House of Commons - Environmental Audit

Select Committee on Environmental Audit Third Report

Carbon Capture and Storage

20. Carbon Capture and Storage (CCS) encompasses a range of technologies for separating the carbon dioxide emitted in industrial processes (chiefly burning fossil fuels in power stations) and sequestering it over the long term—for instance, by liquidising it and pumping it into empty gas fields or saline aquifers—so that it does not enter the atmosphere. The Stern Review highlighted the enormous potential importance of CCS for avoiding dangerous climate change. Stern cited studies which suggested that global deployment of CCS could make up around a third of the worldwide carbon abatement efforts required by 2050, while reducing the costs by possibly two-thirds.[26]

21. The Treasury has been heavily involved in Carbon Capture and Storage policy for some years, with many of the Government's announcements on CCS being made in successive Budget and Pre-Budget Reports. With the 2005 Pre-Budget Report the Treasury issued a consultation on the scale and form of a competition for public funding to build a full-scale demonstration CCS power plant. Alongside the 2007 Pre-Budget Report, the Government announced the details of this competition; chief among these was that the scope of the competition would be restricted to a post-combustion coal plant. In such a power station coal would be burnt in the normal way, and the CO₂ stripped by chemical scrubbers from the resulting exhaust gases. The decision to restrict the competition in this way caused some controversy because it excluded potential projects using other technologies (the main current alternative being pre-combustion, in which the CO₂ is stripped out prior to the fuel being burnt). The Exchequer Secretary explained the Government's rationale as follows:

We decided that we wanted to focus on post-combustion because [it has] the potential to retrofit existing plants […. S]ince we already have plant that is putting a great deal of carbon into the air and that developing countries, particularly China, have a great deal of dirty coal and are building power stations at a rapid rate to supply their own energy needs, retrofit post-combustion seems to us to offer the best chance, if it can be delivered, of maximum abatement capacity which is beneficial in the battle against climate change.[27]

22. If the Government were only going to fund one Carbon Capture and Storage demonstration project, we believe it was right to restrict the scope of the competition to a post-combustion coal plant. We agree with the Government that this type of technology has the greatest global potential, given the possibility that it could be retrofitted to existing power plants. If widely adopted, it could dramatically reduce the emissions of countries such as China and India, while simultaneously providing significant economic opportunities to firms with experience of carrying it out.

23. Another reason for funding a post-combustion demonstration was given to us by Centrica: "pre-combustion has been demonstrated to work at scale. That has not yet been done on post-combustion. [Post-combustion] has still very much only been proven at a small scale."[28] Indeed, both Centrica and the Carbon Capture and Storage Association (CCSA) told us of private sector plans for pre-combustion plants that could potentially (i.e., if the economic conditions were right) be operational as early as 2012-13.[29] Regarding post-combustion plants, Scottish Power, though confident of the potential of this technology and entering the competition for the Government's demonstration project themselves, agreed that: "in order to roll out this capture and storage in China and places like that, it will be important to have post-combustion properly tested and assessed."[30] Post-combustion technology appears to be further away than pre-combustion from being introduced by the market on its own. This means that funding a full-scale demonstration plant is a particularly appropriate and effective form of subsidy for post-combustion technology. We hope that this demonstration will be able to prove to interested companies that post-combustion plants are physically viable, and teach valuable lessons about how to build and operate them efficiently.

24. Overall, however, we are still very disappointed by the scale and speed of investment for CCS announced in the Pre-Budget Report. The PBR said of the demonstration project: "This competition will ensure the UK is a world leader in bringing forward this globally important technology for tackling climate change." But the truth is that CCS is not one technology, but several; and there is the possibility that by funding only one project the Government will be leading UK industry to 'put all its eggs in one basket'. While post-combustion is obviously appropriate for retrofitting to existing coal plants, we heard from Jeff Chapman, chief executive of CCSA, that the market had not yet established what would be the preferred technology for the next generation of power plants.[31] It was for this same reason that the UK Energy Research Council, in its submission to the Treasury's 2006 consultation on the form the CCS competition should take, urged the Government to fund several different demonstration projects.[32] Scottish and Southern Energy, meanwhile, told us the Treasury should fund two demonstration plants, one with post-combustion technology and one with pre-combustion. When we put this suggestion to the Exchequer Secretary, however, she was resolute:

If you ask me whether half-way through the competition process we will agree to do pre-combustion as well the answer is no; we are concentrating on a post-combustion project of the sort we have announced.[33]

25. Another criticism we heard of the competition was that the specified size and deadline for the plant were too unambitious. The Department of Business, Enterprise and Regulatory Reform (BERR) has set out that the winning project should be built by 2014, and specified its capacity as 300MW (megawatts). It also added that the plant could be built under "a phased approach": in other words, that the plant could start running as an ordinary coal plant first, before the CCS element was fully operational. So long as some degree of capture, transportation, and storage is demonstrated by 2014, BERR has said that full-scale CCS need only be implemented "as soon as possible thereafter".[34] Scottish and Southern expressed their doubts about the usefulness of the competition, in view of these criteria: "Given the CCS activity worldwide, it is highly unlikely that the UK will be teaching the world anything new in 2014 with 50-100 MW of CCS."[35] Meanwhile, CCSA set this competition in the context of six new ordinary coal plants that are already being planned to be operational by around 2015:

The total of those six projects is 9,000 megawatts and, this is just to put it in context, the demonstrator is 300 megawatts. So in terms of a contribution to the emissions from that fleet of power stations, it is not a very big contribution. I am not sure it was the objective of the Government anyway to make that contribution, but it is not a very big contribution taken in that context.[36]

26. Indeed, the Government has already taken the projected carbon savings from this demonstration plant into account in its emissions forecasts to 2020—projecting that UK CO₂ emissions will by then be down by 20-26% on 1990 levels, against the national target of a 26-32% reduction by 2020. The Government has acknowledged that more efforts will be required to reduce emissions further by this target deadline.[37] However, Jeff Chapman was confident of the ability of power companies to use CCS to deliver significant carbon savings within this timeframe:

If we can accelerate [plans for CCS plants] in a similar manner to the "dash for gas" that took place in the 1990s, we could make a very big impact in the second half of the next decade, towards 2020. We could have a lot of capacity on the ground by 2020 and certainly an awful lot of capacity in the 2020-2030 decade. It all depends on policy.[38]

27. To be more precise, the key policy issue he—and all our other witnesses from this industry—stressed was the provision of a long-term financial framework to support the extra costs of CCS. Centrica summed the matter up:

In terms of where we are on the financials, because of the uncertainty that is created around the carbon price and the capital expenditure, if one looks, say, at the higher end of the capital expenditure range, then to make a project economic, there needs to be some longer-term support. Whether that is from Government, whether it is from an additional piece of legislation, we are not being definitive on. With the current Emissions Trading Scheme and the uncertainty around the future carbon price, no commercial entity would build a clean coal project today.[39]

Scottish Power suggested that in the longer term, it might be possible to rely on the EU ETS to provide this financial incentive, but this might be a long wait, during which conventional coal plants would be built, with emissions going unabated. They argued that even once the demonstration plant had been built, there could still be a hiatus before the EU ETS provided a strong enough financial signal for companies to invest in new CCS plants. For this reason, they argued the Treasury would need to step in with some kind of financial instrument to bridge that gap. Jeff Chapman believed the Treasury had several options:

There are several options that could be brought to bear. […] You could have, for example, a feed-in tariff like there is on renewable energy in some other countries, you could have something like a contract for differences, which is when the Government makes a contract for the difference between the EU ETS allowance price and the fixed price which is bankable, or you could simply have a carbon contract.[40]

28. While the CCS competition is very welcome, it is imperative that the Treasury provide considerably more assistance for CCS projects overall. No matter which type of technology is adopted, CCS plants will incur extra build, operational, and infrastructure costs over conventional power stations. Without clear and long-term financial security for CCS, the risk is power companies will not invest in CCS plants even once the demonstration project is operational—let alone bring forward the plans they have for pre-combustion plants today. In the longer term the EU ETS may be able to provide sufficient financial incentives. But in order for CCS to be deployed widely and swiftly in the UK, we recommend that the Government introduce some form of financial mechanism for incentivising CCS power plants over conventional power stations. The Treasury should examine options such as a feed-in tariff for CCS plants, or contracts which guarantee funding for the difference in costs between CCS and conventional plants.

29. Overall, we are concerned that the Government is not showing sufficient urgency in its assistance to Carbon Capture and Storage industries. As far back as the 2003 Energy White Paper, the Government stated:

We will therefore set up an urgent detailed implementation plan with the developers, generators and the oil companies to establish what needs to be done to get a [Carbon Capture and Storage] demonstration project off the ground. This study will reach conclusions within six months to enable firm decisions to be taken on applications for funding from international sources as soon as possible thereafter.[41]

In our report, Keeping the Lights On: Nuclear, Renewables and Climate Change, published in March 2006, we commented on the passage above:

It is now three years after this statement was published. The DTI has issued a number of relevant documents over this period, including a review of the feasibility of carbon capture and storage, a paper on implementing a demonstration project, and a carbon abatement strategy. Moreover, the latest Pre-Budget Report announced a consultation on carbon capture and storage. As EAC has noted before in relation to Sustainable Development, the plethora of reports creates an impression of activity whilst progress in 'learning by doing' appears minimal. It is scandalous that so little progress in developing clean coal and carbon capture and storage has been made, and even the flagship BP-led DF1 project at Peterhead remains dependent on the establishment of a long-term financial framework which would provide greater confidence to investors.[42]

It is now two years since our criticism was published, and there has still only been slow progress on the demonstration project and no substantial progress on setting out the financial framework. In this time, as we warned two years ago, BP have withdrawn from their planned CCS project at Peterhead. In taking evidence last year from a senior official at the then DTI we were disappointed by the way in which he appeared to be viewing CCS as just another industrial candidate for R&D investment, rather than a crucial weapon in the fight against climate change.[43] The Government must now be more decisive in its support for CCS, especially given that a number of existing power stations are coming to the end of their lives, and power companies are taking decisions imminently on a new generation of power plants to replace them. Where these can be built with pre-combustion CCS, they will immediately lower UK emissions. Where they are built as conventional gas and coal-fired power stations, the Government must mandate that they are built 'CCS-ready', with the expectation and the financial support in place to ensure they are retrofitted with post-combustion technology as soon as possible.

26 HM Treasury, Stern Review on the Economics of Climate Change, October 2006, p 525 Back

27 Qq 174-5 Back

28 Q97 Back

29 Q71, Q85 Back

30 Q98 Back

31 Q100 Back

32 "Response to the Treasury consultation on Carbon Capture and Storage", UK Energy Research Council, May 2006, www.geos.ed.ac.uk/research/subsurface/diagenesis/UKERC_Treasury_CCS_consultation_v_3_2_May06.pdf Back

33 Q177 Back

34 "CCS demonstrator will put UK ahead in global race for clean coal", Department for Business, Enterprise & Regulatroy Reform (BERR) press release, 9 October 2007 Back

35 Ev 80 Back

36 Q109 Back

37 Uncorrected transcript of oral evidence taken before the Environmental Audit Committee on 4 December 2007, HC (2007-08) 155-I, Q6 Back