Coal power stations were the main focus of CCS - but attention may now switch to gas.
She made her list and checked it twice, and finally decided who was naughty or nice. European Commissioner for Climate Action Connie Hedegaard played Santa just before Christmas, awarding €1.2bn of funding for 23 innovative renewables projects across Europe. But frozen out of this funding round were projects aiming to demonstrate carbon capture and storage (CCS) at commercial scale.
This is hugely embarrassing for European efforts to address climate change, and particularly for the UK. For the creation of the ‘NER300’ mechanism was agreed back in 2008-09 following British diplomatic efforts and cross-party political leadership. Indeed, the UK submitted 7 of the original 13 CCS projects originally under consideration. As late as October 2012 the UK still had 4 projects out of the 8 vying for funding.
So what went wrong?
One senior European Commission official (who should know better), has been heard to say that ‘CCS is dead’. This is simply not true. The technology for CCS is alive and kicking. Commercial scale capture projects are under construction in Canada and the USA. Injection of CO2 into deep geological formations continues onshore in the USA and offshore by Norway. China is rapidly developing pilot projects of its own, and is set to invest $1bn in a CCS project in Texas. Of course there is still a long way to go, but the problem isn’t the technology.
Here in Europe, CCS projects looking to receive funding from the NER300 were scrutinised and ranked by the European Investment Bank (just as the renewables projects were). Then member states were asked to confirm which projects they would support, together with the level of co-funding they would contribute.
The French government confirmed co-funding for the proposed steel mill CCS project at Florange, only for ArcelorMittal to withdraw at the last minute. The Florange plant was the host location for a CCS demonstration on behalf of a wider consortium of European steel producers. CCS offered the prospect of job retention and a value-added, low-carbon product. The unions are right to be furious.
Other governments performed less well. The Dutch government came too late with a revised offer to support their proposed Green Hydrogen project. The Romanian government had taken positive steps by introducing a feed in tariff for CCS, but were unable to commit funding given an impending election and a fight with the European Commission about EU budget spending. The Italian economy is struggling and its project is behind schedule. Poland meanwhile has been staying close to its broader strategy and holding out for more funding. That leaves us with the UK: the EU member state best-placed to deliver CCS.
A promise unfulfilled
Let’s rewind to the closing months of the last Labour government. After the great success of the Kingsnorth coal campaign, Ed Miliband recognised that there would be ‘no new coal without CCS’. Energy Act 2010 was then enacted with cross-party support, creating a dedicated levy for CCS. This was projected to raise around £11bn over 15 years to support a programme of 4 CCS demonstration projects and associated infrastructure. The Act also required government to regularly report on progress made on power sector decarbonisation and the demonstration of CCS. The first report was quietly published on 20th December 2012. It refers to the development of proposals for Electricity Market Reform, and presents data on power sector emissions in 2010 and 2011. But the real story of what has occurred is entirely missing.
When the coalition government took office in 2010, it promised not only to be the ‘greenest government ever’, but also that it would be ‘First Choice for Investment in CCS’. All-too-quickly, however, these aims were undermined by decisions from Treasury and delays from DECC.
The newly-agreed CCS levy was pulled by Treasury. The negotiation of the first CCS competition ended without award to the last-standing Longannet project. A further year was lost before a new CCS commercialisation competition was launched, but at last it looked like the timelines for decisions under the UK and EU competitions would align. But to great disappointment and surprise, the only firm decision made by DECC in October 2012 was to kick out 2CO’s proposed Don Valley project, with neither firm selections of projects nor confirmation of funding made to the other bidders. Doubts continue over the availability of capital funding in this spending period.
So when it comes to delivering on the agreed rules of the EU’s NER300 programme it is the UK government who has most visibly failed to deliver. Yes, CCS projects are different than renewables, and yes, the co-funding requirements are an order of magnitude larger. But EU funding was there for the taking, and the UK failed to grab it.
New year, new approach
Early action on CCS would have helped European policy makers accelerate decarbonisation of both power generation and industrial emitters. This would have increased political confidence in the desirability and deliverability of European climate policy. But the economic crisis has accentuated the foot-dragging approach of many fossil fuel interests and highlighted weaknesses in the policy framework. Smarter policy choices are required to rebuild momentum and unlock political support for CCS.
At EU level, there needs to be a pause for breath rather than a headlong rush into the second round of NER300 funding. The original approach favoured CCS projects on coal and lignite, but a focus on CCS on gas and industrial emitters would provide greater value to the European economy and support existing technological leadership. Adjusting these criteria would take a few months, but the wait could be worth it. With the EU looking to strengthen the ETS in the meantime, not only could the business case for CCS be improved, but additional funds might become available from the auctioning of the remaining 100 million allowances in the NER300 pot. Member state co-funding would be easier to secure too with more time available.
In the UK, decisions in the new year can also make all the difference. After losing the strong hand of cards it held just 2 years ago, DECC needs to craft a can-do approach that strengthens its chances of success. It must lift its eyes to the bigger picture and communicate a vision of how CCS will play a catalytic role in enabling the low-carbon economy. It must start by supporting all 4 of the UK’s remaining projects through the next stage of detailed engineering development, and fast-track action to create regional CCS development zones. The Energy Bill should complement this by bringing gas plant into the scope of the Emissions Performance Standard by 2030 at the latest.
Policy choices along these lines would inject some new energy back into the CCS sector. And a fresh approach that focuses on industrial benefits, job retention potential and a clear commitment to decarbonisation would also help win new friends. 2013 begins with a need for strengthened resolve to make CCS happen in Europe. Let’s make it happen.
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