Examination of Witnesses (Questions 280
- 299)
WEDNESDAY 14 DECEMBER 2005
MALCOLM WICKS
MP, MS BRONWEN
NORTHMORE, MR
BRIAN MORRIS
AND DR
GEORGE MARSH
Q280 Mr Flello: What help is being
given to UK companies and academics to get access to the international
funding?
Malcolm Wicks: There are a range
of international fora on this now.
Ms Northmore: We have a bilateral
arrangement with the United States for research and development
and we have two quite large R&D projects going ahead under
that. We are members of the Carbon Sequestration Leadership Forum
which actually is not a funding organisation but it brings together
a large number of countries, including the major developing countries,
China, India, for information exchange. Although it is reasonably
early days, some demonstration projects have been badged as CSLF
projects and there is the possibility that that networking will
actually lead to future bilateral cooperations and CSLF cooperation
for R&D. We also are enthusiastic members of a number of IEA
organisations relating to fossil fuels and carbon capture.
Mr Morris: There are two major
IEA bodies, the Greenhouse Gas Implementing Agreement and the
Cleaner Coal Technology Implementing Agreement which we are involved
in. They do mostly desk reports and research looking at potential
future technologies like carbon capture and storage. Those two
agreements mostly focus on that technology. A load of work is
produced which gets fed into UK companies. If we come to the European
scene, things like Framework Programmes 6 and 7, then obviously
we do get involved in that and obviously we do our best to help
within the constraints that we have to help British organisations
and companies get some benefit from that. With Framework Programme
7 which will start next year we are hoping there will be opportunities
for British companies to pick up funding for research and development
when that takes off.
Q281 Chairman: Minister, since 2002
the Non Fossil Fuel Obligation, which is basically a tax on people's
electricity bills, has brought in over £320 million of which
£210 million has gone back to the Treasury. Do you not find
that unacceptable when that money could be used for the very purposes
that we are talking about in terms of research and development?
With that money you could have built a complete new facility in
terms of demonstrating that CS actually works. What attempts are
you making to get that money out of the Treasury and to have it
used for what it should be used for?
Malcolm Wicks: I do not lurk around
there at night with a bag marked swag or anything like that.
Q282 Chairman: But the Chancellor
does. He seems to be taking swag from everybody's electricity
bill. It would make a nice cartoon, Minister!
Malcolm Wicks: I am sure someone
round here will draw it. What I do find acceptable is that fiscal
and tax matters are best left to the Treasury and I am not going
to trespass in that territory. What I am satisfied about as Energy
Minister is that when you now look at budgetary documents, whereas
I would guess, I must check, that 10 years ago there would have
been very little about climate change, now you have very substantial
sections talking about the climate change challenge, with some
monies coming forward, an extra £10 million this year and
it is clearly pretty central to the agendas that count both in
the Treasury as well as in my own Department, in Defra, et cetera
and I feel that is a very good place to be. The fact that Nick
Stern, the Government's Chief Economist has been asked by Gordon
Brown to look at the interface between economic measures and climate
change with a global reach I think is tremendously encouraging.
Chairman: We do not seem to be recycling
that money back in though; £210 million is a lot of money
which could be used for the purpose for which it was taken off
consumers.
Q283 Mr Newmark: Just to supplement
that—you make an excellent point there—there is also
this extra tax on oil companies that is in the Pre-Budget Report.
It would be interesting to know that with that extra money that
is going to be going into the Exchequer—I appreciate you
will not have an answer now—it might be an idea to suggest
to the Chancellor that at least some of the hundreds of millions
that he will be collecting from that goes in to support projects
such as this. I am not expecting an answer necessarily but it
is something that the Chancellor should consider doing, given
that it is an extra tax that he did not have in his previous Budget.
Malcolm Wicks: I think part of
the answer to that is that we are tremendously proud, really,
of the industry that we have in the North Sea. I have been out
myself on an oil rig and you cannot but be impressed by the science,
the technology, the leadership and the sheer skills of the workforce
out there, and we have a very active programme for the industry
to foster that through a partnership which I chair called "Pilot".
Having said that, it is not unreasonable, in my judgment, with
the price of a barrel of oil doubling or whatever, that any finance
minister would want to look at that. I just happen to note that
the tax take, which is (and it will depend on oil prices, I guess)
something like £2 billion a year, is almost exactly the cost
of the Chancellor's commitment to maintain winter fuel payments
for elderly people, which as a pensions minister I know to be
about £2 billion a year. I think in terms of the fairness
agenda that is a deal I can accept.
Q284 Mr Newmark: Which I would agree
with, but I am talking about the extra money that is going to
be raised. It would be useful, and I would ask could we have a
commitment from you to at least raise this with the Chancellor,
that with the extra money (as I said, this is extra money beyond
the Budget) he will be raising would he consider ploughing some
of that money back into projects such as carbon sequestration?
Malcolm Wicks: We are in very
regular dialogue with our good friends at the Treasury.
Q285 Chairman: Could I ask you as
well, Minister, if you have these discussions with the Chancellor,
about using the money for this non-fossil fuel obligation for
the purpose for which it was raised?
Mr Wicks: The Chancellor will
read these Committee proceedings avidly.
Q286 Chairman: But you will not go
and see him and bang on the door—
Malcolm Wicks: It was not my Christmas
plan, I must admit, but we are in regular dialogue with Treasury
Ministers and Treasury officials on this whole agenda. The Treasury
are very committed to the climate change agenda.
Q287 Chairman: But you are not committed
to getting this money back into your budget to use for the purpose
for which it was taxed?
Malcolm Wicks: I am committed
to leading the energy review on all of these issues as effectively
as I can.
Q288 Chairman: And you have sufficient
resources to be able to further this agenda?
Malcolm Wicks: The review has
just started. It will draw conclusions; some of those conclusions
may have economic consequences.
Chairman: We got nowhere there.
Q289 Dr Iddon: When are we going
to see the first commercial plant both up and running? Which year
would you predict?
Malcolm Wicks: Of what—sorry?
Q290 Dr Iddon: CCS. The first carbon
capture and storage facility.
Malcolm Wicks: As we have said,
the front runner at the moment—and I am really pleased it
is there—is the Miller field project; the BP project.
Q291 Dr Iddon: What year are they
predicting, in your opinion?
Malcolm Wicks: I am not going
to predict it because it is a commercial enterprise. Do any of
my colleagues know? Have BP made a prediction on this?
Mr Morris: They think they could
do it by 2009. So, with these sorts of projects, I suspect 2010
is a possibility. With pathfinder projects like this you are going
to find things never go according to plan, but if you say 2010
that will be a reasonable estimate.
Q292 Dr Iddon: We have learnt from
BP that there are some barriers which might put that date back.
Do you know what these barriers are and, if so, how are we going
to overcome them?
Malcolm Wicks: On any of these
things there will be a range of barriers and my understanding
is that BP are funding the feasibility study on this but would
probably want some indication from government, as indeed would
this whole agenda, as to whether there will be any financial incentives
to so capture CO2 and store it. I am afraid, Chairman, I cannot
be drawn on the precise financial instrument that might be most
appropriate, because actually here, and maybe more globally, there
is a range, as I recall, of six or eight that you might be thinking
of—yes?—but we need to determine together in government
whether one is appropriate and if so which one.
Q293 Dr Iddon: We are told that that
plant cannot be up and running in 2009, which is their projected
date, without considerable government subsidy. Is the Government
in discussions with BP on how to deal with that subsidy?
Malcolm Wicks: Yes.
Q294 Dr Iddon: Are you likely to
come to conclusions on that in the near future or is it a projected
discussion?
Malcolm Wicks: I cannot predict
the actual time.
Mr Morris: It is more likely to
be pulled in as part of the energy review. The timing is that
BP are doing a study at the moment which will be completed by
about October/November next year. They are looking, at about that
time, for decisions from government about, essentially, two things:
is there going to be an incentive for such a project as this,
and also who will take responsibility ultimately for the long-term
storage of the carbon dioxide. There are the two things they are
looking at, at the moment, for some answers from government by
the time they have come to their own decisions.
Q295 Dr Turner: Presumably it qualifies
for R&D tax credits.
Malcolm Wicks: There is a range
of possibilities but we are not there yet, I do not think.
Q296 Dr Iddon: My concern, Minister,
is that obviously the BP plant is very close to the Miller field,
pipelines will be short, therefore, and furthermore they are using
carbon dioxide for tertiary oil recovery, which will be some payback.
If we are going to capture carbon, store it elsewhere in the country,
particularly by retrofit, we are going to incur the costs of pipelines
to transmit it to the North Sea. So if this plant at Peterhead
requires considerable subsidy can we afford to subsidise the rest
of the plants which, for the reasons I have just indicated, will
require even more subsidy?
Malcolm Wicks: As I say, how we
have a financial regime, whatever that might look like, that incentivises
these developments is something very much at the heart of government
thinking at the moment.
Q297 Dr Iddon: How many companies
are interested in CCS to your knowledge, Minister?
Malcolm Wicks: I have not got
a number but my judgment, talking to a range of companies, often
international players, is that there is considerable interest.
Q298 Dr Iddon: That is very encouraging.
Malcolm Wicks: As I say, the discussions
with OPEC indicate that, too.
Q299 Dr Iddon: We have a considerable
number of fossil-burning plants already in Britain and there is
discussion of retrofit. Do you think that retrofitting is financially
viable in view of two things: first of all, the plants are rather
old and are probably going to be needing renewal anyhow? Secondly,
to retrofit you would have to close the plant down to a degree,
if not completely, for at least 12 months.
Malcolm Wicks: I think there are
two kinds of answers to that, as you have indicated. Whether we
go nuclear or not, whatever we do we are going to need a colossal
amount of investment from the market in new plant over the next
10, 20 or 30 years. That is obvious. I will turn to one of my
colleagues to deal with what, for me anyway, is a rather technical
and important issue about retrofitting.
Dr Marsh: We supplied some numbers
to the Committee on costs based on our own studies, and I did
make the point that these are generic numbers based on broad engineering
studies. What you see from those numbers is the cost of retrofitting
compared to new build is quite close and certainly within the
range of uncertainty on the numbers themselves. So I think it
will be a commercial judgment by the industry on which way they
go. On costs overall, there is not a cheap solution; abating carbon
is an expensive thing to do.
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