House of Commons - Carbon capture and storage

Carbon capture and storage - Energy and Climate Change Contents

2 Deploying CCS in the UK

24. SCCS described how the UK has the best combination of geological, engineering, industrial and academic capabilities in the whole of Europe, together with a stated policy commitment to reduce CO₂emissions and the foundational legislative framework required for CO₂storage. As a result the UK has succeeded in attracting over 50% of the proposals for CCS projects in Europe.[55]

Benefits of CCS

25. The key benefit of deploying CCS in the UK would be:

· CCS could be a key technology to help decarbonise the UK's power and industrial sectors which are, and will continue to be, heavily reliant on fossil fuels.[56] Fossil fuel power plant fitted with CCS could meet between 12% and 37% of total electricity demand in 2050.[57] The Energy Technologies Institute (ETI) estimated that deploying CCS could reduce the cost of meeting UK carbon targets by £30-40 billion or up to 1% of Gross Domestic Product (GDP) by 2050 (by avoiding spending on more expensive alternatives for cutting emissions).[58] The CCSA and the Trades Union Congress (TUC) believe deployment of CCS could result in a 15% reduction in the wholesale price of electricity (compared with scenarios in which CCS is not deployed) (see figure 1) and lowering household bills by £82 per year compared with what they otherwise would be.[59] These projections rely on broad-brush assumptions about the cost of alternative technologies in the future, which are very uncertain.

· CCS could provide wider economic benefits. A 2009 study by the Industrial and Power Association (IPA), for example, found that — based on the IEA CCS roll-out programme and a 10% global market share for UK companies — the 'UK plc' share of the global CCS business was potentially worth more than £10-14 billion per year from around 2025, with the added value in the UK worth £5-9.5 billion per year.[60] More recently, the CCSA/TUC concluded that the Gross Value Added (GVA) benefits from CCS deployment in the UK would be in the region of £2-£4 billion per year by 2030. They suggested that each UK CCS power sector project could deliver between £150-£200 million per year in GVA benefits over the lifetime of the project as well as creating between 1,000-2,500 jobs during plant construction and 200-300 jobs in operation and maintenance and the associated supply chain.[61]
Figure 1: Wholesale electricity prices to 2030 under four scenarios

Source: Carbon Capture and Storage Association (CCS 047)

· CCS could open up the potential to utilise the UK's offshore geological storage capacity which could amount to ~70 billion tonnes of CO₂, or put another way, over a century of UK emissions, or 350 years' worth of commercial storage at the present rate of UK emissions.[62] The Crown Estate has highlighted that in future the North Sea could become a resource by creating a North Sea "storage market" whereby permanent storage of CO₂could be sold as a service to other European countries.[63]

· CCS could play an important role retaining existing industries and jobs in the UK.[64] If the UK is going to meet its ambitious carbon reduction targets, energy intensive industries such as cement and steel will either need to fit CCS or move abroad. The UK coal mining industry, together with the coal power industry and logistics, for example, employs several thousand direct and indirect employees.[65] Similarly, the UK's energy intensive industries have a combined turnover of £95 billion, directly employ 160,000 people with a further indirect employment of 800,000 people via supply chains.[66] Keeping these industries in the UK is a high priority.

The cost of deploying CCS

26. Despite the potential benefits to the UK of deploying CCS, it is very unlikely to become commercial on its own (unless the CO₂is sold for EOR). The combination of significant energy and-in the absence of an effective carbon market-financial costs make CCS uneconomic.[67] Engineering the Future stated all of the CCS technologies currently available would require approximately 20-25% more coal or 10-15% more natural gas to be burned to produce the same amount of electricity.[68] Mr Allam of NET Power highlighted that a power plant with CCS costs 50% to 80% more to generate electricity than power plant without CCS.[69] The CCS Cost Reduction Taskforce's 2013 final report estimated that the first set of CCS projects may have costs in the range of £150-200 per megawatt hour (roughly three times as expensive as fossil fuel plant without CCS),[70] a figure largely supported by industry.[71] The main reason for this is the high energy consumption of powering the CCS equipment, especially the carbon capture stage of the process.

27. In addition, there are political, regulatory, social and scientific barriers frustrating the deployment and commercialisation of CCS. This prevents CCS from progressing along the technology curve to reach full scale deployment, where the cost of a technology reduces as the technology matures (see figure 2).[72] The CCS Cost Reduction Taskforce concluded that there was potential for significant cost reductions and for CCS to be cost competitive with other forms of low carbon power generation at around £100 per megawatt hour by the early 2020s, and at a cost significantly below £100 per megawatt hour soon thereafter (see figure 3)—depending on when the first CCS projects are actually built (we note that the 2013 date for a final investment decision indicated in the Taskforce's report has already passed).[73] The cost of the three main capture technologies (see paragraph 10) vary and will influence which technology a developer will choose to deploy. There are also second generation or novel technologies which could deliver quite significant cost reductions but which were not considered by the Taskforce because of uncertainty around when they might be commercially available.[74]Figure 2: Technology learning curve

Source: Shell International (CCS 017)

28. The high cost of CCS means that it is likely to develop only in response to specific policy intervention designed to address the problem of climate change.[75] One of the best incentives to develop CCS would be a global agreement to tackle climate change.[76] This could have the additional benefit of incentivising CCS in other countries, thereby reducing the UK's embedded carbon emissions. The benefits of considering embedded carbon emissions alongside territorial emissions in the policy-making process were highlighted in our 2012 report, Consumption-Based Emissions Reporting.[77] Another incentive would be a strong carbon price which would help to strengthen the case for CCS. However, the prospect of a global deal is highly uncertain and the carbon price in the EU Emissions Trading System (ETS) is at present too low to incentivise CCS without additional support. Below we consider the main barriers (political, safety and reputational, regulatory, scientific and engineering) frustrating the deployment of CCS and look at how they might be overcome.
Figure 3: CCS Cost Reduction Task Force's cost reduction trajectory

Source: Carbon Capture and Storage Association (CCS 027)

Political risk

Financial support

29. Dr Reiner, Senior Lecturer in Technology Policy at the Judge Business School, Cambridge University stated that the biggest challenge to deploying CCS in the UK is "credibility of Government policy."[78] A principal concern was that the CCS competition and its associated FEED³⁷ studies were too bureaucratic, detailed and slow. SCCS stated, for example:

30. The consequence has been to repeatedly push back the expected start date of CCS in the UK.[80] While we are pleased to see that there has been progress made with DECC successfully awarding both the Peterhead[81] and White Rose[82] projects FEED studies, we were concerned to hear that there were mixed views among industry as to whether CCS would be up and running in the UK before 2020. Mr Gomersall, Founding Director of CO2DeepStore, for example, highlighted that projects usually take about four years to complete and it might be 2016 before the projects in the competition reach a final investment decision (FID).[83] The Government was also uncertain when a FID on the two projects in the competition would be made.'[84] This was mainly because of uncertainty over how long the FEED studies would take to complete. The Minister could not tell us with any certainty when he expected to reach a FID on the two projects in the competition stating, "it looks unlikely within a year or so, so it could possibly slip to 2016."[85] The Minister was keen to point out, however, the "huge amount of public money involved — £1 billion of public money—and it is very important to get these projects right."[86]

31. As we have heard, delay has called into question the credibility of Government policy designed to support CCS deployment. It is critical that the Government does not waste any more time on unnecessarily delaying the start of the first CCS projects. We recommend that the Government aims to reach final investment decisions (FID) with the two projects left in the competition by early 2015 (in line with the Government's original competition timetable). This offers the only hope of making the first CCS projects operational by 2020. In turn this could help to bring down costs of CCS more quickly and, therefore, help the development of a wider CCS industry in the UK.

32. With regards to the CCS Roadmap, which aims to look beyond the competition, several respondents including those from industry thought it "lacked pace and scale."[87] There was also a concern that there was an intentional lack of hard numbers in the Roadmap against which one could judge progress and hold DECC to account.[88] The industry wanted more certainty because it was unclear about the level of political support in the medium- to long-term.[89] Mr Simon-Lewis, Head of Finance at Capture Power said, for example, that investment institutions, "want to see stability of dialogue from Government in relation to the overall prize."[90] Similarly, Professor Haszeldine, Director of SCCS, argued that CCS needed more certainty similar to that which had been afforded to both renewables and new nuclear.[91] The Minister, however, disagreed, questioning the extent to which hard numbers or hard targets were going to help. He highlighted instead the work taking place as a result of the CCS Cost Reduction Task Force, EMR reforms and the CCS Development Forum.[92]

33. The Government is also intending to provide operational support to CCS projects through the Government's Contracts for Differences (CfDs). This will be critical to ensuring the commercial viability of CCS in the absence of a strong carbon price. CfDs stimulate investment in low-carbon technologies by providing greater certainty of revenue. This is intended to encourage investment by reducing risks to investors and by making it easier and cheaper to secure finance. CfDs will also represent an important political gesture to follow-on projects, which are not eligible for capital funding from the competition, and help to make them economically viable by providing a route to market.[93] There was a concern among the industry, however, that CfDs as they have currently been designed (mainly for other low carbon and renewable technologies) would not be flexible enough to suit the specific characteristics of CCS.[94] The industry was keen to see more detail on how the CfD would take account of the cost structure of CCS projects, the variable operating costs (as a result of fossil fuel inputs) and appropriate sharing of risk and liability.[95] Shell, in particular, wanted to know more about the allocation process and contract terms.[96] Given the unique characteristics of CCS it is highly likely that CfDs would need to be adapted. Mr Simon Lewis at Capture Power told us:

The CfD, for a CCS project, needs to be bespoke. We are seeing a generic CfD framework at the moment, but one size does not fit all. It will work for maybe onshore wind, it will work for offshore wind, biomass possibly, but I think for CCS you need a tailored CfD.

We were pleased that the Minister agreed, stating that, "the design of the [CCS] Contract for Difference will inevitably be somewhat bespoke" and could not be considered in the same way as more mature renewable technologies.[97]

34. The Government's Feed-in Tariffs Contracts for Difference (CfD) will be essential for CCS projects as they will provide operational support as well as a route to market for non-competition projects. The Government should set out immediately in what ways CCS CfDs will differ from the more generic CfDs. We recommend that CfDs be tailored to individual CCS projects because of the unique characteristics of CCS (compared to other low carbon and renewable technologies). The Government must engage in a dialogue with industry to ensure that CCS CfDs are designed appropriately.

35. Several follow-on projects, not in the competition told us how important it was to them to be able to negotiate with DECC for a CfD in parallel with competition projects. If this occurred it has been speculated that some of the follow-on projects could even be up and running at the same time as competition projects.[98] Being forced to negotiate after the conclusion of the competition, however, could result in those follow-on projects failing to develop.[99]

36. Non-competition projects which do not have the benefit of being eligible for capital support, but which are still viable projects, are at risk of collapsing unless they get a clear signal from Government that they can negotiate with DECC for a CfD in parallel with competition projects. We recommend that as soon as the Government sets out more detail on the tailed nature of CCS CfDs, the Government should write to the non-competition projects inviting them to start the process of negotiating for CfD.

37. CfDs are levy-funded schemes whereby the cost is recovered through consumer bills (rather than funding the schemes directly through general taxation). The Levy Control Framework (LCF) was established by DECC and HM Treasury in 2011 cap the cost of this and other schemes (such as the Renewables Obligation (RO) and Feed-in-tariffs (FITs)). HMT has put a limit on the amounts that can be raised and spent through this mechanism. The limit for 2013-14 is set at £3.184 billion, but is set to rise to some £7.6 billion by 2020-21.[100] 2Co Energy, Shell, the CCSA, and SCCS expressed concerns that the amount of funding available for CCS within the LCF is uncertain.[101] Shell wanted to know more about the long-term budget allocation within the LCF and explained that developing this detail was 'imperative' to give the industry more clarity and certainty to incentivise investment.[102] 2Co Energy argued that details about whether there will be sufficient capacity in the LCF to support CCS up to 2020 was important for incentivising investment—especially for those projects outside the competition.[103]

38. CCS will need to be deployed beyond the end of the LCF—during the 2020s—if it is to continue its progress along the technology learning curve and achieve the cost reductions indicated by the UK CCS Cost Reduction Taskforce. If CfDs are to prove effective in bringing forward investment for CCS projects beyond the competition the industry needs visibility on the future of the LCF post-2021. This visibility would accord with the certainty provided by legislated carbon budgets which cover a similar period. The industry would likely benefit from an indication over whether the total of the LCF will be maintained in real terms at £7.6 billion, given that a significant proportion will be taken up by new nuclear if it goes ahead. This would provide investors with reassurance that CCS (and other low-carbon technologies) won't be crowded out of the LCF.

39. The CCS industry would benefit from having more clarity on the amount of funding available for CCS within the Levy Control Framework (LCF) up to 2021. It is also essential that the industry have visibility on the LCF post-2021. The Government should set out its thinking on the LCF post-2021 indicating whether the total will be maintained in real-terms.

CLUSTERING AND COMMON INFRASTRUCTURE

40. It is considered desirable to cluster CCS technology so that power and industrial plants can utilise common transport and storage infrastructure-thereby achieving greatest emissions reductions for the lowest cost. While transport and storage infrastructure is not the most expensive part of the CCS chain, it does present an opportunity to reduce overall costs (see figure 3).[104] The CCS Cost Reduction Taskforce's analysis highlighted that only around 25% of cost reductions of CCS power generation over the next 15 years will derive from reductions in the cost of component technologies. The remaining 75% would result from reducing the cost of capital by reducing the riskiness of investments and from increasing the scale and utilisation of CO₂ transport and storage infrastructure.[105] This was supported by E3G which highlighted that, "the major initial cost reductions for CCS projects will come from inescapably 'local' issues regarding accessibility of CO₂ storage and the provision of CO₂ transport infrastructure."[106]

41. Clustering and sharing infrastructure could also assist the future deployment of industrial CCS (see paragraphs 48-49)[107] A 2012 study conducted by CO2 Sense showed that a Yorkshire and Humber CO₂cluster could have an economic impact totalling £1.255 billion up to 2030; and if long-term economic benefits were also included, total regional impact could have amounted to over £26 billion by 2050.[108] Other sites which were considered suitable for clustering have been usefully set out in the Energy Technologies Institute's (ETI) Optimising the Location of CCS in the UK (see figure 4). Dr Clarke, CEO of the ETI argued that it was important to consider carefully where the optimum sites would be, how these sites could then be linked and how appropriate support and business model development could be provided to facilitate clustering.[109]

42. We were pleased to see that the pipeline for the proposed White Rose project (a preferred bidder in the current competition) would be built with capacity for additional CCS projects in the area.[110] The CCSA was concerned, however, that CfDs in their current form, "will not support investment in common infrastructure as it is designed to support decarbonised electricity and not additional infrastructure capacity."[111] The Crown Estate said that support, in addition to CfDs, to deliver commercial transport and storage infrastructure would be required.[112] Ms Paxman, Policy and Communications Director at 2Co Energy, argued that certainty was required to help develop common infrastructure:

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This is something the UK CO₂ Storage Development Group has planned to explore. The Minister told us that his Department had been working with that group and would continue to do so to, "see how best we can ensure that transport infrastructure and storage infrastructure is shared between the various developers, and what the actions are on the part of Government to achieve that."[114]
Figure 4: Proximity of the UK's largest industrial emitters to CO₂ storage sites in the North and Irish Seas

Source: Carbon Capture and Storage Association (CCS 047)

43. It is astonishing that the Government has done so little to actively promote clustering given the benefits of doing so-including offering the greatest potential for cost reduction. It serves as another example of how long it has taken the Government to encourage the deployment of CCS. The Minister should quickly set out, in consultation with the UK CO₂ Storage Development Group, a detailed action plan for how the Government will incentivise clustering of CCS infrastructure.

ENHANCED OIL RECOVERY

44. EOR involves injecting CO₂ into depleted reservoirs to assist in extracting some of the remaining oil or gas. While some believed that EOR would have been prohibitively expensive in the UK at the present time, others, including the CCS Cost Reduction Task Force, were keen to see it pursued.[115] 2Co Energy, which was actively seeking to develop EOR, described it as a, "critical value driver in establishing a vibrant CCS industry"highlighting potential benefits such as reduced storage costs, additional taxation revenue from incremental oil production, and the employment and security of energy supply benefits by extending the life of declining North Sea oil fields.[116]

45. Some EOR research projects are already underway (e.g. the EOR Joint Industry project in the North Sea, funded by the Scottish Government and some private companies), but if EOR is to develop successfully in the UK it will probably need policy intervention.[117] The Crown Estate suggested that any policy developed for CCS needed to enable opportunistic deployment for all sectors that could make use of the infrastructure including the offshore oil and gas sector for EOR.[118] There is only a specific window of opportunity during the lifetime of an oil field when EOR can be implemented efficiently.[119] The Grantham Research Institute argued that missing the window could mean that a CCS project lost its potential for profitability.[120]

46. DECC's response to the CCS Cost Reduction Task Force said that it had, "undertaken a comprehensive mapping exercise to estimate the EOR potential in the North Sea."[121] It identified that CO₂-EOR potential in the North Sea was "substantial". DECC is now exploring with industry the extent to which CO₂-EOR could play a significant role in the UK's CCS Strategy and help extend the life of the North Sea. It has held workshops with industry to explore these issues and will use the outputs to shape a joint industry-Government work programme to evaluate the North Sea CO₂-EOR opportunities in more detail. DECC's response indicated that the Wood Review (a review of UK offshore oil and gas recovery and its regulation, led by Sir Ian Wood) would also look at EOR. It suggested that Sir Ian's conclusions would influence the type of policy levers the Government would use to encourage EOR including tax policy:

122

The Wood Review stated that, "the industry must be encouraged to invest more in [EOR] schemes".[123] The Government has said that it will accept and fast track the implementation of the Wood Review's recommendations.[124] The Crown Estate emphasised the potential benefits of using tax breaks to incentivise CCS deployment.[125] Despite this the Minister would not be drawn on whether the Government would be providing tax breaks to incentivise the development of EOR, although he did state, "there is huge incentive for the Treasury in getting these arrangements right for the final third of the North Sea story."[126]

47. We are pleased that the Government has accepted Sir Ian Wood's recommendations into maximising the recovery of UK oil and gas and is actively working with industry to explore the potential for enhanced oil recovery (EOR) to prolong the life of the North Sea reserves. We recommend that the Government should consider providing tax breaks to CCS consortia and oil and gas companies which pursue EOR.

INDUSTRIAL CCS

48. The ETI argued that, "many of the most valuable applications of CCS lie outside the electricity generation sector".[127] However, without a strong carbon price or some other support mechanism, the cost of deploying industrial CCS is prohibitive.[128] The Mineral Products Association highlighted, for example, that, "a CCS cement plant will be double the costs of a non-CCS equivalent."[129] Mr Nicholson, Director of the Energy Intensive Users Group (EIUG) highlighted competitiveness issues stating:

130

Mr Nicholson went on to state that, "right at the moment in the absence of a means of making the commercial case and an inability, unlike the power sector, to pass those costs on to consumers in international markets, the commercial case for investment simply cannot be made."[131]

49. In the long-run, it is difficult to see how decarbonisation of industrial sectors in the UK could be achieved without CCS. Mr Nicholson said that his members would rather see work on this start sooner rather than later.[132] This was echoed by other respondents who were keen to see development of industrial CCS move in parallel with, rather than sequential to, power sector CCS so as to avoid reducing future options for decarbonisation. This would include conducting appropriate research and development, funding pilot projects and making a strategic assessment of the best places to site transport infrastructure to reduce the costs of that part of the CCS chain to industry (see paragraphs 40-41).[133]

50. Government action on industrial CCS has so far been limited. Some in industry are keen to see what support it might offer in future.[134] The Government's Heat Strategy acknowledges that industrial CCS could be a key technology for the decarbonisation of the industrial sector but stopped short of making any specific recommendations. It stated that the Government's CCS Roadmap would, "set out the Government's interventions and the rationale behind them."[135] Mr Littlecott of E3G highlighted, however, that the Roadmap only made a passing reference to industrial CCS. He hoped that any further version of the Roadmap would set out more detail.[136] The Minister told us that he was confident that there was a, "real opportunity here for the industrial application of [CCS] technologies once we get them properly tested."[137] The Minister told us that Government was currently funding a number of techno-economic studies of industrial CCS but highlighted that:

138

The Minister was, however, careful to point out that support for industrial CCS would not be the same as for the power sector.[139]

51. Industrial CCS is one of the only large-scale mitigation options available to make deep reductions in the emissions from industrial sectors. We are disappointed that the Government has so far paid little attention to it. We recommend that the Government update its CCS Roadmap this year and outline in greater detail what role it envisages for industrial CCS and how it intends to support it.

Safety and reputational risks

52. Like any large-scale industrial activity there are hazards associated with CCS which could impact on human safety and the environment, if not properly managed.[140] These risks include, for example, leaks from pipelines and geological stores and underground tremors as a result of large subsurface fluid injection.[141] The industry is confident that the risks are low because CO₂ and its technical and safety properties are very well understood, both above and below ground, from many decades of oil and gas experience in the US and the North Sea.[142] The Health and Safety Executive (HSE) stated that existing legislation will allow for effective inspection and enforcement of health and safety standards associated with CCS projects.[143] Professor Gibbins told us that the first storage sites were very unlikely to leak because they were the best geologically.[144]

53. Despite industry, academic and regulatory confidence, we note that CCS projects have been cancelled in several countries including the US, the Netherlands, and Germany in large part due to public opposition.[145] A survey undertaken in 2013 showed that public awareness and understanding of CCS was weak (and had reduced over time as demonstrated by figure 5)—and in many cases likely to be negative.[146] Dr Reiner at the University of Cambridge, who conducted the survey, suggested that the potential risk of public opposition in the UK, thought currently quiescent, could not be disregarded, "given low levels of public awareness, persistent low levels of knowledge, a preference for other low-carbon options and the inevitable increase in opposition when reference is made to actual government spending and siting CCS infrastructure" (see figure 6).[147]
Figure 5: Do you think "Carbon capture and storage" or CCS can or cannot reduce each of the following environmental concerns?

Source: David Reiner (CCS 025)

54. Others argued that storing CO₂ offshore in the UK would reduce the risk of public opposition.[148] Dr Shackley, Lecturer in Carbon Policy at the University of Edinburgh, disputed this claim citing in support of his position: controversies over Brent Spa, the legacy of the Gulf of Mexico drilling disaster and offshore wind.[149] The UK has previously experienced significant opposition to new infrastructure such as coal plant, onshore wind and shale gas exploration which in some instances has been driven by misinformation and misunderstanding-something we noted in our 2012 report, The Impact of Shale Gas on Energy Markets.[150] This underlines the essential need for Government to adopt a proactive approach to communication around major infrastructure projects including CCS. However, Government efforts have been disappointingly slow. Dr Reiner highlighted two recommendations in a Science and Technology Committee report[151] published almost a decade ago:

152

Figure 6: To what extent do you support or oppose this commitment/proposal?

Source: David Reiner (CCS 025)

55. The Energy Minister responded constructively to suggestions that his Department should look into developing a proactive engagement strategy. He said he would, "reflect on whether we could do something stronger at the national level."[153]

56. Framed in positive terms, and with the benefits effectively communicated to the local population, CCS could enjoy public support and avoid controversy.[154] Mr Littlecott, Senior Policy Adviser at E3G provided the example of Lacq in France which despite storing CO₂ onshore has not experienced local opposition because "local people have been brought into what that project has been seeking to do."[155] In addition, two companies with CCS projects in Yorkshire, Capture Power and 2Co Energy, reported that they had not encountered opposition. Ms Paxman of 2Co Energy suggested that this might be the case because the economy in that region had, for many years, already been involved in fossil fuel power generation.[156] Achieving support for CCS would require the Government, the regulator and industry not only to emphasise the safe nature of CO₂ storage technology but also to demonstrate that they are trustworthy and competent.[157] Engagement would need to start early, emphasise that the purpose was to listen and respond to public concerns and avoid attempts to overly control and manage the process.[158]

57. It is very disappointing that after almost a decade the Government has still not recognised the need for a proactive approach to communicating CCS and instigated an appropriate programme. The Government cannot delay this any longer. We recommend that in order to address public opposition to CCS - similar to that experienced in other countries and in the UK in relation to other energy infrastructure - and to try and prevent it from growing, the Government develops and implements a national CCS engagement strategy framing CCS in a positive way, emphasising the potential benefits, dispelling myths and listening and responding to public concerns over safety. The Government should also mandate through licence conditions for CCS companies to develop and implement their own engagement strategies with local communities. This should be done before final investment decisions (FID) are taken.

Regulatory risk

58. Storing CO₂underground presents significant risks to storage providers despite low probability of leakage. These risks include environmental impacts as well as legal, financial and reputational impacts associated with leakage. While insurance mechanisms could mitigate some of these risks, some liabilities were considered essentially uninsurable.[159] CO₂storage is regulated by the EU CCS Directive (2009/31/EC). We heard that the Directive imposed unreasonable and unnecessary burdens, risks and uncertainties on storage providers.[160] In particular it imposes uncapped liabilities on operators of stores over long time horizons which may prove to be a barrier to investment and could deter potential project developers.[161] Of particular concern was the duration and sum of payments required to cover possible liabilities which are yet to be resolved.[162]

59. The CCS Directive is due to be reviewed by the European Commission in 2015. The UK Advanced Power Generation Technology Forum suggested that it would be appropriate to address issues to do with liability at that time.[163] The Minister told us that the Government was going to, "engage with the Commission as part of the review" but would not be drawn on whether the legislation was fit for purpose.[164] We note that DECC stated in its evidence to us that to be deployable at scale CCS must be, "supported through regulatory arrangements that facilitate CCS."[165]

60. The CCS Directive has been transposed into UK legislation and will be enforced by the UK Government and its relevant regulatory bodies. How it will be interpreted and implemented will depend upon the outcome of the negotiations for the first CCS projects between industry and the regulator.[166] The Grantham Research Institute at LSE and others emphasised that liability issues require some form of Government guarantee.[167] SCCS, for example, stated that:

₂

168

Ms Paxman of 2Co Energy hoped that the agreements that were reached could be shared with industry so that there was a better understanding of exactly how the CCS Directive was being implemented.[169] The Minister stated:

170

61. We recommend that the Government takes the opportunity, during the European Commission's review of the CCS Directive in 2015, to ensure that the Directive does not place unnecessary burdens on storage providers. The liabilities linked to long-term ownership of stored CO₂ will require some form of Government guarantee-and the Government will need to seriously consider taking long-term ownership of stored CO₂. The Government will need to take this decision very soon to avoid deterring investment.

Scientific and engineering challenges

62. It was repeatedly asserted that scientific and engineering challenges were not major factors preventing the development of CCS.[171] Mr Warren CEO of the CCSA argued that the number of CCS projects operating or under construction around the world, "gives us a high degree of confidence that this is not a technical or scientific challenge".[172] Despite this there is limited experience in integrating the components which make up CCS into full-chain projects.[173] Ongoing research and development will be critical to drive improvements in all aspects of the CCS chain.[174] The UK is fortunate in having excellent academic expertise and significant research and development underway into all three parts of the CCS chain.[175] As pointed out by Mr Spence, Vice President of Strategic Issues at Shell, companies in the competition should be obliged to share learning from early CCS projects-something we are pleased the Government has committed to ensuring through its Knowledge Transfer Programme.[176]

63. Of particular importance is the development of storage capacity. Dr Goldthrope, Programme Manager at the Crown Estate, highlighted that early provision of storage at scale is critical to bringing down costs.[177] The UK theoretically has significant storage potential (see paragraph 25) but at the moment-in practical terms-it is scarce.[178] The UK CCS Research Centre highlighted the long time that is required to identify, characterise, model and potentially test CO₂ injection at storage sites before permission to store CO₂ at a site is granted.[179] The Crown Estate reported that this process was time-consuming and, "at the later stages of site characterisation costly." It was not surprising, they argued, that, "storage is therefore currently regarded as the most risky part of the CCS chain for project developers."[180] Failure to develop this storage could slow the overall deployment of CCS. Professor Haszeldine of SCCS argued that:

181

64. Dr Neufeld, University Lecturer at the University of Cambridge, suggested that while there were places which could be used immediately to store CO₂-because of the knowledge already gained from oil and gas-there were also a number of places where we still knew very little.[182] The Grantham Research Institute at LSE reported that in the UK, "storage capacity in oil and gas fields could range from 7.4 to 9.9 billion tonnes of CO₂" and, "the storage potential of saline fields is more uncertain, and could range from 6.3 to 62.7 billion tonnes of CO₂."[183] The large uncertainty around the figures highlights the significant geological work still required to fully appraise storage sites to ensure CO₂ injection and storage can meet technical, regulatory and societal requirements.[184]

65. Much of this could be achieved successfully through a "learning by doing" approach and an effective R&D programme.[185] We note that the Energy Technologies Institute (ETI) in partnership with the British Geological Survey (BGS) and the Crown Estate has undertaken a study, UK Storage Capacity Project, to assess the UK's potential storage capacity.[186] The UK CCS Research Centre recommended that further work on storage could usefully be done. It argued that gaps in our knowledge of storage sites, "could be addressed by a programme of subsurface mapping to identify and characterise potential storage sites", and recommended that it be, "undertaken on behalf of UK regulators, using currently available well and seismic data."[187] While the Centre recognises that this will not provide all the answers, it suggests that this data could help to identify what further research would be necessary to demonstrate a site's suitability for CO₂ storage.[188] The Crown Estate also suggested that:

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The effect would be to de-risk the investment. The Crown Estate went on to explain that the "incentive could be relatively revenue neutral for Government if it was associated with a project which would otherwise have required a higher CfD."[190]

66. The Minister did not agree that the UK was exploring storage sites too slowly. He suggested that, "it is rather difficult for Government to direct how investment in the infrastructure should be most cost-effective. I think that is better done by the companies themselves." He said that the Government was focused on facilitating investment in transport capacity and utilising existing infrastructure. He concluded by stating:

191

While scientific and engineering challenges are not a major barrier to deploying CCS, it is clear that ongoing research and development will be critical to drive improvements in all aspects of the CCS chain. A critical area desperately in need of greater attention is offshore storage. While theoretical storage potential is huge, actual current storage capacity is scarce. Given the lengthy time period required to identify, characterise, model and test CO₂ injection at storage sites, failure to move ahead with storage identification now could slow the overall deployment of CCS over the coming years.

67. The Government's focus on transport capacity rather than on storage capacity is surprising given how critical early provision of storage is to bringing down costs. We note the proposals outlined by the UK CCS Research Centre to undertake a programme of subsurface mapping to identify and characterise potential storage sites and the Crown Estate's suggestion that Government introduce targeted storage exploration subsidies. We recommend that the Government work with the UK CO₂ Storage Development Group to explore these proposals and outline an action plan for actively promoting the development of storage sites.

First mover advantage

68. The question remains whether the UK should try to be a first mover when developing CCS (and reap the benefits of selling technology and know-how abroad) or whether the UK should wait for other countries to develop CCS and import it (benefiting from cost reductions made elsewhere). Professor Haszeldine, of SCCS, argued that in the light of emerging CCS projects in other countries, the UK was, "effectively starting to be in a following position and receiving the benefits from those first projects de-risking and driving the cost down."[192] He drew on experience from the Boundary Dam project in Canada which estimated it could reduce the costs of the capture plant by 30% next time round. He also cited the Texas Clean Energy Project (also behind the Captain Clean Energy Project in the UK) which he estimated could make a 25% reduction in capital costs if it was to do it a second time round.[193] In contrast, Professor Gibbins of the UK CCS Research Centre highlighted that in some cases - such as applying CCS to gas-fired generation - the UK was a first mover.[194]

69. Dr Clarke of the ETI told us that CCS components will, "inevitably come from major global suppliers" operating in a global market rather than just the UK.[195] It is unlikely, therefore, that any one country will develop a comparative advantage in every aspect of the CCS value chain.[196] Mr Littlecott of E3G agreed arguing that, because of the global market for CCS, costs of capture technologies were likely to come down as a result of competition from technology suppliers and equipment manufacturers. He suggested that, the UK's efforts, however, will not fundamentally alter that technology profile.[197]

70. On the other hand, the UK's efforts could have more effect on the costs associated with rest of the CCS transport and storage stages. E3G suggested that CCS deployment was inevitably local in nature:

₂

198

Dr Goldthorpe of the Crown Estate suggested that local knowledge and expertise built up in the North Sea area was essential to future CCS development and could not be imported.[199] Professor Haszeldine argued that, if the UK developed these local elements, the UK would also be able to sell the technologies associated with injection and monitoring of CO₂building on the global reputation of the North Sea.[200]

71. There is already a global market for carbon capture technologies. Companies looking to deploy CCS in the UK may well be able to buy cheaper capture technologies which have already been developed in other countries. Other aspects of CCS-transport and storage infrastructure-are, however, inherently local in nature and will require development here in the UK. The UK is well placed to take advantage of its existing expertise in the North Sea oil and gas sector.

55 Scottish Carbon Capture and Storage (CCS 024), Capture Power (CCS 037) Back

56 Q1 [Mr Warren, Professor Haszeldine] Back

57 Grantham Research Institute, LSE (CCS 028) Back

58 Energy Technologies Institute (CCS 012), Capture Power (CCS 037), DECC (CCS 042) Back

59 Carbon Capture and Storage Association (CCS 047) Back

60 UK Advanced Power Generation Technology Forum (CCS 011) Back

61 Carbon Capture and Storage Association (CCS 047) Back

62 Qq2 [Professor Haszeldine], 77 [Dr Neufeld, Professor Gibbins] Back

63 Q2 [Dr Goldthorpe], The Crown Estate (CCS 019) Back

64 Association of UK Coal Importers (CCS 020), Oil & Gas UK (CCS 021), Carbon Capture and Storage Association (CCS 047) Back

65 Carbon Capture and Storage Association (CCS 047) Back

66 As above Back