Energy BILL [ Lords ] (Sixth sitting)

Debate between Matthew Pennycook and Philip Boswell

Thursday 4th February 2016 Public Bill Committees

[Matthew Pennycook]

We will have to agree to disagree again. I am probably one of a handful of people who have read the manifesto in the name of which so much is being enacted. I think that is just another example of the Government trying to have it both ways and to interpret what I and, more importantly, industry and commercial funders took to be a clear statement of the Government’s intent.

It is worth bearing in mind—the Minister touched on this—the context in which the decision was made. Funding was abruptly withdrawn at a time when a number of companies had been working tirelessly for many years to progress their projects, and just weeks before they were expected to submit their bids. Business and investors were given no notice. We heard evidence in the Select Committee that the industry first got wind of this through the Financial Times, when it reported expectations of the Government about that settlement. That was just a few hours before Department of Energy and Climate Change officials posted the notice on the London Stock Exchange and a week after the “reset” speech in which CCS was mentioned as a central part of the Government’s energy policy. To say it was unexpected is an understatement. As a witness in the Select Committee said, it was a shabby way to treat those involved in trying to further this technology.

It is important to bear in mind that millions of pounds of public money have already been wasted, for example, in proving up the Goldeneye store for the Peterhead project through two competition processes, or in the White Rose projects. Those are public investments and public money has been put into them, but they are now at risk of abandonment and sterilisation. Like the Government’s decisions on onshore wind and in a host of other areas, it reflects incredibly badly on their relationship with business and their ability to drive long-term investment in this area.

As Richard Simon-Lewis, financing director of Capture Power Ltd told the Committee, the decision had

“the effect of taking the wind out of our sails. I think the cancellation by UK Government of the competition signals to the market that there is a question mark in the UK Government’s mind over CCS.”

I think the only thing captured here is UK energy policy by Her Majesty’s Treasury. The justification given that in a tight spending review—we all accept that it is tight—now is not the time for this simply does not stack up.

Waiting or buying in technology from other parts of the world will have an impact and costs down the line. It is important that the Government come forward with a strategy for carbon capture and storage. We do not have one in place as things stand. We have uncertainty and muddle.

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

I should state an interest, having previously been involved in the carbon capture project at Peterhead—I moved it from Longannet to Peterhead—so I know something about the issue. I have been on record a few times exactly anticipating this reduction. Matthew Bell, the new chief executive of the Committee on Climate Change, when asked what we would have to do without CCS to hit our targets replied:

“You really need to virtually completely decarbonise your transport sector and completely decarbonise your heating sectors, in order to deliver on the 2050 ambition, without being able to benefit from the CCS.”

Does the hon. Gentleman agree that that is extremely unlikely?

[Matthew Pennycook]

I know it is extremely unlikely. As we touched on at our previous sitting when discussing onshore wind, the Secretary of State has admitted that the Government do not have the right policies in place to meet their targets on heat and transport. From what I can see, they do not even have any institutions within Government to make it happen. We have been told there is an interministerial group on carbon growth but we do not know how many times it has met or what its terms of reference are to drive forward progress in this area. The implication of that, as I will come to, is that we will see greater costs down the line if we do not get serious about CCS.

We need a strategy. The Minister has explained why she believes the Oil and Gas Authority’s function should not be extended to incorporate the regulation of CCS activity. I disagree with the case she made, but I hope she does not dispute the need for more clarity in this area and for some kind of strategy. In the absence of an effective carbon price, we need to have a comprehensive strategy from the Government on CCS development and deployment. Such a strategy would be formed in consultation with a number of Departments, including the Treasury and the Department for Business, Innovation and Skills, the OGA and the CCS industry itself, as the clause makes clear.

The strategy would have to include some of the following elements, which I mention in the hope that the Minister will take them on board. It would need a strategy for maintaining those strategically important pieces of UK-critical infrastructure, such as Peterhead, that have been put at risk by the recent decision to withdraw CCS funding. It would need provisions for the development particularly of transport and storage, to incentivise what we know we need, which is large clusters of CCS, where multiple operations are linked into a single plant, because that is how to get the economies of scale. It would need a strategy to facilitate the industrial application of CCS, particularly in the iron and steel industry, cement production and petrochemicals. Those three sectors account for 45% of CO₂ emissions that need to be captured by 2050.

Above all, we need a strategy because the private sector needs some certainty about funding, so that it can build confidence, investment and support for CCS projects, importantly where the finances in such projects do not rely on carbon being reinjected to maintain reservoir pressure in producing oil and gas fields. That happens in a large majority of the CCS projects that are up and running, and is, I think, questionable in terms of its long-term impact on climate.

Why do we need to do this for funding, to touch on the point made by the hon. Member for Coatbridge, Chryston and Bellshill? If we do not get a strategy soon, not only will the UK lose direction, but it will cost us a great deal of money. As I said, a significant amount of UK taxpayer money has already been wasted as a result of the abrupt decision to withdraw the £1 billion CCS funding. That is why the National Audit Office is going to look into the matter, and why the companies involved are now seeking to recover the costs they have sunk into the projects. There are other greater and more significant long-term costs at stake: the costs of avoiding dangerous climate change if CCS does not come forward to scale.

Let me put on the record the assessment of the Energy Technologies Institute. According to the ETS, delays in deployment as a result of the CCS competition cancellation have

“a high chance of significantly increasing the cost of carbon abatement to the UK economy. Delay adds an estimated £1-2 billion per year throughout the 2020s to the otherwise best achievable cost for reducing carbon emissions.”

While delays in CCS infrastructure are still likely to mature, the legacy effect of the Government’s decision will in the decades ahead

“still result in an additional cost estimated to be around £2–3 billion per year”.

From a public interest perspective we have to get this right. We need a comprehensive strategy and now is the time to do it. I urge the Minister seriously to consider the new clauses.