[Relevant Documents: Ninth Report from the Committee on Energy and Climate Change, Session 2013-14, HC 742, and the Government response, HC 638.]
Once again, I draw attention to my entry in the Register of Members’ Financial Interests and in particular I declare my interests in a company developing a hydrogen fuel cell and in the nuclear industry.
As we mentioned earlier, the fifth assessment report of the Intergovernmental Panel on Climate Change introduced the concept of a global carbon budget, a total maximum level of greenhouse gas emissions that can be emitted safely consistent with a 2° average rise in temperatures. The report stated that the maximum carbon that can be released into the atmosphere compatible with the 2° target is 1,000 gigatonnes.
We have already emitted half that budget. Between the start of the industrial revolution and 2011, 515 gigatonnes of carbon were emitted into the atmosphere, which is a little more than half the carbon budget. We have, however, an enormous amount of fossil fuel still available to burn. According to the International Energy Agency, the total potential emissions from the remaining fossil fuel reserves in 2012 amounted to 780 gigatonnes of carbon which, added to the 515 gigatonnes that we have already emitted, take us well in excess of the budget identified in the IPCC report. In effect, more carbon dioxide is locked up in the fossil fuels that we have not yet consumed than can safely be emitted in order to stay within the global carbon budget.
The International Energy Agency has therefore argued that without a significant deployment of carbon capture and storage, a substantial proportion of the fossil fuel reserves that are proven to be available cannot be commercialised if the temperature rise is to be limited to 2°. According to my arithmetic, less than two thirds of the available reserves may safely be consumed.
All that would change if we had an economically viable form of carbon capture and storage. CCS could allow continued fossil fuel use while staying within the carbon budget. In 2005 the IPCC estimated, for example, a technical potential of at least 545 gigatonnes of carbon storage capacity in various geological formations around the world. Using that potential would transform the prospects of the fossil fuel industries.
Carbon capture and storage not only would allow us to consume more fossil fuels, but has the potential to reduce the overall cost of decarbonisation. In 2009, International Energy Agency analysis suggested that, without CCS, the overall cost of reducing emissions to 2005 levels by 2050 would be 70% higher. Unfortunately, however, the high energy and financial costs involved in CCS at the moment make the process uneconomic. That is why we need to look at whether any policy interventions might be able to overcome the problem.
The carbon capture and storage cost reduction taskforce’s final 2013 report estimated that the first set of CCS projects in the UK could have costs in the range of £150 to £200 per megawatt-hour, which is roughly three times as expensive as using fossil fuels without CCS. That is actually considerably more expensive even than some of the more expensive low-carbon technologies now being supported with money from the levy control framework. Those CCS prices are significantly higher than the strike prices even for offshore wind and nuclear.
The challenge therefore is to find a way of getting the cost of CCS down to levels that make it economically viable. Unfortunately, at the moment, momentum on CCS around the world is pretty slow—in my view, much too slow to offer a realistic prospect of a rapid cost reduction in the near term. Some of the other solutions to climate change have seen a transformation in their costs, such as in the case of solar power. Costs have been driven down to an extraordinary and largely unforeseen extent by the huge scale-up of the solar industry and by the cost reductions achieved by manufacturers in China.
The Global CCS Institute’s 2014 progress report stated, however, that in the whole world at present only 22 projects were in operation or under construction. The next few years are therefore critical if the development of CCS is to be accelerated sufficiently for it to become a significant part of the solution to the challenge of climate change.
I think there is more consensus on this report than the previous one. Does the Chairman of the Select Committee share my optimism about the combination of power production and carbon capture in such novel production facilities as NET Power’s in Sheffield, from which the Committee heard evidence?
I am hopeful rather than optimistic, but I certainly do not underestimate the potential for either that or innovation in other areas. We underestimate at our peril the potential impact of technological innovation in a number of ways. Certainly, one of the reasons why I am not despondent about our ability to decarbonise our economies without constraining economic growth is because I am confident that technology advances will continue to surprise us all. The hon. Member for Blackley and Broughton (Graham Stringer) said that we might have more consensus in this debate than the previous one. That is not setting a demanding threshold, but I hope that we achieve that.
The CCS technology road map produced by the International Energy Agency in 2013 highlighted seven key actions needed in the next seven years to create a solid foundation for starting to deploy CCS by 2020. That is a demanding—and perhaps slightly optimistic—target, but at least we are seeing a few more positive signs of progress. Indeed, the Committee has seen a couple of those signs in its work.
On the Committee’s visit to Canada last year—I did not take part and therefore I do not know as much about it as some other members of the Committee—it saw the flagship CCS initiative in Saskatchewan that started operating last month. More recently, on the Committee’s visit to Guangdong province in China, we saw the work carried out on what is referred to there as carbon capture, utilisation and storage in which there is significant UK engagement.
In the UK, we have a particular interest in developing CCS for several reasons. First, obviously it is potentially a key technology that will help decarbonise our power generation and industrial sectors, which are, and are likely to continue to be, significantly reliant on fossil fuels—perhaps in the future that will be more on gas than coal, but it will still be fossil fuels. Secondly, potentially enormous wider economic benefits will flow from the development of economically viable CCS.
The export potential is enormous. Indeed, one of the reasons why I am a little pessimistic about rapid progress on CCS is because the financial opportunities open to any organisation that creates economically viable carbon capture and storage technology are such that it will have the most massive market. When one looks around the world at the amount of coal that exists and could be burnt in China, India, Australia, America and even Europe, one can see that the rewards for developing that will be breathtaking. Given that many businesses in the energy industry have research budgets that run into not millions, but billions of pounds, I am concerned that none of them seems willing to risk much of that money on trying to develop CCS on their own: they all have their begging bowls out and are saying, “This has got to be paid for by the taxpayer” to some—or even a large—extent. Nevertheless, let us not underestimate the potential rewards to be had. If the UK is a leader in developing economically viable CCS, we will get a particular benefit from it.
Thirdly, we should focus on CCS in the UK because we have a significant geological advantage in that, close to our shores, we have the potential for enhanced oil recovery, which greatly improves the economics. Therefore, in our research we should focus particularly on that potential advantage. Other parts of the world, including China, also have that advantage, but if we could show that enhanced oil recovery makes the economics of CCS more viable—if it is brought down close to the price of solar—we should focus on that.
There are, however, barriers to making progress that need to be overcome. The first is the absence of a carbon price. If we had a significant carbon price, that would transform the prospects for CCS. As I said in the previous debate, I am confident that, by the end of the 2020s, we will have a significant carbon price, but that is still 10 or possibly 15 years away and it would be better if we could get on with developing CCS in the meantime. Secondly, it would help if we had a clearer global agreement to tackle climate change. As my hon. Friend the Minister said, and I agree, there is at least a possibility of that emerging from Paris next year. Without that, it will be a struggle and a great deal more Government effort will be needed to develop CCS, especially if we are doing it largely on our own.
Progress in the past 10 years or so has been patchy, to put it no more strongly. The competitions unveiled in 2007 were expected to deliver an operating CCS project by this year, but initially they did not manage to support any projects at all. We had something resembling a lost decade. In 2012, an NAO report on this matter criticised the Government’s handling of the competition, and a second competition, which was announced in that year, is now looking to fund two projects that we hope will be operational between 2016 and 2020.
Despite that slightly faltering start, I am pleased with the recent attempts to move a bit faster. The Government’s response to my Committee’s report stated:
“The Government is committed to facilitating the development and deployment of cost-effective CCS by the 2020s.”
I am reassured. I would have been disappointed if they had said any less than that, but that is at least an earnest of good intentions. The publication in August of “Next steps in CCS: Policy Scoping Document”, which set out the Government’s plans to support the industry, is also helpful.
Looking ahead, there is a clear possibility that the UK will be overtaken by other countries and thereby we might relinquish some advantage that we once had. That would not necessarily be a complete disaster: any country or company that develops CCS will rapidly want to share its technology—though no doubt at some sort of cost—with other potential users.
I welcome and support the Government’s efforts in a number of respects, but I conclude by reiterating some of the key aspects of the Committee’s report. It would be desirable to have contracts for difference available for first-of-a-kind CCS projects. It would be useful to support projects beyond those for which there have been competitions. We would like longer term clarity about the funding framework that may be available in the 2020s. It would be helpful if the tax regime incentivised enhanced oil recovery. I believe there are issues about building public confidence in relation to storing carbon dioxide, on which some people express concerns that seem to me somewhat irrational. Any update that the Minister can give us on any of those matters would be useful.
I have sometimes been publicly sceptical about the potential role of CCS. I do not want to be negative about it; I very much want it to succeed. It seems to me to be the one technology that the world most urgently needs if we are to overcome the problem of greenhouse gas emissions. However, I do not believe that progress has yet been sufficient to enable Governments—here or anywhere—to base their energy and climate change policy on the assumption that an economically viable form of carbon capture and storage will be available in the near future, or, possibly, even the next decade.
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.
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?
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.
As ever, it is a pleasure to serve under your chairmanship, Mr Walker. This has been an interesting debate, as was the previous one—you missed most of it, but we discussed scientists and whether we agree with different views on energy.
I am from the ultra-modern school of the National Union of Mineworkers. I was a coal miner. I worked on the coal face and I really enjoyed that occupation—that is why I sit on the Energy and Climate Change Committee. I am not a scientist, but I am guided by scientists. That is probably the right way to be. When I was in my heyday cutting coal under the North sea, I was under the impression—it is what people had told me—that coal was the fuel of the future. I believed that then and I still do now—coal is extremely important. I was not bothered then about whether coal was burned with carbon capture and storage, or whether it was burned cleanly. It was my livelihood, and the livelihood of people in my community and in communities up and down the country.
That was the way we dealt with the situation. We opposed nuclear, renewables—every single thing—because coal was what we did. It was our livelihood. But as time went on and scientists explained that the planet was being destroyed by gas emissions from fossil fuels, I began to believe and understand that perhaps they had a point. That was against the grain, of course, but it was politics against the scientists. Now, I think the scientists are probably right, but the political situation is not where I would want it to be.
We have been talking about carbon capture and storage for 30 years. It is what we used to talk about as young men in the pit: “How can we burn coal cleanly? If we can get the technology right and the Government begin to invest in carbon capture and storage or some type of clean-coal technology, perhaps we will have a future and will be here for many years to come.” That was topical and we are still talking about it now. It was 30 years ago.
My hon. Friend the Member for Southampton, Test (Dr Whitehead) has given me a cartoon showing a scientist behind a rostrum in 1990—I think it has “IPCC” written on the rostrum—saying, “So, this climate change thing could be a problem.” The cartoon then shows the same fellow in 1995, five years later, with the same specs and same beard, saying, “Climate change: definitely a problem.” It then shows the same fellow six years later saying, “Yep, we should really be getting on with sorting this out pretty soon.” It then shows him in 2007 saying, “Look, sorry to sound like a broken record here.” It shows him in 2013 saying, “We really have checked and we’re not making this up.” Then it show the same bloke a lot older than he was at the beginning; he was tapping the microphone and saying, “Is this thing on?” I thought that was very amusing. It highlights the fact that we have not taken carbon capture and storage seriously for generations. I have been involved in the matter and have been hoping and praying that it would save the industry I loved so much, was brought up with and miss so much.
The Minister said that Margaret Thatcher did x, y and z. I will not get too political about Margaret Thatcher and the coal industry despite the fact that she absolutely demolished it. However, I remind the Chamber that in 1988 Grimethorpe colliery had a demonstration fluidised bed combustion plant and clean coal technology plant in operation and it was closed because of the finance—£38 million. Look at what we are talking about now—£1 billion for two projects. If that project at Grimethorpe had continued, who knows where we could have been?
We all waited after that for the Longannet complex to come into operation. It took years and years by successive Governments to finalise the details and it was withdrawn at the last moment. We have been there or thereabouts for about 30 years and it is about time we got a move on.
It is interesting listening to scientists. The argument is, “Should we listen to scientists or should we not?” If the Environment, Food and Rural Affairs Committee is discussing mad cow disease, which affects farmers, experts in the field are listened to and I say that with good humour towards my hon. Friend the Member for Blackley and Broughton (Graham Stringer). Of course we are guided by people with knowledge in the field on which the inquiry was focused. We look at a number of things regarding carbon capture and storage, and the contribution that it can make to decarbonisation in the UK.
On the contribution it could make, the Energy and Climate Change Committee estimated that the UK’s decarbonisation power sector will require approximately 18-20 GW of CCS for coal and gas by 2030. The Government’s independent advice from the Committee provided an energy scenario to reach the UK’s 2030 energy decarbonisation target. The power sector currently accounts for around 25% of UK greenhouse gas emissions. The general mix to achieve a carbon intensity of 50-l00 grams/kWh by 2030 suggests that the energy mix that should be in place is in the region of 40% nuclear, 40% renewable, 15% CCS, and around 5% unabated gas-fired generation. With power generation capacity of about 125 GW by 2030, that equates to 18-20 GW of CCS for coal and gas. Is that realistic? My hon. Friend the Member for Southampton, Test mentioned emission level targets: the 100 grams/kWh and the 200 grams/kWh. I think it will be extremely difficult to reach such targets. Perhaps we should look at them and concentrate on them.
Ministers and Members generally say that things are looking far better now because we are getting rid of coal, which has emission levels of roughly 850 grams. Gas has less than roughly 450 grams.
My hon. Friend the Member for Blackley and Broughton mentioned the potential for shale gas. The reality is that we are crying out for shale gas, but we must be careful what we are looking at. If we exploit shale gas and extract as much as has been suggested, we will need carbon capture and storage or we will miss every target that we have set ourselves. That is the reality. Carbon capture and storage is not just for coal; it is for fossil fuels. Shale gas is a fossil fuel and natural gas is a fossil fuel. That is why there is a real need for carbon capture and storage.
The Committee on Climate Change estimated that the power sector will capture a larger amount of CO2 per year than industry until 2040, when power and industry are projected to capture similar quantities annually. The Committee said that,
“there is a growing role for CCS in industry through the 2020s, which by 2030 reduces emissions by around”
5 million tonnes of CO2. So a lot of information is being pressed and put forward by the Committee on Climate Change; but I do not agree with all of it, and neither does the Select Committee.
The second issue concerns the potential benefits that the UK could get from the ability to export carbon capture and storage technology and techniques across the world. I have the latest figures in front of me and they suggest a major green-growth opportunity for the UK and:
“If CCS opportunities develop as anticipated, benefits for UK-based firms have been estimated to be between”
£3 billion and £6.5 billion a year by the late 2020s. That is fantastic.
We are living in austere times when young people need employment, skills and apprenticeships. We live in a low-wage economy. Developing carbon capture and storage and using young people, skills, apprenticeships and so on is so important for what we could do to lead the world of carbon capture and storage, and to export those technologies. We should be focusing on that as a priority.
The third issue is the international efforts to mitigate climate change and the role that UK CCS could play in that. CCS is acknowledged to be a crucial transitional technology for climate change mitigation. The UK has a crucial seedbed role to play. We are told that there is a clear danger that other countries will move ahead more rapidly, and that the UK could lose what might be perceived to be a technological advantage in market leadership. I think we have already lost that. We keep saying that we are leaders in this and leaders in that, but we are not particularly leaders in much in terms of energy.
The Select Committee had a fantastic, very informative visit to China only two or three weeks ago. We keep telling the Chinese that we are leaders in carbon capture and storage, but we do not have a plant and they have, and we keep telling them what they should be doing. Last year, we went to Boundary dam in Canada to look at the carbon capture plant that my hon. Friend the Member for Southampton, Test mentioned. We keep telling them that we are leaders, but we do not have anything in place yet and we are not likely to have anything in place in terms of carbon capture and storage until 2020 at the earliest—that is if we get our skates on. Even though we should be leaders, we are not, but we keep telling people that we are, when it is really not true.
The Boundary dam project has been completed; it was estimated to start some time in March this year, although I believe that it started slightly later than that. It is a 110 MW coal power plant with retrofit CCS technology, and the total cost of the project was estimated to be about $1.24 billion, with $240 million from the Federal Government. We were very pleased to see it, because the Committee discussed carbon capture and storage many times without actually seeing a plant with more than two or three bricks. We have been there and done it. We have looked and got advice, and the report, in my view, is exactly what we need.
The Chair of the Committee said that despite the claims that there are many plants globally, there are only 22 projects in the world, and that includes China. Interestingly, we were in China, which burns about 1.3 billion tonnes of coal a year, largely, if not entirely, unabated. The technologies that are being developed there are fantastic. We have seen massive progress in China on renewables and nuclear, and there is a real desire to move away from coal. I think it will be extremely difficult, in the next 50 years even, to get China to convert what they are now burning in coal to other types of alternative energies—to green energy and renewable energy. We were in Beijing, which was unbelievable. You could only see 50 yards ahead of you, Mr Walker—this was a really sunny day, or they said it was sunny; you couldn’t see the sun. Somebody said that the toxins in the air should be measured at about 20 to 50, according to the World Health Organisation, but on the day we were there, they were 500. It was unbelievable, and it was mainly because of the energy and power being generated in the area.
We have a huge role to play, and although we keep saying we are market leaders, we need to be market leaders. It is so important that we get on with it and develop what we said we would almost 30 years ago. There are a few barriers, and a few key players have suggested that they might be interested in moving into the market, apart from the two big projects that have been set up. However, the four key issues for potential investors in CCS projects are the operating costs, the contractual terms and the involvement of contracts for difference, the storage performance risk and the CCS development timelines, which I have already mentioned.
We have to get on with it. We have to make sure that when we say we are the leaders, we actually are the leaders in carbon capture and storage. It is not just for the coal industry; it is for the gas industry, too, whether that is natural gas or shale gas. We and the European Union have set ourselves some very harsh emission-level targets for the future, for 2020, 2030 and 2050, but we cannot achieve any of those targets unless we have carbon capture and storage up and running in this country.
It is a pleasure to serve under your chairmanship here, Mr Walker, just as it is in other forums of the House. I am grateful for the opportunity to follow the contributions from members of the Select Committee to this interesting debate. The Committee’s report was timely, coming as it did alongside further interest from the Government in some of the other documents that others have touched on, including the Government’s scoping document.
I was here for most of the previous debate, although I missed the opening comments from the Chair of the Select Committee—whatever state of dress he was in. The right hon. Member for Hitchin and Harpenden (Mr Lilley) also spoke, but he is not here now. Although I have not read the full 1,000 page report, I have read some of the summary documents that were referred to. I do not think that those documents were seeking to mislead anyone in making clear the importance of carbon capture and storage for the future. These debates follow on from each other in quite a relevant way.
I have taken part in most of the debates on carbon capture in this House in the last four or so years, first as a Back Bencher and then as a Front Bencher. My view is that CCS is an absolutely vital technology in our transition to a lower-carbon economy—not just for the generation of power, but in terms of a number of energy-intensive industrial processes.
Some people argue that it may well be possible to generate power in various different ways that mean that carbon capture and storage proves to be too difficult or expensive or becomes something that happens further into the future. However, without carbon capture and storage I do not think that there is any realistic option or alternative for a number of industrial processes to reduce significantly their carbon emissions while continuing to be part of our industrial space and foundation industries for the manufacturing base and other sectors in this country.
It is important that we make sure the focus in the Select Committee’s report on industrial clusters is not lost in this or any other debate about carbon capture and storage, because it is vital. As I have previously remarked, power can be generated from wind, wave and solar, but no one has yet demonstrated how to manufacture steel from sunshine. That is unlikely to be the case in our lifetimes and for that reason, apart from any other, CCS remains vital.
I say that because one of the frustrations in our various discussions of CCS over the past few years is that every now and then, it becomes something that people alight and comment on, saying it is important and wanting to demonstrate commitment to it, but then the subject disappears again and when it reappears we find that we have not moved far along. That is not all the fault of the current Government or the previous Government; some of it is to do with technical issues. It is, however, vital that there is a sense of serious and significant engagement from the Government in the existing situation and into the future.
In August, the Government published their scoping document and there is a lot to commend in it. Interestingly, it also refers to carbon capture and utilisation, as well as to carbon capture and storage, which is another important and interesting aspect. There is no denying that many in the nascent CCS industry were disappointed with some of the content—or, more accurately, lack of content—in the scoping document about some of the big issues that my hon. Friends the Members for Wansbeck (Ian Lavery) and for Southampton, Test (Dr Whitehead) have touched on, particularly on the way in which contracts for difference will work for CCS technologies and how that will be taken forward. There was a level of expectation that things would at least begin to be addressed in that document in a way that, actually, they were not.
I am conscious that there have been some announcements this week. I am not sure whether the members of the Select Committee know—I was made aware of this while listening to the previous debate—but the Government have today released to the CCS Development Forum some proposals in relation to phase 2 projects that seem, from the summary that I have just been able to get by e-mail, quite interesting.
It is welcome that the Government propose to establish an expert group—the Minister may be able to help me if I have got some of the details wrong—that will probably meet before Christmas and will provide evidence to Ministers by April on the way in which phase 2 projects could be taken forward. I presume that that will be a matter for whoever the Government are post the general election.
That is a welcome development. I am also pleased that the UK Government and the Canadian Government this week signed a joint statement on a number of issues relating to CCS, but particularly about cost reduction, to which the Chair of the Select Committee referred. Other issues include the ways in which intelligence, expertise and experience can be shared to meet shared goals.
I was struck by the point that my hon. Friend the Member for Wansbeck made in his description of the series of cartoons about climate change. We could apply that to many different areas of energy policy. The point that I will make is that, often, the longer we leave decisions, the fewer options we have and the more expensive they become. That is certainly relevant in this case. My hon. Friend referred to the lead that the UK claims to have in relation to carbon capture and storage. He is right: we say and have said that frequently. We may not be in the lead, but we do have very significant academic and industrial expertise, which is important. We have the experience of earlier projects, including Longannet, which Scottish Power pulled out of a couple of years ago, for a range of reasons. Some were financial, but some were technical, so there is valuable experience from that.
We have something else that I think is quite important—potential storage capacity that, to other places in Europe, may well be very attractive. Depleted oil and gas fields are available and could potentially be sites for storage. The Select Committee Chair referred to some of the issues in relation to public acceptability. Members of the Committee will be well aware of the situation in Germany, where the public antipathy or opposition to carbon capture and storage was very strong from the very early stages because people were not comfortable with the idea of carbon dioxide being stored underground. However, if we have the opportunity to offer storage sites, a wider economic advantage could come with that.
There is a huge amount of opportunity, which we should not seek to underplay. My hon. Friend the Member for Wansbeck also touched on this issue. The opportunities in relation to economic activity are also potentially very significant. Not immediately but in the second half of the 2020s and beyond, this could be not just an enabler of industries continuing in parts of the country, including—not quite in his area—in Teesside and the cluster of industrial activity there; it could be, in and of itself, a significant employer. There is real potential, which has been highlighted by various bodies.
I do indeed. I think that I recall discussing that very issue with my hon. Friend when the decision was made. It was an absurdity to have the top-rated project in Europe and not to achieve the NER 300 support because of the inability of the UK Government to find match funding when they had been saying that £1 billion was available at that point within that comprehensive spending review period. We later discovered, of course, that that was moved to other infrastructure funds and was not then available. That is one of the frustrations that there have been along this bumpy road in recent years.
There have been other frustrations. Some are down to the attitude and commitment of the Government. Some are due to technical reasons and some are due to financial reasons. We have had a situation over many years—it predates this Government; it also existed under the last Government—in which confident predictions are made about how quickly CCS will be available and operational, but we have not met them. That makes the urgency of seeking to meet them all the more important in the years ahead.
The hon. Members who took part in the visit to Saskatchewan referred to the project there. I am struck by the comments just today from Michael Monea, the president of CCS initiatives at SaskPower, about the level of commitment required to ensure that it got the first project up and running. That is also an important point.
Hon. Members have referred to the 22 projects that there are currently around the world. There were previously about 70. Then the number went down to about 50 and now it has gone down to 22. The danger that we may have is that where CCS projects get up and running, they become almost engineering curiosities, isolated from anything else.
We should be very aware of the need to take the programme forward for further projects, because although the competition and the two projects that are undergoing their front-end engineering design studies at present—the Peterhead project and the White Rose project—are important, we want them to be the start of something, rather than just curiosities, as other things have been in the past. That is why I genuinely welcome the information that I got just a couple of hours ago about the work on phase 2 projects. I think and hope that that indicates real commitment to taking those forward, because without that, we will not achieve many of the things that we want to achieve.
The other point to make about industrial CCS is that of the 22 projects, only three are power stations; the remainder include industrial facilities manufacturing iron or processing other things and projects at natural gas processing facilities. That underlines the point about the importance of making progress on industrial CCS. Again, the Select Committee report highlighted that. Indeed, it concluded that there has not been the necessary level of commitment from Government in terms of promoting clustering and the benefits from that.
A range of difficulties are associated with seeking to do CCS for industrial processes, because there are, potentially, a number of different industrial companies on a site or within a geographical area. They will almost inevitably be operating at different points in their own economic cycles, and the capital available will be different. In some ways, it is probably conceptually easier to think about CCS for a power station than for a series of industrial processes in a geographical area, but that makes the case for greater Government discussion of and interaction and engagement with such projects, because for those reasons they are more difficult.
I am glad to have had the opportunity to take part in this debate on a subject that I personally find fascinating and interesting. I apologise for going on for a slightly longer time than I was probably allocated in order to expound some of my views. Carbon capture and storage is a vital process. Everyone who has taken part in the debate has made it clear that they see the importance and urgency of seeking to achieve it. There are different levels of optimism, but I think that we would be in a much worse position if CCS was not something that remained a realistic possibility.
I believe personally that in the long term CCS is a necessity, rather than an option, and that this and future Governments should engage in facilitating and helping to ensure that we manage to achieve that opportunity—for the benefit of our environment, our energy security and a number of different industries, which I very much hope will continue to be part of our economic model in the United Kingdom.
Once again, I congratulate my hon. Friend the Member for South Suffolk (Mr Yeo) on securing the debate. We have had some interesting contributions, and it is reassuring and encouraging to see that there is so much commitment to the subject.
The Energy and Climate Change Committee inquiry and report on carbon capture and storage highlighted several important issues. In the Government’s response, we welcomed the Committee’s report and set out the action we are taking in the field. I welcome the opportunity to set out in more detail our work to develop that important technology and our longer-term vision for CCS. I also welcome the opportunity to celebrate the important CCS milestones that have been reached since the Committee published its report in May. Those milestones have reinforced the message about the potential of that important technology.
CCS has the potential to be a critical part of the Government’s plans for future growth in a low-carbon economy, and the need for it is absolutely clear. CCS offers us the chance to enjoy the energy security and resilience benefits of fossil fuels, including our indigenous fossil fuel resources, without the associated emissions. CCS could help us meet our emissions targets in a cost-effective way, allowing us to manage the costs of decarbonisation. The Energy Technologies Institute estimates that successfully deploying CCS could cut the annual cost of meeting our carbon targets by £32 billion by 2050, and it creates opportunities for jobs, growth and exports. The global CCS market is predicted to reach £100 billion by 2050. Because of its potential to contribute to an affordable and sustainable energy mix, its advantages for energy security and resilience, and the growth and investment opportunities it represents, we are committed to working with industry to develop and deploy CCS at commercial scale. We are taking forward a comprehensive package of measures, with significant funding, designed to develop CCS in the UK and ensure we can seize the benefits that that exciting technology offers.
We anticipate that there could be three phases of development of CCS in the UK. The first phase is the current CCS competition, about which we have heard something this afternoon. Through that competition, we want to support up to two CCS projects through to construction, but it will deliver more than that. Those projects could prove the technology at scale in UK conditions, drive down risk, lay down critical CCS infrastructure and demonstrate successful commercial arrangements for CCS. In the second phase, further CCS projects will build on the foundations of the competition, before a third phase in which we hope to see the transition to commercial cost-competitive CCS. Our policies are designed to help bring CCS to that final phase, which is the point at which it can compete with other low carbon technologies.
The Government are working hard to get the first projects up and running in UK conditions. Our £1 billion commercialisation programme is designed to help that to happen, and we have made good progress with the White Rose and Peterhead projects over the past year. In December last year, together with Capture Power Ltd and National Grid, we signed the multi-million pound front-end engineering and design contract for the White Rose project. That innovative proposal is to build the world’s biggest oxyfuel power plant at the Drax site in Yorkshire with full carbon capture and storage, which could bring clean electricity to more than 630,000 homes. That will link into the planned development of a CO2 transportation and storage infrastructure called the Yorkshire Humber CCS trunkline, which could have capacity for additional CCS projects in the area and provide the foundation for further CCS projects in the region. I hope that that will also address the clustering issue that the Select Committee referred to.
In February this year we signed a contract with Shell for a FEED study of its Peterhead CCS project, which could become the world’s first commercial-scale gas CCS project. The proposal is to attach carbon capture technology to the existing gas power plant at Peterhead and transport the CO2 for permanent storage in the depleted Goldeneye gas field. The project could bring clean electricity to more than 500,000 homes and capture 1 million tonnes of CO2 each year.
Gas will continue to play a significant role in the UK’s future energy use. It is important for our energy security, because it provides secure but flexible generation to complement other intermittent low-carbon sources. The UK has established gas resources in the North sea, and there are also exciting opportunities from shale gas. The Government are working hard to bring forward investment in gas through the capacity market, but in the longer term, being able to use CCS on gas will be important to help us meet our emissions reduction targets. Not only do our chosen projects help to commercialise different generation and capture approaches, but they develop important transportation and storage infrastructure. White Rose involves building a new pipeline and storing carbon in a saline formation, and Peterhead intends mostly to reuse existing North sea infrastructure and a depleted gas field. That approach could allow us to commercialise and de-risk a variety of CCS-related approaches which will help pave the way for the projects that follow.
We have set aside £1 billion to support the first CCS projects in the UK, and we are investing £100 million of that now in the development of detailed engineering and planning designs for those projects. That is essential work, which the companies must carry out thoroughly, and they require time and support to do that. That work will provide information on costs that will allow the companies and the Government to take sensible final investment decisions, which we expect to be taken in late 2015 and early 2016, on whether to proceed with the projects. I hope that that will reassure hon. Members about our commitment to developing CCS and our determination finally—we appreciate that we have waited a long time for this—to achieve the production of CCS.
Our vision for CCS in the UK does not stop at those projects. We want a strong and successful CCS industry that can compete on cost with other low-carbon technologies in the 2020s, and that deploys up to 13 GW by 2030. We published “Next steps in CCS: Policy Scoping Document” in August. The document sets out the steps that we have taken so far to develop CCS and our views on the issues that must be addressed in order to bring forward future phases of projects. We are now reviewing the responses to the document to help inform future decisions. The consultation covered a range of issues that we believe will be important in setting the policy framework for further CCS projects.
I reassure hon. Members that we are ambitious for the UK to be at the forefront of the technology, and we are always thinking ahead to ensure that we can support innovation in that field. This morning, I visited Imperial college in Kensington to look at various projects, one of which was described as carbon negative. It was not simply CCS; it actually removed carbon from the atmosphere. There is a lot of innovation in the field, and we are keen to support it. The hon. Member for Wansbeck (Ian Lavery) referred to seeding new projects, and that is exactly what we are doing. We are the only EU country where Government funding is supported for that, so I believe that we are leading in the field. We are working with 13 CCS projects in depth, and we have supported them with a total of £20 million. Many of those projects are based at other leading UK universities. This is an exciting and innovative science, and we must spread our support around to ensure that we back the eventual winner.
The Minister is talking about other projects. Can she enlighten us about when the Government will be able to explain how contracts for difference will be adjusted to become workable for future CCS projects? That is a big barrier to potential and partly developed projects.
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.
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.
I thank the hon. Member for Southampton, Test (Dr Whitehead) for his question, but I will have to come back to him with a full answer.
I will conclude, as I want to leave my hon. Friend the Member for South Suffolk some minutes at the end. I want hon. Members to be in no doubt that we are committed to CCS and that we are working with the two winners of the competition to give them as much support as we can to develop this technology so that we can become the world leader, not only the leader in the EU. We also feel that there is opportunity to support innovation in this area. I reassure hon. Members that my Department is working with various universities on a number of projects. I have looked at some of those projects, and they are incredibly exciting. Science is moving forward, and although I share the Committee’s frustration to a certain extent—the word “frustration” comes up a lot in the Committee’s comments about CCS programmes—we have to manage taxpayers’ money carefully to ensure that we are stimulating development and supporting the production of CCS in a way that is economical and ambitious so that we can become the world leader. Of course, to stick to our ambitions we have set targets, which we intend to meet. We believe that CCS is an important part of that.
I thank everyone who has taken part in these two debates, particularly my hon. Friend the Minister, for her responses. We will hear from her again on another subject next week, when she gives evidence to the Committee for the first time since her appointment. I also thank the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) for his contribution. There is a fair degree of bipartisan consensus on CCS, which is helpful in an industry where decisions have to be taken for investment purposes on a very long-term basis.
I warmly congratulate the hon. Member for Wansbeck (Ian Lavery) on his speech and his obvious and passionate pride in the industry in which he worked. The first parliamentary election I fought was in a south Wales mining constituency more than 40 years ago. I remember the extremely vibrant engagement I had with many people who worked in the industry at the time, when of course it was a vastly more important employer in south Wales than it is today. One of the most astonishing statistics is that just over 200 years ago in, I think, 1800, 98% of the coal being mined in the whole world was mined in the UK. The ability to move that coal from Newcastle to London, which at the time was the centre of the manufacturing industry, made that possible. Our leadership in mining and using coal was one of the principal factors behind the industrial revolution, so it would be fitting if, having led the world in the exploitation of coal, we could also lead the world in the technology that makes it possible to go on using coal during the rest of this century.
The hon. Member for Southampton, Test (Dr Whitehead) and I often agree, and I hardly ever hear him say anything that I would not have said myself. The point he just raised with my hon. Friend the Minister, was exactly the point that occurred to me, so I too look forward to the response. The question goes to the heart of some of our concerns about the long-term future of the levy control framework, which is absolutely essential to supporting low-carbon electricity generation. To give the Government credit, investment in low-carbon renewable energy has increased enormously in the past few years. That is a great success story, and we want it to continue into the 2020s. To do that, we must be clear about how the levy control framework will work beyond 2021.
I am grateful for those contributions. This has been a useful debate, although I know it has not been hugely well attended. I repeat my thanks to the second Clerk of the Committee for his assistance at the start of this sitting, and I am grateful to you, Mr Walker, for your courteous and elegant chairmanship.
Question put and agreed to.