Energy Bill 2012: Energy, jobs and growth

TUC briefing: Energy Bill 2012

Energy, jobs and growth

The government's electricity market reforms provide a unique opportunity to link energy and industry policy and signal a commitment to growth through green investment. Job creation and sustainable growth should be the standout messages from the launch of the Energy Bill (22 June 2012).

And we now need to know the detail of how the measures will work in practice. The numbers are vital:

the amount of new clean energy capacity needed up to 2030 from renewables, clean fossil fuels and nuclear power;

the forward plan for carbon capture & storage projects;

the contract prices available to investors;

the long term cost of carbon;

how the annual billions raised in carbon taxes will be recycled to industry and consumers for the green economy; and

the jobs and skills required to deliver clean energy to 2030.

We need to know the numbers.

Electricity market reforms have to deliver secure, low carbon power for the long term. To reach our climate change targets, £110bn of new investment is needed by 2020, double the rate of the past decade, and further £16bn a year through to 2030. It's a massive challenge which 'current market arrangements are highly unlikely to deliver', according to the independent Committee on Climate Change (CCC). The focus for reform is a radical decarbonisation of the power sector by 2030, providing clean power supplies for industry, electric vehicles and consumers.

And, for this energy strategy to work, the government should include new measures to incentivise energy efficiency in its Bill. UK businesses could save £23 billion annually by using resources more efficiently. All of this activity should drive massive growth in jobs and skills.

By 2030, carbon emissions from power generation must fall to a tenth of today's levels: from about 540 grammes of carbon dioxide per kilowatt hour (540gCO2/kWh) now to 50gCO2/kWh in 2030. To secure the investment needed to reach the 50g target, the government is relying on a combination of four market reforms:

• A carbon floor price to give clarity to investors in fossil fuel (coal and gas) plants. The Government will set 2014-15 carbon price support rates equivalent to £9.55 per tonne of carbon dioxide in line with the carbon price floor set out at Budget 2012.
• A feed-in tariff (FIT) with a 'contract for difference' between the strike and market price. Investors will receive a predictable premium for the next 10-20 years for each unit of electricity generated by low carbon sources. This will provide a more financeable business case, with the contract for difference legally binding. The proposed Feed in Tariffs with Contracts for Difference (FiT CfDs) will offer nuclear power stations, renewable energy and coal or gas with carbon capture & storage (CCS) a predictable premium for energy supplied into the National Grid.
• The emissions performance standard (EPS) of 450gCO2/kWh for fossil fuel power stations without carbon capture. Coal power stations will have to include carbon capture, while new gas installations will be able to be constructed and operated for the next 33 years without being required to invest in carbon capture technology.
• A capacity mechanism to take account of seasonal and daily peaks and troughs in demand, to enable the grid to call on additional plant or find ways of taking demand out of the system.

By 2030, according to the Committee on Climate Change, the UK should aim to have reduced total greenhouse gas emissions from today's level of 574 million tonnes of carbon emissions (MtCO2) to around 310 MtCO2e - a 46% reduction over the next 20 years.

The TUC and its Clean Coal Task Group have a number of concerns as the electricity market reform (EMR) Bill goes into a pre-legislative scrutiny stage.

• An emissions standard (EPS) of 450g will permit new gas fired power stations to be built unabated as high carbon emitters until the mid-2030s, putting the 50g power sector target in jeopardy, with no CCS requirement at a later date. Currently, we are in danger of starting a new 'dash for gas'.
• As the TUC Clean Coal Task Group argued in its Roadmap for Coal[ii] (March 2012) power station emission performance standards should be set at a level which enforces CCS on both coal and gas stations from the outset.
• We need early clarity on how further CCS projects for fossil fuel power stations - beyond the first four demonstration plants - will be supported by the EMR process.
• The government also needs to develop a CCS Feed in Tariff for industry, to incentivise industries such as steel, chemicals and cement to feed their CO2 emissions into regional carbon capture networks.
• Existing coal plant should be eligible to receive payments through the capacity mechanism thus allowing a managed transition to the low carbon economy.
• An energy efficiency incentive is required to encourage firms that cut their energy use.

Power sector emissions in 2008 were over a quarter of the UK's total greenhouse gas emissions:

• Coal-fired power: 33% of generation and 63% of emissions.
• gas-fired generation: 46% of generation and 35% of emissions.
• Average emissions: including nuclear (14% share) and wind (2% share) were 540 grammes of carbon dioxide per kilowatt hour (540gCO2/kWh) in 2008.

Electricity market reforms are essential to deliver the required investment. To reach the '50g target', we need to decarbonise the power sector through the 2020s by adding 30-40 Gigawatts of low-carbon power supply. 'Existing electricity market arrangements are not well designed to ensure this progress occurs in a cost-effective fashion', the CCC says. It recommends that new arrangements are introduced, including a mixture of competitive tendering of long-term contracts for investment in low-carbon capacity, carbon tax and feed-in tariffs.

Looking to 2030, the CCC suggests that the new investment would bring forward the following mixture:

• 23 GW new wind capacity.

• 4 GW of other renewables
• 4 carbon capture & storage (CCS) demonstration plants by 2020.
• 3 new nuclear plants by 2022.

Funding and policies to support development of technologies and new markets are essential. Key technologies which should be demonstrated now for deployment in the 2020s include CCS for power generation and industry, electric cars and vans, and electric heat pumps. Comprehensive programmes in each of these areas should be developed as a matter of urgency.

In support of the TUC's call for a new energy efficiency incentive, the CCC's Fourth Carbon Budget argued new policies are required, including energy efficiency improvement in residential and industrial buildings. The Carbon Trust found that a 35% improvement is possible in the energy efficiency of UK buildings by 2020, and that this would realise over £4bn worth of benefits.70

From a union perspective, stability is essential to allow companies to recruit, retain and develop the right people for the power supply industry for the next 20 years. This includes some 35,000 new employees up to 2024 in the nuclear power sector that have to be recruited, trained and developed. The renewable energy industries now provide 110,000 jobs, set to rise to 400,000 jobs in order to meet the 2020 renewable energy targets. If successful, CCS networks could create 100,000 jobs across the UK by 2030, contributing £6.5 billion to the UK's economy, if applied to our heavy industries and power stations in industrial areas.

According to today's Green Economy[iii] report from the All Party Environmental Audit Committee, 'There appears to be little priority in Government attached to moving to a green economy.' The government's electricity market reforms provide a unique opportunity to link energy and industry policy and signal a commitment to growth through green investment. Alongside the Energy Bill, the government should set out a plan for energy jobs and growth.

Fourth Carbon Budget - www.theccc.org.uk/reports/fourth-carbon-budget

A Roadmap for Coal, TUC Clean Coal Task Group - www.tuc.org.uk

A Green Economy - www.parliament.uk/documents/TSO-PDF/committee-reports/cmenvaud.1025.pdf