What’s the deal with CCS in the UK?

 

Source: The Guardian

The UK began to shift away from coal in 1990.  This trend has continued to play out in recent years, to the point that in 2008 natural gas produced 45 percent of the UK’s electricity, while coal produced about 33 percent. Although there has been a significant decline of coal vis-a-vis natural gas in the UK’s energy production mix, it is unlikely that coal will drop significantly further in the short to medium term.¹

There are two main reasons for why coal will continue to play an important part in the UK’s energy mix:

 

First, coal will remain a large part of the UK’s energy strategy because the country still enjoys large domestic reserves. In 2012, the UK produced 16.8 million tons of coal, 6.2 million tons coming from deep mines, and 10.2 million tons coming from surface mines. Moreover, the UK has significant coal reserves. According to Energy Minister Charles Hendry, in an assessment he gave in 2011, the UK has 2,344 million tons of underground coal reserves, and a further 852 million tons of surface reserves, giving a total coal reserve of 3,196 million tons. ²

Second, coal has historically had greater price stability and requires less capital expenditure than gas.The six major utility companies in the UK have preferred to use coal because an infrastructure already exists for coal burning, and because coal prices are very low. While it is true that the UK’s domestic coal industry has taken a hit in recent years, due to rock bottom coal prices and increasing levels of imports, particularly from Russia (45% of coal imports) and Colombia (26% of imports)³, were coal prices to rise again the domestic UK coal production industry could pick up at least some of the slack.  

Because coal will continue to play an important part of the UK’s energy portfolio, the government has expressed interest in scaling up CCS projects.In an effort to create a new cost-competitive CCS industry by 2030, the UK has enacted several policies to stimulate CCS technology deployment. This includes: a 1 billion pound commercialization competition to support design, construction, and operation of commercial-scale CCS; a 125 million pound research, development, and innovation program, and reform in the UK electricity market so that CCS will be able to compete with low-carbon energy sources.⁴

However, barriers to deploying CCS remain.Chief among these are the absence of market value on avoided carbon emissions. Were carbon emissions valued at a higher level, the incentives for developing CCS would increase. Furthermore, the six chief power producers in the UK– British gas, EDF energy, E.ON UK, npower, Scottish power, and SSE —  who provide 90% of the energy consumed in the UK, are risk averse, and barring significant government intervention to mitigate this risk aversion, they will be unlikely to further invest in CCS. Finally, the majority of the limited expertise in CCS storage lies in the oil and gas industry, not the power utilities. It is unclear who will fill the gap between producers and storers of CO₂, and unclear of how CCS knowledge will diffuse from oil and gas companies to the utilities.

Policy Recommendations:

The UK should:

• Work toward reducing the risk aversion of utilities to invest in CCS. This could take the form of increasing funding to CCS R and D activities in utilities, or providing some sort of insurance mechanism to utility companies should their CCS projects fail.
• Foster knowledge transfer from the oil and gas industry to the utility industry. This will mitigate some of the technical barriers to CCS deployment in the UK. Moreover, because production is fairly concentrated (6 utility companies), training and knowledge diffusion should come more easily than if the structure of production were diffuse in nature.