Coal industry lobbying forces fudge on large combustion plant

After 18 months of deliberation, the Government has failed to decide how it will implement the 2001 EU Directive on large combustion plant. Proposals for a national emissions reduction plan and acid gas trading system have been derailed by strong lobbying from the coal industry. The Government has submitted a plan to the European Commission in order to meet a legally binding deadline - but this is largely a holding operation, and the plan may be withdrawn in a few months.1

The Government has been wrestling with the decision on how to implement the Directive for 18 months. The decision has been complicated by overlaps with wider energy policy, future fuel mix and the uncertain impact of the EU greenhouse gas emissions trading scheme.

There are two options to reduce emissions from "existing plant" licensed before 1987. The first would be to apply concentration limits for SO2, NOx and dust from 2008, with tighter limits on NOx releases from larger plant following in 2016 and 2018.

The second option is a national plan setting "emission bubbles" for all large combustion plant. A plan must deliver the same level of annual emissions as would have been achieved by applying the Directive's emission limits to all plants which were operational in 2000, based on the average of their operation in 1996-2000.

The national plan approach - inserted into the Directive at a late stage at the insistence of the UK - was initially supported by most industries as it appeared to offer a cheaper route to compliance (ENDS Report 329, p 43 ). However, enthusiasm cooled when the Commission made it clear that plant closures could not be used to achieve compliance with the national emission bubbles (ENDS Report 335, p 48 ).

This summer, the Environment Department made a "finely balanced" provisional decision to go for a national plan (ENDS Report 342, pp 42-44 ). It concluded that, at expected levels of coal burn, a plan would be perhaps £250 million cheaper than using emission limits, although it would lead to a higher level of total emissions. DEFRA concluded that even if coal burn remains at the current level, the cost of the two options would be broadly similar.

Only three Member States - the UK, Ireland and Finland - submitted national plans to the European Commission by the deadline of 27 November. The overall bubbles proposed for the UK are slightly different to those in the draft (see table).

In the UK, the final decision to submit a plan was taken only days before the deadline. Even then, the move was driven by the desire to keep both options open - and the Government has reserved the right to withdraw the plan next year.

In a statement, junior Environment Minister Ben Bradshaw said "there are strongly held views in favour of both implementation options", and "further analysis is required before we can be sure which implementation approach it is in the UK interest to adopt."

ENDS understands that the key factor behind the Government's indecision was a powerful submission from the Confederation of UK Coal Producers.2 This was reinforced by 1,550 letters from individuals in the mining and associated industries which all favoured the emission limits approach.

Coalpro argued that a national plan would "decimate" the UK's remaining coal industry in favour of a "headlong rush towards imported, low-sulphur coal". The plan would, it claimed, "reduce demand for indigenous coal to one half or less of what could be produced in 2008-10. Demand could even be zero."

The problem stems from the high sulphur content of UK coals, and applies regardless of the level of coal burn. Under an emission limits approach, Coalpro argues, generators will have an incentive to invest in flue gas desulphurisation (FGD) equipment.

However, emissions trading under a national plan would incentivise all operators, including those with FGD, to use imported low sulphur coal. DEFRA says there will be no scope for banking emission allowances between years - meaning that generators will seek to ensure maximum headroom under their emission caps.

Coalpro claims that a national plan would threaten at least 15,000 jobs in the mining industry and cause economic losses of £700 million per year - considerably more than the claimed savings. It complains that DEFRA's regulatory impact assessment failed to take account of damage to UK coal producers.

Moreover, Coalpro argues that "the cost savings attributed to [the plan] come from avoiding investment in pollution control equipment that will, in all likelihood, be required anyway under the IPPC Directive as the definition of 'best available techniques' evolves." It argues that trading in emissions is not legal under the IPPC system - which requires site-specific application of BAT.

The Government accepts that it must resolve the issue by spring 2004. An important factor is that operators will need time to decide whether to seek a "limited life" derogation, for which they must apply by 30 June 2004. The derogation disapplies the Directive's limits for combustion plants which run for fewer than 20,000 hours from the start of 2008.

DEFRA is also hoping that other factors affecting the decision will become clearer over the next few months. The Department of Trade and Industry is revising its energy projections and forecasts of coal burn (ENDS Report 344, pp 7-8 ) - while the impact of the EU emissions trading scheme should be more apparent by the end of March, when national allocation plans must be finalised (ENDS Report 341, pp 18-22 ).

Apart from the coal industry's bombshell, responses to DEFRA's consultation showed a familiar split over the merits of the two competing approaches. The Environment Agency and energy regulator Ofgem are keen on a national plan, and have been developing an emissions trading system to support it. They are supported by manufacturers such as Corus, Alcan and the paper industry.

All generators, with the exception of Drax Power, support the emission limits approach, mainly because of a concern that the national plan could restrict coal burn in future. DEFRA appears unconvinced by the argument, not least because the EU emissions trading scheme seems certain to force coal burn down even if gas prices rise significantly.

If the Government proceeds with the plan approach, it will need to develop rules for a supporting emissions trading scheme. It is already clear that allocation would be free - thus requiring EU state aids clearance.

DEFRA has also asked the Commission to endorse its interpretation of several key parts of the Directive. These include the ineligibility of plant closures as a compliance option; the view that each generating unit, rather than the power station as a whole, should be classed as a "combustion plant"; and the exclusion of start-up and shut-down periods from the calculation of the "limited life" derogation.

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