Newsletters from No 10: 27 April 2009
Dear friends
I thought it might be useful to provide an occasional update on developments in the climate change and energy fields from my perspective in the Prime Minister’s Office in 10 Downing St. The last week has been a very significant one for British policy in these fields so this seemed a good time to start. I’d like to make this an occasional email with news from here – NOT a blog! But if you don’t want to receive these just reply to this and let me know.
As many in the media have reported, the four announcements of climate change and energy policy which the Government made last week together constitute a major development of UK commitments.
CARBON BUDGETS
The first was the publication of our carbon budgets under the Climate Change Act (http://tinyurl.com/caf7o7). The Act requires us to set out the greenhouse gas limits within which the British economy will have to operate for the next fifteen years, in three five-year budget periods. These budgets have to set a trajectory towards our 2050 target of reducing emissions by 80% on a 1990 base. As far as we can tell we are the first Government in the world to adopt a statutory framework of this kind.
Following the advice of Adair Turner’s independent Climate Change Committee, we’ve committed to a 34% reduction in GHGs (on a 1990 base) by 2020. That represents the UK share of the EU’s 20% reduction in 2020. We’ve said that we will aim for that entire effort to be achieved within the UK and Europe (through the EU Emissions Trading Scheme) without the use of project credits from developing countries (beyond those purchased through the EU ETS). We’ve also said that we will increase our 2020 target after an international agreement is reached. It’s worth noting that if such an agreement is sufficiently ambitious that the EU moves to a 30% reduction (as we very strongly want), the UK’s target for 2020 is likely to be around 42%. That is by any reckoning a very significant reduction. In that case we will use credits from developing countries – indeed, doing so will be an important part of the deal we will negotiate, since such credits will form a major flow of finance to help developing countries move to a lower carbon development path.
Some NGOs have said that 34% is not ambitious enough and we should move to 42% immediately, and it should all be achieved domestically. But this fails to take into account the critical international context. We will adopt the higher target when a sufficient international climate change agreement is reached. Achieving such an agreement is our highest priority, and immense effort is going into this (on which more another time). But it is a negotiation with other countries (developed and developing), and in such a negotiation there is no sense in adopting all our commitments unilaterally. That’s why the EU has adopted the twin-track negotiating position of a 20% unilateral commitment coupled with an offer of 30% if other countries make sufficiently ambitious commitments of their own. As Turner recommended, our carbon budgets represent the UK’s contribution to that. Saying we will ‘buy’ some of those reductions from developing countries is then a critical part of the negotiation, a vital form of finance to support developing country actions. A unilateral UK commitment at this point would not help that process at all – only if all major countries make ambitious new commitments as part of an international agreement can we address the global climate problem.
The next stage in the carbon budgets process is the publication in the summer of a comprehensive strategy showing how we will meet them. That will bring together in a single document our policies on energy demand and decarbonisation, emissions reduction in transport, housing and other sectors, and adaptation. Some of the media commentary about our announcement last week was that setting a 34% target is all very well but the Government does not have the policies to meet it. Actually the carbon budgets publication, produced alongside the fiscal budget, shows that our current policy framework is already projected on central assumptions to meet the first two carbon budgets (2008-12 and 2013-17) and is within range, already - ten years ahead of time - of the third (2018-22). There is no complacency here – the strategy in the summer will set out further plans and options - but the accusation of ‘no policies’ really is extraordinarily wide of the mark. And of course the whole point of the legally-binding nature of carbon budgets is that they will force us to adopt the policies. That is the rigour we have imposed on ourselves under the Climate Change Act. More on all this in a future email, I suspect.
THE BUDGET
The second major announcement last week was the Budget itself This included £1.4bn of new support for the low carbon energy sector in the next three years, coupled with £4bn in new lending from the European Investment Bank. This will generate, we estimate, an additional £10.4bn of low carbon and energy investment over the next three years, a major green stimulus. The specific components of the package were (see http://tinyurl.com/c4jull):
In addition, the future tax rises announced by the Chancellor included a rise in fuel duties (2p per litre from September this year and 1p per litre in real terms from 2010-13) and continuation of the £8/tonne annual landfill tax escalator from 2011-13.
All in all, this package means that the low carbon support measures in the PBR and Budget represent 21% of the Government’s total targeted support to British industry. We were gratified that nearly everyone in the energy industry who responded to it welcomed the package.
LOW CARBON INDUSTRIAL STRATEGY
The third publication of the week was our Low Carbon Industrial Strategy, Investing in a Low Carbon Britain (see http://tinyurl.com/cezbkq). This sets out the new approach the Government is talking to supporting British-based firms and inward investment in the low carbon and green manufacturing sectors. It is the first of the sectoral strategies proposed in the Government’s new approach to ‘industrial activism’, Building Britain's Future - New Industry, New Jobs, aimed at supporting some of the key industries on which future British economic growth will be based.
Though it didn’t get much media coverage, this document marks a significant moment. Up to now UK climate change policy has been almost entirely concerned with targets and policies for emissions reduction. Meeting these targets requires the manufacture and supply of billions of pounds worth of low carbon products and services. But the Government had few policies in place to ensure that these major economic opportunities came to Britain. We now do. Setting the strategic context for the support measures announced in the Budget, Investing in a Low Carbon Britain represents a whole new dimension to the Government’s climate change and energy policy. This is now quite explicitly an industrial policy as well as an environmental and energy security one.
COAL AND CCS
A key part of that industrial strategy will now be the development of a UK carbon capture and storage (CCS) industry. On Wednesday in the Budget and then on Thursday in the Commons Alistair Darling and Ed Miliband announced a new policy towards CCS and new coal-fired power stations (http://tinyurl.com/d3mst4). The major elements are:
We believe these policies represent a means of combining four objectives – security and diversity of supply, emissions reduction, the critical development of CCS as a global technology, and UK industrial benefit. We were pleased that the announcement was welcomed by both NGOs and energy companies. Nevertheless there has been some misleading commentary in the media about it. Two points are worth making. First is that CCS technology is not nearly as ‘unproven’ as much media commentary has claimed. CO2 has been transported and stored in both disused oil and gas fields and saline aquifers for many years, including in the North Sea (in the Norwegian Sleipner Field). Pre-combustion technology (coal gasification) is relatively new but is commercially available. Pre-combustion technology (coal gasification) is new but well developed – you can buy the equipment with performance guarantees. Post-combustion capture is less well developed, but it is already being tested at up to 30MW, and no-one actually working in the field doubts that it can be scaled up: demonstration is critical, hence our policy, but it is about increasing efficiency and reducing cost, not about whether it can be done at all.
The second point is about pre-combustion CCS. Much of the reaction to the announcement focused on whether or not a partial requirement to fit CCS might leave new coal-fired power stations still emitting large quantities of carbon before they were required to retrofit 100% after a decade or so. But this ignores the difference between pre-combustion and post-combustion CCS. The minimum 300MW initial and subsequent 100% retrofit conditions only apply to post-combustion CCS, where the need to demonstrate the technology necessitates a gradual build up to 100% coverage. Where pre-combustion technology is used, all (90%) of the CO2 emissions from coal will be captured from the beginning – the technology can only operate this way. So there is no question of partial CCS to start and retrofit later. All coal use will have the CO2 captured from the beginning.
This has quite a bearing on the argument. At present we have only said that one of the four demonstration plants will be pre-combustion and one post-combustion, and the other two will be decided later. But imagine that we ended up with two of each. Across the four plants, the impact of 90% coal emissions capture from pre-combustion technology would make total emissions lower than would have occurred if we had said (for the sake of argument) 'no new coal' and seen four new CCGT gas stations built instead. Lower than gas, that is, from the outset, even with only 20-25% initial CCS on the post-combustion plants. And of course much lower once the latter are fully retrofitted. That is an important consideration to be borne in mind.
There will no doubt be plenty more to debate on this. In the meantime, I would be delighted to receive any feedback and comments.
With best wishes
Michael Jacobs
Michael Jacobs
Special Adviser to the Prime Minister
10 Downing St
London SW1A 2AA
I thought it might be useful to provide an occasional update on developments in the climate change and energy fields from my perspective in the Prime Minister’s Office in 10 Downing St. The last week has been a very significant one for British policy in these fields so this seemed a good time to start. I’d like to make this an occasional email with news from here – NOT a blog! But if you don’t want to receive these just reply to this and let me know.
As many in the media have reported, the four announcements of climate change and energy policy which the Government made last week together constitute a major development of UK commitments.
CARBON BUDGETS
The first was the publication of our carbon budgets under the Climate Change Act (http://tinyurl.com/caf7o7). The Act requires us to set out the greenhouse gas limits within which the British economy will have to operate for the next fifteen years, in three five-year budget periods. These budgets have to set a trajectory towards our 2050 target of reducing emissions by 80% on a 1990 base. As far as we can tell we are the first Government in the world to adopt a statutory framework of this kind.
Following the advice of Adair Turner’s independent Climate Change Committee, we’ve committed to a 34% reduction in GHGs (on a 1990 base) by 2020. That represents the UK share of the EU’s 20% reduction in 2020. We’ve said that we will aim for that entire effort to be achieved within the UK and Europe (through the EU Emissions Trading Scheme) without the use of project credits from developing countries (beyond those purchased through the EU ETS). We’ve also said that we will increase our 2020 target after an international agreement is reached. It’s worth noting that if such an agreement is sufficiently ambitious that the EU moves to a 30% reduction (as we very strongly want), the UK’s target for 2020 is likely to be around 42%. That is by any reckoning a very significant reduction. In that case we will use credits from developing countries – indeed, doing so will be an important part of the deal we will negotiate, since such credits will form a major flow of finance to help developing countries move to a lower carbon development path.
Some NGOs have said that 34% is not ambitious enough and we should move to 42% immediately, and it should all be achieved domestically. But this fails to take into account the critical international context. We will adopt the higher target when a sufficient international climate change agreement is reached. Achieving such an agreement is our highest priority, and immense effort is going into this (on which more another time). But it is a negotiation with other countries (developed and developing), and in such a negotiation there is no sense in adopting all our commitments unilaterally. That’s why the EU has adopted the twin-track negotiating position of a 20% unilateral commitment coupled with an offer of 30% if other countries make sufficiently ambitious commitments of their own. As Turner recommended, our carbon budgets represent the UK’s contribution to that. Saying we will ‘buy’ some of those reductions from developing countries is then a critical part of the negotiation, a vital form of finance to support developing country actions. A unilateral UK commitment at this point would not help that process at all – only if all major countries make ambitious new commitments as part of an international agreement can we address the global climate problem.
The next stage in the carbon budgets process is the publication in the summer of a comprehensive strategy showing how we will meet them. That will bring together in a single document our policies on energy demand and decarbonisation, emissions reduction in transport, housing and other sectors, and adaptation. Some of the media commentary about our announcement last week was that setting a 34% target is all very well but the Government does not have the policies to meet it. Actually the carbon budgets publication, produced alongside the fiscal budget, shows that our current policy framework is already projected on central assumptions to meet the first two carbon budgets (2008-12 and 2013-17) and is within range, already - ten years ahead of time - of the third (2018-22). There is no complacency here – the strategy in the summer will set out further plans and options - but the accusation of ‘no policies’ really is extraordinarily wide of the mark. And of course the whole point of the legally-binding nature of carbon budgets is that they will force us to adopt the policies. That is the rigour we have imposed on ourselves under the Climate Change Act. More on all this in a future email, I suspect.
THE BUDGET
The second major announcement last week was the Budget itself This included £1.4bn of new support for the low carbon energy sector in the next three years, coupled with £4bn in new lending from the European Investment Bank. This will generate, we estimate, an additional £10.4bn of low carbon and energy investment over the next three years, a major green stimulus. The specific components of the package were (see http://tinyurl.com/c4jull):
- £375m additional spending on energy and resource efficiency programmes: in the housing sector (£100m for new housing, £100m for retrofit), for small and medium sized enterprises (£100m), for public buildings (£65m) and for waste infrastructure (£10m). These add to the very substantial programmes we already have in these areas, including the £4bn programme of public and regulated private spending on domestic energy efficiency over the current period 2008-11. This will achieve the targeted insulation of 6 million homes - a level of ambition very rarely reported.
- £70m of additional spending on decentralised energy, including £45m for microgeneration and £25m for community and district low carbon heating schemes.
- £405m for a new Low Carbon Investment Fund which will support the development of UK-based businesses in low carbon and green manufacturing sectors. More on this below.
- An increase in the support to offshore wind through the Renewables Obligation (from 1.5 to 2 ROCs) - protecting around £9bn of investment.
- A commitment by the EIB to lend up to £4bn to the UK’s low carbon and energy sector for new renewables, gas storage and other projects, to plug the gap in financing caused by the credit crunch.
- Continued exemption (to 2023) of CHP from the Climate Change Levy to enable immediate investment in new plants.
- An increase in Enhanced Capital Allowances for new investment to 40% for one year, which will benefit low carbon businesses among others.
- Reforms to the North Sea fiscal regime on cushion gas and economic but currently uncommercial fields.
In addition, the future tax rises announced by the Chancellor included a rise in fuel duties (2p per litre from September this year and 1p per litre in real terms from 2010-13) and continuation of the £8/tonne annual landfill tax escalator from 2011-13.
All in all, this package means that the low carbon support measures in the PBR and Budget represent 21% of the Government’s total targeted support to British industry. We were gratified that nearly everyone in the energy industry who responded to it welcomed the package.
LOW CARBON INDUSTRIAL STRATEGY
The third publication of the week was our Low Carbon Industrial Strategy, Investing in a Low Carbon Britain (see http://tinyurl.com/cezbkq). This sets out the new approach the Government is talking to supporting British-based firms and inward investment in the low carbon and green manufacturing sectors. It is the first of the sectoral strategies proposed in the Government’s new approach to ‘industrial activism’, Building Britain's Future - New Industry, New Jobs, aimed at supporting some of the key industries on which future British economic growth will be based.
Though it didn’t get much media coverage, this document marks a significant moment. Up to now UK climate change policy has been almost entirely concerned with targets and policies for emissions reduction. Meeting these targets requires the manufacture and supply of billions of pounds worth of low carbon products and services. But the Government had few policies in place to ensure that these major economic opportunities came to Britain. We now do. Setting the strategic context for the support measures announced in the Budget, Investing in a Low Carbon Britain represents a whole new dimension to the Government’s climate change and energy policy. This is now quite explicitly an industrial policy as well as an environmental and energy security one.
COAL AND CCS
A key part of that industrial strategy will now be the development of a UK carbon capture and storage (CCS) industry. On Wednesday in the Budget and then on Thursday in the Commons Alistair Darling and Ed Miliband announced a new policy towards CCS and new coal-fired power stations (http://tinyurl.com/d3mst4). The major elements are:
- No new coal-fired power stations will be consented unless they fit at least partial CCS (a minimum of 300MW net capacity)
- Where only partial CCS is fitted at the outset, the entire capacity of the plant must have CCS within five years of the technology being technically and commercially proven, which we believe will be by 2025.
- The Government will fund up to four such CCS demonstrations, both through the existing competition and through a new incentive mechanism.
- New plants will be encouraged in locations where CCS ‘clusters’ can be developed, enabling transport and storage facilities to be used for future capture opportunities, from industry as well as power generation.
We believe these policies represent a means of combining four objectives – security and diversity of supply, emissions reduction, the critical development of CCS as a global technology, and UK industrial benefit. We were pleased that the announcement was welcomed by both NGOs and energy companies. Nevertheless there has been some misleading commentary in the media about it. Two points are worth making. First is that CCS technology is not nearly as ‘unproven’ as much media commentary has claimed. CO2 has been transported and stored in both disused oil and gas fields and saline aquifers for many years, including in the North Sea (in the Norwegian Sleipner Field). Pre-combustion technology (coal gasification) is relatively new but is commercially available. Pre-combustion technology (coal gasification) is new but well developed – you can buy the equipment with performance guarantees. Post-combustion capture is less well developed, but it is already being tested at up to 30MW, and no-one actually working in the field doubts that it can be scaled up: demonstration is critical, hence our policy, but it is about increasing efficiency and reducing cost, not about whether it can be done at all.
The second point is about pre-combustion CCS. Much of the reaction to the announcement focused on whether or not a partial requirement to fit CCS might leave new coal-fired power stations still emitting large quantities of carbon before they were required to retrofit 100% after a decade or so. But this ignores the difference between pre-combustion and post-combustion CCS. The minimum 300MW initial and subsequent 100% retrofit conditions only apply to post-combustion CCS, where the need to demonstrate the technology necessitates a gradual build up to 100% coverage. Where pre-combustion technology is used, all (90%) of the CO2 emissions from coal will be captured from the beginning – the technology can only operate this way. So there is no question of partial CCS to start and retrofit later. All coal use will have the CO2 captured from the beginning.
This has quite a bearing on the argument. At present we have only said that one of the four demonstration plants will be pre-combustion and one post-combustion, and the other two will be decided later. But imagine that we ended up with two of each. Across the four plants, the impact of 90% coal emissions capture from pre-combustion technology would make total emissions lower than would have occurred if we had said (for the sake of argument) 'no new coal' and seen four new CCGT gas stations built instead. Lower than gas, that is, from the outset, even with only 20-25% initial CCS on the post-combustion plants. And of course much lower once the latter are fully retrofitted. That is an important consideration to be borne in mind.
There will no doubt be plenty more to debate on this. In the meantime, I would be delighted to receive any feedback and comments.
With best wishes
Michael Jacobs
Michael Jacobs
Special Adviser to the Prime Minister
10 Downing St
London SW1A 2AA
