On 25 November 2015 the UK Government unexpectedly withdrew capital funding for the CCS Commercialisation Programme. This decision came just four weeks before the participating projects were due to submit their final bids, concluding a process that began in 2012.
The government was due to evaluate bids during Q1 2016, and had been clear that it would then decide on whether to support 1, 2 or even 0 projects. Rather than follow its own process, instead we have witnessed a fundamental policy shift masquerading as a spending decision.
Across government, the aftermath has been serially and seriously incoherent. Ministers have been caught out improvising reasons for the decision: George Osborne claimed CCS didn’t provide value for money. Amber Rudd suggested that CCS may not be required until the 2050-70 period, then clarified that CCS funding was cut because it had been judged to provide lower economic returns than other infrastructure priorities. The Prime Minister in turn first suggested CCS wasn’t working, then claimed that the price was too high compared with other technologies.
Across all of these excuses, ministers seem to have forgotten the original intention of the CCS Commercialisation Programme. It was designed to provide CO2 transport and storage infrastructure for follow on projects and a business model for private sector finance. The explicit objective was for subsequent projects to be cost-competitive without capital subsidy by 2020.
As a consequence, the size, shape and location of the first two projects reflected these government requests, and they were about to submit bids in the cost range that had been anticipated. The government was going to get what it had asked for, but instead decided to move the goal posts.
If funding constraints were truly the concern there were positive prospects for the UK to secure co-funding from overseas. For example, the government knew that the White Rose project in Yorkshire was poised to sign an agreement with a Chinese utility. This was set to open the door to additional international finance, beyond the €300m already secured from the EU. At very least, this was worth proper evaluation.
The axing of CCS clearly wasn’t a cost saving measure: by cancelling the Commercialisation Programme process rather than waiting four weeks for its conclusion the government is now at risk of paying a multi-million pound bill to compensate bidders. This must now be scrutinised by the National Audit Office.
The implication is that the government doesn’t believe in its own climate and energy policy. CCS was not just a technical option for reducing emissions; it also formed a central part of this government’s ‘technology-neutral’ approach to decarbonisation. CCS was embedded in the state aid approval of the UK’s Electricity Market Reform policies, in its policy positions at EU level, and in its international diplomacy. This collateral damage to UK credibility means that we need to look beyond incoherence at the deeper implications of the timing, scope and impact of the CCS decision.
The pressure in favour of a positive decision to invest in CCS was finally building via a combination of domestic and international developments. The Committee on Climate Change published its Fifth Carbon Budget advice, and the Paris climate negotiations gave a tremendous boost to international efforts on reducing emissions.
In that context, the UK was poised to have a serious conversation in early 2016 about the role of CCS in enabling deep decarbonisation and its strategic fit with UK national interests. But rather than have that discussion in the open, the rug has been pulled from underneath CCS in a shabby manner without adequate transparency or scrutiny.
In our view, the most likely outcome of the Commercialisation Programme was going to be a ‘1+’ approach consisting of a viable case for the gas CCS project at Peterhead and a more proactive approach to CO2 infrastructure. This would have enabled the progressive deployment of CCS on industrial clusters and gas power generation over the coming 15 years, providing a constructive route forward without entailing excessive spending commitments.
In spurning this option, the Treasury now has a repeated track record of removing CCS funding mechanisms to add to its attempts at pushing increased gas production and use. It increasingly appears that the government has deliberately attempted to remove CCS from the picture. This isn’t about ‘cost’, this is an attempt to clear the way for unabated gas without any of those pesky CCS considerations getting in the way.
Once again this is short-termism trumping long-term investment, including in the government’s own favourite ‘Northern Powerhouse’. But the Committee on Climate Change has already warned that it is not possible to back gas and claim to be committed to climate change objectives without a viable CCS policy.
For now, CCS has joined the list of victims of government funding cuts and policy changes, alongside renewables and energy efficiency. But it remains a litmus test of whether the government is serious about acting on climate change, or intent on undermining deep decarbonisation. If the government still sees a role for CCS it will need a robust new strategy, and quickly. The story isn’t over yet, by a long way.