Memorandum submitted by the Sussex Energy
Group[31]
ABOUT THE
SUSSEX ENERGY
GROUP
1. The Sussex Energy Group undertakes academically
rigorous, inter-disciplinary research that engages with policy-makers
and practitioners. The aim of our research is to identify ways
of achieving the transition to sustainable, low carbon energy
systems whilst addressing other important policy objectives such
as energy security. We a group of 15 social scientists, working
from a multidisciplinary perspective. We are funded from a diverse
range of sources, primarily UK Research Councils, Government Departments,
the European Commission. Through the Group, the University of
Sussex is a core partner of the Tyndall Centre for Climate Change
Research. The Group is also part of the UK Energy Research Centre.
2. We welcome this inquiry into Emissions
Performance Standards. This is a potentially important policy
instrument that could, if implemented carefully, make a significant
contribution to the low carbon transition required in the UK.
In our response to the Committee's questions, we have drawn on
both our broad expertise in UK energy policy, and on our research
on policy approaches to the development and deployment of carbon
capture and storage (CCS) technologies. With respect to the latter,
the Sussex Energy Group is leading a project funded by the UK
Energy Research Centre. The project is analysing the multiple
uncertainties of CCS technologies to help inform policy responses.
3. Before turning to the Committee's specific
questions, it is important to place the possible implementation
of an EPS into context. The overall aim of UK policy is to reduce
greenhouse gas emissions by 80% by 2050. As part of this, the
Committee on Climate Change has argued that the power sector should
be largely decarbonised by 2030.[32]
This particular milestone has not yet been formally endorsed by
the government, but reflects the widespread view that reducing
emissions from the power sector will be achievable more quickly
than doing so in other parts of the UK's energy system and economy.
An EPS can potentially provide an incentive to help achieve this
aim.
4. However, it is unlikely that an EPS alone
will shift investment away from unabated coal and gas fired power
plants in favour of plants with CCS technologies. It is widely
acknowledged that investment in CCS technologies will only happen
if complementary policies are also implemented. Of particular
importance are financial incentives and an appropriate legal framework
to handle long term liabilities associated with carbon storage.
Legislation is already in place as a result of the Energy Act
2010 so that a financial incentive can be implemented.
5. If it is implemented, an EPS will need
to be designed so that it integrates successfully with other existing
policy instruments such as the EU emissions trading scheme and
the climate change levy. Furthermore, it is likely to be implemented
alongside related policy reforms that are part of the Coalition
government's programme. An EPS may have significant overlaps and
interactions with the intended carbon price floor and the envisaged
reform of the electricity market. These interactions will need
to be analysed carefully. In the absence of further details of
the precise form of the EPS or details of these other reforms,
it is not possible to analyse these interactions in any detail.
Previous climate policy research shows that such interactions
can be complex[33]—and
can lead to conflicting or overlapping incentives if not thought
through. For this reason, it makes sense to evaluate an EPS and
other related policy reforms as an overall "policy package"
to check for coherence and to avoid excessive complexity.
SPECIFIC RESPONSES
TO THE
COMMITTEE'S
QUESTIONS
What are the factors that ought to be considered
in setting the level for an Emissions Performance Standard (EPS)
and what would be an appropriate level for the UK? Should the
level be changed over time?
6. The level of the EPS should be informed
by the Committee and Climate Change's recommendation that the
power sector should be largely decarbonised by 2030. It should
therefore be designed to help ensure that the carbon intensity
of electricity generated in the UK falls from the current level
of 496g CO2 per kWh[34]
to less than 100g CO2 per kWh by 2030. This will not
only help to underpin investment in CCS technologies, but will
provide a general incentive for investment in other low carbon
technologies.
7. Changing the level of the EPS over time
makes sense in principle, not least to take into account the current
uncertainties associated with CCS technologies—and the fact
that these technologies are just entering the full scale demonstration
phase. An initial level that prevents new, unabated coal plant
from operating is clearly needed—perhaps of around 300g
CO2 per kWh. It is more debatable whether the initial
level should also prevent new, unabated gas-fired plant - or whether
such plant should only be covered at a later date (eg 2020) to
allow investors more flexibility. Gas-fired plants emit less than
half the CO2 per unit of electricity generated than
coal-fired plants.
8. Furthermore, whilst it is appropriate
that the EPS initially applies to new plants, it will be important
to also apply the standard to existing plants at a later date.
This should be between 2020 and 2025 so that investment in (and
operation of) fossil fuel plants will be in line with the Committee
on Climate Change's recommendations. This will provide time for
the CCS demonstration programme to scale up CCS technologies and
to demonstrate that they can operate with high levels of carbon
capture.
9. Whilst we see a strong rationale for
changing the overall rate of the EPS over time, we think that
the number of "milestones" should be minimised and signalled
clearly in advance to provide certainty to investors. In addition,
the same EPS rate should be applied to all power generation technologies.
Implementing too many intermediate adjustments and different rates
for different technologies would risk micro-managing the power
sector, and constraining the flexibility of investors to make
efficient decisions.
What benefit would an EPS bring beyond the emissions
reductions already set to take place under the EU ETS?
10. In theory, the EU emissions trading
scheme and other complementary policies covering the non-traded
sectors should ensure that the UK and EU climate targets are met.
Furthermore, targets for the traded sectors should (again, in
theory) be met at the lowest overall cost. As a result, the EPS
will be unlikely to lead to additional emissions reductions over
and above those that would have happened anyway. All other things
being equal, this is because increased emissions abatement in
the UK would be offset by less abatement elsewhere in the trading
scheme.
11. However, economics are not the only
consideration. Climate change policy and politics mean that the
kinds of actions that are taken to meet such targets matter. It
is important that no unabated coal-fired power plants are built
in the UK, and that in the medium term the same should apply to
gas-fired plants. An EPS will help to ensure this, and to send
a signal nationally and internationally that the UK is serious
about its commitment to the low carbon transition. Having said
this, the impacts of an EPS should be taken into account when
the European Commission sets the allocation of emissions permits
in future phases of the EU ETS.
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?
12. As noted earlier, an EPS alone is not
likely to be effective in driving the development of CCS technologies
in the UK. Because of the high costs of CCS technologies, and
the high risks to investors financing the first full scale demonstration
plants, financial incentives are required to complement an EPS.
So far, the price of carbon within the EU ETS has been too low
and too volatile to provide such a financial incentive for CCS
and other low carbon technologies.
13. Therefore, other measures are required
to complement an EPS and the EU ETS, particularly for low carbon
technologies entering the demonstration stage such as CCS.[35]
We therefore support the provision in the Energy Act 2010 for
a new electricity supply levy to help fund the four CCS demonstrations
planned for the UK. Given the need to phase out unabated gas-fired
generation well before 2030, it will be important to include at
least one gas-fired power plant in the programme of four UK demonstrations.
Gas currently plays a key role in the UK's energy and electricity
systems, and is likely to do so for the foreseeable future.
Could the introduction of an EPS pose any risks
to the UK's long-term agendas on energy security and climate change?
14. It is unlikely that an EPS will pose
any risks to UK energy security unless it is implemented in a
draconian manner in too short a timescale. For this reason, we
have suggested earlier in this submission that an EPS should apply
first to new plants, followed by extension to existing plants
after several years. Furthermore, setting the initial level of
an EPS so that new, unabated gas-fired plants can operate for
the next few years without fitting CCS would add further flexibility
and resilience to the UK electricity system.
15. Applying en EPS to all plants from either
2020 or 2025 will provide enough time for decisions to be made
about retrofitting or closure of older fossil fuel plants. For
those existing plants that will only be used for peaking duty,
there many be a case for an "opt out" based on reduced
running hours. Such an "opt out" would be similar to
that in the Large Combustion Plant Directive which places limits
on the operation of plants that do not have equipment fitted to
control sulphur dioxide emissions.
16. There is a possibility of risks to the
UK's long-term climate change agenda from implementing an EPS
if this is done without careful thought. It is conceivable (though
unlikely) that a hastily implemented EPS which leads to unintended
consequences could lead to a backlash against policies to reduce
power sector emissions. Perhaps a more important risk is that
mentioned earlier—that an overly complex EPS policy would
constrain the choices of power developers too much, and discourage
investment.
What is the likely impact of an EPS on domestic
energy prices?
17. Energy prices are likely to remain high
irrespective of whether an EPS is implemented. This is not only
because of the underlying costs of fossil fuels which provide
the vast majority of our energy. It is also because of the costs
of investing in low carbon technologies including CCS, renewables
and nuclear power. The support policies to enable such investment
(ie the renewables obligation and the new levy for CCS plants)
will increase electricity bills—as will the carbon price
floor that has been proposed, primarily to make private investment
in new nuclear power plants more likely.
18. Having said this, an EPS will (in theory
at least) lead to emissions reductions in the UK at a higher overall
cost than a generic economic incentive such as that in the EU
ETS. This is because it will effectively force UK power plants
to reduce their emissions even if the costs of doing so are higher
than the costs of abatement at other plants elsewhere in the EU
ETS. In practice, it will be hard to disentangle the extent to
which cost increases will stem from an EPS per se. As noted
earlier, this is because an EPS will be part of a complex array
of policy instruments, and is likely to be implemented alongside
other measures such as a carbon floor price and energy market
reform.
Could unilateral action by the UK to introduce
an EPS contribute towards global climate negotiations in Cancun
in November 2010?
19. A key challenge for the negotiations
at Cancun is to rebuild trust after the disappointing and chaotic
experience at Copenhagen in 2009. Measures to show that low carbon
transitions are possible and practical in particular countries
are badly needed to help re-build that trust. Whilst an EPS will
clearly have no impact on UK emissions before Cancun, its planned
implementation will send a positive signal of leadership. It would
demonstrate the intention that the UK will not permit the construction
of new, unabated fossil plants. It would also strengthen the credibility
of the UK's continuing calls for the EU to go further in its medium
term emissions reduction target for 2020.
September 2010
31 This response was written by Dr. Jim Watson, Director
and Dr. Florian Kern, Research Fellow, Sussex Energy Group, SPRU,
University of Sussex; http://www.sussex.ac.uk/sussexenergygroup. Back
32
Committee on Climate Change (2010) Meeting carbon budgets: Ensuring
a low-carbon recovery. Second Progress Report. London: CCC. June. Back
33
Sorrell, S. (2003), "Who owns the carbon? Interactions between
the EU Emissions Trading Scheme and the UK Renewables Obligation
and Energy Efficiency Commitment", Energy and Environment,
14(5), 677-703. Back
34
Committee on Climate Change, op. cit. Back
35
Watson, J. (2008). Setting Priorities in Energy Innovation Policy:
Lessons for the UK. ETIP Discussion Paper. Cambridge, MA, Belfer
Center for Science and International Affairs, Kennedy School of
Government, Harvard University. Back
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