8 Emissions Performance Standard (EPS)
203. An Emissions Performance Standard (EPS) is a
way of setting a benchmark for the maximum amount of greenhouse
gas emissions that can be emitted for a certain amount of electricity
generated. The consultation document sets out two options for
an EPS:
- Option 1: an annual limit on
the amount of CO2 a plant can emit, equivalent to 600
gCO2/kWh for plant operating at baseload.
- Option 2: an EPS as an annual limit on the amount
of CO2 a plant can emit equivalent to 450 gCO2/kWh
for plant operating at baseload. Plant forming part of the UK's
Carbon Capture and Storage (CCS) demonstration Programme or benefiting
from European funding for commercial-scale CCs (which would be
likely to exceed the limit) would be given exemptions.
204. The Government's consultation envisages an EPS
that would act as a "regulatory backstop" that will
"[play] a role in a package of reforms to prevent the construction
and operation of new unabated coal-fired power stations".[245]
The proposals would require all new coal-fired power plants to
have a partial level of carbon capture and storage (CCS) operating
in order to reduce emissions intensity from the current level
of around 800 gCO2/kWh. Option 1 is consistent with
a typical new, supercritical coal-fired power station demonstrating
CCS on 300MW net of its capacity. Option 2 would require a new,
supercritical coal plant to use CCS on around 700MW (gross) of
its capacity.[246]
Gas-fired plants, which have emissions intensities of around 400
gCO2/kWh, would not be affected by either of the two
proposed options.
205. There is already a requirement in England and
Wales that all new coal-fired power stations must demonstrate
CCS on at least 300 MW (net) of total capacity as a condition
of planning consent, with an expectation that they will fully
install CCS by 2025.[247]
New gas-fired plant must be "CCS-ready". In addition,
the proposed carbon price support measure will discourage investment
in new fossil-fuel generating capacity.
206. In this context, it is difficult to see what
additional benefit either of the EPSs proposed by Government would
bring. We received a great deal of evidence to this effect, with
many witnesses suggesting that neither of the proposed standards
would have any positive impact on investment and therefore were
unnecessary.[248]
207. While the current EPS proposals seem unlikely
to restrict the amount of high-carbon generating capacity on the
system, evidence to us suggested that they could in fact undermine
policy certainty and credibility, thus introducing a negative
impact on investment in low-carbon capacity. There was concern
among some witnesses that there was no clarity about whether and
how the EPS might be tightened in future—for example, whether
the level might be made more stringent, or whether it might be
extended in future to apply to existing plant or oil- and gas-fired
plant. This in turn would create uncertainty for investors.[249]
The Welsh Power Group told us:
WPG is concerned that the EPS principle will
be applied to large plants initially and then to smaller plants
later. If this is the Government's intention, then it needs to
say so now [...] While there is debate around what emissions
levels of all plants should be that creates uncertainty for investors.[250]
208. RenewableUK pointed out that investors would
receive a mixed message if the level of an EPS was not consistent
with the UK's carbon targets and the Committee on Climate Change
suggested emissions reduction pathway. This could increase uncertainty.[251]
209. Our recent inquiry into Emission Performance
Standards concluded that an EPS could be more than just a backstop
and could provide a transparent framework for regulating carbon
emissions from the electricity sector. An EPS that set out a
series of emission intensity milestones over time would make the
Government's expectations for the electricity sector clear to
all.[252] By signalling
an anticipated decarbonisation pathway long in advance, an EPS
would give certainty to investors about what types of plant will
be acceptable in the future.[253]
The pathway should be in line with recommendations from the Committee
on Climate Change on decarbonising the power sector.
210. We conclude that neither of the Emissions
Performance Standard options proposed in the Electricity Market
Reform consultation would promote decarbonisation of the power
sector and that introducing regulation in the form proposed would
not only be pointless but could even create uncertainty among
investors.
211. The Government proposals suggest that an EPS
would not be applied retrospectively to existing plant and would
be "grandfathered". That is, the level of the EPS in
place at the point that a power station is consented would remain
the level which is relevant for the economic life of that power
station and would not be tightened in the future. This suggestion
has been welcomed by the industry, who argue that grandfathering
arrangements would reassure investors who might otherwise perceive
a risk that future tightening of an EPS would lead to stranded
assets.[254]
212. However, "grandfathering" arrangements
could lead to high-carbon "lock-in". Once built, power
stations have lifetimes of several decades, so a coal- or gas-fired
plant built under the initial EPS regime would be permitted to
continue emitting high levels of CO2 well into the
2020s and 2030s. As the environmental NGOs pointed out, introducing
subsequent requirements to limit operating hours, fit CCS or apply
early retirement for these plants if emissions from the power
sector were later found to be too high would involve moving the
goalposts.[255]
213. If there is a perception among investors that
the level of the EPS may be toughened in the future, there will
be an incentive to build unabated gas-fired plant now. Gas-fired
plant would not be affected by the proposed EPS levels and grandfathering
would guarantee that the plant would not be required to reduce
its emissions in the future. This has one advantage in that the
proposals will not discourage investment in the gas plant that
is needed to make up capacity in the short-term. However, there
is also a risk that it could encourage a new "dash for gas",
which would lock the UK into a high-carbon power sector in the
long-term. Joan MacNaughton (Alstom Power) told the Committee:
It [the proposed EPS] will drive a lot of unabated
gas—grandfathered under the current detail of the proposals—which
means that you're going to have higher emissions in the late 2020s
than you would without it. […] I think it is quite a risky
proposal.[256]
214. These problems could be avoided by using a different
form of EPS; for example, one which applied to all the plants
operated by a company and which applied progressively tighter
emission limits over a pre-stated timetable.
215. We recommend that if the Government is to
introduce an Emissions Performance Standard, it should be used
to provide an early indication of the desired emissions intensity
trajectory for the power sector, in line with recommendations
from the Committee on Climate Change.
216. The Government's proposals to grandfather
an Emissions Performance Standard at the low levels set out in
the Consultation Document risk encouraging a "dash for gas"
which could lock the UK into high carbon emissions for years to
come. If the Government is concerned about investor certainty,
a better way to achieve this would be to signal Emissions Performance
Standard levels in advance by setting out a clear long-term Emissions
Performance Standard trajectory.
217. We note that active conversion of elements of
existing coal fired power stations to run on biomass feedstock
are being undertaken and that installation of biomass capacity
in one or more burners of future coal power stations would have
an effect on overall emission levels, if levels are calculated
on a unit basis. We were surprised to see no argument in the consultation
on the effect partial use of biomass in future coal-fired power
stations might have on the achievability of proposed EPS emission
levels.
218. We recommend that the government produces
argued proposals on the use of biomass in future power stations
and their effect on Emissions Performance Standard targets at
an early date.
245 DECC, Electricity Market Reform Consultation
Document, Cm 7983, December 2010, p 69 Back
246
DECC, Electricity Market Reform Consultation Document,
Cm 7983, December 2010, p 71 Back
247
Carbon Capture and Storage, Standard Note SN/SC/d086, House
of Commons Library, March 2011 Back
248
Ev 126 (Carbon Capture and Storage Association), Ev 139 (RWE npower),Ev
147 (Drax Power), Ev w10 (CHPA), Ev 153 (International Power),
Ev 195 (Greenpeace), Ev 197 (ScottishPower), Ev 211 (Centrica),
Ev 216 (RenewableUK), Q 88, Q 89, Q 93 [Ms Cary], Q 95 [Mr Skillings],
Q 275 [Mr Chapman], Q 146 [Dr Riley] Back
249
Ev 143 (E.ON UK), Ev 162 (WWF-UK), Ev w23 (AEP), Q 199 [Mr Atherton] Back
250
Ev w26 (Welsh Power Group) Back
251
Ev 216 (RenewableUK) Back
252
Energy and Climate Change Committee, First Report of Session 2010-11,
Emissions Performance Standards, HC 523, para 40 Back
253
Ev 162 (WWF-UK), Ev 191 (EDF Energy), Ev 195 (Greenpeace), Ev
203 (Friends of the Earth), Ev 218 (RSPB), Back
254
Ev 197 (ScottishPower), Ev w19 (ESB International), Ev 214 (SSE),
Q 200 [Mr Atherton], Q 201 [Mr Hunt] Back
255
Ev 169 (WWF-UK, Greenpeace, Friends of the Earth and RSPB) Back
256
Q 249 [Ms MacNaughton] Back
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