Emissions Performance Standards

Memorandum submitted by the Confederation of UK Coal Producers (EPS 05)


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, e.g. 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 2016-2023 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 CO 2 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, e.g. 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