| Background
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| Climate change policy
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| 1. | It is indisputable that—in the absence of CCS—fossil fuel consumption in countries such as China and India will have a profound and potentially catastrophic impact on global atmospheric CO2 levels, eclipsing any reductions made by the UK and others. (Paragraph 18)
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| Technology |
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| Capture technologies
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| 2. | Although it is clearly important that pre-combustion, post-combustion and oxyfuel capture technologies be developed, we believe that for new plant pre-combustion capture offers a significant advantage, in a carbon constrained world, as a potential source of hydrogen. As the technology develops, the Government should take into account the potential strategic importance of polygeneration systems based on pre-combustion capture technology and consider the case for putting in place incentives to promote the use of this technology in new build plant. (Paragraph 32)
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| 3. | In our view, no convincing case has yet been made for retrofitting of the UK's ageing fleet of coal-fired power stations with capture technology. Combining retrofitting with boiler and turbine replacement may provide a means of overcoming the loss in efficiency associated with current capture technology, but it remains to be seen whether this will prove economic for the majority of UK coal-fired plant. (Paragraph 35)
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| 4. | We recommend that Government makes capture readiness a requirement for statutory licensing of all new fossil fuel plant. This would compel the developer to demonstrate that consideration has been given in the planning and design of the plant to facilitating subsequent addition of suitable carbon dioxide capture technology, as and when it becomes available and economic. (Paragraph 38)
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| 5. | Although in the near term CCS is most likely to be employed in the power sector, it has the potential to be applied to a range of industrial processes, as well as in the building and transport sectors. We recommend that the Government support for CCS research includes applications in these sectors. (Paragraph 39)
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| Storage
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| 6. | The UK is fortunate in being very well endowed with potential CO2 storage sites, many of which have been thoroughly characterised. This provides the UK with a competitive advantage in terms of access to potential CO2 storage sites, both for its own use and to demonstrate UK geological skills to the rest of the world. (Paragraph 44)
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| 7. | Oil and gas fields have, in general, been better characterised than saline aquifers so may be more suitable for immediate development. Nevertheless, the best way of furthering understanding of storage of CO2 in aquifers, which provide very substantial storage potential in the longer term, is through large scale demonstration projects. (Paragraph 45)
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| 8. | The UK's geological expertise through the hydrocarbon industry and British Geological Survey is recognised to be amongst the best in the world. This expertise should be leveraged to facilitate and promote UK demonstrations of CCS and, ultimately, uptake of CCS internationally. (Paragraph 46)
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| 9. | On the basis of current information, coal seems unlikely to be a major storage option for the UK, at best being of small scale and local significance. (Paragraph 49)
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| 10. | It is clear that storage in geological formations, providing that it can be done safely and securely, is the most desirable and competitive way of storing CO2 of the currently available options. (Paragraph 50)
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| RD&D and international competitiveness
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| Demonstration projects
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| 11. | Most of the component technologies of CCS are not novel: the key outstanding requirement is to integrate them within full-scale demonstration projects involving different elements of the technology and operating under different conditions (including offshore). (Paragraph 54)
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| 12. | The BP-led DF1 project could be a crucial opportunity to test the viability of linked systems of onshore gas conversion, power generation and offshore CO2 storage in the North Sea. (Paragraph 57)
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| 13. | We are encouraged by the number of companies considering investing in UK CCS demonstration projects. Industry evidently believes that CCS technology is sufficiently advanced to proceed with full scale demonstrations. What is needed now to complement this positive response from industry is a commensurate effort from the Government. (Paragraph 58)
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| Government RD&D funding
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| 14. | The additional £10 million provided for demonstration of carbon abatement technologies in the pre-budget report is welcome but the piecemeal allocation of funding suggests a worrying lack of strategic vision in Government decision making. (Paragraph 60)
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| 15. | Government can play an essential role in 'pump priming' the initial demonstration projects. In order to do this effectively, Government support in the order of hundreds of millions of pounds needs to be forthcoming over the next five years. (Paragraph 61)
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| Skills
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| 16. | Once again, we find the Government erring on the side of complacency over the continued supply of skilled scientists and engineers. In view of the strategic significance of energy policy at this time, failure to take active steps to build and safeguard the UK skills base in this area will prove costly. (Paragraph 63)
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| International co-operation
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| 17. | The Government must do its utmost to work together with both the private sector and academia to give the UK the best chance of hosting any major EU-funded CCS demonstration project. (Paragraph 64)
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| 18. | The increasing co-operation between the UK and Norway on CCS is sensible, but the UK should also learn from the Norwegian Government's approach of backing its words with action and investment. (Paragraph 66)
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| 19. | The UK and EU bilateral agreements to co-operate in the development of CCS technology with China are to be welcomed. However, the timescales envisaged and sums allocated in no way reflect the urgency with which CCS technology needs to be demonstrated and deployed if it is to be able to play a significant role in mitigating climate change. Efforts to engage China and India in this area are to be encouraged, but we doubt whether Memoranda of Understanding in themselves represent an effective way of expediting the development of carbon abatement technologies, or of promoting their uptake by these countries. (Paragraph 68)
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| 20. | The DTI and DEFRA should ensure that there is strong co-ordination between their activities in promoting CCS RD&D in China and India and those undertaken by the FCO and DFID in these countries. (Paragraph 69)
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| 21. | The major obstacle to the adoption of CCS technologies by countries such as India and China is still the lack of value attached to carbon internationally. (Paragraph 70)
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| A leadership role for the UK?
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| 22. | The UK is well positioned to take an international leadership role in demonstrating the viability of CCS. British leadership in the use of CCS technology will both yield returns from domestic carbon reduction and provide a strong indication to other major polluters of the potential of CCS to reduce global emissions. (Paragraph 73)
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| 23. | Export opportunities for UK companies are likely to derive from intellectual property and licensing of CCS technology. (Paragraph 74)
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| 24. | If the UK is serious about making an impact on China and India, the most useful thing it could do would be to get full scale demonstrations of several different types of CCS technology up and running domestically as soon as possible. This would prove the viability of the technologies and give UK companies comparative advantage in terms of experience and know how. In the absence of such demonstrations, the idea of major export opportunities for UK companies is unrealistic. (Paragraph 77)
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| 25. | A major refurbishment of a UK coal-fired power station combined with retrofitting of CCS technology could afford a very valuable opportunity to demonstrate the post-combustion capture technology required to retrofit Chinese coal-fired plant, as well as providing useful experience of combined retrofit and upgrade of a UK plant. (Paragraph 78)
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| Risks and Regulation |
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| Risks
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| 26. | Experience to date has demonstrated that, over the timescales studied, CO2 can be safely stored in both depleted oil and gas fields and aquifers. Current and future large scale demonstration projects will play a key role in building the evidence base for, and public confidence in, geological storage of CO2. (Paragraph 79)
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| 27. | The main source of leakage from CO2 storage sites is likely to be via boreholes, although it is expected that any breach of the borehole seal could be remediated quickly. Further R&D to develop cements and sealants optimised for CO2 storage would nevertheless be valuable. (Paragraph 85)
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| 28. | We recommend that the Government works both with other interested parties within the UK and, over the longer term, internationally, in order to develop a standardised methodology for site characterisation. More generally, there is a need for codes of practice to be developed to ensure good design and management of CO2 storage facilities. (Paragraph 87)
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| 29. | Further research is needed to improve the tools for site selection and subsequent monitoring and verification of CO2 stored in geological formations. Although companies will be expected to take steps to improve monitoring and verification in the projects that they sponsor, the Government must take primary responsibility for commissioning research in this area in view of its significance for public safety and confidence in the technology. We recommend that the Government makes this an RD&D priority. (Paragraph 89)
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| 30. | Providing that the pipelines are designed and routes are selected in such as a way as to minimise risk, transportation of CO2 by pipeline between capture and storage sites should not pose any greater threat to human health or the environment than natural gas transport and may indeed be lower. (Paragraph 91)
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| 31. | Overall, the evidence suggests that for well-chosen sites the risk of leakage of CO2 from geological storage reservoirs or pipelines is low. The risks associated with storage of CO2 would be further mitigated by thorough site characterisation and management, monitoring and verification of storage sites. (Paragraph 92)
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| 32. | Clear and transparent information about CCS at an early stage will be crucial for securing public acceptance. The Government must therefore adopt a pro-active approach to communication. (Paragraph 95)
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| 33. | The Government has done little so far to engage the public in a dialogue about CCS technology. We accept that it is early days for the technology but previous experience has emphasised the value of early engagement. The evidence we have seen does not support the view that the Minister's confident and relaxed attitude towards the Government's performance on this issue is justified, and this is a source of concern. (Paragraph 97)
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| 34. | The first demonstration projects will need to give careful consideration to public engagement—early successes or failures are likely to have a disproportionate impact on subsequent public attitudes. (Paragraph 98)
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| 35. | Environmental NGOs can make a major contribution to ensuring that public debate about CCS is conducted in a responsible way. Their suggestion that they do not have influence over public opinion was perplexing and unconvincing. We call on the NGOs and the Government to work collaboratively to inform public perceptions of the risks and benefits associated with CCS. (Paragraph 99)
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| Regulatory framework
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| 36. | EOR can provide a useful stepping stone to CCS by enabling early proving of offshore CO2 injection without contravening the multinational environmental agreements governing the disposal of waste in marine environments. (Paragraph 102)
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| 37. | It is commendable that the Government has taken a lead in international negotiations to amend the London Convention/Protocol to ensure that CCS projects are permissible. Whilst we appreciate that it may take time to secure international agreement, it is vital that the UK does its utmost to expedite this process: industry needs to have one hundred per cent confidence that multinational environmental agreements are not going to serve as barriers to future deployment of CCS technology. In addition, we urge the Government to take steps to clarify the legality of the various types of CCS project to ensure that uncertainty and ambiguity in this area does not hinder the progress of CCS demonstration projects in or around the UK unnecessarily. (Paragraph 105)
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| 38. | The private sector should take responsibility for CO2 during the injection phase of any CCS project but we believe that Government will have to take responsibility for the stored CO2 thereafter. We are pleased that the Minister appeared to acknowledge this, but it is essential that the Government makes an explicit commitment to serve as the long term guarantor, and makes it very soon. Industry will not proceed with CCS projects in the absence of such a commitment. (Paragraph 107)
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| 39. | The Government must take steps to enable and promote the reuse of existing North Sea infrastructure for the purposes of EOR and CCS. The window of opportunity for the pipelines and platforms is time-bound so rapid action is required. (Paragraph 110)
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| 40. | At present, multiple Government Departments and agencies, including the DTI, DEFRA, Environment Agency and the Health and Safety Executive, have expertise and functions that would be required for the regulation and monitoring of CCS. In the absence of a Department of Energy, we propose the establishment of a CCS Authority to bring together all the relevant functions. We believe that a single body in this area could make regulation more transparent, thus building public confidence, as well as minimising bureaucracy for companies engaging in CCS projects. In order to ensure that these objectives are met, it is essential that all the relevant onshore and offshore functions be subsumed into the CCS Authority, leaving no residual responsibilities in other Departments, and that the Authority has a clearly defined line of accountability to a single Secretary of State. (Paragraph 113)
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| 41. | In view of the wide range of tasks required to put in place the necessary regulatory frameworks for CCS, and the urgency with which they need to be undertaken, the Government should not delay in taking steps to establish the CCS Authority. Indeed, the Energy Review provides an ideal opportunity to set this process in motion. (Paragraph 114)
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| Costs and Incentives |
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| Costs
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| 42. | Overall, the data collected in this inquiry indicate that the cost of electricity generated using CCS is 1-2 p/kWh more than without. Taking into account the uncertainties associated with these calculations, the data suggest that there is no clear 'winner' between gas- or coal-fired plant fitted with CCS. It would also appear that an increased gas wholesale price has only a weak effect on cost data. (Paragraph 120)
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| 43. | It seems unreasonable to expect industry to bear the full costs of the infrastructure required for CCS, particularly in the case of the first demonstration projects. The Government must make sure that this is not a deal breaker for the first demonstration projects. (Paragraph 124)
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| 44. | It seems reasonable to expect that new technological developments and benefits derived from increasing experience and economies of scale could collectively lead to significant reductions in the costs associated with CCS. (Paragraph 126)
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| Market incentives
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| 45. | There are no fundamental barriers to the development and deployment of CCS in the UK, apart from the lack of a suitable long term policy framework to provide industry with the incentives and confidence it requires to make the substantial investments entailed in CCS projects. The Government must put this framework in place as quickly as possible-it is already at risk of holding back UK industry. (Paragraph 128)
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| 46. | In the longer term, the Government should seek to provide a level playing field for all carbon abatement technologies. A technology neutral incentive framework would better reflect the overall objective, which is to reduce CO2 emissions. It would also be more efficient to let the market decide which technologies provide the best solutions to meet this challenge. (Paragraph 129)
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| 47. | We acknowledge the need for Government support during the early stages of technology development.. Ultimately, however, a market-based mechanism that puts a price on carbon is the best way to incentivise industry to invest in CCS and other carbon abatement technologies. (Paragraph 130)
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| 48. | The EU-ETS has the potential to provide the requisite incentive framework to stimulate investment in CCS and other carbon abatement technologies in the long term. At present, however, the scheme delivers neither the long term visibility nor a sufficiently high carbon price to fulfil this function. (Paragraph 136)
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| 49. | Government should redouble its efforts to ensure that CCS is included in the next Phase of the EU-ETS and to get agreement for limits beyond 2012. Government should also make the case for a substantial tightening of the emissions cap in the next round in order to stimulate a higher carbon price. (Paragraph 137)
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| 50. | Competitive capital grants may be needed to encourage the first demonstration projects but they are not a substitute for developing a long term incentive framework. (Paragraph 140)
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| 51. | It is unacceptable that income from the Non-Fossil Fuel Obligation is not being used to support the renewable energy industry. We recommend that revenues generated through levies imposed in the name of 'green' energy be used in a manner consistent with that objective. (Paragraph 141)
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| 52. | There is now a pressing need for a policy that will provide the level of financing and long term framework necessary to persuade industry to start investing significantly in CCS. Since the Government is currently conducting extensive reviews of its climate change programme and energy policy, it is not feasible for us to determine which specific policy instrument would best meet these needs - the choice would depend on the approaches being taken to incentivise or support other technologies, such as renewables and nuclear energy. It is clear to us that urgent action is required. Doing nothing while waiting for the EU-ETS to come good, or postponing a decision on the policy beyond summer 2006 when the Energy Review reports, would have disastrous consequences for the UK's competitiveness in this area. (Paragraph 145)
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| 53. | In the longer term, as well as working towards an effective EU-ETS, the Government should continue to make the case for a global framework for trading carbon. (Paragraph 146)
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| 54. | In the meantime, the Government should also support efforts to enable CCS to qualify for the Joint Implementation and the Clean Development Mechanism, which were established by the Kyoto Protocol to allow investment in emissions reduction projects in developing countries and economies in transition. (Paragraph 146)
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| Role of CCS in the UK's Future Energy Portfolio
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| Energy Review
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| 55. | The Government's decision to launch another Energy Review less than three years after the publication of the last Energy White Paper in 2003 must been seen as a tacit acknowledgment that the previous White Paper did not foresee some of the key issues. (Paragraph 149)
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| 56. | In view of the complexity of energy policy and the wide-ranging remit of the Energy Review, we were surprised at the short time—barely six months—allocated for consultation and analysis of the evidence. (Paragraph 150)
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| 57. | We are concerned that the review being undertaken by the Health and Safety Executive may be used by the Government as an excuse for delaying concrete decisions about commitments to CCS. This would be a major setback for the UK's progress in this area and must not be allowed to happen. (Paragraph 150)
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| 58. | The availability of CCS should not become an excuse to deepen the world's dependence on fossil fuels as energy sources. Nevertheless, it is clear that neither the UK nor most other countries are yet willing or able to exclude fossil fuels from their energy mix and, this being the case, CCS can play a crucial damage limitation role during the transition to alternative energy sources such as renewables. (Paragraph 152)
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| 59. | The possibility of removing CO2 from the atmosphere by fitting biomass-fired plant with CCS is highly appealing but further research is needed to ensure that this approach will deliver the expected environmental benefits. (Paragraph 153)
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| 60. | CCS has the potential to make a dramatic impact on carbon dioxide emissions in a short space of time and, given current performance, it will be hard for the UK to meet its 2050 target on emissions reductions without CCS. However, CCS must not be regarded as a substitute for developing renewable forms of electricity generation or implementing energy efficiency measures. (Paragraph 155)
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| 61. | CCS can contribute to security of supply by enabling the UK to utilise a range of fuels from diverse sources and suppliers, without impairing progress towards CO2 emissions targets. (Paragraph 157)
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| 62. | We are disappointed by the Government's repeated assertion that CCS technologies are at a very early stage and are concerned that this is being used as an excuse for inaction. If the Government were to demonstrate the ambition and determination that we believe is merited, the UK could significantly progress the status of CCS technology and perceptions of its viability. (Paragraph 161)
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| 63. | Regrettably, the Government's actions to date do not reflect the urgency of the situation. We trust that this will be rectified during the forthcoming Energy Review. (Paragraph 161)
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| 64. | One of the top priorities for the Government must be to develop the long term and coherent energy policy which has been sorely lacking to date. It is essential that, following the Climate Change Programme Review, Energy Review and Stern Review, the Government puts in place a stable incentive framework that will enable industry to find the most cost effective technological solutions to meet the UK's energy and climate change objectives. (Paragraph 162)
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