Emissions Performance Standards

Memorandum submitted by ClientEarth (EPS 31)

BACKGROUND

1. ClientEarth is a non-profit environmental law and policy organisation based in London, Brussels, Warsaw and Paris. We have recently been involved in the provision of legal policy advice to the Irish Minister for Environment on the legality and design options for legislative provisions for CO2 emissions performance standards (EPS) for power generation. During 2009 and 2010, ClientEarth produced a series of legal submissions and consultation responses to the previous government’s plans for ‘capture readiness’ and the Framework for the Development of Clean Coal1. At European level, we were involved in securing a recently adopted amendment2 to the proposed EU Industrial Emissions Directive recast clarifying the ability of EU Member States to legally introduce CO2 EPS for installations covered by the ETS by means other than via EU Integrated Pollution Prevention and Control (IPPC) permits.

RESPONSES TO 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?

2. EPS for new power generation require a different conceptual and statutory approach to standards introduced for existing power. We strongly support t he immediate introduction of EPS for new power generation, with the level subject to statutory review in order to keep abreast of industry developments, combined with a requirement for the staged introduction of EPS for existing power by a specified future date.

3. Regarding design features of an EPS for new power stations , ClientEarth considers that the level should initially be set so as to unequivocally prevent the construction of new coal fired power stations and other inefficient fossil fuel generation unless equipped with 100% CCS capacity from day one. Provisions can be built into the regulations such that demonstration pr ojects equipped with partial CCS at industrial scale , including those anticipated under the previous government’s F ramework for the Development of Clean Coal, can proceed as planned .

4. The successful introduction of EPS in 4 states in the US provides useful evidence for the design of EPS . An EPS for the power sector now exists in the US states of California, Oregon, Washington and Montana.3 The Californian EPS is required to be set no higher than the emissions rate of a combined-cycle gas turbine4. Based on its review of emissions rates, the California Public Utilities Commission has adopted an EPS rate equivalent to 500g CO2/KWh. In the UK, this level would allow inefficient forms of gas generation to continue to be built, but would prevent new coal unless fitted with functioning CCS to at least part of its capacity. In the state of Washington the EPS is set at whichever is the lower figure of: 1,100 pounds of GHG per MWh (this equating to the Californian standard of 500g/KWh) or the average available GHG emissions output,5 this being determined every 5 years by a government department and informed by new combined-cycle natural gas thermal electric generation turbines commercially available in the US. ClientEarth considers that the level must be reviewed on a regular and predictable cycle so as to keep abreast of industry innovation.

5. It is clear that 500g/KWH is now an insufficient level for emissions performance standards for new power generation. It will not shut the door on unabated coal power or inefficient forms of other fossil fuel generation, or adequately drive development and deployment of CCS. The science is clear that no additional unabated coal emissions should be added to the atmosphere at this critical point in the Earth’s history.

6. ClientEarth acknowledges the need for CCS demonstration projects and understands the Coalition Government’s policy towards new coal remains broadly in line with the previous Government’s Framework for the Development of Clean Coal. This anticipated government support is for between two and four CCS demonstration projects operating partial CCS of at least 300MWe capacity. While ClientEarth does not support the construction of any new unabated coal power unless fitted with 100% CCS from the outset, if new coal with partial CCS remains the position of the current government, the EPS provisions will naturally have to be designed so as to accommodate partial CCS. However, it does not necessarily follow that the level of the EPS for new power need necessarily be set informed by CCS fitted on 300MWe on the largest anticipated coal plant.

7. Depending on the latest emissions factors arising from the technologies in question and the partial CCS demonstration requirements, it may be preferable to set the default level of the EPS more stringently such as to rule out all but the most efficient forms of gas generation, but to deal with CCS demonstrations as limited derogations permitted by statute, with these being subject to a different level informed by the requirements of the clean coal policy. This approach may be preferable for several reasons, including by driving the most efficient forms of gas generation with heat capture, and rather than setting the level so as to accommodate demonstration projects permitted to operate some capacity unabated. This may provide the government with greater control over CCS developments and, depending on the level, will ensure only the most efficient forms of gas generation are permitted, and by providing the government with greater control over the number and size of future CCS demonstrations.

8. A variety of literature exists considering possible scenarios for levels and timing of EPS. A couple of important findings to highlight include that a good starting point for setting the level of an EPS for new power is the carbon efficiency of the most efficient ICCG gas plant with heat capture. On current technologies, such a starting point would suggest at EPS of approximately 350g/KWH or lower6.

9. In regards to timing and staged entry, it is noted that modelling of scenarios for EPS from ECOfys revealed that a scenario in which a less stringent EPS is introduced earlier and then progressively raised in stages, yields higher carbon benefit compared to waiting to introduce a more stringent level (of say 250g CO2/KWH) at a later date7. However, as discussed, assuming adherence to the Framework for the Development of Clean Coal, there are compelling reasons for immediately introducing stringent EPS set to prevent all but the most efficient gas plants with heat capture, coupled with special provisions to enable new CCS demonstration projects operating partial in the event that their net emissions rate will be greater than, for example 300 or 350g/KWH.

10. It is noted that the Californian EPS legislation contains a formula prescribing an alternative metric to take account of combined heat and power generation8. ClientEarth recommends that the UK government consider cogeneration in such a way as to retain the competitiveness of combined heat and power, while carefully ensuring that combined heat and power generation does not become an excuse for not incorporating CCS technology. Given the complexities and uncertainties concerning biomass and associated land use emissions, an important consideration with biomass co-firing is that the measurement of emissions performance of such a plant attempts to account of lifecycle emissions of biomass. While the EPS should be designed in a non-discriminatory and technology neutral manner, an alternative metric for calculating the CO2 emissions from these categories of generation is desirable.

11. ClientEarth notes with concern that the Coalition Government ’s decision not to include EPS in the upcoming Energy Bill 2010. Furthermore, the government has not yet clarified whether its intention is only to introduce EPS leg islation for new power stations, or whether the legislation will also anticipate and enable introduction of standards for existing power at a later date. EPS for existing power naturally offers the greatest potential carbon benefit, and is necessary to provid e the government with a flexible and responsive tool capable of compelling swift retrofitting of CCS as soon as available, or requiring the staged closure of the UK s most inefficient plants at a pace that does not jeapordise energy security. Legislating for a requirement for future government’s to introduce EPS for existing power at a later date, compelling swift widespread retrofit of CCS is likely to stimulate greater private sector investment in this technology.

12. Accordingly, any EPS legislation introduced into primary legislation should contain separate provisions establishing EPS for new power, (which may be achieved via consent requirements or establishment of a national system of CO 2 permitting) coupled with enabling provisions for the introduction of EPS or plant level caps for existing power stations . By setting a final date (such as 2020 ) by which such regulations must be introduced, a powerful signal will be sent that will encourage private sector investment in CCS, and avoid any perverse incentives for delaying such investment. This is the approach taken in the latest version of the proposed US climate legislation 9 .

13. EPS provisions should also be designed so as to ensure that new CCS demonstration projects operating CCS to partial capacity are required to fast track the retrofitting to full capacity, ahead of staged introduction of EPS for existing power, at a later date.

14. The 2009 consultation 10 on Draft Supplementary Guidance for Consent R equirements under s36 of the Electricity Act 1989 has yet to receive a government response. T he C oalition G overnment must confirm the details of its policy regarding consent requirements for new coal as a matter of urgency by adopting the s36 Guidance. The Framework for the Development of Clean Coal only anticipated EPS as a contingency measure to compel retrofit of CCS. As described in ClientEarth’s consultation responses to the Framework for the Development of Clean Coal, this approach was inadequate and ClientEarth considers that immediate and broader utilisation of EPS is necessary .

15. EPS are now a part of government policy as concerns power generation. For reasons discussed in thi s document, there are sound policy reasons for EPS to be designed as technology neutral, - not merely applying to coal generation. On our analysis, the best option to facilitate good design and long term certainty for EPS is to enact primary legislation enshrining and shaping the design of EPS appearing in secondary legislation . The enabling powers should enshrine a minimum level of environmental ambition and be coupled with a duty for the government to promulgate such Regulations by a specified date, firstly for EPS for new power, and by a later date, staged introduction of EPS for existing power to compel widespread retrofitting of CCS or controlled closure and/ or replacement of capacity.

16. The upcoming Energy Bill 2010 presents the natural option for achieving these objectives . Relying on introducing EPS under existing legislation, such as could be attempted under the Pollution Prevention and Control Act 1999, will limit the design options available to government to some extent . It will also fail to send an immediate signal to industry by enshrining time commitments for the introduction of EPS for new power and by anticipating future wider application to existing power . Procedurally, secondary legislation is also somewhat easier for future governments to overturn . Finally, w e note that the EU legislature has recently clarified 11 that Member States are legally permitted to national CO2 EPS for power generating installations liable under the EU Emissions Trading Scheme. Enacting EPS in primary legislation may facilitate easily replicable and transparent model for other Member States considering introducing EPS.

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

17. As acknowledged by the Department of Energy and Climate Change in 2009, government intervention is required , in part because ‘reliance on market forces alone will result in underinvestment in CCS research and development 12 . I t is clear that the current and projected price of carbon arising from the EU Emissions Trading scheme is not sufficiently prohibitive to prevent the construction of new unabated fossil fuel power stations in the short term, or drive the trans formation of energy systems on the time scale s required by climate science and necessary to achieve legally binding targets . The advice of the UK Climate Change Committee takes the same view 13 . The inadequacy of emissions trading is further evidenced by the existence of at least 2 currently proposed coal plants in the United Kingdom, additional plans for new unabated coal in other EU nations such as Poland , and recent economic analyses 14 . There exists a c lear need for government intervention.

18. The Coalition proposes to introduce of a floor price on carbon . However, as the level of the floor will be informed by behaviour of the current and projected price of carbon arising from the EU ETS, this is unlikely to be sufficiently aggressive to unequivocally shut the door on new unabated fossil fuel power . The floor price will also do nothing to compel swift retrofit or staged closure of existing fossil fuel power stations once CCS is commercially proven. An EPS provides greater certainty for industry, and equips the government with a strong and flexible regulatory lever to manage the transition to a low carbon economy.

19. As succinctly put in the European Climate Foundation’s RoadMap 2050 study, "a massive and sustained mobilization of investment into commercial low-carbon technologies is needed, the vast majority of which will probably come from the private sector. Investors need greater certainty about future market conditions and the future competitive landscape15." An EPS for new power enshrined in statute, combined with provisions anticipating the staged introduction of EPS for existing power by a specified future date, will provide this certainty and, coupled with adequate financial incentives, would make a huge contribution towards kick-starting large scale investment in CCS from the coal sector.

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?

20. If set at the appropriate level and coupled with necessary financing measures, a n EPS has clear potential to effectively compel both development and deployment of CCS technology . This has been recognised by various administrations internationally, including in all three late st versions of the proposed US climate c hange legi slation.

21. ClientEarth consider s a technology- neutral approach to an EPS is an important design feature . L inking future revision of EPS levels by relevance to uncertain and undefined CCS timelines creates the risk that introduction of EPS are delayed, and creates a peverse incentive for lack of private sector investment in CCS. A technology neutral approach to EPS is less discriminatory and allows the gover nment to avoid ‘picking winners . A technology-neutral approach to an EPS will have the necessary effect of immediacy in both preventing high carbon investment and stimulating development and deployment of both CCS and renewables. EPS that are not linked with CCS availability (including statutory provisions requiring introduction of EPS for existing power) are also likely to have the spin-off of further encouraging investment in renewable energy technologies beyond the impetus created by the renewable energy target – leaving the balance of the mix between cleanest gas and renewables to the market,16 and helping make renewables more competitive by ruling out the cheapest forms of generation at present – unabated coal and inefficient fossil fuel generation.

22. Accordingly , EPS for both new and existing power should apply to all power generators above a certain capacity threshold, possibly with provision for a limited number of demonstration projects in the manner described above .

23. ClientEarth supports the expansion of the CCS demonstration programme to gas-fired power stations , noting the advice of the CCC that equipping gas power with CCS is likely to prove an important component of achieving a largely decarbonised electricity sector by 2030, as is considered necessary to achieve legally binding target of 80% overall reductions in UK GHG emissions by 2050 .

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

24. No. An EPS can be designed as a flexible regulatory tool. A standard that prohibits the construction of new unabated fossil fuel power will assist to bring renewable energy closer to within striking distance of market competitiveness and thus has potential to increase the diversity of the UK’s energy mix. Regulation is the missing piece of the puzzle in ensuring achievement of the UK’s long term commit ment to decarbonisation of the energy s ector by 2030, and 2050. Other measures being introduced by the Coalition Government in the upcoming Energy Bill, such as the Capacity Guarantee M echanism will enable prescient evaluation of the adequacy of existing plans to meet future energy needs.

25. The UK s ageing coal power infrastructure, approaching end of lifespan over the next 10 years provides an excellent opportunity to radically transform the emissions p rofile of our energy sector . Regarding EPS for existing power, i f regarded as absolutely necessary from a security of supply perspective , the se enabling provisions could allow for limited derogations from the EPS for existing peaking generators, during the decarbonisation transition period.

26. A technology- neutral EPS, as opposed to an EPS only applying to coal p ower, is also preferable from an energy security perspective, by encouraging various subsectors within the energy industry to rise to the challenge of a decarbonised energy sector , driven by the aniticipation of a gradually decreasing EPS level .

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

27. A long term view should be taken to evaluating the impact of an EPS on domestic energy prices. In 2007, Californian legislators anticipated the difficulties of extra costs arising from emissions trading or other GHG regulation being passed on to ratepayers, and this was part of the motivation for the early introduction of an EPS:

‘An EPS is needed to reduce California's financial risk exposure to the compliance costs associated with future GHG emissions (state and federal) and associated future reliability problems in electricity supplies. Put another way, it is needed to ensure that there is no "backsliding" as California transitions to a statewide GHG emissions cap: If LSEs enter into long-term commitments with high-GHG emitting base load plants during this transition, California ratepayers will be exposed to the high cost of retrofits (or potentially the need to purchase expensive offsets) under future emission control regulations’17 (emphasis added)

28. A scenario of immediate introduction of EPS for new power stations will save consumers money in the long run when pitted against mid-term scenarios of continued lock-in to high carbon infrastructure and inevitable large scale retrofits, forced closures and/or aggressive price on carbon in the 2020s and 2030s. More broadly, the Stern Review on the economics of climate change announced the well accepted findings that delaying aggressive action on emissions reductions will result in greater costs to the economy in the long run. Coupled with energy efficiency gains that will arise from shutting the door on the most carbon intensive and inefficient forms generation, the economic case for immediate phased regulation of the power sector in the form of EPS is sound.

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

29. ClientEarth can confirm that at least one EU Member State is set to re lease draft legislation including provisions for EPS for the power sector during 2010 . For reasons of confidentiality, the State will not be identified in this document. If passed , t hese provisions will anticipate EPS both for new power stations, using consent frameworks as the intervention point, and for existing power , by establishing offences and a system of CO 2 EPS permitting . We urge the UK Coalition Government to consider the powerful ripple effect from its leadership position on the issue of EPS. We can confirm the perception in the Member State government planning EPS legislation that the promulgation of EPS in UK law during 2010 would assist their prospects of EPS legislation through through their parliament.

30. The practical case for eventual harmon isation of EPS revolves partly around concerns of carbon leakage within and beyond Europe if one Member State introduced an EPS where a neighbouring Member State did not . The other Member State currently considering introducing EPS legislation during 2010 is not connected to the UK ’s e nergy grid. The debate over the introduction of a harmonised EU level EPS is ongoing and ClientEarth consider it is unlikely to gather sufficient momentum before a number of early movers, such as the UK, introduce domestic emissions performance standards.

Could unilat eral action by the UK to introduce an EPS contribute towards global climate negotiations in Cancun in November 2010?

31. Yes . Direct regulation of the power sector is a powerful and necessary step that will reverberate internationally . To our knowledge, while various state level CO 2 emissions performance standard’s exist in the United States and are currently being considered i n some other EU Member States , the UK has potential to enact the world’s first national CO 2 EPS for the power sector if momentum is maintained during 2010.

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

32. Yes. See response to previous question. Particularly as sectoral approaches to international agreements gain increasing attention, more countries legislating for EPS for the power sector, (the largest source of anthropogenic C02 emissions globally), will foster confidence in achievement of national pledges for emissions reductions. This can only aid the prospects of securing future binding global agreements to mitigate climate change.

Conclusion

33. It is vital that momentum is maintained for the prompt introduction of EPS legislation in the UK. The benefits will extend well beyond UK borders, and ClientEarth can confirm that continued leadership on this issue from the UK will strengthen the prospects of successful introduction of CO2 emissions performance standards in other EU Member States as is anticipated over the next 6-12 months. ClientEarth would be pleased to maintain dialogue with the Department of Energy and Climate Change and to share our expertise regarding statutory design of CO2 EPS in greater detail over the coming months.

September 2010


[1] See ClientEarth, response to Towards Carbon Capture and Storage A Consultation Document published by Department for Business Enterprise & Regulatory Reform (BERR CCR Consultation) (11 September 2008); ClientEarth, response to the DECC consultation on the draft Supplementary Guidance for Section 36 Electricity Act 1989 Consent Applicants for Coal Power Station s, 29 January 2010

[1]

[2] New Recital 10 to the Industrial Emissions Directive recast, as approved by Council after trialogue talks in June 2010, reads: “ In accordance with Article 193 of the Treaty on the Functioning of the European Union, nothing in this Directive prevents Member States from maintaining or introducing more stringent protective measures, for example greenhouse gas emission requirements, provided that such measures are compatible with the Treaties and the Commission has been notified”. EU Parliament Position Second Reading, T7-0267/2010.

[2]

[3] Regulatory Assistance Project, Emissions Performance Standards in selected states, Research Brief, August 2010 available at http://www.raponline.org/docs/RAP_ResearchBrief_Simpson_EPS_Updated_2010_08_12%282%29.pdf

[4] California, Senate Bill 1368, Chapter 598 , s ubsection 8341(d).

[5] Washington, Senate Bill 6001, section 7

[6] ECOfys Scenarios for the introduction of CO2 emissions performance standards for the EU power sector , (2009) page 15

[7] Ibid at 4.

[8] California, Senate Bill 1368, Chapter 598. See also California Public Utilities Commission, GreenHouse

[8] Gas Emissions Performance Standard, Decision 07-01-039 January 25, 2007 Available at:

[8] http://docs.cpuc.ca.gov/published/FINAL_DECISION/64072.htm

[9] American Power Bill 2010, part IV

[10] Department of Energy and Climate Change,

[10] d raft Supplementary Guidance for Section 36 Electricity Act 1989 Consent Applicants for Coal Power Stations , November 2010

[10]

[11] New Recital 10 to the Industrial Emissions Directive recast, as approved by Council after trialogue talks in June 2010, reads: “ In accordance with Article 193 of the Treaty on the Functioning of the European Union, nothing in this Directive prevents Member States from maintaining or introducing more stringent protective measures, for example greenhouse gas emission requirements, provided that such measures are compatible with the Treaties and the Commission has been notified”. Parliament Position Second Reading, T7-0267/2010

[12] The F ramework for the D evelopment of Clean Coal Impact Assessment published on 9 November 2009 states: “The rationale for government intervention is the existence of a market failure related to technological innovation. In the absence of g overnment support for CCS technologies, the private benefit to investors is lower than the social benefits. There are also associated risks for first movers as it is an unproven technology. Reliance on market forces alone will result in under investment in CCS research and development from a social point of view.” Page 1.

[12]

[13] UK Committee on Climate Change, Meeting Carbon Budgets – the need for a step change, Progress Report to Parliament October 2009

[13]

[14] See generally, Sandbag, Cap or Trap? How the EU ETS risks locking in carbon emissions , September 2010

[15] E uropean C limate F oundation , Roadmap 2050 (2010) at page 17

[16] “Some have described an EPS as analogous to an energy efficiency appliance standard set for appliances such as refrigerators, where there are minimum performance standards and beyond that it is up to the market to compete, so long as they meet or exceed the minimum standard:” Regulatory Assistance Project, Research Brief, November 2009 Emissions Performance Standards in Selected States page 1 ( www.raponline.org )

[17] California Decision 07-01-039 January 25, 2007 Available at http://docs.cpuc.ca.gov/published/FINAL_DECISION/64072.htm