Supplementary memorandum submitted by
BERR
Is a shadow carbon price used to take decisions
in relation to consents for new build power stations?
Economic and commercial considerations are matter
for the developer. Thus a shadow carbon price is not a factor
in determining a section 36 decision. Similarly, the fact that
a renewables project may benefit from the Renewables Obligation
is not a factor taken into account in determining such projects.
Why is the shadow price of carbon used by the
Government so much lower than that recommended in the Stern report?
The Shadow Price of Carbon (SPC) used by the
Government is consistent with the Stern report analysis. The SPC
the UK Government has adopted (£25/ tonne of CO2) is based
on the social cost of carbon associated with a 550ppm CO2 stabilisation
scenario, as estimated in the Stern Review. As such it makes assumptions
about future atmospheric concentrations. The main arguments that
have lead the UK to adopt this SPC, based on the Stern Review
calculations, are:
— it is sensible to assume the
world will take substantial action towards an upper stabilisation
goal limit of 550 ppm CO2;
— using an SPC consistent with
the atmospheric concentrations above 550ppm CO2 would lead the
UK, or any individual country, to do "too much" relative
to other countries and to the goal, would not reflect progress
made from business-as-usual, and would ignore the evidence that
the optimum range is 450-550 ppm; and
— adopting an SPC consistent with
concentrations below 550 ppm might lead us to do too little, given
current uncertainties.
Information on closure dates of oil wells in the
North Sea; the costs of re-opening an oil-well compared to using
EOR on an existing oil well
During the session on 4 June, the Committee
invited the Energy Minister to provide further information on
what is known about the closure dates of oil wells in the North
Sea and the relationship with the timescale for the development
of CCS; whether there is information on the cost of reopening
an oil well as against using an existing well; and whether the
access routes for taking CO2 offshore are constrained by the inward
flows of oil and gas.
The Department gathers annual projections from
oil and gas operators on future production levels and the likely
dates for closure of every field. The individual projections are
supplied on a confidential basis and the information is used to
inform the Department's understanding of the timescale for activities
on the UK Continental Shelf. The projections must be treated with
caution because of uncertainty in the underlying geology and performance
of the reservoirs and the timing of field closures is heavily
dependent on the oil price. The Department also encourages the
extension of the life of oil and gas fields through a number of
initiatives and a joint forum with the industry known as PILOT
and expects to approve many new field developments over the next
decades.
The closure of an oil or gas field is subject
to an approval process and the department must be convinced that
the field is no longer economic. The decommissioning of the facilities
and wells on the field is then subject to a further approval process
where the abandonment programme is examined and companies are
required to consider possibilities for re-use ahead of recycling
or disposal. The Department has had discussions with several companies
which are developing concepts for CCS, are identifying possible
oil or gas reservoirs and are discussing them with the current
owners. The regulatory procedures are being amended to facilitate
such a change of use which could involve Enhanced Oil Recovery
in the first phase, under a Petroleum Licence, followed by a pure
CCS phase under a CCS licence when the hydrocarbons are depleted.
The economic viability of re-using facilities
and wells for CO2 storage will depend on a number of factors including
their location, suitability and the costs of refurbishing or upgrading.
Reusing existing oil facilities for EOR and CCS would also require
the installation of new equipment to deal with gases from the
produced oil for re-injection back into the reservoir; otherwise
the injected CO2 will escape from the reservoir when oil is being
produced. The costs of drilling a new well will vary dependent
on several factors but could be as much as £25 million. Re-using
an existing well may be much less costly although the existing
well materials may need to be enhanced to provide long term storage
integrity. It is unlikely to be cost effective or practicable
to re-open a well which has been fully decommissioned and sealed.
CCS is unlikely to need facilities on a platform as complex as
those required for oil and gas and it may be more cost effective
to close down an existing production platform and replace it with
a simpler seabed facility purely for injection.
Although the number of pipelines from the oil
and gas fields to onshore terminals is limited there are no proposals
to decommission any of these lines and it is apparent that the
owners are aware that these trunk lines have potential for re-use
on projects including import of gas from outside the UK and storage
of hydrocarbon gas to match seasonal demand as well as for disposal
of CO2.
Information regarding the capture ready conditions
built into the consents given for the gas fired power stations
last year
Section 36 of the Electricity Act 1989 requires
any organisation wishing to construct, extend or operate a generating
station with a capacity of more than 50MW to gain the consent
of the Secretary of State—known as a "section 36 consent".
Section 36 consents can impose conditions on the development.
If the developer does not comply with any condition of a section
36 consent, the developer is liable to prosecution.
In the Energy White Paper last Spring, Ministers
committed to consult, by the end of 2007, on the principle of,
and what was meant by, "carbon capture ready". We delayed
publication of this consultation to enable us to ensure that the
proposals we were expecting from a planned EU Directive on the
storage of carbon dioxide could be taken in to account.
Drawing on recent International Energy Agency
and Intergovernmental Panel of Climate Change studies, we thought
it likely that the most significant minimum requirement would
be for a power station developer to show that they had enough
land at the proposed power station on which to site a carbon capture
plant. Discussions with the developers indicated that they too
were anticipating this.
Using past experience of handling provisions
for the retrofitting of flue gas desulphurisation plant at power
stations, the Department drafted the following condition:
"The layout of the Development shall be
such as to permit the installation of such plant as may reasonably
be required to achieve the prevention of the discharge of carbon
and its compounds into the atmosphere."
This condition was voluntarily accepted by the
developers of 3 gas-fired power station consented last year.
The draft EU Directive on the storage of carbon
dioxide, published in late January, includes an Article (32) on
carbon capture readiness which defines it by four factors. The
government is consulting shortly on the principle of CCR, the
meaning of the Commission's four proposed factors (space, technical
feasibility study of retro-fitting, transport and storage assessments),
the combustion stations to which they might apply, and how it
might be implemented in England and Wales.
We would expect that, when a developer wishes
to install the carbon capture plant at a later date, as with extensions
to power stations now, a further section 36 consent (or in time
the appropriate replacement legislation under the Planning Bill
before the House this session) would be required.
28 June 2008
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