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Westminster Hall

Thursday 28 January 2010

[Robert Key in the Chair]

Carbon Capture and Storage

[Relevant documents: Ninth Report from the Environmental Audit Committee on Carbon Capture and Storage, HC 654, Session 2007-08, and the Government response, Cm 7605, Session 2008-09.]

Motion made, and Question proposed, That the sitting be now adjourned.-(Mark Tami .)

2.30 pm

Simon Hughes (North Southwark and Bermondsey) (LD): On a point of order, Mr. Key. When we had a similar debate not very long ago, I asked the Chair if a more logical sequence for speaking would be acceptable, so that after the Chairman of the Select Committee has introduced the report, the Minister can at that stage speak to the Government's reply, which is, obviously, the other document that is before us. It seems more logical for both the Select Committee Chairman and the Minister to present their case, as colleagues can then intervene and, with the leave of the House, the Minister can wind-up and pick up any other things. That strikes me as a better way of using our time.

Robert Key (in the Chair): Minister?

The Parliamentary Under-Secretary of State for Energy and Climate Change (Mr. David Kidney): I am entirely in your hands, Mr. Key. I do not mind one way or the other.

Robert Key (in the Chair): I believe that a precedent has been set in that respect, so if the Minister is content, that is how we shall proceed. After the Chairman of the Select Committee has spoken, I will ask the Minister to speak. Would the Opposition spokesman like to speak after that?

Charles Hendry (Wealden) (Con): Towards the end.

Robert Key (in the Chair): Towards the end. Mr. Tim Yeo.

2.31 pm

Mr. Tim Yeo (South Suffolk) (Con): I warmly welcome you to the Chair, Mr. Key. You and I are some of the survivors of the 1983 intake but, alas, I think you have made a different decision from me about what to do at the next election. I am very happy with the order of speaking that has been proposed for this afternoon-it seems to have a logic to it. I obviously warmly welcome the Minister, my hon. Friend the Member for Wealden (Charles Hendry) who speaks for the Opposition, and the hon. Member for North Southwark and Bermondsey (Simon Hughes) who speaks for the Liberal Democrats.

I am delighted that the report has been chosen for debate. It was written quite a long time ago and was published in July 2008. For reasons I will explain, we
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had to wait quite a long time for a Government response, but the importance and topicality of the report is in no way diminished by the intervening 18 months. I look forward to debating it this afternoon. I hope I may be joined at some point by some members of my Committee. I do not think they are absent because they disagree with the report-it was passed unanimously and without much discussion-but I was hoping that one or two of them might be here this afternoon.

We chose to study carbon capture and storage because the world simply has a great deal of coal-an awful lot of which will get burnt. Coal happens to be one of the cheapest, but one of the most polluting ways in which to generate electricity. Having studied the climate change issue generally very closely as a Committee over the past five years, it is clear that although most of the technology that we need to decarbonise the world's economy-certainly in terms of the built environment and transport-already exists, the one crucial technology breakthrough we must have relates to carbon capture and storage, because of all the coal.

In Britain, coal is and will remain for some time a crucial part of our energy mix-it accounts for about a third of our electricity. Internationally, the use of coal is growing quickly. As they develop their economies, countries such as China and India are using up their coal. Globally, coal fuels about 40 per cent. of electricity generation. The International Energy Association expects demand for coal to grow by more than 70 per cent. in the next 20 years. Coal generates half the electricity in the United States, more than two thirds of the electricity in India and more than three quarters of the electricity in China.

As I said, electricity produced from coal is cheap as long as the industry does not have to take account of its emissions. I contrast the attitude to coal in past generations with, for example-I realise this might be controversial and not generally agreed with-the attitude towards nuclear power. Every opponent of nuclear power always makes, with some justification, great play about the cost of dealing with nuclear waste. However, nobody opposed coal because the costs that would need to be imposed in the future as a result of those emissions would be far greater than anything arising from nuclear waste, which, at least in a physical sense, is a small problem.

Simon Hughes: Of course, the hon. Gentleman is right, and the thrust of that argument is accepted. There is obviously a difference in the type and scale of the exercise involved in decommissioning nuclear power stations and ceasing to use coal-fired power stations, which is probably why the historic argument has been in one sector, but not the other. However, his principle is, of course, good.

Mr. Yeo: I accept the point about the decommissioning of the physical plant, of course.

The cost of building a coal-fired power station that captures the carbon dioxide it is producing is extremely high: it could be £1 billion for a 400 MW plant. The cost of transporting and storing carbon dioxide that has been captured is additional to those building costs. So electricity generated by plants with carbon capture and storage is, at least, currently much more expensive than the alternatives.

The large combustion plant directive was introduced to reduce sulphur dioxide and nitrogen oxide emissions, which will lead to the closure of about a third of
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Britain's coal-fired power stations. Any new plants will have to be fitted with scrubbers to remove those problems. If coal-fired power stations are replaced even with gas-fired generation, as happened in the previous dash for gas, it will do little or nothing to meet our longer-term targets for cutting greenhouse gas emissions. Of course, there is a short-term gain, because gas produces less than half the emissions of coal-fired electric generation. That will therefore help to meet short-term targets.

A further big switch to gas away from coal locks Britain into an emissions pathway that will ensure that eventually we fail to meet our longer-term targets. The crucial thing in relation to that is that decisions about what sort of new generating capacity we build in the coming decade will determine our emissions 20, 30 or perhaps even 40 years from now. If the carbon price rises sharply, as it may well do, or if emissions performance standards are adopted internationally, as they may well be, choosing the wrong technology now will cost us dear at a later date.

Carbon capture and storage has become an increasingly attractive policy option. It is clear that the first countries and companies to make it financially viable will have a huge first-mover competitive advantage. When we wrote our report, there was an active debate about the future of the Kingsnorth power station, and about plans for at least three other power stations that were thought to be in the pipeline. At that time, the cornerstone of the Government's policy on carbon capture and storage was a competition for a post-combustion demonstration plant at the 50 to 100 MW scale by 2014, to be scaled up to 300 to 400 MW as soon as possible thereafter.

Up to that point, I regret to say that progress on carbon capture and storage had been appallingly slow. The 2003 White Paper "Our Energy Future-Creating a Low Carbon Economy", which was published when I was shadow Secretary of State for Trade and Industry, promised what was called an urgent, detailed, implementation plan, and that a study to inform decisions would reach its conclusions within six months. Three years later, when my Committee considered carbon capture and storage as part of our report entitled "Keeping the Lights On: Nuclear, Renewables and Climate Change", we concluded that a plethora of reports gave an impression of activity, but that nothing had actually happened. A situation we justifiably described at the time as "scandalous". By 2007, the Committee reported in its annual pre-examination of the pre-Budget report that there was still slow progress on the CCS demonstration project and no progress on devising a financial framework.

Our most recent report expressed our deep frustration with the

We concluded:

We acknowledged that some progress had been made, notably around the regulatory regime for the storage of carbon dioxide, but we called for an end to the indecision that seems to characterise the Government's approach. We pointed out not only that the indecision had been environmentally damaging, but that it was squandering any chance that Britain had to build a commercially valuable competitive advantage.

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The Government argued that it was necessary to restrict the competition to focus attention on the technology that was most deserving of development and that would be easiest to retrofit. We supported their decision to focus on post-combustion technology but called for the demonstration programme to be extended. The Government told us that there was significant uncertainty on the costs, technical requirements and risks associated with CCS.

Our report concluded that the resurgence of interest in coal was failing to take account of the damaging environmental impact that would arise from running those power stations unabated, or unabated on most of their output, until CCS was proven. We said that opening the door to a new era of coal-fired generation was potentially very damaging, both environmentally and economically.

We also warned against abusing the arguments about energy mix. Investment in coal, even with the promise of CCS, must be the last resort. The Committee does not accept the Government's claim that new coal-fired generation has no impact on overall emissions because new coal-fired power stations would have to operate with the EU emissions trading scheme cap. We have debated that point at some length. In theory, that sounds all right on one level, but as we have argued in other reports, the Government should not rely on the EU ETS in that way because the emissions from a coal-fired power station do not disappear and have to be accounted for somewhere. It goes right against the intention and spirit of the EU emissions trading system, which was designed to reduce emissions, for the Government to use it as a cover to justify continuing to encourage, or at least allow, investment in the most polluting form of electricity generation. We said they should take more urgent and ambitious steps to develop CCS. They should also make it clear that unabated coal-fired power stations will not be allowed to operate in the longer term. Our view, incidentally, is absolutely consistent with what the Energy and Climate Change Committee has said since our report was published.

The Government have made much of the concept of CCS readiness, meaning the planning consent given when a new plant fulfils certain conditions that would enable CCS to be fitted at some point in the future. That has been included in a handful of gas-fired power stations. However, it was clear from the evidence we heard that, in the absence of a Government requirement that CCS be retrofitted, CCS readiness is pretty meaningless. There is no guarantee that CCS will ever be fitted to those plants, even when that is a condition of granting planning permission.

The price of carbon is currently far too low, and too volatile, to drive the necessary investment in CCS. Given the impact of the economic recession on the EU ETS, particularly on phase 2, the carbon price is likely to remain too low for several years, so we urge the Government to look at feed-in tariffs for CCS or some other funding mechanism.

Britain cannot meet its carbon budgets in the long term if it allows the prolonged operation of unabated coal-fired power stations. The Government should use some kind of emissions performance standard to terminate the most polluting forms of power generation and warn industry that unabated coal-fired power generation has no future. Given the failure of the Copenhagen summit
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to reach international agreement about emissions reduction targets, more attention could usefully be paid to the international use of emissions performance standards, perhaps on a nation-wide, average basis, which would allow countries some freedom to decide on their energy mix, but within a gradually reducing emissions performance standard target. I believe that, as we do not have agreement on emissions reduction targets, we should examine how emissions performance standards could be introduced as a much less threatening mechanism for a developing country, because they say to them that we want them to improve the efficiency of their generation industry, reducing its carbon footprint, rather than put an absolute limit on it. At least that would mean that investment in new capacity would tend to take place in low-carbon forms of electricity generation.

Simon Hughes: Emissions performance standards have rightly been the subject of debate between all three main parties in the Energy Bill Committee. Does the hon. Gentleman remember-if not, perhaps he could check later-whether there was any correspondence between the Environmental Audit Committee and the European Commission, either during the Committee's inquiry or subsequently, on the compatibility of a national project for emissions performance standards with EU policy?

Mr. Yeo: The hon. Gentleman raises an interesting point. I do not recall any correspondence, but that is certainly a subject we touched on in our conversations with the Commission, and we intend to continue doing so, for the reasons I have already given. I emphasise, although it was not questioned, that I speak here in my capacity as the Committee Chairman, not for the Conservative party-many of my colleagues did not think I spoke for the party even when I was the shadow spokesman, because my views tended to be at the green extreme of the spectrum.

We published our report in July 2008. It took more than a year for the Government's response to appear, and when it eventually did it was published as a Command Paper. In October 2008, after the summer recess, we received a response from the Department for Business, Enterprise and Regulatory Reform, as it was then called, just as the Department of Energy and Climate Change was being created. I must say that members of the Committee from all parties were absolutely dismayed by the contents of DBERR's initial response, so much so that we wrote to the new Secretary of State for Energy and Climate Change and asked whether the Government would like to reconsider their response. We refrained from embarrassing them by publishing what had come from DBERR, which we would have been entitled to do and were happy to give the Secretary of State some time to, produce another response.

Meanwhile, it appeared that several policy changes were being made, some of which were announced in the 2009 Budget, and we were pleased to see that many of those changes took on board the Committee's recommendations. There was a further delay to the new response while DECC awaited the outcome of its consultation in June 2009 on the framework for the development of clean coal. By the end of July, a response was ready, but as the House had risen for the recess, DECC published it as a Command Paper in August. A few administrative hiccups in DECC meant that the
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Committee was unaware of the response until October 2009, when I was having a private meeting with the Secretary of State and he produced the document, which I had not previously seen.

However, in October last year, when he was giving evidence on carbon budgets to the Committee, he said:

We warmly welcomed that, and I congratulate the Secretary of State, with whom I agree on a whole range of issues relating to climate change. He has overseen, and probably led, a significant change in Government policy on that subject, and that is extremely welcome. I note in passing that if DBERR was capable, as late as October 2008, of producing a response of the sort it did for our report, it is dismaying to think how out of touch and backward looking sections of that Department must then have been.

Simon Hughes: Where have the civil servants gone?

Mr. Yeo: Indeed, where have they gone? No doubt things are very different under Lord Mandelson.

I welcome the fact that the published response to the report accepted many of our recommendations. It confirmed the Government's commitment to expand the CCS demonstration programme and set out what was being done to take forward the competition and support the development of individual CCS components. The Committee had called for a more strategic approach to the development of CCS, and the Government's response on a framework for the development of clean coal and the energy national policy statements provides some detail on its development in the UK.

The response also described the development of a strategy for the international development of CCS. It noted that the EU's ambition was to have 12 CCS plants operational by 2015, and a further €1 billion was made available for CCS projects in April 2009. That is welcome, but unless Britain advances its plans there is a risk that it will be other member states that build a competitive advantage in CCS. Other EU countries may position themselves better to make money from selling and installing CCS technologies in parts of the world where they must be fitted if there is to be any hope of getting global emissions to peak. There is therefore a risk that Britain will once again miss out on the chance to build a world-class industry because it has failed to harness UK creativity and innovation. That would be a tragedy in a field where the global market is potentially truly enormous, and I hope that the Minister will comment on that.

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