Electricity Market Reform - Energy and Climate Change Contents


Additional Submission from WWF-UK, Greenpeace, Friends of the Earth and RSPB

WWF-UK, Greenpeace, Friends of the Earth and RSPB wish to make an additional written submission to the Energy and Climate Change Committee on the issue of emission performance standards. Given the time restrictions, this issue was not discussed at the oral evidence session on 8 February 2011 and we wish to draw the Committee's attention to our support for a strong emissions performance standard to be introduced as part of the key measures that will result from the EMR.

BACKGROUND ON THE CARBON FLOOR PRICE PROPOSAL

For a carbon floor price to be effective, we believe that it will need to be accompanied by other measures if it is to deliver a low-carbon power sector by 2030. Clearly, long-term feed-in tariff contracts will be important in that respect, in terms of providing investors with clear long-term certainty as to the revenues they can expect to make from their low-carbon investment, which in turn should stimulate investment in that part of the power sector. However, the combination of a carbon floor price and long-term contracts alone will not be sufficient in deterring investment in unabated fossil fuel plants, in particular given the fact that the carbon floor price will be one of many variables (including coal and gas prices) which will have an impact on investment and operational decisions affecting unabated fossil fuel plants. In particular, in the event of low coal or gas prices, the carbon floor price is unlikely to deter continued investment in / extended operation of largely unabated coal and gas fired plants.

WHY A STRONG EMISSION PERFORMANCE STANDARD IS NEEDED

We believe that a strong emissions performance standard must be introduced alongside the carbon floor price to deliver a low-carbon power sector by 2030. By "strong EPS", we mean an EPS along the lines previously suggested by WWF and Greenpeace (a plant-based EPS set at 300gCO2/KWh from now on for all new coal and gas plants, reducing to 100gCO2/KWh from 2025 onwards for all existing plants on the system),[45] not the "strong EPS" modelled in the Redpoint report (275gCO2/KWh for all existing from 2018), which we consider to be unrealistic. We are concerned that the Redpoint report essentially sets up a "straw man" version of an EPS which is then dismissed because it is so ambitious that it could have adverse consequences. A more phased version, along the lines proposed by WWF and Greenpeace, would have significant benefits.

In particular:

—  A strong EPS would introduce clear physical certainty (i) as to the types of plants that can and cannot get built at a particular point in time but also (ii) as to the types of plant that can or cannot operate after a particular date, thus providing considerable certainty as to the level of decarbonisation that can be achieved by 2030. In terms of investment in new power stations, this has the advantage of providing a clear sales volume opportunity for new investments in the renewable energy sector (which is important given the opportunity for the UK to become an industrial leader in marine renewable in particular).[46] In the case of CCS technology, a strong EPS also has the advantage of requiring the retrofitting of CCS technology on existing unabated coal and gas plants by a particular date, thus sending a very clear (and early) signal to stimulate the CCS supply chain in the UK.

—  A tight EPS with a carbon intensity level that gradually goes down is much better at rewarding early movers who build plants that go below the statutory carbon intensity level. This is because the EPS provides more certainty of long term demand for low carbon generation and so will make investors more inclined to support the up-front cost of plants that are ahead of the decarbonisation deadline, rather than just reacting incrementally as the rising carbon price takes hold and interacts with other cost factors such as coal and gas prices. This "early mover" advantage is important given that the timing of investments in clean energy is key if we are to substantially decarbonise the power sector in the next 20 years.

—  The current EMR proposals are for a last stop EPS to accompany the carbon floor price, which would either not apply to new CCS demonstration plants or apply to these plants but grandfathered at a very high level of 600gCO2/KWh. These are of concern to us as they will expose electricity consumers to potentially very high retrofit costs for these new CCS demonstration plants. In particular, there is currently a provision in the Energy Act 2010, which specifies that the CCS levy (which could be worth up to £10 billion over the next 15 years) could be used to retrofit some of the new CCS demonstrations plants, presumably in the event that CCS technology was proven to be technically but not economically feasible. The same concern applies to the numerous unabated gas plants which are likely to be built under current proposals. None of these will be captured by the proposed EPS at any stage in their operational life, which could result in either (i) putting at risk the UK's ability to meet its decarbonisation targets, (ii) requiring consumers to fund the CCS retrofit of those plants or (iii) in these plants having to close prematurely as the decarbonisation deadline approaches.

GRANDFATHERING UNDERMINES THE EFFECTIVENESS OF AN EPS

The current proposal for full grandfathering of the EPS risks turning the EPS into a licence to pollute and endangers the UK's ability to meet its longer-term (2030 and beyond) carbon budgets. We therefore recommend that grandfathering is not offered to new coal or gas plant. We recognise the importance of certainty for investors, however, and therefore recommend that Government sets a clear and transparent roadmap that shows how an EPS will be reduced in the future that is consistent with the overall aim of an average carbon intensity of 50gCO2/kWh by 2030.

A technology-neutral and grandfathered EPS will act as a guaranteed licence for new gas plant to continue generating unabated for the duration of its economic life, ie well into the 2030s for plant that are consented and constructed over the next five years. The Redpoint analysis suggests that up to 19GW of CCGT could still be online in 2030. Unabated emissions from these plant would be up 26-43mn tonnes of CO2/yr. That's 8-14% of total allowable emissions in 2030 as advised by the Committee on Climate Change in their advice on the fourth carbon budget. As these would be grandfathered, we would have no way of requiring CCS, and the burden for costs of retrofitting or early retirement would fall on the taxpayer or energy consumer.

Similarly, the grandfathering provision will allow new coal plant to continue generating for the duration of their economic lifetime. This could again have serious implications for our carbon targets. As an example, a draft report by Element Energy for FOE Scotland, RSPB Scotland and WWF Scotland, suggests that Hunterston, a proposed 1.7GW supercritical coal plant with 300MW CCS demo, will emit 8mn tonnes of CO2 per year, or 319 mn tonnes over its 40 year lifespan.

February 2011

This submission is drawn from a published working paper: Tim Laing and Michael Grubb, "Low-Carbon electricity investment: The limitations of traditional approaches and a radical alternative", Electricity Policy Research Group, Cambridge University, September 2010 (www.eprg.cam.ac.uk). References are contained in that working paper.


45   See the NGO joint statement on emissions performance standards, attached to this response. Back

46   For instance, the Offshore Valuation Report (http://www.offshorevaluation.org/downloads/offshore_vaulation_full.pdf) that was put together by DECC and a range of other industry players, showed that by just using 29% of the UK's practical offshore resources, the UK's offshore renewable energy industry alone could allow the UK to become a net electricity exporter by 2050 and generate annual revenues of £62 billion and create approximately 145,000 new jobs in the UK by that date. Back


 
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Prepared 16 May 2011