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Select Committee on Science and Technology First Report

4 RD&D AND INTERNATIONAL COMPETITIVENESS

Demonstration projects

54. The previous chapter outlined some of the main technological challenges that need to be addressed to render CCS a market-ready, scalable technology. It also highlighted the fact that most of the component technologies of CCS are not novel: the key outstanding requirement is to integrate them within full-scale demonstration projects involving different elements of the technology and operating under different conditions (including offshore). The evidence submitted to this inquiry was unanimous in supporting this view. The Government, for example, stated in its memorandum: "It is generally acknowledged that CCS has reached the stage where it needs to progress from small scale research and prototype development to near to full scale demonstration in order to give impetus to the innovation process and gain the benefits of 'learning by doing'".[77]

55. Royal Dutch Shell also advocated 'learning by doing' in its memorandum:

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In addition, the memorandum from E.ON asserted that "A full-scale demonstration project is the most effective way of identifying and addressing all the transport and storage issues associated with large scale CO₂ production from power plant" and noted that "building full-scale demonstration plants provides a signal to manufacturers that investment in CCS technology development is worth undertaking, hence stimulating competition and improvements in design".[79]

56. BP in conjunction with Scottish and Southern Energy, Shell and ConocoPhillips has plans for an offshore EOR/CCS project using the Miller Field offshore from North-East Scotland. BP told us in its memorandum that the "Decarbonised Fuels Project (known as DF1) based on the Peterhead Power Plant and the UKCS [UK Continental Shelf] Miller Field presents an immediate and effective way of establishing the necessary large-scale technology demonstration of CCS" and would reduce emissions of CO₂ by 1.3 Mt per year: "the equivalent of removing 300,000 cars from the roads".[80] Gardiner Hill from BP explained that Miller was well suited for the first large scale industrial demonstration of offshore EOR because it had "CO₂ indigenous in the oil, and so the platform and the production facility were built with CO₂ in mind".[81] Professor Haszeldine confirmed the significance of this project to the UK, telling us:

57. The DF1 Project has three main components:

the generation of 'carbon free' electricity through the construction of a gas reformer and new turbines to run on hydrogen within an existing gas-fired power station near Peterhead in Scotland;
the manufacture of hydrogen - in order to supply the power station - by reforming North Sea gas and capturing the resulting carbon dioxide; and
the transportation of the captured carbon dioxide via an existing offshore pipeline to the Miller oil and gas field in the North Sea - and injection into the reservoir to recover additional oil reserves and extend the productive life of the field by about twenty years.[83]

If successful, DF1 would be the largest hydrogen-fired power generation facility in the world and the largest offshore carbon dioxide EOR project.[84] The cost of DF1 has been estimated at around £330M.[85] The BP-led DF1 project could be a crucial opportunity to test the viability of linked systems of onshore gas conversion, power generation and offshore CO₂ storage in the North Sea.

58. DF1 is not the only demonstration project under development in the UK. A consortium including Progressive Energy Ltd and Renew Tees Valley Ltd is planning an 850 MW IGCC power station in Teesside, designed to capture approximately 5 Mt of CO₂ per annum.[86] Progressive Energy told us: "there are no insurmountable technical barriers to prevent investment in IGCC with CCS now", but warned of "real implementation challenges associated with securing the finance for the plant".[87] The issue of market incentives to stimulate investment in CCS is discussed in chapter 6. E.ON UK has also recently announced that it is considering building a 450 MW coal-fired power station fitted with CCS on the East coast of the UK. The decision will depend on the outcome of a feasibility study, which presumably will also depend on the incentives on offer for CCS. The cost is estimated at around £550M.[88] We are encouraged by the number of companies considering investing in UK CCS demonstration projects. Industry evidently believes that CCS technology is sufficiently advanced to proceed with full scale demonstrations. What is needed now to complement this positive response from industry is a commensurate effort from the Government. The role of the Government in facilitating CCS research, development and demonstration (RD&D) is discussed below.

Box 4: CCS RD&D in the UK

Government RD&D funding

59. Current Government investment in CCS RD&D is summarised in Box 4. ScottishPower, whilst "welcoming the [Carbon Abatement Technologies] Strategy", noted that the £25 million committed to funding demonstration projects was "small relative to the funding already committed by the United States government for the development of CCS".[89] This may be, in part, a reference to the US FutureGen initiative—a flagship project of the US Department of Energy which aims to build a 275 MW zero-emissions coal-fired power plant that produces hydrogen and electricity in conjunction with CCS technology. The FutureGen IGCC plant is scheduled to take 10 years to build, with the US Department of Energy expected to invest around $620M. The remainder of the costs, approximately $250M, will be borne by an industry consortium.[90] The UK Government's investments pale into insignificance beside the US Government's $1 billion flagship CCS project. The difference remains significant when adjusted for the relative sizes of the economies or populations.

60. It is also worth noting that the £25M allocated by the Government in the CAT Strategy was only one quarter of the £100M requested for demonstrating carbon abatement technologies by the DTI's advisory board on the topic, chaired by Nick Otter.[91] In the December 2005 Pre-Budget Report, the Chancellor announced a further £10M for CCS technology demonstrations (in addition to the £25M already announced in the CAT Strategy).[92] The timing of this announcement was somewhat curious since the CAT Strategy had only been published in June 2005 and the Climate Change Programme Review and Energy Review, both of which are considering CCS, are due to report later in 2006. The additional £10 million provided for demonstration of carbon abatement technologies in the pre-budget report is welcome but the piecemeal allocation of funding suggests a worrying lack of strategic vision in Government decision making.

61. Furthermore, in view of the vast sums involved in launching the first CCS demonstration projects, the Government's allocation of a £35M funding stream for demonstrations of not only CCS but a range of other carbon abatement technologies is wholly inadequate. We do not believe it is the role of Government to bear the full costs for CCS demonstrations and, as discussed in chapter 6, putting in place an appropriate incentive framework would go a long way towards providing the private sector with the confidence that it needs to make the necessary investments. In the words of BP's Gardiner Hill, "we need the marketplace to create a pull on technology whereas investment in R&D is trying to create a push".[93] Nonetheless, Government can play an essential role in 'pump priming' the initial demonstration projects. In order to do this effectively, Government support in the order of hundreds of millions of pounds needs to be forthcoming over the next five years. To put this in context, the Government has allocated over £500 million to emerging renewables and low carbon technologies over the period 2002-08 in the form of R&D and spending for capital grants, most of which represents expenditure earmarked for renewables.[94]

Skills

62. We also heard evidence that the Government had a crucial role to play in maintaining and developing the skills base for energy RD&D. In oral evidence on 7 December, Nick Otter from Alstom told us of his "really serious concerns" regarding the skills capability in the UK and noted that the 2012 Olympics would put an additional strain on the supply of technically-skilled people.[95] Sussex Energy Group additionally asserted that it was "crucial to maintain a domestic CCS R&D programme whether or not the technologies that are deployed in the UK are indigenous or international" since "a UK skills base in complex technology areas such as this is vital if the UK is to retain the capability to absorb and utilise CCS technologies effectively".[96] Dr John Loughhead, executive director of the UK Energy Research Centre, has also issued a recent warning about the potential for skills shortages in energy-related research in the UK.[97]

63. We asked what steps the Government was taking to build the human resource base for CCS technologies and whether it had undertaken research to establish the skills needs of, and the availability of appropriately skilled personnel in, the UK. The DTI response was as follows:

Our predecessor Committee published a number of Reports drawing attention to the importance of maintaining the supply of skilled scientists and engineers and we held an evidence session with the Minister for Higher Education in October 2005 on the subject of strategic science provision in English universities.[99] Once again, we find the Government erring on the side of complacency over the continued supply of skilled scientists and engineers. In view of the strategic significance of energy policy at this time, failure to take active steps to build and safeguard the UK skills base in this area will prove costly.

International co-operation

EUROPE

64. Air Products stated in its written memorandum: "The role of the UK Government in funding issues should be seen in the context of funding provided by the European Union" and highlighted the need for coordinated action to attract these funds: "it is necessary for all interested UK bodies, industrial technology and equipment suppliers, power companies, oil companies, natural gas suppliers, motor companies, universities and any other institutions or organisations to link with groups in other EU countries to form the necessary project or research focused interest which can be the basis for an application for funding under FP-7".[100] We were pleased to hear from Nick Otter, Alstom, and Gardiner Hill, BP, that UK companies had been heavily engaged in the development of the new zero emissions fossil fuel power plant Technology Platform.[101] Mr Otter also indicated that the EU had plans to set up a flagship project to rival the US FutureGen initiative and noted that "if there is going to be a serious demonstration plant, we would like to see something here in the UK".[102] The Government must do its utmost to work together with both the private sector and academia to give the UK the best chance of hosting any major EU-funded CCS demonstration project.

NORWAY

65. Norway has taken the lead in the development of offshore CCS thus far, having made very substantial investments in CCS. The BGS told us:

"The Klimatek programme invested over NoK300 million between 1992-2000. Since 2002 funding has been circa NoK50 million/y. In 2005 "GASSNOVA" was set up which will fund CCS RD&D at a rate of NoK150 million/y for the foreseeable future."[

103

104

Norway was also one of the first countries to introduce a carbon tax in 1991. The first offshore project, at Sleipner in the Norwegian North Sea, has been running since 1996 and will be followed in 2006 by another offshore project at Snohvit in the Barents Sea (see Box 3). Both of these projects capture CO₂ from produced gas rather than from power generation. If the DF1 project went ahead, the UK would be the first country to undertake offshore EOR using CO₂ captured from a full scale power plant.

66. The UK has recently signed a bilateral agreement with Norway aimed at encouraging CCS activity in both countries. This agreement was signed on 30 November 2005 by UK Energy Minister Malcolm Wicks and the Norwegian Energy Minister Odd Roger Enoksen, with both ministers pledging to explore areas of co-operation to encourage injection and permanent storage of CO₂ beneath the North Sea. The increasing co-operation between the UK and Norway on CCS is sensible, but the UK should also learn from the Norwegian Government's approach of backing its words with action and investment.

CHINA AND INDIA

67. The most important element of the global context for the UK's investments in CCS technology is the massive predicted increase in CO₂ emissions from power generation in China and India (see paragraphs 16-19). The UK and EU have already entered into bilateral agreements with China. The EU-China collaboration, entitled Near-Zero Emissions Coal with CO₂ Capture and Storage (NZEC), aims to bring forward the time when new coal plant in China might be built with CCS. The first of the three planned phases of the project entails a feasibility study for CCS in China and capacity building of Chinese knowledge in this area.[105] The UK Government has provided £3.5M towards Phase I, with DEFRA contributing £3M and DTI £0.5M. Phase I is expected to last for three years and has an overall budget of 4.5-7.5M euros.[106] One of the ultimate goals of the co-operation is to develop and demonstrate, in China and the EU, near-zero emissions coal technology through CCS by 2020. The UK-China bilateral agreement, signed in October 2005, commits both countries to collaborate on R&D into clean technologies, including wave/tidal energy and photovoltaic technologies as well as CCS.[107] The UK has committed, in the first instance, £750,000 towards this collaboration.

68. Brian Morris, Head of Carbon Abatement Technologies at the DTI, told us that efforts to engage India were underway, but that China had "responded far more positively than India" to the UK's approaches regarding CCS.[108] The UK and EU bilateral agreements to co-operate in the development of CCS technology with China are to be welcomed. However, the timescales envisaged and sums allocated in no way reflect the urgency with which CCS technology needs to be demonstrated and deployed if it is to be able to play a significant role in mitigating climate change. Efforts to engage China and India in this area are to be encouraged, but we doubt whether Memoranda of Understanding in themselves represent an effective way of expediting the development of carbon abatement technologies, or of promoting their uptake by these countries.

69. It is also worth noting that, as well as the DTI and DEFRA, the Foreign and Commonwealth Office (FCO) and Department for International Development (DFID) have a potential interest in the development and uptake of CCS technologies by India and China. The DTI and DEFRA should ensure that there is strong co-ordination between their activities in promoting CCS RD&D in China and India and those undertaken by the FCO and DFID in these countries.

70. Even if CCS technology was available, questions would remain over the contribution that it could make to reducing CO₂ emissions in India and China. Firstly, these countries would need to be interested in adopting it. It is encouraging, therefore, that both China and India are already members of the Carbon Sequestration Leadership Forum and that China is reportedly planning to commence R&D into CCS as part of the Government's 11^th Five Year Plan.[109] Nonetheless, concern remains that in the absence of acceptance by those countries of limits on CO₂ emissions and an international price on carbon, there will not be sufficient incentive for deployment of carbon abatement technologies by India, China and other countries facing similar dilemmas. Mr Allam from Air Products commented in oral evidence that the main barrier to the uptake of CCS by India and China was the fact that there was "No perceived value for the CO₂ that is separated at the moment".[110] Mr Allam was of the view that "Once there is a perceived value either internationally traded in some way or due to global regulations which govern CO₂ emissions, that is when the incentive will be there".[111] The major obstacle to the adoption of CCS technologies by countries such as India and China is still the lack of value attached to carbon internationally. It is essential that the UK Government—in partnership with other countries—continues to work towards an international framework for carbon trading. This is discussed further, together with the EU-Emissions Trading Scheme, in chapter 6.

A leadership role for the UK?

71. The UK faces competition from a number of other countries if it wishes to take a leading role in developing CCS technology. As mentioned above, Norway has already taken a lead in some areas of CCS technology. The USA has been one of the biggest investors to date in CCS (see paragraph 59) and countries such as Germany and Canada have also made substantial investments. Australia has been active in this area as well and launched its first CCS project in 2006.[112]

72. Nevertheless, much of the evidence submitted to this inquiry suggested that the UK was well-placed to adopt a leadership role in the development of CCS technology. The BGS argued that "Because of its hydrocarbon infrastructure, sedimentary basins and large point source CO₂ emissions, together with the need to modernise/replace power plants, the UK is well placed to lead, develop and take advantage of CCS".[113] ScottishPower put the case even more strongly, asserting that "the UK must decide whether to be a leader or a follower in the development of carbon abatement technologies" and warning:

114

George Marsh from the DTI was upbeat about the prospects for the UK to maintain a competitive advantage internationally, telling us:

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115

In addition, Mr Morris from the DTI explained that the Government was developing "a technology road map which will focus very much on UK strengths, where should we collaborate, where do we buy in technology, to try and focus much more on where we are strong and where we should perhaps let somebody else do it".[116]

73. Gardiner Hill from BP emphasised that supporting deployment and demonstration of CCS technology was critical to maintaining the UK's competitive advantage.[117] He argued that:

118

Dr Gibbins also highlighted the wider benefits that could be derived from early demonstration of the technology in the UK, telling us: "The UK has the opportunity to make this technology acceptable possibly ten years earlier [than would otherwise be the case] and that could have huge implications when the globe is going to say, 'Okay. It does not look too bad, tackling climate change; let's go for it'".[119] The Royal Society echoed this sentiment, telling us: "by showing leadership, the UK might engage with India and China in managing their potential future emissions of carbon dioxide effectively, to much greater global effect".[120] Dr Gibbins flagged up a further possible advantage to early action by the UK:

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The UK is well positioned to take an international leadership role in demonstrating the viability of CCS. British leadership in the use of CCS technology will yield returns from domestic carbon reduction and also provide a strong indication to other major polluters of the potential of CCS to reduce global emissions.

EXPORT OPPORTUNITIES

74. There was a consensus amongst the witnesses from industry that opportunities that did arise for UK companies would be in terms of knowledge and licensing since countries such as India and China were likely to manufacture the technology themselves. Colin Scoins, Head of New Business at E.ON UK, said: "I think we could expect to sell the knowledge. I think ultimately we will find that China and India will build their own equipment very quickly".[122] We agree with this assessment. Export opportunities for UK companies are likely to derive from intellectual property and licensing of CCS technology.

75. That said, it may be in the UK's interests to ensure that China and India have access to any relevant intellectual property and the Chinese Government is reported as saying it expects developed nations to pay for the costs of developing carbon abatement technologies.[123] Cambridge Environmental Initiative supported this stance, telling us: "China and India have a strong moral case for suggesting that developed countries must pay for the development of clean fuel technologies".[124] This should be taken into account when considering the scope for opportunities for UK companies to export CCS technology.

76. Many witnesses drew attention to the fact that although the UK had significant skills and expertise of relevance to CCS, UK companies would not be well placed to tap into the export market until more headway had been made in demonstrating CCS in the UK. UKCCSC commented in its memorandum that "much of the atmospheric carbon concentration abatement benefit to the UK from R&D on CCS is likely to arise through technologies and practices developed and demonstrated in the UK being replicated in other countries, particularly in connection with coal utilisation".[125] Dr Gibbins, who leads the UKCCSC, pointed out the difficulty of trying to sell a concept to another country which has not yet been adopted domestically: "it is obviously hopeless, as I am trying to do at the moment, to promote the idea of capture ready in China when we are not doing it in the UK".[126]

77. If the UK is serious about making an impact on China and India, the most useful thing it could do would be to get full scale demonstrations of several different types of CCS technology up and running domestically as soon as possible. This would prove the viability of the technologies and give UK companies comparative advantage in terms of experience and know how. In the absence of such demonstrations, the idea of major export opportunities for UK companies is unrealistic.

78. Retrofitting of plant being built in China and India today will be essential if reductions in emissions are to be made within the next 30-40 years. For the pulverised fuel plant that predominates in China, post-combustion capture is the only option. Fortunately, since the plant being built today is of higher efficiency than the UK coal-fired power stations retrofitting is more likely to be feasible. Rodney Allam of Air Products argued that:

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A major refurbishment of a UK coal-fired power station combined with retrofitting of CCS technology could afford a very valuable opportunity to demonstrate the post-combustion capture technology required to retrofit Chinese coal-fired plant, as well as providing useful experience of combined retrofit and upgrade of a UK plant.

77 Ev 58 Back

78 Ev 109 Back

79 Ev 80 Back

80 Ev 137 Back

81 Q 136 Back

82 Ev 134 Back

83 Ev 138 Back

84 Ev 138 Back

85 Hydrogen power plant planned for Peterhead, Thomas Catan and Fiona Harvey, Financial Times, 1 July 2005. Back

86 Ev 98,129 Back

87 Ev 130 Back

88 Coal begins to make its comeback from the bottom of a dark and very deep pit, The Independent, 23 December 2005. Back