1Introduction
1.Carbon capture and storage (CCS) is a way of ‘decarbonising’ fossil fuel power generation. It involves capturing carbon dioxide (CO2) emitted from high-producing sources, transporting it and storing it in secure geological formations deep underground. The transported CO2 can also be reused in processes such as enhanced oil recovery or in the chemical industry, a process sometimes known as carbon capture and utilisation (CCU).1 Carbon capture and storage can be applied to fossil fuel power plants (coal and gas-fired power stations) and to industrial CO2-emitting sources such as oil refineries or cement, chemical and steel plants. Rather than being a single technology, CCS is a suite of technologies and processes.2 While some of these have been operated successfully for decades, progress in applying large-scale CCS to power generation in the UK and globally has been slow.
2.Although large-scale CCS is still in its infancy,3 CCS is widely viewed as a crucial approach to meeting global and national climate change targets. The global deal struck in December 2015 at the 21st United Nations Conference of Parties (COP21) commits the world to reducing greenhouse gas emissions to limit global temperature increase to below 2 °C (with a desire to reduce this to 1.5 °C) above pre-industrial levels.4 The UK is committed to reducing its emissions by 80% by 2050 through the Climate Change Act,5 with a commitment to halving UK emissions in the fourth carbon budget period between 2023 and 2027.6 The UK Government’s advisers, the Committee on Climate Change (CCC), have recently proposed a target of 57% for the period between 2028 and 2032.7 Meeting these targets will not be easy. It will require clear and perhaps uncomfortable decisions to bring forward new forms of low carbon generation, promote innovation and drive down energy demand, while minimising the costs passed on to consumers.
3.On 18 November 2015, the Secretary of State for Energy and Climate Change, the Rt Hon Amber Rudd MP, laid out her vision for the direction for UK energy policy (referred to throughout this report as the “energy policy reset speech”). This speech emphasised bringing forward new gas generation:
We’re encouraging investment in our shale gas exploration so we can add new sources of home-grown supply to our real diversity of imports. [ … ] In the next 10 years, it’s imperative that we get new gas-fired power stations built.
[ … ] Gas is central to our energy secure future. [ … ] New nuclear, new gas and, if costs, come down, new offshore wind will all help us meet the challenge of decarbonisation.8
In parallel, the Secretary of State announced that she would “set out proposals to close coal by 2025 - and restrict its use from 2023”.9
4.While gas is cleaner than coal, it still produces on average 400 gCO2/kWh.10 The CCC has assessed that an average grid intensity of around 50 gCO2/kWh by 2030 was the necessary objective for the power sector if the UK is to meet its targets.11 The CCC’s modelling scenarios show that an average intensity of up to 100 gCO2/kWh by 2030 would still allow the UK to meet its 2050 emissions target,12 but this remains four times lower than the carbon intensity of unabated gas.
5.The only practicable way to close this gap is CCS. As long as fossil fuels and carbon-intensive industries play dominant roles in the UK, CCS will remain a critical greenhouse gas reduction solution. The CCC considered that:
Carbon capture and storage (CCS) is likely to be a crucial part of the least-cost path to decarbonisation in the UK, and globally. [ … ] CCS can provide a back-up role for variable renewables and help to manage swings in demand. CCS also has a crucial role in decarbonising heavy industry where there are limited options, and in the longer term would help to maximise the emissions reduction obtained from scarce supplies of sustainable bioenergy as well as opening up other decarbonisation pathways.13
The European Commission has also emphasised that “CCS may be the only option available to reduce direct emission from industrial processes at the large scale needed in the longer term”.14
6.However, full-scale CCS fitted to power generation is still a nascent technology.15 Initial projects require large upfront investments, although the expectation is that costs will rapidly fall for second generation projects once the primary infrastructure is in place.16 To kick-start CCS in the UK, successive governments had made efforts for the best part of a decade to provide capital support to a large-scale full-chain CCS project on power generation. The first UK CCS competition, announced in 2007, aimed to deliver an operating CCS project at a coal-fired power station by 2014.17 However, the Government ended negotiations with the last remaining bidder in 2011 due to concerns that the project could not be funded within its agreed £1 billion capital limit. The second competition (the CCS Commercialisation Programme) was announced in 2012, with contracts awarded in 2013–14 to two preferred bidders: Capture Power for its White Rose project in Yorkshire, and Shell and SSE for their Peterhead project in Aberdeenshire.18 One billion pounds was to be made available in capital funding, with additional operational support available through Contracts for Difference (CfD) to support the initial stages of commercialisation.19 The Government expected “the projects to be operational between 2016 and 2020”.20
7.On 25 November 2015, nearly four years into the competition and after considerable time, money and effort spent by the relevant parties, the Government unexpectedly announced in a stock market statement that the funding under the long-running CCS Commercialisation Competition was no longer available. The full announcement stated:
Today, following the Chancellor’s Autumn Statement, HM Government confirms that the £1 billion ring-fenced capital budget for the Carbon Capture and Storage (CCS) Competition is no longer available. This decision means that the CCS Competition cannot proceed on its current basis. We will engage closely with the bidders on the implications of this decision for them.21
8.This decision came as a surprise to the industry and the companies taking part in the competition, particularly in the light of a number of relatively recent Government statements that suggested a continued commitment to CCS. In December 2014, the Prime Minister acknowledged that investing in gas would require the development of CCS:
On carbon capture and storage, which is absolutely crucial if we are going to decarbonise effectively, we have put a lot of money as a Government into carbon capture and storage experiments, but we have not yet got, as I understand it, a workable system. Before we commit to the next stage, we need to know more about whether gas, particularly, can play a role in a decarbonised electricity system. [ … ] I hope that carbon capture and storage will come about, so it may be that for many years to come gas will still play a role in our electricity supply.22
In July 2015, the Secretary of State told us that DECC “remain[ed] absolutely committed to the carbon capture and storage programme. It would be a fantastic outcome to deliver carbon capture and storage as soon as possible”.23 As recently as October 2015, less than a month before the announcement, DECC wrote to us that:
This Government is continuing to promote investor confidence across a range of technologies: We are supporting a competition with up to £1bn to bring forward commercial-scale Carbon Capture & Storage.24
9.In light of these recent comments and the sudden and unexpected policy change, we decided to hold a one-off evidence session to assess the implications of the cancellation of the CCS competition on the prospects for CCS in the UK. Ahead of the session, we wrote to DECC to seek clarifications as to the evidence behind this decision.25 The Department responded that:
The spending review undertook a full review of capital spending plans to identify the areas of spending that will achieve the best economic returns while delivering on the commitments to invest £100 billion in infrastructure by the end of the Parliament. This necessarily involved difficult decisions, including to no longer make available £1 billion capital funding to support the CCS Competition.26
As CCS was not actually mentioned in the Autumn Statement, we sought clarifications as to the evidence that the decision to cancel the competition would provide value-for-money for the taxpayer. We received no specific answer on this, nor on whether an impact assessment had been carried out. The Department did however add that “CCS continues to have a potential role in the long-term decarbonisation of the UK”.27
10.We held an oral evidence session on 20 January 2016 with representatives from the competition bidders and other interested parties (including from industry, think-tanks and research institutes). We also received evidence in writing.28 A full list of witnesses can be found at the back of this report. We are very grateful to all those who took the time to contribute to this short inquiry.
11.This report does not seek to assess in detail the costs of commercialisation, or the barriers that need to be overcome. It summarises the main points that arose from this inquiry and the manner of the Government’s decision. In Chapter 2 we review the immediate implications of the decision to cancel the competition for those involved and set out our views on the nature of the announcement. In Chapter 3, we summarise what stakeholders are now asking of Government, including their calls for a strategy for CCS, and outline our preliminary views on this.
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Working towards our goals At the start of the 2015 Parliament we set out three goals for our scrutiny work:
Our work on the future of CCS in the UK and this report are primarily focussed on our goal to influence the Government’s long-term approach to climate targets and hold it to account on achieving a balanced energy policy. Throughout the course of this Parliament, we welcome feedback on our work towards our goals. |
* Energy and Climate Change Committee, First report of session 2015–16, Our priorities for Parliament 2015–20, HC 368, para 35-37
2 Department of Energy and Climate Change, Next steps in CCS: Policy scoping document (August 2014), p 8
3 Scottish Enterprise, Scotland and the central North Sea CCS Hub study (March 2014), p 23
4 United Nations Framework Convention on Climate Change, Adoption of the Paris agreement (December 2015), p 2
6 Department of Energy and Climate Change, '2010 to 2015 government policy: greenhouse gas emissions,’ accessed 22 January 2016
7 Committee on Climate Change, The Fifth Carbon Budget (November 2015), p 11
8 Department of Energy and Climate Change, ‘Amber Rudd’s speech on a new direction for UK energy policy,’ accessed 22 January 2016
9 Department of Energy and Climate Change, ‘Amber Rudd’s speech on a new direction for UK energy policy,’ accessed 22 January 2016
10 International Energy Agency, CO2 emissions from fuel combustion highlights (2015), p 35
11 Committee on Climate Change, Next steps on Electricity Market Reform (May 2013), p 5
12 Committee on Climate Change, Fourth Carbon Budget Review – technical report (December 2013), p 54
13 Committee on Climate Change, Meeting Carbon Budgets: Progress in reducing the UK’s emissions (June 2015), p 56
14 European Commission, A policy framework for climate and energy in the period from 2020 to 2030 (January 2014), p 15
15 Q17 [Richard Simon-Lewis]
16 Qq8, 45 [Luke Warren], Q44 [Prof Gibbins]
17 National Audit Office, Carbon capture and storage: lessons from the competition for the first UK demonstration (March 2012), p 6
18 Energy and Climate Change Committee, Ninth Report of Session 2013–14, Carbon capture and storage, HC 742, para 15
19 Department of Energy and Climate Change, CCS roadmap (April 2012), p 5
20 Energy and Climate Change Committee, Third Special Report of Session 2013–14, The Impact of Shale Gas on Energy Markets: Government Response to the Committee’s Seventh Report of Session 2012–13, HC 609, p 13
21 Department of Energy and Climate Change, ‘HM Government Statement to markets regarding Carbon Capture and Storage Competition,’ accessed 22 January 2016
22 Oral evidence taken before the Liaison Committee on 16 December 2014, HC (2014–15) 887, Qq2, 7 [Rt Hon David Cameron MP]
23 Oral evidence taken on 21 July 2015, HC (2015–16) 287, Q92 [Rt Hon Amber Rudd MP]
25 Letter from the Chair of the Energy and Climate Change Committee to the Rt Hon Amber Rudd MP on the decision to remove the Carbon Capture and Storage competition (December 2015)
26 Letter from the Rt Hon Amber Rudd MP on the decision to remove the Carbon Capture and Storage competition (January 2016)
27 Letter from the Rt Hon Amber Rudd MP on the decision to remove the Carbon Capture and Storage competition (January 2016)
28 Energy and Climate Change Committee, ‘Future of Carbon capture and storage in the UK inquiry - publications,’ accessed 22 January 2016
© Parliamentary copyright 2015
Prepared 4 February 2016