DECC looks at flexible limits on coal-fired CO2

The government has told parliament’s green watchdog it will limit CO2 emissions from new fossil fuel power plant but plans will not emerge before its white paper on energy market reform.

The energy and climate department (DECC) has confirmed that an emissions performance standard (EPS) will be essential “to provide a backstop to limit how much carbon new coal plants are permitted to emit”.

But DECC will not yet commit to the detail or timing of the measure, according to its response to the House of Commons Energy and Climate Change Committee’s report on the subject (ENDS Report 431, p 42). An EPS would set legal limits on the amount of carbon dioxide power stations can emit.

DECC’s response highlights energy security from fossil fuel plants and the lack of certainty on the performance of carbon capture and storage plants (ENDS Report 433, p 15) as considerations in designing an EPS.

DECC broadly accepts the committee’s view that the current electricity generation policy framework is “grossly inadequate” to deliver the low-carbon investment needed to decarbonise UK electricity generation by 2030. An EPS will be a key means of preventing the UK from becoming “locked in” to high future CO2 emissions caused by a new generation of fossil fuel power stations.

DECC’s response also stresses that EPS policy needs to be seen in the wider context of the ongoing electricity market reform consultations (ENDS Report 431, p 5 and p 44) aimed at promoting low-carbon generation, including proposals to introduce guaranteed prices for low-carbon generators, a carbon floor price, and capacity payments.

These measures will need to ensure that the UK electricity supply sector is 90% decarbonised by 2030 (ENDS Report 431, pp 12-13) in order to meet statutory carbon budgets. Only once these consultations are complete will DECC’s plans for the EPS be clearer.

EPS was part of the coalition agreement but the government has since shied away from a detailed commitment.

The response rejects the committee’s recommendation for a decision by spring 2011. Government “recognises the importance of providing early certainty to investors but must balance this with the need to get the detail of these major reforms right,” it says.

These will be contained in a new white paper due later this year. DECC says the need for, timing and design of an EPS will be guided by regular decarbonisation reports under the Energy Act 2010.

DECC says the EPS is not designed to drive immediate emission reductions and it would not undermine the EU emissions trading scheme (EU ETS) as the primary means of cutting EU greenhouse gas emissions.

But it agrees that the trading scheme on its own is very unlikely to deliver the billions of pounds worth of low-carbon generating infrastructure that “we need in the UK over the coming years.”

The Environmental Audit Committee had warned that UK emissions cuts caused by an EPS could be offset by emitters on the continent using the freed-up EU carbon allowances. This could also push down carbon prices in the EU ETS, unless the UK retired an equivalent number of allowances.

But DECC stresses the EPS would only target new coal-fired power stations and would have a negligible impact on carbon prices.

It also says its proposed electricity market reforms will enable those coal plants surviving into the 2020s to operate at increasingly limited hours as back-up generation to intermittent renewables, and “could avoid the need to build new unabated gas plant in the early 2020s”.

DECC says an EPS would be based on a limit value of 600 grams of CO2 per kilowatt hour fitted onto a quarter of a new coal plant’s capacity, or a tighter limit of 450g/kWh, but allowing some exemptions for carbon capture and storage demonstration projects.

Annual limit

It would be applied as an annual limit to individual plants rather than more generally across a generator’s portfolio, as this would be simpler to regulate and more transparent.

DECC rejects the committee’s proposal of a progressively tightened EPS applied to both new and existing plant. “This… would entail greater cost, less flexibility and have greater security of supply risks than the preferred package,” says the response. It could undermine the economic viability of flexible back-up generation and put off investors.

Limiting fossil fuel plant investment would not necessarily boost low-carbon investment given attractive opportunities outside the UK, DECC adds.

It is possible that the European Commission may consider an EPS to be incompatible with the EU Industrial Emissions Directive (ENDS Report 424, p 50).

DECC believes one could be developed in line with EU law, although it will not seek clarification with the commission until its plans firm up. Up to now, several EPS schemes in member states have met objections.

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