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TUC Clean Coal Task Group Submission to the Energy & Climate Change Committee: Coal and the Energy Bill, June 2012

Coal, CCS investment and the Energy Bill

This TUC Briefing sets out 4 key reforms to the Energy Bill essential to secure investment in clean coal technology, develop UK mining as a secure fuel, and avoid a new dash for gas.

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. Electricity market reforms have to deliver secure, low carbon power for the long term at the least cost. 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.

Establishing a sustainable, long term investment pathway for carbon capture and storage for fossil fuels, both coal and gas, is vital to achieve our CO2 emissions targets.

Setting an emissions reduction target for the Energy Bill

Provisional data indicates that although power sector emissions fell by 6.6% in 2011 to 146 MtCO2,power sector emissions still account for just under a third of total UK greenhouse gas emissions (GHGs).

The Committee on Climate Change (CCC) CCC has presented 'an illustrative least-cost investment path for the power sector over the next two decades, suggesting that the aim under new electricity market arrangements should be to reduce average emissions intensity to around 50 gCO2/kWh by 2030.' According to CCC, the carbon-intensity of electricity supplied in 2010 was 496 g/kWh. The 2030 target implies a 90% reduction in carbon intensity from electricity supply - essentially a challenge facing the fossil fuel sector.

The government should explicitly set 50 gCO2/kWh by 2030 as an objective of its Energy Bill.

Coal, the 'forgotten fuel'

In 2011 coal generation supplied 30% of the UK's electricity and in peak times during last winter this level rose to well over 50%. Coal is a vital component of the UK energy mix with the UK mining industry directly providing just over 6,000 jobs and supporting a similar number in coal power stations combined with the rail and transport infrastructure.

In recent months we have seen generators switching between fuels within their portfolio to keep generation costs down. Coal prices are typically lower then gas prices. This has resulted in fuel switching from gas to coal and the UK consumer has benefitted as a result.

The UK has plentiful coal reserves currently estimated to be at least 3.1 billion tonnes which is enough for around 60 years at current production levels. This is far more than our gas reserves which are 13 years maximum at current production levels.

Coal it appears has become the forgotten fuel. The UK has policies to develop renewables, nuclear and now gas generation but nothing to ensure that the UK's coal reserves are exploited to the benefit of the nation. The Government's gas strategy should be expanded to a fossil fuel strategy to include a clear role for coal. This should include the role for coal in the transition to a low carbon economy as well as the UK's medium to long term CCS ambitions.

Key points in the Energy Bill

Contracts for Differences (CfDs)

CfDs are long-term contracts which provide revenue certainty to investors in low-carbon generation such as renewables, nuclear and CCS-equipped plant.

• The CfD length should be commensurate with the nature of the investment and ideally on an equal basis for all technologies. To offer CCS for only a 10 year period whilst proposing at least 15 years for renewables and nuclear will increase the costs of capital and make CCS a less attractive proposition. This 10 year period is also incompatible with the 30+ years of grandfathering under the Emission Performance Standards that gas will enjoy.
• The counterparty will need to have solid investment grade status in order to gain confidence with investors.
• The Government needs to make clear how much support they are willing to offer to each technology so investors can make appropriate plans.

Emissions Performance Standards (EPS)

The EPS is a regulatory measure which provides a back-stop to limit emissions from unabated power stations.

• Under current design, the EPS level of 450g/kWh will promote unabated gas at the expense of investment in CCS
• The decision to allow the EPS standard to be grandfathered out to 2045 will make the UK's interim carbon targets in 2025 and 2030 very difficult to meet.

Capacity Payments

Capacity agreements are payments for reliable capacity to be available when needed, helping to ensure security of supply.

• It will be vital to insure fossil fuel generation is available to cover for intermittent renewable and inflexible nuclear power generation.
• Capacity payments must be available to existing coal plant. This will enable them to play their part in a managed transition to a low carbon economy.
• The system must not be over complicated to understand and simple to operate.

Carbon Price Floor (CPF)

The CPF is a tax to underpin the carbon price in the Emissions Trading Scheme.

The TUC is concerned about the impact of the CPF because:

• There is no transparency beyond two years, because the Chancellor has announced that he will only confirm the carbon tax for a maximum of two years ahead.
• It introduces a disincentive to invest in existing coal stations to meet European emission directives requiring generators to meet tougher environmental standards.

DECC UK Emissions Statistics 29^th March 2012

Meeting Carbon Budgets - 3rd Progress Report to Parliament, Committee on Climate Change, June 2011, p.89.

DECC Oil & Gas website, production and reserves data.

Parliamentary briefing (1,000 words) issued 6 Jul 2012