Memorandum submitted by Professor Dennis
Anderson, Director of the Imperial College Centre for Energy Policy
Is a Low Carbon Economy Technically Feasible?
The answer to this question is yes. The much-cited
study by the Royal Commission on Environmental Pollution (RCEP),
as several of those providing testimony to the Committee have
commented, did indeed argue that a 60% reduction in greenhouse
gas emissions would be needed by 2050 if the UK is to be on course
to help the world meet the challenge of climate change in the
long-term. Less noticed, however, is that the RCEP also showed
that such a target was technically feasiblethrough continued
improvements in the efficiency with which energy is produced and
used, and through using a mix of "intermittent" renewable
energy, fossil fuels with carbon sequestration, and nuclear power.
Furthermore, as members of the RCEP have acknowledged
since the publication of their report, they understated the case.
By and large, the report shows what could be accomplished using
technologies already available and familiar to us today. But two
further groups of technology would greatly widen the options available
to us: hydrogen production and storage from renewable energy,
which would enable us to solve the intermittency problem, and
the fuel cell (for which hydrogen is the ideal feedstock) for
decentralised forms of combined heat and power and for use in
vehicles. Hydrogen can also be produced from fossil fuels (with
the carbon being sequestered) and nuclear power, and indeed has
long been seen as a way of non-carbon forms of primary energy
being able to enter the transport markets.
It is also well known that the fuel cell based
on hydrogen would also be a route to majorperhaps a two
fold or moregain in energy efficiency in transport. Since
world oil consumption for transport is expected to more than double
over the coming decades, from its current level of over three
billion tonnes per year, the development of the fuel cell along
with hydrogen, if successful, would save more energy by than is
provided by oil today. And this is to consider the transport markets
only. Developments in the nature of electricity generation with
the emergence of the technologies reviewed by the Committee would
be equally profound.
More generally if, with continued R&D and
innovation, such technologies do emerge, they will open up to
usindeed to every country in the worldthe prospect
of a carbon free energy economy available in perpetuity.
What Would the Costs Be?
The world markets for such energy would also
be vast. The UK currently accounts for about 2% of world primary
energy consumption; with growth in the developing world, in Asia
and Latin America in particular, world energy consumption will
probably triple or more over the coming half century. Each year,
the developing countries require more than 70,000 MW of new capacity
installationsor more than the entire current capacity of
the UKand we have estimated that roughly 5 million MW of
new generating capacity will be needed by 2050 as populations
and economies progress. It follows that, if the world's economies
take the problem of tackling climate change seriously, there will
be an enormous demand for the new technologiesthe full
range of renewable energy technologies, hydrogen production, fuel
cells and the other non-carbon emitting technologies with which
the Committee is well familiar. Thus in making its own contribution
to reducing carbon emissions, the UK will need to weigh the enormous
international economic opportunities that will lie ahead for manufacturing,
commerce and investment as other countries begin to seek ways
of reducing their emissions.
But will the costs be too large? The short answer
is no. At the macro-economic level, a large number of peer reviewed
studies surveyed by the IPCC and the 2000 World Energy Assessment
of the UNDP and World Energy Council have shown that the costs
may lie between minus 1% of GNP to plus 1 or 2%, ie from a positive
effect on growth to, at most, a loss of one year's growth over
a period of 50 years. Since, in the case of the UK, we can realistically
aspire to a more than two-fold increase of GNP over the period,
the effect would be smalland may, as the lower of the estimates
have shown, even be positive. Furthermore, this is, once again,
to understate the case, since such calculations ignore the environmental
advantages of the new technologies, both for mitigating climate
change and for reducing local pollution.
The reason why the estimates of net costs are
low (even when the environmental advantages are ignored) is that
RD&D and innovation are reducing the costs of the non-carbon
technologiesof onshore and offshore wind, fuel cells and
solar energy for example. While we do not know reliably how far
costs might come down, we do know that they will not be far removed,
and might possibly become lower, than the costs of energy provided
by fossil fuels and nuclear power today. (I have appended a table
of relative costs today and in prospect for the case of electricity
generation from various primary energy sources.)
Suggestions for UK Policies on RD&D and Innovation
in the Field of Low Carbon Technologies
Innovation thus holds the key both to enabling
us to address the climate change problem and to reducing the costs
of doing so. It is in this respect that current UK policies are
seriously deficient, and that we are in need of a major new initiative
to resuscitate our policies toward energy RD&D and innovation.
With the exception of RD&D in the leading
oil and gas companies, energy research, both public and private,
experienced a seriousmore than ten-folddecline since
privatisation of the electricity, gas and coal industries in the
late 1980s. By 1998 we had fallen to the absolute bottom of the
international league, with our public expenditures per capita
on energy RD&D having fallen to one tenth of the OECD average,
and one eighth of that of the USA. The Research Councils report
that only one in four applications are funded on account of shortage
of resources, many researchers do not submit applications given
such a high probability of rejection and the time and effort entailed,
and many projects that are financed are under funded. Can it be
that UK researchers are so poor that only one-in-five (perhaps
less) deserve to have their research fully funded? Surely our
track record suggests not. But there can be little doubt that
the funding of energy research in the UK is in crisis, and falls
far short of what is needed to address the problems ahead.
Furthermore, with the important exception of
the oil and gas majors, the Committee has found that the private
sector is not making up the deficit. The electricity companies
in particular are putting little effort into R&D. Ofgem has
washed its hands of the issue, aside from its administration of
the Renewables Obligation, contenting itself with cost efficiency
and leaving all long-term matters regarding energy and the environment
to others and to policies imposed on it by the Government.
Recent efforts by the Government have begun
to claw back some of the ground lost, of which we would cite the
establishment of the Carbon Trust, the Renewables Obligation,
the work of the Energy Savings Trust, the capital support programme
for renewable energy announced by the Prime Minister 18 months
ago, and the Climate Change Levy. The institutional and to some
extent the financial framework is being put in place, and our
research community remains in the first rank. Thus there is a
lot to build on.
In terms of policy initiatives to support RD&D
I would suggest the following:
1. Transform the climate change levy (CCL)
into a carbon tax, from which all non-carbon sources would be
exempt. Currently it takes the form of an energy tax, and provides
little or no incentive for the development of non-carbon energy
2. Hypothecate more of the revenues from
the CCL (if it is retained), or from a carbon tax (if it were
to replace the CCL), to support all stages of the innovation cycle,
namely to support:
Energy RD&D in the form of direct
grants and tax incentives. In the case of the Research Councils,
the goal should be to raise the acceptance rates of projects funded
to at least one in two, and to provide more core funding.
Tax incentives for innovation and
commercialisation of promising options.
Public procurement programmes for
innovative products and services.
Education and training in energy
and the environment.
Fostering international collaboration
on innovative technologies, not least with developing countries.
3. Require electricity and gas market regulation
via Ofgem to establish a supportive framework for innovation and
RD&D toward the new "climate friendly" technologies.
This might possibly be done through allocation of some revenues
generated by the Renewables Obligation Certificates, though there
are other mechanisms.
The resources would be forthcoming, without
the need to appeal to the Treasury, if we were to change the incentive
structures. The former Non-Fossil Fuel Obligation for example
generated around £1 billion per year in the 1990s, of which
90% went to nuclear power and 10% to renewable energy. I would
not advocate returning to this programme, which at the time had
merits, even less allocating resources in this way again. What
it and our experiences with the Climate Change Levy have shown,
however, is that substantial resources can be generated through
relatively minor levies, which as I have noted would be better
placed on carbon than on energy. Such resources, allocated through
the incentive systems discussed, would put the UK a position of
unquestioned leadership in international efforts to tackle the
problems posed by climate change, and it would also open up immense
commercial opportunities for UK industry and commerce.