Carbon Capture and Storage

Alan Whitehead Excerpts

Thursday 20th November 2014 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I will happily answer to pretty much anything, Mr Walker.

I want—unsurprisingly, I guess—to agree once again with the distinguished Chairman of the Select Committee on Energy and Climate Change, the hon. Member for South Suffolk (Mr Yeo), about how important carbon capture and storage will be in future to any form of mineral energy burning at all. I also want to draw attention, as the report does, to related issues: the development of carbon capture, the competition, what happens after the competition, and how CCS may sit in our energy economy in the years to come.

Unlike the Chairman, my hon. Friend the Member for Wansbeck (Ian Lavery) and I visited the first operational CCS plant in the world. It was not quite operational then, but it has been since spring, and is working well and effectively capturing the plant’s whole production. That is significant, because it demonstrates, contrary to one strand of the debate in recent years, that CCS really works. The question of how well it works economically is a second-order issue, but is nevertheless important.

Clearly, CCS in itself will not make anyone a load of money. Indeed, in terms of traditional energy economics it clearly does the opposite, but interestingly on our visit to Canada we learned that some clever circular loops have been built into the CCS process at the plant at Boundary dam in Saskatchewan. That makes the process much more economically interesting than was suggested by early studies on how it would work.

In the UK, where mercifully the first two plants—the competition plants—are, I hope, going ahead on the basis of a substantial degree of underwriting, the question to ask about CCS’s importance to the wider energy economy in future is what happens about plants three to eight. How will the UK get them under way, and make sure that the elements of CCS in which we already have a substantial lead will be part of its worldwide benefits, which the Committee Chairman described?

To roll one stage back, it is instructive to consider where we stand now with our energy strategies, and the role that mineral fuel may play in them. The recent DECC gas strategy included a series of potential scenarios for the role of gas in our future energy economy. They are predicated on a relatively high carbon figure, given as parts per kWh of energy produced—200 grams; or a lower-level scenario, with a figure of 100 grams; and, indeed, a very much lower one of 50 grams. I cannot remember exactly what page of the DECC gas strategy that is on, but an instructive chart shows what the scenario might consist of.

That shows simply that if we want, overall, a reasonably decarbonised energy supply by 2030, then probably—since it is not just likely but pretty essential that there will be an element of gas in the energy mix, balancing other forms of energy that will come forward—there will be room for perhaps 26 GW of new gas-fired plant to come on to the system, but running at a very low level, to back up and balance the working of the rest of the low-carbon energy economy. Perhaps it might run at about 18% to 20% capacity.

If, on the other hand, we want to overshoot that and double the level to 200 grams—and, to allude to the previous debate, we now know from the IPCC assessment reports that that outcome would be intolerable for our climate change goals—we might have room for 43GW of new gas-fired power stations running pretty much at full tilt. In neither scenario, incidentally, would we have room for coal-fired power plant.

The problem with the lower-level scenario is that it would mean suggesting, now, that a number of companies should invest over the coming period in gas-fired power stations that would run for hardly any of the time. That will probably not happen. At the moment a capacity auction is under way precisely to try to get investment in new gas-fired power plants. We are providing capacity payments over a 15-year period for investment in and building of those plants, which, under the relevant scenario, would not run very much.

My view is that investment on that basis simply will not happen. It is possible that no new gas-fired plant will clear the present auction process. We will get underwriting for some existing gas plants, on an annual basis, to continue to supply, but there will probably not be investment in any new gas plants. It is quite possible that without considerable financial assistance there will never be any investment in gas-fired plants in the medium term.

If that is what is ahead, might it be a better to invest in bringing forward CCS, so that the gas plants could run at the appropriate level over the relevant period—and some coal plants could run as well—than to seek the will-o’-the-wisp of providing increasing amounts of money to supply gas-fired power plant providers so they can develop plants that will not run much? Economic policy is directly relevant to the idea that we get on with carbon capture and storage, beyond the first two plants that have been subject to the competition reward, and underpin it over the next period. To my mind, that is the only way in which mineral-based fossil fuel can continue to run on our systems to any great extent over the next period.

I am not the only person saying that. The Governor of the Bank of England, Mark Carney—I was going to say that he is my good friend, but unfortunately he is not; I wish he was—warned just a few weeks ago that on the present arrangements, industry was in danger of backing stranded assets. He told a World Bank seminar that the “vast majority of reserves”—that is, fossil fuel reserves—“are unburnable” if global temperature rises are to be limited to below 2°. He meant that under present circumstances, we simply will not be able both to burn those fossil fuels and reach the 2° target. With carbon capture and storage, however, the scenario starts to change.

[Graham Stringer]

I am enjoying listening to my hon. Friend’s analysis. I would be grateful if he answered two simple questions. How much of that analysis depends on obtaining a legally binding agreement in Paris next year? What does he think the implications of his analysis are for the development of shale gas?

[Dr Whitehead]

To answer the first question, I think a great deal is riding on there being a legally binding contract in Paris next year. Clearly, if Paris turns out to be a complete fiasco and everybody goes in their own direction, we will have to contemplate a future roughly like the one the Governor of the Bank of England thinks we may be facing. As for the potential of an agreement in Paris, I am encouraged by the combination of bottom-up and top-down measures, which may be a rather better way of getting a world agreement than some of the other arrangements there have been in the past. That is why it is particularly important that we contemplate serious bottom-up measures in this country.

On the second question, my personal view is that not only is shale gas in the category of reserves that are unburnable but at present we already face the likelihood that known fossil fuel reserves would have to stay in the ground if we do not do something about how we burn them—never mind us fracking rocks apart to provide new sources. The position with the carbon budget is that serious, as the Chair of the Energy and Climate Change Committee pointed out. That is why, from a wider point of view, I question whether drilling large amounts of shale gas out of the ground to add to the pile of unburnable fossil fuel is necessarily the best long-term policy idea anyone has ever had.

What may change some of those scenarios, however, is, as I have mentioned, the extent to which we move on to the ambition that I think we should have, namely that a good proportion of the new gas-fired power plants—and, perhaps, some coal-fired ones—are properly equipped with carbon capture and storage, as at Boundary dam, Saskatchewan. That way, they can properly play their role in our energy mix while keeping us to our carbon targets.

My view—one also emphasised by the Committee—is that if we are to do that, we cannot simply hope that over the next few years those arrangements will be economic from the market’s point of view. We need to give carbon capture and storage a continued policy leg-up, which can best be done through a device such as contracts for difference for the next few plants to come through after the first two competition plants. To do that, we have to look carefully at the levy control framework we have at the moment, particularly as it moves from the period up to 2020 into the period of 2020 to 2025.

It is urgent that we clarify what a levy control framework will look like over that next period, and, in particular, one that includes carbon capture and storage and other forms of energy assistance. That way there will be certainty in the market so that those developments can take place, as we move forward. At the moment, the levy control framework not only does not have room for even one more large wind farm but disappears off a cliff in 2020 in any event.

I add to the wider philosophical debate about the advantages of carbon capture and storage the practical point that we need urgent thought about just how we support CCS over the next period, so that we have the investment in it that we know will be needed if the outcomes I have described do not come to pass. We need investors to be secure in their minds that they can make carbon capture and storage a reality of the British energy scene, with the benign consequences I have outlined this afternoon.

--- Later in debate ---

[Amber Rudd]

I appreciate the hon. Gentleman’s question, and I will address it as I proceed.

The electricity market reform programme will provide a route to market for CCS projects. The reforms are specifically designed to bring forward investment in low-carbon generation, including CCS. One of the key elements of EMR is the introduction of contracts for difference to incentivise investment. In recognition of the fact that the first CCS projects require specific support, the first CfDs will be agreed through the competition process. We are also looking at how EMR can help subsequent projects, and we are working with CCS developers to understand the support that they need to bring their projects forward.

In July, we decided to hold back a significant part of the levy control framework budget, retaining almost £1 billion available by 2020-21 for allocation to renewable and CCS projects, including up to two CCS competition projects. That will ensure that later projects, which may be better value for money, have a potential route to funding.

The hon. Member for Rutherglen and Hamilton West (Tom Greatrex) referred to industrial CCS, and we agree that CCS could be important for supporting the decarbonisation of the UK’s energy-intensive industries. Those sectors are not only major employers in the UK but vital for a low carbon economy. Wind turbines need steel, cement and chemicals, and we are making progress in that area. In December 2013, the Prime Minister announced £1 million for a feasibility study on CCS for industrial emitters as part of the Tees Valley city deal. Our engagement on that with the energy intensive sectors continues. Officials from my Department and the Department for Business, Innovation and Skills held two workshops earlier this month in London and Teesside, building on the report we published in May on the current state of technology and costs for CCS in four key sectors: steel, cement, chemicals and refining. The first outputs from the Tees valley work will be available in 2015, and we will also be publishing broader work on how to decarbonise key industrial sectors in early 2015.

The review led by Sir Ian Wood on maximising recovery from the UK continental shelf was published at the same time as the Peterhead announcement in February. The review recognised the exciting opportunities that CCS offers for the North sea, turning depleted oil and gas fields into CO₂ stores and presenting new opportunities for our world-leading offshore and subsea industries. Sir Ian encouraged further collaboration across industry, with DECC and the research community, as the most appropriate means to promote growth in this area. The UK has extensive, well mapped capacity for offshore storage, and developing that potential would be mutually beneficial for the CCS and North sea industries. Sir Ian was also interested in the role CO₂ could play in enhanced oil recovery in the UK. We saw in north America how EOR played a critical role in the development of CCS.

Building the supply chain is another key part of our vision for CCS. We want to maximise the potential to contribute to UK jobs, growth and exports. So far, more than 20 front-end engineering and design subcontracts have been awarded, supporting both the Peterhead and White Rose CCS commercialisation programme projects, and the Government are supporting partners such as the Energy Industries Council to facilitate contact between the projects and companies through supply chain events.

We are now also seeing exports. A key US CCS project at Kemper county, Mississippi is due to go into operation next year, and it will be powered by $2 million compressors manufactured by the Howden Group at Renfrew in Scotland. In addition, our world-class £125 million R and D programme is developing better, cheaper CCS technologies, including finding new uses for CO₂ rather than simply storing it deep under the sea bed. Econic Technologies, a small company based in London, secured a further £5 million at the end of last year from industry partners to continue work funded by DECC to develop new plastics that use carbon dioxide. Those examples give a sense of the opportunity we have through CCS to support economic growth in this country and to establish the UK as a world leader in CCS technology and innovation.

[Dr Whitehead]

Before concluding her remarks, will the Minister clarify what she means by £1 billion being left in the levy control framework in 2021 for CCS? As far as I understand from the material recently published by DECC on the passage of the levy control framework, £1 billion will be left in the framework only if the cumulative consequences of previous allocations of levy control framework-based technology are not taken into account.

[Mr Charles Walker (in the Chair)]

Before the Minister answers that question, I ask her to leave a couple of minutes at the end for the Chair of the Committee.