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27 Feb 2007 : Column 242WH—continued
“The UK Government must support opportunities for UK organisations to participate in research projects, demonstrations, building global partnerships for deployment, which will lead to permanent scientific and industrial jobs, expertise, and business contracts that will have a positive impact on the UK economy, as well as regional economies. Conversely, failing to engage proactively may lead to UK organisations being left behind economically and environmentally.”
We therefore have the potential to store vast amounts of carbon dioxide safely in the North sea and elsewhere that would otherwise end up in the atmosphere. We would also have a foothold in the hydrogen economy, which could transform our transportation and industrial projects.
I know that the Minister is familiar with the Peterhead project, but the concept is elegant as well as exciting. We will be able to take methane from St. Fergus, separate it into carbon dioxide and hydrogen through the pre-burn process and send the carbon dioxide back down the Miller pipeline into the North sea, where it will be re-injected into a largely depleted oilfield. That oilfield is to be abandoned in the next few months, but we will be able to increase its lifespan by up to 20 years and to take the equivalent of another 40 million barrels of recoverable oil out of it. We will then be able to burn the hydrogen in the power station in a virtually zero-carbon way, making 500 megawatts of continuous, rather than intermittent, power available to the grid. The project is staggering in its elegance and impact and will probably be the first feasible worldwide demonstration of such technology. It will therefore give us the most amazing opportunities to learn the lessons that will lead to the general application of that technology.
In the jargon, the project, which is in Peterhead in my constituency in north-east Scotland, is referred to as DF1. DF2 is in California and starts from a coke process, but once the pre-burn is done, the process is essentially the same. This Christmas, the American Government, led by President George W. Bush—perhaps not the world’s No. 1 environmental pin-up—announced a $90 million tax allowance to promote the DF2 project, which is 20 months behind the Peterhead project. The Minister will also know that the Norwegian Government have announced their support packages for carbon capture technology. There is therefore a risk that any serious delay by the Government in coming up with the necessary proposals and deciding how to support this world-leading and potentially planet-saving technology will dissipate Peterhead’s worldwide lead of almost two years.
Almost 200 people from BP and companies such as PSN are working on the pre-engineering in Aberdeen and, indeed, England. The hon. Member for Aberdeen, North (Mr. Doran) is present, and almost 100 people are working on the project in his constituency. Towards the end of next month, when the pre-engineering design stage is finished—the scheme’s sponsors, BP, General Electric and Scottish and Southern Energy, have already invested £50 million in the pre-engineering phase—the teams will be stood down, awaiting the Government’s decision on how to support the technology. That is
another indication that we run the risk of dissipating our vital international lead on this exciting new technology.
There is another issue, which leads to particularly pressing questions. The Miller field is not run by BP alone, and there are a number of other partners. It is due for decommissioning, and it is well known that the other partners want to advance the decommissioning plans. The clock is ticking on the Peterhead project, and it is being driven by the decommissioning of the Miller field. If the field goes into a decommissioning phase, and the engineering design work becomes a reality, with engineering work offshore, the opportunity to have the Miller field as part of the project will be lost. We will lose the opportunity to re-inject the carbon dioxide into a semi-depleted field, to have an extra 40 million barrels of oil and to use the high-specification Miller pipeline, which is there by the grace of God, because Miller was a sour gas field and therefore had a high-spec pipeline suitable for carbon dioxide. I therefore want some indication from the Minister that the Government are aware that the timetable is tight and that the need for action is pressing if this opportunity is to be grasped.
I was somewhat concerned by the Prime Minister’s responses at the recent meeting of the Liaison Committee, when he was asked by the hon. Member for Aberdeen, North about the Peterhead project, and in particular whether he was concerned that delay might result in the opportunity being lost. The Prime Minister said that he was a great supporter of the project, which would heat 250,000 homes. It is actually double that; the early project would have heated 250,000 but the current project will heat 500,000 and it is a nearly 500 MW project. Then he said that the trouble was that the Government had to assess the eight or nine other projects. Perhaps the Minister will tell me today what state of readiness those eight or nine projects are in. My understanding is that few of them are even on the drawing board, never mind ready to come off it. If the Government’s decision making involves considering those other projects, there will inevitably be delay in realising the potential of any one project.
I suggest to the Minister that there are various ways to allow the technology to be supported. One way in particular would involve the Government in little risk, and would not, as the Prime Minister seemed to think, involve spending massive amounts of public money.
Mr. Frank Doran (Aberdeen, North) (Lab): Will the hon. Gentleman give way?
Mr. Eric Martlew (in the Chair): Order. Have the normal conventions been agreed?
Mr. Salmond: No, but I shall give way to the hon. Gentleman.
Mr. Doran:
I apologise, Mr. Martlew. I congratulate the hon. Gentleman on securing the debate, which is on an extremely important subject. It is unfortunate that more hon. Members are not here for it. He said that massive sums of money were not involved, but I
understand from discussions with BP that it is looking for the same support that is given to wind farm generators. If that were so, it would be a massive sum of money. I was given a back-of-the-fag-packet estimate on the basis of the half-scale project, the 250 MW project, which came to a total of £170 million. I should be interested to hear where the hon. Gentleman gets his figures from.
Mr. Salmond: I hope that that was a supportive intervention and that as a Member of Parliament for a constituency in the north-east of Scotland the hon. Gentleman supports the project. If he gives me a second or two I shall explain exactly the proposal that I was going to make to the Minister. There are two ways to support a carbon capture and storage project. One is a challenge funding mechanism, by which the first project would be guaranteed, perhaps with a capital grant—even a substantial one—so that the technology could be proven. The advantages of proving such a technology would be available to industry as a whole. That would justify taking that route. That is roughly the route that the President of the United States has chosen to go down with DF2 and the $90 million tax allowance.
There is of course another way to support the project. My understanding of the economics, certainly of the Peterhead project, and hopefully of the other competitor projects coming along behind, is that they could go ahead for something of the order of 80 per cent. of the current trading price of a renewable obligation certificate in the environmental and renewable energy sector, if the Government could guarantee that to all carbon capture projects, or at least to the early ones. However, the projects would have to have the certainty from the Government that that level of support would be available when they came on stream.
There would be significant advantages to the Government in taking that approach now. It would mean that they would have no capital risk, technology risk or production risk in supporting the project. They would be placing the early carbon capture projects at a level just below the trading price of current renewable energy projects. That would also allow the projects to find their place in the market. They would find their place, by definition, in terms of what was the best project. Early decision making would allow the proposals to go ahead early, instead of waiting for what might be a lengthy Government examination and review.
I know that the Minister will argue that the Government have not been delaying, but a process took place in relation to the previous Budget and the pre-Budget report, when indications were given about the Norwegian agreement and the Government’s approach to the matter. It was widely hoped and expected that in this year’s Budget the Government would determine their intentions on how to support the technology. There has been some speculation in the press about the delay in decision making. An article in The Observer of 25 February mentions a “growing belief” that the Chancellor of the Exchequer
“is waiting to become Prime Minister before he acts.”
It quotes “one industry insider” as saying:
“The issue is going to run into his premiership so that he can get the credit”.
[Hon. Members: “Surely not.”] I should welcome an indication from the Minister that such technology and such an opportunity is too important to get caught up in any delay because of Labour party leadership changes.
I hope that the Minister will assure us that the issue is being dealt with as it should be: as a matter of the scale of the industrial opportunity, and Government determination not to allow delays and the dissipation of the two-year lead. I hope that something like my suggestion may be considered by the Government as a way to support this vital technology without the capital, technology or production risk that would otherwise be involved. I know that the Minister is aware that the European Commissioner and many bodies, including the European Commission and the Royal Society of Chemistry, have already indicated their support. I hope that the Minister will say that an opportunity of this scale will be firmly grasped by the Government without further delay.
1.16 pm
The Minister for Science and Innovation (Malcolm Wicks): I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on securing this debate on a very important issue. Soon after I became Energy Minister some two years back, I was advised by my authoritative officials that it is a mistake for an Energy Minister to become enthusiastic about a particular technology. I think that it is good advice, but I rather ignored it when it came to my growing understanding of carbon capture and storage, because it can reduce CO2 emissions from power plants by more than 85 per cent., and it has significant potential in the UK and worldwide to reduce CO2 emissions, while enabling use of fossil fuels to continue. It was identified in the Stern report as one of the leading emerging energy generation technologies, with the potential to contribute up to 20 per cent. of global carbon dioxide mitigation by 2050. It would make an impact particularly in fast-growing economies with rising fossil fuel consumption, such as China and India.
Briefly, CO2 capture and storage—CCS—is a three-step process, which includes capturing the CO2 from power plants and other industrial sources, transporting it, usually via pipelines, and finally storing it in geological sites such as deep saline formations or depleted oil and gas fields. I listened with interest to the evidence cited by the hon. Gentleman about the sheer capacity of the North sea for that purpose. The challenge, of course, is to bring the technology forward cost-effectively. The processes as I have outlined them are not novel, but they have yet to be demonstrated together at scale on power plant. As a result, there is still major uncertainty about the scale of additional costs over and above those of conventional fossil fuel power plant. That, in turn, makes it difficult to develop regulatory or economic instruments to bring CCS to the marketplace.
Under current arrangements, by which CCS is not rewarded through the EU emissions trading scheme, it is inevitably more expensive than conventional generation, as it adds significant cost while producing no more electricity. That underlines the need to press for an effective multilateral carbon market framework, producing a robust carbon price and sufficient forward
commitment in the EU emissions trading scheme to give confidence to investors.
To begin with CCS demonstration, since demonstrations are so costly, there is general acceptance that individual countries will be able to support only a very limited number by themselves. To obtain maximum deployment benefit, information will need to be shared. The Stern report called for greater international co-operation to accelerate technological innovation and recognised that diffusion will reduce the costs.
There is a range of technology options for CCS projects, including gas, coal or lignite, power generation or combined heat and power, pre or post-combustion capture, onshore or offshore storage, in oil or gas fields or in saline aquifers. Norway has a CCS project that is gas-based combined heat and power, while the USA is developing a project based on coal gasification. If we went ahead with a competition in the UK, we would want to consider how a UK demonstration plant might add value to projects being planned elsewhere.
Given the uncertainty about the potential cost of a demonstration plant, it is essential that the Government understand the likely costs and consider a range of alternative technologies and locations of possible plants. We have strongly encouraged the market to proceed with bringing the technology forward, and UK industry is well placed to undertake future CCS projects. The market is considering eight or nine projects.
We welcome the initiative of BP and its partners in developing the project to which the hon. Gentleman has referred—the BP Peterhead Miller field project. We have an ongoing dialogue with the DF1 project team as it progresses with its assessment of issues that affect the project. At this stage, it is not possible to say whether the Government can meet the conditions that BP set out for the project’s continuation, which is subject to the Government’s investigation into incentives for CCS and other works being undertaken in the Department on the appropriate regulatory regime.
The pre-Budget report committed to making a decision this year, and I am advised that it is not incompatible with the Miller field decommissioning time scale. I hope that that might reassure the hon. Gentleman, because I listened carefully to what he had to say about that issue.
In the 2005 Budget, the Government announced that they were examining how they might support the development of CCS in the climate change programme review. It included the potential for new economic incentives. In the 2006 Budget, a consultation was launched on the barriers to large-scale commercial deployment in the UK of carbon capture and storage. The UK energy review stated that the next logical step for CCS was a commercial demonstration, and the pre-Budget report to which I have referred, in December 2006, announced the appointment of consulting engineers
“to ensure that our understanding of the costs of a CCS plant based in the UK is robust”,
with a view to a decision on whether to commit to a demonstration project in 2007.
Mr. Salmond: The Minister has already been through what was said in two Budgets and in one pre-Budget report. We are coming up to another Budget, and I understand that a decision-making structure will be in place sometime this year. Is he at all attracted to my suggestion that, if the Government could guarantee the early projects, which could go ahead for less than the current trading price of renewables obligations certificates, it would enable more rapid decision making to take place, the projects to come to market and the Government to be free of any capital, technology or production risk? Is that an attractive option for a review that is, I hope, coming to a conclusion?
Malcolm Wicks: The attractive option is the review that I am discussing. On renewables obligations certificates, as on anything we do in energy strategy, we must be very careful not to stop the advancement of renewables technologies. Our target is that 20 per cent. of our electricity should come from renewables by 2020. I think that the Conservative party’s position is that we should ally the technology under discussion to the renewables obligation, but I am wary about that, because I do not want to disrupt what is a helpful development in terms of renewables. I had better to proceed.
Mr. Salmond: Will the Minister give way?
Malcolm Wicks: In a moment. Well, all right, yes.
Mr. Salmond: I do not suggest that those projects qualify for ROCs. I suggest that if the Government were to pitch their guaranteed support to the early projects, just below the current trading price of ROCs, it would allow the Peterhead project, certainly, to proceed. Is that an attractive option?
Malcolm Wicks: We are making progress with that process—even if I am not with my speech. When the Government make a judgment, I am sure that they will consider the hon. Gentleman’s ideas.
In January, the DTI appointed PB Power to carry out the consultation work. Once it has reported on its findings, the Government will have a fuller understanding of the costs and be able to make a decision about whether to support a UK demonstration project.
I shall also update Members on some of the other activities that the UK has recently undertaken to enable the technology to make progress. We have allocated £35 million for the demonstration of carbon abatement technologies, including carbon capture and storage. The first projects will be announced later this year.
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