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However, there is a case for the Government to be of some assistance, but the way in which this has been portrayed is that if you do not back both technologies, the pre-combustion technology will never happen in Britain. There are more ways to attract capital, to seek tax relief, to get allowances and to get the kind of support that that technology requires. As I understand it, in a market economy, an element of risk is involved. It would appear that there is greater potential for post-combustion technology in so far as very few other countries are concentrating on it. The two countriesAmerica, and I think Norwaythat are looking at carbon capture have gone for pre and we are going for post. There is nothing to stop British companies joining Norwegian or American allies and getting involved. It is a gross overstatement on the part of the noble Lord, Lord Redesdale, to suggest that somehow it is being outlawed. Ultimately, if you do not win, you have had to spend the money anyway and you will lose anyway. The winning is a bonus. It is not a pre-condition of starting the game that you are going to win: there will be only one winner. Several companies, universities and utilities may well want to get involved in this.
This is a phoney debate. If you want to have pre and post, say that and tell us that there will be two winners. If you do not want that and you say, Let us just go with pre because one or two people have been trying that out, we should get rid of post. To be honest, I do not think that this kind of ambivalence, this mugwump approach, is intellectually very robust. If we want to support carbon capture globally, we have to make choices. Governments have to shoulder that responsibility when they are resource-limited. This will not be cheap or easy and it might end up like fusion, but it is a great idea that will be realisable in anything from 20 to 35 yearsthat being a rolling timescale.
I am not cynical. It can be done, but we have to have priorities. We have taken a priority that does not always suit the commercial ambitions of some of the people who are already in the field. Let us face it, if it was that good an idea and the Government had not introduced a competition, these people would have been investing anyway.
Lord O'Neill of Clackmannan: Well, some of the companies were doing it. The noble Lord shakes his head but some of the companies were investing previously. However, when they discovered that the Governments penny was not going to be made available to them, they took their bowl home and refused to do it. There
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As regards Denmark and windmills, we did not need windmills because we had oil and gas. We did not need to get involved in it. No one thought about it. The Danes have a one-trick pony of an economy; they do not have much other than Carlsberg. They are doing rather well out of windmills. If there is such a demand for windmills in Britain, British business should set up plants to build them here. One was started in Campbeltown but folded because it could not get orders. Such was the state of the windmill industry in Britain. Let us talk about serious industry here. If Government have to get involved in it, they have to make choices and have priorities. This idea that there is a limitless pot of money that you can throw at every bright idea under the sun is not the way things are done.
I want carbon capture and storage to work. It seems ridiculous that we should not be able to make use of coal as one of the elements of our generating portfolio. Let us choose a model to produce this technology, but if a Norwegian or an American model works better, we can produce it under licence, as is often the case. I do not think it would make that big a difference to our economy one way or the other if we produced it under licence or if we got all the licence money ourselves. As I say, I think that we should throw this amendment out when the opportunity arises because I am sure it will reappear.
Lord Oxburgh: I believe that the carbon capture and storage competition was driven not by any urge to wrap a Union Jack round anything but by what was seen as a global need to develop carbon capture and storage technology in the shortest possible time, primarily on climate change grounds but also on energy security grounds. We have precious little time if we are to keep atmospheric CO2 down to a reasonable level by 2050, whether you choose 450 parts or 500 parts per million. It is often not appreciated outside the industry how long it takes to develop heavy engineeringwe are talking about really heavy engineering herewhich involves learning by doing.
The noble Lord, Lord ONeill, rightly pointed out that all sorts of people were gearing up to do this. However, that occurred in anticipation of the competition. The competition was pretty heavily trailed with the industry and the sums that were trailed were significantly larger than the £100 million that was finally announced. The implication was that there would be two or three trials. In fact, a government spokesman said at a trade meeting that it might even be more. It was on that basis that a range of industrial partners said that they would give it a go. At present capture technology is simply not economic. It adds significantly to costs. No one knows by how much until someone has done it, but conservative estimates indicate an increase of about 30 per cent in the cost of electricity. People pre-invested large sumstens of millions of poundsin a combination of public and commercial spirit in order to kick-start their position in the competition.
There was considerable disappointment in the industry when the actual competition was announced, but one understands that we are in financially straitened times and if that is the money that is available, that is the money that is available. Personally I believe that the Governments heart or head was in the right place when they looked at technology that could be retrofitted, particularly in developing countries which as we speak are putting coal-fired power stations at an enormous rate. Frankly, unless we or someone else come up with a technology that can control those emissions, we are in a very bad position to manage climate change.
The Government did not get it quite right in specifying post-combustion rather than retrofit. There are three main carbon capture technologies, two of which can be retrofitted. One is more obviousthe post-combustion technologybut the other, the oxyfuel or oxyburn technology, can be done as well. It would have been better if it had been specified as retrofittable rather than simply as post-combustion. But that is water under the bridge. Overall, the industry is delighted with the Bill and the reference made to carbon capture and storage; it is pretty happy with the provisions, and it sees the Bill as an important step forward.
I shall make a comment that is irrelevant to this debate but bears on what we were discussing before. There did not seem to be an obvious place to bring it in. I hope that it is a helpful comment. The Government may wish to consider the separate licensing of sites as distinct from the licensing of organisations. I may have missed it in the Bill but that is probably going to be quite important. There are two elements: you have to have a site that meets a range of geological criteria, which makes it a sensible place in which to operate. It could be operated by a range of different operators demonstrating particular skills and competences. The Government may want to think about making that distinction.
Lord Jenkin of Roding: I hesitate to add anything after the words of the noble Lord, Lord Oxburgh, on this. I understand the points made by the noble Lord, Lord ONeill. I read all the oral evidence that was given to the Committee in another place before it had its formal sittings and I found logical the arguments of Mr Wicksthe Minister who gave evidence as well as being a member of the Committee; it was a slightly strange processthat this technology was the one most likely to be sold.
What has not been recognised is the penalty for having gone down that road. I was given a briefing the other day by the oil company ConocoPhillips, which had the very large potential of a combined heat and power plant at Immingham, which would have involved pre-combustion technology. The company had taken that a considerable way, until the competition was announced and it was said that it would be post-combustion. I was told that the company has now moved its team of experts to California and will do it there instead. I shall not weary the Committee with all the figures that have been given, but it appeared to me, as a result of what the company said, that what it could have achieved in carbon reduction through combined heat and power using a pre-combustion technique was very substantially in excess of what
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There has been some discussion of the efficiency and cost penalties of CCS. The figures provided to me show that the efficiency percentage for an integrated combined cycle plant with no CCS is 38.4 per cent. If that plant must then have CCS, that figure falls to 31.2 per cent. In terms of increased costs, a coal plant will produce electricity at about £30 per megawatt hour, a gas plant at slightly more and offshore wind at considerably more. A CCS coal plant takes that cost up to £47. It must be realised that there is a substantial cost penalty with the technology as currently envisaged.
I am a strong supporter of developing this technology in one form or another, because the world has huge reserves of coal. As was pointed out in the International Energy Agencys compelling report, as reported in last weekends Financial Times, coal demand in 2005 was equivalent to just less than 3,000 million tonnes of oil. By 2050, that has multiplied by three under the business-as-usual scenario. That will be an enormous increase because of economics and availability. In those circumstances, as the IEA says, to go ahead without carbon capture and storage would mean that there was no chance of reaching any of the CO2 reduction targets that have been mooted not only in the European Community but internationally.
Lord Jenkin of Roding: I should have made it clear that I was talking about two different technologies. The main use of this will of course be with coal. As I was saying, the IEA has pointed out the huge reserves and the indication that they will be burnt over the next 20 to 30 years, come what may. To do that without CCS would jettison any idea of achieving the targets. The figures from ConocoPhillips I quoted earlier were based on its presumption of what it would be doing with the combined heat and power plant at Immingham.
One must recognise that Governments must make choices. Anyone who has been in government recognises that, and they are not easy choices. One cannot do everything. However, there is a price to pay for the Governments decision. It will be seen to pay off only if the winner of the competition produces workable technology that can be sold in other countries. I am told that the Government are shortly to announce the candidates for the competition, and that it will be a further 12 months before a decision can be taken on which candidates should go ahead and, as it were, do the demonstration plant.
There is another aspect that I would like to touch on. What are the Government going to pay for in that competition? As I understand it, and I have seen the original presentation by Mr Hutton, they will pay for the CCS plant, for the transport of the sequestrated CO2 and then for the storage of the sequestrated CO2. I have been asking in Questions for Written Answer what plans the Government have for establishing some sort of a CO2 grid. Is this going to become a widely used technology? Some of the scenarios that the ConocoPhillips people have been talking about would involve a significant grid, whereby people producing CO2 can discharge it into the grid and it can then be transported offshore and go into the oil fields. As was said earlier, the depleted oil and gas fields seem to be the best possible location.
The plant that the Government are going to support will presumably have a pipeline to meet the needs of that particular plant. It is not like an electricity grid, where once you put it in it is there and can take a substantial expansion. This will be a pipe for that plant. How far are the Government going to recognise that, if the technology is going to take off, from the start there needs to be the beginnings of a CO2 grid? Otherwise, it is not going to work.
This final point, which has been made to me not least by Dr Chapman, the chief executive of the CCSA, is that there is a feeling in the industry that the Government, having now announced their competition, are simply now going to sit back and wait for the results. What I am being told is that there is at the moment no incentive for anyone else to do anything about it. When the Prime Ministers met at the European Council in the spring of last year, they produced the requirement, under Energy Technologies, which,
The problem everyone else sees with that is that it may be an admirable aspiration, but the Community has done absolutely nothing to bring it about. Individual countries, like our own, are moving ahead with the demonstration project, and I applaud that. At the same time, under the previous paragraph, where is the economic framework to which other countries are going to be able to look to see where this all begins? The Bill provides a regulatory framework, which is certainly important, but there is no financial framework. That is what is lacking. If we are really to see carbon capture and storage move ahead, there has got to be a more positive approach to providing incentives and encouragement to companies to do the work. That may involve a lot of companies with different sorts of technologies that can then be put together. That is what we are lacking in this area. We have a demonstration plant; let us wait and see what happens; that is the feeling that there is. I do not find that very satisfactory.
Lord Woolmer of Leeds: There has been quite a lot of discussion about pre- and post-combustion technology. I share the views expressed by my noble friend Lord
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There are questions about the financing of the successful competitor, and the noble Lord touched on many of them. In the end, however, this will work financially only if carbon is expensive enough. That is what this really comes down to. You can state-aid as much as you want in the experiment. I noted that the Government have ambitiously said somewhere that the financial support is for about 15 years, at the end of which they hoperather than expectthat carbon capture, storage and transport will be financially viable.
Will the Minister update us on whether the Government are optimistic, now that the price of carbon looks as though it is firming up in the years ahead, that by the end of the period for the winner of this schemeI think it is up to 15 yearsthese carbon schemes will be financially viable? Much depends on the price of carbon, but, as I understand it, carbon storage does not qualify under the European Emissions Trading Scheme for carbon credits. Am I right? If I am, will that change? If so, when will it change? If carbon capture does not qualify, it will clearly be a disaster. I assume that the latest Commission consultation paper says something about this. It is clearly an important issue.
This technology also bears on discussions that we had on the Climate Change Bill and on disagreements that were aired across the Chamber, not least between the noble Lord, Lord Teverson, and me, on whether CDMs will be allowable. China and India will be devastatingly badly hit if Europe and the UK limit the CDMs that qualify. Again, that will affect the financial liability of those schemes. These things are linked together in the end as they progress around the world.
On pipelines and a network, a number of schemes are being proposed, the most promising of which seem to be on new-build power stations rather than on retrofitted old ones. That is really quite interesting. I declare an interest as I was for a number of years chair of the Yorkshire and Humber Regional Energy forum, which brought together producers and users of energy. Earlier this week, I visited Drax with the All-Party Group on Energy Studies. In Yorkshire, there is a proposal for a new build in Hatfield and a pipeline across to the south of the Humber Estuary, but with the intention of linking it to Ferrybridge, Eggborough, Drax and Killingholme. In other words, it recognises that in a part of the country where something like 17 per cent of the UKs electricity is generated by coal, if we do not retrofit carbon capture technology into the Yorkshire and Humber regions power stations, we will not make a big dent in emissions from coal.
It is enormously important that schemes that come forward are able to make sense of the transport schemes that prevent every coal-fired power station having its
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Lord Teverson: Without going back over the Climate Change Bill, perhaps I can point out where the noble Lord, Lord Woolmer, is not correct in his analysis. Most CDMs are traded by commercial organisations that have no interest in the UK carbon account concept, so it does not affect the demand for them among commercial organisations. The noble Lord, Lord Woolmer, is rightand I know the noble Lord, Lord Jenkin, has said this many times in this Houseabout the price of carbon. It is the only way that this will work within a market area, as the noble Lord, Lord Woolmer, rightly highlighted. I do not think it is in that scheme at the moment, but it needs to be in it post-2012.
To make sure that that price of carbon happens, are the Government insisting in the EU-ETS post-2012 negotiations that the power industry pays through auction for all its allocation of EU-ETS? Once that regulation is laid down at European level, that is the way the price of carbon comes in. I looked at the spot price a couple of weeks ago, and phase 2 of the EU-ETS is between 20 and 30 euros, which shows the credibility of that scheme. I know it gets more complicated outside the energy industry where there are international competition issues, but within the power industry we do not have them, and auctioning post-2012 EUAs is fundamental to making this technology work.
which is 27 euros. The headline to the article says that the IEA is arguing that if we are to achieve the CO2 reductions that are now being sought by 2050, that will have to rise to $200 a tonne, which will make it very expensive. We cannot get rid of CO2 without recognising that there are huge expenses. Would the noble Lord agree with that?
Lord Teverson: I absolutely agree, but moving in to auctioning allocations, particularly in the power industry, will be a major part of that. The noble Lord is right that this is not an easy thing. If all sides of the Committee accept that we need to move into that area, there is a heavy cost to pay. The only thing that one can say about it is that, given how little the big changes in the price of oil have affected the economy in the first stages, maybe the global economy can find a way. However, it is going to be quite a challenge.
Lord Woolmer of Leeds: So that the Minister can respond to a variation on the point of the noble Lord, Lord Teverson, one way of dealing with the risk that coal-fired generators will take if they install this technology would be to permit some proportion of allowances not to be auctioned and have free allocation if they are installing carbon capture technology. There is a risk, even after a competition and trial scheme, and emission allowances are effectively by plant. This is a way of providing risk capital. I am entirely in favour of substantial auctioning, but there is an argument for a proportion of allowances to be allocated free to power generators only if they spend money on installing carbon capture.
Lord De Mauley: I am sure that the noble Lord, Lord Redesdale, will be grateful, as we all are, for the interventions of the noble Lords, Lord Oxburgh and Lord Woolmer, and my noble friend Lord Jenkin. We support the principle of competition, the purpose of which is to encourage a range of technologies. I agree with the noble Lord, Lord Redesdale, that it is important that a scheme designed to encourage innovation through a competition should not prejudice any particular approach.
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