Carbon Capture and Storage (Scotland)

Tom Greatrex Excerpts

Tuesday 17th January 2012 Westminster Hall

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Howarth.

We have had an interesting and wide-ranging debate on CCS in Scotland and other related factors. It is not a surprise that the debate has sometimes ranged beyond CCS projects in Scotland, because so many aspects of energy policy and energy considerations are tied up with the potential—the potential projects and the success, or otherwise—of CCS. I am sure there are many other issues, from the contributions we have heard, that the Minister will wish to reflect on. He missed the very start of the debate, but what is gratifyingly clear from the whole of the debate is that—despite one comment from the hon. Member for Warrington South (David Mowat)—nobody taking part in the debate fails to see the potential of CCS and its impact. From time to time there is a view that, because CCS is unproven and has not been demonstrated on a commercial basis, it is a distraction. I do not believe it is a distraction. It is integral to achieving the right, balanced energy policy and the right mix of energy sources, and to reducing carbon emissions at the same time. It is interesting and positive, therefore, that that view has not been expressed during the debate.

I congratulate my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) on securing the debate. He touched on many issues from the perspective of representing the Longannet power station. Everybody felt disappointed with the announcement that Iberdrola and the Government had concluded that the Longannet project was not able to go any further without significant additional funds. In fact, even with the significant addition of funds, there may well have been other technical issues that made it impossible to go further. That decision was not necessarily a party political issue. It is, I think, a deep disappointment to everybody who is interested and committed to energy policy.

Some of the commentary around the issue was unhelpful. I had the pleasure—it was not that much of a pleasure—of rereading some of the comments made by the First Minister and other members of the SNP immediately after that decision. While I understand that the predecessor of the hon. Member for Banff and Buchan (Dr Whiteford) was caught up in the moment at his party conference shortly afterwards, his description of the Government turning their back on a world-leading technology and £1 billion of investment not being there was perhaps going further than the facts allowed. That was disappointing in many ways, but not necessarily that surprising.

[Thomas Docherty]

Does my hon. Friend think it is interesting that, for all the bluff, bluster and ranting from the SNP, when push comes to shove they would not have put a single penny into the scheme? We have heard nothing today about how much it is prepared to fund.

[Tom Greatrex]

I think my hon. Friend is trying to tempt me into one aspect of a constitutional debate that we will have, and I am sure we will have plenty of opportunities. I join other hon. Members in seeking clarification from the Minister on what offers of funding for CCS were made, if any, from the Scottish Government. It would be interesting to learn more about that issue if he has the opportunity to address it in his winding-up speech.

I want to reflect on some of the contributions to the debate, because so many aspects of energy policy are tied up in them. My hon. Friend the Member for Dunfermline and West Fife touched on security of supply. My hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) touched on the importance of the industrial and technological potential that undoubtedly exists in the UK. The clock is ticking, however, and he gave an apposite warning about the potential for missing out on that, as indeed did the hon. Member for Redcar (Ian Swales), who has experience in the industry and related industries. The hon. Member for East Dunbartonshire (Jo Swinson) made the important point that this is also about reducing carbon emissions, which is fundamental to our energy future.

Scotland has had a relatively long, and sometimes chequered, past—and present—with CCS: from Peterhead to Longannet, and back to Peterhead again. There is also the potential of the Hunterston project, which is currently caught up in the planning process. Other hon. Members referred to the difficulties that can arise with the planning process.

At various points, there has been lots of excitement about the potential of all those projects in Scotland. There is a real opportunity for Scotland to be a world leader in this low-carbon technology. Much of the academic expertise is in the UK, particularly in Scotland, notably Edinburgh. It would be a shame if that potential was not realised first in the UK. As my hon. Friend the Member for Ochil and South Perthshire made clear, we should not overlook the potential for jobs and the value to the economy. Many hon. Members have touched on Scotland’s potential, particularly within the UK. It has access to geological formations off the North sea that are ideally suited to carbon storage, and we have heard about the issues in Germany and elsewhere regarding under-land storage.

All those things make it important that the Government remain committed to CCS, including, potentially, in Scotland. That does not mean that the decision on Longannet was not disappointing, as I have said: it was bad news for the plant, for the local economy and for Scotland. My two hon. Friends here today with local connections made that point eloquently. However, as my hon. Friend the Member for Ochil and South Perthshire said, we are where we are and we have to deal with the realities. The important thing now is that the potential demonstrated in the work at Longannet is not lost, so that we do not have to start from scratch.

I am pleased to have found out in my discussions with Scottish and Southern Energy—or SSE as it is now formally known—that some work undertaken at Longannet is being used to help inform current work in relation to Peterhead. It is important that we do not have to start from scratch each time, because then our ability to get ahead of the game would almost certainly be lost.

It is important and significant that we understand the difference between CCS being encouraged through other aspects of energy policy, including carbon pricing, in the longer term—as the hon. Member for Warrington South mentioned—and where we are now, because this technology has not yet been proved commercially on a significant scale. The real potential has been demonstrated, but it is reasonably widely accepted, if not universally, that to get that benefit Government intervention and support is needed in the initial stages.

The hon. Member for Banff and Buchan touched on the Peterhead project, and many hon. Members who are not here have commented on the decisions made in 2007. I am tying this issue into Longannet because sometimes, as I have said, party politics gets in the way of the realities of projects that have potential but, for whatever reason, cannot be taken further forward.

The predecessor of the hon. Member for Banff and Buchan talked about the Peterhead project being lost to Abu Dhabi. He is a frequent traveller, at the moment, to that part of the world. I wonder whether he would, either through the hon. Lady or at some other point, inform us what happened in Abu Dhabi, because I understand that BP’s hydrogen power project has still yet to get the go-ahead there. Sometimes the simplistic sloganising around this issue does a disservice to the technological, practical and engineering hurdles that we still need to get over. Sometimes, the degeneration of this important matter into an “England versus Scotland” or a “Scotland being done down” debate does it a disservice.

Funding is important and I am sure the Minister will have expected me to mention that, given that I have used many opportunities in the past few months to seek answers on this issue. It is important that we get clarity from the Minister today, including about the funding that is available going forward. At the time of the Longannet decision, the Minister’s boss, the Secretary of State for Energy and Climate Change, said at Energy questions that there would be no backsliding from the Treasury, that the £1 billion would be available for CCS funding, and that that was an absolute commitment. Yet the day before the autumn statement—I am sure the Minister recalls the radio interview—the Chief Secretary to the Treasury made it clear that the £1 billion for CCS would be subsumed within the £5 billion infrastructure plan, although he was not clear about what would then be available for CCS. The ramifications of the interview on 5 Live that morning were pretty significant and have caused a degree of concern in the industry that has not yet abated. Perhaps the Minister will comment on that and say what that means for the timeline for the development of CCS.

The subject of the debate is projects in Scotland. The Minister will be aware of SSE’s projections regarding when it expects such projects to be up and running: that is, before the end of current comprehensive spending review period. There is a degree of doubt and concern about that, because the Government are saying that the £1 billion will be available, but not necessarily in this Parliament. How can they make that commitment ahead of the next CSR? The industry is concerned about certainty and stability in relation to that funding; it is important that it know exactly where it stands.

Again, will the Minister make clear how much of the £1 billion that his boss said there would be no backsliding on will be available during the current CSR period? How much of the £1 billion previously set aside for CCS will now be used for other infrastructure projects? Will those other infrastructure projects in the Treasury infrastructure fund exclude CCS, and is the money being double-counted? What form will the remaining funding take? Will it be up-front capital, or fixed or variable payments over time?

I am asking the Minister these questions again because on 29 November 2011, I asked the Chancellor during his autumn statement to provide some clarity, but he was not able to do so. On 1 December I asked the Secretary of State for Energy and Climate Change to provide some clarity, but I am afraid his answer was not clear. On 6 December I asked the Chief Secretary again to provide further clarity, but, again, he was unable to do so. On 15 December I even asked the Leader of the House to provide some clarity, and he said that he thought the issue had been dealt with with the appropriate degree of clarity beforehand.

Four Cabinet Ministers were, in the space of 11 sitting days, given an opportunity on the Floor of the House to spell out clearly and without ambiguity exactly how much money was available for CCS in this Parliament, what the impact would be on the timeline for distributing that funding and whether the funding was, potentially, being spread far too thinly to have a positive impact. On each occasion the Government were found wanting: rather than providing potential investors with the clarity they were asking for, they preferred to provide further confusion.

The Energy Minister even claimed, in a written answer to me, that the Chief Secretary to the Treasury had not made any announcement on CCS funding. People who heard the interview I have mentioned would beg to differ: although it may not have been a formal announcement to Parliament, that statement by the Chief Secretary has caused such a degree of concern that it is incumbent on the Government to provide the clarity we need now.

I should like to touch on the European NER300 funding package. The lack of clarity about Government funding for CCS projects has a knock-on effect on other sources of funding, which hon. Members have mentioned, whether private or public. One such source is the European Union NER300 programme. The six CCS projects competing for funding from the UK are also doing so at European level.

The Peterhead project is seeking funding. The chief executive of SSE, Ian Marchant, has made it clear that the development of the commercial-scale CCS demonstration is dependent, to some extent, on levels of support from both the EU and the UK Government. The criteria for accessing EU funding are clear. Before any allocation of EU money for a CCS project that is seeking both member state and EU funding:

“Member States will be asked to confirm the value and structure of the total financing of the projects concerned, and any project for which confirmation is not forthcoming will be replaced by the next highest-ranked project.”

Those words are chilling, and unless that criterion has changed, they highlight the urgent need for the Government to get in place their plan in relation to CCS, so that that opportunity is not missed.

The Government held an industry day just before Christmas, which many people were hoping would answer some questions. Given the questions and answers published on the Minister’s website and the views of people who attended that event, I do not think it answered many questions, other than to say that at some point questions would be answered. I hope the Minister takes this opportunity to answer those important questions.

Scotland is at the forefront of this pioneering low-carbon technology, which could hugely benefit our energy security and how energy policy is taken forward across the UK and more widely around the world. However, as hon. Members have highlighted, the right support from the Government is needed to get that opportunity up and running. It is time for the Minister and the Government to bring the uncertainty to an end, to provide clarity and to come clean on CCS.

--- Later in debate ---

[Charles Hendry]

The hon. Gentleman’s point is critical to the whole Scottish electricity sector. The work is being taken forward by Ofgem through Project TransmiT, which is considering the appropriate regime for charging when electricity is transmitted over long distances. It will set out its thoughts during the next few weeks, and that can be discussed in more detail. I am very encouraged by the progress that I understand is being made to find a formula that will work for those who are developing projects north of the border and in other parts of the country. More detail will be available shortly, but it is critical to the development not just of CCS in Scotland, but to the whole electricity generating sector north of the border.

We are putting in place a strong financial offer for early CCS projects, and it is one of the best offers anywhere in the world. It includes the £1 billion that is available for the up-front capital costs of projects, the potential for low-carbon contracts for difference to support operational costs and the potential for European new entrant reserve funding, which we fully support.

In response to the point made by the shadow Minister, the Chief Secretary to the Treasury has said that, realistically, because the programme is being put back, the money that we had anticipated being spent in this spending round is unlikely to be spent, and it cannot be spent in the time scale originally intended. If Longannet had gone ahead, it could have started to be drawn down this year and certainly into 2013. With new projects coming through, that will happen at the very end of this spending round and primarily into the next one. However, there is a clear commitment, and the £1 billion remains.

In response to the point made by the hon. Member for Banff and Buchan, good progress is also being made on finding additional sources of funding to bring into the process. Discussion is taking place with sovereign wealth funds overseas to trap their investment in this area. We are seeing a greater appetite from industrial investors to put in their own funding, instead of the Government providing funding. Projects involving enhanced oil recovery might also make a significant financial contribution.

[Tom Greatrex]

I am grateful to the Minister for his partial answer to one of my questions. May I press him on how much of that £1 billion will be available during the current CSR period and the current Parliament if demand is present and whether the projects are advanced enough for the money to be available to spend? How much of that £1 billion could be spent on CCS during this time, or has it been subsumed into a wider infrastructure pot?

[Charles Hendry]

Certainly, the funding that was assumed would be spent on CCS in the middle of this spending round and that will not now be spent and cannot be spent is being made available to other infrastructure projects. I am sure that the hon. Gentleman welcomes that, because it will help to drive forward our economic recovery. Until we have seen the scale and type of the projects and the extent to which they will co-operate and collaborate, we cannot set out exactly what the funding will be. Some of them will access the new entrant reserve fund; some will be more dependent on a predictable income stream through the contracts for difference; and some will need more up-front funding. Until we know exactly what the projects will be, we cannot say exactly how they need to be financed. I understand why the hon. Gentleman wants clarity now, but until we understand the nature of the front-runner projects, we cannot say with certainty exactly how that funding should come forward.

[Tom Greatrex]

I am grateful to the Minister for his response. How much money would be available if those projects were advanced to a stage where they would be considered to be appropriate for that funding? How much of that funding would be available for projects in this comprehensive spending review period if they were in that position? Would the figure be up to £500 million, £200 million or £300 million? How much would be available from that £1 billion during this CSR period if the projects had the applicable framework for that money?

[Charles Hendry]

The hon. Gentleman is tempting me to go out of line, but I am reluctant to pursue that approach. Until we understand the nature of the projects, I cannot explain to him how they will be funded. They will all have a different funding requirement for longer-term running costs or up-front capital, which may come from one or two sources. We want to make it clear that we want projects to try to find other investors to enter the process. There will inevitably be a process of discovery and of trying to find out exactly what the best projects are, but we have made it absolutely clear that that £1 billion remains available. The hon. Gentleman understands that the time scale has been moved backwards because of the decision on Longannet, but the £1 billion remains ring-fenced.