Dominic Sheldon
February 2016

CCS in the UK: has it gone up in smoke?

The day after George Osborne published the 2015 Autumn Statement, an announcement to the London Stock Exchange declared something unexpected: the £1bn ring-fenced capital budget for a Carbon Capture and Storage (CCS) competition would no longer be available. This funding was to demonstrate CCS technology commercially on a power plant in the UK. The deadline for bids was less than six weeks away when the announcement was made.

As part of the UK’s Climate Change Act, the target was set of achieving an 80% reduction in greenhouse gas emissions below 1990 levels by 2050. In January 2016 the Committee on Climate Change (CCC) wrote to the Secretary of State for Energy and Climate Change, Amber Rudd, to congratulate the Government on their contribution to the agreement achieved at the UN climate talks in Paris, but to also point out that the Government’s current policies and targets do not set it on the path to achieve targets set out in the agreement. They underlined that without CCS the cost of achieving the most recent carbon budget - the fifth set by the statutory body - would be double that of a plan including the technology.

This Government’s announcement was met with a cross-sectoral denouncement. Shell, behind one of the projects funded by the competition, stated that government funding is important to “achieving the aim of making the technology commercially viable in the shortest possible time” and that the project had potential to bring huge value to the UK in emissions reductions.

Scotland’s energy minister, Fergus Ewing, labelled the scrapping of the funding a “disgrace” that shows “complete disregard for tackling climate change.” MP for Middlesbrough South and East Cleveland Tom Blenkinsop condemned the action whilst Jonathan Church, a lawyer from ClientEarth denounced the move as “extremely damaging”.

Sepi Golzari-Munro from E3G highlighted the ambivalence of Government to low carbon technology; “slashing renewables and energy efficiency investment, and eliminating CCS funding” making it “almost impossible to meet out carbon budgets.”

On the 28th January leading thinkers on the technology from the public and private sector gathered at Imperial College London to discuss whether CCS is dead and if so, whether there is any possibility of resuscitating it.

Former Secretary of State for Energy and Climate Change Ed Davey described how some sort of U-turn was needed to reinvent the policy. Going further he stated how he felt the policy renege was possible thanks to a lack of a direct lobby. They “got away with it” as electoral opposition was limited and the CSS voice within Westminster wasn’t strong enough.

Three policies came through as critical to reviving the technology:

1. An effective carbon price
Whether it be through the EU Emissions Trading System (ETS) or through a separate pricing instrument, an effective price for polluting that is more than €30 a CO2 tonne (rather than the current €6 a tonne) makes measures like CCS comparatively more affordable. The polluter chooses to reduce emissions to a certain level determined by the price and the externality is internalised.

However, as Mike Thompson from the Committee on Climate Change highlighted, considering it will take 15 years to get CCS to commercialisation and maybe 10 more to achieve full deployment, ETS would have to be reformed now to achieve the 2050 emissions reduction targets.

2. Collaboration
A point consistently raised over the evening at Imperial College was that the UK can’t go it alone and that competition defeats incentives necessary for progress, prohibits collaboration and makes the whole process less efficient and more expensive. Sharing the capital burden is integral to overcoming the “valley of death” often experienced in product development; a time of heavy investment required between proof-of-concept and commercial profitability.

A “cluster” of collaborators was suggested to help provide the necessary capital and expertise. Preferably, this cluster would be formed of businesses and member states from around the EU to share costs.

3. Separation
The panel all agreed that part of the reason for the current demise of CCS is that the cost is too big to digest for the financiers, private and public, and politically. Experts propose that if we are to make progress with this technology, carbon capture must be separated from transportation and storage. Capturing the carbon can be left to the polluter (this represents about ¼ of the cost) whilst transportation and sequestration is far more expensive and has very different capital requirements. Burdening a single project with all responsibilities almost guarantees failure and as a single line item on the Treasury’s budget creates an off-putting image for the Government.

Conclusion
The overall message from industry is that CCS is necessary if we want to achieve our carbon targets, but near-impossible without public finance. It is not clear why George Osborne scrapped the scheme. Perhaps the background of reduced electricity consumption due to record high temperatures and the phasing out of coal leading to UK emissions decreasing means that big projects like CCS start to look redundant. Nevertheless, groups like the Committee on Climate Change are right to warn of complacency about the trajectory of UK greenhouse gas emission reduction efforts. In their 2015 Progress Report, the CCC highlight that many policy measures necessary to facilitate the transition of the UK to a low-carbon economy are due to end in 2020 and therefore it is vital that focus on low-carbon electricity generation and low emission vehicles is maintained beyond this date. CCS looked like it could have played a role in future carbon budgets for the UK; it isn’t quite so clear anymore how current momentum will be maintained considering the corollary cuts to renewable subsidies.

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