Future of carbon capture and storage in the UK Contents

3The future of CCS in the UK

27.The Secretary of State has said that the new generation assets that will be brought forward in the next decade will be gas-fired power stations.66 Combined with nuclear, renewables and demand-reduction, the replacement of coal with gas will reduce UK emissions. However, a push for gas cannot get the UK to its 2030 and 2050 targets without CCS. The Prime Minister acknowledged this when he stated that he would “not commit to the decarbonisation targets that people sometimes want [him] to until we know about carbon capture and storage”.67 In the aftermath of the cancelled competition, the Secretary of State told us that:

[CCS] will be necessary to deliver on ambition for a really low carbon future. That could be in the 50s, the 60s, the 70s, but to get to zero emissions by the end of the century we will need to have some form of carbon capture and storage. Now for the UK was not the right time to commit to £1 billion on carbon capture and storage but that does not mean that my Department is not going to continue its interest in the area.68

She has since added that “to facilitate the retrofit of CCS technology to CCGTs in the future, the UK has implemented a robust ‘carbon capture ready’ policy in Europe”.69 In a recent letter to the Secretary of State, the Committee on Climate Change stressed that “the recent funding decision must not and does not exclude CCS permanently from playing a significant role in reducing UK emissions, provided an alternative approach is implemented quickly”.70

28.Most of the costs of full-scale CCS demonstration, whether in the near or far future, will be at the transport and storage stages. Putting this initial infrastructure in place is a major part of reducing the costs of CCS:

To get the value out of CCS, you need to build significant infrastructure at an economic scale and you need to use that infrastructure in a timely manner, and then you can realise the costs.71

While the 2030s and beyond may seem a relatively distant future, this reliance on a working transport and storage infrastructure means that “we cannot just wait 10 or 15 years and then suddenly expect to build an industry in a five-year period. The supply chain just will not be able to cope with that”.72 While the two bidding projects were often thought of as generation projects, “actually they [were] infrastructure projects”.73 They “were supposed to be providing the initial infrastructure and business models and funding expertise for future projects to be cost-competitive”.74 Professor Gibbins told us that the UK could not simply wait for technologies to be developed elsewhere and imported:

You cannot buy in technology to develop infrastructure. That has to be applied in the UK. You may have the ideas, but actually putting them into practice at scale, and with as much UK supply chain as possible, can only be done in the UK.75

29.Investing in a UK CCS infrastructure could also become a financial opportunity for the UK, which could take advantage of the capacity and expertise it has developed in the conventional oil and gas sector. Richard Simon-Lewis explained that:

We are blessed in the UK with storage in the North sea that is sufficient to take the industrial emissions of the UK and the European industrial heartlands for the next 100 years. Also, when you combine that with the fact that we have incredible knowledge and intellectual property within our oil and gas industry, to me the logic of combining the two and taking advantage of the storage capacity in the North sea and the oil and gas capability that we have with CCS as the enabling technology makes an enormous amount of sense. [ … ] If an enhanced oil recovery industry develops in the UK through the North sea, that is notionally $32, in euros or sterling equivalent, of value for every tonne of CO2 that we produce, if that market matures and becomes real.76

Chris Littlecott warned that “when we look at the short-term pressures the North sea is under because of the oil price, the [Oil and Gas Authority] is inevitably going to have to look more at decommissioning and the availability of assets. That is a key piece of the puzzle in terms of CCS”.77 The witnesses argued that the National Infrastructure Commission could have an important role to play and must “take a much more strategic role”.78 Luke Warren added that the CCSA was “yet to meet the commission”, but was “keen to understand the potential role it might play for CCS”.79

30.It is important that the Government is clear now on its immediate and long-term plans for gas deployment and CCS. The CCC warned that if a strategy for delivering CCS was not rapidly developed, “much larger and more costly actions will have to be taken” to meet the UK’s statutory 2050 target.80 Professor Gibbins explained that:

The timely verification of whether or not you can have CCS is required. There may be some debate about what is timely. You have to allow a few years each way, but equally you cannot take the present situation as being one that will apply even in five years’ time. [ … ] It is really important to get a fast response and develop a strategy, because we really will lose direction if there isn’t rapid action. The importance of that can’t be overemphasised. Even if it is not the final story, if it is just kicked into the long grass and left we will lose a lot of the information that is available now and a lot of the enthusiasm, so a quick response is needed.81

31.The Secretary of State told us in December 2015 that she was “going to be taking a further look at industrial CCS strategy”.82 Contributors to this inquiry stressed the urgency of this new CCS strategy,83 which “will be critical if we are to keep remaining projects and investors interested in the UK as a potential market for CCS”.84 Chris Littlecott explained that:

There is a deep fundamental question around the policy framework in which Government had intended CCS to be delivered. They are, in effect, forcing themselves to come up with a new architecture for delivering CCS.85

Clarity over the mechanism for granting long-term contracts to CCS developers was also seen as an urgent priority. Had the competition gone through and money been awarded to one or both projects, these would have been presented with feed-in-tariff contracts-for-difference (CfDs), i.e. a guaranteed price for every unit of electricity generated at the power stations. Richard Simon-Lewis explained that “the customised CfD was incredibly important to make the economics of CCS work”.86 The competition has now been cancelled and although we heard that DECC had suggested that CfDs may still be available for CCS in principle, this possibility is for the moment, “purely theoretical”.87 Luke Warren (CCS Association) explained that CfDs will be “absolutely critical” for the development of CCS infrastructure, and that “if we keep CfDs on the table, [phase 2 projects] can potentially see a way to market”.88 Chris Littlecott explained that “we cannot just assume that they will be able to pick up where they left off, using CfDs”.89

32.Transport and storage infrastructure will be key to any future development of CCS on power generation and industry in the UK. Having this infrastructure in place and maximising the use of the UK’s existing North Sea assets would have allowed second phase project costs to fall rapidly. With both the White Rose and Peterhead projects cancelled, the opportunity to develop this infrastructure in the first half of the 2020s is likely to have been missed. By pulling the plug on the competition, the UK Government may have lost an opportunity to exploit its North Sea capital, which could have generated additional revenues.

33.DECC must now devise a new strategy for carbon capture and storage in conjunction with a new gas strategy, taking into account the infrastructure challenge in the future. It has already interrupted the momentum that had built up over recent years. It must not allow what is left to be lost. The Department must be clear over its plans, particularly with respect to CCS contracts-for-difference. Given initial costs and lead time for projects, if we do not commit to CCS now, we may have to accept that it will not be part of the future UK energy policy.

34.We recommend that DECC engages with the National Infrastructure Commission to explore options for the development of CO2 transport and storage. The Commission should consult on whether developing CCS infrastructure should be one of its priority areas. DECC should also immediately begin consulting on its CCS strategy as outlined in paragraph 17 and publish this strategy by the summer of 2016, taking stock of the lessons learned documents from the two competition projects, but also after discussions with the wider industry. The strategy must clearly address the following points:

66 Department of Energy and Climate Change, ‘Amber Rudd’s speech on a new direction for UK energy policy,’ accessed 22 January 2016

67 Oral evidence taken before the Liaison Committee on 16 December 2014, HC (2014–15) 887, Q7 [Rt Hon David Cameron MP]

68 Oral evidence taken on 16 December 2015, HC (2015–16) 614, Q22 [Rt Hon Amber Rudd MP]

69 Letter from the Rt Hon Amber Rudd MP on the decision to remove the Carbon Capture and Storage competition (January 2016)

70 Letter from the Committee on Climate Change to the Rt Hon Amber Rudd MP on implications of the Paris Agreement for the fifth carbon budget (January 2016)

71 Q17 [Jon Gibbins]

72 Q50 [Luke Warren]

73 Q8 [Luke Warren]

74 Q6 [Chris Littlecott]

75 Q22 [Prof Gibbins]

76 Qq51-52 [Richard Simon-Lewis]

77 Q20 [Chris Littlecott]

78 Q20 [Chris Littlecott]

79 Q27 [Luke Warren]

80 Letter from the Committee on Climate Change to the Rt Hon Amber Rudd MP on implications of the Paris Agreement for the fifth carbon budget (January 2016)

81 Qq18, 64 [Prof Gibbins]

82 Oral evidence taken on 16 December 2015, HC (2015–16) 614, Q22 [Rt Hon Amber Rudd MP]

83 Q17 [Chris Littlecott], Qq33, 59 [Luke Warren], Q 64 [Prof Gibbins], Letter from the Energy Technologies Institute to the Energy and Climate Change Committee (January 2016)

84 Q20 [Luke Warren]

85 Q19 [Chris Littlecott]

86 Q26 [Richard Simon-Lewis]

87 Q19 [Chris Littlecott]

88 Qq27, 59 [Luke Warren]

89 Q19 [Chris Littlecott]

© Parliamentary copyright 2015

Prepared 4 February 2016