Part 1: Carbon Capture and Storage and Decarbonisation
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.
Commentary on Sections
Financial Assistance
Section 1: Financial Assistance
20.This section gives the Secretary of State the power to provide financial assistance for CCS demonstration projects, and for the installation of additional CCS capacity (referred to in the Act and below as additional CCS use) at a future date (subsections (1) and (2)). The Government intends that the additional CCS use will be the retrofit of further CCS capacity limited to the power stations that already have a CCS demonstration project receiving financial support. The section also provides an alternative mechanism for disbursing financial assistance for CCS demonstration projects and additional CCS use, by enabling the Secretary of State to make “assistance schemes” through which the administrator provides the financial assistance (subsections (3) and (4)).
Section 2: Assistance schemes: further provision
21.This section makes provision about assistance schemes made by the Secretary of State under section 1(3) and section 1(4). Subsection (1) provides that an assistance scheme may impose obligations or confer functions on a person. This would include the imposition of obligations or functions on the participants (those carrying out the CCS demonstration projects and additional CCS use) and the administrator, but might also be used, for example, to confer monitoring functions on persons such as the Environment Agency.
22.Subsection (2) provides a non-exhaustive list of matters which may be covered by schemes, including:
activities to be carried out as part of the CCS demonstration project or installation of additional CCS capacity;
level of financial assistance to be provided and how that amount may be calculated;
arrangements for the postponement, reduction or withdrawal of financial assistance;
administration of the scheme;
monitoring and assessment of CCS demonstration projects and additional CCS use;
arrangements for the publication of knowledge generated by the project;
changes to activities or the participants in the scheme (e.g. as result of changes in ownership);
termination of the scheme;
compliance with the scheme; and
establishment of a review and/or appeal process for resolving disputes.
23.Subsection (3) gives the Secretary of State power to amend or revoke assistance schemes. Before making, amending or revoking an assistance scheme, subsection (4) places a requirement on the Secretary of State to consult the administrator of the scheme, the Scottish Ministers (if the assisted activities are in Scotland) and any other person that the Secretary of State thinks appropriate. There is also a requirement for the Secretary of State to lay before Parliament any assistance scheme that has been made or amended (subsection (5)) and a requirement that where an assistance scheme is revoked the Secretary of State lay a memorandum of revocation before Parliament (subsection (6)).
24.Subsections (7) and (8) require that an assistance scheme can only be made with the consent of all those who would be participants in it (those carrying out the CCS demonstration project or additional CCS use). These subsections also set out that a scheme can be amended with the consent of the participants (or those who would be participants) and can be revoked with the consent of the participants. The Secretary of State may also amend or revoke a scheme, without the consent of participants, where the conditions set out under the scheme, or regulations relating to the scheme, allow it.
Section 3: Regulations relating to assistance schemes
25.This section gives the Secretary of State the power to make regulations regarding assistance schemes. These regulations may make provision about any of the matters specified in section 2(2) (see paragraph 22 above), including provision to impose civil penalties for non-compliance with assistance schemes (which can only be made in regulations). Regulations may not apply to an existing assistance scheme without the consent of all participants (subsection (3)). Before making regulations, subsection (4) places a requirement on the Secretary of State to consult the administrator of the scheme, the Scottish Ministers and any other person that the Secretary of State thinks appropriate. This consultation may occur before or after commencement of this power.
Electricity supply levy
Section 4: Electricity supply levy
26.This section gives the Secretary of State the power to make regulations that place a levy on electricity supplies, to be paid by electricity suppliers, based on the provision of financial assistance for CCS demonstration projects and for additional CCS use at those projects (subsections (1) and (2)).
27.Subsections (3) and (4) provide flexibility in the charging of the levy. Under subsection (3), the Secretary of State can make regulations so that the levy varies in different cases; this might be used, for example, to set different rates for different classes of energy suppliers. Subsection (4) allows provision to be made to exempt certain types of electricity supplies from the levy (for example, based on who the consumer of the electricity will be).
28.Subsection (5) provides a non-exhaustive list of matters about which the regulations may make provision, including:
what constitutes, for the purposes of the levy, an electricity supply and an electricity supplier;
the payment of the levy, including the payment of interest in respect of late payments;
enforcement of payment of the levy, including through the imposition of civil penalties;
the general arrangements for the administration of the levy;
requirements for the provision, and audit, of information by suppliers;
insolvency of persons liable to pay the levy (which would enable provision to be made to ensure that there is no shortfall in the funds raised in the event a supplier becomes insolvent); and
the establishment of a review and/or appeals process for resolving disputes.
29.Before making regulations regarding the levy, subsection (6) places a requirement on the Secretary of State to consult the administrator of the levy mechanism and any other person that the Secretary of State thinks appropriate. This consultation may occur before or after commencement of this power.
Reports
Section 5: Reports on decarbonisation and CCS progress
30.This section requires the Government to produce reports every 3 years (starting in 2012) on progress towards decarbonisation of (i.e. reducing the amounts of carbon dioxide emitted into the atmosphere from) electricity generation. The report will need to include specific coverage of the progress made in reducing emissions from coal-fired power generation and progress in the development and use of CCS technologies (subsection (1)).
31.The report will also need to include an assessment of whether CCS technology has been successfully demonstrated (or, if not, when it will be demonstrated) in terms of capturing and storing the carbon emissions from commercial-scale electricity generation and whether coal-fired power stations given planning consent from 1st January 2020 can be expected to have CCS technology fitted to their full generating capacity (subsection (2)).
32.The final required element of the report is a review of whether, in the light of its other findings, Government policies should be revised (subsection (3)).
33.When preparing the report, the Secretary of State will need to consult Scottish and Welsh Ministers, and the report will need to take into account any relevant points raised by the Climate Change Committee in their regular reports on progress towards the Government’s carbon reduction targets made under the Climate Change Act 2008 (subsection (4)).
34.Subsection (5) and the definitions of “reporting period” in subsection (6) mean that the first report will need to be produced in 2012 and cover the period between the Act coming into force and the end of 2011. The second report will be published in 2015 and cover the 3 year period between 2012 and 2014. Subsequent reports will be published at 3-yearly intervals thereafter.
General
Section 6: The administrator
35.This section provides (subsection (1)) for Ofgem to be the body that administers both the collection of the levy and the provision, through assistance schemes, of financial assistance for CCS demonstration projects and for additional CCS use. It also gives the Secretary of State power, through regulations, to transfer the function of administrator to another public body, including to himself (subsection (2)). Before making regulations, subsection (3) places a requirement on the Secretary of State to consult the administrator and any other person that the Secretary of State thinks appropriate.
Sections 7 & 8: CCS demonstration projects and additional CCS use & Interpretation of Part
36.These sections set out the definitions for a number of terms used in this Part. In particular, section 7(1) defines “CCS demonstration project” to mean the demonstration and assessment of CCS technology through its use in commercial electricity generation, and work required to prepare for or assess the feasibility of this (for example, a Front-End Engineering and Design study). Section 7(2) defines “additional CCS use” as the use of CCS technology in commercial electricity generation outside the confines of a CCS demonstration project as well as work required to prepare for or assess the feasibility of such use. This means the retrofit of additional CCS capacity to power stations that already have a CCS demonstration project.
37.“Commercial electricity generation” is defined in section 7(4) to mean the generation of electricity on a commercial scale. The financial support mechanism could therefore be used to support CCS demonstration projects on any form of commercial electricity generation; however, as set out at paragraph 13, the Government’s intention is to use the mechanism to support projects on 4 coal-fired power stations.
38.A number of the terms used in these definitions (e.g. “carbon capture and storage technology” and “carbon dioxide”) are also defined.
The Stern Review – The Economics of Climate Change. Nicholas Stern, 2006