APPENDIX 7
Memorandum from the Confederation of UK
Coal producers
The Confederation of UK Coal Producers (CoalPro)
represents member companies who produce over 90% of UK coal output.
CoalPro is not opposed to the development of any form of energy.
CoalPro is pro-coal.
CoalPro welcomes the opportunity of providing
evidence to the Committee's inquiry into CCS. The development
of CCS has the potential to achieve deep cuts in carbon emissions
whilst continuing to derive the benefits of fossil fuel use.
CoalPro is not competent to comment in detail
on CCS technology or economics but would like to take the opportunity
of commenting in more general terms, particularly on the barriers
impeding the development of the technology.
CCS is not a new technology. It has and is being
used for enhanced oil recovery (EOR) in many locations. In some
instances (eg Sleipner), it is also being used to capture and
store carbon to avoid excessive emissions. Monitoring at various
locations also suggests that CO2 has not thus far escaped
form the geological formations into which it has been injected.
CoalPro accepts, however, the need for more assurance on this
point.
It may be, therefore, that most of the effort
needs to be devoted not to the technologies themselves but to
the related "soft" issues and to the barriers impeding
deployment.
First, whilst monitoring technologies are in
use, they may need to be further developed along with other approaches
to provide long-term accurate measurement and hence greater assurance.
Some commentators have said that CCS should not be deployed until
long-term storage can be guaranteed. However, this begs the question.
Even if there is the potential for some leakage many decades hence,
CCS offers huge potential for short-term reductions in emissions.
If long-term problems emerge they can be dealt with at the time
but this will depend on having accurate monitoring in place to
give early warning.
Second, there may be legal barriers under the
OSPAR convention to the disposal of CO2 under the sea
other than for EOR. Given the widespread interest in CCS by many
governments, this issue should be capable of being resolved, but
it will need a proactive approach to do so. The UK Government
could stake a strong lead here.
Third, the European Union Emissions Trading
Scheme (EUETS) would not appear to allow carbon which has been
captured and stored as saving emissions. It is silent on the issue.
This is not to criticise the Scheme as the potential of CCS may
not have been fully recognised when originally designed. This
may require a technical amendment to the Scheme and, again, should
be capable of being resolved, but there is a need to get on with
it, with the UK Government in a position to take the lead.
The above are technical issues, but there are
economic barriers to be overcome. In this context it should be
noted that, whilst all carbon abatement technologies are expensive,
CCS may be less costly than other approaches per tonne of emissions
reduced/avoided.
First, as carbon has a price under the EUETS,
there may be an issue of liability if there is leakage. Proper
monitoring and the cessation of injection should be capable of
dealing with this in the short-term. In the long-term, however,
it may not be possible to identify the successor in liability
terms. It may be necessary, therefore, for governments to stand
in as a long-term guarantor.
Second, CCS, even when combined with EOR, would
appear to be uneconomic in the UK. The partners in the Petehead/Miller
proposal have stated that they need financial assistance for it
to be viable. Amendment of the EUETS (see above) may represent
a solution. Carbon allowances which are not then required can
be sold, thus providing a revenue stream. Application of this
approach to a limited number of installations may be enough to
get some demonstration projects off the ground. The Government
could make a limited number of carbon allowances available for
CCS projects and could award these on the basis of a competitive
bidding approach to ensure best value. This may not be enough
on its own but will reduce the need for top-up funding from Government.
Third, allied with this is the need for long-term
regulatory certainty. It is already apparent that the short-term
time horizon of Phase I of the EUETS to 2007, the uncertainty
over the allocations of Phase II, and the comparatively short-term
time horizon for Phase II to 2012 are impeding investment decisions
in replacement electricity generating capacity and will similarly
impede allied investment in CCS. This needs to be resolved by
making early decisions on the allocations for Phase II and by
providing guarantees of the availability of longer-term allowances
(Phase II plus) for carbon abatement technologies. CoalPro understands
that this approach has been adopted by the German government with
guarantees of allowances for up to 18 years.
There is another aspect to the lack of regulatory
certainty that the Committee might wish to take into account.
By far the greatest reduction in carbon emissions can be achieved
by applying CCS to coal-fired generating plants. However, the
lack of regulatory certainty means that the low initial capital
costs of gas-fired power stations will minimise risks in an uncertain
world. There is a real danger, therefore, that all new fossil
fuel generating capacity will be gas by default with all the security
of supply and price risks that that entails.
In making available longer-term carbon allowances,
for carbon abatement technologies in general and CCS in particular,
the Government should therefore reserve some part of these for
coal-fired generating plant to ensure a diverse mix into the future.
September 2005
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