HC 742 Published on 21 May 2014

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House of Commons

Energy and Climate Change Committee

Carbon capture and storage

Ninth Report of Session 2013–14

Report, together with formal minutes relating to the report

Ordered by the House of Commons to be printed 13 May 2014

The Energy and Climate Change Committee

The Energy and Climate Change Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Energy and Climate Change and associated public bodies.

Current membership

Mr Tim Yeo MP (Conservative, South Suffolk) (Chair) Dan Byles MP (Conservative, North Warwickshire) Ian Lavery MP (Labour, Wansbeck) Dr Phillip Lee MP (Conservative, Bracknell) Rt Hon Mr Peter Lilley MP (Conservative, Hitchin and Harpenden) Albert Owen MP (Labour, Ynys Môn) Christopher Pincher MP (Conservative, Tamworth) John Robertson MP (Labour, Glasgow North West) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine) Graham Stringer MP (Labour, Blackley and Broughton) Dr Alan Whitehead MP (Labour, Southampton Test)

Powers

The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk.

Publication

Committee reports are published on the Committee’s website at www.parliament.uk/ecc and by The Stationary Office by Order of the House.

Evidence relating to this report is published on the Committee’s website at www.parliament.uk/ecc

Committee staff

The current staff of the Committee are Farrah Bhatti (Clerk), Vinay Talwar (Second Clerk), Tom Leveridge (Committee Specialist), Marion Ferrat (Committee Specialist), Shane Pathmanathan (Senior Committee Assistant), Amy Vistuer (Committee Support Assistant), and Nick Davies (Media Officer).

Contacts

All correspondence should be addressed to the Clerk of the Energy and Climate Change Committee, House of Commons, 14 Tothill Street, London SW1H 9NB. The telephone number for general enquiries is 020 7219 2569; the Committee’s email address is ecc@parliament.uk

Carbon Capture and Storage 1

Contents

Report Page

Summary 3

1 Introduction 5 What is carbon capture, transport and storage? 7 Government support for CCS 8 Global progress on CCS 11

2 Deploying CCS in the UK 13 Benefits of CCS 13 The cost of deploying CCS 15 Political risk 17

Financial support 17 Clustering and common infrastructure 21 Enhanced Oil Recovery 24 Industrial CCS 25

Safety and reputational risks 26 Regulatory risk 30 Scientific and engineering challenges 31 First mover advantage 34

3 Conclusion 36

Conclusions and recommendations 38

Annex 42 Canada programme and visit notes 42

Formal Minutes 58

Witnesses 59

Published written evidence 60

List of Reports from the Committee during the current Parliament 62

Carbon Capture and Storage 3

Summary

Carbon capture and storage (CCS) has the potential to help keep carbon emissions within the limits that are needed to avoid dangerous global temperature rises. As such, it could be a game changer in efforts to tackle climate change, but high energy and financial costs currently make CCS uneconomic without specific policy interventions to support it. These are likely to be subsidies from the public purse and/or the consumer. As a result, progress on CCS has been extraordinarily slow with only a handful of projects in operation around the globe and none fitted to power stations at full scale. In the UK the expected start date has been repeatedly pushed back from 2014 to potentially after 2020. This delay has called into question the credibility of Government CCS policy and has resulted in a lost decade for this vital fledgling industry.

To ensure CCS can start helping us cut power sector emissions by the 2020s, the Government needs to prioritise designing a credible financial incentive framework using guaranteed-price ‘Contracts for Difference’ (CfD) and commit to a realistic but ambitious timeline for awarding support to projects both inside and outside its CCS commercialisation competition. Viable projects outside the competition, in particular, could be at risk of collapsing unless they get a clear signal from Government that they can negotiate for a CfD in parallel with competition projects. CfDs need to be tailored for all these projects to suit the unique characteristics of CCS.

Getting the first CCS projects built will be key to reducing the cost of future CCS projects. It is unclear whether any financial advantage accrues to first movers, so there is a case for limiting the amount of consumer support which is allocated to the first CCS projects. It is likely that most benefits will be accrued by second movers, which may explain why the big companies are reluctant to spend so much of their own money at this early stage of CCS development. It would be wise for the Government to direct its resources at the uniquely British aspects of CCS deployment. This includes, promoting clustering of projects, encouraging enhanced oil recovery and reducing the regulatory and technical barriers associated with storing CO2 underground. With the right regulatory approach, it could one day be feasible to create a ‘storage market’ where other countries pay to permanently store CO2 in the UK’s disused offshore geological sites.

The UK has previously experienced significant opposition to new energy infrastructure such as coal plant, wind farms and shale drilling. In some instances this has been driven by misinformation and misunderstanding. A national CCS engagement strategy emphasising the potential benefits, dispelling myths and listening and responding to public concerns over safety would help to address public opposition to CCS and to try and prevent it from growing.

To increase the chance that the first CCS project will be operational in the UK by 2020 the Government should aim to reach final investment decisions with the two projects left in its competition by 2015. Too much time has already been wasted by badly designed bureaucratic policies. CCS technology could be vital to keep climate change within

4 Carbon Capture and Storage

manageable bounds, there is no further time to lose.

1 IPCC, Summary for Policy Makers, Climate Change 2013: The Physical Science Basis (2013), p272 Uncertainty range: 445 to 585 GtC 3 1,000 gigatons of carbon (GtC) represents the amount of carbon that can be emitted for it to remain “likely” (66%

chance) that global temperatures do not rise by more than 2°C (relative to pre-industrial times) 4 IEA, World Energy Outlook (2012), p2595 IPCC, Special Report on Carbon Dioxide Capture and Storage (2005), p12

1 gigatonne of carbon (GtC) is equal to 1,000,000,000 metric tonnes

515GtC,1,2

alreadyemitted

Global Carbon Budget1000GtC1,3

Potential emissions from remaining fossil fuel reserves amount to

780GtC4

Technicalpotential of at least

545GtCof geological storage5

CCS

capture and storage in keeping carbon emissions within the global carbon budget

Carbon Capture and Storage 5

1 Introduction

1. The latest assessment of climate science published by the Intergovernmental Panel on Climate Change (IPCC) concluded that, “it is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century”.1 It is estimated that for it to remain “likely”2 that global temperatures do not rise by more than 2°C (relative to pre-industrial times) the maximum carbon that can be released into the atmosphere is 1,000 gigatonnes of carbon (GtC) (3670 GtCO2).3 This is sometimes referred to as the global carbon budget. Between the start of the industrial revolution and 2011, 515 GtC (1890 GtCO2) have been emitted to the atmosphere (roughly half the carbon budget), mainly as a result of burning fossil fuels.4 According to the International Energy Agency (IEA) total potential emissions from fossil fuel reserves in 2012 amount to 780 GtC (2,860 GtCO2).5 As a result, there is more CO2 locked up in fossil fuels than can safely be emitted to stay within the global carbon budget. The IEA argued that without a significant deployment of carbon capture and storage (CCS) a substantial proportion of current proven fossil-fuel reserves cannot be commercialised in a 2°C world before 2050.

2. CCS enables CO2 emitted from large sources to be permanently stored instead of released into the atmosphere. It is one of the only technologies available that has the potential to turn high carbon fossil fuels into genuinely low carbon sources of energy. There is also potentially significant storage available. In 2005, the IPCC estimated, for example, that there could be a technical potential of at least about 545 GtC (2,000 GtCO2) of storage capacity in geological formations globally.6 Without CCS there is a risk that the CO2 locked in the remaining fossil fuels reserves will be released to the atmosphere.

3. The UK is well suited to take advantage of CCS and it could bring several benefits. Support for CCS is found at the highest levels of Government with the Prime Minister repeatedly emphasising the importance of CCS to meeting future climate change targets.7 Despite this, progress on CCS in the UK has been frustratingly slow. We have an ongoing interest in the deployment of CCS because of its potential to help the UK meet its energy and climate change policy goals. It is an issue we have regularly touched on in oral evidence sessions and in past reports, as set out below.

4. In our 2011, report, The UK’s Energy Supply: Security or Independence?, we concluded that if CCS was not commercially viable by 2020 that the UK could face an energy

1 “Human influence on climate clear, IPCC report says”, Intergovernmental Panel on Climate Change press release 2013/20/PR, 27

September 2013

2 “Likely” means a 66% chance

3 Intergovernmental Panel on Climate Change, Summary for Policy Makers, Climate Change 2013: The Physical Science Basis (2013), p27

4 As above, Uncertainty range: 445 to 585 GtC (1630 to 2150 GtCO2)

5 International Energy Agency, World Energy Outlook (2012), p259

6 Intergovernmental Panel on Climate Change, Special Report on Carbon Dioxide Capture and Storage (2005), p12

7 Oral evidence taken before the Liaison Committee on 14 January 2014, HC (2013-14) HC 939, Q45 and Oral evidence taken before the Liaison Committee on 11 December 2012, HC (2012-13) 484-ii, Qq36-37

6 Carbon Capture and Storage

dilemma: either provide energy security but exceed carbon budgets by running new unabated fossil fuel plant; or, meet climate change obligations but risk energy security by shutting down (or using only very sparingly) unabated fossil fuel plant. We recommended that the Government should draw up plans for how the tension between climate and security goals would be dealt with if carbon capture and storage was not delivered by 2020.8 The Government said it remained confident it would achieve its ambition for commercial deployment of CCS by the 2020s. It was “content” for fossil fuels with CCS to compete with other low-carbon and renewable generation. The challenge was to reduce the cost of CCS so that it could compete alongside these other forms of generation.9

5. In our 2013 report, The Impact of Shale Gas on Energy Markets, we highlighted our frustration at how long it was taking to develop CCS and establish whether it could play a meaningful role in the UK’s energy mix. We recommended that the Government needed to conclude its CCS competition as soon as possible and bring forward CCS demonstration projects to allow it to be deployed in time to contribute towards meeting UK carbon budgets.10 The Government responded saying that it had been “working at pace” to progress its competition. It argued the merits of the “detailed process” it had gone through which had “brought much value” by ensuring the projects that had been chosen would be deliverable and financeable and would provide good value for money for the UK tax payer. The Government suggested that final investment decisions (FID) would take place in early 2015, and that the projects were expected to be operational between 2016 and 2020.11

6. Frustrated by the Government’s response to our recommendations we decided to look into CCS in more detail. We launched our inquiry in July 2013. The terms of reference can be found online.12 We received 35 submissions of written evidence and held three oral evidence sessions, one of which was held at Sheffield University. We heard from many of the businesses and consortia seeking to develop full-scale CCS projects in the UK. A full list of witnesses can be found at the back of this report. As part of the inquiry we visited Imperial College and UK CCS Research Centre’s Pilot-Scale Advanced CO2-Capture Technology (PACT) facilities in the UK. We also visited two CCS projects in Canada and met a range of stakeholders. Details of this visit can be found in the Annex. We are extremely grateful to all those who gave evidence to this inquiry and especially to all those who gave up their time to speak to us on our visit to Canada.

7. In the rest of this chapter we look at what CCS is, its potential applications, what the Government has been doing on CCS up until now and what progress has been made

8 Energy and Climate Change Committee, Eighth Report of Session 2010–12, The UK’s Energy Supply: Security or Independence?, HC

1065, para 12-15

9 Energy and Climate Change Committee, Tenth Special Report of Session 2010–12, The UK’s Energy Supply: Security or Independence? Government Response to the Committee's Eighth Report of Session 2010-12, HC 1813, para 20-21

10 Energy and Climate Change Committee, Seventh Report of Session 2012–13, The Impact of Shale Gas on Energy Markets, HC 785, para 81

11 Energy and Climate Change Committee, Third Special Report of Session 2013–14, The Impact of Shale Gas on Energy Markets: Government Response to the Committee's Seventh Report of Session 2012–13, HC 609, para 16

12 Energy and Climate Change Committee, Call for evidence on Carbon Capture and Storage, 17 July 2013

Carbon Capture and Storage 7

internationally. In the next chapter we explore the benefits of CCS in the UK, the costs, and the barriers to deployment and how they can be overcome.

What is carbon capture, transport and storage?

8. CCS is a new and immature field.13 It can be applied to fossil fuel power plants and industrial sectors. Much of the focus in the UK and the rest of the world has been on demonstrating full chain CCS on fossil fuel plants first.14 Even though each element of the chain uses proven technologies that have been demonstrated independently in different industries, a full chain CCS project has yet to be demonstrated in the power sector (although some are in advanced construction).15

9. CCS is the only large-scale mitigation option available to make deep reductions in the emissions from industrial sectors such as cement, iron and steel, chemicals and refining.16 A number of sectors (e.g. gas processing and ammonia production) already separate and capture CO2 as part of the industrial process. Other sectors, however, (e.g. cement, iron and steel) need to develop carbon capture technologies further before they can be deployed at a commercial scale.17

10. Carbon capture technology is able to reduce CO2 emissions to the atmosphere by approximately 80–90% when applied to a power plant.18 There are three main capture technologies ready for application and proposed for early CCS projects in the UK. Post-combustion capture (PCC) technology is proposed at the Peterhead combined cycle gas turbine (CCGT) retrofit project in Scotland.19 Oxy-fuel combustion technology is proposed for the White Rose project at Drax in Yorkshire.20 Pre-combustion technology is proposed by three other UK projects: the Don Valley CCS project, Teesside Low Carbon Project and the Captain Clean Energy Project.21 Further information about these carbon capture technologies can be found in the 2009 Parliamentary POSTnote on CO2 Capture, Transport and Storage.22

11. New carbon capture technologies are also being invented. This includes, for example, membrane technologies, porous materials that operate by selectively allowing CO2 to permeate through the membrane material separating it from other components of a gas

13 Q87 [Mr Hodrien]

14 Q36

15 Engineering the Future (CCS 032), DECC (CCS 042), International Energy Agency (CCS 043)

16 Energy Technologies Institute (CCS 012), Jon Gibbins and Hannah Chalmers (CCS 038), International Energy Agency (CCS 043)

17 Carbon Capture and Storage Association (CCS 027)

18 UK Advanced Power Generation Technology Forum (CCS 011), Oil & Gas UK (CCS 021), Grantham Research Institute, LSE (CCS 028), Engineering the Future (CCS 032), Rodney John Allam (CCS 034), Capture Power (CCS 037), DECC (CCS 042)

19 Shell International (CCS 017)

20 Capture Power (CCS 037)

21 UK Advanced Power Generation Technology Forum (CCS 011), 2Co Energy (CCS 035), CO2DeepStore (CCS 039)

22 CO2 Capture, Transport and Storage, POSTnote 335, Parliamentary Office of Science and Technology, June 2009

8 Carbon Capture and Storage

stream; chemical looping, a variation on oxy-combustion capture technology; carbonate slurry and technologies to decarbonise the gas grid.23

12. We were particularly impressed with the ‘radical’ technology outlined by Mr Allam, Technical Director of NET Power which if successful could have a potentially profound effect on the energy industry.24 The NET Power cycle burns fossil fuels in pure oxygen and uses the resultant CO2 as a ‘working fluid’ to drive turbines rather than steam. 25 As such, carbon capture becomes an inherent feature of the process with no additional capture technology required because CO2 is produced naturally as a by-product.26 Mr Allam explained that his system could produce electricity at a lower cost that any existing fossil fuel based power system.27 He also reported that the Government had been very supportive of the technology.28

13. In the UK it is considered technically and economically preferable to transport the captured CO2 by pipeline to be stored in the North Sea.29 Compression and transport of CO2 are relatively mature technologies. They have been used in North America for over 40 years for enhanced oil recovery (EOR or Enhanced Gas Recovery). EOR involves injecting CO2 into depleted reservoirs to assist in extracting some of the remaining oil or gas (see paragraph 44 for more discussion of enhanced oil recovery).30

14. CO2 can be stored onshore or offshore. In the UK, it is likely that offshore geological storage — in depleted oil and gas reservoirs and saline aquifers—will be the first large-scale option for CCS development at scales able to meet global climate change emissions reductions targets.31 Long-term storage is less well developed than transport technologies with only a small number of reference sites in Norway, South East Australia, Algeria, and Canada.32 Much of the storage to date has been used for EOR.33 The sale of CO2 for EOR (prices in the US range from $15-30 per tonne) has also helped CCS by reducing the cost of demonstration projects.34 Unlike North America, EOR in the UK would be offshore.

Government support for CCS

15. Successive governments made efforts to provide capital support to a large-scale full chain CCS project for the best part of a decade (see table 1).35 The first competition,

23 Q93 [Mr Hodrien], Research Councils UK (CCS 006), Shell International (CCS 017), Tony Day (CCS 041)

24 Q99

25 Q85 [Mr Allam],

26 Q88

27 Qq85 [Mr Allam], 88, Rodney John Allam (CCS 034)

28 Qq99-100

29 International Energy Agency (CCS 043)

30 Energy Technologies Institute (CCS 012), Engineering the Future (CCS 032), International Energy Agency (CCS 043)

31 Research Councils UK (CCS 006), Geological Society (CCS 040)

32 Engineering the Future (CCS 032)

33 UK Advanced Power Generation Technology Forum (CCS 011), Shell International (CCS 017), Engineering the Future (CCS 032)

34 Energy Technologies Institute (CCS 012), Grantham Research Institute (CCS 028), E3G (CCS 033)

35 Qq26-27 [Professor Haszeldine]

Carbon Capture and Storage 9

announced in 2007, was expected to deliver an operating CCS project by 2014. The competition ran for four years until 2011 when the Government ended negotiations with the last remaining bidder. The Government pulled out because it decided it could not fund the project within its agreed £1 billion capital limit. The National Audit Office (NAO) published a report in 2012 examining how the Department for Energy and Climate Change (DECC) and its predecessor, Department for Business, Enterprise and Regulatory Reform (BERR) managed the competition. The NAO highlighted numerous shortfalls in both departments throughout the competition.36 The second competition (termed the CCS Commercialisation Programme) was announced in 2012. Front End Engineering Design (FEED)37 contracts were awarded to two preferred bidders in 2013 and 2014. The two preferred bidders were Capture Power Limited and its White Rose project in Yorkshire and Shell and SSE and their Peterhead project in Aberdeenshire. The Government hopes these two projects will be operational some time in 2016–2020.

Table 1: Timeline of UK CCS competitions Year Announcement/decision 2007 Competition to fund the UK’s first CCS demonstration project launched by Government.

Contract award was scheduled for 2009, with the expectation that the project would operate from 2014.

2010 Front-end engineering and design (FEED) contracts awarded to E.ON (Kingsnorth project in Kent) and ScottishPower (Longannet project in Fife) consortiums. Government announces £1 billion will be made available to support CCS projects.

E.ON withdraws from the competition.

2011 The Government announces that CCS money for CCS demonstration projects would come from general taxation rather than a CCS levy. Negotiations with ScottishPower consortium terminated by Government.

2012 The National Audit Office (NAO) published a report criticising the competition.

New competition for CCS demonstration projects announced along with a CCS Roadmap. Contract award was scheduled for early 2015, with the expectation that the projects would operate by 2016–2020.

2013 FEED contracts awarded to Capture Power Limited (White Rose project in Yorkshire). 2014 FEED contract awarded to Shell and SSE (Peterhead project in Aberdeenshire). Source: compiled from the House of Commons Standard Note on Carbon Capture and Storage38 and the National Audit Office Report on Carbon Capture and Storage39. 16. Alongside the second competition, the Government launched a CCS Roadmap which set out, what it described as, “a comprehensive package of financial and regulatory support” which the Government believes is one of the most attractive CCS offerings in the world. The main components of the CCS Roadmap include:

• The CCS Commercialisation Programme (‘the competition’) with £1 billion in capital funding and additional operational support available through Contracts for Difference (CfD) to support the initial stages of commercialisation.

36 National Audit Office, Carbon capture and storage: lessons from the competition for the first UK demonstration, HC (2010-2012) 1829

37 FEED stands for Front End Engineering Design. The FEED is basic engineering which comes after the Conceptual design or Feasibility study. The FEED design focuses the technical requirements as well as rough investment cost for the project. The FEED can be divided into separate packages covering different portions of the project. The FEED package is used as the basis for bidding the Execution Phase Contracts (EPC, EPCI, etc) and is used as the design basis.

38 Carbon capture and storage, Standard Note SN05086, House of Commons Library, March 2014

39 National Audit Office, Carbon capture and storage: lessons from the competition for the first UK demonstration, HC (2010-2012) 1829

10 Carbon Capture and Storage

• A £125 million, 4-year, co-ordinated research and development (R&D) and innovation programme and a new UK CCS Research Centre.

• Development of a market for low carbon electricity through Electricity Market Reform, including availability of Feed-in Tariff CfD for low carbon electricity to bring forward investment in CCS beyond the initial projects.

• Commitments to working with industry to address other important areas including developing the CCS supply chain, storage and assisting the development of CCS infrastructure.

• International engagement focused on sharing knowledge generated through the UK programme and learning from other projects around the world. 40

17. In the CCS Roadmap the Government asked industry to set up a CCS Cost Reduction Task Force. This was to work alongside the Department’s Office of CCS (OCCS) to set out a path and action to reduce the costs of CCS. The Task Force published its findings (and then disbanded) in 2013 confirming that fossil fuel power generation with CCS will have the potential to compete cost effectively with other low-carbon forms of energy generation in the 2020s. It set out its recommendations on how to achieve cost reductions and develop the CCS industry in the UK. It also recommended that national leadership groups be created to take forward the recommendations. These included, the UK CO2 Storage Development Group, the UK CCS Commercial Development Group and the UK CCS Knowledge Transfer Network.41 These groups were set up and taken forward by specific companies and organisations. The UK CO2 Storage Development Group, for example, was set up by the Crown Estate. Later in 2013 the Government provided an update on key policy developments since the publication of its CCS Roadmap, responded to the Task Force’s major recommendations, and said it would engage closely with the leadership groups. The Government also decided to re-launch the CCS Development Forum (it originally met from 2010–2012), co-chaired by the Energy Minister, Michael Fallon, and Michael Gibbons OBE, Chair of the Carbon Capture and Storage Association (CCSA) which aims to accelerate commercial deployment.42

18. Since the publication of the CCS Roadmap and the launch of the second competition the Government has aimed to deliver ‘first of a kind’ demonstration projects as well as a strong and successful CCS industry.43 Despite this activity, representatives from industry and academia expressed their frustration at how long it was taking the Government to award money to the first CCS demonstration projects and therefore kick start a CCS industry in the UK.44 This has made some in the industry frustrated and weary calling into

40 DECC (CCS 042)

41 CCS Cost Reduction Task Force, The Potential for Reducing the Costs of CCS in the UK: Final Report (May 2013)

42 DECC, CCS in the UK: Government response to the CCS Cost Reduction Task Force (October 2013)

43 DECC (CCS 042)

44 Qq6 [Professor Haszeldine], 7 [Mr Warren, Professor Haszeldine], 26 [Professor Haszeldine], 31, 54, Scottish Carbon Capture and Storage (CCS 024), Grantham Research Institute, LSE (CCS 028); 2Co Energy (CCS 035)

Carbon Capture and Storage 11

question the Government’s commitment to CCS.45 E3G, for example, stated that the competition process is, ‘too slow, and the current approach is a recipe for the period 2010–2015 being seen to be five wasted years for CCS in the UK.’46 This is something we have previously raised concerns about (see paragraph 5). The Minister of State for Energy, Michael Fallon, assured us that the Government was, “pressing ahead with CCS as fast as we can.”47

19. The expected start date of CCS has been pushed back from 2014 to potentially after 2020. Given the widespread acknowledgement of the importance of CCS to meeting future climate change targets this lost decade is extremely disappointing. While we take note of recent efforts by Government to work more closely with industry to accelerate CCS deployment, it is essential that the Government is able to commit to a realistic but ambitious timeline for taking final investment decisions. The rest of this report will look at what more the Government needs to do to accelerate CCS deployment and support a wider CCS industry.

Global progress on CCS

20. There is expected to be a strong global demand for CCS. The International Energy Agency (IEA) estimates that CCS could contribute towards one sixth of CO2 emissions reductions required by 2050.48 Presently, however, there is very little CCS activity taking place around the world. While the CCS Global Institute has recently reported that the number of CCS projects is increasing, there were only 21 CCS projects around the globe in operation or under construction as of February 2014.49 In addition, as previously mentioned, CCS has not been demonstrated on power generation at scale to date anywhere in the world. Some countries are, however, more advanced in terms of deploying CCS than others with practical progress being made in the US, China and Canada.

21. According to Scottish Carbon Capture and Storage (SCCS) the US has been most successful in progressing CCS from concept through research to commercial reality. The US Department of Energy had a multi-year strategic plan which involved basic research, small- and full-scale projects and proved to be effective. China is also expected to make rapid progress on CCS in the next few years. In April 2013, the Chinese Central Government requested, as part of its next five-year plan, that all provinces make plans for CCS enactment.50

22. Canada has also been successful in bringing forwards CCS. The Provinces of Alberta, Saskatchewan and British Columbia have all enacted targeted carbon taxes. The Federal Government has proposed an emissions performance standard on coal-fired plant. This

45 Q13 [Professor Haszeldine], 2Co Energy (CCS 035)

46 E3G (CCS 033)

47 Q5

48 DECC (CCS 042)

49 Global CCS Institute, The Global Status of CCS (February 2014), p3

50 Scottish Carbon Capture and Storage (CCS 024)

12 Carbon Capture and Storage

will come into effect on 1st July 2015. We visited two projects; Shell’s Quest project in Alberta and SaskPower’s Boundary Dam project in Saskatchewan (expected to be the world’s first full-chain CCS project). We were struck by the simple but effective financial incentives implemented in Canada. The projects had been enabled by company partnerships with very large, and timely, provincial funding, with some federal support. The SCCS said:

The Canadian experience has been marked by a willingness to make sure that agreements are reached; with state-owned utilities and private companies both displaying a willingness to invest due to the need to reduce emissions to maintain operations.51

We were concerned to see, however, that the two projects seemed to be a result of past policy decisions. The absence of continued support was demonstrated by the absence of future projects across the whole of Canada.

23. The Crown Estate told us that there were no obvious crossovers between the UK and other countries because the drivers for delivery were very different. Support tended to be provided in the form of grants and loan guarantees to projects using EOR.52 If there are lessons to be learned, it is important that the UK is in a position to do so. We are pleased to see that the Government is taking a proactive approach to this by participating in a number of international initiatives such as the Carbon Sequestration Leadership Forum, the North Sea Basin Task Force, the Clean Energy Ministerial and the 4 Kingdoms CCS Initiative.53 We also note that the Government has facilitated collaboration with SaskPower’s Boundary Dam project in Canada.54

51 Scottish Carbon Capture and Storage (CCS 024)

52 The Crown Estate (CCS 019)

53 DECC (CCS 042)

54 Q119 [Mr Fallon]

Carbon Capture and Storage 13

2 Deploying CCS in the UK

24. SCCS described how the UK has the best combination of geological, engineering, industrial and academic capabilities in the whole of Europe, together with a stated policy commitment to reduce CO2 emissions and the foundational legislative framework required for CO2 storage. As a result the UK has succeeded in attracting over 50% of the proposals for CCS projects in Europe.55

Benefits of CCS

25. The key benefit of deploying CCS in the UK would be:

• CCS could be a key technology to help decarbonise the UK’s power and industrial sectors which are, and will continue to be, heavily reliant on fossil fuels.56 Fossil fuel power plant fitted with CCS could meet between 12% and 37% of total electricity demand in 2050.57 The Energy Technologies Institute (ETI) estimated that deploying CCS could reduce the cost of meeting UK carbon targets by £30–40 billion or up to 1% of Gross Domestic Product (GDP) by 2050 (by avoiding spending on more expensive alternatives for cutting emissions).58 The CCSA and the Trades Union Congress (TUC) believe deployment of CCS could result in a 15% reduction in the wholesale price of electricity (compared with scenarios in which CCS is not deployed) (see figure 1) and lowering household bills by £82 per year compared with what they otherwise would be.59 These projections rely on broad-brush assumptions about the cost of alternative technologies in the future, which are very uncertain.

• CCS could provide wider economic benefits. A 2009 study by the Industrial and Power Association (IPA), for example, found that — based on the IEA CCS roll-out programme and a 10% global market share for UK companies — the ‘UK plc’ share of the global CCS business was potentially worth more than £10-14 billion per year from around 2025, with the added value in the UK worth £5–9.5 billion per year.60 More recently, the CCSA/TUC concluded that the Gross Value Added (GVA) benefits from CCS deployment in the UK would be in the region of £2-£4 billion per year by 2030. They suggested that each UK CCS power sector project could deliver between £150–£200 million per year in GVA benefits over the lifetime of the project as well as creating between 1,000–2,500 jobs during plant construction and 200-300 jobs in operation and maintenance and the associated supply chain.61

55 Scottish Carbon Capture and Storage (CCS 024), Capture Power (CCS 037)

56 Q1 [Mr Warren, Professor Haszeldine]

57 Grantham Research Institute, LSE (CCS 028)

58 Energy Technologies Institute (CCS 012), Capture Power (CCS 037), DECC (CCS 042)

59 Carbon Capture and Storage Association (CCS 047)

60 UK Advanced Power Generation Technology Forum (CCS 011)

61 Carbon Capture and Storage Association (CCS 047)

14 Carbon Capture and Storage

Figure 1: Wholesale electricity prices to 2030 under four scenarios

Source: Carbon Capture and Storage Association (CCS 047)

• CCS could open up the potential to utilise the UK’s offshore geological storage capacity which could amount to ~70 billion tonnes of CO2, or put another way, over a century of UK emissions, or 350 years’ worth of commercial storage at the present rate of UK emissions.62 The Crown Estate has highlighted that in future the North Sea could become a resource by creating a North Sea “storage market” whereby permanent storage of CO2 could be sold as a service to other European countries.63

• CCS could play an important role retaining existing industries and jobs in the UK.64 If the UK is going to meet its ambitious carbon reduction targets, energy intensive

62 Qq2 [Professor Haszeldine], 77 [Dr Neufeld, Professor Gibbins]

63 Q2 [Dr Goldthorpe], The Crown Estate (CCS 019)

64 Association of UK Coal Importers (CCS 020), Oil & Gas UK (CCS 021), Carbon Capture and Storage Association (CCS 047)

Carbon Capture and Storage 15

industries such as cement and steel will either need to fit CCS or move abroad. The UK coal mining industry, together with the coal power industry and logistics, for example, employs several thousand direct and indirect employees.65 Similarly, the UK’s energy intensive industries have a combined turnover of £95 billion, directly employ 160,000 people with a further indirect employment of 800,000 people via supply chains.66 Keeping these industries in the UK is a high priority.

The cost of deploying CCS

26. Despite the potential benefits to the UK of deploying CCS, it is very unlikely to become commercial on its own (unless the CO2 is sold for EOR). The combination of significant energy and–in the absence of an effective carbon market–financial costs make CCS uneconomic.67 Engineering the Future stated all of the CCS technologies currently available would require approximately 20–25% more coal or 10–15% more natural gas to be burned to produce the same amount of electricity.68 Mr Allam of NET Power highlighted that a power plant with CCS costs 50% to 80% more to generate electricity than power plant without CCS.69 The CCS Cost Reduction Taskforce’s 2013 final report estimated that the first set of CCS projects may have costs in the range of £150–200 per megawatt hour (roughly three times as expensive as fossil fuel plant without CCS),70 a figure largely supported by industry.71 The main reason for this is the high energy consumption of powering the CCS equipment, especially the carbon capture stage of the process.

27. In addition, there are political, regulatory, social and scientific barriers frustrating the deployment and commercialisation of CCS. This prevents CCS from progressing along the technology curve to reach full scale deployment, where the cost of a technology reduces as the technology matures (see figure 2).72 The CCS Cost Reduction Taskforce concluded that there was potential for significant cost reductions and for CCS to be cost competitive with other forms of low carbon power generation at around £100 per megawatt hour by the early 2020s, and at a cost significantly below £100 per megawatt hour soon thereafter (see figure 3)—depending on when the first CCS projects are actually built (we note that the 2013 date for a final investment decision indicated in the Taskforce’s report has already passed).73 The cost of the three main capture technologies (see paragraph 10) vary and will influence which technology a developer will choose to deploy. There are also second generation or novel technologies which could deliver quite significant cost reductions but

65 Carbon Capture and Storage Association (CCS 047)

66 As above

67 BASF (CCS 001), Tyndall Centre for Climate Change Research, University of Manchester (CCS 013), Engineering the Future (CCS 032)

68 Engineering the Future (CCS 032)

69 Q85

70 CCS Cost Reduction Task Force, The Potential for Reducing the Costs of CCS in the UK: Final Report (May 2013)

71 Qq5 [Mr Warren] 29 [Ms Paxman, Mr Gomersall, Mr Simon Lewis, Mr Spence]

72 Shell International (CCS 017)

73 CCS Cost Reduction Task Force, The Potential for Reducing the Costs of CCS in the UK: Final Report (May 2013)

16 Carbon Capture and Storage

which were not considered by the Taskforce because of uncertainty around when they might be commercially available.74

Figure 2: Technology learning curve

Source: Shell International (CCS 017)

28. The high cost of CCS means that it is likely to develop only in response to specific policy intervention designed to address the problem of climate change.75 One of the best incentives to develop CCS would be a global agreement to tackle climate change.76 This could have the additional benefit of incentivising CCS in other countries, thereby reducing the UK’s embedded carbon emissions. The benefits of considering embedded carbon emissions alongside territorial emissions in the policy-making process were highlighted in our 2012 report, Consumption-Based Emissions Reporting.77 Another incentive would be a strong carbon price which would help to strengthen the case for CCS. However, the prospect of a global deal is highly uncertain and the carbon price in the EU Emissions Trading System (ETS) is at present too low to incentivise CCS without additional support. Below we consider the main barriers (political, safety and reputational, regulatory, scientific and engineering) frustrating the deployment of CCS and look at how they might be overcome.

74 Q5 [Mr Warren, Dr Goldthorpe]

75 Qq13 [Littlecott], 64, 66, 75 [Professor Gibbins], Tyndall Centre for Climate Change Research, University of Manchester (CCS 013)

76 Qq64, 66

77 Energy and Climate Change Committee, Twelfth Report of Session 2010-12, Consumption-Based Emissions Reporting, HC 1646, para 39 and 53

Carbon Capture and Storage 17

Figure 3: CCS Cost Reduction Task Force’s cost reduction trajectory

Source: Carbon Capture and Storage Association (CCS 027)

Political risk

Financial support

29. Dr Reiner, Senior Lecturer in Technology Policy at the Judge Business School, Cambridge University stated that the biggest challenge to deploying CCS in the UK is “credibility of Government policy.”78 A principal concern was that the CCS competition and its associated FEED37 studies were too bureaucratic, detailed and slow. SCCS stated, for example:

Since 2007, commercial CCS projects in the UK have been mired in government bureaucracy, stifled by immensely detailed and slow examination of “competition” proposals. Requirements to tender for funding support have been more effective at killing off projects and frustrating international project consortia than they have been at securing investment. The current commercialisation programme could have secured a ‘pipeline’ of projects for the coming decade in pursuit of the stated outcome of cost-competitive CCS. This is now at risk.79

30. The consequence has been to repeatedly push back the expected start date of CCS in the UK.80 While we are pleased to see that there has been progress made with DECC

78 Q65 [Dr Reiner]

79 Scottish Carbon Capture and Storage (CCS 024)

80 Q26 [Professor Haszeldine], Grantham Research Institute, LSE (CCS 028)

18 Carbon Capture and Storage

successfully awarding both the Peterhead81 and White Rose82 projects FEED studies, we were concerned to hear that there were mixed views among industry as to whether CCS would be up and running in the UK before 2020. Mr Gomersall, Founding Director of CO2DeepStore, for example, highlighted that projects usually take about four years to complete and it might be 2016 before the projects in the competition reach a final investment decision (FID).83 The Government was also uncertain when a FID on the two projects in the competition would be made.’84 This was mainly because of uncertainty over how long the FEED studies would take to complete. The Minister could not tell us with any certainty when he expected to reach a FID on the two projects in the competition stating, “it looks unlikely within a year or so, so it could possibly slip to 2016.”85 The Minister was keen to point out, however, the “huge amount of public money involved — £1 billion of public money—and it is very important to get these projects right.”86

31. As we have heard, delay has called into question the credibility of Government policy designed to support CCS deployment. It is critical that the Government does not waste any more time on unnecessarily delaying the start of the first CCS projects. We recommend that the Government aims to reach final investment decisions (FID) with the two projects left in the competition by early 2015 (in line with the Government’s original competition timetable). This offers the only hope of making the first CCS projects operational by 2020. In turn this could help to bring down costs of CCS more quickly and, therefore, help the development of a wider CCS industry in the UK.

32. With regards to the CCS Roadmap, which aims to look beyond the competition, several respondents including those from industry thought it “lacked pace and scale.”87 There was also a concern that there was an intentional lack of hard numbers in the Roadmap against which one could judge progress and hold DECC to account. 88 The industry wanted more certainty because it was unclear about the level of political support in the medium- to long-term.89 Mr Simon-Lewis, Head of Finance at Capture Power said, for example, that investment institutions, “want to see stability of dialogue from Government in relation to the overall prize.”90 Similarly, Professor Haszeldine, Director of SCCS, argued that CCS needed more certainty similar to that which had been afforded to both renewables and new nuclear.91 The Minister, however, disagreed, questioning the extent to which hard numbers

81 HC Deb, 24 February 2014, col 4WS

82 HC Deb, 9 December 2013, col 2WS

83 Q51

84 Qq51, 52 [Mr Simon-Lewis], 112

85 As above

86 Q112

87 Qq26 [Professor Haszeldine]; 50, 2Co Energy (CCS 035)

88 Q26 [Mr Warren, Professor Haszeldine]

89 Qq21-22, Grantham Research Institute (CCS 028)

90 Q38 [Mr Simon-Lewis]

91 Qq21-22

Carbon Capture and Storage 19

or hard targets were going to help. He highlighted instead the work taking place as a result of the CCS Cost Reduction Task Force, EMR reforms and the CCS Development Forum.92

33. The Government is also intending to provide operational support to CCS projects through the Government’s Contracts for Differences (CfDs). This will be critical to ensuring the commercial viability of CCS in the absence of a strong carbon price. CfDs stimulate investment in low-carbon technologies by providing greater certainty of revenue. This is intended to encourage investment by reducing risks to investors and by making it easier and cheaper to secure finance. CfDs will also represent an important political gesture to follow-on projects, which are not eligible for capital funding from the competition, and help to make them economically viable by providing a route to market.93 There was a concern among the industry, however, that CfDs as they have currently been designed (mainly for other low carbon and renewable technologies) would not be flexible enough to suit the specific characteristics of CCS.94 The industry was keen to see more detail on how the CfD would take account of the cost structure of CCS projects, the variable operating costs (as a result of fossil fuel inputs) and appropriate sharing of risk and liability.95 Shell, in particular, wanted to know more about the allocation process and contract terms.96 Given the unique characteristics of CCS it is highly likely that CfDs would need to be adapted. Mr Simon Lewis at Capture Power told us:

The CfD, for a CCS project, needs to be bespoke. We are seeing a generic CfD framework at the moment, but one size does not fit all. It will work for maybe onshore wind, it will work for offshore wind, biomass possibly, but I think for CCS you need a tailored CfD.

We were pleased that the Minister agreed, stating that, “the design of the [CCS] Contract for Difference will inevitably be somewhat bespoke” and could not be considered in the same way as more mature renewable technologies.97

34. The Government’s Feed-in Tariffs Contracts for Difference (CfD) will be essential for CCS projects as they will provide operational support as well as a route to market for non-competition projects. The Government should set out immediately in what ways CCS CfDs will differ from the more generic CfDs. We recommend that CfDs be tailored to individual CCS projects because of the unique characteristics of CCS (compared to other low carbon and renewable technologies). The Government must engage in a dialogue with industry to ensure that CCS CfDs are designed appropriately.

35. Several follow-on projects, not in the competition told us how important it was to them to be able to negotiate with DECC for a CfD in parallel with competition projects. If this occurred it has been speculated that some of the follow-on projects could even be up and

92 Q128

93 CO2DeepStore (CCS 039)

94 Shell International (CCS 017)

95 Carbon Capture and Storage Association (CCS 027), 2Co Energy (CCS 035)

96 Shell International (CCS 017)

97 Q129

20 Carbon Capture and Storage

running at the same time as competition projects.98 Being forced to negotiate after the conclusion of the competition, however, could result in those follow-on projects failing to develop.99

36. Non-competition projects which do not have the benefit of being eligible for capital support, but which are still viable projects, are at risk of collapsing unless they get a clear signal from Government that they can negotiate with DECC for a CfD in parallel with competition projects. We recommend that as soon as the Government sets out more detail on the tailed nature of CCS CfDs, the Government should write to the non-competition projects inviting them to start the process of negotiating for CfD.

37. CfDs are levy-funded schemes whereby the cost is recovered through consumer bills (rather than funding the schemes directly through general taxation). The Levy Control Framework (LCF) was established by DECC and HM Treasury in 2011 cap the cost of this and other schemes (such as the Renewables Obligation (RO) and Feed-in-tariffs (FITs)). HMT has put a limit on the amounts that can be raised and spent through this mechanism. The limit for 2013–14 is set at £3.184 billion, but is set to rise to some £7.6 billion by 2020–21.100 2Co Energy, Shell, the CCSA, and SCCS expressed concerns that the amount of funding available for CCS within the LCF is uncertain.101 Shell wanted to know more about the long-term budget allocation within the LCF and explained that developing this detail was ‘imperative’ to give the industry more clarity and certainty to incentivise investment.102 2Co Energy argued that details about whether there will be sufficient capacity in the LCF to support CCS up to 2020 was important for incentivising investment—especially for those projects outside the competition.103

38. CCS will need to be deployed beyond the end of the LCF—during the 2020s—if it is to continue its progress along the technology learning curve and achieve the cost reductions indicated by the UK CCS Cost Reduction Taskforce. If CfDs are to prove effective in bringing forward investment for CCS projects beyond the competition the industry needs visibility on the future of the LCF post-2021. This visibility would accord with the certainty provided by legislated carbon budgets which cover a similar period. The industry would likely benefit from an indication over whether the total of the LCF will be maintained in real terms at £7.6 billion, given that a significant proportion will be taken up by new nuclear if it goes ahead. This would provide investors with reassurance that CCS (and other low-carbon technologies) won’t be crowded out of the LCF.

39. The CCS industry would benefit from having more clarity on the amount of funding available for CCS within the Levy Control Framework (LCF) up to 2021. It is also essential that the industry have visibility on the LCF post-2021. The Government should

98 Q26 [Professor Haszeldine]

99 Q38 [Gomersall], The Crown Estate (CCS 019), 2Co Energy (CCS 035)

100 DECC, Control framework for DECC levy- funded spending: Questions and Answers (December 2011), p4; and DECC, Annex D: Levy control framework update: extending the framework to 2020/21 (July 2013), p2

101 Scottish Carbon Capture and Storage (CCS 024), Carbon Capture and Storage Association (CCS 027), 2Co Energy (CCS 035)

102 Shell International (CCS 017)

103 2Co Energy (CCS 035)

Carbon Capture and Storage 21

set out its thinking on the LCF post-2021 indicating whether the total will be maintained in real-terms.

Clustering and common infrastructure

40. It is considered desirable to cluster CCS technology so that power and industrial plants can utilise common transport and storage infrastructure–thereby achieving greatest emissions reductions for the lowest cost. While transport and storage infrastructure is not the most expensive part of the CCS chain, it does present an opportunity to reduce overall costs (see figure 3).104 The CCS Cost Reduction Taskforce’s analysis highlighted that only around 25% of cost reductions of CCS power generation over the next 15 years will derive from reductions in the cost of component technologies. The remaining 75% would result from reducing the cost of capital by reducing the riskiness of investments and from increasing the scale and utilisation of CO2 transport and storage infrastructure.105 This was supported by E3G which highlighted that, “the major initial cost reductions for CCS projects will come from inescapably ‘local’ issues regarding accessibility of CO2 storage and the provision of CO2 transport infrastructure.”106

41. Clustering and sharing infrastructure could also assist the future deployment of industrial CCS (see paragraphs 48-49)107 A 2012 study conducted by CO2 Sense showed that a Yorkshire and Humber CO2 cluster could have an economic impact totalling £1.255 billion up to 2030; and if long-term economic benefits were also included, total regional impact could have amounted to over £26 billion by 2050.108 Other sites which were considered suitable for clustering have been usefully set out in the Energy Technologies Institute’s (ETI) Optimising the Location of CCS in the UK (see figure 4). Dr Clarke, CEO of the ETI argued that it was important to consider carefully where the optimum sites would be, how these sites could then be linked and how appropriate support and business model development could be provided to facilitate clustering.109

42. We were pleased to see that the pipeline for the proposed White Rose project (a preferred bidder in the current competition) would be built with capacity for additional CCS projects in the area.110 The CCSA was concerned, however, that CfDs in their current form, “will not support investment in common infrastructure as it is designed to support decarbonised electricity and not additional infrastructure capacity.”111 The Crown Estate said that support, in addition to CfDs, to deliver commercial transport and storage

104 Carbon Capture and Storage Association (CCS 027), Grantham Research Institute, LSE (CCS 028)

105 Qq5 [Mr Warren], 34 [Mr Gomersall, Mr Simon-Lewis], Capture Power (CCS 037)

106 E3G (CCS 033)

107 CO2 Capture, Transport and Storage, POSTnote 335, Parliamentary Office of Science and Technology, June 2009

108 Zero Emissions Platform (CCS 007)

109 Q89

110 Qq33 [Mr Simon-Lewis], 56 [Mr Simon-Lewis], HC Deb, 9 December 2013, col 2WS

111 Carbon Capture and Storage Association (CCS 027)

22 Carbon Capture and Storage

infrastructure would be required.112 Ms Paxman, Policy and Communications Director at 2Co Energy, argued that certainty was required to help develop common infrastructure:

If we have a clear enough signal from Government about the scale of CCS that is likely to arrive, the construction of oversized infrastructure is not, in our view, a major hurdle for the industry. [...] What is needed is that clear signal, both for the funding community and for the project developers.113

This is something the UK CO2 Storage Development Group has planned to explore. The Minister told us that his Department had been working with that group and would continue to do so to, “see how best we can ensure that transport infrastructure and storage infrastructure is shared between the various developers, and what the actions are on the part of Government to achieve that.”114

112 The Crown Estate (CCS 019)

113 Q56 [Ms Paxman]

114 Q141

Carbon Capture and Storage 23

Figure 4: Proximity of the UK’s largest industrial emitters to CO2 storage sites in the North and Irish Seas

Source: Carbon Capture and Storage Association (CCS 047)

43. It is astonishing that the Government has done so little to actively promote clustering given the benefits of doing so–including offering the greatest potential for cost reduction. It serves as another example of how long it has taken the Government to encourage the deployment of CCS. The Minister should quickly set out, in consultation with the UK CO2 Storage Development Group, a detailed action plan for how the Government will incentivise clustering of CCS infrastructure.

24 Carbon Capture and Storage

Enhanced Oil Recovery

44. EOR involves injecting CO2 into depleted reservoirs to assist in extracting some of the remaining oil or gas. While some believed that EOR would have been prohibitively expensive in the UK at the present time, others, including the CCS Cost Reduction Task Force, were keen to see it pursued.115 2Co Energy, which was actively seeking to develop EOR, described it as a, “critical value driver in establishing a vibrant CCS industry”

highlighting potential benefits such as reduced storage costs, additional taxation revenue from incremental oil production, and the employment and security of energy supply benefits by extending the life of declining North Sea oil fields. 116

45. Some EOR research projects are already underway (e.g. the EOR Joint Industry project in the North Sea, funded by the Scottish Government and some private companies), but if EOR is to develop successfully in the UK it will probably need policy intervention.117 The Crown Estate suggested that any policy developed for CCS needed to enable opportunistic deployment for all sectors that could make use of the infrastructure including the offshore oil and gas sector for EOR.118 There is only a specific window of opportunity during the lifetime of an oil field when EOR can be implemented efficiently.119 The Grantham Research Institute argued that missing the window could mean that a CCS project lost its potential for profitability.120

46. DECC’s response to the CCS Cost Reduction Task Force said that it had, “undertaken a comprehensive mapping exercise to estimate the EOR potential in the North Sea.”121 It identified that CO2-EOR potential in the North Sea was “substantial”. DECC is now exploring with industry the extent to which CO2-EOR could play a significant role in the UK’s CCS Strategy and help extend the life of the North Sea. It has held workshops with industry to explore these issues and will use the outputs to shape a joint industry-Government work programme to evaluate the North Sea CO2-EOR opportunities in more detail. DECC’s response indicated that the Wood Review (a review of UK offshore oil and gas recovery and its regulation, led by Sir Ian Wood) would also look at EOR. It suggested that Sir Ian’s conclusions would influence the type of policy levers the Government would use to encourage EOR including tax policy:

While the [Wood] Review will not make recommendations on taxation, its conclusions may nevertheless be drawn upon in future tax policy considerations by HM Treasury.122

115 Simon Shackley et al (CCS 003), Rodney John Allam (CCS 034), Capture Power (CCS 037), DECC (CCS 042)

116 Qq35, 40, 2Co Energy (CCS 035)

117 Scottish Carbon Capture and Storage (CCS 024), Grantham Research Institute (CCS 028)

118 The Crown Estate (CCS 019)

119 E3G (CCS 033)

120 Grantham Research Institute, LSE (CCS 028)

121 DECC, CCS in the UK: Government response to the CCS Cost Reduction Task Force (October 2013)

122 Sir Ian Wood, UKCS Maximising Recovery Review: Final Report (February 2014)

Carbon Capture and Storage 25

The Wood Review stated that, “the industry must be encouraged to invest more in [EOR] schemes”.123 The Government has said that it will accept and fast track the implementation of the Wood Review’s recommendations.124 The Crown Estate emphasised the potential benefits of using tax breaks to incentivise CCS deployment.125 Despite this the Minister would not be drawn on whether the Government would be providing tax breaks to incentivise the development of EOR, although he did state, “there is huge incentive for the Treasury in getting these arrangements right for the final third of the North Sea story.”126

47. We are pleased that the Government has accepted Sir Ian Wood’s recommendations into maximising the recovery of UK oil and gas and is actively working with industry to explore the potential for enhanced oil recovery (EOR) to prolong the life of the North Sea reserves. We recommend that the Government should consider providing tax breaks to CCS consortia and oil and gas companies which pursue EOR.

Industrial CCS

48. The ETI argued that, “many of the most valuable applications of CCS lie outside the electricity generation sector”.127 However, without a strong carbon price or some other support mechanism, the cost of deploying industrial CCS is prohibitive.128 The Mineral Products Association highlighted, for example, that, “a CCS cement plant will be double the costs of a non-CCS equivalent.”129 Mr Nicholson, Director of the Energy Intensive Users Group (EIUG) highlighted competitiveness issues stating:

Given that our competitors outside Europe and elsewhere in highly competitive markets do not have to face these [carbon] costs at all [...] it is difficult to see how the commercial case for an energy intensive firm could be made for significant demonstration let alone industrial scale rollout of CCS.130

Mr Nicholson went on to state that, “right at the moment in the absence of a means of making the commercial case and an inability, unlike the power sector, to pass those costs on to consumers in international markets, the commercial case for investment simply cannot be made.”131

49. In the long-run, it is difficult to see how decarbonisation of industrial sectors in the UK could be achieved without CCS. Mr Nicholson said that his members would rather see

123 Sir Ian Wood, UKCS Maximising Recovery Review: Final Report (February 2014)

124 “Wood sets out £200 billion roadmap for future of offshore oil and gas industry & world’s first gas CCS plant planned”, Department for Energy and Climate Change press release, 24 February 2014

125 The Crown Estate (CCS 019)

126 Q145

127 Energy Technologies Institute (CCS 012)

128 Q34 [Mr Nicholson], Energy Technologies Institute (CCS 012), Shell International (CCS 017)

129 Mineral Products Association (CCS 023)

130 Q34 [Mr Nicholson]

131 Q34 [Mr Nicholson]

26 Carbon Capture and Storage

work on this start sooner rather than later.132 This was echoed by other respondents who were keen to see development of industrial CCS move in parallel with, rather than sequential to, power sector CCS so as to avoid reducing future options for decarbonisation. This would include conducting appropriate research and development, funding pilot projects and making a strategic assessment of the best places to site transport infrastructure to reduce the costs of that part of the CCS chain to industry (see paragraphs 40-41).133

50. Government action on industrial CCS has so far been limited. Some in industry are keen to see what support it might offer in future.134 The Government’s Heat Strategy acknowledges that industrial CCS could be a key technology for the decarbonisation of the industrial sector but stopped short of making any specific recommendations. It stated that the Government’s CCS Roadmap would, “set out the Government’s interventions and the rationale behind them.”135 Mr Littlecott of E3G highlighted, however, that the Roadmap only made a passing reference to industrial CCS. He hoped that any further version of the Roadmap would set out more detail.136 The Minister told us that he was confident that there was a, “real opportunity here for the industrial application of [CCS] technologies once we get them properly tested.”137 The Minister told us that Government was currently funding a number of techno-economic studies of industrial CCS but highlighted that:

We do not yet have enough evidence as to how industrial CCS can best be deployed, and there is more work to be done with academia and with industry to provide the data that we need.138

The Minister was, however, careful to point out that support for industrial CCS would not be the same as for the power sector.139

51. Industrial CCS is one of the only large-scale mitigation options available to make deep reductions in the emissions from industrial sectors. We are disappointed that the Government has so far paid little attention to it. We recommend that the Government update its CCS Roadmap this year and outline in greater detail what role it envisages for industrial CCS and how it intends to support it.

Safety and reputational risks

52. Like any large-scale industrial activity there are hazards associated with CCS which could impact on human safety and the environment, if not properly managed.140 These risks include, for example, leaks from pipelines and geological stores and underground

132 Q34 [Mr Nicholson]

133 Q34 [Mr Gomersall, Ms Paxman], The Crown Estate (CCS 019), TUC (CCS 022)

134 Minerals Product Association (CCS 023)

135 DECC, The Future of Heating: A strategic framework for low carbon heat in the UK (March 2012), p90

136 Q27 [Littlecott]

137 Q115

138 Q116

139 Q163

140 Plymouth Marine Laboratory (CCS 005), UK Advanced Power Generation Technology (CCS 011)

Carbon Capture and Storage 27

tremors as a result of large subsurface fluid injection.141 The industry is confident that the risks are low because CO2 and its technical and safety properties are very well understood, both above and below ground, from many decades of oil and gas experience in the US and the North Sea.142 The Health and Safety Executive (HSE) stated that existing legislation will allow for effective inspection and enforcement of health and safety standards associated with CCS projects.143 Professor Gibbins told us that the first storage sites were very unlikely to leak because they were the best geologically.144

53. Despite industry, academic and regulatory confidence, we note that CCS projects have been cancelled in several countries including the US, the Netherlands, and Germany in large part due to public opposition.145 A survey undertaken in 2013 showed that public awareness and understanding of CCS was weak (and had reduced over time as demonstrated by figure 5)—and in many cases likely to be negative.146 Dr Reiner at the University of Cambridge, who conducted the survey, suggested that the potential risk of public opposition in the UK, thought currently quiescent, could not be disregarded, “given low levels of public awareness, persistent low levels of knowledge, a preference for other low-carbon options and the inevitable increase in opposition when reference is made to actual government spending and siting CCS infrastructure” (see figure 6).147

141 James Verdon et al (CCS 002), Engineering the Future (CCS 032)

142 Qq57, 59 [Mr Gomersall], Chris Hodrien (CCS 004), Shell International (CCS 017)

143 DECC (CCS 042)

144 Q78

145 Simon Shackley et al (CCS 003)

146 Qq67, 83 [Dr Reiner], David Reiner (CCS 025)

147 David Reiner (CCS 025)

28 Carbon Capture and Storage

Figure 5: Do you think "Carbon capture and storage" or CCS can or cannot reduce each of the following environmental concerns?

Source: David Reiner (CCS 025)

54. Others argued that storing CO2 offshore in the UK would reduce the risk of public opposition.148 Dr Shackley, Lecturer in Carbon Policy at the University of Edinburgh, disputed this claim citing in support of his position: controversies over Brent Spa, the legacy of the Gulf of Mexico drilling disaster and offshore wind.149 The UK has previously experienced significant opposition to new infrastructure such as coal plant, onshore wind and shale gas exploration which in some instances has been driven by misinformation and misunderstanding–something we noted in our 2012 report, The Impact of Shale Gas on Energy Markets.150 This underlines the essential need for Government to adopt a proactive approach to communication around major infrastructure projects including CCS. However, Government efforts have been disappointingly slow. Dr Reiner highlighted two recommendations in a Science and Technology Committee report151 published almost a decade ago:

148 Qq20 [Mr Littlecott], 72 [Dr Reiner]

149 Simon Shackley et al (CCS 003)

150 Energy and Climate Change Committee, Seventh Report of Session 2012–13, The Impact of Shale Gas on Energy Markets, HC 785, para 32

151 Science and Technology Committee, First Report of Session 2005–06, Meeting UK Energy and Climate Needs: The Role of Carbon Capture and Storage, HC 578-I, para 95-97

0% 50% 100%

Can reduce Does not reduce Not sure

2013

2004

Global warming

Ozone depletion Smog

Acid rain

Water pollution Toxic Waste

Resource depletion

Global warming

Ozone depletion Smog

Acid rain

Water pollution Toxic Waste

Resource depletion

Carbon Capture and Storage 29

Recommendation 32 was, Clear and transparent information about CCS at an early stage will be crucial for securing public acceptance. The Government must therefore adopt a proactive approach to communication”. And 33, “The Government has done little so far to engage the public in a dialogue about CCS technology. We accept that it is early days for the technology but previous experience has emphasised the value of early engagement”. Here we are almost nine years later and I do not think those two very legitimate recommendations have been taken on board. I do not think there have been efforts to engage the public.152

Figure 6: To what extent do you support or oppose this commitment/proposal?

Source: David Reiner (CCS 025)

55. The Energy Minister responded constructively to suggestions that his Department should look into developing a proactive engagement strategy. He said he would, “reflect on whether we could do something stronger at the national level.”153

56. Framed in positive terms, and with the benefits effectively communicated to the local population, CCS could enjoy public support and avoid controversy.154 Mr Littlecott, Senior Policy Adviser at E3G provided the example of Lacq in France which despite storing CO2 onshore has not experienced local opposition because “local people have been brought into what that project has been seeking to do.”155 In addition, two companies with CCS projects in Yorkshire, Capture Power and 2Co Energy, reported that they had not encountered opposition. Ms Paxman of 2Co Energy suggested that this might be the case because the economy in that region had, for many years, already been involved in fossil fuel power

152 Q69

153 Q151

154 Q20 [Professor Haszeldine]

155 Q20 [Mr Littlecott]

30 Carbon Capture and Storage

generation.156 Achieving support for CCS would require the Government, the regulator and industry not only to emphasise the safe nature of CO2 storage technology but also to demonstrate that they are trustworthy and competent.157 Engagement would need to start early, emphasise that the purpose was to listen and respond to public concerns and avoid attempts to overly control and manage the process.158

57. It is very disappointing that after almost a decade the Government has still not recognised the need for a proactive approach to communicating CCS and instigated an appropriate programme. The Government cannot delay this any longer. We recommend that in order to address public opposition to CCS - similar to that experienced in other countries and in the UK in relation to other energy infrastructure - and to try and prevent it from growing, the Government develops and implements a national CCS engagement strategy framing CCS in a positive way, emphasising the potential benefits, dispelling myths and listening and responding to public concerns over safety. The Government should also mandate through licence conditions for CCS companies to develop and implement their own engagement strategies with local communities. This should be done before final investment decisions (FID) are taken.

Regulatory risk

58. Storing CO2 underground presents significant risks to storage providers despite low probability of leakage. These risks include environmental impacts as well as legal, financial and reputational impacts associated with leakage. While insurance mechanisms could mitigate some of these risks, some liabilities were considered essentially uninsurable.159 CO2 storage is regulated by the EU CCS Directive (2009/31/EC). We heard that the Directive imposed unreasonable and unnecessary burdens, risks and uncertainties on storage providers.160 In particular it imposes uncapped liabilities on operators of stores over long time horizons which may prove to be a barrier to investment and could deter potential project developers.161 Of particular concern was the duration and sum of payments required to cover possible liabilities which are yet to be resolved.162

59. The CCS Directive is due to be reviewed by the European Commission in 2015. The UK Advanced Power Generation Technology Forum suggested that it would be appropriate to address issues to do with liability at that time.163 The Minister told us that the Government was going to, “engage with the Commission as part of the review” but would not be drawn on whether the legislation was fit for purpose.164 We note that DECC

156 Qq60-61

157 Simon Shackley et al (CCS 003)

158 As above

159 Grantham Research Institute, LSE (CCS 028)

160 Zero Emissions Platform (CCS 007)

161 UK Advanced Power Generation Technology Forum (CCS 011), Energy Technologies Institute (CCS 012)

162 Q59 [Jane Paxman]

163 The European Commission plans to review the CCS Directive in 2015

164 Q143

Carbon Capture and Storage 31

stated in its evidence to us that to be deployable at scale CCS must be, “supported through regulatory arrangements that facilitate CCS.”165

60. The CCS Directive has been transposed into UK legislation and will be enforced by the UK Government and its relevant regulatory bodies. How it will be interpreted and implemented will depend upon the outcome of the negotiations for the first CCS projects between industry and the regulator.166 The Grantham Research Institute at LSE and others emphasised that liability issues require some form of Government guarantee.167 SCCS, for example, stated that:

It is inevitable that the UK state must take long-term ownership of stored CO2. Transfer of ownership needs to be explicitly guaranteed, and at a date soon after completion of an injection project.168.

Ms Paxman of 2Co Energy hoped that the agreements that were reached could be shared with industry so that there was a better understanding of exactly how the CCS Directive was being implemented.169 The Minister stated:

Yes. I think there have been some uncertainties in this area at the moment, because it is so new, as to exactly which European legal requirements apply in this area, but I think the developers will have to resolve that as they go, case by case, with the appropriate regulator.170

61. We recommend that the Government takes the opportunity, during the European Commission’s review of the CCS Directive in 2015, to ensure that the Directive does not place unnecessary burdens on storage providers. The liabilities linked to long-term ownership of stored CO2 will require some form of Government guarantee–and the Government will need to seriously consider taking long-term ownership of stored CO2. The Government will need to take this decision very soon to avoid deterring investment.

Scientific and engineering challenges

62. It was repeatedly asserted that scientific and engineering challenges were not major factors preventing the development of CCS.171 Mr Warren CEO of the CCSA argued that the number of CCS projects operating or under construction around the world, “gives us a high degree of confidence that this is not a technical or scientific challenge”.172 Despite this there is limited experience in integrating the components which make up CCS into full-chain projects.173 Ongoing research and development will be critical to drive improvements

165 DECC (CCS 042)

166 Qq59 [Paxman], 142

167 Zero Emissions Platform (CCS 007), Grantham Research Institute (CCS 028)

168 Scottish Carbon Capture and Storage (CCS 024)

169 Q59 [Jane Paxman]

170 Q142

171 Qq15-16, UK Advanced Power Generation Technology Forum (CCS 011), Carbon Capture and Storage Association (CCS 027)

172 Q16 [Mr Warren]

173 International Energy Agency (CCS 043)

32 Carbon Capture and Storage

in all aspects of the CCS chain.174 The UK is fortunate in having excellent academic expertise and significant research and development underway into all three parts of the CCS chain.175 As pointed out by Mr Spence, Vice President of Strategic Issues at Shell, companies in the competition should be obliged to share learning from early CCS projects–something we are pleased the Government has committed to ensuring through its Knowledge Transfer Programme.176

63. Of particular importance is the development of storage capacity. Dr Goldthrope, Programme Manager at the Crown Estate, highlighted that early provision of storage at scale is critical to bringing down costs.177 The UK theoretically has significant storage potential (see paragraph 25) but at the moment–in practical terms–it is scarce.178 The UK CCS Research Centre highlighted the long time that is required to identify, characterise, model and potentially test CO2 injection at storage sites before permission to store CO2 at a site is granted.179 The Crown Estate reported that this process was time-consuming and, “at the later stages of site characterisation costly.” It was not surprising, they argued, that, “storage is therefore currently regarded as the most risky part of the CCS chain for project developers.”180 Failure to develop this storage could slow the overall deployment of CCS. Professor Haszeldine of SCCS argued that:

We are investigating storage at a rate that is about 100 times too slow at the moment; we need to have a literally two orders of magnitude scale-up of that investigation rate if we are to deliver CCS by mid-2020s and by 2030 at the scale we need to do it to decarbonise our electricity system.181

64. Dr Neufeld, University Lecturer at the University of Cambridge, suggested that while there were places which could be used immediately to store CO2–because of the knowledge already gained from oil and gas–there were also a number of places where we still knew very little.182 The Grantham Research Institute at LSE reported that in the UK, “storage capacity in oil and gas fields could range from 7.4 to 9.9 billion tonnes of CO2” and, “the storage potential of saline fields is more uncertain, and could range from 6.3 to 62.7 billion tonnes of CO2.”183 The large uncertainty around the figures highlights the significant geological work still required to fully appraise storage sites to ensure CO2 injection and storage can meet technical, regulatory and societal requirements.184

174 Q79 [Dr Reiner, Professor Gibbins], Engineering the Future (CCS 032), International Energy Agency (CCS 043)

175 Q160, James Verdon et al (CCS 002), Plymouth Marine Laboratory (CCS 005), Research Councils UK (CCS 006), UK CCS Research Centre (CCS 010), Energy Technologies Institute (CCS 012), The Crown Estate (CCS 019)

176 Q31, DECC (CCS 042)

177 Q5 [Littlecott, Goldthorpe]

178 Q24 [Littlecott]

179 UK CCS Research Centre (CCS 010)

180 The Crown Estate (CCS 019)

181 Q6 [Professor Haszeldine], Scottish Carbon Capture and Storage (CCS 024)

182 Q76

183 Grantham Research Institute, LSE (CCS 028)

184 Energy Technologies Institute (CCS 012), Geological Society (CCS 040)

Carbon Capture and Storage 33

65. Much of this could be achieved successfully through a “learning by doing” approach and an effective R&D programme.185 We note that the Energy Technologies Institute (ETI) in partnership with the British Geological Survey (BGS) and the Crown Estate has undertaken a study, UK Storage Capacity Project, to assess the UK’s potential storage capacity.186 The UK CCS Research Centre recommended that further work on storage could usefully be done. It argued that gaps in our knowledge of storage sites, “could be addressed by a programme of subsurface mapping to identify and characterise potential storage sites”, and recommended that it be, “undertaken on behalf of UK regulators, using currently available well and seismic data.”187 While the Centre recognises that this will not provide all the answers, it suggests that this data could help to identify what further research would be necessary to demonstrate a site’s suitability for CO2 storage.188 The Crown Estate also suggested that:

Specifically targeted storage exploration subsidies focused on early-stage development of the industry, could be used to target ‘new’ areas of storage or incremental work at existing storage sites (which would bring wider benefits).189

The effect would be to de-risk the investment. The Crown Estate went on to explain that the “incentive could be relatively revenue neutral for Government if it was associated with a project which would otherwise have required a higher CfD.”190

66. The Minister did not agree that the UK was exploring storage sites too slowly. He suggested that, “it is rather difficult for Government to direct how investment in the infrastructure should be most cost-effective. I think that is better done by the companies themselves.” He said that the Government was focused on facilitating investment in transport capacity and utilising existing infrastructure. He concluded by stating:

The difficulty really is nobody can yet be absolutely certain as to how much CCS is going to be deployed and where the investment that makes it commercially scalable is likely to be located. Storage is something we are absolutely keeping an eye on, and where we can help as a Government, we will.191

While scientific and engineering challenges are not a major barrier to deploying CCS, it is clear that ongoing research and development will be critical to drive improvements in all aspects of the CCS chain. A critical area desperately in need of greater attention is offshore storage. While theoretical storage potential is huge, actual current storage capacity is

185 Research Councils UK (CCS 006), UK CCS Research Centre (CCS 010), Geological Society (CCS 040)

186 More information can be found on the ETI website (http://www.eti.co.uk/technology_programmes/carbon_capture_and_storage) and the CO2 Stored website (http://www.co2stored.co.uk/)

187 UK CCS Research Centre (CCS 010)

188 As above

189 Energy Technologies Institute (CCS 012)

190 As above

191 Q140

34 Carbon Capture and Storage

scarce. Given the lengthy time period required to identify, characterise, model and test CO2 injection at storage sites, failure to move ahead with storage identification now could slow the overall deployment of CCS over the coming years.

67. The Government’s focus on transport capacity rather than on storage capacity is surprising given how critical early provision of storage is to bringing down costs. We note the proposals outlined by the UK CCS Research Centre to undertake a programme of subsurface mapping to identify and characterise potential storage sites and the Crown Estate’s suggestion that Government introduce targeted storage exploration subsidies. We recommend that the Government work with the UK CO2 Storage Development Group to explore these proposals and outline an action plan for actively promoting the development of storage sites.

First mover advantage

68. The question remains whether the UK should try to be a first mover when developing CCS (and reap the benefits of selling technology and know-how abroad) or whether the UK should wait for other countries to develop CCS and import it (benefiting from cost reductions made elsewhere). Professor Haszeldine, of SCCS, argued that in the light of emerging CCS projects in other countries, the UK was, “effectively starting to be in a following position and receiving the benefits from those first projects de-risking and driving the cost down.”192 He drew on experience from the Boundary Dam project in Canada which estimated it could reduce the costs of the capture plant by 30% next time round. He also cited the Texas Clean Energy Project (also behind the Captain Clean Energy Project in the UK) which he estimated could make a 25% reduction in capital costs if it was to do it a second time round.193 In contrast, Professor Gibbins of the UK CCS Research Centre highlighted that in some cases - such as applying CCS to gas-fired generation - the UK was a first mover.194

69. Dr Clarke of the ETI told us that CCS components will, “inevitably come from major global suppliers” operating in a global market rather than just the UK.195 It is unlikely, therefore, that any one country will develop a comparative advantage in every aspect of the CCS value chain.196 Mr Littlecott of E3G agreed arguing that, because of the global market for CCS, costs of capture technologies were likely to come down as a result of competition from technology suppliers and equipment manufacturers. He suggested that, the UK’s efforts, however, will not fundamentally alter that technology profile.197

192 Q6 [Professor Haszeldine]

193 Q5 [Professor Haszeldine]

194 Q81 [Professor Gibbins]

195 Q87 [Dr Clarke]

196 BASF (CCS 001)

197 Q5 [Mr Littlecott]

Carbon Capture and Storage 35

70. On the other hand, the UK’s efforts could have more effect on the costs associated with rest of the CCS transport and storage stages. E3G suggested that CCS deployment was inevitably local in nature:

While it may of course be possible to import cheaper CO2 capture technology in future ‘from China’ (to take a frequent example), it is not possible to import geology, nor local geographies for transportation infrastructure. Nor is it possible to radically alter the timetables of current North Sea oil and gas fields experiencing declining production and which would be amenable for use for CO2 storage (either in combination with CO2-EOR or post-production).198

Dr Goldthorpe of the Crown Estate suggested that local knowledge and expertise built up in the North Sea area was essential to future CCS development and could not be imported.199 Professor Haszeldine argued that, if the UK developed these local elements, the UK would also be able to sell the technologies associated with injection and monitoring of CO2 building on the global reputation of the North Sea.200

71. There is already a global market for carbon capture technologies. Companies looking to deploy CCS in the UK may well be able to buy cheaper capture technologies which have already been developed in other countries. Other aspects of CCS–transport and storage infrastructure–are, however, inherently local in nature and will require development here in the UK. The UK is well placed to take advantage of its existing expertise in the North Sea oil and gas sector.

198 Q5 [Mr Littlecott], E3G (CCS 033)

199 Qq6 [Dr Goldthorpe], 87 [Dr Clarke]

200 Q11 [Professor Haszeldine]

36 Carbon Capture and Storage

3 Conclusion

72. CCS is one of the only technologies available that has the potential to decarbonise fossil fuel power plants and other industrial processes. The capture, transport and storage technologies involved are considered to be safe, the scientific and engineering challenges small and the capacity to be deployed at scale promising. New and novel CCS technologies, such as the NET Power cycle, have the potential to improve CCS prospects. It is widely acknowledged that CCS could play an important role in helping the UK to meet its carbon reduction commitments. This role may change over time to take account of global policy developments including the 21st Conference of the Parties in 2015. Although CO2 emissions have reduced in this country and the EU, the carbon footprint of both has increased. If CCS was widely adopted abroad, it could help to reduce the UK’s embedded carbon emissions. Deploying CCS in the UK could also increase UK plc’s future share of the global CCS market, create a North Sea “storage market” whereby the service of permanently storing CO2 was sold to other European countries, and protect jobs associated with the UK’s coal and energy intensive industries. The UK is considered ideally suited to take advantage of CCS because of its combination of geological, engineering, industrial and academic capabilities, together with a stated policy commitment to reduce CO2 emissions and the foundational legislative framework required for CO2 storage.

73. The combination of high energy and–in the absence of an effective carbon market–financial costs make CCS uneconomic. The high cost of CCS means that it is likely to develop only in response to specific policy intervention, likely to be subsidy from the public purse and/or the consumer. The Government should be transparent about the costs of CCS and how they will be met. The Government therefore needs to prioritise designing a credible financial incentive framework most likely centred on the Contracts for Difference which the Government is introducing as part of its electricity market reforms. Progress on CCS in the UK has been frustratingly slow. It has taken successive governments the best part of a decade to provide a capital grant to a large-scale full chain CCS project. As a result, the expected start date of CCS has been pushed back from 2014 to potentially after 2020 which has increased uncertainty and threatens to undermine the credibility of Government policy. This lost decade is regrettable given the importance of CCS to meeting future climate change targets.

74. In order to ensure the successful deployment of CCS in the UK the Government should aim to reach final investment decisions with the two projects left in the competition by early 2015 (in line with the Government’s original competition timetable) to increase the chance that the first CCS projects will be operational before 2020. This commitment is welcome: it will help to bring down costs of CCS more quickly and, therefore, help the development of a wider CCS industry in the UK.

75. It is unclear whether any financial advantage accrues to first movers, so there is a case for limiting the amount of consumer support which is allocated to the first CCS projects. Indeed, it is likely that most benefits will be accrued by second movers, which

Carbon Capture and Storage 37

may explain why the big companies are reluctant to spend so much of their own money at this early stage of CCS development. It would be wise for the Government to direct its resources at the uniquely British aspects of CCS deployment such as transport and storage infrastructure and overcoming potential public opposition to ensure the maximum benefits for UK consumers are realised.

38 Carbon Capture and Storage

Conclusions and recommendations

Government support for CCS

1. The expected start date of CCS has been pushed back from 2014 to potentially after 2020. Given the widespread acknowledgement of the importance of CCS to meeting future climate change targets this lost decade is extremely disappointing. While we take note of recent efforts by Government to work more closely with industry to accelerate CCS deployment, it is essential that the Government is able to commit to a realistic but ambitious timeline for taking final investment decisions. The rest of this report will look at what more the Government needs to do to accelerate CCS deployment and support a wider CCS industry. (Paragraph 19)

Political and financial risk

2. As we have heard, delay has called into question the credibility of Government policy designed to support CCS deployment. It is critical that the Government does not waste any more time on unnecessarily delaying the start of the first CCS projects. We recommend that the Government aims to reach final investment decisions (FID) with the two projects left in the competition by early 2015 (in line with the Government’s original competition timetable). This offers the only hope of making the first CCS projects operational by 2020. In turn this could help to bring down costs of CCS more quickly and, therefore, help the development of a wider CCS industry in the UK. (Paragraph 31)

3. The Government’s Feed-in Tariffs Contracts for Difference (CfD) will be essential for CCS projects as they will provide operational support as well as a route to market for non-competition projects. The Government should set out immediately in what ways CCS CfDs will differ from the more generic CfDs. We recommend that CfDs be tailored to individual CCS projects because of the unique characteristics of CCS (compared to other low carbon and renewable technologies). The Government must engage in a dialogue with industry to ensure that CCS CfDs are designed appropriately. (Paragraph 34)

4. Non-competition projects which do not have the benefit of being eligible for capital support, but which are still viable projects, are at risk of collapsing unless they get a clear signal from Government that they can negotiate with DECC for a CfD in parallel with competition projects. We recommend that as soon as the Government sets out more detail on the tailed nature of CCS CfDs, the Government should write to the non-competition projects inviting them to start the process of negotiating for CfD. (Paragraph 36)

5. The CCS industry would benefit from having more clarity on the amount of funding available for CCS within the Levy Control Framework (LCF) up to 2021. It is also essential that the industry have visibility on the LCF post-2021. The Government should set out its thinking on the LCF post-2021 indicating whether the total will be maintained in real-terms. (Paragraph 39)

Carbon Capture and Storage 39

Clustering and common infrastructure

6. It is astonishing that the Government has done so little to actively promote clustering given the benefits of doing so–including offering the greatest potential for cost reduction. It serves as another example of how long it has taken the Government to encourage the deployment of CCS. The Minister should quickly set out, in consultation with the UK CO2 Storage Development Group, a detailed action plan for how the Government will incentivise clustering of CCS infrastructure. (Paragraph 43)

Enhanced oil recovery

7. We are pleased that the Government has accepted Sir Ian Wood’s recommendations into maximising the recovery of UK oil and gas and is actively working with industry to explore the potential for enhanced oil recovery (EOR) to prolong the life of the North Sea reserves. We recommend that the Government should consider providing tax breaks to CCS consortia and oil and gas companies which pursue EOR. (Paragraph 47)

Industrial CCS

8. Industrial CCS is one of the only large-scale mitigation options available to make deep reductions in the emissions from industrial sectors. We are disappointed that the Government has so far paid little attention to it. We recommend that the Government update its CCS Roadmap this year and outline in greater detail what role it envisages for industrial CCS and how it intends to support it. (Paragraph 51)

Safety and reputational risks

9. It is very disappointing that after almost a decade the Government has still not recognised the need for a proactive approach to communicating CCS and instigated an appropriate programme. The Government cannot delay this any longer. We recommend that in order to address public opposition to CCS - similar to that experienced in other countries and in the UK in relation to other energy infrastructure - and to try and prevent it from growing, the Government develops and implements a national CCS engagement strategy framing CCS in a positive way, emphasising the potential benefits, dispelling myths and listening and responding to public concerns over safety. The Government should also mandate through licence conditions for CCS companies to develop and implement their own engagement strategies with local communities. This should be done before final investment decisions (FID) are taken. (Paragraph 57)

Regulatory risk

10. We recommend that the Government takes the opportunity, during the European Commission’s review of the CCS Directive in 2015, to ensure that the Directive does not place unnecessary burdens on storage providers. The liabilities linked to long-term ownership of stored CO2 will require some form of Government guarantee–and the Government will need to seriously consider taking long-term ownership of stored CO2. The Government will need to take this decision very soon to avoid deterring investment. (Paragraph 61)

40 Carbon Capture and Storage

Scientific and engineering challenges

11. The Government’s focus on transport capacity rather than on storage capacity is surprising given how critical early provision of storage is to bringing down costs. We note the proposals outlined by the UK CCS Research Centre to undertake a programme of subsurface mapping to identify and characterise potential storage sites and the Crown Estate’s suggestion that Government introduce targeted storage exploration subsidies. We recommend that the Government work with the UK CO2 Storage Development Group to explore these proposals and outline an action plan for actively promoting the development of storage sites. (Paragraph 67)

First mover advantage

12. There is already a global market for carbon capture technologies. Companies looking to deploy CCS in the UK may well be able to buy cheaper capture technologies which have already been developed in other countries. Other aspects of CCS–transport and storage infrastructure–are, however, inherently local in nature and will require development here in the UK. The UK is well placed to take advantage of its existing expertise in the North Sea oil and gas sector. (Paragraph 71)

Conclusion

13. CCS is one of the only technologies available that has the potential to decarbonise fossil fuel power plants and other industrial processes. The capture, transport and storage technologies involved are considered to be safe, the scientific and engineering challenges small and the capacity to be deployed at scale promising. New and novel CCS technologies, such as the NET Power cycle, have the potential to improve CCS prospects. It is widely acknowledged that CCS could play an important role in helping the UK to meet its carbon reduction commitments. This role may change over time to take account of global policy developments including the 21st Conference of the Parties in 2015. Although CO2 emissions have reduced in this country and the EU, the carbon footprint of both has increased. If CCS was widely adopted abroad, it could help to reduce the UK’s embedded carbon emissions. Deploying CCS in the UK could also increase UK plc’s future share of the global CCS market, create a North Sea “storage market” whereby the service of permanently storing CO2 was sold to other European countries, and protect jobs associated with the UK’s coal and energy intensive industries. The UK is considered ideally suited to take advantage of CCS because of its combination of geological, engineering, industrial and academic capabilities, together with a stated policy commitment to reduce CO2 emissions and the foundational legislative framework required for CO2 storage. (Paragraph 72)

14. The combination of high energy and–in the absence of an effective carbon market–financial costs make CCS uneconomic. The high cost of CCS means that it is likely to develop only in response to specific policy intervention, likely to be subsidy from the public purse and/or the consumer. The Government should be transparent about the costs of CCS and how they will be met. The Government therefore needs to prioritise designing a credible financial incentive framework most likely centred on the Contracts for Difference which the Government is introducing as part of its electricity market reforms. Progress on CCS in the UK has been frustratingly slow. It

Carbon Capture and Storage 41

has taken successive governments the best part of a decade to provide a capital grant to a large-scale full chain CCS project. As a result, the expected start date of CCS has been pushed back from 2014 to potentially after 2020 which has increased uncertainty and threatens to undermine the credibility of Government policy. This lost decade is regrettable given the importance of CCS to meeting future climate change targets. (Paragraph 73)

15. In order to ensure the successful deployment of CCS in the UK the Government should aim to reach final investment decisions with the two projects left in the competition by early 2015 (in line with the Government’s original competition timetable) to increase the chance that the first CCS projects will be operational before 2020. This commitment is welcome: it will help to bring down costs of CCS more quickly and, therefore, help the development of a wider CCS industry in the UK. (Paragraph 74)

16. It is unclear whether any financial advantage accrues to first movers, so there is a case for limiting the amount of consumer support which is allocated to the first CCS projects. Indeed, it is likely that most benefits will be accrued by second movers, which may explain why the big companies are reluctant to spend so much of their own money at this early stage of CCS development. It would be wise for the Government to direct its resources at the uniquely British aspects of CCS deployment such as transport and storage infrastructure and overcoming potential public opposition to ensure the maximum benefits for UK consumers are realised. (Paragraph 75)

42 Carbon Capture and Storage

Annex

Canada programme and visit notes

18 November 2013

Professor James Meadowcroft and Graham Campbell

Professor James Meadowcroft, Canada Research Chair in Governance for Sustainable Development and Graham Campbell, Executive Director, Carleton Sustainable Energy Research Centre provided an overview of the politics and policy landscape of CCS in Canada.

• Canada has very large energy resources including oil, gas, hydro, uranium and biomass. The combination of abundant energy resources and lots of space has resulted in Canada developing a very carbon intensive industrial structure. This makes it very difficult for Canada to tackle climate change because the whole economy is carbon intensive.

• Climate change is not really in the public or Federal Government’s consciousness and as a result it has not made much progress on developing policies to tackle climate change.

• Canada abandoned its Kyoto targets because they were over ambitious and not achievable.

• There is some interest in new renewable in Canada although it has a lot of hydro. However, the presence of oil and gas sector effects the flow of capital and disadvantages the development of renewables.

• The Federal Government’s current approach is 'accelerated resource development'. The objective is to utilise its resources as quickly as possible. As such, it has abandoned sustainable development and built on responsible (use) development. The current Government’s position is unhelpful and partisan.

• Policy fragmentation and jurisdictional diversification makes it difficult to develop a national response to climate change.

• There has been progress to tackle climate change at a provincial level. British Columbia has introduced a carbon tax. Ontario has phased out coal and replaced it with gas.

• Decarbonising will be cheaper with CCS in the mix. It is better to have more tools rather than less (even though currently more expensive).

• There are, however, several barriers. The biggest is the cost of developing CCS. CCS also presents a split incentive: developers should in theory benefit by developing CCS, however, currently it is more beneficial not to develop CCS. CCS is different to other

Carbon Capture and Storage 43

low carbon technologies. It has a 'structural problem' in that as a bolt on technology it is undesirable to develop.

• CCS will acquire strategic importance in the future especially for fossil fuel exporting countries.

• There is currently low public acceptance of CCS. The public are concerned about the safety of storing carbon dioxide underground, end of pipe treatment, and lock-in to high carbon technologies. There have also been low levels of public engagement.

• CCS is seen by Federal Government as a problem to resource extraction. CCS is, however, not dead. It is still important. It is only because Canada is not taking climate change as seriously as should be. It will come back into fashion when it does.

• CCS future still very uncertain in Canada. CCS in 2050 scenarios 1) high usage 2) geographically fragmented usage 3) specialised usage (e.g. Industrial processes and biomass). Industrial CCS is definitely a potential starter. There would be merit in public policy focusing on industrial CCS. This is also because there is demand for pure CO2 sources. However the key problem is what you do with it (storing or other commercial uses)

• CCS in Canada is closely related to enhance oil recovery. More so than a response to climate change. Shell Quest project is one such example. Boundary Dam is also interlinked with fossil fuel production. Basic problem in Canada is that there isn't a national price on Carbon. EOR dilutes the benefit of the CCS. There are trade-offs there. However, benefits are that it already has existing infrastructure and it is possible to continue to inject carbon dioxide after EOR has finished.

• CCS costs are clouded in uncertainty. People and industry are propagating the uncertainty.

• It is hard to say when Canada might realistically see commercial scale CCS. Need to progress CCS along the learning curve. This requires many power plants with CCS to be built. This is, however, a long way off. Depends on whether enough projects get up and running and on how much investment and when.

• The International Energy Agency (IEA) CCS roadmap outlines 7 key barriers. Financial barriers: good. Policies re CCS: none. Laws and regulations requiring CCS: no. Other uses for CCS: no, not looking at industrial. Public info and engagement: no. Reducing costs: no. Infrastructure requirements: doing quite well. Useful check list would be difficult.

Dr. Roman Szumski

Roman Szumski, Vice-President Life Sciences, National Research Council (NRC) outlined research being undertaken on algal carbon conversion a potential second generation CCS technology.

44 Carbon Capture and Storage

• The NRC is a departmental agency. It has a President which reports to Cabinet. The detailed research agenda is developed by the NRC and government provides a high level steer.

• The NRC jointly develops technologies with industry. It expects to make a return, along with its industry partners, which is recycled back into research.

• Algal carbon conversion involves converting a waste product–gas emissions and waste water from an industrial process–and using algae to convert it into valuable products (as well as remediated waste water and industrial emissions).

• This technology has the potential to be applied to an oil sands site and in other industrial sectors such as cement

• The NRC has ambitions to develop a 100,000 litre test plant. This is small enough so as to be easily transportable (to remote parts of the country) and large enough to be scaled up if desired.

• The algae which is being used is a local and natural strain to reduce the potential risk of contaminating the Canadian environment.

• Industry believes the technology could be commercially viable. The NRC is partnering with several companies. Industry buy-in came when the NRC switched from saying 'making biofuels' to 'managing carbon dioxide'.

• There are, however, several barriers to taking up the technology. Questions remain over how ‘transferable’ the technology because of the unknown attributes on algae strains. It is still uncertain the extent to which the technology can be scaled-up.

David McLaughlin

David McLaughlin, Strategic Advisor to the Dean of Environment, University of Waterloo provided an overview of the politics of energy and climate policy in Canada.

• At the moment Canada will not meet its 2020 carbon targets.

• It will not meet them unless the oil and gas industry plays its part.

• Modelling how to achieve carbon reductions in Canada always includes CCS.

• Incentivising CCS will require the development of a carbon price. This would need to be over $100. However, it is unlikely that the economy will not bear a carbon price this high. As such it is unlikely that there will be significant CCS in Canada any time soon.

Clare Demerse

Clare Demerse, Director of Federal Policy, Pembina Institute provided an overview of the politics of energy and climate policy in Canada.

Carbon Capture and Storage 45

• Even though energy is a provincial competency, it is still highly influenced by the Federal Government.

• The Federal Environment Minister says that Canada will meet its 2020 carbon targets. But nobody else thinks there is a plan in place that will help Canada actually achieve it.

• The projected growth in oil sands, according to the Federal Government’s own projections show that it will cancel out and eclipse any other carbon savings made elsewhere in the economy.

• Understanding what solutions there are to reduce the carbon impact of oil sands are crucial for climate change action in Canada. CCS will be fundamental but is very expensive when applied to the oil sands–even more than coal with CCS.

• CCs would require a carbon price of $100 a tonne of more. However, there is currently vehement opposition to economy wide carbon pricing. Instead Canada is taking a sector by sector, bottom-up approach. But there is very little attempt to scale it up to meet Canada’s 2020 targets. At present the fossil fuel industry is not going to be a strong enough policy signal to incentivise the development of CCS. There are unlikely to be new CCS subsidies in the short term.

• Originally, Canada was expecting to be requiring CCS level standards on oil sands and coal in order to help meet Canada’s 2020 carbon targets. No longer think this is remotely on the table.

David Sawyer

David Sawyer, Associate, International Institute for Sustainable Development provided an overview of the politics of energy and climate policy in Canada.

• In 2008/09 Canada was looking at how to achieve it targets and at this time CCS featured strongly. Large allocation of resources were given over to incentivising CCS. Today CCS doesn’t come up as an issue at all. As such, we are not asking enough of our fossil fuel companies.

• Internal drivers (such as market access, carbon prices and competition) in Canada are not strong enough to drive CCS development in Canada.

• External drivers are however starting to develop which may incentivise CCS in Canada. This includes the potential development of a clean fuel standard in the US (a key export market for Canada). The oil and gas industry in Canada has an eye on these developments but is still not currently developing CCS. This is largely because there is little appetite for CCS in the whole of North America.

• Canada is going to have to require global drivers to develop CCS. This will develop if Canada is able to build pipelines which allow it to export fossil fuels to Asian and European markets.

46 Carbon Capture and Storage

Alex Wood

Alex Wood, Senior Director, Policy Markets provided an overview of the politics of energy and climate policy in Canada.

• Canada cannot meet its targets without CCS. But Canada also has a lot of cheaper emissions reduction opportunities which are currently not being realised. The Canadian Government is currently pursuing a high cost carbon reduction pathway.

• The economics of CCS projects are very daunting. Shell’s Quest project is considered to be a money loser (even with the money they are getting from the Federal and Provincial Government’s). Shell is pursuing this project because of reputational issues and their vulnerability when looking at the oil sands involvement. They are doing CCS because of the reputational gain of being able to say that they are cleaning up the oil sands.

• What policy would take CCS forwards in Canada? It will require a combination of carbon pricing, mandating CCS, and external pressures.

Michael Keenan

Michael Keenan, Associate Deputy Minister at Natural Resources Canada outlined what his Department was doing to incentivise the development of CCS in Canada.

• CCS is a key part of the overall energy strategy of the country. Canada has some of the best geological stores for CCS as well as a number of potential streams for using CCS.

• Canada will have an emissions performance standard for new coal. Existing coal has to close down at the end of its economic life unless it retrofits CCS. This is a CCS 'runway'. There is a significant incentive to continue the use of coal with CCS.

• Federal Government greenhouse gas emissions regulations have a positive impact on CCS. He believed that that there is an opportunity for collaboration on CCS between Canada and UK. Energy is important to the Canadian economy.

• CCS will enable continued and sustained use of fossil fuels.

• The Federal Government has a role to facilitate investment in CCS and looks to promote national and international work on CCS.

• CCS in Canada is comprised of 3 things 1) technology evolution 2) market evolution 3) government policy evolution.

• Canada has 4 objectives 1) reducing technological risks 2) providing a stable regulatory framework 3) gaining public acceptance 4) learning-by-doing to reduce costs and risks (sharing learning).

• Canada is active in R&D on all types of capture technologies not just post combustion but main focus is on 'step change technologies'.

Carbon Capture and Storage 47

• The Government has increased its expenditure on CCS (20% of expenditure in 2011–2012). However, this will peak because a lot of the money is going into large scale demonstration projects. The rest will be on ongoing R&D but which is a much smaller proportion of funding.

• Federal Government has said it’s not pursuing a national carbon pricing strategy. It is pursuing a regulatory strategy instead. The Government thinks that this strategy will be successful. Doesn't think to price is essential. The Government supports 4 large scale CCS projects 1) Weyburn-Midale 2) SaskPower Boundary Dam 3) Shell Quest project 4) Albert Carbon Trunk Line. These projects are helping to increase the efficiency of CCS technology. Boundary Dam project specifically should, it is hoped, help to move CCS along the cost curve.

• Canada is doing quite well in relation to other countries evidenced by the global CCS institute. In fact Canada's investments have put Canada on the world stage in terms of CCS.

• Public engagement efforts are ongoing.

• Government is trying to share learning internationally through both bilateral and multilateral forums.

• Canada has advanced 3 large-scale CCS projects (on time and on budget).

Mike Beale

Mike Beale, Assistant Deputy Minister at Environment Canada outlined what his Department was doing to incentivise the development of CCS in Canada.

• Focus is environmental outcomes: in this case greenhouse gas emissions (GHG) emissions.

• To what extent can CCS be incorporated into our regulations? Example, coal fired regulations. That is 420 grams of CO2 equivalent. This is structured unit by unit. So, therefore, either need to have CCS on a plant or not at all. Sets emissions performance standard both for new coal and old coal which has reached the end of its economic life.

• Boundary dam. Worked closely with SaskPower to develop these regulations so that it made sense to potentially apply CCS to its units 4 and 5.

• However, under these regulations it may make more sense to build a new gas fired power station rather than a new coal fired power station with CCS.

• Regulations are time based. There is very little flexibility in the regulations (no trading etc). There is, however, a 10 year deferral mechanism.

• The regulations are driving significant reductions in coal fired electricity generation. Unfortunately however coal is not a big enough part of the pie to ensure it is able to meet its targets.

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• Actions taken today brings Canada 50% of the way to meeting its targets

• Departments approach to incentivising reducing emissions. No financial incentives. Function is regulatory. Taking a sector by sector regulatory approach. Started with transportation sector. Now developing a suit of regulations for oil and gas sector including for oil sands. Have another suit of regulations for energy intensive industries. These regulations are designed to help reach the target (the extra 50%)

• It is hard to see that CCS will make a major contribution to the 2020 targets.

Dinner hosted by Howard Drake, British High Commissioner with Leon Benoit MP, Chair of the Standing Committee on Natural Resources; the Hon. Geoff Regan, PC, MP, Vice-Chair of the Standing Committee on Natural Resources and Liberal Natural Resources Critic; the Hon. John McKay PC, MP, Liberal Critic for the Environment; Christine Moore MP, Member of the Standing Committee on Natural Resources and NDP Deputy Critic for Energy and Natural Resources; Linda Duncan MP, Member of the Standing Committee on Natural Resources and NDP Critic for Public Works and Government Services; Mike Allen MP, Member of the Standing Committee on Natural Resources; and Brad Trost MP, Member of the Standing Committee on Natural Resources.

19 November 2013

Kyle Worth

Kyle Worth, Project Manager, Aquistore, Petroleum Technology Research Centre outlined work being done to store carbon dioxide underground.

• Petroleum Technology Research Centre is a not-for-profit research and development organisation. Aquistore is a research and development project looking to store carbon dioxide in a saline aquifer pulling together lessons learnt from nearby carbon capture and storage projects.

• This site has a number of advanced technologies which, it is hoped, will facilitate and improve the injection, storage and monitoring of future carbon storage projects. They are also hoped to bring down the cost of future projects.

• Aquistore is only six miles from the nearest city. There are 20 families nearby. They have undergone a significant amount of proactive public engagement with the local community. This includes actively visiting the local community to inform them of the project, holding an open house, allowing visits during operations (which is not normally allowed) and having a clear and comprehensive document explaining how Aquistore were going to move through the process. They have also developed materials which explain how the local geology will stop any leaks from occurring.

• They are hoping to start commercial injection into the aquifer in early 2014.

• They are also hoping to work with UK academics to collaborate and share data.

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Robert Watson

Robert Watson, Chief Executive Officer at SaskPower provided a background briefing on SaskPower.

• SaskPower is a fully integrated power company with generation, transmission and supply businesses. It produces almost all its own power. Five years ago it entered into its first power purchase agreements with privately owned gas power plants and a wind farm.

• SaskPower has 4,104 MW generating capacity. 50 per cent is coal, 25 per cent is gas, 20 per cent is hydro, three per cent is wind and 2 per cent comes from other sources. The strategic aim of the company is to diversify is generation sources. It wants to expand gas but not become over reliant on it. It also wants to protect its coal assets. It is also looking at geothermal and solar will probably come into the fleet as the costs come down.

• SaskPower has seen an eight per cent increase in energy consumption. This increase is mostly coming from industrial developments such as pot ash mines, uranium, oil sands and agriculture.

• Saskatchewan is the first jurisdiction in Canada to be completely smart metered both business and domestic customers. Hope to be able to test out the smart grid as well as smart generation.

Ian Yeates

Ian Yeates, Vice-president at SaskPower outlined SaskPower’s approach to CCS.

• SaskPower has a lot of experience in CCS in Saskatchewan including in the Weyburn-Midale, Aquistore and Boundary Dam projects.

• At Boundary Dam, units one and two (65MW) are old, worn out and will be shut down. Unit 3 (150MW) being fitted with CCS. The futures of units four and five (300MW) have not yet been decided.

• There is a potential future difference between supply and demand in Saskatchewan. For example, the province has seen significant growth in demand while faced with the prospect of closing its coal facilities. The development of CCS would, however, mean that this is less of a problem.

• SaskPower has estimated that their new CCS plant will cost them $1.4bn. When comparing the cost of Coal plant with CCS to the best alternative, gas fired plant you see that the majority of costs for gas are in the fuel while for coal the majority of costs are in the capital investment. Furthermore, they estimate that when you factor in the revenue from selling carbon dioxide for enhanced oil recovery the costs of coal with CCS fall within the gas cost range.

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Dinner with Robert Watson, Chief Executive Officer at SaskPower and Provincial Government representatives.

20 November 2013

Tour of SaskPower’s Boundary Dam CCS project with Michael Monea, President of SaskPower.

21 November 2013

Chris Holy

Chris Holy, Branch Head, Research & Technology, Resource Development Policy Division, Alberta Department of Energy provided an overview of the energy landscape in Alberta and its approach to resource development with specific emphasis on CCS.

• Alberta has been an energy producing province for over 100 years. There is a high level of social trust in Alberta. The provinces resources are owned by the Crown. Private companies are used to extract the resources. As such, it only takes royalties and collects information using a third party regulator which provides a quality control function. There is a high degree of labour mobility which helps to transfer knowledge and creates a culture of innovation.

• Alberta has a huge resource base. Primary energy production is dominated by fossil fuels.

• Demand is lower than supply. Alberta therefore exports most of its energy. Alberta is looking for new markets to export to.

• Alberta is also looking at opportunities to diversify their energy production. This includes looking at what other opportunities there are outside of fossil fuel production. There has been a trend away from coal fired generation towards gas generation with some renewables. This shift to gas is also being used for heat (both industrial and domestic).

• Tax in Alberta is very low. Corporation tax in Alberta is 10 per cent compared to 15 per cent at the Federal level. Similarly, there is no sales tax in Alberta but five per cent at the Federal level.

• There is lots of innovation in the oil and gas extraction industry. In general the oil and gas industry has moved on significantly over the last century. It is much more high tech today. This helps to improve efficiency through managing complexity. One specific example is the use of ‘big data’ which to improve resource extraction.

• There is also a focus on moving fossil fuel resources into reserves. In the shale context, this involves technology changes to allow both light and heavy crude oils to be fracked. In the oil sands context, mining technologies are maturing. There is now a move towards in situ production (steam assisted gravity drainage). This is going to overtake

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mining. This development is an economic reality rather than an aesthetic reality. It has developed to reflect a financial regime rather than a geological basis. The in situ method of extracting oil sands has taken off because the technology has developed enough over the last decade to make it economically viable.

Sandra Locke

Sandra Locke, Assistant Deputy Minister, Electricity and Sustainable Energy Division, Alberta Department of Energy outlined Alberta’s climate change policies and its work on CCS.

• Alberta is an energy exporter. They recognise that their export markets are looking for and demanding cleaner sources of energy (especially when it comes to oil sands). CCS is, therefore, very important to them and acts as an important incentive.

• Alberta is the first jurisdiction to put a limit on greenhouse gas emissions (Climate Change and Emissions Management Act).

• Alberta also has a carbon tax set at $15 a tonne. There is no internal mechanism for revising the price. The price is only changed when the regulation is up for review. The money raised from the tax is hypothecated and put into a technology fund. The Climate Change and Emissions Management Corporation takes this money and invests it in cutting edge technology development to achieve carbon reductions. The funds have to be used in, or have a benefit to, Alberta. These funds don't apply to energy efficiency in buildings. Energy efficiency in buildings is driven by regulations.

• In Alberta the biggest source of emissions comes from the industrial sector. The Provincial Government’s target is to reduce emissions from this sector by 70 per cent through the deployment of CCS. There have, however, been a lot has changes since it was first formulated in 2008. There will have to be another review (to be completed by September 2014). It is likely that the target will be downgraded slightly to between 50 per cent and 70 per cent.

• The main focus of the Government’s efforts is on reducing the carbon intensity of oil sands. Other industrial applications (cement and steel etc) are still some time away from CCS. They are looking at what the Federal Government wants to do about CCS on the industrial sector. In theory it is likely that these sites (roughly 100 including non-industrial) will have to apply CCS.

• Alberta's CCS program objectives include: demonstrating CCS at a large scale, building on public confidence, helping to reduce Alberta's emissions, develop a world class regulatory program and make links us with the UK to help them achieve this as well.

• With regard to funding CCS projects, funding was able to advance very quickly. Mostly because of their funding principles which were clearly defined and include:

• Government contributions cannot exceed 75% of the incremental cost of CCS.

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• Funding paid out in three stages: project development and construction 40% (refundable to government if project isn't completed - there is no spend it or lose it mechanism - built into initial deal so the project developers where they stand), 20% as a bonus for doing what you said you would, and 40% when the company starts operating, capturing and storing carbon.

• Funding paid out over ten years. After that the project developer no longer has any commitments to the government. But there is an expectation there will still be a commitment to ongoing regulatory requirements.

• No funding paid until contracts are in place.

• Government will bear the risk of providing funding, the policy risk and the expectation that the carbon price will be high enough to make the business case for CCS, and long term liability of storing the carbon dioxide underground.

• The Government didn’t get involved in technology choices. It was indifferent on the type of storage technology the project developers used.

• There were some notable differences between the UK and Canada on their respective CCS funding approaches. Canada decided that is wasn't preparedness to take on cost risk. Unlike the UK it could, therefore, skim over these issues. If taking on cost risk then have to get into these issues. Slows things down. Also for the time being not getting into electricity based CCS. In a market based system it is very difficult to get CCS off the ground. Recognise that it is more difficult.

Mike Fernandez

Mike Fernandez, Executive director, Sustainable Energy Branch, Government of Alberta outlined information about what the Albertan Government was doing on CCS.

• The Albertan Government has taken a leadership role in CCS. However it doesn't want to make its industry uncompetitive. So waiting to see what the rest of the work will do. Its 50 per cent future target for CCS suggests a pipeline of projects. Expectation is that it will be a commercial technology which will be adopted for commercial decisions.

• Regarding regulatory environment for management of storing carbon dioxide, in 2008 Alberta established regulations for taking long term liability. Companies have to apply for–by satisfying technical requirements–a closure certificate which absolves them of responsibility for storing the carbon. There is also a post-closure stewardship fund. This money goes in the bank and is available to the Alberta Government to use for monitoring and managing risks etc.

• They believe that the UK Government will have to take the decision to take long term liability for storage. It is a deal beaker for most companies. This is, however, specifically for saline aquifers not enhanced oil recovery (EOR). Companies take liability for commercial ventures such as EOR.

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• Alberta has a very close relationship with UK on CCS going back at least five years.

• In terms of the lessons learnt for the UK. UK has come a long way but it has also lost a lot of time by agreeing to fund its CCS alongside EU funding streams. They believe that the UK needs to realise that UK has to go it alone. They believe that HM Treasury has a lot of influence. But this is also the case in Alberta and they were still able to enshrine money in legislation giving minister ability to sign $2bn worth of checks. The 2009 legislation removes the money from general revenue. The money is protected. Only a specific Minister is able to spend the money.

• Alberta still has $700 million left to spend. This won't expire because it is enshrined in legislation. But Alberta’s Premier wants to learn from current projects and see what international community does. However, currently no political appetite (or motivation) to spend more money. Likely future funding for CCS in future is the expected to come from increases in the cost of carbon and how much that price applies to a plants emissions. In addition there is an expectation that the cost of CCS will come down - i.e. Get more bang for buck.

• Norway has done the right thing. It originally took too much contract liability but has now reduced that liability. He still thinks they will see CCS in Norway.

Honourable Cal Dallas

Honourable Cal Dallas, Minister for International and Intergovernmental Affairs, Government of Alberta gave a high level overview of CCS and the wider energy landscape in Alberta.

• Alberta has the third largest oil reserves in the world. There is a mismatch between the amount of oil sands and carbon savings needed. Recognise the need to reduce emissions and therefore CCS technologies are important. Enhanced oil recovery could be useful in order to ensure they can maximise resource recovery. They would like to sell technologies made in Alberta abroad.

• As a landlocked jurisdiction, Alberta has a huge challenge getting its fossil fuel products to the coast and therefore diversify its market. The Albertan Premier is looking at how they can maximise selling its resources. There are currently two important projects in this regard; the Northern Gateway and the West to East Pipeline. To make these projects a reality requires an important dialogue between First Nations, municipalities and other provinces. The highest profile project is the Keystone XL project. They are currently looking for Presidential agreement in the United States. If successful, this pipeline would pipe Canadian product to Texas which has demand for it. There is, however, a difficulty in justifying selling oil sands because of the high carbon content. Reducing the carbon intensity of oil sands will be key to winning the argument of justifying selling the product to America.

• There is a strange relationship between the Federal and Provincial Governments. There are issues around where responsibility lies. There are constitutional boundaries,

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competencies and sometimes just differing opinions. Ultimately, the Provincial Government owns the resources and is responsible for regulation of oil and gas extraction with an independent regulator.

• Alberta has made some sweeping changes to these regulations. Countries around the world are coming to Alberta to see how they can develop similar regulations. This fits in with Alberta’s desire to have a global impact.

• The Federal Government has developed regulations which will effect greenhouse gas emissions from coal fired power stations. This will have significant future implications for coal fired generation. The dialogue on production of these regulations were productive. There were some issues but they were able to overcome them. Alberta believes that the Federal Government needs, however, to be mindful of competitiveness issues. Thinks that Alberta's financial and regulatory regime which is stable and predictable needs to be protected because it was that which has attracted investment and provided certainty. When interacting with the Federal Government they try to start from the perspective that there is a mutual desire to reduce emissions and then look to see whether they can go from there.

• The Albertan Government expects oil sand development to develop rapidly and faster than anywhere else. The emissions reduction trajectory and reliance on CCS is important and makes the need for a long term role out of CCS very important. The upfront funding provided by the Provincial Government to the Shell Quest project was designed to develop first of a kind projects which can help the technology progress along the technology curve and reduce costs. The Government would then prefer to leave it to the market. The future of CCS is, however, uncertain but they are optimistic that CCS will succeed if there is a sharing of learning.

Lunch discussion with Michael Moore, Area Director, Energy & Environmental Policy, Bev Dahlby, Distinguished Fellow, and Dan McFadyen, Executive Fellow from the School of Public Policy at the University of Calgary; and Gianna Manes, President and CEO of Enmax.

Stephen Larter, Don Lawton, Richard Adamson and Stefan Bachu, Paul Clark and Brent Lakeman

Stephen Larter, Scientific Director, Richard Adamson, Managing Director, and Don Lawton, Research Theme Leader of Carbon Management Canada outlined the work of their organisation. Stefan Bachu, Distinguished Scientist, Paul Clark, President and Chief Visioneer and Brent Lakeman, General Manager of Alberta Innovates outlined the work of their organization.

• Challenge for the UK is developing off-shore storage.

• Onshore v. Offshore: Offshore has the advantage of being away from populated areas but is more expensive because it is harder to get to storage sites and platforms in the sea are required.

Carbon Capture and Storage 55

• There is a window of opportunity for the UK as operational oil-fields reach the end of life and could be converted instead of decommissioned.

• UK should direct research efforts towards monitoring/developing off-shore opportunities.

• Research is needed into more complex CO2 storage sites. Existing projects have tended to cherry-pick the best sites (for example those with no old wells nearby that would risk compromising the storage site).

• A robust regulatory framework is important to provide certainty which will encourage investment/involvement by industry.

Honourable Thomas Lukaszuk

Honourable Thomas Lukaszuk, Deputy Premier of Alberta, Government of Alberta gave a high level overview of energy policy in Alberta.

• CCS is a very important component of Alberta’s energy sector. It is an important feedstock and spin-off from electricity production. CCS is also being driven by acceptability of carbon content of its products in international markets as well as recognition of the need to address climate change.

• Good geology and a sparse population makes Alberta suited to storing carbon dioxide. The population at large finds it acceptable although some NGOs are against it. The Main concern is that there will always be a risk of carbon leakage and contamination. On the whole, though, Alberta believes that it has a social licence to operate CCS.

• It is important that third parties are involved in establishing baselines and verify stored carbon. Any organisation which is funded by Government is perceived to be bias and therefore disqualifies them.

• The issue of the social licence also holds true for oil and gas companies in general. Over the last ten years there has been a seismic shift in their recognition that they need a social licence to operate. This includes being collaborating with government and again use third parties to verify what they are doing. Industry has realised that they have to be much more sophisticated about what they are doing.

• Alberta is one of the only provinces to have put a price on carbon. The oil and gas industry is in favour of sitting around the table and discussing a significant increase in the carbon levy. It agrees with paying as long as the money stays within the jurisdiction and is fed into innovation which could spark new forms of revenue in the future. There is also a recognition that Albertans fuel bills will rise as a result of the tax.

• The oil and gas industry have also already proven that captured carbon can act as a new feed stock for other industries (e.g. production of fertiliser in agriculture). These other industries are looking to relocate as a result. A big challenge remains in actually moving

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the carbon around. Building new pipelines is a very expensive investment but activity is starting to occur.

• Current business analysis shows there will be a significant uptake of CCS. Factors which will influence this, however, are what will be the price of the feedstock (carbon). There is a great deal of interest. They will need to watch to see what the price of carbon will be because this will affect the viability of the technology. This is important. This will, however, need to be offset against the cost of construction is higher because of a shortage of labour.

John Rind

John Rind, Vice President of operations for heavy operations (oil sands), Shell gave an overview of Shell’s oil sands business and how it was applying CCS to it.

• Shell Canada’s up-stream business owns the Athabasca oil sands (in situ) project as well as Peace River assets and Orion Project near Cold Lake. It also has leases in Grosmont, located on the far west side of the Athabasca area. These projects have high carbon content compared to conventional oil projects. Shell has to upgrade the heavy oil at a refinery at the Scotford Upgrader. Shell’s Quest project will capture the carbon dioxide emissions associated with these activities.

• Shell’s Quest project is a joint venture between Shell (60%), Chevron (20%) and Marathon (20%). It is a fully integrated first of a kind project in Canada and in the oil sands business. It will capture a million tonnes of carbon dioxide per year with 25 years capacity.

• Shell’s oil sands business didn't start until 1965. It was a precursor to Sun Core which started the first facility. Wanted to prove the technology in place. Sun Core started in 1973. It wanted to prove that you could reliably make a barrel of oil. There was no substantial investment up to early 1980s. The main focus was to demonstrate the technology. The amount of energy needed was cut at least in half which reduced environmental impact as well as improved the economic case. Investments were made through 1990s into early 2000s including from shell. There was a focus on heat integration and improving the performance of the assets. Protecting the environment was not the driving force behind the improvements made. As the technology developed and became a larger and larger part of the Canadian economy, the industry realised that environmental performance was not where it needed to be. Being frank there is still a long way to go. Continually trying to reduce environment al impact.

• There is a Canadian Innovation Oil Sands Alliance. This group shares intellectual property on technology which helps to improve environmental performance.

• The initial drivers to improve environmental performance were external to the province and external to Canada, primarily out of European Union and the United States. In last 7-8 years, there has also been pressure from within Canada. Canada’s citizens have been concerned about environmental footprint of oil sands. Oil sands

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production has increased significantly so there's has been significant push back from the general public on what they are doing. Public acceptance has improved because they have been very transparent, improved their environmental performance, and done what they said they were going to do.

• The Canadian Government understands that oil sands are an important economic driver.

Reception hosted by British Consul General Calgary with government, academic and industry leaders.

22 November 2013

Tour of Shell’s Quest CCS project.

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Formal Minutes

Tuesday 13 May 2014

Members present:

Mr Tim Yeo, in the Chair

Ian Lavery Dr Phillip Lee Mr Peter Lilley Albert Owen

John Robertson Sir Robert Smith Graham Stringer Dr Alan Whitehead

Draft Report (Carbon capture and storage), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 75 read and agreed to.

Annex and Summary agreed to.

Resolved, That the Report be the Ninth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

[Adjourned till Wednesday 11 June at 9.00 am

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Witnesses

The following witnesses gave evidence. Transcripts can be viewed on the Committee’s inquiry page at http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/inquiries/parliament-2010/carbon-capture-storage/?type=Oral#pnlPublicationFilter.

Tuesday 15 October 2013 Question number

Luke Warren, Carbon Capture & Storage Association, Professor Stuart Haszeldine, Scottish Carbon Capture and Storage, Chris Littlecott, E3G, and Dr Ward Goldthorpe, The Crown Estate Q1-28

Sam Gomersall, CO2DeepStore, Jane Paxman, 2Co Energy Limited, Bill Spence, Shell International Limited, Richard Simon-Lewis, Capture Power, and Jeremy Nicholson, Energy Intensive Users Group Q29-62

Thursday 23 January 2014

Professor Jon Gibbins, University of Edinburgh, and Dr David Reiner, and Dr Jerome Neufeld, University of Cambridge Q63-83

Dr David Clarke, Energy Technologies Institute, Rodney John Allam, NET Power, Chris Hodrien, Claverton Energy Group, and Darren Hopkins, British Biochar Foundation Q84-102

Tuesday 4 February 2014

Michael Fallon MP, Minister of State for Energy, and Jonathan Holyoak, Department of Energy and Climate Change Q103-172

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Published written evidence

The following written evidence was received and can be viewed on the Committee’s inquiry web page at http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/inquiries/parliament-2010/carbon-capture-storage/?type=Written#pnlPublicationFilter. CCS numbers are generated by the evidence processing system and so may not be complete.

1 Basf Plc (CCS0001)

2 James Verdon et al., University of Bristol (CCS0002)

3 Simon Shackley, Dr Leslie Mabon and Benjamin Evar, University of Edinburgh (CCS0003)

4 Chris Hodrien (CCS0004)

5 Plymouth Marine Laboratory (CCS0005)

6 Research Councils UK (CCS0006)

7 Zero Emissions Platform (Zep) (CCS0007)

8 Bbf Biochar Cic (CCS0008)

9 Resus Technology Ltd. (CCS0009)

10 UK Carbon Capture & Storage Research Centre (CCS0010)

11 The UK Advanced Power Generation Technology Forum (CCS0011)

12 Energy Technologies Institute (CCS0012)

13 Tyndall Centre for Climate Change Research, The University of Manchester (CCS0013)

14 John Midgley (CCS0016)

15 Shell International Ltd. (CCS0017)

16 The Crown Estate (CCS0019)

17 Coalimp (CCS0020)

18 Oil & Gas UK (CCS0021)

19 TUC (CCS0022)

20 Mineral Products Association (CCS0023)

21 SCCS, University of Edinburgh (CCS0024)

22 David Reiner (CCS0025)

23 International Biochar Initiative And Uk Biochar Research Centre (CCS0026)

24 Carbon Capture and Storage Association (CCS0027) (CCS0047)

25 Grantham Research Institute, LSE (CCS0028)

26 Engineering The Future (CCS0032)

27 E3G (CCS0033)

28 Rodney John Allam (CCS0034)

29 2Co Energy Ltd (CCS0035)

30 The Government Chemist (CCS0036)

31 Capture Power (CCS0037)

32 Jon Gibbins and Hannah Chalmers (CCS0038)

33 CO2DeepStore (CCS0039)

34 The Geological Society (CCS0040)

35 Tony Day (CCS0041)

36 DECC (CCS0042)

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37 International Energy Agency (CCS0043)

38 Summit Power Group (CCS0046)

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List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the Committee’s website at www.parliament.uk/eccpublications. The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.

Session 2010–12

First Report Emissions Performance Standards HC 523 (807)

Second Report UK Deepwater Drilling–Implications of the Gulf of Mexico Oil Spill

HC 450 (882)

Third Report The revised draft National Policy Statements on energy

HC 648

Fourth Report Electricity Market Reform HC 742 (1448)

Fifth Report Shale Gas HC 795 (1449)

Sixth Report Ofgem’s Retail Market Review HC 1046 (1544)

Seventh Report A European Supergrid HC 1040 (1684)

Eighth Report The UK’s Energy Supply: Security or Independence?

HC 1065 (1813)

Ninth Report Solar Power Feed-In Tariffs HC 1605 (1815)

Tenth Report The EU Emissions Trading System HC 1476

Eleventh Report The Future of Marine Renewables in the UK HC 1624

Twelfth Report Consumption-Based Emissions Reporting HC 1646

First Special Report Low carbon technologies in a green economy: Government Response to the Committee’s Fourth Report of Session 2009–10

HC 455

Second Special Report Fuel Poverty: Government Response to the Committee’s Fifth Report of Session 2009–10

HC 541

Third Special Report The future of Britain’s electricity networks: Government Response to the Committee’s Second Report of Session 2009–10

HC 629

Carbon Capture and Storage 63

Session 2012–13

First Special Report The Future of Marine Renewables in the UK: Government Response to the Committee’s Eleventh Report of Session 2010–12

HC 93

First Report Draft Energy Bill: Pre-legislative Scrutiny HC 275

Second Report The road to UNFCCC COP 18 and beyond HC 88

Second Special Report Consumption-Based Emissions Reporting: Government Response to the Committee’s Twelfth Report of Session 2010–12

HC 488

Third Report Low-Carbon Growth Links with China HC 529

Fourth Report Pre-appointment hearing with the Government’s preferred candidate for Chair of the Committee on Climate Change

HC 555

Third Special Report The road to UNFCCC COP 18 and beyond: Government Response to the Committee’s Second Report of Session 2012–13

HC 633

Fourth Special Report Low-Carbon Growth Links with China: Government Response to the Committee’s Third Report of Session 2012–13

HC 748

Fifth Report Consumer Engagement with Energy Markets HC 554

Sixth Report

Seventh Report

Building New Nuclear: the challenges ahead

The Impact of Shale Gas on Energy Markets

HC 117

HC 785

Session 2013–14

First Report The Green Deal: watching brief HC 142 (HC 607)

First Special Report Building New Nuclear–the challenges ahead: Government Response to the Committee’s Sixth Report of Session 2012–13

HC 106

Second Report A Severn Barrage? HC 194 (HC 622)

Second Special Report The Green Deal: watching brief: Government Response to the Committee’s First Report of Session 2013–14

HC 607

Third Special Report The Impact of Shale Gas on Energy Markets: Government Response to the Committee’s Seventh Report of Session 2012–13

HC 609

Third Report UK oil refining HC 340 (HC 718)

Fourth Report Smart meter roll-out HC 161 (HC 719)

Fifth Report Energy Prices, Profits and Poverty HC 108 (HC 717)

Sixth Report Local Energy HC 180 (HC 749)

Seventh Report Pre-appointment hearing with the Government’s preferred candidate for Chair of Ofgem

HC 645

Eighth Report Levy Control Framework HC 872