Select Committee on Science and Technology Written Evidence


Memorandum from the Sussex Energy Group, SPRU, University of Sussex


  There is growing awareness that a transition to a sustainable energy economy is one of the main challenges facing us in the 21st Century. Although climate change is a significant factor, there are many other reasons why we need to address the energy transition, including security of supply, fuel poverty and the attractions of innovations such as renewable energy resources, distributed generation and combined heat and power. Critically, the energy transition needs to be designed in such a way that maximises economic efficiency. An effective response requires technical ingenuity, behavioural change and virtually unprecedented political commitment. The complexities and uncertainties involved are similarly great.

  These are the challenges that the Sussex Energy Group is addressing. We undertake academically excellent and inter-disciplinary research that is also centrally relevant to the needs of policy-makers and practitioners. We pursue these questions in close interaction with a diverse group of those who will need to make the changes happen. We are supported through a five-year award from the Economic and Social Research Council from April 2005, but also have funding from a diverse array of other sources.

  One of our early projects is looking at the role of fossil fuels in the energy transition. It is investigating the rationale for UK government support for cleaner fossil fuel technologies, including those for carbon capture and storage (CCS). It is also examining what role the UK can play in the context of international R,D&D initiatives and an increasingly global power plant equipment industry.


  The Committee's inquiry into the viability of CCS technologies and the UK government's role in supporting these technologies is timely. During the past few years, CCS technologies have emerged as a key part of several national strategies for dealing with climate change and other energy policy goals. A number of international initiatives such as the Carbon Sequestration Leadership Forum (CSLF) have also been established, and CCS technologies have been discussed in the context of the UK's G8 Presidency.

  The UK government has joined this international trend with the recent development of a strategy for Carbon Abatement Technologies (DTI, 2005). As the Committee's terms of reference for this inquiry suggest, the implementation of this strategy requires the government to think carefully about its role. This response draws extensively on a recently published paper by one of the authors (Watson, 2005) and a report to inform the new DTI strategy which was written by the authors and a number of colleagues (NERA, 2004). It highlights the following main points:

    —  There is a strong rationale for UK government support for CCS technologies because the market value of carbon emissions is well below their full social cost, and the full economic benefits of innovation cannot be captured by private innovators.

    —  Although CCS technologies are often considered as a way to reconcile the use of coal with the government's low carbon objectives, it is likely that many attractive opportunities for CCS will focus instead on natural gas.

    —  The task of estimating timescales and costs of implementing CCS is inherently difficult since full scale implementation has yet to happen. The government should take into account the "appraisal optimism" that can affect estimates for such complex technologies.

    —  UK Government support for carbon abatement technologies should focus on incremental technologies for cleaner fossil fuel use as well as full blown CCS. This is particularly the case if UK initiatives are to have an effect in China and India.

    —  A UK programme of support for CCS is essential to build industrial capacity. This is the case even if those technologies that are ultimately deployed in the UK are imported.

    —  When implementing the UK programme, it will be important to distinguish between R&D, demonstration and deployment of CCS technologies. Different but related policy instruments are required to support these distinct activities.


  CCS technology has two distinct major components: capture at energy conversion plants and storage in suitable underground repositories. The connecting stage of pipeline or other transportation is not technically challenging and is relatively inexpensive. For storage technology the fossil fuel from which carbon is captured is immaterial. However, to the extent that some R&D will likely be into variants of capture technology, there are significant issues about the precise fossil fuel that is subject to R&D—in particular whether it is coal or natural gas. Furthermore, the choice of capture technology depends on the power generation/energy technology that is being considered. For example, one route for carbon capture from coal is to do so pre-combustion as part of an Integrated Gasification Combined Cycle (IGCC) plant. An alternative is post-combustion capture from the exhaust gases generated from a conventional or supercritical power plant.

  The interest in CCS in the UK has two origins: a Government desire to continue to give at least modest public funding to R&D into advanced coal-based technologies; and a more recent and pressing need to explore alternative ways of moving towards the 60% carbon emissions target for 2050. While the rise to prominence of the second of these objectives probably accounts for the more generous funding now in prospect for the new carbon abatement technology (CAT) programme than for its predecessor (the Cleaner Coal Technology Programme), it may also give rise to a potential tension between coal-based and gas-based capture. The Cleaner Coal Technology Programme focused on reducing emissions from the use of coal, but did not include very much support for CCS technologies.

  Much of the publicity surrounding CCS in the UK has tended to assume that successful commercialisation of CCS will automatically relate to coal-based energy sources. This in turn might help boost the UK coal industry, which may be politically attractive and might arguably improve energy security. But CCS can equally well be applied to gas-based energy conversion and will probably be a cheaper option than coal-based CCS. If the climate change objective predominates this would be an argument for concentrating resources on gas-based CCS, especially as achievement of the 60% target will almost certainly depend on substantially reducing carbon emissions from gas use as well as coal use. A significant issue for the UK programme is therefore the balance between the "help coal" objective and the "cut carbon" objective.

  Resolution of this balance also depends on the extent to which the government's CAT programme has international objectives. Countries like India and China will continue to be heavy users of coal for the foreseeable future and development of coal-based CCS could play an important long-term role in reducing carbon emissions from those countries. This incidentally—as discussed below—is also a major reason for believing that the CAT programme should support incremental "cleaner coal" technologies as well as CCS, because such technologies could in the shorter term help reduce carbon emissions in India and China, though not nearly so radically as would CCS.

  It is inherently difficult to predict timescales and costs for CCS technologies. There are a number of detailed assessments that attempt to do this, but all are hampered by a lack of commercial experience in implementing CCS at a full scale fossil power plant. Where CCS aims at carbon storage without enhanced oil recovery (EOR), it is inevitable that costs will be higher than using the same CCS technology with EOR. In cases without EOR, Government financial incentives will always be needed to induce CCS investment. Where carbon is used in EOR schemes, high enough prices for oil could make CCS technology economic without government incentives.

  A number of cost studies exist for the UK and a number of other countries (eg Herzog and Golomb, 2004; DTI, 2003). Some suggest that if current oil prices persist, EOR CCS could be financially attractive now. But while in the USA and Norway there are already large projects or activities using some parts of CCS technology, there is currently no commercial experience anywhere of "full-blown" CCS. The likelihood is that current cost estimates will tend to be under-estimates of actual costs. CCS is large-scale, untried technology, and its successful implementation will depend on resolution of legal, planning and public acceptance issues. Further, the prospective developers of large-scale new technology like CCS will generally be the main source of basic engineering data that enters cost estimates. Experience in other large and complex technologies is that pre-commercial cost estimates tend to be serious under-estimates. This has been the case in the past for nuclear power, and it is probably the case for advanced cleaner coal technologies such as IGCC (Watson, 2005).

  This "appraisal optimism" is not random: supporters of new technology, besides a natural enthusiasm, also face incentives that will systematically tend to produce low cost estimates.

  This asymmetry of incentives arises because optimistic cost estimates will tend to help approval of projects, but if costs do over-run the bill will generally fall to be paid by other parties (Governments or consumers). Cost estimates need therefore, in advance of real commercial experience, to be treated with caution.


  The new UK strategy for carbon abatement technologies (CATs) appears to fit well with international trends. Support programmes in many countries are now focused on carbon capture and storage. In some cases such as the EU Framework Programmes, this support appears to have replaced previous support for cleaner coal combustion and gasification technologies. This is partly due to a perception that coal was being replaced by cleaner gas—a perception that might seem premature now that gas prices have increased sharply in line with oil prices. In others, particularly the US Department of Energy programmes, both elements are being pursued together. There are also various other national programmes such as COORETEC in Germany and Coal21 in Australia, as well as international initiatives such as the Carbon Sequestration Leadership Forum (CSLF).

  The rationale for UK Government intervention to support these technologies is that such intervention will correct market failures. There are two market failures that can be used as a rationale in the case of CCS. First, despite the new European carbon emission trading scheme, the market value of carbon is well below its full social cost[19]. This is the classic environmental externality argument: the private market will provide too little carbon-reducing technology without public support. The second market failure is that the full economic benefits of innovation cannot be captured by private innovators because they cannot prevent third parties from benefiting from the results of successful innovative activity. R&D will therefore be under-provided by the private market and Government support can raise R&D activity to socially and economically more beneficial levels.

  The UK Government's role in funding CCS technology under its strategy should take a number of issues into account. The first of these is the technology needs of the UK and of potential export markets. It is tempting to believe that the main challenge for power generation from fossil fuels (particularly coal) is the development of CCS technologies. Such developments are crucial if coal is to make a significant contribution to a low carbon energy future, especially in OECD countries. However, this does not mean that core combustion and gasification technologies should be neglected. These technologies are essential building blocks for fossil fuel power generation systems with CCS. A lot of work is still required to make IGCC technology economic and reliable enough for commercial investment—let alone IGCC with pre-combustion carbon capture. Despite the consensus that has emerged about IGCC's superiority over other options, this perception is often based on theoretical advantages rather than practical experience (Watson, 2005).

  A second, related, issue is that the increasing emphasis on CCS should not crowd out more incremental technology supported by public R&D (NERA, 2004). One of the most important rationales for continuing to pursue R&D on cleaner fossil energy technologies is the rapid expansion of coal-fired power plant capacity that is driving up greenhouse gas emissions in China and India. Whilst the ultimate goal is for these countries to implement advanced technologies including carbon capture, this will not happen in the short to medium term. In the meantime, incremental improvements can deliver significant economic and environmental benefits. Large numbers of existing power plants and industrial facilities in China have very poor efficiency by international standards, and can be upgraded (Watson, 2002).

  Furthermore, new plants that are built can be "future-proofed" to some extent by making them "capture ready" (Gibbins et al, 2005).

  The transfer of the necessary technologies from OECD countries such as the UK to China and India will be a complex process. This is confirmed by the past experience of transferring cleaner coal technologies from international companies to their Chinese counterparts (Watson, 2002). There are serious barriers to this process, such as the high cost of imported equipment, a lack of technical and managerial capacity within China, and insufficient economic and environmental incentives for Chinese firms to install them. For these reasons, the efforts of successive US Administrations to transfer advanced IGCC technology to China have failed. By contrast, less ambitious initiatives to aid incremental improvements in Chinese technology have been more successful.

  A third issue that arises is the extent to which the UK government needs to support domestic development of CCS and other carbon abatement technologies. Due to the climate change rationale for developing them, CCS technologies are even more international than the cleaner coal technologies that were supported under the previous UK programme. The new UK strategy emphasises the gains that could follow from international R&D collaboration through initiatives such as the US-led Carbon Sequestration Leadership Forum (CSLF) (DTI, 2005). This emphasis is partly due to a political desire to work with the US government as an alternative to its participation in the Kyoto Protocol. However, such collaborations could also lever additional benefits from limited UK R&D budgets. Alongside such initiatives, it is crucial to maintain a domestic CCS R&D programme whether or not the technologies that are deployed in the UK are indigenous or international. Research supports the view that a UK skills base in complex technology areas such as this is vital if the UK is to retain the capability to absorb and utilise CCS technologies effectively (Martin et al, 1996).

  A fourth issue for the UK CAT strategy is whether the UK should fund domestic demonstration projects and the transition from these to commercial deployment. The UK equipment industry has called for technology demonstrations to receive government support for many years (NERA, 2004; APGTF, 2004). Whilst the DTI has traditionally been wary of trying to compete with US and EU demonstration activities, some limited support is now available. The £40 million allocated over the first four years of the CAT programme includes hydrogen and fuel cell demonstrations as well as those focused on coal. Support for deployment of CATs within the programme is less clear, and is put to one side pending the outcome of the UK's climate change programme review. There may now be a case for a UK-based demonstration of CCS technology with government support. There are opportunities for the UK to contribute to international programmes such as projects under the CSLF or the Futuregen IGCC-based zero emission power plant in the US (US Dept of Energy, 2004). In others, there could be scope for a particular UK-based competence to develop. Whilst UK expertise lags behind the international state-of-the-art in many important areas (NERA, 2004), the DTI claims that some windows of opportunity exist (DTI, 2003; 2005). One of the most important is the use of carbon capture and storage to deliver enhanced oil recovery in the North Sea in the next few years. The rationale for supporting this is contentious—some oil companies have claimed that the main barriers to implementation are not technical but economic (NERA, 2004). This is borne out by the recent announcement by a consortium led by BP that they plan to build a gas fired power plant with CCS in northern Scotland. Whilst they expect to partly finance the project by re-injecting CO2 for enhanced oil recovery, the project will also require what the consortium call "an appropriate policy and regulatory framework" that might include public financial support.

  Even if the barriers to technologies such as this are largely economic, much of the rationale for government support that is set out earlier in this submission still holds. One of the most difficult challenges for public support programmes is how to facilitate the transition from technical demonstration to commercial deployment. Many programmes simply neglect this altogether, whilst others try to conflate these two distinct activities (Scott and Watson, 2001). Although some cleaner fossil technologies have already made this transition, it remains to be seen whether the UK CAT strategy and similar international programmes will help other more advanced technologies—including those for CCS—to do so. To maximise the chance of success, the DTI should ensure that funding for demonstration of CCS technologies is implemented alongside market support mechanisms to move the most promising technologies into commercial deployment.

October 2005

REFERENCES  DTI (Department of Trade and Industry) (2003) Review of the feasibility of carbon dioxide capture and storage in the UK DTI publication no 03/1261, DTI, September.

  DTI (Department of Trade and Industry) (2005) A Strategy for Developing Carbon Abatement Technologies for Fossil Fuel Use DTI, June.

  Clarkson, R and Deyes, K (2002) Estimating the Social Costs of Carbon Emissions Government Economic Service Working Paper No 140. HM Treasury and Defra.

  Gibbins, J et al (2005) "Scope for future CO2 emission reductions from electricity generation through the deployment of carbon capture and storage technologies" International symposium: Avoiding Dangerous Climate Change Exeter, UK, 1-3 February.

  Herzog, H and Golomb, D (2004) Carbon capture and storage from fossil fuel use Encyclopaedia of Energy.

  Martin, B et al (1996) The Relationship between Publicly funded Basic Research and Economic Performance, SPRU, University of Sussex, Report prepared for HM Treasury, April.

  NERA (2004) Evaluation of the Cleaner Coal Technologies Programme Report to DTI, May.

  Scott, A and Watson, J (2001) "An audit of UK energy R&D: options to tackle climate change". Tyndall Briefing Note No 3. Norwich: Tyndall Centre.

  US Department of Energy (2004) FutureGen: Integrated electric Power production and carbon sequestration research initiative US DoE Office of Fossil Energy, March.

  Watson, J (2002) "Cleaner Coal Technology Transfer to China: a `Win-Win' Opportunity for Sustainable Development?" International Journal of Technology Transfer and Commercialisation 1(4): 347-372.

  Watson, J (2005) "Cleaner Coal Technologies for Power Generation: Can They Deliver?" Proceedings of the BIEE Academic Conference European Energy: Synergies and Conflicts, Oxford, 22-23 September.

19   Whilst the social cost of carbon is extremely difficult to quantify, the government's own studies have identified a range of £35-£140 per tonne of carbon (Clarkson and Deyes, 2002). The current price of carbon allowances in the EU emissions trading scheme is approximately 25-30 Euros per tonne. Back

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