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Energy Act 2010

Summary  and Background

10.Carbon Capture and Storage (CCS) is a process involving the capture of carbon dioxide from the burning of fossil (or other combustible) fuels, its transportation, and permanent storage in underground geological formations, for example in old oil and gas fields, or in saline aquifers. CCS could reduce the carbon dioxide emissions from a range of industrial processes, including coal-fired and gas-fired electricity generation, by around 90%.

11.The Stern Review(2) highlighted the potential role that CCS could play in tackling climate change and analysis by the International Energy Agency (IEA)(2) shows that CCS will need to deliver almost 20% of the total greenhouse gas emissions reductions we need to achieve by 2050 if we are to stabilise carbon dioxide concentrations in the atmosphere at an acceptable level cost-effectively. The same analysis by the IEA concluded that the global costs of tackling climate change would increase by 70% without CCS available as a proven technology. While pilot CCS projects for power generation (up to about 30MW) have been taken forward and will provide valuable lessons, CCS has never been applied at commercial-scale on a power station – and this transition to commercial-scale use is the critical next step.

12.The Government launched a competition in November 2007 to build one of the world’s first commercial-scale CCS demonstration projects in the UK. In June 2009 the Government published a consultation document: A Framework for the Development of Clean Coal(4). Amongst other things, this consultation set out proposals for a financial incentive mechanism to support up to four commercial-scale CCS demonstrations, including the winner of the competition launched in 2007. In the response to this consultation(5) (published in November 2009) the Government announced that this financial support mechanism would also provide funding, if required, for the retrofit of CCS to the full capacity of power stations hosting demonstration projects funded by the Government. The 2009 Pre-Budget Report confirmed that the mechanism would be used to support four commercial-scale demonstration projects on coal-fired power stations.

13.This Part of the Act sets the statutory framework for establishing a mechanism to provide financial assistance to commercial-scale CCS demonstration projects and, should it be needed at a future date, support for additional CCS use at those initial demonstration projects which will have received funding.

14.The mechanism will be funded through a levy paid by electricity suppliers in Great Britain which will be collected by an administrator (which will be Ofgem unless regulations under section 6 provide for it to be another public body). The administrator will also be responsible for disbursing financial assistance to CCS projects (for demonstration and the subsequent installation of additional CCS capacity) either in the form of payments made directly to projects, or to the Government to fund payments to such projects made by the Secretary of State. The Government intends to select the projects that will receive financial assistance through one or more competitive processes.

15.Where the administrator is providing financial assistance direct to CCS projects, arrangements for this will be set out in assistance schemes established specifically for this purpose. These schemes will be made by the Secretary of State and may include provisions such as the requirements to be met in order for CCS projects to receive financial assistance, the level of that assistance, and any requirements about the provision of information. CCS project developers must comply with the terms of the scheme to which they have consented as failure to do so may leave the developer subject to the imposition of civil penalties or, depending on the provisions of the scheme, to its termination.

Decarbonisation of electricity generation

16.The Climate Change Act 2008 sets a legally binding target of reducing carbon dioxide emissions by 80% by 2050. The UK Low Carbon Transition Plan(6) (published in July 2009) set out policies to deliver emissions reductions of 34% by 2020, on the pathway to 2050. These policies are expected to deliver around 40% of electricity generation from low carbon sources by 2020. A forthcoming document will explore a range of possible pathways towards our 2050 emissions target and will take account of advice given by the Climate Change Committee regarding the need for a substantially decarbonised electricity system by 2030.

17.There are two main elements to decarbonising electricity generation – increasing the amount of generation from renewable and nuclear sources and reducing the amount of carbon emissions from fossil fuel power stations.

18.In terms of reducing emissions from fossil fuel power stations, the Government has focused on tackling emissions from coal-fired power stations as these are significantly greater than the emissions from gas-fired power stations. The Government set out its strategy for achieving this, and ensuring there is only a very limited role for unabated coal in the 2020s, in “A Framework for the development of clean coal” (referred to in paragraph 13). As well as the programme of four commercial-scale demonstration projects to be supported through the CCS Incentive in this Act, the Framework:

  • Sets out a requirement (to be implemented through guidance on development consents under s. 36 of the Electricity Act 1989 and the Planning Act 2008) that any new coal fired power station must demonstrate the full CCS chain (capture, transport and storage) at commercial-scale;

  • States the Government’s expectation that coal-fired power stations with CCS demonstration projects will retrofit CCS to their full capacity by 2025;

  • Sets out the ambition that CCS will be ready for wider deployment from 2020 and that any new coal plant constructed from then to have CCS fitted to its full capacity; and

  • Commits the Government to a rolling review process, which will report by 2018, to consider the appropriate regulatory and financial framework required to facilitate the transition to clean coal.

19.Section 5 requires the Government to report on progress towards the decarbonisation of the electricity sector, including the decarbonisation of coal-fired power stations, and on progress made in the development and use of CCS technology. This will include reporting on progress of the implementation of the Framework as well as wider policies to promote decarbonisation.

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