Emissions Performance Standards

Memorandum submitted by the Institution of Mechanical Engineers (EPS 07)

A . General comments

The Committee wants to find out about the implications of emissions performance standards on energy markets and future investments, and whether they could encourage the deployment of CCS technologies. The Committee is also interested in the role to be played by UK emissions performance standards in international negotiations on climate change.

As a general principle, an emissions performance standard ( EPS ) should be feasible to meet; it should involve performance improvement not encourage avoidance of meeting the regulation. The overall effect should be the phased introduction of new technology with more desirable performance characteristics over a reasonable period of time , whilst maintaining continuity of energy supply .

As the answers to the following questions set out, this inquiry raises the question of the electricity and energy markets in which the EPS is applied. This is critically important since an EPS will be effective only as long as it is economically viable for project developers to meet it by using CCS. An EPS cannot therefore properly be considered in isolation and the Institution strongly endorses the Government’s decision to consider an EPS in the context of wider energy market reforms 1 .

Such a comprehensive and holistic treatment of an EPS is beyond the scope of the present inquiry, but it would be extremely valuable if in advance of this more complex policy debate a discussion of the principles and practical implementation of an EPS were to take place.

If a well-designed EPS that drives CCS technology development and deployment is ultimately introduced as part of a broader set of market reform measures then this may contribute significantly towards the direction taken by international negotiations on climate change. This is because, in the more general sense, it is likely that major countries participating in global climate change negotiations will be much more significantly influenced by actual operating UK CCS plants rather than by UK regulations ( that may or may not lead to a negative result (i.e. nothing being done to meet them; the need to do so is just avoided) .

B. Responses to specific questions raised

1. 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?

The question of ‘level’ cannot be considered in isolation from the basis for the EPS; what are the emissions based on? Possible bases and units include:

Other factors that need to be considered in connection with the level are:

a) Can compliance with an EPS be transferred and/or traded and what are the details of how this can be done?

b) What is the time period over which compliance is measured; at least a year is strongly suggested.

c) What is the size of the entity to which the EPS applies, e.g. a generating unit, a plant, a company, an industry sector?

Once these questions have been answered it becomes at least technically feasible to define a level that is intended to meet a desired outcome or outcomes. But the nature of the market in which the plant operates is also extremely important. In the UK context a particular area of uncertainty, for which open and generally accepted peer-reviewed data is surprisingly lacking, is the operating patterns which will be forced on fossil fuel plants by different levels of wind and other uncontrollable (or limited control) renewable generation. Part load operation and starting and stopping all affect achievable emission levels, particularly from unabated (i.e. without CCS) fossil generation (as well as resulting in additional costs due to the displacement of one low-emissions generation source by another if CCS operation has to be stopped during periods of higher wind generation output).

The ‘level’, together with the other factors required to define an EPS, such as changes to the ‘level’ over time, need to be examined as to their suitability for achieving the required objectives in terms of driving technology and infrastructure changes.

2. What benefit would an EPS bring beyond the emissions reductions already set to take place under the EU ETS? 

If an overall emissions cap and trade scheme (EU ETS) is in place, the primary objective for an EPS should not be to reduce emissions directly. This is because the presence of the EU ETS is likely to nullify any tendency of the EPS to reduce emissions within the bounds of the cap. This happens due to a strong tendency for the total amount of allowable emissions under a cap to be used, thus emissions cuts in one part of the EU ETS can be offset by emission increases in another part, as ‘freed up’ allowances are traded.

An EPS should only be used to do something that an ETS cannot do. It should drive technical change ahead of it being unavoidably required to meet an ETS, with the objective of making it cheaper to meet a given cap in the future or making a tighter cap feasible for the same cost. The cap in question could be national or be interpreted more generally as global emissions.

An EPS does not meet the above criteria if the effect is to preclude totally certain types of power generation plant. A simple ban would be more appropriate in this case. It is also disingenuous to impose an EPS which could theoretically be met but which never will be for commercial reasons; again a ban would be more appropriate and likely to lead more rapidly to the development of the appropriate overall energy policy.

3. 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?

For clarity, an EPS should drive CCS deployment as well as development. It will be effective only as long as it is economically viable for project developers to meet an EPS by using CCS. This question cannot be separated from wider market reforms.

The first stage in implementing a successful EPS is to decide – and agree – what it is intended to achieve, in the context in which it will actually be applied. For the UK it is suggested that this should be the rapid development of CCS as a proven option for deployment in the UK (and elsewhere, except that some local factors will always differ) ; an objective which will require two generations of technology to establish proven reference projects. Subsequently, progressively more individual power plant sites should be converted to full CCS implementation or all new power plants should be built with full CCS. It is also critical that the appropriate strategic CO 2 transport and storage infrastructure to support CO 2 capture projects (including both demonstration and deployment phases) should be put in place in a timely manner.

The Institution has already suggested strongly that the current market conditions in the UK indicate that CCS development and deployment on natural gas plants should proceed as quickly as possible 2 , with the objective of having 2 nd generation reference plants in operation before 2020. This is a prerequisite for routine deployment of CCS on gas power plants, either as new build or retrofit, in the 2020 s.

It should be noted that, if the UK were to develop and deploy CCS on gas, then technically it could be relatively easy to ‘plug in’ coal based CCS technology provided that suitable versions of this w ere developed abroad . However, availability of suitable coal CCS technology is not a foregone conclusion as no large-scale coal power plant full scale CCS projects are currently committed anywhere in the world 3 and relatively few are even near to making an investment decision . With this proviso, a n existing UK CCS infrastructure for gas should make subsequent introduction of CCS for coal possible, provided that suitable sites for new build and retrofit coal plants with CCS had been retained.

4. Could the introduction of an EPS pose any risks to the UK’s long-term agendas on energy security and climate change?

An EPS which encouraged deployment of unabated natural gas generation , in preference to CCS development and deployment would delay the introduction of CCS in the UK. Even if suitable CCS technology was developed elsewhere it would still take significant learning time to apply routinely from scratch in the UK due to local factors such as UK-specific regulations, power plant mix and other market conditions . ( It is doubtful, however, that significant work on CCS from gas will take place elsewhere in the world; Norwegian plans for its Mongstad plant have recently been postponed 4 . ) Although less critical for energy security, such a scenario would create risk of failure of meeting long-term agenda objectives for climate change.

5. What is the likely impact of an EPS on domestic energy prices?

Any well-crafted EPS should ultimately result in lower domestic energy prices , relative to where prices would be without the EPS. I t appears likely that CCS projects on gas or coal (under current market conditions) could produce low-carbon electricity more cheaply than the higher-cost offshore wind sites that will have to be considered to meet national emissions targets5. Therefore an EPS that drives CCS development has the scope to reduce domestic electricity costs relatively.

6. Are any other European countries considering an EPS?  If so, should the standards be harmonized?

The EU parliament voted for the introduction of a general EPS, but this was rejected by the Council of Ministers 6 . This would have applied a harmonised standard to all EU countries.

It is, however, apparent that unless the technology development requirements of the different EU members are in harmony – which they certainly are not – an EPS ought to be left as an optional tool for national governments to use to meet their individual energy supply infrastructure requirements. It is logical to apply a comprehensive EU ETS, but this does then leave available relatively few further regulatory tools for electricity supply developments at the national leve l , especially when the restrictive effects of the EU Renewables Target also ha ve to be taken into account.

7. Could unilateral action by the UK to introduce an EPS contribute towards global climate negotiations in Cancun in November 2010? 

It appears likely that legislation for an EPS will now not be considered as part of UK legislation before negotiations in Cancun in November 2010. The approach taken by the UK to carefully consider EPS design and implementation could be noted by negotiators at Cancun (and in the preparations leading to it), but it is difficult to assess what type of impact this may have on global negotiations.

If a well-designed EPS that drives CCS technology development and deployment is ultimately introduced as part of a broader set of market reform measures then this may contribute significantly towards the directions taken by international negotiations after Cancun in the area of mitigation technology development.

This is because, in the more general sense, it is likely that major countries participating in global climate change negotiations will be much more significantly influenced by actual operating UK CCS plants rather than by regulations.

The influence of UK CCS plants would arise in two main ways. The obvious one is to show working CCS power plant and full chain technology. But this is probably less important than the irrefutable evidence that the UK is prepared to pay significant amounts of money simply to make a major reduction in CO 2 emissions from fossil fuel utilisation.

A motivation to access additional sources of energy from renewable generation is well understood and universally shared across the globe. A demonstrable motivation to spend money (even if less than on the equivalent renewable generation) solely to cut emissions to atmosphere would be a tangible confirmation of how serious the UK is about tackling the major cause of anthropogenic climate change.

8. Can greater use of Emissions Performances Standards internationally help promote agreement on global efforts to address climate change?

Greater use of an EPS is of itself unlikely to promote such agreement. However, w ork by professional engineers and scientists to design and build two successive generations of CCS technology, to the point where reference CCS power plant projects exist as the basis for subsequent routine deployment, is likely to help. Indeed, it is hard to see how the largest national emitters of fossil CO 2 , China and the USA, as well as the EU, will be able to agree to the necessary cuts in emissions unless they can rely on CCS being available as an option.

If greater use of an appropriate local EPS leads to CCS becoming a real option in a timely fashion then it will give politicians a key tool to negotiate deliverable agreements to tackle fossil fuel emissions and reduce the consequent risks of dangerous climate change.

August 2010