Carbon Capture and Storage

Graham Stringer Excerpts

Thursday 20th November 2014 Westminster Hall

[Mr Tim Yeo (South Suffolk) (Con)]

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.

[Graham Stringer (Blackley and Broughton) (Lab)]

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?

[Mr Yeo]

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.

--- Later in debate ---

[Dr Alan Whitehead (Southampton, Test) (Lab)]

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.

[Graham Stringer]

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?

[Dr Whitehead]

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.