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28 Jan 2010 : Column 336WH—continued

In their response, the Government stressed that coal still has a vital role to play, but Britain must be cautious about the investments that it makes in fossil-fuel-powered generating capacity, because there is a real danger that we could lock ourselves into a high-emissions pathway. If it turns out that we have made investments in assets that must be retired before the end of their economic lives, billions of pounds will have been wasted. Having said that, I welcome the Government's acceptance of the Committee's recommendation to step up efforts to drive forward the development of CCS and their recognition of a possible role for emissions performance standards.
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I also welcome their decision to scale up their financial support for CCS by funding up to four CCS demonstration projects.

Requiring any new coal-fired power station to demonstrate CCS on at least 300 MW of its operating capacity from day one, however, looks inadequate. Although that figure is much higher than the target for the original competition, it still probably represents only a quarter of typical output. At that level, we cannot be sure that we will get enough information to know whether CCS is technically and economically viable. Requiring new coal-fired power stations to retrofit CCS to full capacity within five years of its having been proven is the very minimum expectation that we should place on the industry. Preparing for the possibility that CCS will not be proven by considering emissions performance standards is another urgent matter.

In line with the Committee's recommendation that the demonstration project be extended, the 2009 Budget announced an extension covering up to four sites and including pre-combustion and post-combustion technology. Up to four means two to four, so at least one more site will be built then would have been built under the original arrangements, which covered only post-combustion technology. I understand from the Government's response to the Committee on Climate Change, which was published earlier this month, that they are considering only two bids, but that another round of the competition will be launched towards the end of the year. Perhaps the Minister can clarify that when he replies.

Mr. Kidney: Just to be clear, the result of the pre-Budget report is that it is now four projects, not up to four. I will say a little more about the second competition when I speak later.

Mr. Yeo: I am grateful to the Minister for that clarification. I hope that that means that the Government are confident that when they respond to the bids, we will be able to gain the information that we need to answer the questions about the technical and economic viability of CCS. I look forward to what the Minister has to say on that.

The Budget also announced extra research funding for companies in the existing competition. The recently published energy national policy statement recognised that CCS is unlikely to be built without financial support. It also recognised that planning consent will be given without reference to the allocation of funding, so more applications may receive planning consent than are able to secure funding. The Government have consulted on how a reliable funding stream can be developed for CCS, and there are proposals in the Energy Bill, which is currently before the House. Ofgem will have a role in relation to CCS and in managing the vehicles for funding and monitoring CCS demonstration projects, and I hope that the Minister can tell us a bit about what Ofgem has done to ensure that it has the right people and skills to fulfil that role. The Committee on Climate Change has made it clear that decisions on financing CCS will need to be taken in 2016 if finance is to be in place to support its roll-out in the early 2020s.

The framework for clean coal, which was published around the same time as the energy national policy statement, makes it clear that the Government's ambition
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is for CCS to be ready for widespread deployment from 2020. Once again, that ambition is the minimum that the Government should aim for-2020 is still quite a long way away. The Secretary of State made it clear that the framework's objectives are to advance the development of CCS, improve its affordability, ensure the diversity and security of energy supplies in Britain and create jobs and opportunities for UK businesses. I am sure that we all strongly endorse those aims.

The framework also envisages all new coal-fired power stations fitting CCS by 2025, which implies that some generating capacity may not do that for another 14 years. The energy national policy statement made it clear that the Government plan to report on the status of CCS by 2018 in the light of the progress made by the demonstration projects. That review will consider the framework in which coal-fired power stations would be constructed beyond the demonstration phase. If CCS is not proven, the national policy statement suggests that we will need a regulatory approach to managing emissions-one that is consistent with, and complementary to, the EU ETS and which might, therefore, be an emissions performance standard. Can the Minister reassure us that there will be adequate time to take all the necessary actions between the report on CCS in 2018 and the 2020 target date for CCS to be ready for widespread deployment?

The advice of the Committee on Climate Change makes it clear that power generation must be almost completely decarbonised by 2030, and it has talked about a 90 per cent. cut, which my Committee certainly endorses. If progress is made on CCS in 2018 and it is deployed on all new coal-fired power stations from 2025, that would appear at first glance to be consistent with what needs to be done domestically. However, the advice from the Committee on Climate Change is equally clear that global emissions must peak in the next five or six years, and certainly by 2020, if the world is to have any chance of meeting its climate change objectives. It therefore looks impossible for the UK's work on CCS to make any real contribution to efforts to achieve a global emissions peak by 2020. That is a disappointing outcome and it is the direct result of the neglect of CCS and, I am sorry to say, the scandalously lethargic attitude that the Government showed for quite a number of years, until they woke up a couple of years ago and started to do something.

Britain has not built a new coal-fired power station since 1974, but pressures on energy security, fluctuations in gas prices and the prospect, however distant, of clean coal technology have all increased interest in new coal-fired power stations. The irony is that CCS may have contributed to the resurgence of the prospects of coal.

CCS must play a decisive role in reducing emissions domestically and internationally. If we act too slowly now, the British effort to develop CCS will play no part in the effort to get global emissions to peak by the late 2020s; indeed, it may already be too late. Far more urgent action is needed if Britain is serious about gaining any competitive advantage on CCS. Active efforts are being made elsewhere, and what we are doing may be too little, too late compared with what our competitors are doing abroad. It remains unclear who bears the risk if CCS is not ready and what action will be taken if it is not proven. That uncertainty does not help to generate the investment that the Government are trying to encourage.

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The initial delay in responding to my Committee's report was disappointing, but we welcome the fact that so many of our recommendations have been recognised in the reshaped CCS policy. There is some distance still to travel, and the Government must show that they are treating this issue with the urgency with which they promised to treat it way back in the 2003 energy White Paper. I commend my report to hon. Members.

2.58 pm

The Parliamentary Under-Secretary of State for Energy and Climate Change (Mr. David Kidney): I thank the hon. Member for South Suffolk (Mr. Yeo) for his very fair presentation of the contents of the report and the events that have occurred since it was published.

The Committee's report on carbon capture and storage highlights the importance of CCS as an option for tackling climate change and ensuring our long-term energy security. It also raises a number of important issues, which the hon. Gentleman has discussed, and I thank him and his Committee for their clear and well-presented report, which has indeed assisted the development of policy in the ways that he described.

As the hon. Gentleman said, the report was published in July 2008. At about the time that there should have been a Government response, the Department of Energy and Climate Change was created, and there was some delay in producing a proper response. I apologise unreservedly for that delay and I hope that the response that was eventually published, as well as what I say today, will satisfy the Committee that its report has been given the consideration that it deserves and has influenced the direction of Government policy. I want to argue that we have made significant progress with our policies for clean coal and carbon capture and storage, much of which takes up the helpful comments made by the Committee in its report.

First, I want to set out why coal matters to the UK and the rest of the world. As the hon. Member for South Suffolk said, fossil fuels are an abundant and relatively cheap fuel, and they are likely to remain an important source of electricity generation. Coal power stations play a vital role in providing the UK with reliable electricity supplies, providing about a third of our electricity. They can be operated flexibly in response to variations in demand, and that flexibility will become increasingly important as we see growth in variable renewables such as wind power. Coal will also continue to power the growth of major economies such as China and India. In 2008 China and India were opening, on average, a new coal power station every week. The recently published "World Energy Outlook 2009" predicts that demand for coal-powered generation will increase by some 70 per cent. over the period to 2030. The hon. Member for South Suffolk quoted that statistic from the International Energy Agency. Coal is, therefore, clearly still an important fuel, and our dependency on it looks set to grow.

However, a coal-fired power station emits about twice the carbon dioxide of an equivalent gas-powered station. If coal is to remain part of the electricity mix and the world is to meet its climate change objectives, it is essential that CCS should become an established technology. We all enjoy, and will want to continue to enjoy, the high level of security of supply delivered by the integrated
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national electricity system, but it has to be low carbon, and so we all stand to benefit from the development of CCS. I remind hon. Members that CCS has the potential to reduce emissions from fossil fuel power stations and industrial installations by around 90 per cent., while at the same time enabling fossil fuels to continue to be an important element of a secure and diverse energy mix. CCS can also create economic opportunities for the UK and reduce the cost of tackling climate change.

Simon Hughes: The 90 per cent. figure that the Minister has just quoted is a familiar one in Government statements, and we have heard it often. Is it a technically concluded figure? Is it the scientific assessment that the kit would be able to do only that, or is it the best estimate of the likely acceptability to the owners of the plant? I am just trying to probe what evidence has been given for that figure.

Mr. Kidney: Clearly, we are talking about a technology that has not yet been proven to work, so I certainly cannot say that I am going by world experience. That figure is what the people who put forward the technology predict will be its efficacy. I take the hon. Gentleman's point that we should be guarded about accepting it. Nevertheless, as he said, it is the accepted figure across the industry.

Those factors explain why any credible strategy for tackling climate change must include the development of CCS technology.

The 2005 G8 summit at Gleneagles introduced a package of measures to combat climate change, one of which was to develop cleaner fuels and accelerate the development and commercialisation of CCS technology. Since then, we have made enormous progress in the UK to achieve that. In 2006 we launched a call under the Environmental Transformation Fund for projects demonstrating carbon abatement technologies, followed by a second call in 2009. There are now such demonstrations in this country. In 2007 we launched the first competition in the world to build a commercial-scale CCS project. Through the Energy Act 2008 we created a comprehensive regulatory regime for the storage of carbon dioxide in geological formations. Again, we were the first country in the world to bring in such regulation. Through the Climate Change Act 2008 we increased our 2050 target for a reduction in greenhouse gas emissions to an 80 per cent. cut on 1990 levels. That legally binding target is an ambitious plan showing that we are wholly committed to creating a low-carbon economy, in which CCS will play an important part.

In summer 2009 the Government published the UK low carbon transition plan, which plots how the UK will meet a 34 per cent. cut in emissions on 1990 levels by 2020. The transition plan takes a cost-effective route to reducing carbon and is the most systematic response to climate change of any major developed economy. Our plan includes the development and eventual wide-scale deployment of CCS.

In April 2009, ahead of our low carbon transition plan, we outlined our proposals for a new regime for new coal-fired power stations, and we launched a consultation on the detail of those proposals in June 2009. In November 2009 we confirmed our policy for a new financial and regulatory framework to drive the development of clean coal. Those policies are the most
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ambitious for clean coal and CCS anywhere in the world. All new large combustion power stations in the UK already have to be constructed in a way that ensures that they are meaningfully carbon capture ready. I take to heart the strictures of the Committee about what carbon capture readiness means, in relation to the advancement of the technology. Nevertheless, the requirements go considerably beyond European requirements, and require the developer to undertake an assessment of the technical feasibility of retrofit, transport and storage options, as well as providing for sufficient space for the capture facility.

Since November 2009 no new coal power stations may be built without the demonstration of CCS. That is backed up by a significant increase in the scale and ambition of our demonstration programme for CCS. We have now committed to support a world-leading programme of four commercial-scale CCS demonstrations. Both pre-combustion and post-combustion technologies will be demonstrated under the programme, and that reflects one of the Committee's recommendations.

Simon Hughes: At the top of page 4 of their response to the Select Committee report the Government say:

an agenda of items, the first of which is

Was that document published? Has its publication been delayed, or has it been subsumed in the consultation response to the framework for the development of clean coal? Unless I have missed something, I do not think I have seen it.

Mr. Kidney: The hon. Gentleman in a sense steals my thunder and lets out the air in the tyres of my vehicle. That document is due-overdue, because it did not come out in the calendar year 2009-and is about to appear. I shall say more about it in a moment. It will include the list from the Government's response to which the hon. Gentleman has referred.

Our demonstration programme will provide the platform for the necessary long-term transition to clean coal. Our ambition is to have CCS ready for wider deployment from 2020 and for any new coal plant constructed from then to have full CCS from day one.

Many hon. Members, like the hon. Member for South Suffolk today, have referred previously to the Energy Bill and its progress. The Bill was introduced in November and will put in place a new legislative framework, which is needed to deliver our programme for CCS. Specifically, it will create a new financial support mechanism for CCS, funded through a levy on electricity supplies. Such legislation is the first of a kind and will ensure the availability of financial assistance that could be worth up to £9.5 billion over the coming two decades. That is the largest single investment in CCS of any country in the world, including the United States. The Bill also includes provision for funding to retrofit supported CCS projects. That is a significant step towards ensuring that we prove the technological and commercial viability of CCS for current and future power stations. We will expect demonstration project plants to retrofit CCS to their full capacity by 2025, with the CCS financial incentive able to provide support if needed.

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One theme that came through strongly in the report and was also mentioned by the hon. Member for South Suffolk is the perception of a lack of progress on CCS over the past decade. I strongly reject such claims. We have made enormous progress in several areas, which have been in line with the Committee's recommendations. As I have already mentioned, the Government's demonstration programme is among the most advanced and ambitious of any in the world. It is tempting, I know, to compare progress in the UK with that in other countries. However, I want to make two points about that. First, this is not a race. The Government welcome and positively encourage other Governments to develop their own demonstration projects. To that extent we have been instrumental in encouraging investment and progress in the demonstration of CCS, both in the G8 and in the European Union.

Secondly, some other countries have been quicker to announce the results of their equivalent competitions than the UK, but those countries promise more with less funding than we have earmarked in the UK.

The UK is leading international efforts on CCS through active engagement in many forums. Shortly after the G8 summit we established the North sea basin task force with Norway, looking at what steps the North sea basin countries might need to take to enable storage under the sea bed.

In 2005 an agreement called the near zero emissions coal initiative was made between China, the EU and the UK to demonstrate CCS technology in China by 2020. Following the first phase, which was to carry out research, this initiative has now moved into its second phase, which will be to select a project before moving onto the construction of the plant some time between 2015 and 2020.

The carbon sequestration leadership forum was established in 2003, bringing together ministerial-level members to develop the technologies involved in CCS. In October 2009, the UK jointly hosted the ministerial-level meeting where agreement was reached that more than 20 industrial-scale CCS demonstrations could be needed by 2020. The UK is a founder member of the recently created Global Carbon Capture and Storage Institute, established in 2009, which brings together more than 20 national Governments and more than 80 leading organisations.

In the UK we need the trinity of low-carbon fuels-renewables, nuclear and clean fossil fuels-to meet our energy needs. Internationally, there can be no solution to the problem of climate change without a solution to the issue of coal emissions. Many of the UK's coal plants are ageing and due to close between the mid 2010s and mid 2020s. New coal power stations are important to maintain the diversity and security of energy supplies, but only if their emissions can be managed. CCS is the only suite of technologies that has the potential to substantially reduce emissions from fossil fuel power stations. But we fully recognise the challenges and know that achieving our ambitions for clean coal will not be easy.

Each step of the CCS chain-capture, transport and storage-has been demonstrated and separately shown to work, but significant technical and cost challenges are to be met before CCS can be widely deployed. The Government's commitment to an extensive demonstration programme is intended to address these challenges.

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