Good intentions, wrong kind of cuts

October 19, 2010    //   6 comments

The phrase ‘greenest government ever’ has become a mantra for the Coalition, not least for David Cameron and energy and climate secretary Chris Huhne. And we are assured that at the heart of the vision is Britain’s commitment to a low carbon future.

Emissions should be cut by at least 34% by 2020 relative to 1990. Low-carbon businesses and technologies should help drive the UK out of recession and towards green growth.

We will see whether these ambitions translate into reality or get lost in a fog of fiscal expediency when the government publishes its spending review in less than a week’s time.

Decisions on carbon capture and storage (CCS) at power stations will be a litmus test for the government’s wider commitment.

Despite the up-front costs, the UK has pushed ahead of any other country over the past three years by launching a CCS coal-fired plant competition to demonstrate the first commercial scale system.

Now the government can bring into reality a CCS levy put into legislation under the previous Labour government. This would pull £4 billion from energy suppliers to fund competitions for four CCS plants, potentially at gas as well as coal power stations.

Implementing the CCS levy would put the UK in the lead internationally, both in terms of being seen to walk the walk on emissions reduction and in terms of cornering a huge international market for the technology, with China adding unabated plants to its grid almost daily.

The Conservatives, in opposition, played a constructive role in getting the levy through the Energy Act 2010. Indeed, they tried repeatedly though unsuccessfully to include an emissions performance standard for new plant that would ultimately force coal-fired plants to retrofit CCS in the 2020s or cut the hours they operate.

But the cracks are beginning to appear. Rumours abound that the Treasury has locked horns with the energy and climate department (DECC) over the levy, and is backing away from supporting it after the spending review. There have been mutterings that the levy could cramp its style when introducing new taxes, perhaps including Conservative proposals to tax emissions allowances for fossil fuel power stations under the EU Emissions Trading Scheme aimed at boosting carbon prices and making low carbon sources more attractive.

A joint letter to the Financial Times on 11 October by 19 key stakeholders in the programme, including General Electric and Siemens, has now brought these fears into the open – and it is now for the government to prove they are unfounded.

There is also concern that an EPS will now end up in the long grass. Why does that matter? Well, the EPS would send a strong signal that investment in unabated coal or gas plant will be a liability by the 2020s, driving the market for both CCS and for all other low carbon energy sources including renewable and nuclear.

Most now agree, the advisory Committee on Climate Change among them, that a sustained, higher carbon price through the EU ETS will be necessary to help pull through capital-intensive low carbon technologies to meet the 2020 target. And that will need to be backed up with measures to fundamentally reform the electricity market, ideally involving long term tenders for low carbon electricity.

But neither will be sufficient without the long term policy clarity an EPS would bring for low carbon investment, and critically, sustained support for demonstration of still developing CCS technology.

The CCS sector, and indeed the biomass sector, knows from bitter experience just how damaging shifts in policy can be to business confidence. The secretary of state knows this all too well and has even consulted on ways to extend the CCS competition – but he’s not in the driving seat as the cuts loom.

Meanwhile, there is a real danger that fiscal expediency could combine with ill-founded short term concerns over energy security to lead to an unabated dash for gas – further damaging the economics of CCS, renewable and nuclear capacity.

We must really hope that the low carbon message has permeated through all layers of government by 20 October – and that the quiet ditching of the Office of Climate Change in late September, which played a central role in drafting the Climate Change Act 2008 with its legally binding five year carbon budgets, is a sign of DECC’s growing confidence on climate issues rather than a reversal.

The fact is that time is no longer on our side if we are to meet the steep emissions cuts needed by the 2020s, let alone the 80% cut needed by 2050. Tinkering at the edges is, in short, no longer an option.

Endsreport (2010) Good intentions, wrong kind of cuts. Available at http://blogs.endsreport.com/carbonandenergy/2010/10/12/good-intentions-wrong-kind-of-cuts/. [Accessed: 19/10/2010]

Tags: Carbon Capture and Storage, DECC, Energy Act 2010, EPS, low-carbon, Siemens, Trading Scheme

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