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An interesting article has just been published by the FT. The piece argues that the Treasury is “adamant in its resistance” to the idea of a 2030 decarbonisation target “believing that it would put off investors in gas plants.”
The FT quotes an unnamed government official:
“What George Osborne cares about most is a credible gas strategy…Gas investors are worried that if the scope of renewables subsidies could make gas unviable, which is why we don’t want any new decarbonisation targets.”
The article adds “Osborne believes that his refusal to endorse a 2030 target means that the decision can be delayed indefinitely”.
Read more (Â£)
BusinessGreen has pulled together a summary of Ed Davey’s press conference, with some useful quotes.
On politics vs evidence:
“[Ed Davey said] that prospective investors in onshore wind farms and solar projects should be “reassured” that any new reviews would be entirely “evidence-based”, rejecting outright the suggestion the second investigation into the cost of onshore wind energy in the past year is a politically-motivated exercise offered as a sop to those right wing Conservative MPs who are opposed to wind energy.”
On the 2030 decarbonisation target:
“When we published the draft Energy Bill in May we said we would be looking at whether there should be a decarbonisation target specifically for the power sector… I believe that debate should continue,” he said. “We’ve got to respond to the Committee on Climate Change and the Energy and Climate Change Select Committee, both of which have suggested there should be a decarbonisation target and I think it would be presumptuous to take a position without having done the analysis on that.”
On gas policy:
“[DECC and the Treasury] have agreed something on renewables, on gas, and on energy policy more widely, and we’re working well together…this department, this Secretary of State, believes there is a big, important role for gas. That is not new. Maybe there are colleagues in the Treasury, certainly officials, who hadn’t really understood the role we see gas playing. Hopefully, they do now.”
On whether support for gas threatens carbon targets:
“In our carbon plan there are different scenarios on how we will deal with our energy and carbon objectives over the next few decades… Inevitably there’s a huge amount of uncertainty in these scenarios, there has to be, because we don’t how fast costs will fall in different technologies; we don’t know what’s going to happen with respects to nuclear costs; we don’t know what’s going to happen with CCS costs; we don’t know what’s going to happen on the price of gas. I’m sorry there are all these uncertainties, but that is the real world. In order to manage those uncertainties the best approach is to take an approach which is diversified, which is a balanced approach.”
On the Â£500m in tax breaks for offshore gas drilling:
“I welcome the North Sea announcement… It’s about security of supply. It would be quite wrong for any government to not want to seek to exploit gas reserves that are off our shores and have to become ever more dependent on imported gas. It surely makes sense to exhaust the potential that you have in your own country.”
Some questions were raised in Ed Davey’s press conference today about the role of gas in the future energy mix. DECC’s press release says
“The Government â?¦ is today confirming that it sees gas continuing to play an important part in the energy mix well into and beyond 2030, while meeting our carbon budgets.”
So the government believes that gas can play an important part in the energy mix, and that we can meet our carbon budgets.
As we noted earlier, this is quite a challenging brief. The Committee on Climate Change (CCC) reccommends that if the government is going to meet its carbon budgets, emissions from the power sector need to be “virtually decarbonised” by 2030.
The CCC says this would require that the carbon-intensity of the electricity we use to fall from around 500 gCO2/kWh today to around 50 gCO2/kWh in 2030. In 2009, the average carbon intensity of UK gas was 405 gCO2/kW – so logically, we’re looking at a lot less gas by 2030.
But what if gas is used to backup renewables, or if it is has carbon capture and storage (CCS) fitted to reduce emissions? DECC’s press release also says
“We do not expect the role of gas to be restricted to providing back up to renewables”
but doesn’t give any more details or timeline. It adds (perhaps just a little vaguely)
“…and in the longer term we see an important role for gas with CCS.”
According to Davey, the debate around a possible decarbonisation target for 2030 is still in play. So it appears that the government believes that we can have an unspecified amount of gas providing our power in 2030, fitted (at some point) with carbon capture and storage – and still be in with a chance of decarbonising the power sector by 2030 and hitting our climate targets.
Is this theoretically possible? In today’s press conference, Ed Davey pointed to DECC’s carbon plan, released in December 2011, as evidence that we could still have a lot of gas on the system in 2030 and hit our climate targets.
The plan does say:
“Government modelling suggests that unabated gas could retain a significant role in electricity generation through the 2020s, potentially still producing up to two thirds of today’s generation levels in 2030.”
…but so far we have been unable to locate more detailed modelling backing this up in DECC’s documents, and DECC hasn’t got back to us on it.
It also says
In the longer term, there will be a more fundamental shift in the role of gas in electricity supply. From 2030 onwards, a major role for gas as a baseload source of electricity is only realistic with large numbers of gas CCS plants.
Even if, under the government’s modelling, unabated gas could play a role in 2030, the same plant will need to be fitted with CCS technology over the next few years. The 2030s may seem a long way away, but it matters because investors in energy infrastructure think on such long timescales. If they are going to have to fit carbon capture and storage technology in the 2030s, they probably need to know that now.
We’ll update this once again when we know more about DECC’s carbon plan….
Politics or evidence?
The Telegraph has done a piece on the political row underlying today’s announcement. The Telegraph says that
“Under the terms of collective cabinet responsibility, it is unusual for senior figures within government to admit to discord over individual policies, and although the particular circumstances of the Coalition mean that the convention has come under strain, Mr Davey has gone further than before in admitting to “arguing.”
On the Today programme this morning, Davey said “There needs to be a debate,” adding: “we are arguing.”
In today’s press conference, Davey repeatedly stressed that the announcements are “evidence based” – with the clear implication that they are not based on political horse-trading.
James Murray of BusinessGreen has just tweeted:
Listening back to Davey press conference – bit of a masterclass on downplaying DECC-Treasury tension and squaring gas-carbon budget circle
Read the Telegraph article here.
More on the gas tax break
The Financial Times reports on the press conference DECC gave mid-morning, focusing on the coalition’s plans to encourage more investment in new UK offshore drilling. The FT spoke to an energy department official, who said this would be in addition to the Â£3 billion oil field tax benefit the chancellor announced in the March budget.
Click here for more.
BusinessGreen has rounded up reaction from business, politicians and green groups. RenewableUK’s Maria McCaffery points out that while the announcement gives certainty up to 2014, this isn’t a particularly long timeframe. She’s calling for longer-term certainty from the government.
Friends of the Earth’s Andrew Pendleton points out that DECC appears to have made some pretty serious concessions on gas. John Cridland of the Confederation for British Industry and a Siemens spokeswoman welcome the announcement as good news for investors, meanwhile.
Click here for more.
The greenest government ever – at an affordable price
Ed Davey has posted a blog on Conservative Home on the announcement, saying he must ensure energy is affordable and reliable as well as green.
On the energy mix, he says:
We need more of our electricity generated from low carbon technologies but that does not just mean renewables. It also means nuclear power, if it is cost competitive with other low carbon technologies. And I also see an important role for gas. As our high carbon emission coal plants are withdrawn over the next few years gas will help to fill the gap. It will also play an important role in back up for the intermittent power supply coming from some renewable generation such as windpower. Longer term after 2030 gas can continue to play an important role when combined with carbon capture and storage technology.
Davey also sounds a note of caution about putting faith in the exploitation of shale gas in the UK to bring down energy prices. He warns demand from developing countries will still cause energy prices to rise, saying the government won’t be doing consumers any favours by going all-out for shale.
Click here for the full blog
Â£500 million tax break for gas industry
The banding review isn’t all about wind – it contains a surprise Â£500 million tax break for the gas industry to explore new fields in the UK Continental Shelf – the waters off the UK where the country claims mineral rights.
Gas will continue to play an “important part in the energy mix well into and beyond 2030, while meeting our carbon budgets”. If gas is cheap enough, the announcement says, the government wants it to play a “key role” in backing up renewables, and also as a standalone generation fuel. In the “longer term”, DECC says it sees an “important role for gas with CCS”.
There’ll be more detail in the Autumn when the government announces its gas generation strategy, but in the meantime DECC is trying to tempt investors to put money into domestic gas exploration with the “Â£500m field allowance for large shallow water gas fields”.
Attempting to boost UK gas production may not be easy – gas company Centrica says in recent years, “the decline of UK domestic gas production has been material”. Since 2006, when the UK became a net importer of gas, prices have continued to rise to all-time highs. DECC says in the announcement it wants to pass on any reductions in gas prices to the consumer – is it hoping revitalised domestic production (well, and shale gas from the US) will help achieve this?
Twitter reaction to the gas tax break
BBC environment correspondent Roger Harrabin isn’t impressed. He writes:
roger harrabin â?@RogerHarrabin G8 says end fossil fuel subsidies. UK govt announces Â£500m for marginal gas fields. Treasury thinks gas prices will fall. Work it out.
Ditto Keith Allott, head of climate at WWF:
Political consultant Jessica Lennard suggests this latest break is just one of several the current government has given to oil and gas:
jessica lennard â?@JessicaLennard Since March: Â£3bn for O&G in the Budget, gas EPS grandfathered to 2045, Â£400m for motorists, Â£500m today for gas exploration
A Lib Dem victory?
The new level for onshore wind subsidies is only guaranteed until 2014. The government has also announced a call for evidence on onshore costs will be launched in the Autumn, to report in early 2013. DECC’s announcement says
“If the findings identify a significant change, the Government will initiate an immediate review of ROC levels with any new support arrangements taking effect from April 2014”
Ed Davey told the Today programme that he “can hold the line” over the 10 per cent wind subsidy reduction figure in the Autumn.
On the Today programme Mr Davey insisted that there was “cross government agreement” on the need to cut emissions. He added that
“what we’re arguing about is how we’re going to do it. Now we’re going to have a debate about it and decide on whether there should be an intermediate target to reduce emissions within the power sector.”
The ‘intermediate target’ – a reference to the Climate Change Committee’s recommendation of virtual decarbonisation of the power sector by 2030 – is now likely to become the focus of lobbying. Since the CCC made the recommendation governments have refrained from committing to any firm target around it.
Some reaction on twitter from greens to the government’s statement
“The Government will set out its gas strategy in the Autumn, and is today confirming that it sees gas continuing to play an important part in the energy mix well into and beyond 2030, while meeting our carbon budgets.”
WWF campaigner Jenny Banks writes:
No reaction from the Committee on Climate Change yet, but it will be interesting to see what it says. The CCC – which advises the government on how to reach its carbon budgets – has advised the government to resist the “dash for gas” and that, in order to keep to the targets of the climate change act, emissions from the power sector need to be reduced by 90% by 2030. Their key graph looks like this:
The CCC says this would require that the carbon-intensity of the electricity we use to fall from around 500 gCO2/kWh today to around 50 gCO2/kWh in 2030. The average carbon intensity of UK gas in 2009 was 405 gCO2/kWh.
So it’s pretty hard to see how this level of emissons reduction could be squared with the government’s new approach of lots of gas playing “an important role in the energy mix well into and beyond 2030”.
Onshore wind spared deeper subsidy cuts
This morning the government announced levels of subsidy for renewable power over the next few years. It plans to slightly reduce the Renewables Obligation subsidy for most renewable power technologies, including a 10% cut in subsidies for onshore wind which was consulted on earlier in the year and was widely expected.
In the same statement, DECC has signalled its stronger support for continued electricity production from gas power.
Subsidies to onshore wind have been the subject of disagreement between DECC and the Treasury over the past few months. The 10% cut will be presented as a victory for either DECC, energy secretary Ed Davey or the Lib Dems – the Chancellor George Osborne reportedly wanted a deeper 25% cut in subsidies, and the Telegraph had effectively announced that this was already a done deal. Apparently not.
Most technologies will see a small subsidy cut in the new regime – support for offshore wind to 2017 will fall but be higher than was previously planned. Subsidies to small wave and tidal power plants will rise.
However, in light of a letter from Osborne to Davey that was published this week, it appears the influence of the Treasury has been felt on the announcement. In the same statement, DECC has underlined that they see a continued important role for gas power in the UK’s energy mix “well into and beyond 2030”:
The Government will set out its gas strategy in the Autumn, and is today confirming that it sees gas continuing to play an important part in the energy mix well into and beyond 2030, while meeting our carbon budgets. Through the 2020s, and beyond if gas proves cheap, we expect it to continue to play a key role ensuring that we have sufficient capacity both to meet everyday demand and complementing an increasing amount of relatively intermittent and inflexible generation. We do not expect the role of gas to be restricted to providing back up to renewables, and in the longer term we see an important role for gas with CCS.
It’s been a drawn-out process to get to this point, and there’s likely to be a lot of reaction today. We’ll be adding reactions and additional analysis to this post as we go.