CCS has a role to play in the government’s Industrial Strategy

Posted by Lord Oxburgh on 15th September 2016

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Prime Minister Theresa May has put industrial strategy at the core of her new government. The new Department for Business, Energy and Industrial Strategy (BEIS) has been tasked with writing that strategy and early speeches by the PM and her ministers have recognised that industrial strategy offers “an opportunity for an upgrade” across British industry, reaching out beyond incumbents and ensuring that businesses, infrastructure and cities are “fit for the future".

I add my voice to the Aldersgate Group’s argument, that the UK’s industrial strategy should put decarbonisation at its core, so that the UK can not only reduce its emissions cost effectively but also grow its low carbon industries in areas where it has or is well placed to gain a competitive advantage.

It is my opinion that carbon capture and storage (CCS) has the potential to play an integral part in the cost effective decarbonisation of the economy. Not only can the technology play an important role in cutting emissions in the power sector, alongside other clean energy generation such as renewables, but it could help tackle emissions in more challenging parts of the economy such as heat generation and heavy industry. The diverse geography of those sectors offers additional benefits in terms of rebalancing our economy towards areas that have historically suffered from under-investment. The Aldersgate Group’s latest report, Setting the pace: Northern England’s low carbon economy, shows how low carbon investment in areas such as offshore wind in Hull, ultra low emission vehicles in the North East and CCS demonstration in the Tees Valley is already increasing economic activity in the region. The report rightly argues that this could be enhanced by the government putting in place a low carbon industrial strategy.

Lord-Oxburgh

Earlier this week a report was launched investigating CCS as part of the UK’s least cost decarbonisation strategy. This work had been undertaken by an independent joint expert, business and parliamentary advisory group that I chaired. There was a healthy scepticism among some of my colleagues – which I shared – about the role of CCS as a cost effective technology, which makes our final report all the more remarkable.

Our study finds that CCS is an essential component of a lowest-cost decarbonisation strategy for the UK. The technology and supply chain already exist and are fit for purpose. In the porous rock beneath the UK’s territorial waters there is the capacity for long term CO2 storage. There are also potential markets for re-use of CO2, such as production of materials for the construction industry, but maximum plausible use in this way would mean that the bulk of CO2 still has to be stored underground.

We believe that with government backing to lower the cost of capital, more appropriate apportionment of risk, keen use of competition and doing things at scale, from day one the costs of CCS can be much lower than previously estimated. Under the right circumstances, we found that full-chain CCS costs can be approximately £85/MWh, which would mean that even the first CCS projects could compete on price with other forms of clean electricity. Moreover, as the Committee on Climate Change has warned, there are “limited, if any, low carbon alternatives to CCS in a number of applications in the 2030s, 2040s and beyond.” This is particularly true in those parts of the economy where cutting emissions is more difficult, such as heavy industry.

In writing the industrial strategy, BEIS ministers have the opportunity to ensure that the UK’s decarbonisation strategy for industry, power, transport and heating are considered together, so that synergies can be exploited.

One particularly compelling case is heat, where the UK’s requirements during the winter months are considerable. The diagram below, via Robert Sansom of Imperial College, shows demand for heat can exceed that for electricity by 5-6 times. 

HeatDemand

Decarbonising domestic heat can be achieved through electrification by widespread roll-out of heat pumps, resistive heating and heat networks (such as district heating), or by using decarbonised hydrogen as the main energy vector and converting the natural gas grid to carry it. Either solution requires CCS, either to produce more low carbon electricity from new power stations for the first option, or to produce decarbonised hydrogen for the second.

Against this background it might seem surprising that CCS is not already well developed and operating in the UK. The fact is that there is no commercial business in the UK that has CCS as its core activity. All the component technologies for CCS are the business of separate and different companies. That is rationale for our main recommendation, namely that the government should establish a CCS Development Company (analogous to the Companies set up to deliver the Olympic Games or Crossrail). The company would be set up in such a way as to make it easy to privatise later and its main objective would be to develop ‘full chain’ CCS based, most likely, on old industrial hubs round the country where many of the relevant skills are to be found. Government would need to fund the early costs of the company but this would be investment not subsidy and the scale of public funding would depend on the scale of parallel private investment.

Clear direction from government, through an integrated low carbon industrial strategy, is needed to ensure businesses and investors have the confidence to invest their resources in its development. There is no justification for delay when as our study shows, CCS has a key role to play alongside other technologies such as renewables in delivering lowest cost decarbonisation to the consumer.

Lord Oxburgh’s report, Lowest cost decarbonisation for the UK: the critical role of CCS can be downloaded here.

Lord Oxburgh is an individual member of the Aldersgate Group and former Non-Executive Chairman of the former Shell Transport and Trading . His advocacy for CCS is representative of his views and those of his working group, not of Aldersgate Group members.

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