Further Memorandum by BNFL (CC14B)
INTRODUCTION
BNFL welcomes the opportunity to submit further
evidence to the Environment, Transport and Regional Affairs Committee
(ETRA) inquiry into the UK Climate Change Programme on the subject
of the climate change levy. BNFL supports the Government's commitment
to reducing greenhouse gas emissions by 12.5 per cent by 2008-12
in comparison to emissions in 1990. BNFL also supports the Government's
commitment to reduce carbon dioxide emissions by 20 per cent by
2010. There is growing evidence that further reductions in emissions
will be required to prevent unsustainable climate change and that
these reductions will need to be even more substantial in later
periods.
By making a commitment to introduce the climate
change levy the Government has moved the debate on from whether
we should take action to reduce greenhouse gas emissions to how
we can achieve those reductions by the most cost-effective means.
By taking a lead in this way the Government should be congratulated.
The levy should be cost effective and not impact
on UK competitiveness. Facilitating greenhouse gas emissions reduction
through new nuclear build and generation beyond "business
as usual" from existing stations is part of the most cost
effective option to achieve this. The levy must work in harmony
with the wider climate change programme, most notably any emissions
trading arrangements.
THE CLIMATE
CHANGE LEVY
In principle economic instruments designed to
tackle climate change emissions should address the root cause
of climate change, namely greenhouse gas emissions. The "theoretical
attraction" of a carbon-based levy was recognised by the
Minister for the Environment in his evidence to the Trade and
Industry Committee.[1]However,
the Government has decided that the levy should apply only to
the business sector. As a result the levy is being applied downstream
and does not differentiate between the different means of electricity
generation and the greenhouse gas emissions associated with them.
In the Pre-Budget Report the Chancellor announced
exemptions from the levy for renewables and CHP. However an exemption
was not announced for nuclear power, which supplies almost 30
per cent of the UK's electricity demand with negligible greenhouse
gas emissions.
Greenhouse gas emission reductions should be
achieved through the most cost-effective and sustainable means
available. The Government's Energy Advisory Panel has concluded
that the "theoretically lowest economic cost solution"
to meeting the Government's 20 per cent carbon dioxide reduction
target included substantial new nuclear build.[2]
There is a case for the exemption of nuclear
power from the levy. If the electricity supplied by nuclear power
was instead supplied by the current fossil fuel mix an additional
17 MtC of greenhouse gas emissions would be produced. This is
equivalent to more than half of all road transport emissions.
The approximately 50 per cent increase in UK nuclear generation
since 1990 has contributed some 50 per cent of the country's total
CO2 emission reductions since that date. The costs
of treatment, storage and final disposal of waste are included
in the generation costs of nuclear power, in sharp contrast to
the free release of greenhouse gases from fossil fuel power stations.
However, some have argued that exemption of
all existing nuclear generation could be seen as giving economic
rent to nuclear power generators for no net environmental gain.
Therefore BNFL propose that special consideration is given to
the exemption of electricity generated from new nuclear build
and additional generation from existing nuclear power stations
beyond the "business as usual" lifetimes. Exempting
new nuclear build and "new" nuclear generation from
existing stations would give genuine reductions in greenhouse
gas emissions in a cost-effective manner.
On current programmes all but one of the nuclear
power stations currently operating in the UK is due to be decommissioned
over the next 25 years. In the short term "new" generation
from the UK's current nuclear power stations would lead to significant
savings in greenhouse gas emissions. For example, if the operating
life of each current nuclear power station were extended by five
years the emission of 85 MtC would be avoided.
Today the UK's nuclear power stations generate
electricity economically and without support from the fossil fuel
levy. The operating life of many of BNFL's nuclear power plants
could be extended subject to satisfactory periodic review by the
regulators. This will require investment to ensure that the plants
will continue to operate efficiently and will meet all modern
safety and environmental requirements. Changes in the electricity
market, including those arising from NETA, are expected to exert
a downward pressure on wholesale electricity prices. If the electricity
generated from operating life extensions was exempt from the levy
the financial risk involved in investing in operating life extensions
would be reduced.
In the longer term BNFL believes that new nuclear
build will be required to help the UK meet the more stringent
emissions reductions that are required to abate climate change.
In today's electricity market new nuclear build is not economically
competitive. This is in large part due to the fact that nuclear
power stations are required to account for the costs of the treatment,
storage and final disposal of its wastes in its generation costs
in sharp contrast to the treatment of greenhouse gases from fossil
fuel power stations.
When BNFL and British Energy participated in
the oral evidence session with ETRA we indicated that there was
a differential of 0.5-1.0 p/k Wh between new nuclear generation
costs and the current wholesale electricity price. Having studied
the Westinghouse AP600 reactor design, following the BNFL acquisition
of Westinghouse, BNFL believes that the differential is potentially
near to the newly assessed levy rate of 0.43 p/k Wh. Exemption
for new nuclear build from the levy would significantly improve
its economic viability.
The levy is designed to encourage cost-effective
reductions in greenhouse gas emissions. Exempting new nuclear
build and "new" generation from existing power stations
from the climate change levy would recognise that nuclear power
emits minimal quantities of greenhouse gases that contribute to
climate change and that nuclear power can reduce overall emissions
by replacing fossil fuels.
EMISSIONS TRADING
If the effectiveness of the levy is to be maximised
it must be designed to operate in conjunction with the rest of
the Government's climate change policies. BNFL welcomes the Pre-Budget
Report announcement that the Government will seek to facilitate
emissions trading between intensive energy users covered by levy
negotiated agreements.
An emissions trading scheme is being developed
by a group led by the CBI and ACBE. BNFL is participating fully
in the development of this trading scheme. The electricity generation
sector is responsible for more than a quarter of all UK greenhouse
gas emissions achieved since 1990 have resulted primarily from
an increase in electricity generation from gas and nuclear power.
If both the climate change levy and the forthcoming emissions
trading scheme were to exclude the electricity generation sector
there would be little incentive to build on the significant reductions
in emissions already achieved in this sector.
The electricity generation sector should be
included in the trading scheme. Any mechanisms developed for their
participation should not deny industry the opportunity to select
low carbon emission generation sources.
This would be possible if business users of
energy could claim credit against emission reductions achieved
through purchasing electricity from low carbon sources.
Another mechanism that could be developed to
give business users of energy this opportunity would be to allow
new nuclear build, or the life extension of existing stations,
to earn tradable emission permits under an equivalent to the Kyoto
Clean Development Mechanism (CDM). These permits could then be
transferred to businesses which chose to enter into direct supply
contracts with nuclear generators.
CONCLUSIONS
BNFL believes that the potential impact of climate
change poses a serious threat to the environment. We welcome the
Government's commitment to reduce UK greenhouse gas emissions
and hope it will continue to lead the international debate on
this issue.
Measures to combat climate change should seek
to minimise the impact on the competitiveness of UK business.
The business sector has a role to play in national efforts to
reduce greenhouse gas emissions. However, freedom should be given
to the business sector to allow it to achieve its share of emissions
reductions cost-effectively.
New nuclear build and "new" generation
from existing nuclear power stations are part of a cost-effect
strategy to meet the Government's domestic target of a 20 per
cent reduction in CO2 emissions. The climate change
levy should exempt new nuclear build and "new" generation
in recognition of the part it could play in a long-term strategy
to reduce greenhouse gas emissions.
November 1999
1 Paragraph 33 Trade and Industry Committee Ninth Report-"Impact
on Industry of the Climate Change Levy" Back
2
The Energy Report, Shaping Change 1997, pp211-219 Back
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