Scrapping CCS competition will cost Britain billions

The cost of decarbonisation will skyrocket due to the last minute scrapping of a competition to develop carbon capture and storage (CCS) in the UK.

In a report the National Audit Office (NAO) warned that, without CCS technology, the country will have to spend to an extra £30 billion to meet its target of reducing emissions to 80 per cent of 1990 levels by 2050.

The government made the decision to cancel the competition in November in response to a spending review by the Treasury. At the time the Department of Energy and Climate Change (Decc) estimated that the competition’s net benefit to society would amount to £3.7 billion by 2050, the NAO has revealed. The estimate has since been revised to £4.3 billion. Decc also calculated a rate of return of £4.50 for every pound spent on the competition.

Environmental Audit Committee chair Mary Creagh said: “The last minute cancellation of support for CCS may have delayed the roll out of this crucial technology for a decade or more. CCS is essential to meet our 2050 climate change targets. It is critical that government establish a new strategy for supporting large scale deployment of CCS, as without it, the eventual bill for cutting our carbon emissions could be up to £30 billion more.”

The report said the Treasury’s recommendation to axe the competition was made on the basis it was too expensive and was trying to deliver CCS “before it was cost-efficient to do so”. It calculated that a strike price of £170/MWh under the contracts for difference scheme would be needed to make the projects bidding into the competition viable. The Treasury therefore believed the cost to consumers would be “high and regressive” and there were “better uses for the £1 billion”.  

The NAO said £100 million of public money has been spent on the competition so far and that a further £80 million has been spent by the private sector. Although valuable knowledge was gained, “there is a significant risk that this value will dissipate over time as people move on to other projects”. In February the Energy and Climate Change Committee called for the creastion of a national CCS strategy to ensure this knowledge is retained. 

The cancellation was actually the second the time the government has withdrawn from a CCS competition. “These precedents increase the risk investors will be deterred from dealing with the government or a require a high return to do so, which would increase the cost of a future CCS policy,” the report warned. 

Scottish Carbon Capture and Storage director Stuart Haszeldine said: “The cancellation of two well-developed CCS projects in 2015 has led to a collapse of industry interest in building projects in the UK. This will mean that, when projects are eventually built, the government will need to pay more to convince industry investors that the UK can be trusted to deliver on its contractual promises. That is bad value for consumers, for industry and for the climate.”

Carbon Capture and Storage Association chief executive Luke Warren said: “This report unequivocally shows that the full costs and impact of delaying CCS were not adequately considered in the run up to the cancellation of the CCS competition.

“Whilst [the Treasury] judged that the competition was aiming to deliver CCS before it was cost efficient to do so, the Energy Technologies Institute has shown that a ten-year delay to CCS could add an additional £1-2 billion to consumers’ bills every year throughout the 2020s.”