CRITICISM ERUPTS AS REPORTS SAY U.K. IS ELIMINATED FROM EU CCS COMPETITION

Tamar Hallerman
GHG Monitor
11/16/12

Several prominent U.K. politicians questioned the government’s commitment to carbon capture and storage this week after reports surfaced over the weekend that the European Commission would not fund any British projects in its CCS competition. Quoting an unnamed source, Reuters initially reported this weekend that the three large-scale CCS demonstration projects currently being backed by the U.K. government in the EC’s New Entrants Reserve competition (NER 300) would not receive any first round funding due to the British government’s failure to provide the level of financial backing sought by the European executive body. While the news officially went unconfirmed by all parties this week—the EC, U.K. energy ministry and all three remaining projects declined to comment when contacted by GHG Monitor—it was widely viewed to be true by those interviewed in the U.K. CCS industry.

Earlier this fall, the EC requested that member states with projects in NER 300 tell the body which projects they were committing to support and specifically detail how much money they were willing to dole out for each one. But when the U.K. Department of Energy and Climate Change (DECC) released its short list of projects it was willing to support in NER 300 and its own CCS competition earlier this month, it offered only conditional support for the projects. It also effectively abandoned support for 2Co Energy’s 650 MW Don Valley project, a £5 billion ($8 billion) new-build integrated gasification combined cycle plant planned for eastern England that was considered the favorite for receiving funding by the EC.

CCS Supporters Blame Chancellor 

Reacting to the reports that the U.K.’s CCS projects would likely miss out under NER 300, several British politicians were quick to criticize the government for letting the country’s CCS projects tank by not offering a firm enough commitment to the EC. “Our failure to proceed now is a tragedy,” Chris Davies, a Liberal Democrat member and former CCS rapporteur in the European Parliament, said in a Nov. 12 op-ed. He blamed U.K. Chancellor George Osborne, who is reportedly not a large supporter of CCS, for the state of affairs. “Whatever explanations may be provided by DECC, the reality is that the Treasury has put one obstacle after another in the way of CCS development. It has made DECC officials jump through hoop after hoop while doing everything possible to avoid parting with money,” he added.

Chris Littlecott, senior policy adviser at the London-based environmental group E3G, also highlighted Osborne’s role as head of the Treasury for helping stall CCS in the U.K. “The failure of the U.K. to commit to NER300 co-funding is embarrassing, particularly given its leading role in creating the mechanism in the first place,” he told GHG Monitor. “The de-selection of the Don Valley project and the absence of a full co-funding offer on NER300 further reinforces the view that the Treasury is obstructing the necessary support for U.K. projects.”

Tom Greatrex, shadow energy minister for the opposition Labour Party, wrote a letter to European Commissioner for Climate Action Connie Hedegaard Nov. 12 seeking clarification on the news. In a separate statement, he criticized DECC for producing a short list of CCS projects without spelling out any concrete financial commitments. “Reports from Brussels suggest this latest example of the chaos and confusion in DECC have scuppered the chance of U.K. projects attracting vital match funding,” he said. “There is now a real danger that the U.K.’s lead in CCS technology will be lost due to government incompetence and indecision.”

Harsh Blow to CCS in the U.K.

If true, the news is a significant blow to the U.K., which submitted nearly half of NER 300’s original entrants in the large-scale CCS category and was the only country in the EU to submit more than one bid. Davies said that the news hurts not only the CCS industry in the U.K., but the wider market in Europe as well. “This deals a devastating blow to hopes of Europe becoming a world leader in CCS technology and threatens global aspirations to reduce global warming emissions from fossil fuel power stations and industrial plants,” he wrote. The country rebuilt its entire CCS program late last year after the country’s only remaining large-scale project at the time, ScottishPower’s Longannet, folded due to funding concerns.

If the U.K. is deemed ineligible for round one NER 300 funding—expected to total roughly €1.5 billion ($2 billion) for CCS and renewable energy projects—the country could still apply for round two funding under the scheme. The EC is expected to kick off that phase of the competition next year by gradually selling off 100 million CO2 credits on the European Union’s Emissions Trading Scheme. However, waiting that long could stunt or kill Britain’s CCS industry, some stakeholders argued.

On Nov. 15, a coalition of industry stakeholders involved in some of the NER 300 projects, including Alstom, National Grid and E.ON, issued a joint statement requesting that the EC postpone its selection of first-round CCS projects for several months to allow for further dialogue between Brussels and member states. “The NER300 is a partnership between the EU and member states. As parties involved in, or close to, CCS demonstration projects, we also understand from our own engagement on them with national governments, that these commitments are not made lightly, not least given the significant sums of money involved and the current economic climate,” the statement says. “It is also clear to us that funding commitments can only be made on the basis of close dialogue and partnership between the different parties involved. And it is our firm belief that the necessary co-funding commitments can be made if such dialogue is vigorously pursued.” EC is expected to announce round one recipients by the end of the year.

Some Say U.K. Industry Doesn’t Need NER Funding

Meanwhile, a DECC spokesman underscored that with the EC funding or not, the U.K. is committed to moving the ball forward on its own CCS industry. “We’re committed to CCS,” the spokesman said. “We think we have a good offer, I think it’s one of the best offers in the world, certainly in Europe. We’ve had very strong interest from industry, so we’ll be certainly carrying on with a firm commitment to cost-effective and competitive industry by the 2020s. That remains our target and we’re committed, through the competition, to achieving that.”

Jeff Chapman, chief executive of the Carbon Capture and Storage Association, said in an interview that while it would be a “pity” if U.K. projects did not receive round one NER 300 funding, the U.K. CCS industry could still rely completely on incentives offered by the British government and make it online.  “There is still support available,” he said. “The government has always said that it would hope to benefit from NER 300, but it was never a necessary precondition.”