INTRODUCTION

  The Government welcomes the opportunity to provide an update following its response to the Science and Technology Committee's report of 9 February 2006 on "Meeting UK Energy and Climate Needs: the Role of Carbon Capture and Storage".

  Since its response of 24 April 2006 to the Committee's Report the Government has made significant progress in taking forward its work on the development and demonstration of CCS. This Memorandum informs the Committee of work that has taken place since, particularly in relation to recommendations by the Committee which were accepted by the Government or where the response indicated that work was ongoing.

BACKGROUND

Climate Change Policy

  Sir Nicholas Stern's report of autumn 2006 on the economics of climate change concluded that there is still time to avoid the worst impacts of climate change if strong action is taken now. He highlighted the strategic role that technology, and particularly CCS, could play globally in lowering carbon emissions. The International Energy Agency has concluded that CCS has the potential to contribute up to 28% of global carbon dioxide mitigation by 2050, particularly relevant to tackling emissions in fast growing economies with rising fossil fuel consumption, such as China and India. Sir Nicholas's report also highlighted the very significant cost of a single CCS demonstration project, commenting on the "lumpy" nature of CCS investments implying that it may be better for a limited number of countries to demonstrate CCS.

CCS has the potential to reduce carbon dioxide emissions from fossil fuel stations by as much as 90%.[16] The Government remains committed to playing a leading role in tackling the threat of climate change and believes strongly that encouraging the development, demonstration and subsequent wide scale deployment of CCS has a key contribution to make towards this.

UK Demonstration of CCS

  The possibility of large-scale demonstration of CCS in the UK has moved on considerably since last reported and is a cornerstone of our work on developing sustainable fossil fuel energy.

  In the 2006 Pre-Budget Report the Government announced that engineering consultants would be appointed to help assess whether supporting a CCS demonstration plant would provide value for money. Their findings confirmed that companies would not bring forward a commercial-scale CCS project without additional support because of the uncertain costs of full-scale deployment. The 2007 Budget announced that the Government would launch a competition to develop a commercial-scale CCS demonstration project. The Energy White Paper, published in May 2007, indicated that Government intended to launch the competition in November 2007. The EWP[17] indicated that the criteria against which proposals would be assessed would be likely to include the need for any project proposal to:

—  Be located in the UK.

—  Cover the full chain of CCS technology on a commercial scale power station.

—  Be at least 300MW, and capture and store around 90% of the carbon dioxide.

—  Start demonstrating the full chain of CCS at some point between 2011 and 2014.

—  Address its contribution to the longer term potential of CCS in the UK, and to the international development of CCS.

  On 9 October John Hutton announced that the project should demonstrate post-combustion CCS on a coal-fired power station, with CO₂ stored offshore. The Government will consider a phased approach to the project as long as the full CCS chain is demonstrated by 2014, and the project captures around 90% of the CO₂ emitted by the equivalent of 300 MW generating capacity as soon as possible thereafter. The announcement launched a short period of discussion with industry prior to the planned formal launch of the competition.

  Post-combustion is the most globally relevant technology. It can be used with existing and planned coal-fired stations globally, and can also be retro-fitted, tackling emissions from power stations that will be in operation for 30-40 years—vital in combating climate change and relevant particularly to China and India.

  Given the high cost of demonstrating CCS at scale, it is important that projects that go ahead globally demonstrate different aspects of the CCS chain of technologies and that the learning is shared as widely as possible to encourage rapid deployment. The UK demonstration will complement projects in the USA (the Futuregen coal-based IGCC project) and Norway (demonstrating post-combustion on gas). Proposals for sharing the results of the UK demonstration will form part of the competition.

  When operational the plant will be one of the world's first commercial scale CCS plants. The Government is fully committed to the success of the competition which we hope will put the UK ahead in the global race for clean coal.

  Progress has also been made on a range of international outreach and collaborative initiatives. For example, we are working bilaterally and through the EU and G8, with developed as well as developing countries to facilitate the development and deployment of CCS. The UK is leading the EU Near Zero Emissions Coal (NZEC) initiative in China and is actively pursuing a similar project in India. The NZEC project will identify by the end of 2008 options for demonstration of CCS in China for coal fired power generation by 2014. The UK has committed £3.5 million to this project for a feasibility study and we are actively pursuing contributions from other Member States for further phases for the work. In addition, the Government has started collaboration with India to develop understanding of CCS and supported an Indian CCS research conference in January 2007.

  We are also continuing to work with the US through an Implementing Agreement on Fossil Energy research and are now actively trying to broaden the scope of that agreement to include Carbon Capture and Storage.

Recommendation 4

  We recommend that the government makes capture readiness a requirement for statutory licensing of all new fossil fuel plant. This would compel the developer to demonstrate that consideration has been given in the planning and design of the plant facilitating subsequent addition of suitable carbon dioxide capture technology, as and when it becomes available and economic.

  The Government's Energy White Paper, highlighted whether we should require future fossil fuel power stations to be built "capture ready" and if so what the options would be for doing this. We will need to recognise that for some projects the scope for CCS may be limited (eg because of geographical location or other technical limitations). To this end, the Government will be launching a consultation later this year on the aspects of capture readiness which should be included in future applications for consent. It will also deal with how practically we might deal with this issue in the consenting process. This will include building new and retrofitting existing fossil fuel power stations.

  In addition, the International Energy Agency, as part of the G8 Gleneagles action plan, is investigating the concept of capture readiness for all fossil fuel power stations. Its report was published in May 2007 (Reference IEA GHG "CO₂ Capture Ready Plants" 2007/4, May 2007) for consideration by the G8 summit meeting in Tokyo, Japan in July 2008.

Recommendation 6

  The UK is fortunate in being very well endowed with potential CO₂ storage sites, many of which have been thoroughly characterised. This provides the UK with a competitive advantage in terms of access to potential CO₂ storage sites, both for its own use and to demonstrate UK geological skills to the rest of the world.

  Since the Committee's report the Government has been active in further assessing the suitability of the North Sea as a storage site for CO₂. Firstly, we undertook a sources and sinks study in 2006, the result of this was to identify areas off-shore and on-shore where CO₂ could be stored. Whilst the existing oil and gas fields have been well characterised, there is still more work needed to assess the potential of other geological formations for CO₂ storage. During the course of this year, we have completed a study into developing an infrastructure in the North Sea; this study was commissioned by the then Chancellor of the Exchequer, Gordon Brown and the Norwegian Prime Minister Mr Stoltenberg. This study was undertaken in collaboration with our Norwegian colleagues under the auspices of the North Sea Basin Task Force. It is planned to publish the results before the end of the year. The study confirms the suitability of the North Sea to not only take CO₂ emissions from both the UK and Norway but also from other European countries.

  In addition to this, the Government played a key role in securing the amendments in 2006-07 to the two international marine conventions that prohibited (expect in very specific circumstances) the disposal of waste and other matter in the marine environment including in geological formations under the sea bed. Both the Protocol to the London Convention and the OSPAR Convention have now adopted amendments to allow CO₂ storage beneath the seabed, with suitable regulation and guidance. The amended treaties result in a major step towards enabling the implementation of CCS.

  Please refer to the response to Recommendation 37.

Recommendation 11

  Most of the component technologies of CCS are not novel: the key to outstanding requirement is to integrate them within full-scale demonstration projects involving different elements of the technology and operating under different conditions (including offshore).

Recommendation 13

  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.

  We agree that the processes involved in CCS are not novel but have yet to be demonstrated together at commercial scale on power generation. Demonstration will test scale-up, process integration, operating flexibility and the impact on plant efficiency of installing capture on generating plant. It will also test the robustness of the storage facilities, including the regulatory regime for site selection and monitoring of the stored CO₂. These are all needed before wide scale deployment can take place.

  The Government is pleased to report that industry's interest in the deployment of CCS continues to be sustained. We are aware of a number of potential CCS projects in the UK and continue to work closely with potential project developers. Further details of raising awareness of the project are given in our response to Recommendation 32.

  BERR continues to support research and development for carbon capture and storage (CCS) through the Technology Programme. Funding for this programme will continue through 2007 at which stage the new arrangements for the Technology Strategy Board and Energy Technologies Institute will be introduced.

  DIUS is currently supporting applied research and development projects for carbon capture and storage (CCS) through the Technology Strategy Board's (TSB) Technology Programme. The TSB became an executive Non Departmental Public Body in July this year and is currently developing a forward looking strategy for 2008-11 with a focus on benefiting business, increasing economic growth and improving the quality of life in the UK. Future funding priorities will be decided as part of this process.

  The Energy Technologies Institute (ETI) is a 50:50 partnership between government and industry. ETI brings together some of the world's biggest companies, including BP, Caterpillar, EDF Energy, E.ON UK, Rolls-Royce and Shell, with the aim of raising up to £1.1 billion over a 10-year period for low-carbon energy technologies. Following a competitive process, a Midlands consortium led by Loughborough University has been selected to host the institute headquarters, and the ETI Chief Executive has been identified. The Institute is currently developing its strategy and expects to be fully operational in 2008.

  Additionally, the Government continues to support demonstration of elements of the chain of CCS technologies through the £35m Carbon Abatement Technology (CAT) demonstration scheme. A first call for proposals was made in October 2006. Subject to contract, the Department will be funding under the HFCCAT programme a technology demonstration project of an oxyfuel combustion system.

  This is a four-year project, expected to commence by the end of this calendar year. The principal aim is to demonstrate an oxyfuel combustion system of a type and size (40MWt) applicable to new and retrofit advanced supercritical oxyfuel plant. A combustion rig will be developed to carry out the testing.

  The Department will confirm the full details of the project once the contract has been completed.

Recommendation 15

  The 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.

  As described above, in November the Government plans to launch a competition to support a full-scale demonstration of CCS, which should be operational by 2014.

Recommendation 17

  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.

  The UK Government continues to play an active part in the EU Technology Platform for Zero Emissions Fossil Fuel Power Plant (ZEP). At both industry and Government levels we have been taking a leading role in developing strategies for deployment and research of CCS technologies on a European scale. The ZEP Government Group is chaired by a BERR senior official.

  ZEP produced two key documents at the end of last year—a Strategic Deployment Document and a Strategic Research Agenda which are becoming influential in the Commission's thinking on CCS policy, for example feeding into the Spring Council's Statement that 10 to 12 CCS demonstration projects will be required. Currently there are four Task Forces taking forward the work of the ZEP; these are concentrating on R&D, Demonstration (via the Flagship Programme proposing 10-12 EU CCS demonstrations), Regulation and Public Outreach. These taskforces reported on their work to the ZEP General Assembly in October 2007.

Recommendation 18

  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.

  As reported earlier in the Memorandum, the UK and Norwegian Governments are working closely together, through the North Sea Basin Task Force, on how the transport and storage of CO₂ in the North Sea should be managed.

  We have continued to work with the Norwegian Government through the North Sea Basin Taskforce to develop a set of common principles to regulate the transport and storage of carbon dioxide beneath the North Sea. The Taskforce submitted a Report to the UK and Norwegian Energy Ministers in June 2007 which laid the foundations for a regulatory framework to enable CCS to develop effectively, safely and in line with the Government's environmental principles.

  As reported in response to Recommendation 6, the Task Force has also produced a report on the development of a North Sea Infrastructure for the transport and storage of CO₂ beneath the North Sea.

Recommendation 27

  The main source of leakage from CO₂ storage sites is likely to be from boreholes, although it is expected that any breach of the borehole seal could be remediated quickly. Further R&D to develop cements and sealants optimised for CO₂ storage would nevertheless be valuable.

  The R&D programme which operates under the Technology Strategy Board includes research themes for investigating the sealing of bore holes. This area is widely recognised as needing further R&D and as such it is also being undertaken in an international context. The IEA GHG R&D Programme operates an international R&D network specifically on well bore integrity. Along with other UK stakeholders, BERR intends to participate in this network at its next meeting in 2008.

Recommendation 28

  We recommend that the Government works both with other interested parties within the UK and, over the longer term, internationally, in order to develop a standardised methodology for site characterisation. More generally, there is a need for codes of practice to be developed to ensure good design and management of CO₂ storage facilities.

  In April 2006, BERR established a cross-Government Regulatory Taskforce to examine a range of issues relating to the regulation of CCS in the UK including licensing of offshore CO₂ storage, responsibility for the long term liability and the encouragement of capture-ready generation. The establishment of the Group means that CCS policy can be better co-ordinated. The Taskforce met several times to consider these issues, including those which relate to the possible CCS legislative framework at the EU level. The work of the taskforce has now largely concluded and has progressed to the development of UK regulation and licensing for CCS. High level provisions for a regulatory framework for CCS in the UK are included in the Energy Bill, planned to be introduced autumn 2007. We are intending to launch a consultation later this year on the details of the regulatory regime. BERR continues to follow the methodology in the 2006 IPCC Guidelines for GHG Inventories for CO₂ storage site characterisation and to work with international experts on site characterisation, including the UK's British Geological Survey, to understand how best practice can be reflected in the UK regulatory developments. BGS are advisers to Government on CO₂ storage for the UK demonstration project.

  The work of the North Sea Basin Taskforce on regulatory principles mentioned earlier in this Memorandum has contributed to this.

Recommendation 29

  Further research is needed to improve the tools for site selection and subsequent monitoring and verification of CO₂ stored in geological formations. Although companies will be expected to take steps to improve monitoring and verification in the projects that they sponsor, the Government must take primary responsibility for commissioning research in this area in view of its significance for public safety and confidence in the technology. We recommend that the Government makes this an RD&D priority.

  We recognise that the need for further research into such activities as monitoring or modelling of CO₂ is required and this will be encouraged under the TSB or ETI initiatives for R&D funding. In addition, R&D is being undertaken in an international context as we also recognise the need for further R&D in this area. The IEA GHG R&D Programme operates an international R&D network specifically on monitoring, and along with other UK stakeholders, BERR is a participant in this network.

  The scope for R&D projects under the Technology Programme also invites proposal for work covering this area.

  Please also refer to the response to recommendation 27 on R&D in relation to leakage from boreholes.

Recommendation 30

  Providing that the pipelines are designed and routes are selected in such a way as to minimise risk, transportation of CO₂ by pipeline between capture and storage sites should not pose any greater threat to human health or the environment than natural gas transport and may indeed be lower.

Recommendation 31

  Overall, the evidence suggests that for well-chosen sites the risk of leakage of CO₂ from geological storage reservoirs of pipelines is low. The risks associated with storage of CO₂ would be further mitigated by thorough site characterisation and management, monitoring and verification of storage sites.

  In response to the Energy Review consultation the Health & Safety Executive (HSE) published an expert report "The health and safety risks and regulatory strategy related to energy developments" in June 2006.

  The report identified that a significant area of uncertainty and concern associated with CCS is centred on the properties and behaviour of supercritical or dense phase CO₂. In particular, the report states that the lack of large-scale experimental data and the failure of existing modelling techniques to handle the complexity of its behaviour following a leak or other loss of containment event needs to be addressed.

  The report concluded that whilst the current regulatory framework predates the concept of large-scale CCS it provides a sound basis for the appropriate regulation of most aspects of the on and offshore activities, particularly in respect of the general management of health and safety, the established areas of major hazard sites, and occupational hygiene.

  The prospect of transporting or injecting very large quantities of CO₂ was not envisaged when the regulatory framework for controlling the risks from hazardous installations was drafted. Consequently the presence of CO₂ does not by itself trigger any of the major hazard legislation. The information currently available gives some cause for concern regarding its major accident potential, and HSE gave a commitment to examine this in detail in appropriate research programmes.

  Since publishing its report, HSE has raised its safety concerns relating to the major accident potential of dense phases and supercritical CO₂ at the Committee of Competent Authorities in Europe and asked that they be considered as part of the forthcoming review of the Seveso II Directive.

  Recent work done by the Health and Safety Laboratories (HSL) indicates that CO₂ exhibits major accident potential, when transported by pipeline at pressures and temperatures below those that categorise CO₂ as dense phase or supercritical. It is not yet clear exactly what controls should be applied to the transport of CO₂ in this context but pending further research it is possible that HSE will propose amending the Pipelines Safety Regulations to include CO₂ as a dangerous fluid.

  HSE is co-ordinating efforts to establish a joint industry project to run large -scale experiments. These will provide appropriate data to improve duty holders' capability to anticipate foreseeable accident scenarios and predict accurately the consequences of a major loss of containment event involving dense phase or supercritical CO₂.

  The risk mitigation of storage leakage referred to in the DTI 2006 response, which was based on the IPCC GHG Inventory Guidelines, has since been reflected in and reinforced by the work of the OSPAR convention and its own Guidelines for Risk Assessment and Management, to which the UK was a major contributor.

Recommendation 32

  Clear and transparent information about CCS at an early stage will be crucial for securing public acceptance. The Government must therefore adopt a pro-active approach to communication.

  As part of its commitment from the G8 Summit in Gleneagles, BERR has contributed to an IEA Communications Strategy which assesses the degree of public awareness in the major countries around the world and has highlighted the areas of concern. This is to be published as a document for the International Energy Authority`s Working Party on Fossil Fuels.

  The Government recognises that an effective and proactive communication strategy surrounding CCS will be important in ensuring the success of the UK demonstration and, more broadly, acceptance of CCS technology as a concept. Both of these objectives are viewed as important to the success of wider CCS deployment. In particular, Government will need to work closely with stakeholders to deliver the demonstration project itself, and have a clear effective strategy to ensure buy-in from external stakeholders such as the public and wider industry. Engagement with the international community will be key in influencing the deployment of CCS and the policy and regulations required to support this process.

  The Government has been very proactive within the last 12 months in working with developers of potential CCS projects in the UK. We have raised awareness within industry of the competition with a series of information seminars and workshops held at BERR where all aspects of the competition process and its supply chain were fully explained. This work forms the basis of a communication strategy on our CCS demonstration project. It will be taken forward and expanded to a wider audience as the competition progresses, and CCS becomes even more high profile to the public.

  Public awareness of CCS is likely to have been heightened by the announcement of the demonstration project. Addressing public awareness is an integral part of our approach to effective communication.

Recommendation 37

  It is commendable that the Government has taken a lead in international negotiations to amend the London Convention/Protocol to ensure that CCS projects are permissible. Whilst we appreciate that it may take time to secure international agreement, it is vital that the UK does its utmost to expedite this process: industry needs to have one hundred per cent confidence that multinational environmental agreements are not going serve as barriers to future deployment of CCS technology. In addition we urge the Government to take steps to clarify the legality of the various types of CCS project to ensure that uncertainty and ambiguity in this area does not hinder the progress of CCS demonstration projects in or around the UK unnecessarily.

  Further to the work described in the DTI 2006 response, we have achieved great success in this area outlined in the response to recommendation 6. We secured amendment of the Protocol to the London Convention to allow CO₂ storage in geological formations in the marine environment at the London Convention meeting on 2 November 2006. We also worked in the London Convention Scientific Group to develop risk assessment guidelines. We then actively worked within OSPAR, developed with others, a risk assessment and management framework for CO₂ geological storage in the marine environment, and then secured adoption of an enabling amendment at the OSPAR meeting on the 25 June 2007. OSPAR also adopted the risk assessment guidelines and require these to be used. The London amendment came into force on 10 February 2007. The OSPAR amendment will come into force when seven Parties have ratified the amendment, and the UK is monitoring this ratification progress. The requirement to use the OSPAR Guidelines for Risk Assessment and Management will come into force on 15 January 2008.

Recommendation 38

  The private sector should take responsibility for CO₂ during the injection phase of any CCS project but we believe that Government will have to take responsibility for the stored CO₂ thereafter. We are pleased that the Minister appeared to acknowledge this, but it is essential that the Government makes an explicit commitment to serve as the long term guarantor and makes it very soon. Industry will not proceed with CCS projects in the absence of such a commitment.

  We continue to agree that there may be a case for the Government to take responsibility for stored CO₂ in the longer term. This matter and other CCS regulatory issues will therefore form part of our consultation which we are currently developing. Further details on our consultation are given in our response to Recommendations 40 and 41.

Recommendations 40 and 41

  At present, multiple Government Departments and agencies, including BERR, DEFRA, Environment Agency and the Health and Safety Executive, have expertise and functions that would be required for the regulation and monitoring of CCS. In the absence of a Department of Energy, we propose the establishment of a CCS Authority to bring together all the relevant functions. We believe that a single body in the area could make regulation more transparent, thus building public confidence, as well as minimising bureaucracy for companies engaging in CCS projects. In order to ensure that these objectives are met, it is essential that all the relevant onshore and offshore functions be subsumed into the CCS Authority, leaving no residual responsibilities in other departments and that the Authority has a clearly defined line of accountability to a single Secretary of State.

  The Government considers that it would not be feasible or practical to have a CCS Authority as the Committee suggested. We strongly believe we have sufficient agencies and mechanisms in place to carry out the wide tasks required. The UK CCS Taskforce has made good progress in preparing the regulatory environment environment for the whole CCS chain. We will be consulting on the conclusions on this work, together with the development of a regulatory regime, as our proposal develops, which will manage the safe and reliable storage of CO₂. We expect to be bringing forward CCS enabling legislation as part of the planned Energy Bill in the next Parliamentary session.

Recommendation 45

  There are no fundamental barriers to the development and deployment of CCS in the UK, apart from the lack of a suitable long term policy framework to provide industry with the incentives and confidence it requires making the substantial investments entailed in CCS projects. The Government must put this framework in place as quickly as possible—it is already at risk of holding back UK industry.

  HMT launched a consultation on the barriers to CCS at Budget 2006, and the responses are published on the HMT website. The results of this consultation led to the Energy Review conclusion that the next logical step would be a demonstration of CCS.

Recommendation 47

  We acknowledge the need for Government support during the early stages of technology development. Ultimately, however, a market based mechanism that puts a price on carbon is the best way to incentivise industry to invest in CCS and other carbon abatement technologies.

  The Government believe that the best way to encourage a change in investment patterns towards a low carbon economy, and the most effective way of reducing global emissions, is to establish a price for carbon. We consider that credible, long-term frameworks for tackling climate change provide clear signals to industry about the future path of emissions. In the context of putting a value on carbon, it is a UK government priority that the EU ETS operates effectively as the primary EU policy tool for incentivising the reduction of CO₂ emissions and as part of the European Commission's wider set of energy policy commitments and targets. It is also one of our priorities to improving developing country participation through improvements to the Clean Development Mechanism to provide greater certainty and continuing in the market.

  We are also working to ensure that CCS is fully able to be recognised within the EU ETS, as described in the Energy White Paper. BERR are working closely with DEFRA on this, including in developing detailed monitoring and reporting guidelines for CCS, and in May 2007 have signalled to the EC the UK's intention to opt-in a CCS project into Phase II of the ETS. We are also working, through the EU, for CCS to be recognised within the Clean Development Mechanism.

Recommendation 48

  The ETU-ETS has the potential to provide the requisite incentive framework to stimulate investment in CCS and other carbon abatement technologies in the long term. At present, however, the scheme delivers neither the long term visibility nor a sufficiently high carbon price to fulfil this function.

  We are also working with other member states to strengthen the EU Emissions Trading Scheme to deliver a meaningful carbon price as part of the European Commission's wider set of energy policy commitments and targets. This includes pressing for the overall ETS targets to be set much further ahead, to give industry a predictable long term regulatory framework, and pressing for targets to be set to put us on a path to the necessary emissions reductions.

Recommendation 50

  Competitive capital grants may be needed to encourage the first demonstration projects but they are not a substitute for developing a long term incentive framework.

  See response to Recommendation 45.

Recommendation 53

  In the longer term, as well as working towards an effective EU-ETS, the Government should continue to make the case for a global framework for trading carbon.

  As mentioned earlier, the Government continues to work in international negotiations to achieve the widest possible coverage of emissions trading and other flexible mechanisms.

Recommendation 54

  In the meantime, the Government should also support efforts to enable CCS to qualify for the Joint Implementation and the Clean Development Mechanism, which were established by the Kyoto Protocol to allow investment in emissions reduction projects in developing countries and economies in transition.

  See responses to Recommendations 47 and 48.

October 2007

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