Select Committee on Science and Technology Appendices to the Minutes of Evidence


APPENDIX 54

Memorandum submitted by Professor Dennis Anderson, Director of the Imperial College Centre for Energy Policy and Technology

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 feasible—through 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 major—perhaps a two fold or more—gain 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 us—indeed to every country in the world—the 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 installations—or more than the entire current capacity of the UK—and 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 technologies—the 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 small—and 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 technologies—of 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 serious—more than ten-fold—decline 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 forms.

  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.

January 2003



 
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