Carbon Capture and Storage

Amber Rudd Excerpts

Thursday 20th November 2014 Westminster Hall

[The Parliamentary Under-Secretary of State for Energy and Climate Change (Amber Rudd)]

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.

[Tom Greatrex]

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.

[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.

[Amber Rudd]

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.