Select Committee on Environmental Audit Written Evidence


Memorandum submitted by the Carbon Capture and Storage Association

INTRODUCTION

  The Carbon Capture and Storage Association welcomes this opportunity to respond to the Committee's inquiry into the Pre-Budget Report 2006, in preparation for the Budget 2007.

  In October 2006, the long-awaited and high-profile Stern Review was published, setting out a detailed view of the economics of climate change. This Review, prepared by HM Treasury is highly regarded internationally, raising the UK's profile in the ongoing global battle against climate change. The UK government therefore has created the opportunity to take a leading role by acting upon the urgency expressed.

  The CCSA was formally launched in March 2006, bringing together specialist companies across the spectrum of carbon capture and storage (CCS) technologies, as well as a wide range of support services to the energy sector. The Association exists primarily to represent the interests of its members and to assist the UK Government in developing a robust framework for the CCS industry, as a means of abating carbon dioxide emissions. In addition, the Association supports UK interests in international developments in CCS, as well as providing a sound and transparent information base for the public, professions and policy makers on the benefits of CCS.

PRE-BUDGET REPORT 2006: SUPPORT FOR CARBON CAPTURE AND STORAGE

  The publication of the Stern Review on behalf of HM Treasury, sparked a positive reaction across the environmentally conscious business world, with its sense of urgency leading many to expect an advance in policy to mirror the messages contained within the conclusions of the Review.

  The Review concludes that even with "very strong expansion of the use of renewable energy and other lowcarbon energy sources, fossil fuels could still make up over half of global energy supply in 2050" and that "extensive carbon capture and storage would allow the continued use of fossil fuels without damage to the atmosphere".[12]

  Over the next 10-15 years, the UK will need to install 20GW of power generation to cope with the energy gap resulting from the closure of the UK's four Magnox nuclear stations and the early retirement of many coal-fired power plants under the EU Large Combustion Plant Directive. [13]

  The Association supports the continued development of renewable technologies. However, it is unlikely that these technologies will reach a scale large enough to fill the energy gap within the next decade, and a mix of technology options is therefore necessary. As construction of large power projects take a number of years from conception to operation, it is vital that the UK makes a start at the earliest opportunity.

  CCS has the ability to make a significant contribution towards filling the UK energy gap whilst containing emissions increases arising from the closures of nuclear plant. There are currently eight CCS projects under development in the UK, representing all technology options and with a combined capacity of almost 7GW. Of these eight projects, seven are coal-fired. Energy markets currently favour coal-fired power generation and we face the prospect that coal fired plant will be built to service demand without CCS unless appropriate incentives are put in place. Most importantly, these projects could help to reduce UK annual carbon emissions by more than 30 million tonnes of CO2.

  CCS does not suffer from technological barriers, due to the fact that the technology components (capture, transport and storage) have been in operation for many years. However, CCS is in the category of "early mover" technology, and such technology has associated risks. Special consideration is needed for "early mover" projects, and the process for building these projects should be initiated as soon as possible to enable industry to achieve optimisation of cost and efficiency

  However, for a successful CCS market to be established, the regulatory and financial framework must be in place to induce the long-term confidence required for industry to invest. To stimulate the development of other low-carbon technologies the UK Government has already introduced regulation such as the Renewables Obligation, a Microgeneration Strategy and a Combined Heat and Power Strategy, and a number of government departments are already working to address the regulatory barriers to CCS. Unfortunately, this has not been matched by similar progress within HM Treasury to develop the incentive structure needed to kick-start this new industry.

  CCS has been gathering significant media and public attention. Over the past year and within Government, positive announcements have previously been made by HM Treasury as well as other government departments, leading industry to believe that an incentive structure for CCS has been under development and would be announced in the near future. Based on this belief, industry has made considerable investments in project development putting the UK in a lead position in respect of project development.

  It was therefore with extreme disappointment that the announcement in the Pre-Budget Report was received by the Association and throughout the CCS industry. The statement that following a "tender for consulting engineers to ensure that the Government's understanding of the costs of a CCS plant based in the UK is robust, and to help the Government assess whether supporting one through a challenge fund or other mechanism would provide value for money",[14] a government decision in 2007 to support only one project will be made, presented a blow to the industry. With eight project proposals currently waiting for a green light, at least seven projects will be rendered unsuccessful and the UK's power generation investment programme will fail to meet the required targets.

  Other countries are actively developing CCS proposals including USA, Canada, Australia and in Europe. There will be intense competition for massive CCS investments. Failing to send the right signal, HM Treasury has thereby missed an opportunity to ensure that British business takes a leading role in what is likely to be the biggest single world market stimulated by climate change mitigation.

  The Pre-Budget Report also announced that the "details of any support package will be subject to further analysis and consultation",[15] adding a further delay to the decision on a financial structure for CCS which altogether will delay the start of CCS developments in the UK by at least one year. As mentioned above, large power projects require a certain lead-in time for development, and the Governmen therefore cannot afford any delay at this time. In addition, any delay in the deployment of CCS represents a significant lost opportunity to avoid many millions of tonnes of CO2 emissions.

CONCLUSION

  The UK and global climate change issue is currently in the phase of "early-mover" or "first generation" low-carbon technologies, requiring significant political and financial input to enable these technologies to reach a stage competitive with existing power generating technologies. For the market to favour low-carbon technologies, a shift in the regulatory framework is needed, where low-carbon technologies receive a benefit above that of conventional fossil-fuelled power plants.

  During the second phase of the EU ETS, HM Treasury is expected to receive approximately two billion Euros from the auctioning of allowances. This is in effect a tax on fossil fuels, and in particular on fossil fuel power generation, as the allocations of these power generators are subject to a scale-back in Phase 2. Using this income to fund low-carbon technologies such as CCS is a clear opportunity to provide the benefit that would encourage the market to favour these technologies.

  The Association is greatly encouraged by the work of the government to develop a CCS regulatory framework however, without the complementary financial support system needed to ensure the building of these projects is initiated in the immediate future, the UK is in danger of creating a global image of "all talk and no action" with regard to this vital technology.

  The view expressed in this paper cannot be taken to represent the views of all members of the CCSA. However, they do reflect a general consensus within the Association.


12   Stern Review: The Economics of Climate Change, HM Treasury, October 2006. Back

13   How to Plug the Energy Gap, John Loughhead, UKERC, November 2005. Back

14   Pre-Budget Report 2006, HM Treasury, December 2006. Back

15   Pre-Budget Report 2006, HM Treasury, December 2006. Back


 
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