Memorandum submitted by the Confederation
of UK Coal Producers
1. The Confederation of UK Coal Producers
(CoalPro) represents member companies who produce over 90% of
UK coal output. CoalPro is pleased to be able to respond to the
Committee's invitation to provide written evidence to their inquiry
on Emissions Performance Standards.
EXECUTIVE SUMMARY
2. It is important to drive CCS for both
coal and gas if the objective of an 80% reduction in carbon emissions
is to be achieved by 2050. This objective will require near total
decarbonisation of electricity generation and this must be achieved
well before 2050 if decarbonised electricity is to replace fossil
fuels elsewhere in the economy, eg for heating and transport.
All fossil fuel generation must therefore be equipped with CCS.
3. Coal-fired power stations provide security
and diversity of supply. They are able to respond more quickly
to peaks in demand than either gas or nuclear stations. Renewables,
whilst they can provide a major portion of UK electricity demand,
cannot, by their nature, respond to peaks in demand. Coal-fired
generation thus provides an essential load following capability.
4. The UK presently has 28GW of coal-fired
generation plant. 8GW of this will close by the end of 2015 as
a result of the Large Combustion Plants Directive and much of
the remainder may close during the period 2016-23 as a result
of the Industrial Emissions Directive. Without the construction
of new coal-fired plant, the UK will lose this vital component
of electricity supply and be subject to severe security of supply
risks at periods of peak demand.
5. The Government has stated that no new
coal-fired power plant will be constructed unless it is at least
partially equipped with CCS. It will, however, help fund the construction
of four such power stations by means of a levy on electricity
consumers. It is implied that, once the technology has been proven
at commercial scale, those four stations, and all other new coal-fired
plant, should be fully equipped with CCS and CoalPro expects this
to be the case by the mid-2020s.
6. However, without further new coal-fired
plant, which will have to be constructed without such support
from electricity consumers, there is a real risk that the proportion
of coal-fired generation in the electricity mix will fall from
the present level of some 30% to less than 10% by the early to
mid 2020s. This would pose security of supply risks, particularly
at periods of peak demand.
7. Gas-fired power plant is cheaper and
quicker to construct than coal-fired plant although the CCS component
of any new fossil fuel plant, coal or gas, can be expected to
be similar in both time and cost. On the other hand, in recent
years, coal prices have tended to be cheaper than gas prices.
As a result, coal and gas fired plant have been broadly competitive
with each other. However, coal reserves, are abundant and geographically
diverse, including significant indigenous reserves, compared with
gas reserves, which are relatively scarce and geographically concentrated,
with rapidly declining indigenous reserves. Over time, therefore,
coal can be expected to become cheaper compared with gas.
8. If restrictions are placed on coal-fired
plant which do not apply to gas-fired plant, then all new fossil
fuel generation capacity will be gas-fired. Apart from the security
of supply risks that this will impose, the construction of a large
amount of unabated gas-fired plant will prevent the objective
of an early decarbonised electricity generation system from being
achieved.
9. This problem can be addressed by ensuring
that all new gas-fired plant should also be constructed partially
equipped with CCS, with full CCS applying once the technology
has been proved at commercial scale. CoalPro therefore supports
the proposal to extend the programme to fund CCS on coal via a
levy on electricity consumers to support CCS on some new gas-fired
plant.
10. Within this scenario, Emissions Performance
Standards can play a part, particularly in determining the maximum
level of CO2 emissions from fossil fuel plant, coal
or gas, fully equipped with CCS, and hence in determining the
standards that need to be met to achieve a decarbonised electricity
supply. However, any interim EPS designed to promote partial CCS
which does not differentiate between coal and gas will merely
drive new gas-fired plant with consequent security of supply risks
and later achievement of electricity decarbonisation.
11. Coal is a more carbon-rich fuel than
gas. Hence, whilst an EPS can be derived to ensure that a given
proportion of a new coal-fired plant (say one quarter, one half
or 100%) is equipped with CCS, applying a similar EPS to new gas-fired
plant will mean that a lower proportion of such plant will need
to be equipped with CCS. For example, an EPS requiring one quarter
of a coal-fired plant to be CCS equipped will not require any
such investment in a gas-fired plant. Similarly an EPS requiring
one half of a coal-fired plant to be CCS equipped will only require
CCS to be fitted to one quarter of a gas-fired plant, and so on.
In these circumstances, it is clear that only gas-fired plant
will be built. This will be so even if there is a clear implication
that more restrictive EPSs will require (eventually) all new plant
to be fully retrofitted with CCS. In this case, gas plant will
only need to be CCS equipped later than coal-fired plant. Investment
dynamics are such that in these circumstances, only new gas-fired
plant will be built.
12. An EPS approach can therefore have real
value in signalling to the industry what is (and what will be)
required in terms of carbon abatement. However, any EPS regime
which favours gas over coal will result only in new gas-fired
plant being built and in later achievement of full decarbonisation.
This implies different EPS levels for coal and gas to achieve
the same proportion of CCS. Any other approach would merely result
in fuel switching from coal to gas, heightened security of supply
risks and later achievement of full decarbonisation.
SPECIFIC QUESTIONS
POSED BY
THE COMMITTEE
What are the factors that ought to be considered
in setting the level for an EPS and what would be an appropriate
level for the UK? Should the level be changed over time?
13. A blanket EPS, at any level other than
that requiring 100% CCS on both coal and gas-fired plant, will
drive gas at the expense of coal and lead to later overall decarbonisation.
Different EPS levels should therefore be set for coal and gas
designed to ensure that, at any point in time, the same proportions
of both new coal and new gas-fired plant are CCS equipped. A blanket
of 150g/kWh can be applied by, say 2040 as this will require full
CCS on both coal and gas plant and near-zero carbon electricity
generation.
What benefit would an EPS bring beyond the emissions
reductions already set to take place under the EU ETS?
14. None, unless the differential approach
referred to above us adopted. Driving UK emissions below the level
necessary to achieve the overall EU cap will merely make more
carbon allowances more cheaply available to other Member States.
Some Central and East European states are heavily dependent on
coal and lignite. They will not agree to a regime which makes
it more difficult to rely on their abundant coal and lignite reserves.
However, the differential approach set out above could provide
both a model which other Member States will follow and earlier,
Europe-wide decarbonisation.
How effective is an EPS likely to be in driving
forward the development of CCS technology? Should the UK's CCS
demonstration programme cover gas-fired as well as coal-fired
power stations?
15. An EPS could be extremely effective
in driving forward the development of CCS technology but not if
a blanket approach is adopted which requires CCS to be fitted
to a higher proportion of new coal-fired plant than gas-fired
plant. In that case, initially, only new unabated gas plant will
be built and CCS will be delayed rather than driven forward. For
this reason CoalPro fully supports the extension of the demonstration
programme to cover gas-fired as well as coal-fried power stations.
16. It should be recognised however, that
other approaches could also be equally effective, including a
CCS obligation or a low-carbon obligation.
Could the introduction of an EPS pose any risks
to the UK's long-term agendas on energy security and climate change?
17. Yes, to both if a blanket approach is
adopted. A blanket EPS will merely drive unabated gas-fired generation.
This will pose energy security risks and delay full decarbonisation
of the sector. However, a differential approach could both maintain
security and diversity of supply and drive early decarbonisation.
What is the likely impact of an EPS on domestic
energy prices?
18. All forms of low carbon electricity
generation will increase domestic energy prices, be it renewables,
CCS on fossil fuel generation or unsubsidised nuclear generation.
A blanket EPS will, in the longer run, increase domestic energy
prices because the UK's electricity generation will become more
dependent on increasingly scarce, imported gas. A differential
EPS designed to maintain a reasonable proportion of coal in the
mix will minimise price risks over the medium to long term.
Are any other European countries considering an
EPS? If so, should the standards be harmonised?
19. As far as CoalPro is aware, no other
European country is considering an EPS. Several Central and East
European countries are heavily dependent on coal-fired generation
and are likely to be fundamentally opposed to an EPS. Their opposition
may be less if a differential approach rather than a blanket approach
is adopted. What they will emphatically NOT do is agree to any
approach which will make then more dependent on Russian gas!
20. If a European EPS approach does emerge,
the approach should be differential and the standards harmonised.
Could unilateral action by the UK to introduce
an EPS contribute towards global climate negotiations in Cancun
in November 2010
21. This is most unlikely given the dependence
of some of the world's largest economies on coal, eg USA and China
as only the first two of a very long list. If the UK adopts a
blanket EPS unilaterally it can be conclusively assumed that the
contribution will be zero. However, the adoption of an approach
which differentiates between coal and gas may be seen by such
countries as a positive step towards driving CCS across the globe
without losing the benefits of low-cost coal-fired generation.
CONCLUDING REMARKS
22. CoalPro is willing to discuss this response
further with the Committee should they wish to do so.
September 2010
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