Energy Bill

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Q 16Paddy Tipping: We are all in favour of carbon capture and storage. Are the measures in the Bill sufficient to bring forward new schemes?
Philip Pearson: Not in themselves. They provide a legislative framework to encourage private investment. In a sense, the proposals in the Bill are a kind of minimum comfort zone. They are absolutely necessary, but they in themselves will not drive forward CCS. Government initiatives, such as the demonstration project, are obviously part of the way forward, but there have been concerns over the pace and scale of that. The TUC is pleased to advise the Committee that it is a member of Yorkshire Forward regional development agency’s carbon capture and storage project, which is hugely ambitious, with the potential to capture 55 million to 60 million tonnes of CO2 from power, steel, ceramics and so on in a regional system. It is difficult, however, to see the connection between such an ambitious project and the Bill. The Bill provides a basic set of rules and regulations, but it will not, in itself, stimulate investment.
Roger Salomone: We agree that what is in the Bill is essential and lays the regulatory foundations. However, in terms of the wider question of whether there are enough incentives out there to encourage CCS to develop in a wider sense, we have the competition project, which is quite narrow, looking at one kind of technology, rather than the industry in the broad sense, and we have the EU ETS, which should be the long-term mechanism, but which is not providing those kinds of signals at the moment. I think that there is a question about whether some kind of transition support could be provided to the industry more widely. We have been discussing carbon taxes, and things like that. The question of what happens to the auctioning revenues at the EU ETS level is also outside the scope of the Bill but is important.
Q 17Paddy Tipping: So what more needs to be done to bring forward carbon capture and storage? All our coal plants at the moment are ageing and going to go out of commission. There is a prospect that, unless we can burn coal more cleanly, either via better combustion techniques or post-combustion carbon capture and storage, there will be real problems. What else needs to be done?
Philip Pearson: We are at the stage, with carbon capture, of project development through demonstration and implementation. We are at a stage that requires forms of Government support. This in turn raises the question of where the revenue streams will come from. This in turn, going back to Stern, suggests there should be a carbon price-related revenue stream. The only one available so far is the EU ETS. Carbon capture and storage is a potential candidate to join the EU ETS from 2012, or perhaps sooner if the Government could win that argument. Meanwhile, there is no revenue stream from carbon emissions to support CCS; there could be—you could get it from air passenger duty, which is an environmental tax. You could get it from auctioning revenues from phase 2 of the ETS. The Bill does not have a mechanism, however, to fund through carbon pricing the good extensions on electricity, CCS or offshore gas storage. A number of major restructure projects are still without a mechanism. We have a problem with that in the context of the Bill.
Q 18Dr. Brian Iddon (Bolton, South-East) (Lab): The Bill favours retrofitting for carbon capture and storage. Do you agree that the Government should put their money on that technology, rather than the pre-capture of carbon through reforming the gas? That has the advantage of producing hydrogen, which would kick-start the hydrogen economy.
Philip Pearson: The Bill does not cover this issue specifically. It does not refer to post or pre-combustion capture or regional networks. It just provides for the infrastructure arrangements. What do we think about the pre or post-combustion arguments? We think that both technologies need to be supported as well as the third option—the regional pipeline system, which is being developed through Yorkshire Forward. I do not know whether they will be giving evidence to this Committee, but that is a truly ambitious and exciting project, which is not just about getting CO2 from energy but from steel. Corus is a partner. It is a very important initiative. Again, I think there is a problem on the funding stream. Whichever option you go for, the stream is probably too thin and too attenuated; it needs to be much more intense and broad in its scope.
Q 19Dr. Iddon: So why did BP pull out of the Peterhead project?
Roger Salomone: We think that it is disappointing that the competition was not broader. Any kind of technology will come forward and be eligible to take part in that competition. You have to give credit where credit is due. It is good that we got competition in the first place. It would have been nice if it had been more open, because it is always hard to predict which is going to be the most cost-effective and useful technology several decades hence.
Q 20Dr. Iddon: Will the competition that is proposed in the Bill attract BP back in? Its project was pre-capture.
Roger Salomone: I would not have thought that it would have encouraged that type of project—a pre-combustion technology.
Q 21Mr. Brian Binley (Northampton, South) (Con): May I pursue this a little further. There is a feeling in the industry that the Government have been premature in making decisions about the issue through this competition and that they in fact close down activity that ought to be opened up. Is that your general view at this stage?
Philip Pearson: From the TUC’s standpoint, yes, it is. We have expressed that view through our representatives on the coal forum. We believe that all options should be explored. There is a question about resourcing, and if there are limited Government resources then the Government have clearly made a particular kind of decision. If resources are that thin, you could argue for post-capture, pre-capture or a regional network, if only one of three major options is to be chosen. The trouble is that the CO2 challenge is too enormous to restrict to the development of one option only. The European Union is looking for a dozen CCS demonstration projects by 2012, with some to be in operation by then. The UK was thought earlier on to have the combination of advantages to put forward three or four options of the 12. We have one option over a four or five-year time period, and there should be several pre, post and regional systems over a much tighter timescale.
Q 22Mr. Binley: Can I come to the industry now, because I understand that money is available and people want to go ahead, but they feel that they are being excluded by the way in which the competition is framed, and so forth. Is that fair?
Roger Salomone: I think that people do think that the decision for the competition was premature. For example, we do not know exactly what the competition criteria are right now, but we could have had criteria around retro-fitting and global applications and there could be other important ones such as cost-effectiveness. I do not see how narrowing that down now does the situation any favours.
Q 23Mr. Binley: This is my final question. Do both of your groups believe that amending this Bill to open up that particular aspect would be a good thing? Is that what you are telling me?
Philip Pearson: From our point of view, absolutely. If you read the energy chapter in the CBI’s recent report, it makes very similar comments.
Roger Salomone: We agree.
Q 24Dr. Alan Whitehead (Southampton, Test) (Lab): Just a brief question on competition in securing infrastructure—following on from the question on how competition might develop carbon capture and storage. Are you happy with the potential arrangements in the Bill to stimulate the development of—particularly offshore—grid transmission arrangements through amendments to the Electricity Act 1989 and the power of Ofgem to develop competition for licences? Or do you think that further action is needed to ensure that the delivery mechanisms for the development of offshore wind generation can be sustained?
In terms of renewables, we urgently need two things: one is planning permissions and the other is grid extensions. The critical path to securing a major expansion of renewables offshore is grid extension. That is going to take the longest and be very expensive. It needs a funding mechanism and a delivery mechanism, and we are not convinced that Ofgem has the right terms of reference to secure that. It does not make a lot of sense to put this out to competition when the industry is saying that it needs the access lines out there in the North Sea on a “planned and provided” basis. That is the problem. Is the competition going to achieve that? It seems unlikely.
Q 25Dr. Whitehead: So do you have thoughts on what sort of alternative mechanisms might secure the aims that you are talking about, over and above what is presently set out?
Philip Pearson: I do not know what my colleagues would say, but the obvious answer is to commission the provision of the grid. The Government has a role to commission the provision of these extensions. It may look as if that is an old-style way of providing infrastructure, but we are facing unique sets of issues involving climate change, the renewables challenge, carbon emissions and different energy security priorities than existed 10 years ago. We think, therefore, that a market-based mechanism in itself is probably not the right way forward.
Roger Salomone: Our view is that it is a positive development that we are moving from a piecemeal position now, in which networks offshore are more the responsibility of the developer, and bringing them into the existing regime onshore, where you have recognisable transmission asset owners, and a system-wide operator. That can only be beneficial. You are into the remit of long-term planning that exists, for example, for the national grid. That is a step in the right direction, which should provide more coherence and more planning going forward.
Q 26Dr. Whitehead: Do you think that the combination of what is in the Bill and the proposed developments in other legislation, particularly the proposed marine Bill, will be sufficient to provide that new framework, or are there other elements to it that you consider necessary?
Roger Salomone: It will be a challenge. The Planning Bill—making sure these things connect onshore with new substations—the marine Bill and the Energy Bill are all going to have to be knitted together, and should be able to provide a functioning whole.
Philip Pearson: The answer has to be, simply, yes. There are concerns about the on-cost of CCS, but CCS is not just a problem for the UK to address for its own coal-fired generation, which is burning around 60 million tonnes of coal per year. It is a far greater issue; a global question. China completely overwhelms our CO2 emissions from coal. It consumes around 2.5 billion tonnes of coal per year, and rising. We know the numbers on coal-fired power stations. CCS is a global obligation, and we are in a unique forward position to develop it. As I said earlier, we need the funding streams to be in the forefront of this technological development, which is why we felt so disappointed. I know there is a cost question, which is at the heart of your point, but there needs to be a far more ambitious CCS project in the UK than the one we have now, and it would be wonderful if the Bill could succeed in addressing the funding stream issues, as well as the framework issues.
Q 28Charles Hendry: The Bill allows for encouraging a whole range of energy generation, perhaps a new fleet of nuclear, with all the work that goes with decommissioning and the waste disposal related to that. It allows for the opening up of carbon capture and storage; and a whole new approach to offshore and marine renewables, with the Severn barrage and things like that. What is your assessment, both from the TUC and from the employers’ side, of the skills base in this country? Can we actually deliver that range of projects, and what needs to be done to ensure that we can?
Paul Noon: That has been of major concern to the TUC and affiliated unions, and something on which we have had good and constructive engagement with the Government. However, we would like to see many of the initiatives knitted together. A good 80 per cent. of the members of my union are graduates, and it has been a source of some frustration to see the number of engineering graduates in the UK drop over the last 10 years. We talk to company after company that tells us about the problems they have in recruiting graduates. The issues relate not only to graduates; they relate to skills more generally. One of the issues that is raised with us, by the electricity supplying industry in particular, is the attitude of Ofgem and the regulator to the price mechanisms that are there. There should be sufficient capacity for companies in the area to invest in skills, or perhaps it should be mandated that they be required to do so, so that it is not just a question of profitability. There are some very significant concerns. In particular, there is a focus on skills in nuclear, again not only among graduates but at all levels. Some of the things are being brought together in the national skills academy for nuclear that has been established, but there needs to be a greater focus on them.
Stephen Radley: My colleague will in a moment come in on the specific point regarding nuclear, particularly on the inspection side.
I think that in the short term a lot of this is down to the work that the sector skills councils can do in terms of addressing some of the issues, working with the HE sector, and other such factors. But beyond that we need to look a bit wider. What we need to look at particularly is the quality of the teaching of science and technology in schools: whether it is being provided to a sufficient standard, whether we are enthusing people about these subjects and whether they are getting good-quality information about the opportunities that are open to them. There is a big opportunity here in terms of communication: we can say, “If you want to be part of delivering the low-carbon economy, these are the sort of things you could do and these are the sort of qualifications that you need to develop”. I do not think that that message is getting across at all at the moment to people who are making subject and career choices in school, and we need to be much more active on that front.
On a wider point about addressing these skills issues, we are encouraged by many of the recommendations that were made in Lord Sainsbury’s review of science and innovation such as improving the quality of teaching and of careers advisers, and perhaps most important, providing evidence in subject lessons of how science is used in the workplace, in manufacturing today; really building it in rather than providing it as a bolt-on.
Roger Salomone: Can I just add that I think the skills shortage in nuclear is of particular urgency, particularly for the regulators and inspectors who are going to run this new health and safety regulatory function. In light of nuclear programmes potentially starting up in the States, China and other places overseas, there is going to be competition for these very skilled individuals. Education is probably not the answer in the short to medium term, as you cannot train a whole new generation of nuclear inspectors. It is about expediting this process quickly and making the UK an attractive place to work for those in the nuclear industry.
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