There are hopeful signs of a further shift in Government thinking on coal and regulation of the fuel market
THE Government seems to have found its feet again on climate and energy policy. After 18 months of being caught between energy companies, the green lobby and unions concerned about the future of coal mining, we have seen decisive action.
The day after the Budget, Energy Secretary Ed Miliband announced that no new coal-fired power stations would be given consent unless they included new carbon capture and storage (CCS) technologies. This ban on new unabated coal-fired power stations is most important in both an international and a domestic context.
The existing programme would mean carbon capture of the flue gases of 400 megawatts of a coal-fired power station – around one-quarter of a typical plant – by 2014. The expanded programme increases that six-fold, and will cover a much wider range of potential technologies and up to four demonstration sites. Carbon emissions per unit of electricity from the resulting plants will be around half those of a conventional modern coal-fired power station.
Once the technology is proven (expected to be around 2020), the policy will require all coal-fired plants to fit full carbon capture within five years. If CCS doesn’t work by then, the Government is proposing an emissions standard that would effectively close down coal-fired generation.
Coal only has a future if CCS can be made to work. The expansion of the programme puts this country back in the global race to develop CCS and, according to Government, offers the long-term prospect of some 50,000 jobs. It responds to calls for a much more strategic approach to the problem of how to steer a course through the dilemmas of climate change and energy security worries about gas.
A key issue is who will pay. Electricity from coal with CCS is estimated to cost around 2p per kilowatt hour more than electricity from ordinary coal. The Treasury has agreed to fund the existing post-combustion demonstration plant from public expenditure, but subsequent demonstration plants will be supported by a consumer levy, expected to be £8 year on the average domestic bill by 2020.
This may not sound much, but will come on top of price increases that pay for energy efficiency programmes, renewable energy and the European Union’s emission trading scheme (ETS), which already come to £35 on the average bill.
This flat-rate approach hits the poor especially hard. The cost of investing in low-carbon infrastructure should instead be paid for out of public borrowing, with the burden falling ultimately on tomorrow’s taxpayers, not today’s electricity consumers.
Coal-fired power generation is the single most important contributor to climate change – 180 new coal-fired plants were built in 2007, 100 of them in China. Running at full load, a modern coal-fired power station can produce more than 10 million tonnes of carbon dioxide a year. Britain would have no credibility on climate policy if it allowed a new generation of unabated coal plants here. The new policy allows us to approach the Copenhagen climate talks with a much greater degree of honour.
The ban on new unabated coal is further evidence of a shift in Government thinking from a belief in market-based policy frameworks to more direct regulation. This is true for energy policy, where investment in electricity generation, liberalised in 1989, has been progressively governed by new restrictions.
It is also true for climate policy. Until now, the central policy for bringing climate considerations was supposed to be the ETS. But the carbon market is suffering from credibility problems about its long-term future. The British Government was one of the main cheerleaders for the ETS, but the new coal policy is an admission that ministers no longer believe it is enough.
All this amounts to an overdue recognition that market mechanisms are not up to the job of steering us through energy and climate policy challenge and that a clearer, more direct regulatory approach is required.
Matthew Lockwood is senior research fellow at the Institute for Public Policy Research
