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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