Select Committee on Science and Technology Written Evidence


Supplementary evidence submitted by BP


  1.  At the oral evidence session on 7 December, BP was asked to provide further information regarding our R&D spend in the UK and for our view on the creation of a specific, statutory authority to oversee Carbon Capture and Storage (CCS). Several questions were also raised during the session concerning the mechanism and level of incentives required to stimulate investment into Carbon Capture and Storage in general, and in BP's DF1 Project in particular. The purpose of this supplementary memorandum is to address these points.


  2.  In terms of technology R&D alone, BP spent £88.4 million during 2004 in the UK. This covered the whole spectrum of our business, divided as follows:

    —  Exploration and Production 23%

    —  Refining and Marketing 43%

    —  Petrochemicals 28%

    —  BP Group and Gas Power & Renewables 6%


  3.  There is a good case to be made for having a single focus within government with the authority to act as an umbrella organisation for encouraging CCS in the UK. Such a body could:

    —  promote and exercise the overall accountability for enabling CCS in the UK and UK Continental shelf

    —  take the lead in coordinating input and support of other UK government departments and agencies needed in the process of facilitating CCS

    —  take the lead in coordinating HMG effort on CCS matters with Norway and other European countries that may connect with the UK CCS industry

    —  provide the regulatory framework for CO2 storage

  4.  However, rather than establishing a brand new government authority to undertake this role, we believe this could fall under the remit of whichever part of Government has responsibility for energy.


  5.  BP believes that a market-driven (preferably global) carbon price—created by a Cap and Trade system—is the most efficient way of internalising the climate externality, at least for large emitters. But while the European Union Emissions Trading System (EU ETS) should remain the core of future climate policy—and should therefore be extended to include CCS—it is insufficient to incentivise the deployment of new technology.

  6.  This is because the EU ETS focuses upon encouraging the efficient use of existing large emitters, and the marginal addition of new commercially competitive technology, such as fuel switching from coal to gas. It is not designed to deal with the much higher costs associated with developing new technology. It would clearly be unwise to raise the cost of all generation to the marginal price of current renewable or CCS generation. Additional policy is, therefore, needed to focus upon accelerating the introduction and cost reduction of new technology, including renewables and CCS.

  7.  Three key questions need to be addressed in the creation of new policy:

    —  What is the appropriate level of technology incentive for a particular technology, given the range of maturity of different technologies?

    —  How does one establish some degree of inter-technology comparison? It is neither sufficient to leave it to the EU ETS market mechanism, nor would it be right for government to pick winners. There is a need for a new hybrid system where perhaps a single over-arching policy encourages technologies to compete, despite their differing state of maturity.

    —  It would be unwise to assume that policy makers yet fully understand all the relevant issues necessary to design a better more integrated common policy. Understanding will improve year on year, but the aim of all should be to ensure a policy framework is in place which evolves, converging towards a single economy wide system as the state of knowledge improves.

  8.  We are in disagreement with those who suggest that a price of £20 to £40 per tonne CO2 may be sufficient in the near future. This number is used by many, but it only covers the cost of capture and does not include transport and storage. Significant cost reductions can be expected as the level of knowledge improves; but in BP's view there is little doubt that, for the moment, the technology incentive required for a project like DF1 is closer to double the figure of £20-£40 mentioned in the oral session. As stated previously, DF1 requires an ongoing incentive similar to that received by wind via the Renewables Obligation—approximately $60 per MWhr, which in terms of sterling is about £30-40 per MWhr.

  9.  It should also be noted that capital grants would not provide an appropriate incentive. Without a coherent policy in place to reward low carbon electricity, no amount of short-term "subsidy" of a specific project would guarantee the creation of a fully operational business and industry sector, including plant availability and adequate revenue management.

  10.  A number of mechanisms already exist to promote the low-carbon energy sector, and these can be learnt from and developed, balancing the need to introduce policy that meets the three objectives above with the need to make progress. At present, none of these meets fully the needs of the moment, but the following existing policies each have their own strengths and weaknesses. Whichever policy is ultimately designed and implemented, care should be taken to ensure that it is the delivery of decarbonised electricity—rather than the amount per tonne of CO2 removed—which is the yardstick of success. This will enable the decarbonised electrons to be compared directly with other forms of clean power.

  11.  Options to develop are as follows:

    —  One way of creating the necessary life-of-project assurance would be to create a mirror of the RO—the Decarbonised Electricity Obligation, which would enable decarbonised electricity producers via traded DOCs (Decarbonised electricity Obligation Certificates).

    —  A further possibility would be a feed-in tariff similar to those used by Germany to develop its wind and PV industries. Such a mechanism would encourage early movers.

    —  A fourth possibility could be the introduction of US style tax credits for investors.


  12.  BP has never argued that there is a single solution to the climate change problem. Given, however, the obvious desire of Government to meet its CO2 targets in a way that neither damages economic growth nor security of energy supplies, it is very difficult to see how these environmental and energy objectives can be achieved simultaneously without a large role for Carbon Capture and Storage. The Miller Project offers a unique and early opportunity to put this technology to the test, which is why policy choices are urgently necessary.

December 2005

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