Carbon Capture and Storage (Scotland)

Ian Swales Excerpts

Tuesday 17th January 2012 Westminster Hall

[Ian Swales (Redcar) (LD)]

Congratulations, Sir Roger, on your ennoblement—that is not the right word, but congratulations on your award. I congratulate the hon. Member for Dunfermline and West Fife (Thomas Docherty) on securing the debate. It is an extremely important issue for the long-term future of our country from the point of view of both power and industry.

I have more than 25 years’ experience in the electricity and heavy process industries. The delay in carbon capture and storage implementation at Longannet is disappointing. The UK is in a great position to exploit CCS. As Lord Oxburgh, president of the Carbon Capture and Storage Association recently put it:

“Experience gained in the North Sea oil and gas industry, and the abundance of offshore geological sites where CO₂ may be stored underground have allowed the UK to become one of the global leaders in CCS. Capitalising on this early leadership is vital”.

We certainly can be leaders. The same technology that has been so successful in the complicated job of extracting, storing and processing oil and gas from the North sea can be modified to put carbon dioxide back under the North sea. There is a skilled work force, and academia is already doing important support work. Professional bodies such as the Institute of Mechanical Engineers are very clear that the technology is perfectly practical, and there is a great future here if we move quickly. The global market in the technology alone is conservatively estimated at $10 billion.

A similar story could have been written some years ago about wind technology. We are one of the windiest countries in the world, but thanks to Government dithering and lack of public and private investment, we are playing catch-up and importing most of the technology and equipment. Having worked mainly in the private sector until May 2010, I am baffled at the interminable time scales I see in this job. When someone says something will take six months, my questions are: so what will happen tomorrow and the next day, and how can we shorten the critical path? I am then met by blank looks. I am sure that the giant new Tesco store being built in my constituency would not have gone from a green field to a functioning supermarket in six months with politicians and civil servants running the project. My challenge to the Minister is: how fast can we go and what is getting in the way?

We should be ambitious about CCS in the UK. It is needed to decarbonise our power production and our heavy industry. The areas that get CCS infrastructure will become magnets for new power and industrial investment. That means that we can protect energy-intensive industries, which are currently being challenged by European Union and United Kingdom climate measures, and help to reverse the decline in our manufacturing sector. Failure to act will lead to more announcements like the recent one on the closure of the UK’s last aluminium smelter. Ironically, it is in Northumberland next to the North sea, and the owners had considered using CCS to keep the plant going. It is now too late.

Where should CCS investment take place? Again, we should be ambitious. There are four obvious prime locations: the Aberdeen area, the Forth, the Tees and the Humber-south Yorkshire area. They all have merits, and the Department of Energy and Climate Change should kick-start development in them all. A long-term strategy should be developed for CCS infrastructure.

[Thomas Docherty]

I have listened carefully, and disturbingly I find that I must agree with a lot of what the hon. Gentleman says. On his point about funding all the schemes, surely the great challenge is that there is a finite pot of money. How should that problem be addressed?

[Ian Swales]

I thank the hon. Gentleman for that challenge. I do not necessarily see it as my job to represent the Treasury, but £1 billion for less than a quarter of the Longannet power station was not a good use of money. Having talked to people in the industry, I think that there are better ways. Conglomerates of private sector companies want to get into the sector, and we need to be more imaginative about how we make that happen.

[Dame Anne Begg]

One problem is that at the moment, the private sector cannot see that it is a worthwhile business proposition. One of the difficulties faced by CSS in this country is that the economic arguments do not yet stack up.

[Ian Swales]

The hon. Lady makes a good point, and that is where we must challenge the private sector and be imaginative about the schemes. I will come on to a scheme I am familiar with that is not in Scotland, but for which there is already a conglomerate of companies ready to roll—household names in the gas and pipeline industries and lots of different companies. It can be done.

To those who say that such development is highly expensive, I say that we need to look more at the overall longer-term finances for the Government, industry and energy generation. For example, it has been estimated that the CCS project proposed for Teesside can generate a peak of £1 billion a year in extra petroleum revenue tax for the Government, through oil companies using CO₂ to get more oil from their North sea wells. That possible extra oil recovery from the North sea is estimated at 4 billion barrels. The use of CO₂ for enhanced oil recovery is already widely practised in the United States.

The debate is about Scotland, but a project is ready to go in Teesside, and the necessary list of major players in pipelines, processing and so on are ready to start. More than 30 large CO₂ emitters in the power and industrial sectors can be connected to the system. Interestingly, a few of those are using biomass, which raises the prospect of net carbon-negative power—sequestering CO₂ from the atmosphere. By generating clean power and running clean industry, CCS can make a huge contribution to UK climate change targets. A clear and ambitious UK-wide strategy, action to remove roadblocks to progress and a sense of urgency are needed from DECC, so that the UK can genuinely lead in this exciting new industry.

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[Gordon Banks (Ochil and South Perthshire) (Lab)]

I congratulate my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) on securing this debate, which is extremely important to Fife and central Scotland, as well as to the UK in general. I am disappointed with the Longannet decision. It affects my constituency, which borders that of my hon. Friend more or less at Longannet, very much. Many of my constituents work at Longannet and I would have had high hopes of many more of them finding employment in a successful carbon and capture storage plant there, but we are where we are.

It is vital that we have a balanced energy policy. We have to embrace renewables of all natures and there has to be a role for fossil fuels and, indeed, nuclear. We have to have a guarantee that, when we press the light switch, the light comes on. Unless we embrace all available technologies to ensure that that happens, we will find ourselves socially and economically challenged.

We need to determine—we can only do this through full-scale trials—whether carbon capture and storage is a real option for future economic prosperity, as well as for dealing with the knock-on environmental issues, which are the driving factor. It is equally important to determine what a successful CCS programme—developed and branded in the UK—could deliver to the UK economy in terms of revenue and the skills of our constituents.

The Scottish Government did not do anything in relation to the Longannet decision. There was a lot of hot air from the First Minister, and it is hot air that we are trying to stop. It would have been much more constructive for the Scottish Government to have done something to facilitate the development of Longannet. Did the Minister have any discussions of that nature with the First Minister?

In an intervention, I made the point that, with coal-fired power stations in the UK and throughout the world—an increasing number are coming online in countries such as China—CCS is the real gain and the holy grail. We need to focus our minds on it in the UK, while bearing it in mind that both the public and private sectors have limited resources to invest. I will come to that in a moment.

Can the Minister confirm the expected release date of the CCS roadmap, because that is absolutely vital for the private sector embracing the challenge of this technology and seeing the Government as a partner in this? Unless the Government play their part, we cannot expect the private sector to play its part. That in itself will create jobs, technology and developmental skills that I hope we can build on and in some way export. CCS could create 13,000 jobs in Scotland and 14,000 jobs elsewhere in the UK. By 2025, the sector could be worth more than £10 billion a year to the economy, which, in addition to the environmental impact, makes CCS a bit of a no-brainer. We have touched on how many times we have been left behind.

[Ian Swales]

Does the hon. Gentleman agree that, if CCS is worth £10 billion to the economy, those who will benefit have an incentive to help to get things going? It does not seem to make sense to rely only on Government funding.

[Gordon Banks]

The hon. Gentleman is perfectly correct, but what the private sector needs is for the Government to show a willing lead. What happened at Longannet could be construed as not demonstrating that. The Government need to step up to the plate here and throw the gauntlet down to the private sector.

As I was saying, how many times have we been left behind and missed the boat in the UK in terms of various different technologies? The hon. Member for Redcar (Ian Swales) talked about wind technology. It is a crying shame that we are where we are with wind technology. We are largely importing the technology and the equipment to build turbines. That really has been a missed opportunity. Although CCS may be costly—I will come back to that matter—it is an opportunity we cannot afford to miss.

We need something from the Government to show that they are embracing CCS and that demonstrates to the private sector how serious they are. The hon. Member for Warrington South (David Mowat) raised the point about CCS being expensive. Yes, it is. There are no cheap or quick fixes to our energy position, but we have to consider what the fixes are and CCS is potentially one of them. Governments in Holyrood and Westminster need to step up to the plate, and I am not sure they are doing that.

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[David Mowat (Warrington South) (Con)]

Thank you for letting me speak, Sir Roger—I had not intended to do so. I want to make two points in relation to some of the comments I have heard: one in favour of CCS and one expressing some reservations. I will mention the latter one first, which relates to cost.

Many hon. Members have talked about the benefits of CCS technology. Of course, we live in a country where energy is still 90% fossil fuel generated, and anything that can enable us to make the transition from that in a carbon-free way, such as CCS, is attractive. Yet there seems to be something wrong. What the Government should be doing is setting a price for carbon and then letting the private sector do the work. We do not know the details about Longannet but, for whatever reason, that approach is not enough. People are saying that we have to invest a further £1 billion here and have a further pilot scheme there. What the Government’s role ought to be—this is the energy market reform—is, as it is with nuclear, to set a price for carbon, give industry that stability and let it make the investment. For example, let us consider Iberdrola.

[Ian Swales]

The hon. Gentleman might be interested to know that the pressure I feel in my constituency is essentially coming from industry, not from power generators, because industry can very much see what is happening to it competitively and so on through carbon pricing. Does he agree that there may be a carbon pricing method that can incentivise the power sector to play its part in bringing this new technology on board faster?

[David Mowat]

I do not, no. If this technology is to work, it has to be done on the same playing field as everything else. I mentioned the price of carbon. The other thing about CCS technology that is not in doubt is that it requires an injection of power over and above what a power station is currently using—in the order of 25% for coal. That is an immediate increase in emissions and everything else just to make CCS work.

--- Later in debate ---

[David Mowat]

Just to be clear, I completely buy into the Climate Change Act 2008 and its requirements. However, the way that the Government have chosen to meet their environmental obligation is by setting a price to carbon. That is what makes CCS viable because, obviously, the companies will save the money from burning the carbon at whatever the rate is—£30 or £50 a tonne—and so on. That is my point. The level playing field that the Government are trying to obtain through the energy market reforms is being achieved over the medium term by the price of carbon.

Let me now make my point about CCS from a more positive point of view. What worries me a little about the Government’s position on CCS is a little similar to what worries me about the Government’s position on nuclear. Both CCS and nuclear have one thing in common: they are extremely good at reducing carbon, but they are not renewables. The Government have an issue to work through, and I have said this in other forums. The Climate Change Act 2008 requires us to reduce our carbon emissions by 80%—a huge and difficult target, but it is right that we are trying. My concern is that, in 2009, the EU 20-20-20 directive required us to increase our use of renewables by a factor of five over a decade or so. That objective is not necessarily consistent with the objective of reducing carbon.

It is possible that CCS may lose out, like nuclear, through a little bit more ambivalence on the part of Government. I looked at the Government’s carbon plan. It estimates how much of our electricity will be produced from CCS by 2030 and how much will be produced from renewables. I am not anti-renewable at all, if it can be made to work in a cost-effective way. The Government’s estimate for 2030 is a factor of five difference between renewables and CCS. I do not know whether CCS will be made to work or not. We should try, and it would be great if it did, but I am worried that the emphasis of policy is not on carbon reduction. The emphasis of policy is on renewables, and that might take us to, or down, a sub-optimal path.

[Ian Swales]

Just one point of clarification: those two things are not necessarily entirely separate. A new 300 MW biomass power station has been announced for Teesport. A CCS network in the area could actually feed into that. As I said earlier, we could end up with carbon negative power as a result of doing that, so they are not entirely separate. While 300 MW is not a huge amount, it is worth noting that the Longannet project was only 400 MW.

[David Mowat]

I agree. I mentioned CCS and nuclear as opportunities. Biomass is also an opportunity. In common with the first two, it is also not a renewable. As I said, I am concerned that the emphasis of policy is in the wrong place. The 2008 Act was a hugely ambitious plan to try to achieve. We should not be diverted from doing so and we should look very hard at optimising that.

[Mr George Howarth in the Chair]

Finally, we have not really covered nuclear in any detail, other than an exchange at the start between two hon. Members from north of the border—the hon. Member for Dunfermline and West Fife (Thomas Docherty) and the hon. Member for Banff and Buchan (Dr Whiteford). People say to me that there is no cost-effective option. On the facts, it would appear that nuclear is cheaper than some of the other options, but of course the market needs to determine that. I agree with that. The carbon price will allow that to happen. That needs to be the case with CCS.

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[Charles Hendry]

My concern was always that the competition was too narrowly focused. Given the requirement for post-combustion technology, the interest in pre-combustion technologies, such as the BP project at Peterhead, could not qualify. The assumption at the time was that the technology could then be sold to China and elsewhere to retrofit old plants, but the Chinese are now clearly quickly developing their own technology that they want to sell to the rest of the world, so we need to look at a wider range of technologies. An added complication, which I will come to later, is retrofitting an old technology to an old plant, with the significant extra costs inevitably occurred in bringing that plant up to scratch, to give it decades of future life, on top of the cost of the CCS alone.

We all agree that CCS can play a fundamental part in delivering our secure, low-carbon energy needs. It provides us with a generation option that other technologies do not: its flexibility can provide a balance between the intermittency associated with renewables and the base-load nature of nuclear. It allows fossil fuels to play a full part in our low-carbon future and allows the decarbonisation of industrial emissions. We—the whole of the United Kingdom and the Government—remain firmly committed to working with industry to achieve that.

We have made available £1 billion of capital funding to support early CCS projects, and I will say more on that in a moment, in response to the questions. We are establishing a market for CCS electricity through our reforms to the electricity market. We are continuing to lead the world in putting in place the regulatory framework to support CCS, including legislation on third-party access to pipelines. We are supporting essential research and development, including opening the UK’s first carbon capture demo at the Ferrybridge power station. We have also established the CCS development forum, which has drawn together around 40 members from the industry to be directly involved in delivering CCS in the United Kingdom, together with representatives from the international academic and non-governmental organisation communities.

There are many different ways to achieve the decarbonisation of the power sector. At this stage, it is not possible to predict which will be the most cost-effective route or what exactly the power sector will look like in 2030. Nevertheless, we can use economic models to produce projections, using the best evidence currently available. Analysis undertaken for the carbon plan of the Department of Energy and Climate Change suggests that around 40 to 70 GW of new low-carbon electricity generating capacity will be needed by 2030, depending on demand and the mix of generation built. In response to the point made by the hon. Member for Banff and Buchan (Dr Whiteford), a strong continuing role for gas is envisaged in that mix.

[Ian Swales]

The Minister mentioned economic modelling. Do the Government have any wider modelling that takes into account the whole picture, not only carbon capture and the grants that might be required to get it going, but—my earlier point—petroleum revenue tax resulting from enhanced oil recovery?

[Charles Hendry]

My hon. Friend makes an interesting and valuable point. Our focus so far has been on how to advance the technology and to make it commercially viable and on how to bring down the cost. Our focus therefore has been on the energy sector, but he is absolutely right about a range of other benefits, not least in PRT or revenue that might come through enhanced oil recovery, which I will come back to, as well the supply-chain opportunities, the wealth that that creates for the economy and the tax revenues that will come into play.

Our analysis shows that CCS could contribute 10 GW of capacity to the UK electricity market by 2030 and up to 40 GW by 2050. I want to be absolutely clear that we are not setting targets for separate technologies. The industry’s ambition for CCS, as set out by the Carbon Capture and Storage Association strategy paper last year, is significantly higher than in our modelling, seeking 20 to 30 GW by 2030. We would be happy with such deployment, provided that it is the most cost-effective way to meet our decarbonisation targets—an issue raised by my hon. Friend the Member for Warrington South (David Mowat). We must do three things to make that possible: provide incentives for investment, bring down the costs of the technology and tackle barriers to deployment.

The key to delivering the investment that we need in the UK electricity sector is confidence, for both technology developers and investors in the long-term future for their technology, and in the certainty of opportunity for those who want to take forward CCS and other low-carbon technologies. That is why the Government are implementing the biggest reforms to the electricity market for a generation, to provide the certainty that investors require and to create an industry for CCS, rather than only a few pilot projects. We are committed to reforming the electricity market to incentivise the deployment of low-carbon generating capacity.

Electricity market reform is a game changer for CCS. The reforms that we have announced offer the prospect of a future market for CCS electricity that will drive investment in commercial CCS plants. We are considering reforms that offer a range of benefits: longer-term contracts to provide stable financial incentives; support for early CCS projects, with contracts designed to recognise the associated uncertainties; an emissions performance standard set at the equivalent of 450 grams of carbon dioxide per kWh; and a carbon price floor that will further incentivise investment in low-carbon generation. With such incentives in place, the deployment rate for CCS will be dependent on the costs of the technology and how they stack up against nuclear and renewables.

If CCS is to be competitive with other low-carbon technologies, we and the industry must work together to understand the costs and how they can be reduced. There are two elements: technical discovery, through both research and development and learning by doing, and reducing the perceived risk of investing in a new technology, which leads to higher premiums for investment. We are tackling these issues in two main ways: through our £125 million research and development programme, which will continue to provide support for projects such as the UK’s first carbon capture pilot at Ferrybridge, which was opened by the Secretary of State for Energy and Climate Change last year; and through our new CCS delivery programme, which will support larger-scale projects, delivering learning by doing, moving the technology forward and reducing risk premiums. The programme will focus on achieving the overall outcome of cost-competitive, low-carbon electricity from fossil fuel power stations in the 2020s, thus achieving exactly what we want, which is a long-term industry in the sector.