Report: CCS in UK could cost £30bn more

A NEW report from the UK’s National Audit Office (NAO) says that the government’s decision to scrap funding for CCS could mean that the technology costs £30bn (US$40bn) more to deploy in future.

NAO has just released Sustainability in the Spending Review, looking at how the UK government’s 2015 spending review is likely to impact environmental issues. As part of this, NAO, the body which is responsible for monitoring government spending, took CCS as a case study, and examined statements and evidence from both the now-defunct Department for Energy and Climate Change (DECC) and the Treasury.

The Treasury set aside £1bn in April 2012 to fund a CCS project in the UK, and two candidates were in the running – Capture Power’s White Rose project in North Yorkshire and Shell’s Peterhead project in Scotland. £80m of the budget was spent on front end engineering and design (FEED) work and £18m on advisory costs for these, and the Treasury was due to decide on which would receive funding early in 2016. However, in November last year it chose instead to pull funding altogether.

According to the NAO report, the decision was taken as the Treasury decided that the competition was trying to deliver CCS before it was cost-efficient to do so, and that it would be better to wait until the carbon price was higher to encourage more private investment. It was not expected that the benefits of CCS would truly become apparent until the 2030s, and that funding the first project would not guarantee investment in future projects. The cost to consumers on their energy bills was thought to be too high.

DECC had made the argument that there would be a return for the economy of around £4.50 for each pound invested, though mostly after 2030, with estimated net social benefits of £3.7bn to 2050. The department concluded that without CCS, it could cost an extra £30bn to meet carbon targets due to the expensive investment required in alternative low-carbon energy generation. It also said that completing the two CCS projects would bring down projected costs for future CCS projects by 23%.

It was not only DECC which warned of the potential dangers of failing to deploy CCS. As far back as 2014, a joint report from the Carbon Capture and Storage Association (CCSA) and the Trades Union Congress (TUC) concluded that the cost of meeting emissions targets in the UK would rise by £30bn–40bn without CCS. The report said too that deploying CCS could provide economic benefits of £2bn–4bn/y to the country.

As well as the increased costs of future deployment, NAO concluded that there was a significant risk that the knowledge and skills gained from the work carried out on CCS so far, the so-called “knowledge deliverables’, would be lost as people moved onto other projects. The oil wells proposed for use for CO₂ storage may be decommissioned before they can be reused, which would increase the costs of CCS still further. In addition, the fact that the government has now pulled out of two CCS funding rounds has greatly decreased industry and investor confidence.

According to DECC’s analysis, NAO reports, there is now no viable way to achieve the deep emissions reductions necessary to meet the UK’s 2030 decarbonisation targets from the industrial sector, which will have to buy more carbon permits at greater expense. The total cost of meeting the 2050 decarbonisation targets is uncertain, however.

Luke Warren, chief executive of CCSA, says that the report shows that the government did not consider the full costs and implications of delaying the deployment of CCS in the UK.

“Whilst HM Treasury judged that the competition was aiming to deliver CCS before it was cost efficient to do so, the Energy Technologies Institute has shown that a ten-year delay to CCS could add an additional £1bn–2bn to consumers’ bills every year throughout the 2020s,” he said. “Despite the cancellation of the CCS competition, industry in the UK stands ready to deliver and the government must now move forward and urgently develop a new and improved approach to CCS that delivers this essential low-carbon infrastructure for the UK economy – recognising the wider benefits of CCS to decarbonise energy intensive industries, power, heat and hydrogen.”

Scottish CCS (SCCS) director Stuart Haszeldine said the decision to axe CCS funding showed a lack of understanding of the value of CCS. He accused the Treasury of “short-termism” and that there was a lack of foresight and joined-up thinking. He said that the latest NAO report reaches the same conclusions as many others before it.

“This report is very critical of the Treasury’s lack of success at working across departments to join up expenditure on the one hand with clear benefits on the other; in this case, clear cost savings in the long-term as part of decarbonising the UK’s power, industry, heat and transport sectors,” he said, adding: “The transition of the UK into a low-carbon economy will not be achieved overnight, and investment from the government over many decades and across multiple sectors is not an optional extra. It is essential.”