Memorandum submitted by Statoil
RESPONSE TO
THE PARLIAMENTARY
INQUIRY ON
EMISSIONS PERFORMANCE
STANDARDS
Statoil welcomes the opportunity to comment
on the Parliamentary Inquiry on Emissions Performance Standards.
The UK energy market is important for Statoil in a number of ways.
Statoil is the largest importer of natural gas to the UK and an
investor in offshore renewable projects in the UK.
Statoil is also considering, based on our CO2
storage experience from the oil and gas business, to develop a
new business as a storage provider for CO2 from 3rd
parties. Statoil is also a partner in the CO2 Technology
Centre Mongstad (TCM) in Norway, and have entered into an agreement
to construct a full-scale carbon capture facility at the Mongstad
Refinery.
Statoil acknowledges that emission of greenhouse
gases is a major challenge, and we believe that coordinated and
powerful effort by governments, businesses and individuals is
required to combat climate change. Statoil believes that wide
deployment of CCS in the longer term perspective is one necessary
measure to reduce greenhouse gas emissions from power production.
Statoil remains to be convinced that the EPS
is the best method for enabling CCS and other low carbon generation
technology to develop. Mandating standards before technology is
ready could have detrimental effects on the energy mix of the
UK and may not lead to the most efficient outcome.
NECESSARY MEASURES
TO FACILITATE
CCS AND REDUCE
CO2
Statoil sees market based cap-and-trade systems
such as the EU Emissions Trading Scheme (EU ETS) as the main instrument
for cost efficient reduction of GHG emissions. The EU ETS provides
a predictable framework for industry in the long term, rewarding
the most carbon efficient solutions. However, Statoil fully recognises
the EU ETS does not currently provide sufficient investment incentive
in low carbon generation, and that public funding are required
to speed up development and implementation of CCS in the short
term. The main long term objective of CCS is to become a competitive
tool for reducing GHG emissions, ie that the cost of CCS meets
the carbon price. To do this a reliable market focused regime
must be maintained and relied upon to provide investor confidence.
To achieve wide deployment of CCS in the longer
term perspective an appropriate regulatory and financial framework
is required in the shorter term. Such mechanisms will primarily
involve public funding, as CCS technology is currently at an early
demonstration phase and not yet commercially viable. Statoil supports
the present EU and UK policy on CCS—the single most important
issue at present is to get the planned CCS demonstrations built
as quickly as possible.
The CO2 Technology Centre Mongstad,
which is scheduled to start up in 2012, is an example of fruitful
public private partnership, which we believe will be of great
importance for wide deployment of CCS. The public private partnership
consists of Statoil, Shell, Sasol and Gassnova SF (owned by the
Norwegian Government). The goal of the test centre is to further
develop and test various technologies relating to carbon capture
from exhaust gases from the combined heat and power station, and
from emission sources at the refinery. The test centre is scheduled
to start up in 2011.
ENERGY SECURITY
Introducing a demanding EPS on all emission
from power production would in practical terms make CCS mandatory
when investing in new power plants in the UK. Statoil is concerned
that commercialisation of CCS technology will be negatively affected
by EPS, as industry could be exposed to the full cost and risk
of CCS before the technology is commercially available. It is
reasonable to expect EPS to have large detrimental effects on
investments in new power production, as few investors will be
able to take on projects faced with the risks of employing technologies
that are not technological and commercially mature. This could
hamper the longer term viability of CCS as an efficient tool in
emission reductions.
Such impacts on the energy systems in the UK
could undermine the investment in gas fired power plants to provide
flexible electricity generation to manage intermittent renewable
load. The flexibility and ability to respond quickly to demand
peaks is one major characteristic of gas-fired power plants. This
characteristic is of major importance in electricity markets with
a large share of renewable production, such as wind power. The
increase in investment costs of CCS are likely to limit the construction
of gas-fired power plants. If they were built these costs would
require baseload operation which would not fit the supply pattern
required with high levels of renewable energy. This would have
negative impact on the security of supply in the UK electricity
market with a growing share of renewable production and reduced
ability to meet peak demand.
NATURAL GAS
AND RENEWABLE
ENERGY PRODUCTION
Another important measure to reduce carbon intensity
of the power sector is the use of natural gas, which could reduce
CO2 emissions by 70% compared to old coal-fired power
plants. Natural gas is a very cost competitive fuel, which is
available now and will provide secure supply of energy in the
long term. Statoil believes that the combination of natural gas,
which could reduce CO2 emissions by 70% compared to
old coal-fired power plants, and wind power which is emissions
free, could quickly deliver large reductions of emissions from
power production. However, implementation of EPS would jeopardise
future investment decisions both in power generation and consequently
further upstream. Gas producers require long term signals that
gas demand will continue into the future in order to invest in
maintaining supply levels to the UK. In addition new gas fired
power station are required to provide the additional capacity
that will be called upon to generate when renewable energy cannot.
STATOIL'S
RECOMMENDATIONS
Regulatory stability is crucial to achieve the
investments needed to reduce UK carbon emissions both for fossil
power producers and renewable energy developers. Statoil appreciates
the current Government policy regarding the public funding of
up to four demonstration projects. Wider energy policies such
as EPS must consider the impacts such legislation would have on
the stability of the energy mix within the UK and the supply security
issues this will have for the future and we remain unconvinced
that this represents the best way to deliver a sustainable reduction
in CO2 or deliver CCS technology to the market. Statoil
appreciates the opportunity to communicate our opinion in this
regard and we remain available for any further discussions on
this matter.
September 2010
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