed or floating structures) for those purposes. However, by subsection (2), a licence will not be required for any activity falling within section 3.

21.Subsection (4) defines “gas” and “controlled place” for those purposes. By contrast to the definition in Chapter 1, “gas” is limited to combustible substances, and must consist wholly or mainly of the substances listed or other substances which may be specified by order. An order specifying a substance for these purposes is subject to negative resolution procedure (see section 94). A “controlled place” is any place within the limits of the territorial sea adjacent to the United Kingdom, (the territorial sea extends 12 nautical miles from baselines established under the Territorial Sea Act 1987 (c. 49)), or within a Gas Importation and Storage Zone designated under section

Section 3: Exception for activities carried on partly on land etc

22.This section ensures that a licence under this Chapter is not required for certain activities which relate to developments which are liable to be subject to planning control (in particular under the Town and Country Planning Act 1990 (c. 8)). As a result, the risk of double regulation will be avoided in such cases. The excluded activities are:

• the establishment or maintenance of a gas unloading installation which extends at least in part into a controlled place (as defined in section 2(4)), and the unloading of gas to the installation in that place (see subsection (1)(a) and (d));

• the conversion of a natural feature (such as a salt dome), which is only partly within a controlled place, the remainder being under land (subsection (1)(b)); and

• the storage (and subsequent recovery) of gas at a place which similarly is only partly within a controlled place

However, such activities are excluded only where they relate to a development which can be expected to be subject to planning control. Thus in the case of a gas unloading installation, the installation must be permanently connected with land by a structure which provides access at all times and for all purposes; in the case of the conversion of a natural feature, the conversion operations must take place wholly or mainly on, over or under land; and in the case of storage and recovery of gas, the injection of the gas must take place on land. For those purposes, “land” means land above the low water mark (in Scotland), or within England or Wales (“England” and “Wales” are defined in Schedule 1 to the Interpretation Act 1978 (c. 30)).

Licensing

Section 4: Licences

23.This section allows the Secretary of State to grant licences for the purposes of this Chapter. Such a licence will permit, under the terms and conditions laid down in the licence, the carrying on of one or more of the activities mentioned in section 2. However, in order to make use of the sea, the seabed or spaces under the seabed for the purpose of these activities, an operator would in addition have to obtain a lease or (outside the territorial sea) authorisation from The Crown Estate, who administer the relevant rights to the offshore area vested under section 1 (or, within the territorial sea, vested in the Crown under common law). Subsection (2) accordingly allows the geographical coordinates covered by the licence to be linked to those covered by the lease or authorisation from The Crown Estate (see also section 6(2)).

Section 5: Applications

24.This section gives the Secretary of State the power to make regulations about the making of applications for licences. The regulations will be subject to negative resolution procedure (see section 105). In particular, the regulations may set out:

• who can apply for a licence;

• requirements that must be satisfied by or in relation to the licence applicant;

• how the application for a licence must be made;

• the information which an application must contain and any accompanying documents;

• an application fee.

Section 6: Terms and conditions

25.This section enables the Secretary of State to determine the terms and conditions of a licence. Subsection (2) allows the commencement and duration of the licence to be linked to that of the corresponding lease or authorisation from The Crown Estate.

26.Subsection (3) allows a licence to permit the licence holder to transfer the licence to another person or to include another person as a party to the licence, subject to any conditions set out in the licence.

27.The conditions of the licence may, under subsection (4), also include a requirement for the licence holder to obtain the prior consent of the Secretary of State or another person (such as the Health and Safety Executive) for acts specified in the licence. This could include, for example, a requirement for such consent for the drilling of a well. The licence may provide for the consent itself to be subject to conditions. Subsection (5) makes it clear that one of those conditions might be the modification of the licence in a specified respect.

Section 7: Model clauses

28.This section enables the Secretary of State to set out model clauses. Model clauses are standard sets of terms and conditions, which (subject to subsection (3)) will be incorporated in all licences. Such model clauses will be prescribed by regulations subject to negative resolution procedure (see section 105). By virtue of section 104 it will be possible to set out different model clauses for different cases. For instance, sets of model clauses made for gas storage may differ from those for unloading of Liquefied Natural Gas.

29.Subsection (3) enables the Secretary of State to omit or modify one or more of the model clauses in the case of any particular licence.

Enforcement

Section 8: Offence to carry on unlicensed activities

30.Subsection (1) makes it an offence for a person to carry on any activity listed in section 2 unless that person has a licence, or is a person (such as a contractor or sub-contractor) who carries on the relevant activity on behalf of a person with a licence. However, by subsection (3), this is subject to the exception provided by section 3. Subsection (2) makes it an offence to cause or permit another person to commit the offence (for instance, by getting a contractor to do so). Subsection (4) sets out the penalties for any person found guilty of an offence under this section. These are a fine of up to the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) on summary conviction or an unlimited fine for conviction on indictment.

Section 9: Offences relating to licences

31.Once a licence has been granted, it will also be an offence to breach certain of its provisions. Subsection (1) specifies breaches which will give rise to an offence, and gives the Secretary of State a power to specify by order (subject to negative resolution procedure – see section 105) further kinds of breaches that will amount to an offence. Other enforcement powers will be available in respect of breaches of licences which are not criminal offences: see in particular section 10. The breaches attracting criminal penalties under the present section include:

• the carrying on of an activity such as a drilling operation, without first obtaining the prior consent specified by the licence (whether from the Secretary of State or another person whose consent is required);

• the breach of any conditions attached to such a consent;

• the failure to keep records, give a notice, or make a return or report, as required by the licence.

32.The licence holder will be liable for offences under the licence, even where the act or omission in question results from the behaviour of, for example, a contractor. However, subsection (2) provides that the licence holder will have a valid defence if it can show that it exercised due diligence in trying to avoid committing the relevant offence. In the case where the contractor was responsible for a breach, the licence holder would have to show that it had exercised due diligence in choosing and supervising the behaviour of the contractor.

33.Subsections (3) and (4) make it an offence for a person knowingly or recklessly to make a false statement in order to obtain a licence, or any required consent, or to fail to disclose information which that person knows, or ought to know, to be relevant to a licence application or to that consent.

34.Subsection (5) sets out the penalties for the offences in subsections (1), (3) and (4): a fine of up to the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) on summary conviction, or an unlimited fine for conviction on indictment.

Section 10: Secretary of State’s power of direction

35.Where there has been a breach of a licence, this section enables the Secretary of State to direct that the licence holder takes appropriate steps to remedy the breach. For example, if the licence requires equipment to be maintained to a good standard, a direction may require the equipment to be repaired or replaced. Subsection (3) requires the Secretary of State to consult the licence holder before a direction is given.

36.If the licence holder fails to comply with the direction, the Secretary of State may, under subsections (4) to (8), ensure that the necessary action is taken, at the expense of the licence holder and (if so directed) with the latter’s assistance.

37.Subsection (9) ensures that this section does not affect any provision made by the licence itself for its enforcement (for instance, the licence may itself give the Secretary of State powers of direction in certain circumstances).

Section 11: Failure to comply with a direction under section 10

38.Subsection (1) of this section provides that a failure to comply with a direction under section 10 is a criminal offence, unless the accused proves due diligence was exercised in trying to avoid committing the offence. The penalties are set out in subsection (2): a fine of up to the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) on summary conviction, or an unlimited fine for conviction on indictment.

Section 12: Injunctions restraining breaches of section 2(1)

39.This section gives the Secretary of State the power to apply to the court for an injunction to prevent, or require the cessation of, activities prohibited by section 2(1). For example, where there is evidence that a gas unloading activity is taking place without a licence, the Secretary of State may apply for an injunction requiring the operator to cease the activity until a licence is obtained. This power is in addition to any other powers the Secretary of State may have under this Chapter.

Section 13: Inspectors

40.Subsections (1) and (2) of this section allow the Secretary of State to appoint persons to act as inspectors to assist in carrying out the Secretary of State’s functions under this Chapter, and enable the inspectors to be remunerated.

41.Subsection (3) gives the Secretary of State the power to make regulations (subject to negative resolution procedure – see section 105) setting out the powers and duties of the inspectors and of any other person acting on the directions of the Secretary of State in connection with a function under this Chapter (such persons may include, for example, surveyors or other contractors instructed by the Secretary of State). These are likely to include, for example, powers of entry and investigation and the right to take samples. Subsection (5) enables such regulations to create criminal offences (for example it might be an offence to obstruct an inspector in the exercise of functions under the regulations). Such offences will attract the penalty of a fine of up to the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) or such lesser amount as is specified in the regulations, on summary conviction, or an unlimited fine on conviction on indictment.

Section 14: Criminal proceedings

42.Subsection (1) ensures that an offence arising by virtue of the provisions of this Chapter may be prosecuted in any part of the United Kingdom, regardless of the offshore location at which the offence may have been committed.

43.Subsections (3) and (4) ensure that prosecutions for such offences alleged to have been committed in a controlled place (i.e. within the territorial sea or a Gas Importation and Storage Zone) may be brought only by the Secretary of State (or by a person authorised by the Secretary of State), or by or with the consent of the Director of Public Prosecutions (or the Director of Public Prosecutions for Northern Ireland). Such provision is unnecessary in relation to Scotland as there all prosecutions are brought by or on behalf of the Lord Advocate. Subsection (5) provides that the same restrictions will apply to any prosecution for an offence created by regulations under section 13 except that references to a person authorised by the Secretary of State are to be read as references to an inspector.

Supplementary

Section 15: Interaction with the petroleum licensing requirements

44.In some cases the storage of gas will require a petroleum licence, under section 3 of the Petroleum Act 1998, as well as a licence under section 4 of the Act. This is because the geological feature in which the gas is stored (for instance, a depleted hydrocarbon field) may itself contain indigenous petroleum. As a result, petroleum will be “produced” when it mixes with gas that is recovered from the store. In the case of other geological features, the amounts of hydrocarbons present may be negligible. This section provides a means whereby the holder of a gas storage licence can be assured that a petroleum licence will not also be necessary. Thus, if the Secretary of State is satisfied that the amount of hydrocarbons present is insignificant (see subsection (4)), a direction may be given under subsection (2) which makes it clear that there is no requirement for a petroleum licence.

45.Subsection (5) requires such a direction to be revoked if circumstances change; but subsection (6) then ensures that the licence holder is allowed a period of grace before the revocation takes effect. A period will be allowed that is sufficient to enable the licence holder to apply for a petroleum licence, or to negotiate to obtain rights under an existing licence.

46.Subsection (7) requires the licence holder to be consulted before a direction is given or revoked.

Chapter 3: Storage of Carbon Dioxide. Summary and Background

47.Carbon Capture and Storage (CCS) is a process involving the capture of carbon dioxide from the burning of fossil fuels, its transportation, and storage in secure spaces, such as geological formations, including under the seabed. CCS can be applied to a range of industrial processes including coal-fired and gas-fired electricity generation. It has the potential to reduce carbon dioxide emissions of standard coal-fired generation by up to 90%. The Stern Review(1) highlighted the potential role that CCS could play in tackling climate change, with the potential to contribute up to as much as 28% of global carbon dioxide mitigation by 2050. However, CCS has not yet been applied to commercial-scale electricity generation.

48.The Government is committed to the development of CCS with electricity generation. The Government launched a competition in November 2007 to support a CCS demonstration project in the UK. This will be one of the first demonstrations anywhere in the world. The objective is for the demonstration project to be operational by 2014. The demonstration cannot proceed without an appropriate legislative regulatory regime being in place.

49.Most of the activities involved in CCS are standard industrial processes and can be readily regulated by established legislation. However, permanent storage of carbon dioxide is a novel activity, and existing legislation to control depositions below the surface of the land and seabed is not well suited to licensing the storage of carbon dioxide. This Chapter of the Act establishes a framework for the licensing of carbon dioxide storage and the enforcement of the licence provisions. It also applies existing offshore legislation (for example the decommissioning legislation in the Petroleum Act 1998) to offshore structures used for the purposes of carbon dioxide storage. Chapter 1 of Part 1, amongst other things, asserts the UK’s rights to the use of the offshore sub-surface space for the storage of carbon dioxide.

50.The framework is limited to the offshore area. This is due to the fact that this area is likely to be of primary interest to developers in the short-term. Moreover, storage of carbon dioxide onshore requires amendment of existing EU Directives. Whilst such amendment forms part of the Commission’s proposal for a Directive on the geological storage of carbon dioxide presented in January 2008, the details of any Directive finally adopted will be a matter for agreement within the EU Council and the European Parliament. Whilst the agreed text of the Directive is expected to cover both onshore and offshore areas, there is a risk that the Directive may not be agreed in time to fit in with the timeframe of the CCS demonstration project. The provisions in this Chapter are intended to provide sufficient flexibility for the EU regime to be readily implemented once agreed at the European level in relation to the offshore area.

51.Following a Legislative Consent Motion agreed by the Scottish Parliament, the provisions of this Chapter apply to the territorial sea adjacent to Scotland (0 to 12 nautical miles) where the Scottish Ministers will have the relevant legislative, licensing and enforcement powers. The practical arrangements as well as any cross-boundary issues arising in connection with the provisions of this Chapter to that area are intended to be addressed in a Memorandum of Understanding to be entered into between the Secretary of State and the Scottish Ministers.

Commentary on Sections

Activities requiring a licence

Section 17: Prohibition on unlicensed activities

52.This section prohibits the following activities from being carried out, except in accordance with a licence granted under section 18:

• storage of carbon dioxide with a view to its permanent disposal;

• conversion of a natural feature (for example, a saline aquifer) for such storage;

• exploration for a carbon dioxide storage site; and

• establishment or maintenance of an installation for any of those purposes.

Temporary storage of carbon dioxide will also require a licence, if such temporary storage is an interim measure prior to its permanent disposal.

53.Subsection (3) sets out the area within which activities are subject to those controls. It consists of the territorial sea adjacent to the United Kingdom (the territorial sea extends 12 nautical miles from baselines established under the Territorial Sea Act 1987 (c. 49)), together with any area designated as a Gas Importation and Storage Zone (see section 1).

Licensing

Section 18: Licences

54.This section allows the licensing authority (or any authority to which the relevant function has been transferred under section 34) to grant licences for the purposes of this Chapter. The licensing authority in relation to the activities of storage, conversion or exploration within the territorial sea adjacent to Scotland is the Scottish Ministers; otherwise, the licensing authority is the Secretary of State. However, where the activity concerned is only partly within Scottish territorial waters (for instance where a carbon dioxide store straddles the boundary between Scottish and English territorial waters) the licensing authority may be either the Scottish Ministers or the Secretary of State. In such a case, references to the “licensing authority” are to be construed as references to the Authority that exercises the relevant power to grant a licence or to consider a licence application. The licensing authority for an installation will always be the Authority that licensed the activity for which the installation is maintained or established.

55.A licence granted under section 18 will permit, under the terms and conditions laid down in the licence, the carrying out of one or more of the activities mentioned in section 17. However, in order to make use of the sea, the seabed or spaces under the seabed for the purpose of these activities, an operator would in addition have to obtain a lease or authorisation from The Crown Estate, who administer the relevant rights to the offshore area. Subsection (3) accordingly allows the geographical coordinates covered by the licence to be linked to those covered by the lease or authorisation from The Crown Estate (see also section 20 (4)).

Section 19: Requirements relating to grant of licences

56.This section gives the licensing authority the power to make regulations (subject to negative resolution procedure – see section 105) prescribing the conditions that the applicant may be required to meet in order to obtain a licence, as well as any other requirements that must be satisfied prior to the licence being granted. In particular, the regulations may set out:

• who can apply for a licence;

• how the application for a licence must be made;

• the information which an application must contain and any accompanying documents;

• an application fee; and

• a requirement for the applicant to provide financial security (such as a letter of credit, a fund held on trust, or another form of security) in respect of any obligations arising in connection with the licensed activities.

• The obligations in relation to which financial security may be required are not restricted to those laid down by the licence, and may take into account, for example, any liabilities that may arise in connection with a carbon dioxide store (such as any liability that may arise under the EU Emissions Trading Scheme). While such security may not be needed in every case, the intention of requiring such a security would be to protect the public purse against the risk of the licensee failing to meet its obligations arising from its activities under the licence. Where a financial guarantee is required, then it will be required as a condition of the licence being granted, and not as a condition of making an application.

Section 20: Terms and conditions

57.This section gives the licensing authority (or an authority to which the relevant function has been transferred under section 34) a power to grant licences on such terms and conditions as that licensing authority thinks fit. The licensing authority’s discretion is, however, subject to its power under section 21 to prescribe, by regulations (subject to the negative resolution procedure – see section 105), the provisions which must be contained in a licence.

58.Bysubsection (3) a licence may include provisions about the following matters (amongst other things):

• the financial security that may be required (in addition to the security required under section 19), or the release of any existing financial security during the licensing period (for instance to reflect a change of circumstances, such as an improvement in the operator’s financial standing);

• a power to allow the licensing authority to review or (after consulting the licence holder) to modify the licence;

• a power to prevent, or enable the licensing authority to prevent the licence holder, in specified circumstances (such as where there is evidence to suggest that the store poses a significant environmental risk), from carrying on an activity (for example, the continued injection of carbon dioxide).

59.In addition to imposing conditions on the process of injecting carbon dioxide, the licence may also impose obligations on the licence holder after the activity of carbon dioxide injection has permanently ceased. Therefore licences will be able to cover both a period during which injection is taking place, and a subsequent period, during which it is expected the stability of the store would have to be demonstrated through monitoring and other activities prior to termination of the licence.

60.Subsection (4) ensures that the commencement and duration of the licence can be linked to that of the corresponding lease or authorisation from The Crown Estate.

61.Subsection (5) ensures that a licence can include an authorisation for the transfer of the licence to another person or the inclusion of another person as a party to the licence, subject to any conditions set out in the licence. Such conditions might for instance include obtaining the prior consent of the licensing authority for such a transfer.

62.Subsections (6) and (7) ensure that provisions in the licences can include conditions to obtain consent from the licensing authority (or an authority to which the relevant function has been transferred under section 34) for specified acts or omissions. Such consent may itself be granted subject to conditions.

Section 21: Content of licences: regulations

63.This section gives the licensing authority the power to make regulations (subject to negative resolution procedure – see section 105) about the terms and conditions which must be included in licences to be granted under section 18.

Enforcement

Section 22: Offence to carry on unlicensed activities

64.This section makes it an offence for a person to carry out any of the activities listed in section 17 unless that person has a licence issued under section 18, or is a person (such as a contractor or sub-contractor) who carries out the relevant activity on behalf of a licensed person. It is also an offence to cause or permit such unlicensed activities to be carried out (for example by getting a contractor to do so).

65.Subsection (3) sets out the penalties for those offences (on summary conviction, a fine not exceeding £50,000 and, on conviction on indictment, imprisonment for a term not exceeding two years or an unlimited fine, or both). These penalties are set at the same level as those in Part 2 of the Food and Environment Protection Act 1985 (c. 48) (FEPA), as amended by the Environmental Protection Act 1990 (c. 43).

66.Subsection (4) provides, however, for a lesser penalty in circumstances where the activities in question are limited to exploration (rather than for instance the activity of carbon dioxide storage). On summary conviction, a person will be liable to a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) and, on conviction on indictment, to an unlimited fine.

Section 23: Offences relating to licences

67.Once a licence has been granted, it will also be an offence to breach certain of its provisions. Subsection (1) specifies breaches which will give rise to an offence, and gives the licensing authority a power to specify by order (subject to the negative resolution procedure – see section 105) further kinds of breaches of licences that will amount to an offence. Other enforcement powers will be available in respect of breaches which are not criminal offences: see in particular section 24. The breaches attracting criminal penalties under the present section include:

• doing something that requires the licensing authority’s consent, without obtaining such consent (for example, where the regulatory authority’s consent is required before commencing injection of carbon dioxide); and

• a failure to keep records, notify, or make a return or report, as required by the licence.

68.Only the licence holder will be liable for offences under this section, including where the act or omission in question results from the behaviour, for example, of a contractor. However, subsection (2) provides that licence holder will have a defence if it can show that it exercised due diligence in trying to avoid committing the offence. In circumstances where the contractor was responsible for a breach, the licence holder would have to show, for example, that it had exercised due diligence in supervising the behaviour of the contractor.

69.Subsections (3) and (4) set out the penalties for those offences. These are identical to those for undertaking a licensable activity without a licence (section 22 (3)) (a fine not exceeding £50,000 and, on conviction on indictment, imprisonment not exceeding two years or an unlimited fine, or both; and lesser penalties in relation to exploration activities: on summary conviction, a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) and, on conviction on indictment, an unlimited fine).

70.Subsections (5) and (6) create offences where a person knowingly or recklessly makes a false statement in order to obtain a licence, or any required consent, or fails to disclose information which that person knows, or ought to know, to be relevant to a licence application or to that consent. Subsection (7) sets out the penalties for the offences in subsections (5) and (6): on summary conviction, the person found guilty of the offence would be liable to a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland), or, on conviction on indictment, an unlimited fine.