Memorandum submitted by BP
SUMMARY
1. BP is not a part of the nuclear industry,
but its potential contribution cannot be ignored. Whenever a potential
means of reducing CO2 emissions is rejected, it becomes
more difficult to achieve the desired environmental objective.
2. BP's biggest contribution to "keeping
the lights on" still lies in its core and traditional business
of finding and producing oil and gas. The opportunities for increased
gas use to reduce CO2 emissions should not be forgotten.
The displacement of coal-fired generation by efficient gas-fired
generation can reduce CO2 emissions by more than 50%.
3. BP believes that renewable forms of power
generation can make a substantial contribution to future energy
requirements at a reasonable cost and with limited impact on the
environment.
4. BP's expertise in the renewables sector
lies essentially in solar, and to a lesser but growing extent,
in wind. For the UK, wind is currently the most favoured option.
5. It is also possible to go a substantial
step further with power generation from both gas and coal by using
CO2 capture and sequestration technology. This can
prevent the release of more than 90% of the CO2 resulting
from fuel combustion at the power station.
6. BP's and partners' Decarbonised Fuels
Project (known as DF1) based on the Peterhead Power Plant and
the UKCS (United Kingdom Continental Shelf) Miller Field presents
an immediate and effective way of establishing the necessary large-scale
technology demonstration of CCS. It would produce significant
environmental benefits by reducing emissions of CO2
by 1.3 million tons per year, the equivalent of removing 300,000
cars from the roads. Indeed, in terms of the immediate future,
this single project would provide around 350MW of clean electricity—enough
to provide power for all the homes in a city the size of Glasgow
or Manchester.
7. Policy makers should realise that any
credible policy to reduce CO2 emissions must embrace
CCS as part of the portfolio, as recognised by the IPCC special
report on CCS; and that this ought to be acknowledged in any fiscal
or regulatory regime designed to assist low carbon or carbon free
energy to compete with fossil fuels.
INTRODUCTION
1. Most are agreed that if the world wishes
to guarantee security of energy supplies, and in a way which is
consistent with environmental objectives and principles, it cannot
afford to forego lightly the potential offered by either nuclear,
renewables—or, not mentioned specifically in the subject
of this Inquiry but undoubtedly of equal significance, Carbon
Capture and Storage (CCS).
2. BP is not part of the nuclear industry.
But we have always acknowledged its potential contribution. When
in November 2003, Lord Browne of Madingley, BP's group Chief Executive,
discussed the necessity and challenge of stabilising atmospheric
concentrations of greenhouse gases at around 500-550 parts per
million, a number of options were identified as a means of reaching
this goal. One of these options was an increase in nuclear capacity:
700 1GW nuclear plants, representing a 4% per annum increase in
nuclear capacity, would contribute 1 Giga tonnes per annum of
avoided emissions of carbon by 2050. To reach the desired atmospheric
contributions mentioned above, the world would need to achieve
up to 7 Giga tonnes per annum by 2050.
3. It is clear that whenever a potential
means of reducing CO2 emissions is rejected for whatever
reason, it becomes more difficult to achieve the desired environmental
objective. So if, for reasons such as cost, waste management,
safety or security, the nuclear option is judged unacceptable,
other options (such as increased natural gas, much lower speed
limits, more renewables etc) would have to contribute even more.
It is for policy makers to guide these choices—whether they
wish to be neutral, or favour one against another. Industry can
only explain the options and associated costs: and then, deliver.
4. BP's biggest contribution to "keeping
the lights on" still lies in its core and traditional business
of finding and producing oil and gas. The importance of this role
is highlighted by the concern regarding winter gas supplies in
the UK, an issue that BP is helping to address through our North
Sea operations and our interest in LNG import terminals. Although
there is increasing attention on possible uses of oil and gas
in forms which avoid incurring environmental penalties, the opportunities
for increased gas use to reduce CO2 emissions should
not be forgotten. The displacement of coal-fired generation by
efficient gas-fired generation can reduce CO2 emissions
by more than 50%.
5. It is also possible to go a substantial
step further with power generation from both gas and coal by using
CO2 capture and sequestration technology. This can
prevent the release of more than 90 per cent of the CO2
resulting from fuel combustion at the power station. BP and partners
are developing a large-scale generation project with CCS at Peterhead
in Scotland (entitled DF1). The potential contributions of CCS
and renewables to Britain's energy future are the subject of this
memorandum.
THE SCALE
OF THE
PROBLEM
6. The consensus seems to be that electricity
demand will continue to grow, but at a slower rate than GDP growth.
It is also expected that some existing nuclear and coal-fired
generation will shut for either safety or environmental reasons.
These factors mean that new power generation will be required.
Some would like this to be filled by renewables. However, combining
demand projections from sources such as National Grid combined
with realistic closure assumptions for existing power stations,
indicate that the rate of renewables development—as implied
by the Renewables Obligation mechanism—is insufficient to
meet demand in the medium term (even if this target of renewables
expansion is achieved).
7. BP believes that renewable forms of power
generation can make a substantial contribution to future energy
requirements at a reasonable cost and with limited impact on the
environment. This is particularly true for optimally sited wind
power, where the costs are converging on those of thermal generation.
However, permitted locations for onshore wind are limited, and
the problem of intermittency is real and significant. Additionally,
both onshore and offshore wind have power transmission issues
given their distance from the electricity demand centres.
8. The factors limiting the rate of renewables
development and the issues associated with intermittency point
to a need to develop other options for meeting future energy requirements
in a sustainable way. It is also the case that low-carbon generation
is needed very soon if the UK is to achieve its 2010 targets.
A calculation of the required reduction indicates that it would
require the replacement of 135 TWh of coal-fired generation with
low carbon electricity.
THE CONTRIBUTION
OFFERED BY
RENEWABLES
9. BP's expertise in the renewables sector
lies essentially in solar, and to a lesser but growing extent,
in wind. For the UK, with its good wind resource but poor insolation,
wind is currently the most favoured option. As noted already,
ideal locations for onshore wind are limited, and the public acceptability
of onshore wind farms is becoming a limited factor.
10. Whatever form is considered, it is a
reality, both in the UK and elsewhere, that the expansion of renewable
energy capacity is dependent upon the fiscal, regulatory and incentive
mechanisms in place. BP believes that there is a need for governments
to play an enabling role, including market-based support mechanisms.
There is no inherent or principled conflict between assistance
for immature technologies and liberalised and competitive energy
markets—provided that the assistance doesn't seek to "pick
winners" and is relatively neutral as between different options
for reducing CO2 emissions.
CARBON CAPTURE
AND STORAGE
11. Although they offer tremendous scope
for growth, the issues confronting renewables suggest that alternative
low-carbon solutions are also necessary. The need for large-scale,
low-carbon generation options, which can be brought online quickly,
is the main driver for BP's development of a hydrogen burning
power station at Peterhead in Scotland, with associated carbon
capture and sequestration. This DF1 project builds from a range
of proven technologies, has costs comparable to other low-carbon
technologies deployable in these timescales, and could be replicated
to reduce significantly UK CO2 emissions. Indeed, it
could be brought online in time to contribute to meeting the UK's
2010 CO2 emissions target. The potential offered by
CO2 Capture and Storage (CCS) is increasingly recognised,
as evidenced by the recent IPCC Report. CCS needs to be seen as
complementary to both energy efficiency and renewable options
for power generation.
12. The United Kingdom is especially well
placed to explore the potential of CCS. The North Sea basin is
ideal for large scale storage. As a result of historical policy
frameworks, the geology under the North Sea is very well understood
and there are sound grounds for confidence that UKCS oil and gas
fields are well suited for storing CO2 and allowing
Enhanced Oil Recovery (EOR). In addition, the North Sea basin
has large deep saline aquifiers which offer the potential of excellent
CO2 sites. Indeed, together the oil, gas and saline
aquifiers have adequate capacity to store all of the CO2
produced from power generation in Europe for some 50 years. Finally,
recycling the North Sea pipeline infrastructure could play an
important part in enabling cost effective access to these reservoirs.
But much of the existing infrastructure which can be utilised
for CCS will be decommissioned over the next 20 years, so the
UK's window of opportunity to gain material benefit from CCS technology
will close as that infrastructure is removed.
13. The inherent advantages of the North
Sea in terms of storage and infrastructure not only provides the
UK with an opportunity to achieve significant and rapid reductions
in CO2 emissions—DF1 alone would reduce them
by 1.3 million tons annually, the equivalent of removing 300,000
cars from the roads. But in addition, higher employment and enhanced
energy security would be one of the consequences of the widespread
deployment of CCS in the North Sea.
THE TECHNOLOGY
14. The technology is developing rapidly,
and has three elements: Capture; Transportation; and Storage.
When integrated, these can be used to generate "green"
electricity using CO2-free Hydrogen.
15. "Capture technology" is already
available, but for the most part it has only been tested at relatively
small scale (although DF1 provides the first opportunity of demonstrating
the technology in association with a large power plant in operation).
In respect of "Transportation", the oil and gas industry
has over 30 years experience in transporting large volumes of
CO2 in pipelines and ships. And in terms of storage,
the oil and gas industry has over one hundred years of experience
identifying and managing fluids in the deep sub-surface. [For
further details on the technological aspects, we would refer the
Committee to BP's submission to the Science and Technology Committee's
accompanying and simultaneous Inquiry into CCS.]
THE COSTS
16. The costs of power generation using
H2 are competitive with those of renewables and nuclear, but not
non-decarbonised fossil fuels. Current estimates of the incremental
costs of generating power from H2 (as against fossil fuels) are
$55-65 per megawatt hour ($/MWh), which is similar to the level
of support offered to renewables under the Renewable Obligation
Certificate (ROC) scheme. It is expected that technology costs
of CCS will reduce over time, and will require diminishing support.
If so, the competitiveness of CCS will progressively increase.
17. Infrastructure costs for moving CO2
are a significant component. But some of this cost can, as with
DF1, be offset if the re-use of existing infrastructure is possible
and encouraged. Equally, were the United Kingdom to become a global
leader in the export of technology and expertise, this would further
help to offset the initial costs of developing CCS technology.
BP'S DF1 PROJECT
18. Against this background, it may be helpful
to describe a little more fully the DF1 Project, which has three
main components:
— the generation of "carbon free'
electricity" through the conversion of an existing gas-fired
power station near Peterhead in Scotland to run on hydrogen;
— the manufacture of hydrogen—in
order to supply the power station—by reforming North Sea
gas and capturing the resulting carbon dioxide;
— the transportation of the captured
carbon dioxide via an existing offshore pipeline to the Miller
oil and gas field in the North Sea—and injecting it into
the reservoir to recover additional oil reserves and to extend
the productive life of the field by about 20 years.
19. This project offers an immediate and
effective way of establishing the necessary large-scale technology
demonstration and of helping to meet current emissions targets.
When completed, it will set several technology milestones including
the:
— largest carbon dioxide EOR project
in the North Sea;
— first carbon dioxide pipeline in
the North Sea;
— largest hydrogen-fired power generation
facility in the world;
— largest Auto Thermal reformer for
generating hydrogen.
20. There is no single solution which can
by itself deliver the world's CO2 targets, but there
is a portfolio of technologies that have been demonstrated at
scale, and which collectively offer the opportunity to make the
necessary reductions over the next 50 years. Because the world
will be dependent on conventional hydrocarbons for the next 50
years, hydrocarbon-based technological solutions for climate change
will be one of the major contributors to stabilisation. DF1, for
example, will reduce carbon dioxide emissions by some 80 to 90%
for each unit of electricity produced. Indeed, if applied to only
5% of the new electricity generating capacity which the world
is projected to require by 2050, the world would have the potential
of reducing global CO2 emissions by around 1 billion
tonnes a year.
21. There are also security of supply implications.
The project will prolong the life of the Miller Field through
enhanced oil recovery and through the postponement of abandonment
(which could eventually be imitated throughout the North Sea).
But more important, it demonstrates a viable technology pathway
for clean energy production from a broader range of primary energy
sources (eg coal, biomass) which would improve energy security.
22. In terms of the immediate future, this
single project would reduce emissions of CO2 by 1.3
million tons per year (the equivalent of removing 300,000 cars
from the roads) and provide around 350MW of clean electricity—which
is enough to power all the homes in a city the size of Glasgow
or Manchester (250,000 homes).
23. DF1 (and other CCS projects) has one
other major environmental benefit. It does not require back-up
to address the problem of the intermittency of wind or sun. It
provides base load capacity, and although it may not be totally
carbon free, it provides virtually carbon free energy for 100%
of the time.
THE ROLE
OF GOVERNMENT
24. As stated above, the costs of CCS are
similar to renewables. The time has arrived, therefore, to consider
seriously whether a Climate Change Policy should not seek to be
rewarding low carbon (or carbon free) energy on an objective,
impartial basis rather than through the "picking of winners"
as exemplified by the current policy which favours renewables.
This in no way questions the role of renewable energy initiatives.
BP is involved in this area as well, and there is no doubt that
a variety of carbon reduction strategies and technologies will
be required in order to reduce significantly green house gas emissions.
25. But the opportunity offered by DF1 must
be instantly grasped if it is to be realised, and therefore the
implications for public policy must be recognised equally quickly.
This is because DF1 offers the possibility to prove the concept
of CCS in the UK and North Sea in a relatively short time frame.
This is a critical aspect, for without such timely large scale
industrial demonstrations, the UK is in danger of missing the
window of real opportunity for this technology in the North Sea.
Hence, it is necessary that incentives should be in place quickly
which are equivalent to those currently available to no-carbon
options. This is not merely to facilitate DF1; and it is not just
to demonstrate the technology, important though this is. DF1 also
offers the opportunity to develop the UK's policy instruments
for cleaner energy. That is why it would be wrong, in policy terms,
to approach DF1 as a single stand-alone project. Rather, DF1 should
spearhead a policy approach which assures future investors in
CCS of a consistent and sustainable approach to their investments.
26. There are other issues, in addition
to incentives, where government has a role to play. For example,
provisions of both OSPAR and the London Convention will need to
be discussed. The rules of the European Emissions Trading System
(EU ETS) will need to clarified. And new regulations and permits
will also be required embracing a number of areas, including approvals
for new plant onshore (for pre-, post- or Oxy-firing technology);
for pipeline access to move CO2; and for injection
of CO2 offshore geological structures under the seabed
for EOR and ultimately for storage.
27. But over the next 12 months, as UK Energy
Policy evolves, it is vital for policy makers to recognise that
any credible policy to reduce CO2 emissions must embrace
CCS: and that this ought to be acknowledged in any fiscal or regulatory
regime designed to assist low carbon or carbon free energy to
compete with fossil fuels. BP anticipates that over time—and
given increasing scale, experience and technological expertise—the
cost of schemes like DF1 will reduce. But that is not the case
today, even though CCS is well placed to argue that it is both
commercially and environmentally on a par with (if not ahead of)
any existing alternative. Obviously, a properly functioning Emissions
Trading System would be of enormous benefit to CCS projects—although
the specific European system is currently insufficient, even if
the rules were to be clarified, because it fails to provide a
framework of sufficient duration and the current (and indeed,
forecast) level of carbon price is inadequate to encourage business
to invest the very large sums required.
CONCLUSION
28. There is a wide range of solutions to
both the issues associated with energy security, and demands for
carbon-free energy. BP strongly supports the ongoing development
of renewables to contribute to meeting future energy demand and
the security of supply. Moreover, the option of meeting future
energy needs through fossil-fuelled generation without the associated
carbon emissions can only add to energy security. Such power plants,
based on coal or gas both of which have substantial reserves internationally,
are controllable and immune from the vagaries of the weather.
29. In addition, we believe there to be
huge potential for CCS to enable the achievement of apparently
conflicting goals at reasonable cost. It is estimated that up
to one third of the required reductions in global CO2
emissions could be made by CCS technology. CCS is uniquely placed
to help build a bridge to a low or no carbon energy future in
the next 50 to 100 years.
30. The best policy framework to support
these and other options should ideally be non-discriminatory between
different solutions. There needs to be a mix of measures which
together provide a level playing field of support and incentives
for low and zero carbon energy. As has often been recognised,
the temptation by government to "pick winners" should
be resisted in favour of providing a secure long-term level of
non-discriminatory support for anything which helps to both reduce
CO2 emissions and, in terms specifically of security
of supply, increases the range of energy sources available.
5 October 2005
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