Summary and implications

On 17 June 2009, the Government launched the Consultation paper entitled 'A framework for the development for clean coal (the "Clean Coal Consultation"). The Clean Coal Consultation seeks views on 'the design of a financial incentive to support the delivery of up to four Carbon Capture and Storage (CCS) demonstration projects in the UK' and 'a regulatory framework for coal power stations that would drive the development and deployment of CCS technologies and reinforce expectations that emissions from coal power stations will be substantially reduced in the 2020s.' On 29 June 2009, the Government launched 'Building Britain's Future'. This included the draft proposed Energy Bill. The Energy Bill goes on to build on the Clean Coal Consultation. The aim of the Bill amongst other things is:

  • to promote the UK as a World leader in clean coal technology;
  • support the development of up to four commercial-scale CCS demonstration plants and allow the Secretary of State to introduce a financial mechanism to fund four CCS demonstration plants;
  •  make sure that consumers and business benefit from the economic gains that the UK should have when they lead the way in clean coal technology.

The current position

Coal currently plays a vital role in, and accounts for approximately one third of, electricity generation in the UK. It is also one of the most carbon intensive fossil fuels that we have available and, according to the consultation, 'emits more CO2 per unit of electricity produced than all other forms of generation.' Considering the UK is aiming to reduce its carbon emissions by 34 percent in 2020 to keep it on track for the 80 percent reduction in 2050, new measures must be considered to aid reaching these legally binding targets.

The processes involved in CCS

DECC states that CCS has the potential to reduce CO2 emissions from coal power plants by as much as 90 percent. The CCS process is a three stage one and in summary is as follows:

  • capturing CO2 emissions from power plants and any other industrial sources;
  • transporting the captured CO2 emissions in a pipeline system to various storage points; and
  • storing the CO2 emissions in safe geological sites.

The Department for Business Enterprise & Regulatory Reform's (now BIS) Consultation entitled 'Towards Carbon Capture and Storage' states that 'CCS is the only technology currently available that has the potential to significantly reduce emissions of carbon dioxide from fossil fuel power stations [and] the International Energy Agency estimated that CCS could contribute up to 28 percent of global carbon dioxide mitigation by 2050.' There is some support for CCS technology and the above processes are not seen to be particularly complex, however, they have not been demonstrated on a commercial scale at a commercial plant and therefore are unproven.

Funding CCS under the Energy Bill

The main issue raised through the Clean Coal Consultation is the financial support mechanism for CCS.

As CCS is currently unproven it could be potentially difficult to gain funding for projects when viewed as 'risky investments' for electricity companies. Arguably the Government will have to share some of this risk to encourage electricity companies to invest in this unproven technology. This then presents the issue of how to reward such investment and to also make sure that the 'Government achieves value for money in their delivery.' Furthermore, it is reported that one CCS plant could cost in excess of £1 billion which combined with the unproven technology is making it increasingly difficult to get electricity companies to invest, particularly when banks are reluctant to lend and expect more security for their loan.

  • funding through a subsidy mechanism that is similar to the Renewables Obligation; or
  • a straight levy on energy firms to provide funds to support the CCS programmes

It is reported that the Government currently supports option 2. However, until the Clean Coal Consultation reaches its conclusion this September it is uncertain what funding mechanism will be chosen. Furthermore, it is uncertain whether a specific funding mechanism will encourage investment into CCS given its unproven nature.

Conclusion

The Government wants the UK to be at the forefront of developing carbon reduction technologies, hence its support for CCS. The Clean Coal Consultation seeks to find a financing mechanism that will encourage investment into this unproven technology. Powers to introduce the mechanism are provided for in the Energy Bill, details of which will be finalised once the type of mechanism is determined following close of consultation on the 9 September 2009. Many express concerns that CCS may still be unproven in 2020 and therefore unable to assist the Government with the UK's carbon emissions targets. Furthermore there are real concerns as to its effectiveness based on the environmental risks of CO2 transport and storage. The Government will need to indicate to electricity companies that they are prepared to take on some of the risk in developing CCS plants and that the technology is viable in order to make it a more attractive investment option.