Examination of Witnesses (Questions 360-390)
DR JEFF
CHAPMAN, MR
PHILIP SHARMAN,
MR IAN
PHILLIPS AND
DR JON
GIBBINS
4 NOVEMBER 2009
Q360 Chairman: We turn now to carbon
capture and storage, different technologies, but similar themes.
Can I welcome you all and thank you for coming. The Government
is always very keen to tell me and to tell the Committee that
we are a world leader in carbon capture and storage. Is that true?
Mr Chapman: Well, I think I ought
to lead off on that, Chairman. We have done very well so far in
developing the necessary regulatory system for carbon capture
and storage. We have also done very well in terms of inveigling
our counterparts in other countries to join in with us. What we
have done less well at is getting our first projects under way.
It has taken us a very long time and it is getting very frustrating.
The first project is not commissioned yet. Meanwhile, our competitors
in other parts of the world, for example in Canada, took exactly
11 months between announcing that they would finance three demonstration
projects to choosing the three projects from quite a long list.
Projects are being committed also in the USA and in Australia.
The first power project with CCS may well be in China and the
second may well be in Abu Dhabi and we have not got to the point
yet where we have committed a single project, so it is really
very important now that we get on, that we commit the first project
and we go ahead with the other three that are promised or more
than that, if we can.
Q361 Chairman: So what is the problem?
Mr Chapman: I think we have been
hidebound by bureaucracy. I think that is what has been holding
up the situation in the sense that we have tried to approach this
in a very proper manner and a very open manner and that has taken
a very long, but it does seem that other countries can get on
with it a lot faster than we can. Even, for example, the European
Union has actually managed to award six projects in a hell of
a lot less time, so I think we have a lot to learn in that respect
and we ought to get on with it and take a lead, and it is very
important that we do for all the reasons we know of combatting
climate change, ocean acidification and winning business for the
UK.
Dr Gibbins: I think the underlying
problem is the level of ambition that has been there. Until very
recently, if you had a look at DECC publications, you would see
that how much CCS we will have by 2020 is 300 megawatts. Okay,
well, what is the hurry? If that is the level of your ambition,
why would you think you have to go fast? We are now talking about
four projects of still only 1.2 gigawatts perhaps and, if you
contrast that with what the Advisory Committee on Carbon Abatement
Technology, DECC's own committee, says, that five gigawatts will
be perfectly feasible, from a technical and from a commercial
point of view if you take the going rate for low-carbon electricity,
as what you pay for offshore wind, for example.
Q362 Chairman: We have had this competition
and I have never been clear where the finishing line of the competition
is or exactly what the rules of the competition are. Jeff, you
talked to us earlier on about getting a project committed, but
what is the timetable now for starting a project?
Mr Chapman: I am not actually
sure when the three projects that are currently shortlisted will
be whittled down to two projects, but I think the timetable for
that is early into next year, but that triggers the start of FEED
(front end engineering and design) studies on the other two projects
and it is not until the FEED (front end engineering and design)
studies are complete that the final project can be selected, so
that could be the end of next year, but I am not actually quite
sure. The commitment from DECC continues to be that the project
will be landed by 2014 which, I assume, means by 2015 really because
it includes 2014.
Mr Phillips: If I could comment
as I am working on one of those projects, the timetable that Jeff
has indicated is accurate, but the 2014 date was set several years
ago when the published timetable was hugely faster than the present
one, so I think the chances of 2014 happening are pretty close
to zero.
Q363 Sir Robert Smith: Let me declare
my own interest in the Register of Members' Interests as a shareholder
in Shell and of a visit I did to Total's carbon capture and storage
demonstration plant in Lacq, paid for by Total, which is, I suppose,
a sign of something physically on the ground of pipes, oxygen
combustion, the storage and all of that which is physically there,
and we are still talking about the competition. Mr Phillips, you
are saying that you have got the same timetable and even now I
think there is a concern in the industry that the Government might
be slipping on even delivering the next stage of that timetable.
Mr Phillips: I would share a comment
which was made earlier about taking tentative steps. There is
a consultation which closed a couple of weeks back in which the
suggestion was of "up to four projects to be supported".
When the scale of the problem is so large and the need to act
quickly is so considerable, personally I find it very disappointing
that there is, what looks to me like, a considerable lack of "in
a hurry-ness".
Q364 Sir Robert Smith: In the "in
a hurry-ness", as a country we have this major resource of
a lot of depleted fields and we have a major high-tech sub-sea
engineering industry in the oil and gas industries, so in terms
of this ambition and timescale, is there not a worry that DECC
is going to miss the boat of the transition to making use of these
skills with the existing skills that are available and, if they
do not hurry up, we are going to miss the golden opportunity?
Mr Chapman: There is a considerable
worry. We are getting now very worried that we are getting behind
the rest of the world and we really do need some hardware on the
ground to be able to show the rest of the world that we have got
it.
Dr Gibbins: The other point is
that what we will really miss the boat on is that people will
build the next generation of power plants as unabated natural
gas instead of coal and CCS, as simple as that.
Mr Phillips: The point about the
offshore environment is valid. Much of the UK's gas currently
comes from the southern part of the North Sea where the infrastructure
is old and the fields are rapidly approaching the end of their
natural lives in that we have essentially extracted all of the
gas available. Those gasfields are simply the best place to put
the CO2 in the near term because we know a lot about the fields,
we have production history, we have seismic data, and one of the
reasonable requirements of the European Union's CCS Directive
is that, before you put the CO2 in the ground, you have to be
pretty certain it is going to stay there and having data is a
major plus in that regard. The great hope of big volumes in things
like deep-sea aquifers is that we know little about them. The
oil industry calls them the "dry holes" and they go
home as quickly as they can when they find something like that,
so the data available to prove that a store will contain the CO2
is simply less, so those gasfields are particularly important
to the UK.
Mr Sharman: Just in terms of DECC
and its competition, a decision should have been taken on the
winning contender of the three standing ones around about the
middle of this year, 2009. Clearly, we are not at that point yet
and we are just about to hone down to two that will be doing these
front-end engineering design studies funded by the Government.
The latest word from DECC, and this was stated at a Westminster
Energy Forum meeting a couple of weeks ago, is that they still
believe that a demonstration project will be up by 2015 and operational
and that decisions will be taken fairly soon on which two projects
will go forward to FEED study and "in the New Year",
I think, was what Martin Deutz said about the decision on the
winning project. I think we do need to move quite quickly. I would
not want to see those deadlines slip beyond those dates, otherwise
I think the UK will come out of the top five or six players internationally
where we are comfortably sat. I think we are in a good position
and we will maintain that position, providing we do the right
research, development and demonstration, and particularly that
hinges around this large 300/400 megawatt demonstration competition.
Dr Gibbins: Just to add one other
thing in terms of UK leadership, we are leading on making new
power plants capture-ready. We have got legislation in place and
it is actually starting to bite and, providing that is done properly,
and I think there is some sign that it might be slipping a bit
on gas, but, providing that is done properly, then that is actually
making an undertaking that we really are expecting to capture
CO2, if not by 2015, nonetheless in the long term. That is a very
different attitude even from Europe, so I think in that area we
are leading potentially, providing we do it properly.
Q365 Charles Hendry: If it has been
narrowed down to two early next year, is there anything which
would stop the Government at that point from saying, "We've
got two very good projects and we're going to run with both of
them", especially if they happen to be very close together
and they could share some of the infrastructure?
Dr Gibbins: The Treasury?
Q366 Charles Hendry: They stop most
things in life, do they not? Could there be judicial review, if
that were done, to say that that was not how the competition was
structured, or would there be the scope for taking them forward
in that way?
Mr Phillips: I think it depends
on how that award is made because the proposal in the invitations
which have gone out in this competition offer a significant part
of the capital funding to be funded upfront and the balance to
be funded per tonne injected, whereas almost all of the other
funding, whether it is the proposals in the DECC consultation
or the EUAs that are being used, those almost certainly have to
be linked to tonnes injected, so it puts a lot more of the risk
on to the non-winner and I think that may well cause considerable
consternation and may well open a judicial review.
Mr Chapman: I agree. I think it
is probably a legal technicality more than anything else, but
I would sympathise with the view which says what a shame it would
be to spend tens of millions of pounds on a FEED study and not
deliver a project at the end of it.
Q367 Charles Hendry: Perhaps I can
ask you about the Office for Carbon Capture and Storage. Is it
your sense that it has the same clout as the Office of Nuclear
Development and will it be accompanied by a forum for the industry
so that they can highlight the obstacles? Will it be structured
in the same way of looking at where there are obstacles and highlighting
them and what practically needs to be done? Will it have an outside
expert, like Dr Tim Stone, advising on how that progress can be
pushed forward? Will it have that same influence to try and drive
forward change, or is it more the sort of dead hand of Government
rather than a supporting Government?
Mr Chapman: Well, I would like
to say that I would like to think that it would, but at the moment
no proposals have been put forward. Martin Deutz has said to me
that he would like to consult with the CCSA when he has got some
outline proposals, but he has not actually made that formal approach
yet.
Mr Sharman: I think you are probably
asking the wrong people at the wrong stage. At the moment, this
Office of Carbon Capture and Storage is pretty much a blank sheet
of paper, to use DECC's own terminology. They are seeking input
and ideas for that and certainly the UK Coal Forum has prepared
a paper and submitted it and DECC will be discussing with other
groups what they would like to see in that office. My own view
is that it should be comparable with the Office of Nuclear Development
and the Office for Renewable Energy Deployment and have effectively
an external forum working in conjunction with it, just as those
two other offices do. In terms of external experts on it, again
Martin Deutz has made it quite clear to the UK Coal Forum that
DECC would welcome secondments from the industry into that office,
and certainly within my own company, Alstom, I have raised this
issue to see if we would like to place a secondee into the office.
I think that would add a lot of depth to it and technical expertise,
it would be a positive move and it would reflect what has happened
in those other two offices.
Q368 Charles Hendry: With the OND
as well, they have done a roadmap. They said, "We're going
back to our work on 2017/18. This is what is happening every single
month", and that is singularly lacking, it seems to me, in
carbon capture and storage. There is no sense of who needs to
do what by when and whose job it is to do something to get it
back on track and it is impossible to see if it is on track or
not. How important do you think that sort of roadmap is to deliver
this?
Mr Sharman: I think roadmaps are
crucial. A number exist at different levels. Certainly, the IEA
has prepared a roadmap on carbon capture and storage and there
is also a roadmap within the Carbon Sequestration Leadership Forum,
and obviously the UK plays a fairly big role in both of those
groupings. In terms of roadmaps at a UK level, certainly some
activity is under way by the Energy Technologies Institute that
will formulate that type of roadmap, and of course at the level
of research, development and demonstration various roadmaps already
exist. I hope what the Office of Carbon Capture and Storage will
do is pull that together, look globally, look European-wide, look
UK-wide and look at R&D and deployment and produce a roadmap
that is coherent and takes us forward, and I think there are good
signs that that will occur. Certainly on the R&D side, the
Advanced Power Generation Technology Forum has developed a lot
of strategies for research, development and demonstration around
CCS. I chair that group and we would hope that those thoughts
will feed through into the Office of Carbon Capture and Storage.
Mr Chapman: If you will excuse
the hackneyed expression, the long journey starts with the first
step, and we have not taken it yet. That is the most important
thing in this roadmap.
Dr Gibbins: You also need to know
where you are going. Seriously, we do not have realistic targets
for 2020 and we have even less clarity over 2030. There is still
actually uncertainty about the extent to which, for example, natural
gas plants will have to have carbon capture and storage by 2030
at the same time as we have an acknowledged target for the UK
electricity industries to be down getting an average of 100 kilograms
of CO2 per megawatt hour or less. How can you have a plan if you
do not know where you are trying to get to?
Chairman: Let us move away from policy
to talk about technology.
Q369 Dr Turner: The UK competition
for post-combustion capture, do you think that was a wise decision?
Mr Chapman: It is never a wise
move for Government to pick technology, and I think that is understood.
On the other hand, in the context of more than one demonstration,
then it would be wise to have post-combustion capture as well
as pre-combustion capture. Obviously, both are going to be important
in the UK and oxyfuel will hopefully take its place as well.
Q370 Dr Turner: I can only assume
that we went to post-combustion capture with a line to getting
the retrofitting market which does makes it slightly sad, does
it not, that we are moving so slowly? At the rate we are going,
China will already be fitting its several hundred stations before
we have got our first demonstration up.
Mr Chapman: Well, paradoxically,
the first project in China is likely to be pre-combustion anyway
or the first project in the world, which is in China, is likely
to be pre-combustion.
Dr Gibbins: Can I just say though,
just to explain the decision, that, when the decision to go for
post-combustion capture was made, we were looking at essentially
no CCS before 2020 and the Government was expecting to get a number
of new, super-critical pulverised coal plants built. There was
a fairly rational policy, if you like, of lower emissions through
CCS, "We want to get some new coal built, we do want to have
a strategy to fit carbon capture and storage to that plant, so
logically it would be post-combustion", but times have moved
on and we perceive more urgency. At the time that policy came
in, we were looking at getting a 60% reduction in emissions by
2050 and now we are looking at 80%, which is half the amount of
CO2, so things have not moved with the change in perceptions of
the urgency on climate change.
Mr Sharman: I think you are right
in your comments that the export market and the retrofit market
were key drivers in the decision of the Government to focus on
post-combustion capture. There is arguably a perception in industry
that post-combustion is more advanced in its state of preparedness
and oxyfuel is slightly behind that, but it is moving quickly.
Pre-combustion capture, whilst many of the components are commercially
proven in other situations, some of the costing is a bit opaque
and some of the availability of existing IGCCs around the world
is disappointingly low. I personally believe that all three routes
have got a role and a place and I am glad that in the UK certainly
the competition will place a post-combustion plant in operation,
I hope. The European support through the recovery package will
hopefully support Hatfield and their IGCC and pre-combustion decarbonisation
project, and also Doosan Babcock with their work on the oxy-2
project in Scotland are going to be demonstrating a full-scale,
40 megawatt thermal oxy-powered burner, so again the UK should
have a lot of expertise or will develop further expertise in these
three areas over the next five to eight years.
Q371 Dr Turner: What confidence do
we have about the storage capacity of the North Sea? Has it been
adequately surveyed, do we really know, and what are the risks?
Mr Phillips: The volumes are,
I think, by every measure there and available. Some of the academic
work has been perhaps a tad optimistic, but, even at the low end
of the estimates, the volumes that could be sequestered are enormous,
and there is a spectrum of relatively easy-to-prove gasfields
and substantially larger potential storage in aquifers. In particular,
the British Geological Survey have reviewed, studied and reported
and I think the absolute capacity they are not concerned about.
Is it safe? We are putting CO2 typically at a depth of one to
two miles below the ground. That is a long way and there is a
lot of rock between you and where the CO2 is. We will generally
put it somewhere where there is a primary store and particularly,
if you take a depleted gas or oilfield, it has already contained
the oil fluid for the last 30 million years, so there is a fair
bet it will keep doing it in the future, but there are a few leaks
as we drill holes through the sea oil at the top, called "wells",
so there are some potential problems, but we know about them and
we can engineer our way round them, so I think the probability
of the primary store leaking is very, very low, and the Intergovernmental
Panel on Climate Change estimate says it is something like a 98%
probability of the CO2 staying there indefinitely. What you also
do is ensure that you understand the geological column above the
primary store, so you would effectively have a series of secondary
seals, so I think the chances of the CO2 reaching the surface
are so small that I am much more worried about the climate frying
than I am about a bit of CO2 leaking back. I think it is feasible
that there will be CO2 exiting the primary store and being captured
in one of these secondary stores, and the EU CCS Directive recognises
that possibility by defining the concept of a "storage complex",
which is the primary store and the places where the CO2 may reasonably
end up.
Q372 Dr Turner: There is one slightly
counterproductive element in CCS in that a lot of the stored CO2
will be used to enhance oil recovery from depleted fields and
then burning that oil is going to release far more CO2 than has
been saved by storing it.
Mr Chapman: Actually, if I can
pick that one up, whether or not we produce oil by enhanced oil
recovery has no effect whatsoever on the amount of oil which is
burned in motor vehicles or whatever. That is a market in its
own right and will be supplied from wherever it is supplied. Actually,
it is arguable to say that, if we produce oil by enhanced oil
recovery, this is a relatively low-carbon method of production
compared to what would otherwise be produced at the margin which
may be from oil sands which does actually generate quite a lot
of pollution in its own right, so you could argue that it is safe
emissions rather than it produces emissions.
Mr Phillips: I would also make
the general comment that technically CO2 used for enhanced oil
recovery does work, but it is most effective onshore where you
have perhaps a well density of a well every 50 metres. Offshore,
where you have many kilometres between bottoms of wells, the geological
uncertainty makes the production extremely uncertain, and a number
of major companies have studied and cancelled enhanced oil recovery
projects offshore, so I honestly think it is a very small issue
in the North Sea.
Q373 Dr Turner: Finally, E.ON have
put on hold their project for Kingsnorth Power Station. Does that
tell us anything about the feasibility of CCS?
Dr Gibbins: It tells us something
about the feasibility of funding a large project when you do not
have clarity on how you will pay for eventual full capture. Just
to pick up your point on EOR (enhanced oil recovery), that was
a transient issue in the sense that, in the long run, clearly
we are not going to be burning the oil that comes out without
CCS; we cannot do. Similarly, we are looking at the competition
which is essentially a solution to yesterday's problem and it
does not address the new problem which is how you get new pulverised
coal-fired power plants with full CCS. E.ON, I think quite correctly,
are saying that they do not want to proceed until they have an
answer to that problem.
Dr Chapman: I would remind you
that about six months ago, Paul Golby, the Chief Executive of
E.ON, threw down the gauntlet to the Government and said, "You
fund it, we'll build it", and he meant, "If you fund
the whole power station, we'll build the CCS plant". I guess
that, if they had snapped his hand off at the time, that project
would be under way now. The fact is that meanwhile of course economic
circumstances have changed and the market in electricity has changed
somewhat, but, remembering that these companies are in it for
the long haul and that Paul Golby is driving a supertanker which
does not turn on a sixpence, in a speech last week, he is still
saying that he is very much committed to coal and coal in the
UK energy mix, and certainly they are maintaining their place
in the competition.
Q374 Chairman: You talked specifically
about Kingsnorth. What is the present position now?
Dr Chapman: Well, they are still
in the competition and the decision to press ahead with the new
power station is, as I understand it, on the shelf for now.
Q375 Sir Robert Smith: The irony
of it is that the first Chinese scheme is actually going to be
pre-combustion.
Dr Chapman: Yes.
Q376 Sir Robert Smith: Yet the UK
could have been there on pre-combustion if the Government had
not lost its nerve.
Dr Chapman: I have to say, I was
drawing attention to the irony, but, on the other hand, of course
there is great potential for retrofitting China. How it is funded,
God only knows, but there is great potential to save a lot of
emissions, world emissions, by retrofitting in China.
Dr Gibbins: I have been working
on the NZEC project, on the capture technologies and looking at
capture costs, and in China, because the pulverised coal plants
are very, very cheap, there is absolutely no cost advantage that
we can see for going for pre-combustion in China. The results
will be available on the web very soon and in fact it is the same
actually as in most places, that you really cannot see any significant
difference between the costs of the technologies. I think that,
if you have a look at why China went for GreenGen and why the
United States went for FutureGen, it is a good project to have.
Dr Chapman: There is a thing in
China where they have loads of coal, they do not have loads of
oil and they want to be much more self-sustaining in petroleum
as well as in what is conventionally petrochemicals, so they are
looking at coal to liquids and coal to chemicals, so this is an
integral part of their drive. Gasification is the start of this
entire process.
Mr Sharman: To comment again on
Kingsnorth, I do not think we quite closed out on the Kingsnorth
discussion, obviously I do not work for E.ON UK, I work for Alstom
which is not involved in any of the thinking on Kingsnorth, but
I did give a talk last week in the Netherlands on the progress
of demonstrators in the UK and I did that with my APGTF hat on,
the Advanced Power Generation Technology Forum hat. E.ON is an
active member of that grouping, so I got quite a lot of information
on where that project is. Clearly, the two gigawatt station at
Kingsnorth is due to close anyway by 2015 and E.ON's plan is to
build two new 800 megawatt electric units at Kingsnorth. Now,
the decision to delay that, and I think there was quite a lot
of misinterpretation in the press, they are talking that there
is no need necessarily to bring that station online or the new
units online until 2016. Clearly, in parallel to that, E.ON are
in the competition and, should their project at Kingsnorth be
recognised as the leading project contender, that may change when
things happen at Kingsnorth and they may bring it forward quicker.
What they are proposing at the moment is a 300/400 megawatt demonstration
of CCS, using MHI's technology from Japan, which will save about
two million tonnes of carbon dioxide. Now, if they get support
to do that project, perhaps they will bring forward the building
of those two units at Kingsnorth because obviously 2016 does not
quite marry with DECC's objective of having a demonstration up
and running originally by 2014 and now, using their words, "by
2015", so there is a slight mismatch, but that could easily
be resolved if E.ON were successful in winning out in the competition.
Q377 Chairman: I do not want to get
stuck on Kingsnorth, but to stem the river of Kingsnorth is part
of the plan for the Isle of Grain and one of the issues, as already
mentioned, is developing the infrastructure that is big enough
to take it. Part of the problem about these demonstration projects
is that you may be designing too small an infrastructure as part
of the project.
Mr Phillips: I think it is worse
in that the explicitly stated requirements are not to oversize,
so I think it is almost guaranteeing that that will happen and
I think there will have to be some sensible knocking of heads
together to ensure that that does not happen. The distance from
those big emissions in the so-called "Thames cluster"
around the Isle of Grain to the likely storage fields is such
that the pipeline will be a very significant part of the overall
cost and building something that can take perhaps, in the worst
case, just the competition volumes, two million tonnes a year
is in the "drop in the ocean" category, whereas an oversized
line could quite comfortably take all of that CO2 in the future.
Dr Chapman: I have to say, I had
a meeting yesterday with Yorkshire Forward and I have one this
afternoon with SEEDA. The regional development implications of
this are absolutely enormous. The Humberside cluster is probably
one of the most significant clusters of this kind that there would
be in the world and Yorkshire Forward are in close contact with
the people in Rotterdam and with the people in Le Havre, and it
may well be that we are storing CO2 in the North Sea using an
import terminal situated perhaps on the Humberside, fetching CO2
from Le Havre. This could be really very important business for
these regional areas and these regional areas are going to benefit
greatly. If the CO2 infrastructure is there, and this is proven
in the USA already, people will begin to build capture plants
to feed into it. Where you have got, for example, a Corus steelworks,
if the infrastructure is there and Corus get to be the first people
with CCS on their plant, that plant is not going to close, it
is going to stay alive for a long time, providing employment in
the UK, whereas otherwise, if you do not keep up with these international
environmental constraints, then that plant could fall by the wayside
because some other plant in the world is producing more environmentally
sensible steel.
Q378 Chairman: That is the Corus
plant at Scunthorpe you are talking about?
Dr Chapman: Yes.
Q379 Colin Challen: I just to want
to move things on a little bit because, the more I hear this exchange,
the more I become convinced that the CCS industry is pulling a
fast one and the Government has stupidly fallen for it. We have
seen that, since the privatisation of electricity and the liberalisation
of the energy market, R&D in the UK has plummeted to a fraction
of what it was. We all know it has happened and we have seen assets
sweated for profitability and, perhaps worst of all, we have seen
in the first phase of the ETS, the EU's trading scheme, fossil
fuel generators receiving billions of pounds in a windfall from
the sale of the freely allocated carbon allowances, yet this sob
story comes out, "We have to have some money, £200 million
or something for a project competition". This industry has
had billions of pounds out of the consumers' pockets. It is an
industry, the coal industry, which has been around for over a
century or more, so why has it not done its own homework, recognised
the course of travel in the decarbonising strategy of the Government
and of governments around the globe and simply invested itself
in CCS? Why is it waiting for handouts?
Dr Gibbins: It is not an investment
cost, it is a running cost. You might as well ask, "Why are
you not prepared to pay the going rate for low-carbon electricity
from CCS when apparently I have seen that you are in support of
paying for low-carbon from renewables?"
Q380 Colin Challen: As I say, the
industry has been around for decades and decades.
Dr Gibbins: CCS has not been around
for that long.
Q381 Colin Challen: CCS has not.
Dr Gibbins: No, exactly.
Q382 Colin Challen: But clean coal
technology of one sort or another has been talked about for a
long time.
Dr Gibbins: No, but you are just
mixing words there. Clean coal is a very broad term. I do not
think you can say that clean coal, as it was used 10 years ago,
meant CCS. CCS is very, very new and it is actually really a lot
newer than wind. If you have a look at when people were talking
about wind, it first started after the oil crisis, and wind was
there for years and years and years as a way of coping with the
shortage of fossil fuels. What we are realising now is that we
have got a shortage of space in the atmosphere, and CCS is actually
much more radical than wind, and for the first time we are preparing
to pay money for nothing but an advantage for the climate. You
just have to take a pragmatic view and say, "Look, this is
what low-carbon energy costs. This is new. Why would I pay a different
amount for low-carbon energy from one source than from another?"
That is what you have to ask very, very carefully. I take your
point that the industry will play games, of course the industry
will play games, but we are playing a much bigger game here and
you have to think, "If we do not have carbon capture and
storage available, where will be going on climate change?"
If we have renewables, fine—
Q383 Colin Challen: I accept that
point, but the point I am making is that this blinder, this fast
one that the industry is pulling is actually about just getting
more money out of the Government when it has made so much money
already out of the first phase of the ETS. How much money from
that windfall did they use to be put into CCS research and development?
Dr Chapman: Whatever has gone
in the past has gone. That is gone money and I cannot relate to
that, but, just to extend on what Jon says, I think we have to
regard low-carbon electricity as a higher added-value product,
low-carbon steel as a higher valued-added product and low-carbon
cement the same; they will command a premium just as organic potatoes
do. I want to just now move on to the levy that has been proposed
by the Government, which is a good idea because we all talk about
"the polluter pays" and the polluter should pay, but
the polluter is actually a combination of the consumer and the
supplier, so you should pay. Now, you cannot expect power generators
just to build out of the goodness of their hearts new decarbonising
plant because they have to make a return for their shareholders
on their total investment, so yes, it is going to get passed through
to the supplier and, even if you apply, as the Government is suggesting,
a kind of backstop in the way of an emissions performance standard
or something like that, even if you regulate into existence CCS,
the cost of it will get passed through to the consumer inevitably
because, otherwise, the power generators do not make money and,
therefore, we do not get power.
Q384 Colin Challen: The point is
that my constituents have already paid a windfall to these companies
through the ETS through higher electricity prices and that is
a fact. Those constituents will expect some of that money to have
been spent on research and development for a low-carbon future.
Dr Chapman: Well, they are still
paying a premium through the auctioning of allowances and that
money is going into the Treasury. They are still paying a premium
now. It is just that it is going into the Treasury now rather
than into the companies.
Mr Sharman: If I can just pick
up on the R&D dimension and the investment dimension of your
question, Alstom is investing very heavily in these technologies.
Across the whole company, our R&D investment is of the order
of £0.5 billion a year and it is rising year on year and
has done, despite the recession that the world is currently in,
so we see the importance of these technologies. Now, your question
is targeted at the utility companies and I cannot speak for their
R&D investment, but I do know here in the UK that E.ON UK,
Scottish & Southern and Scottish Power are all investing heavily,
and there are test facilities and R&D under way now in the
UK on these topics. That is true across Europe with companies
like Vattenfall and RWE, the parent company, E.ON the parent company,
et cetera, et cetera, it is true in the States, it is true in
Japan and it is true in Australia. Very heavy investment is happening
in these technologies, but what we are talking about now is moving
up to very large-scale demonstration projects which are obviously
very expensive to do, but also entail a lot of commercial and
technical risk and it is not in the best interests of those companies'
shareholders to do that without support from the public purse,
it is too big a move, so, given a free choice, they would go for
lower-risk options which would end up with us not demonstrating
carbon capture and storage technologies. It is the scale at which
we are in this technology where we have done the small-scale lab
stuff, we have done the bench scale, we have done the small pilots
and what we are talking about now is moving into hundreds of megawatt
demonstrations where the costs are very high and the risks are
very high, and those are the projects that these utility companies
are saying they need support with.
Dr Gibbins: Just as a point also
on the use of money, I think it is interesting that carbon capture
and storage projects are being talked about as being funded on
a "contract for differences" basis, in other words,
looking very, very carefully at the expenditure and having quite
a competitive process. It is just interesting. We just heard about
the feed-in tariffs which really do not look so carefully at the
economics of the individual projects, so I take your point about
windfall taxes which go to different people, go to companies or
go to the Treasury, but I think actually for future carbon capture
and storage projects they will actually be looked at fairly carefully
from a financial point of view and I think they will actually
represent quite a good deal on that basis. It is just interesting
that double standards are applied to carbon capture and storage
funding compared with other sources of low-carbon electricity.
Q385 Chairman: Just picking up on
one point, I am not sure whether it was Dr Gibbins or Mr Sharman
who mentioned that, until fairly recently, there were 12 new coal
plants and they seem to have disappeared from the equation at
the moment, but, supposing they came forward, should they not
all be carbon capture-equipped?
Dr Gibbins: You have got a very
interesting question there about whether you would make new coal
plants achieve a higher environmental standard than new gas plants,
and I think that actually is interesting. There is certainly talk
at the moment that you would think that new coal plant should
be equipped with CCS at least up to natural gas standards, but
in terms of actual value for money it would make a lot of sense,
if you have got those plants which are already fitted with part-CCS,
to go the whole hog and pay the extra money because that has got
to be some of the cheapest, low-carbon electricity that you could
possibly get. Equally, it does seem very, very difficult to say,
"Oh, but you have to do this at your own expense. You have
to be cleaner than gas". Why? We have got ourselves in a
bit of a bind here basically because the whole process is trying
to be done on the cheap.
Chairman: Perhaps we can move on. We
have talked a bit about China, but let us talk about the international
situation.
Q386 Charles Hendry: Picking up what
was raised earlier about other countries being able to have access
to the sequestration sites, is there going to be a point where
we lose the public support for this and where they say, "Hang
on, we're going to be Europe's CO2 dustbin and we don't think
that's the right way for our resources to be used", or do
you think that the benefit which it brings in terms of income
to the Crown Estate is going to be used to help develop these
projects and invest in the infrastructure? Is it a big enough
gain to justify that potential public backlash?
Dr Chapman: I think that there
would be a danger if the public had supported an infrastructure
to be put in place and it was used without financial gain back
to the public. That would be a danger obviously, but I think that
we ought to be able to cope with that. I think what we ought to
do is to regard our storage space as a resource just as you would
regard oil and gas as a resource or minerals as a resource; it
is a resource to be able to market to other countries. Last week,
we managed to take the first step in being able to transfer CO2
across boundaries because of the agreement that was made at the
London Protocol. It has to be ratified yet, but we got on the
way to being able to do this legally last week.
Q387 Charles Hendry: But we would
not consider taking somebody else's nuclear waste, we would not
be keen to have their general waste, and the concept that we accept
the world's CO2 and Europe's CO2 seems to me a very contentious
area.
Dr Chapman: I am sure it would
meet with contention, but, as long as it is not a dangerous waste,
why be too concerned about that?
Mr Sharman: Public perception
is obviously a key issue with carbon capture and storage. Often,
when we list up what the challenges are that we face, we work
our way down the costs and efficiency and the energy consumed
in regenerating the solvent and all these other issues, the pipeline,
the impurities, and finally we get down in the list last to public
perception, but actually, amongst all of those other technical
issues, public perception is potentially the showstopper for carbon
capture and storage and really we ought to put it at the top of
our list when we are coming up with the challenges and how we
deal with them. In terms of the use of the North Sea as a potential
repository for other people's carbon dioxide, again as a business
proposition there, a tremendous opportunity for the UK, we are
very blessed with a lot of potential resource and, if we can make
that work as an economic proposition, then that would be good
for the UK and good for the companies that get engaged with that,
but clearly we do need to address public perception and we do
need to win over hearts and minds. This technology, there have
been recent examples, such as in the Netherlands where the project
actually failed due to the local population not wishing it to
go ahead, but then that was onshore and it was a storage exactly
adjacent to housing, so there were issues around that, and again
that project is trying to move ahead and win over the local population
again so that they can proceed, but it is an issue, public support.
Dr Gibbins: Just as a quick point
on that, I think the public perception and in fact the professional
perception would depend a lot on what we know about the actual
storage capacity of the North Sea. We are not too sure what the
saline formation capacity is and it is a little bit early to start
selling your assets when you do not actually know what they are
and what you need. I think that is something that will grow. We
cannot actually investigate storage properly without more of an
infrastructure and without reasonably large sources of CO2 to
do the trial injections, so I think that is something we will
come to, but obviously there is a procedure needed where we actually
map out this asset. If we are going for carbon capture and storage,
there clearly will be a programme where we explore the storage
capacity in the North Sea, what it is like with the costs to use
it, what the actual capacity is and also perhaps some of the other
technologies, like, for example, water management in some of these
saline formations so that you can actually maximise the storage.
Dr Chapman: There is a major exercise
under way at the moment which is government-financed which is
looking at the storage capacity and should report within about
a year, and we will probably have the best-known storage capacity
in the world at the end of this report.
Q388 Sir Robert Smith: Just on the
public perception, I wonder if you would maybe give us a quick
idea of what we should do about that because, when we visited
the Total scheme, for 30/40 years natural gas, which is full of
H2S which is an extremely poisonous vapour, has been travelling
through this pipe in one direction and the posters protesting
only went up when the CO2 was planned to come the other way, which
is a much less dangerous gas.
Dr Gibbins: We have seen the problem
where people have tried to push carbon capture and storage projects
onshore, and many, many years ago, Brian Morris, who was then
leading the activity on CCS at DECC, said, "Look, the first
projects in the UK will not be onshore, no way. Don't be silly",
and they stuck to that, and I think that is a very valid way to
go ahead. Again, once people get some knowledge and see some actual
schemes that are working, not in anybody's back yard, then of
course they will get some confidence. It is a perfectly logical
human reaction to say, "Do you know what you're doing? This
is the first one. Do it offshore". The big asset actually,
as well as the storage, is that we have got a lot of good power
plant sites on the east coast anyway and we would be putting power
plants there even if we did not want to store the CO2.
Mr Phillips: There is also the
practical thing that the geology offshore is simply more amenable
to providing large-volume stores and, if you look onshore, there
is simply less physical capacity available.
Q389 Dr Whitehead: I was just observing
that most people get into a device which has got a 40-litre tank
of highly explosive liquid two feet behind them most mornings!
On the question of financing and implementation, we have talked
about the funding that is available for demonstration projects,
the Europe Commission funding the European Recovery Programme
and the Government's funding. All of these of course are for demonstration
projects and I think you have reflected on the fact that that
funding may or may not be sufficient to develop those demonstration
projects in the way that we hope they will, going forward. What
about the situation after that when, after those demonstration
projects have been put in place, the logic is that, pretty much
as you have mentioned, gas power stations and future coal-fired
power stations, should they develop, will have to go beyond demonstration
projects and be routinely CCS-fitted, yet there is no obvious
market mechanism which easily funds those CCS projects thereafter?
What sort of mechanism do you see developing under those circumstances
and how realistic do you think that is in terms of the additional
costs of energy?
Dr Chapman: I think that, as it
happens, the Government has come up with a good idea in that they
have decided to have a levy, the size of which is adjustable,
and the levy will raise money and the money will be returned to
projects in a way which is competitive, and Jon referred to this
earlier. That is, in a sense, a much better idea than a feed-in
tariff which is totally arbitrary or a ROC per project which is
again an arbitrary kind of reward. This is a competitive reward
and would be able to cope with the transition from the first projects,
which are obviously more expensive because they are the first
of a kind, through to later projects, which are going to be much
more cost-effective, and it also takes into account the difference
between the EU LAN's price and the cost that is needed to cover
the cost of the project, so it looks like a beautifully, elegant
thing, but the devil will be in the detail and we will need to
see a lot more detail, but we think that potentially we have actually
got something which actually does not exist in Europe and does
not exist in the rest of the world because everywhere else in
the world people are handing out cash sums. However, I have a
warning, and I would like this Committee to know this, which is
that the revenue that is raised by this levy will be regarded
as income to the State and the dispersal of this money will be
regarded as expenditure to the State, so it is adding to the public
expenditure, even though it never hits the Treasury's balance
sheet, and that is really shooting ourselves in the foot. At a
time when the Government is doing its damnedest to demonstrate
that it is containing public spending and then somebody is coming
along and saying, "We want to add to it by this measure",
that is really stupid.
Q390 Dr Whitehead: I take that point
in terms of the extent to which that looks like it has avoided
public income, but it is treated as not potentially, but what
about the question of selling emissions allowances in Phase III
of ETS and future emissions trading arrangements? To what extent
do you think that sort of mechanism, which does in fact capture
some of the wider costs involved, could underpin that future development
of CCS generally?
Mr Phillips: If I could make a
comment, I think that, in general, industries respond to clarity
and, in particular, in the case of the electricity industry where
investments in power stations, be they coal, natural gas or nuclear,
are very long-term and they are typically with lives in the order
of 30 to 40 years. At the moment, the ETS, I would say, has potential,
but even Phase III of the ETS is not looking much beyond 2020,
so, in the case that you do not know, the tendency of large corporations
with large investment decisions is simply to wait and see, so
I think that a clarity probably from the EU level about the mechanism,
be it a variant of the ETS or whatever, would be extremely helpful,
but it needs to look a lot further. At the moment we are in Phase
II and we are still actually quite clear what Phase III is going
to look like. It will start in less than five years' time and,
if you are making an investment decision where the impact is going
to only start in five years' time, that lack of clarity is a major
drag on investment decisions and it is why there is a lot of desire
for such projects to have near-term funding from some other source.
Dr Chapman: I am sure you are
aware that a £300 million EU allowances have been made available
in Europe to support renewable projects and CCS. There is an ongoing
argument between Member States and the Commission at the moment
about how that will be dispersed and at the moment it is in deadlock,
but the realisation of the value of those allowances is really
quite inefficient because, if there are options now, they are
going to make now prices, even though they are Phase III allowances.
Because you can bank from Phase II into Phase III, there is not
a forward market, if you like, in Phase III allowances, but you
get today's price, so that is the price that will be realised
for Phase III allowances now.
Mr Sharman: Within Europe there
is something called the "Zero Emission Platform" which
has actually got a much longer title, but it shortens to "ZEP"
thankfully, where most of the players in Europe on CCS are members
of that. They commissioned some work by McKinsey & Co a couple
of years ago to look at the expected price of CO2 capture per
tonne abated and comparing that with what the ETS may support
in terms of a carbon price. You are exactly right, the early demonstrators
are very high-cost because they are the first of a kind, there
is a lot of over-engineering which goes on, there is a lot of
technical and economic risk in those projects, and they typically
cost €60-90 per tonne of carbon dioxide abated, way, way,
way above anything that the ETS is ever going to get to, but of
course they are the first of a kind, and for the second, third,
10th of a kind or whatever you see costs beginning to drop as
engineering solutions are developed and more efficient systems
are developed. Just like flue gas desulphurisation where we saw
a drop in the capital cost of that kit by as much as 80% over
time, it is hoped that the cost of carbon capture, particularly
the expensive part of the equation, will similarly fall away,
maybe not down to 20%, but it will come down a learning curve
and a cost reduction curve. At what stage that hits the expected
price of carbon within the ETS is not known and we cannot predict
that, but McKinsey did some analysis and showed that really, by
the time we are past 2020 and into the middle 2020s, the carbon
price could reasonably be expected to meet with the expected cost
of carbon capture and storage per tonne of carbon dioxide abated,
and then obviously the market will sustain that. What happens
after the early demonstrators where public support is being funnelled
in and the end plant which will be economic within the ETS, it
is those early adopters which is the problem and that is what
the UK levy is designed to do, to ease those early adopters into
play.
Chairman: I am afraid that bell is for
us and I am sorry as there is still a lot to talk about. There
were a number of occasions when people wanted to make points and
were not able to, so please write to us about those. Perhaps I
could just set you a bit of homework. We talked about the infrastructure
and Yorkshire Forward was talked about. Would someone, maybe Jeff,
talk to your colleagues and drop us a note, saying who should
be responsible for bringing that forward? The National Grid has
a role in other fields of energy, so it could do something on
that. Also, Mr Sharman, you were just talking about the price
of carbon. If there is a floor on the price of carbon, say, at
€40 per tonne into the long term, what impact would that
have coming forward? With that, can I thank you all very much
indeed. It has been a very useful discussion and I am sure we
will talk again. Thank you.
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