At the end of 2013 the government voted down an amendment to the energy bill that would have placed a limit on the carbon emissions from our oldest, dirtiest coal-fired power stations. Their argument for doing this was that other measures were making the economics of coal unattractive which was naturally pushing coal off the system.
However, as the graph below shows, generation from coal has been increasing. In 2012 44 per cent of electricity was generated coal – a 30 per cent increase on the previous year and it fell only slightly last year despite two major plants coming offline. Coal is not going away but has become our largest source of power.
As DECC noted in it's latest assessment "The contribution of coal to the UKs electricity mix remains high compared to recent years (between 2009-2011 coal provided around 30 per cent of the UK’s electricity generation)."
From a climate perspective, this is a problem.
Coal is the most carbon intensive fuel used in the generation of electricity. It produces twice the carbon pollution of gas, and far above that of nuclear and renewables.
As the prime minister’s climate advisers have said repeatedly, any realistic attempt at decarbonising our power system must spell the end of coal-combustion unless emissions are captured through carbon capture and storage (CCS) technology.
Energydesk UK coal series:
And it’s not just the impact on climate change; the Health and Environment Alliance – a network of health groups including London School of Hygiene and Tropical Medicine and Chartered Institute for Environmental Health – reported that British coal plants cause 1,600 premature deaths, 68,000 additional days of medication, and 363,266 working days lost each year.
The government have stated they “want, through the combined effect of all the measures in this (Energy) Bill, to create the conditions for an orderly, cost-effective transition away from high-carbon coal through investment in lower carbon alternatives”. But this doesn’t ring true in practice. Rather than squeezing coal generators they are making things far easier for plants to stay open into the 2020’s and beyond.
Removal of the carbon price floor
One way in which they may help coal is if they remove or freeze the carbon price floor, as has been widely rumoured. Although this is an inefficient policy that has been criticised by industry groups, consumer groups, and even green groups, without it the economics of coal are substantially improved.
If Parliament had known when the Energy Bill was being debated that the government was planning to remove this measure they may have seen the weaknesses in the government’s arguments and voted to include an explicit cap on coal plant emissions. The decision has certainly come very soon after the Energy Act received assent and MPs and Peers would be justified in feeling they had been voting with incomplete information.
Another way the government could help old coal stations is through the capacity market. This provides payments to generators to ensure there is sufficient capacity on the electricity system in the future to stop the lights going out. In the case of coal generators, these unexpected payments could help fund upgrades to their aging plants so they can meet EU directives on air pollution.
These upgrades will not reduce carbon emissions and they effectively extend the length of time coal plants can continue to operate. Whether the hand-outs from the capacity market are directly linked to these upgrades or not, they certainly help coal generators to keep generating high-carbon power.
A false sense of security
The motivation for smoothing the way for old coal probably stems from concerns that the lights could go out without it. But extending the lives of coal plants, which are cheap to run, deters investment in new capacity, including the gas plants the government wants brought forward. With the increased likelihood of the UK retaining a lot of coal in the mix, gas generators will feel their investments are higher risk.
In turn this means the government will have to provide larger subsidies to potential gas generators to incentivise investment and this will ultimately be paid for by consumers.
So although the extension of coal creates breathing space in the short-term, in the long-term it means higher costs to consumers and far higher emissions.
The government say they are committed to decarbonisation and that they want to move away from coal. But in reality their policies are improving the economics of coal and undermining the transition to a low-carbon system.
If George Osborne freezes the carbon price floor in his budget this month without introducing other measures to limit emissions, it will be a clear sign that the government are backing old coal at the cost of action on climate change.