Energy review floats UK emissions trading scheme

Proposals for a new mandatory emissions trading scheme for large companies and reform of the renewables obligation were included in the government's energy review.1 As expected it also backs a nuclear new-build programme.

The review was launched in January to explore how to cut carbon dioxide emissions and ensure security of supply (ENDS Report 373, p 33). Given the pro-nuclear statements from government since then, and increasing concern about energy security, it comes as little surprise that the review includes detailed proposals for a new nuclear programme. But perhaps mindful of growing public concern about climate change and the popularity of Tory leader David Cameron's green message, the package includes new ideas to support renewables and energy efficiency.

  • Renewables obligation:Just 4.2% of the UK's electricity came from renewables in 2005, and the industry estimates that this will only rise to 7-8% in 2010 instead of the government's 10% target. The Carbon Trust estimates that renewables will generate just 10% of electricity in 2020 (see p 17) - way below the government's 20% target for that year.

    The renewables obligation is set to peak at 15.4% in 2015/16. The government proposes to increase it to 20% and keep it there until 2027. But levels beyond 15.4% will only occur "when justified by growth in renewable generation". What is more, the buy-out price, which until now has risen in line with inflation, will be frozen from 2015.

    The obligation will be split into bands so that "emerging" technologies receive more renewable obligation certificates (ROCs) per MWh of electricity than others. This is likely to boost offshore wind and marine renewables at the expense of onshore wind and landfill gas projects.

    The government will consult on the new system in the autumn, and expects it to be in place by 2010. Projects up and running before then will benefit from the existing obligation terms for the lifetime of the obligation.

    The review also seeks to increase the amount of biomass co-fired with fossil fuels either by assigning it a band under the new system or by raising the current cap on the amount of co-firing allowed, especially for energy crops.

    If it opts for banding, co-firing will be allocated less than one ROC per MWh. Energy crops could be placed in a higher band to support the sector.

    The review cautiously welcomes the proposed tidal barrage across the river Severn and announces a new study into the feasibility and costs of tidal power in the UK. The Severn Barrage, proposed by the Welsh Assembly Government, could supply up to 5% of current UK energy demand. But at £14 billion it comes with a hefty price tag and environmental groups are worried about its impact on wetland habitats (ENDS Report 376, p 15).

  • Energy efficiency:The review also wants to see business and households use energy more efficiently.

    The government will consult on a package of measures for business later this year that will include proposals for a mandatory emissions trading scheme for larger companies not in the EU emissions trading scheme (EUETS) and not covered by climate change agreements.

    This "energy performance commitment" would cover some 5,000 organisations whose electricity consumption exceeds 3,000MWh per year including hotels, local authorities, and supermarkets. Allowances would be auctioned and the revenues recycled to the participants.

    Development of the scheme is likely to draw on a recent study for the Environment Department (DEFRA) that suggested it would save 1.3MtC in 2020 and benefit the businesses involved to the tune of £965 million per year (ENDS Report 376, p 45).

    The main proposal for domestic energy consumption is the reform of the energy efficiency commitment (EEC) which requires energy suppliers to deliver a certain level of energy efficiency activity among their customers. The scheme could be replaced in 2011 with a "supplier obligation" cap and trade scheme that would set an absolute limit on household carbon emissions or energy use.

    This would encourage suppliers to reinvent themselves as energy service companies and focus attention on real emission reductions rather than the level of activity in installing efficiency measures. "More analytical work and consultation" is promised before a decision is made.

    Other proposals include more information for consumers through better billing and smart metering and ramping up energy efficiency standards for new build. But most initiatives - like the sustainable homes code and the forthcoming planning policy statement on climate change - are already in the pipeline.

  • New nuclear:The review insists that "any new nuclear power stations would be proposed, developed, constructed and operated by the private sector, who would also meet full decommissioning costs and their full share of long-term waste management costs."

    The government believes that - even taking account of the cost overruns that have plagued past nuclear stations -there is an economic case for new nuclear because of high gas prices and the presence of a price for carbon through the EUETS. It restricts its practical support to removing obstacles and developing a policy framework designed to give the market confidence to invest.

    A key part of this is the maintenance of a price for carbon beyond 2012 when the EUETS's second phase ends. The government promises to strengthen the scheme by harmonising the way allowances are allocated and by pushing for the inclusion of other sectors. It also leaves the door open to use other, unspecified, measures to "reinforce" the scheme if needed.

    A long-term carbon price would also benefit other low-carbon technologies like carbon capture and storage and renewables.

    On nuclear waste, the review points to the recent draft report from the Committee on Radioactive Wastes Management which backed deep disposal as the best option for existing waste (ENDS Report 376, p 46). But it conveniently ignores the fact that this advice specifically excluded waste from new build.

    It also plays down the amount of waste a new programme would generate. It says that replacing the existing fleet would increase the total volume of radioactive waste by just 10%, but does not mention that this figure includes low-level and intermediate wastes. The amount of highly radioactive waste is expected to rise by over 300% (ENDS Report 374, pp 33-35).

    The review says waste and decommissioning costs should be assessed up-front and industry will have to shoulder them alone. Protection is promised for the public purse from "credit risk and reduced reactor life".

    Adding to the impression that the decision was taken some time ago, an annex includes a consultation on the policy framework for new nuclear. This will form the basis of a white paper to be produced by the end of the year.

    An integrated approach to the design, authorisation and construction of new nuclear stations will be central to the framework, and draws on detailed assessments of the licensing system by the Health and Safety Executive2 and Environment Agency.3

    These suggest that HSE and Agency approval for generic reactor designs would be followed by site specific assessments. Involving regulators at an early stage would allow them greater say in the fundamental safety and environmental characteristics of a proposal.

    But public accountability and stakeholder involvement could be reduced because key decisions would be taken before proposals reached a planning inquiry limited to local issues and mitigating negative impacts.

  • Planning reforms: The government wants to streamline the planning system for all large energy projects to "reduce the risk and uncertainty for developers" (see pp 6-7).

    Timetables would be introduced for public inquiries and delivery of planning inspectors' reports. These rules would apply to projects greater than 50MW onshore and 1MW offshore. Similarly, measures would be introduced to ensure "appropriate and predictable timings" for planning application decisions.

    There would also be greater use of pre-inquiry hearings to discuss issues and reach common ground outside the constraints of a formal inquiry.

    Grid upgrades would be regarded as part of a project application so that they are considered in the same inquiry.

    These two measures should benefit wind power in particular by speeding up the process and increasing certainty for investors. Under the current system, it takes nearly two years on average for windfarms to secure planning consent.

    The review includes a "statement of need" for renewables that can be used as a material consideration in planning decisions. It instructs decision makers to give significant weight to the "benefits to society and the wider economy as a whole" of renewable projects and not just focus on local considerations.

    Other proposals in the review include increasing the renewable transport fuel obligation to 10% after 2010/11, and removing obstacles to carbon capture and storage.

    The government predicts that the review's proposals, combined with a handful of measures announced since the climate change programme was published in March, will save between 19.5MtC and 25.3MtC per year by 2020. But 8MtC of this comes from the cap for the second phase of the EUETS announced in June (see p 42).

    The government claims these cuts will bring emissions down to 120-126MtC in 2020. This is at the upper limit of what the 2003 energy white paper described as "good progress" towards the 2050 target of cutting emissions by 60%.

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