When considering the effect of George Osborne’s Spending Review, leave aside the messages on climate change and low carbon, if you can, important as they are a few days before those issues are debated in Paris. The withdrawal of funding from carbon capture and storage (CCS) raises an even bigger issue.
Anyone who thought the Conservative government was keen to maintain the UK’s hard-won reputation for financial stability, attract high-tech companies and high-value investors, and look like a place to do business, must be disabused by the government’s decision to end the competition to develop CCS projects – taking £1 billion off the table.
It was a blow for the power sector, but it’s about far more than that.
CCS is not just about cleaning up power plants. There are major industries in the UK that have large carbon dioxide emissions not related to their heat or power use but simply part of a chemical process. Without CCS it is impossible to cut their emissions – or reduce the associated costs. It makes no sense for the government to cut the burden of carbon costs for one tranche of industry – energy-intensive users, by making them exempt from levies to pay for low-carbon electricity – while removing any future opportunity for another tranche of industry to reduce carbon emissions costs that can only rise in the long term.
Those companies have been investing in their own CCS projects and are depending on know-how from the power sector competition and possibly joint infrastructure – pipelines, etc – to reduce the cost to industry. These companies are just as likely to relocate high-carbon processes outside the UK, with the attendant carbon leakage and job losses, as will high energy users. It makes no sense to hang those projects out to dry.
And CCS is about using natural resources. It makes no sense for government to provide up to £1 billion in benefits, so it can convince local communities to accept that we should make maximum use of one indigenous resource – shale gas – and at the same time halt development that would allow us to access offshore sites to store carbon dioxide. That could close off the opportunity not just to offer a store for our own carbon dioxide emissions but also to accept that waste from our neighbours.
And when it comes to offshore, it makes no sense for government to increase the tax relief available to a declining activity – offshore oil and gas – and cut funding to a potential new industry that could be a natural home for many of the skills and companies that we will want to hold on to in the long term.
Many will think that despite the industrial need and the other opportunities, CCS is the wrong way to go. It could prolong the use of fossil fuels and delay the transformation of our energy system from one relying on central generation to something very different. I have some sympathy with that, although I think it’s hard to see us doing without any central generation.
But whether you agree with CCS or not, it makes absolutely no sense for a government that is supposedly straining every sinew to attract international investors to the UK to make such a dramatic U-turn without the least warning. And there clearly was no warning whatsoever: the Carbon Capture and Storage Association initially welcomed the results of the Spending Review, and its Scottish counterpart emailed its own welcome just three minutes before Decc’s announcement hit not Decc’s own website, or that of the Treasury, but the ticker tape of the London Stock Exchange.
Whatever the troubled history of successive CCS competitions, that the government can cancel it in such a way, without even a statement in the House of Commons, should strike fear into companies thinking of investing in UK infrastructure or innovation. In her ‘reset’ speech, Amber Rudd named storage and low-carbon vehicles alongside CCS as innovation targets. In the Spending Review, George Osborne promised a competition for funding for small nuclear reactor research. Who would bring those opportunities to the UK now?
And Business Green’s story that Chinese investment in White Rose was on the brink of an announcement (http://m.businessgreen.com/bg/news/2436736/ccs-investment-deal-at-risk-after-treasury-scraps-demonstration-funding) makes it even worse