Emissions Performance Standards

Memorandum submitted by GE Energy (EPS 33)

GE Energy is a leading supplier of power generation and energy delivery technologies.

The businesses that comprise GE Energy - GE Power & Water, GE Energy Services and GE Oil & Gas - provide integrated product and service solutions in all areas of the energy industry including coal, oil, natural gas and nuclear energy; renewable resources such as water, wind, solar and biogas; and other alternative fuels. In the UK, our installed technology meets 18% of UK energy needs and we also supply to 13 of the 14 transmission & distribution networks in Great Britain.

GE is a leader in the development, application and design of Integrated Gasification Combined Cycle (IGCC) power plants, which employ gasification as a key technology for pre-combustion carbon capture. Through our IGCC technology, GE is playing an active role to support IGCC demonstration projects and the development of a regulatory framework governing the transportation and storage of CO2. In Europe, GE also has its own European Cleaner Coal "centre of excellence" in Warsaw, Poland - underscoring its commitment to IGCC and carbon capture & storage (CCS) technology.

In the UK GE Energy’s installed technology includes 15GW of generation producing ~ 18% of UK energy needs. We also provide network management systems to 80% of the Distribution Network Operators in Great Britain.

GE Energy is part of General Electric, a global infrastructure, finance and media company. GE employs 20,000 people in the UK, has 25 manufacturing sites here and is the largest sponsor of London Olympics

Summary

GE Energy is pleased to provide its recommendations to the Energy and Climate Change Select Committee Inquiry into Emissions Performance Standards (EPS). The UK’s energy challenges of security of supply, climate change and energy affordability require a long-term approach and a policy framework that addresses current investor uncertainty surrounding Carbon Capture Storage (CCS) investments.

The demonstration of CCS is the only way to prove CCS technologies at a commercial scale and, to this end, GE supports the Government’s current aim to fund demonstration projects through a CCS levy; prohibiting the development of new coal plants without a CCS demonstration; and the requirement for all new fossil-fuelled power stations to be ‘Capture Ready’. We also support the Committee on Climate Change’s recommendation that the UK must have a largely decarbonised power sector by 2030 in order to meet its 2050 target of reducing emissions by 80%.

Whilst we recognise that policy-making is at an early stage, GE views the concept of an Emission Performance Standard (EPS) for coal plant as a viable regulatory supplement. We recognise that the EU Emissions Trading Scheme (EU ETS) should be regarded as the primary long-term mechanism for delivering cuts in emissions. Any introduction of an emissions performance standard should not imply a weakening of the importance of the EU ETS, but rather can provide an early incentive for the electricity market to switch to low-carbon technologies during a period until the cost of CCS is sufficiently low to be supported by the EU ETS price.

Response 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?

Carbon emissions in the power sector are currently determined by a cap under the EU Emissions Trading Scheme (EU ETS). The EU ETS should remain the principal policy instrument to deliver absolute reductions in carbon emissions, however due to weak electricity market prices and uncertainty, it does not currently incentivise investment in low carbon generation. In order to address this other mechanisms will be required to drive low carbon investments.

An emissions performance standard (EPS) sets a maximum level of GHG emissions per unit of output and is designed to raise emissions performance of power plants. This is a good way of quantifying CO2 emission levels, setting consistent goals across technologies and to deliver technological advancement in low-carbon solutions within a certain timeframe.

Should the UK Government decide to implement an Emissions Performance Standard policy, there are a variety of issues that should be considered:

- The type of facility commitment that should be subject to the EPS

- Whether it applies to new construction and/or new investments in existing facilities

- Determining the facility threshold, i.e. MW size or capacity factor

- The timeframe for introducing a performance standard in relation to full CCS demonstrations at commercial scale

- Derogations for certain types of plant (for example flexible peaking technology)

Before an Emissions Performance Standard can be introduced, the level and timing of an EPS policy must be carefully considered in order to take account of differences in fuels and technology options. Whilst policy-making remains at an early stage, we would recommend that the design of EPS should seek to be consistent with best available technology at the time of implementation. For example, under the current Large Combustion Plant Directive (LCPD), we would be opposed to an initial standard that goes beyond the 360g CO2/kWh as any standard set higher risks penalizing fuel advantages provided by natural gas by unnecessarily increasing capital and operating expenditures.

We would also recommend that policymakers ensure that certain considerations are incorporated into any standard. For example, a more differentiated approach to EPS levels should take into account different technologies, plant configurations, and other requirements certain power plants have to fulfil along the merit order (i.e. base load, load following/peaker).

Should the level be changed over time?

 

Once established, an Emissions Performance Standard can be reviewed and made more stringent over the years as the technology develops. However, in the first instance, it will be important to ensure that CCS has been demonstrated at a commercial scale.

As such GE urges the UK Government to proceed to demonstrate CCS as quickly as possible, both to expedite cost-effective emission reductions and to build the UK’s competitive advantage. In the UK GE is supporting the Hatfield project, a 900MW Integrated Gasification Combined Cycle Power Station, by providing steam turbines to enable a phased approach to CCS by 2015 with up to 90% carbon capture. Projects such as Hatfield are at an advanced state of readiness and can serve to inform future energy policy including consideration of an Emissions Performance Standard.

The ultimate emission limits for fossil fuel power generation and other industries cannot be set until commercial viability of the full CCS chain has been established. It is therefore essential that industrial-scale projects begin as soon as possible in order to ensure CCS becomes the best available technology.

In the long term it is to be expected that all power plants could be able to comply with some form of emissions standard.

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

Putting a price on GHG emissions will result in investments in technologies and other actions that will reduce emissions. However, some activities that reduce emissions cost-effectively do not respond to this price signal: so-called market barriers prevent or impede the penetration of cost-effective technologies and practices that could mitigate GHG emissions.

If the Government were to develop an Emissions Performance Standard then it must be supplementary to and complement the EU ETS and should not be designed in a way that undermines the carbon segment.

We recognise that the EU ETS should be regarded as the primary long-term mechanism for delivering cuts in emissions. Any introduction of an Emissions Performance Standard should not imply a weakening of the importance of the EU ETS, but rather can provide an early incentive for the sector to switch to low-carbon technologies during the period until the cost of CCS is sufficiently low to be supported by the ETS price.

Complementary policies achieve a variety of objectives in addition to reducing GHG emissions and removing segment barriers. They can achieve reductions outside (or below) the cap, encourage investments in low-carbon technologies and lower the cost of transitioning to a low carbon economy. As such, an Emissions Performance Standard could therefore ensure that other low carbon technologies are not undermined by the operation of lower cost, non-CCS fitted carbon intensive plant.

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?

The introduction of an Emissions Performance Standard could provide vital support to the deployment of CCS and increase diversity and security of supply by ensuring the continued use of coal. However, it cannot be the main driver to achieve a UK low-carbon economy nor, as a part of that, deployment of CCS in its own right.

GE produces Integrated Gasification Combined Cycle (IGCC) technology, which employs gasification as a key technology for pre-combustion carbon capture and storage. This is technologically proven and ready for deployment but full-scale demonstration is required to integrate into an economic package.

An Emissions Performance Standard must therefore be considered as part of the wider set of policy measures needed to reform the electricity sector framework and provide sufficient certainty and flexibility to deliver projects at the lowest cost of abatement.

The most significant barriers to CCS at present are upfront cost, technology and regulatory uncertainty surrounding issues of planning, shared infrastructure and CO2 liability. The introduction of policies without appropriate incentives to address these risks will not encourage CCS development and won’t provide investors with confidence that the cost of their investment can be recovered.

As such, an EPS could become necessary for new coal stations if CCS remains technically but not economically viable beyond 2020 and in circumstances where the carbon price is insufficient to justify the investment in CCS.

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

GE recognises that careful consideration must naturally be given to how a standard might be implemented in order to avoid unintended or unwelcome consequences. An inappropriately designed UK Emissions Performance Standard (as with all badly implemented policies) could potentially increase operating costs, encourage investment in less cost-effective technologies and thereby reduce investor confidence.

However, claims that an EPS might ultimately threaten security of supply or could ultimately result in a 'dash for gas' tend to be exaggerated. Security and diversity of fuel supply remain a key strategic issue that can be addressed by a variety of policy approaches and second, in the case of pre-combustion CCS for coal, existing technologies such as GE’s IGCC can already achieve less than ~360g/Kwh CO2 today AND keep coal in the energy mix.

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

 

Inevitably, if an Emissions Performance Standard were introduced the cost of operating CCS plant would be passed through to the consumer. However, the EU ETS complemented with a funding mechanism at an appropriate level in the initial demonstration phase can provide the necessary incentives to enhance cost recovery and thereby could save bill payers from funding new plant investment that do not meet the UK’s emissions targets.

Are any other European countries considering an EPS? If so, should the standards be harmonized? Could unilateral action by the UK to introduce an EPS contribute towards global climate negotiations in Cancun in November 2010? Can greater use of Emissions Performances Standards internationally help promote agreement on global efforts to address climate change?

The UK Government has previously stated its ambition to establish the UK as a ‘first choice for investment in CCS’ and therefore has a unique opportunity to lead the way by promoting the development of this technology.

As a result, whilst harmonisation of policies and standards across Europe remains unrealistic given the differences in industrial structures that occur from one country to another, leadership from certain member states could result in competitive advantages that accrue to their low carbon economies. Whilst there is no ‘silver bullet’ solution, the implementation of an Emissions Performance Standard and similar policy instruments could go along way to support negotiations at the UN Climate Change Summit in Cancun by demonstrating the UK’s commitment to meeting emissions targets.

Conclusion

· GE views the concept of an Emission Performance Standard for coal plant as a viable regulatory supplement but should only be considered as part of a suite of policies including transitional incentives for CCS, electricity market reform and infrastructure policy.

· An achievable emissions standard must be within current technology capability to begin the deployment. If introduced, the level and timing of an EPS policy must be carefully considered, to take account of differences in fuels and technology options, but could be considered in the context of establishing CCS demonstration and the need to fully decarbonise the power sector by 2030.

· Set at the right level and under the prerequisite that the transport and storage part of the CCS chain are available, an EPS can be instrumental in commercializing CCS and compatible other instruments to promote low carbon investments.

· It is widely understood that further policy interventions will be required to meet the UK’s energy targets. GE notes the forthcoming DECC consultation on Electricity Market Reform, which will include consideration of an Emissions Performance Standard policy together with a variety of regulatory and financial measures. GE looks forward to responding to this consultation in due course.

September 2010