Examination of Witnesses (Questions 40-59)
MR MALCOLM
WICKS MP, MR
MARTIN DEUTZ
AND MS
BRONWEN NORTHMORE
4 JUNE 2008
Q40 Joan Walley: But the Royal Society's
recommendation was that there should be a condition that would
apply in future assuming the technology was available?
Mr Wicks: I am not sure that the
emissions trading scheme is always fully understood, although
I am sure this Committee understands it. After all, the emissions
trading scheme which is worthy of study again, is about enabling
us in Europe to hit our carbon dioxide targets and year by year
it bears down on carbon emissions and is a major incentive towards
the development of these kinds of technologies.
Q41 Martin Horwood: The Secretary
of State is on record as admiring the German Government's willingness
to provide a certain environment for business in the medium term.
Is this not a classic example of where talk about the need for
flexibility and your rather hesitant language give the wrong signals
to business? If you are to invest in this technology and you adopt
the Royal Society's suggestion that if CCS is not in place by
a definite point, 2020, a power station must close, is that not
precisely the kind of environment to which business will respond
and invest in, whereas the hesitant signals you give are precisely
the wrong ones?
Mr Wicks: I was not trying to
be hesitant but analytical and comprehensive, maybe unsuccessfully.
If one is talking of business confidence, at the moment when the
technology at a coal-fired power station has not been demonstrated—bits
and pieces have been demonstrated round the world—we cannot
fully appraise what the cost will be except we know that it is
very substantial. The government will support a demonstration
project to the tune of hundreds of millions of pounds. I do not
give the precise figure. If we were to say to business that in
a certain year it must provide this technology when it has not
been proven and we cannot be sure of the cost that will simply
lead to a new dash for gas. I do not think that is about business
confidence; it certainly does not help us with diversity of supply.
Q42 Martin Horwood: In the end business
needs a bit of carrot and stick. We have a measly carrot in place
and I do not see the stick at all. Where is the risk in which
you are asking them to invest?
Mr Wicks: It is not for me to
ask you questions, but I think that a study of the emissions trading
scheme is helpful here because, if you like, that is the stick.
It is saying that unless companies reduce emissions they pay the
cost by having to supply the certificate. I cannot stress enough
that that is now a very significant driver in Europe.
Q43 Chairman: The problem about the
emissions trading system in this context is that we all know that
phase one was a failure; power stations made a huge financial
gain from it and emissions were not reduced in Britain, the EU
or anywhere else as a result. I acknowledge that phase two has
a tighter and progressively reducing cap, so there is a limit,
but if the existence of the EU ETS cap is to be used by industry
or any government department as a justification for the choice
of the most polluting technologies I think you are undermining
the concept of emissions trading. You will say to people that
if you have this system somehow it will allow them to salve their
conscience and get away with polluting as much as they want because
somewhere in the world someone will make a saving. I believe that
is a very poor argument.
Mr Wicks: I hope that the Committee
has not fully made up its mind at this stage. I am sure it will
want to deliberate, looking round the room, in a very open-minded
way upon the evidence that people will bring to bear on this issue.
Q44 Chairman: We have a record of
producing very measured reports.
Mr Wicks: It is not for me to
say how you should write your report, but it must include a significant
chapter on ETS and it must recognise where we are moving to on
phase three. Frankly, any serious contribution to this debate—I
know that there will be a serious contribution by the Committee—must
look at issues of diversity and from where supply in future will
come. Some people do not like nuclear; maybe some people do not
like coal, but the British people need fuel and serious people
must address that question.
Chairman: They need low carbon fuel particularly.
Q45 Mr Hurd: The Committee has looked
at the emissions trading scheme in great depth. I do not think
there is a committee that has written more reports on the subject.
The conclusion is quite clear: it has been a failure up to now
in terms of reducing carbon emissions and it has signally failed
to deliver a carbon price that will drive the private sector to
accelerate the development, let alone the deployment—one
must distinguish between the two—of this absolutely critical
technology. The message is that this is the time when we need
some ambition in the public sector and your government is not
demonstrating it.
Mr Wicks: We can all play the
game.
Q46 Mr Hurd: It is not a game.
Mr Wicks: There is one serious
game. I am proud of the fact that the UK Government is doing this.
We are not alone because the Norwegians are moving ahead very
well and the Americans have set aside money. I cannot think of
anyone else in Europe who is doing it. The European Commission
would want 12 demonstration projects. I worry where the rest are
coming from. One could say that there is a lack of ambition with
only one and then one could have a bidding war. Should it be two
or three? We would need to make judgments about where we cut other
public taxes or expenditure to pay for that. I put it to you that
with our demonstration project, other financial support for the
R&D, a lot of science behind it and the international efforts
we are making, we are not doing too badly as a country on this
one.
Q47 Dr Turner: How will the government
meet its emission reduction targets if coal-fired power stations
like Kingsnorth and any others in the pipeline get the go ahead?
Are not coal-fired power stations entirely contradictory to our
need to reduce CO2 emissions to meet our targets?
Mr Wicks: We are trying to balance
a number of things here. I am as taken by the science as this
Committee. This is the pre-eminent challenge for us. We can meet
it rather easily if we close down all power stations but the British
public and industry want power, so serious people have to address
the question of where that power comes from in future. I stress—because
it is an issue that worries me—the national security implications
of energy supply. The answer to the question is that we will bear
down on carbon emissions by a major programme of energy efficiency
measures, zero carbon housing by 2016, more efforts to improve
the energy efficiency of our dwellings and a number of other schemes
to encourage businesses to reduce energy. Part of the answer,
as Dr Turner knows, is the development of renewables. We have
made the commitment that 15 per cent of all energy should come
from renewables by 2020 or thereabouts. That is the target set
by the European Union. That means that perhaps 30 or 40 per cent
of all our electricity comes from renewables by 2020. There is
a raft of other measures including, though not fully demonstrated
by 2020, carbon capture and storage.
Q48 Dr Turner: It does not really
answer the question about the incompatibility of unabated coal-fired
power stations and our emission targets.
Mr Wicks: But I thought the question
was how we would tackle carbon emissions. I outlined very broadly
our approach.
Q49 Dr Turner: But we make it that
much more difficult by opening new unabated coal-fired power stations.
Do you accept that failing to ensure the abatement, or at least
making retrofitting absolutely conditional, weakens our position
in climate change negotiations because it does not look as if
we are serious?
Mr Wicks: I do not accept that.
Most recently at the International Energy Forum when we organised
with our Norwegian colleagues an informal meeting of ministers
from a number of key countries on CCS we found that people respected
our position on coal and CCS. I am sorry to return to it, Chairman.
This is not a debate. I have been on the other side of the room,
and I know which is the easier side. I look forward to returning
one day to the more comfortable zone. It is not for me to ask
the Committee questions, but in terms of our energy strategy one
must put serious questions. If some Members of the Committee,
maybe the majority, say no to coal in future, at least half say
no to nuclear and probably the Committee does not like the idea
of a dash for gas, it is beholden on you to tell the British public
how to keep the lights on in future.
Chairman: A couple of years ago we wrote
a report in which we left the door open for nuclear, which was
a very controversial issue, so I do not think you can characterise
this Committee as being wholly against it. But our concern about
coal relates to the fact that alternatives are available and we
are rushing into this before we even know when a viable carbon
capture and storage system will be available. That seems to us
to be extremely dangerous and underlies the concerns of this Committee
which we know also exist outside it.
Q50 Mark Lazarowicz: Should not at
least planning conditions be applied from the start to require
CCS to be in place by a certain point and if it is not in place
at that point the operating licence is withdrawn? Is it not sensible
to have that kind of control? If you cannot do it by a certain
date you cannot continue to operate it. That provides a potential
guarantee that things will not get out of control.
Mr Wicks: I think much depends
on the carbon price. If you look at it chronologically—none
of us can be certain of it—let us assume that the demonstration
project is up and running by 2014 and other projects by the Norwegians,
Americans and we hope others—I do not want us to be the
world leader on this; I would like there to be 20 world leaders—also
demonstrate the technology. I suppose one would then assume that
in the decade from 2020 onwards one would start to see the development
of many such projects. The serious question is how those projects
are funded. I do not have all the answers to that. I hope that
the strengthening of carbon markets in Europe but maybe elsewhere—there
are signs of that in North America—will bring forward a
sufficiently good price for carbon that it will provide some of
the financial incentive for CCS. Will it be enough? I do not know.
There are some encouraging signs for enhanced oil recovery. After
all, we need to store the CO2 somewhere. In many places it will
be in depleted oil and gas reservoirs. Enhanced oil recovery may
help, but how this is funded in future is a very serious question.
I guess that one way or another the price will be passed on to
the citizen, either the taxpayer or, more likely, the consumer.
Q51 Mark Lazarowicz: But you are
putting it all on the ETS forcing up the carbon price?
Mr Wicks: I cannot remember the
forward projection for carbon, but in phase three it starts to
look a lot healthier in terms of the forward price. That is all
we can say in terms of phase three.
Q52 Martin Horwood: As Mr Hurd has
already pointed out, the price of carbon is not yet sufficiently
robust to disincentivise or change the investment patterns on
issues like this. One of the factors in the Heathrow decision
is the shadow price of carbon that your department supplied to
the consultation. Is that same shadow price to be factored into
this decision, or does the criticism you have received over Heathrow
and the fact it was set so much lower than the Stern report's
suggested shadow price for carbon enable you to look at that again?
Mr Wicks: I am trying to think
how it affects what you call "this decision".
Q53 Martin Horwood: I am referring
to whether or not to give the go ahead to Kingsnorth and whether
it poses such an economic risk in terms of its threat to the environment
which is the whole Stern scenario.
Mr Wicks: You will understand
that we are not talking about any one power station application.
Q54 Martin Horwood: I was asking
about the shadow price of carbon that Defra comes up with and
supplies to other departments. Presumably, it will be used here.
Mr Wicks: I think that with ETS
we need to look forward. I now have a figure in front of me magically
which says that the European Union predicts that for phase three,
2013 to 2020, the forward price will be €39. Phase one was
a disappointment. Going forward, one starts to see a reasonably
robust price for carbon.
Q55 Martin Horwood: But will you
use the Defra shadow number used on the Heathrow consultation
which was much lower than that recommended in the Stern report?
Mr Wicks: I need to take advice
and write to the Committee later.7[10]
I am not sure what relevance the shadow price has to this matter.
Q56 Martin Horwood: It enables you to
calculate the economic risk of the threat to the environment.
The whole basis of Stern's scenario is that you have to factor
in the economic threat.
Mr Wicks: Let me write to the
Committee to give precise information on it.8[11]
Q57 Mr Hurd: You cited the 2013 to 2020
price of carbon as being about €39. Who knows? The point
I am trying to make is that the chief executive of BP tells me
that at the moment the cost to them is about €100. There
is an enormous gap even on your rosy projections. The private
sector has no economic incentive to accelerate this technology;
it must be done by the public sector that drives the technological
development phase. Reliance on the carbon price is extremely worrying.
The gap is enormous.
Mr Wicks: Of course it is. I also
share this frustration. I wish that the technology had been demonstrated
10 years ago.
Q58 Mr Hurd: So, why did we not proceed
with Peterhead?
Mr Wicks: I will come to that.
I wish the technology was out there and we could now see it being
used for any fossil fuel power stations going forward, but that
is not where we are. Coal is the biggest polluter, but why not
go further and say there should be no more gas power stations?
I am afraid that that is where a bit of political reality needs
to come in terms of the need for diversity of fuel supplies in
future. As to Peterhead, I do not believe it would have been sensible
or proper governance, if we were to have a demonstration project
that cost the British taxpayer literally hundreds of millions
of pounds, to give it to the first one that came forward, namely
the BP Miller Field Peterhead project. That is hardly sensible.
Perfectly properly, we decided to have a competition and then
made the decision—it was controversial but I believe it
was the right one—that instead of pre-combustion it should
be post-combustion. One can argue about that. We decided on post-combustion
because of the advice that that technology could be of most relevance
to China and could be retrofitted there. I think it is good governance
to have a competition and let a number of companies and consortia
come forward.
Q59 Dr Turner: You have told us why
you restricted the competition to post-combustion, but what do
you plan to do to facilitate the development of pre-combustion
as well, because the rest of the CCS technologies should be allowed
to develop and can make a contribution to coal as well as gas?
What measures does the government have in mind to facilitate them?
Mr Wicks: Perhaps I may ask my
colleague Bronwen Northmore to outline the other work we have
been doing.
Ms Northmore: The decision was
taken against the global background of demonstrations that were
taking place elsewhere. These are very expensive and it is not
really realistic for one country to be expected to demonstrate
all the technology combinations. Therefore, we looked at what
Norway was doing; it was concerned with post-combustion on gas.
We looked at what the US was doing at the time which was pre-combustion
on coal. It was carrying out an IGCC project. Therefore, the gap
in demonstration was post-combustion on coal, and that also happened
to be relevant to our new proposed coal generation in the UK and
is the technology of choice for generators the world over. Post-combustion
capture is by far the most relevant to the new coal projects being
constructed in China and India. That was the thinking behind it.
We are very keen to see a global network of demonstrations where
information is shared as widely as possible among those projects
in order to facilitate the fastest possible roll out of CCS across
the world. Therefore, it is a global picture.
10 7 See Ev 27 Back
11
8 See Ev 27 Back
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