Carbon capture and storage - Energy and Climate Change Contents


Conclusions and recommendations


Government support for CCS

1.  The expected start date of CCS has been pushed back from 2014 to potentially after 2020. Given the widespread acknowledgement of the importance of CCS to meeting future climate change targets this lost decade is extremely disappointing. While we take note of recent efforts by Government to work more closely with industry to accelerate CCS deployment, it is essential that the Government is able to commit to a realistic but ambitious timeline for taking final investment decisions. The rest of this report will look at what more the Government needs to do to accelerate CCS deployment and support a wider CCS industry. (Paragraph 19)

Political and financial risk

2.  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. (Paragraph 31)

3.  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. (Paragraph 34)

4.  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. (Paragraph 36)

5.  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. (Paragraph 39)

Clustering and common infrastructure

6.  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. (Paragraph 43)

Enhanced oil recovery

7.  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. (Paragraph 47)

Industrial CCS

8.  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. (Paragraph 51)

Safety and reputational risks

9.  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. (Paragraph 57)

Regulatory risk

10.  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. (Paragraph 61)

Scientific and engineering challenges

11.  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. (Paragraph 67)

First mover advantage

12.  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. (Paragraph 71)

Conclusion

13.  CCS is one of the only technologies available that has the potential to decarbonise fossil fuel power plants and other industrial processes. The capture, transport and storage technologies involved are considered to be safe, the scientific and engineering challenges small and the capacity to be deployed at scale promising. New and novel CCS technologies, such as the NET Power cycle, have the potential to improve CCS prospects. It is widely acknowledged that CCS could play an important role in helping the UK to meet its carbon reduction commitments. This role may change over time to take account of global policy developments including the 21st Conference of the Parties in 2015. Although CO2 emissions have reduced in this country and the EU, the carbon footprint of both has increased. If CCS was widely adopted abroad, it could help to reduce the UK's embedded carbon emissions. Deploying CCS in the UK could also increase UK plc's future share of the global CCS market, create a North Sea "storage market" whereby the service of permanently storing CO2 was sold to other European countries, and protect jobs associated with the UK's coal and energy intensive industries. The UK is considered ideally suited to take advantage of CCS because of its combination of geological, engineering, industrial and academic capabilities, together with a stated policy commitment to reduce CO2 emissions and the foundational legislative framework required for CO2 storage. (Paragraph 72)

14.  The combination of high energy and-in the absence of an effective carbon market-financial costs make CCS uneconomic. The high cost of CCS means that it is likely to develop only in response to specific policy intervention, likely to be subsidy from the public purse and/or the consumer. The Government should be transparent about the costs of CCS and how they will be met. The Government therefore needs to prioritise designing a credible financial incentive framework most likely centred on the Contracts for Difference which the Government is introducing as part of its electricity market reforms. Progress on CCS in the UK has been frustratingly slow. It has taken successive governments the best part of a decade to provide a capital grant to a large-scale full chain CCS project. As a result, the expected start date of CCS has been pushed back from 2014 to potentially after 2020 which has increased uncertainty and threatens to undermine the credibility of Government policy. This lost decade is regrettable given the importance of CCS to meeting future climate change targets. (Paragraph 73)

15.  In order to ensure the successful deployment of CCS in the UK the Government should aim to reach final investment decisions with the two projects left in the competition by early 2015 (in line with the Government's original competition timetable) to increase the chance that the first CCS projects will be operational before 2020. This commitment is welcome: it will help to bring down costs of CCS more quickly and, therefore, help the development of a wider CCS industry in the UK. (Paragraph 74)

16.  It is unclear whether any financial advantage accrues to first movers, so there is a case for limiting the amount of consumer support which is allocated to the first CCS projects. Indeed, it is likely that most benefits will be accrued by second movers, which may explain why the big companies are reluctant to spend so much of their own money at this early stage of CCS development. It would be wise for the Government to direct its resources at the uniquely British aspects of CCS deployment such as transport and storage infrastructure and overcoming potential public opposition to ensure the maximum benefits for UK consumers are realised. (Paragraph 75)


 
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Prepared 21 May 2014