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Coal and Carbon Capture and Storage


1.36 pm

The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, with the leave of the House, I would like to repeat a Statement made by my right honourable friend the Secretary of State for Energy and Climate Change in another place.

“With permission, Mr Speaker, I would like to make a Statement on coal and carbon capture and storage.

In our energy policy, we face three challenges: to transform our energy to low carbon sources; to maintain security of supply; and to do so in a way that is right for the British economy and industry. To meet that challenge will take all of the low-carbon technologies at our disposal.

We need renewable energy. In the last five years, we have tripled renewable electricity supplies. We have more offshore wind power than any country in the world, and yesterday my right honourable friend announced new support for offshore wind and new financial help for the wind industry to get through the credit crunch.

We need to facilitate nuclear energy too. In the face of climate change, with assurances on safety and cost, many who once opposed nuclear power now support it. Thanks to decisions made by my predecessor, Britain is on track for a renaissance in nuclear power, and I announced last week the nominations for 11 potential sites.

The future of coal in our energy mix poses the starkest dilemma we face. It is a polluting fuel, but is used across the world because it is low-cost and it is flexible enough to meet fluctuations in demand for power.

In the UK, one-third of our existing coal-fired power stations are due to close in the coming decade. In order to ensure that we maintain a diverse energy mix, including maximising our domestic fuel supply, we need new coal-fired power stations, but only if they

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can be part of a low carbon future. Across the world, we know the challenges that coal presents. With many countries reliant on coal and many building new coal-fired power stations at a rapid pace, there is an urgent international imperative for us to make coal clean.

With a solution to the problem of coal, we will greatly increase our chances of stopping dangerous climate change. Without it, we will not succeed. And there is a solution to the challenge—through carbon capture and storage. Capturing the CO2, transporting it and locking it permanently underground would reduce emissions by 90 per cent. But while this has been demonstrated in its different parts and at small scale, capturing emissions from 30 megawatts, it has never been tried on a commercial scale and never the complete process from start to finish on a power station.

So the first task is to urgently drive the technology at scale. We are already running a competition for one of the first end-to-end demonstrations in the world, covering capture, transport and storage. It will be one of the biggest CCS projects in the world, more than 10 times bigger than the largest existing pilot.

Yesterday my right honourable friend announced the public funding for the next stage. We will now select bids to proceed to detailed designs. But we know we need to go further. Because of yesterday’s Budget there will also be funding for up to three more demonstration projects, and we want them to be a mix of pre-and post-combustion. To support this, my right honourable friend the Chancellor yesterday announced plans for a new incentive mechanism to support carbon capture and storage. This could be based around a feed-in tariff for CCS, so these projects would receive a fixed price for electricity, or around a fixed price for carbon abated. We will consult on this alongside our new coal conditions by the summer.

We need to ally this reliable stream of funding for carbon capture and storage, which we now have, with a policy on coal-fired power stations to drive the demonstration and deployment of CCS. We consulted last year on carbon capture readiness as the condition for new coal-fired power stations, but I have concluded that while it is right to go ahead with this condition, it will not, on its own, drive the change we need. I believe that we need to signal a move away from the building of unabated coal-fired power stations, because it is right for our country to drive us towards low carbon as part of a progressive decarbonisation. It is an essential part of a new industrial strategy, and it is necessary if we are to show international leadership on climate change.

I am proposing two new conditions that any new coal-fired power station must meet to gain consent in England or Wales. We are now proceeding with a strategic environmental assessment and will consult formally on these proposals in the summer. First, we must send a decisive signal that change starts now. I now propose a requirement to demonstrate CCS on a substantial proportion of any new coal-fired power station. We will propose for consultation a requirement to demonstrate at least 300 megawatts of net capacity, or around 400 megawatt of gross output, as a condition

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of any consent. The demonstration condition will mean that henceforth unabated coal-fired power stations will not get government consent.

Secondly, alongside this, we must secure not just a commitment to demonstrate, but, when the technology is proven, a commitment that CCS will be fitted on the entire plant. As the Committee on Climate Change concluded,

That is the earliest it believes it will be feasible.

With the demonstrations in the UK and abroad, we will plan on the basis that CCS will be technically and economically proven by 2020. There will be an independent judge of when the technology is proven. I envisage the Environment Agency playing that role. Every coal-fired power station built from now would have to commit to retrofitting CCS on the whole plant, 100 per cent within five years of 2020, subject to the technology being ready. It would also mean that once the technology has been judged as proven, every new coal-fired power station would have to commit to CCS, not just on a portion but on the whole plant.

I believe CCS will be effective and can be shown to work. However, I also want to seek views on whether we need a safety net in the eventuality that it does not become proven as quickly as we expect. We will also consult on whether it is possible through an emissions performance standard to implement the conditions I have outlined.

The new conditions would come on top of the requirement of every power station to buy carbon permits, which under the EU emissions trading scheme are capped and falling. I believe that the funding for demonstrations and the conditions I have proposed meet the criteria I set at the start. They set us on a decisive low-carbon path, with the UK doing more than any other country to demonstrate and deploy CCS, and they are the most environmentally ambitious coal conditions of any country in the world. They protect security of supply by making possible the only sustainable long-term diversity there is, and that is low-carbon diversity.

I have had representations that from day one there should be 100 per cent CCS on new coal, but I believe that this does not appreciate the need that still exists to demonstrate that technology before full-scale commercial deployment is possible. Such a condition would reduce the range of technologies that could be affordably demonstrated; mean that demonstration of post-combustion CCS would be far less likely; and would fail to meet our international obligation to drive low-carbon technology.

Under today’s path to low-carbon coal, we will be able both to meet our climate change commitments and have up to four new coal power stations with CCS by 2020. This route to low-carbon coal is right, too, for the British economy, and will enable us to lead the world in carbon capture and storage. Instead, with a reliable stream of finance, we are investing in British skills so our industries can lead carbon capture and storage not just within Britain but at power stations

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around the world. I hope our industry, universities and our scientists will respond to the challenge of creating a new industry in Britain.

Research suggests that carbon abatement technologies could sustain 50,000 jobs by 2030. This is a massive regional opportunity for Britain, and I pay tribute to our RDAs for what they have done and look forward to working with them. Teesside, Thames Gateway, the Firth of Forth and the Humber could all be suitable for a new cluster, among other locations.

For our North Sea oil and gas industry, CCS can herald a new low carbon future. Just as the 1960s and 1970s saw a new North Sea industry develop, so in the next decades Britain can do the same again with CCS. The proposals I have announced today seek to combine the drive towards low carbon at home and around the world; the need for security of supply; and the building of Britain’s industrial future. The proposals signal that the era of unabated coal is coming to an end, but a new low carbon future for coal with CCS can begin”.

My Lords, I commend this Statement to the House.

1.46 pm

Baroness Wilcox: My Lords I thank the noble Lord, Lord Hunt, for giving us early sight of the Statement. The Minister knows how long we on this side of the House have been trying to persuade the Government to give Britain a lead in carbon capture and storage; indeed, my noble friends have raised the matter in your Lordships’ House many times. I am delighted to see in his place my friend Lord Jenkin of Roding who has been at the forefront of the thinking on this subject.

Because of the Government's dithering and prevarication, we have already seen the collapse of BP’s CCS project at Peterhead—work that is now being conducted in Abu Dhabi—and other countries, notably China, Germany and the United States are steadily pulling ahead of us. A year ago, the Conservative Party set out the policies on CCS that Britain should adopt, which are: to build a network of pipes and connections that will allow captured C02 to be transported from generating plants to areas of storage in the North Sea; to equip at least three new coal plants with CCS technology, paid for from Britain's share of receipts from the EU emissions trading scheme; and to introduce an emissions performance standard that would limit the emissions of any new plant to the equivalent of a modern gas-fuelled power station.

We have had to take the lead on this area of policy because the Government have allowed their own energy policy to head in the same dreadful direction as their care of our public finances.

I shall give a snapshot of the energy disaster they are leading us into. First, a third of our generating capacity is about to be turned off with no remotely adequate plan to replace it with a low carbon alternative. Secondly, North Sea oil and gas is in decline, but we have grossly inadequate storage capacity—it dropped to just four days’ worth in storage last February. Thirdly, no other major European country generates less of its electricity from renewables, despite us having the best wind, wave and tidal resources in Europe.

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We now need to catch up from this appalling position. The Government have finally latched onto some of our ideas, but, if we are to have any confidence at all, the noble Lord must answer some questions about the details of the Government's intentions.

In light of what the Minister has said today, will he clearly set out his support for our call that all new coal-fired power stations will be developed with CCS technology from the outset so that they will achieve an emissions performance standard of no more than 500 kilograms of C02 per megawatt hour? Does he now accept that the notion of capture readiness, as previously promoted by the Government, is completely inadequate?

I hope that the noble Lord will be able to flesh out a better reply than I believe was given to my colleague, Greg Barker, in another place, and will confirm clearly that the Government will not approve anyapplication to build unabated coal-fired generation in the United Kingdom. He has told us about the need to look into having a safety net in case technology does not emerge as quickly as expected, but how big will this safety net be, and at what level will it be employed? The Government must have some idea. Or are they simply putting off making any decision until closer to 2020, long after they have departed office?

On funding for the CCS clusters and demonstration plant, will the Minister kindly explain why the Government have chosen to raise the money by means of a consumer levy and not from EU emissions trading scheme receipts? If not, will he please tell us where all the money in the ETS has been allocated? It would be helpful for your Lordships’ House to know. Will the Minister tell us how much that levy will be, and on which consumers it will fall bearing in mind the burdens that the Budget has placed on households and firms? Will he assure the House that the location of the clusters will be chosen with technical viability at the forefront of considerations rather than political convenience?

If the Government’s conversion to CCS is genuine, I welcome it. However, they have left it appallingly late to secure our energy supplies for the decade ahead and to reduce our emissions of greenhouse gases. It is vital that the Government now put their house in order and see that these decisions are finally acted upon without further delay.

1.51 pm

Lord Teverson: My Lords, coal is certainly an inevitable and important part of the future energy mix, not just in the UK but worldwide. We must find a way to cope with that in a low-carbon economy; hence the challenge of carbon capture and storage, which has been raised many times in this House. It is even more important given the lateness of the renewable energy programmes in this country and the slow start to carbon capture and storage. I, too, have criticised the Government’s rather half-hearted approach to CCS, but it was interesting that the noble Baroness, Lady Wilcox, admitted that the Conservative Party came to a conclusion on this important potential technology only one year earlier.

There are two aspects to this: the demonstration projects and the building of new power stations. We on these Benches welcome the move from one to “up

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to” four demonstration projects. Let us hope it is at least four; it certainly needs to be. I presume that whether it is three or four is dependent on budgetary constraints. I also welcome the potential move to both the pre- and post-combustion technologies that have been mentioned by all sides of the House, particularly during proceedings on the Energy Bill.

However, the length of time has been a problem throughout this process. We have targets and important dates in 2020 and 2050, but it is important to get solutions to climate change as early as possible. Savings and technologies implemented now are much more important than those well into the future. When do we expect the existing demonstration project to start? What are the timescales on the further three? When will they come on stream? We have long and extended timescales here.

In reality, one would certainly offer a partial welcome to the new coal stations. There is now an understanding that just moving ahead with coal-fired power stations is unacceptable and cannot happen when we are trying to decarbonise the economy. It is good that we have moved from a vague commitment to retrofitting to a mandatory 300 megawatts net when power stations are built. However, it is important to clarify whether that demonstration site must be operable before the power station as a whole can feed into the grid and be commissioned. Must that be an absolute guarantee, which must come from the power operator?

The feed-in tariff will be far more certain. I was interested that it might be a fixed-carbon price. I suppose that that is a kind of recognition that fixed-carbon prices are increasingly important when the EU ETS has a very variable carbon price.

The fact that we have a minimum capacity means that we do not have a minimum CCS demonstration percentage of the power of those power stations. Why can we not move to a minimum percentage as well? There is a temptation to have a large power station with a very small megawatt capacity. Emission standards are mentioned in the Statement, but should we not have them at the same time—particularly if we do not have a minimum percentage? Even without carbon capture and storage, the technology of the coal-fired station is important in determining its emissions. Why is there nothing in the Statement about that? The 90 per cent reduction target is enticing. However, if you co-fire a coal power station, you can get to 110 or 120 per cent because you are using biomass.

The big issue here is the part of the Statement that says,

That is the point: what happens if CCS does not work? I ask the Minister specifically: what happens if we find that the implementation or experimentation goes on well beyond the expected timescale?

I congratulate the noble Baroness, Lady Wilcox, on understanding more about the safety net. I read about it and could not understand what a safety net could be. I would be interested to hear from the Minister what that is. Perhaps he could also explain how this ties in the with the EU CCS strategy. Is it part of it, or is it a separate initiative?

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Lastly, the Statement mentions the renewables contribution to generation. When does the Minister expect the Government’s renewables strategy to be published? The website said spring this year. We are moving towards the end of spring fairly rapidly.

1.58 pm

Lord Hunt of Kings Heath: My Lords, I thank both the noble Baroness and the noble Lord for their general welcome for the Statement about CCS. There is clearly huge potential for this country in meeting the challenge of reducing emissions, for jobs—and not just in this country—in the production of CCS and in exports of British skills and expertise.

I do not understand what the noble Baroness, Lady Wilcox, meant by “dither”. The Government have been absolutely determined on energy policy. We have had our nuclear White Paper, the transmission access review, our work in Europe on liberalisation, the encouragement of greater storage facilities and renewables. Yesterday’s announcement on support for renewables has been widely welcomed.

As for other countries pulling ahead on CCS, we are one of only four countries to commit to full-scale CCS demonstration. That puts us in a leadership role, of which I earnestly believe that we can take advantage. There is huge advantage for this country in doing so if we can ensure that we pull off the technology that is required.

We have debated the energy gap on many occasions in your Lordships' House. We are ever mindful of the need to ensure that as old stations are closed down for one reason or another we have a ready-made supply of alternative sources of generation. I believe that the figures show that 18 gigawatts of generating capacity is likely to close by 2018 due to the provisions of the large combustion plant directive and the closures that will need to take place of some of our nuclear stations, and that we already have 10 gigawatts under construction, 10.5 gigawatts with planning consent and more applying for consent. Of course, we can never be complacent but we are ever mindful of the need for and critical importance of our energy supply.

The noble Baroness, Lady Wilcox, talked about wanting to see a demonstration at a coal power station. She will have noted from the Statement that that is not the route down which we are going. However, I say to the noble Lord, Lord Teverson, that the 300 megawatts net and the 400 megawatts gross are substantial figures. We are not embracing the noble Baroness’s suggestion because we have to remember that this technology is still in demonstration and has not been proven. It is a very expensive undertaking, each demonstration project is likely to cost hundreds of millions of pounds and risk is involved. We need to balance the security of supply with the need to prove the technology. I noted her comments about a limit on the emissions performance standard. We are not willing to put a figure on this now as further consideration and consultation are required. We will produce a consultation paper that will allow us to debate this further. I am sure that noble Lords will wish to have a wider debate on these matters when the consultation paper is produced.

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As regards the EU ETS, we come back to the question of leadership. We have been instrumental in Europe in driving forward proposals to provide funding for CCS projects. I believe that the UK’s role was pivotal in leading to agreement at the European Council in December 2008 to allocate 300 million allowances from the EU ETS, which will part fund up to 12 CCS demonstrations. I noted the noble Baroness’s comments about the levy and the impact it could have on consumers’ bills. The IEA has estimated that the cost of tackling climate change will be 70 per cent higher if we do not embrace CCS. Therefore, I believe that this is a cost-effective thing to do.

The noble Baroness asked me about the process under which we will choose the location of sites. I confirm that it will be a very rigorous process. I agree with the comments about the need for rigour in that area. She can rely on this Government to ensure that a rigorous process is undertaken. I agree with the noble Lord, Lord Teverson, that coal is an essential part of the mix. My understanding is that, globally, about 40 per cent of electricity is produced from coal. I believe that the IEA forecasts that by 2030 that will go up to 44 per cent. From a global perspective, if we cannot develop CCS successfully, we shall be in deep trouble in terms of reducing carbon emissions, so this is a very critical time for us.

I do not know why the noble Lord, Lord Teverson, thinks that we have taken a half-hearted approach to CCS. That is not the case. We have negotiated hard in Europe on the EU ETS allowances. We started a competition for a demonstration project in 2007, which is proceeding well. I understand that in the near future we will invite selected companies to negotiate. We hope that the first demonstration project will be up and running in 2014. The 2007 demonstration project will be part of the whole scheme. I also noted the noble Lord’s comments on the use of different technologies. That point has been well made in your Lordships' House. The first demonstration project will be post-combustion given its greater applicability throughout the world, but we have an opportunity to look at different technologies, which will be very important. As regards feed-in tariffs, I am very interested in the noble Lord’s views and the comments that he has made previously about variable carbon prices. We want to use the consultation process to discuss this widely to ascertain the best way in which we can fund support for the demonstration projects.

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