Department of Energy and Climate Change insists £1bn still available for pioneering projects despite earlier comments from the Treasury
The government was forced to reassure the carbon capture and storage industry on Monday after comments from the Treasury appeared to cast doubt on the future of £1bn funding for the technology.
Danny Alexander appeared to suggest money set aside for CCS could be subsumed into general infrastructure spending. But the Department of Energy and Climate Change moved to calm fears, insisting £1bn was still available from the government to fund pioneering CCS projects.
The comments by Danny Alexander, the chief secretary to the Treasury and Liberal Democrat MP, came as energy-intensive and high carbon emitting industries looked forward to finding out what exemptions they could expect from the government’s carbon regulations. Details of the concessions – which come despite a massive fall in the price of carbon permits – are expected to be unveiled on Tuesday.
The £1bn fund for CCS, to be awarded to the winner of a competition that has been running for nearly five years, is considered the last hope for developing CCS technology in the UK as promises of other government assistance – such as a levy on energy bills to subsidise the high initial costs of the low-carbon technology – were withdrawn.
Several of the highest profile CCS projects have already been scrapped, including the Longannet plant which had been frontrunner in the competition, leaving a handful of less advanced proposals still under consideration.
Alexander had told the Today programme that the funds set aside for CCS could be spent instead as part of a general infrastructure fund, which would devote government assistance to a wide range of sectors and technologies from transport to energy.
CCS was once seen as one of the new low-carbon technologies in which the UK could be a pioneer. There are potential carbon dioxide storage areas in depleted oil fields under the North Sea that are likely to be geologically suitable, and the UK already has expertise in many of the component technologies needed in the oil and gas industry. But high-profile companies such as BP and E.ON dropped their plans, leading to a loss of confidence in the industry.
Meanwhile, energy-intensive industries such as heavy industry, steel and cement-making are preparing for the announcement of concessions from the government to ease the impact of regulations intended to reduce greenhouse gas emissions and encourage efficiency. The industries were promised concessions as part of the government’s fourth carbon budget, which would impose strict carbon limits on UK industry in the 2020s. While the carbon budget was being approved, the chancellor attempted to appease a number of Tory MPs who opposed the proposal with reassurances that heavy energy users would receive some exemptions.
The impact of carbon regulations has already been eased on heavy emitters across Europe, as the eurozone crisis and prospect of a deepening recession forced down the price of carbon dioxide permits under the EU’s emissions trading scheme. Permits stood at little more than €7 a tonne, their lowest since the trading system was tightened up in 2008, and well below the level at which analysts estimate the price of the permits makes a difference to companies’ behaviour.
Under plans set out by the Tories before last year’s general election, the price of carbon would be stabilised within the UK by a series of measures that would ensure that British businesses paid at least £16 a tonne for their emissions from 2013. However, the package of concessions to be announced are likely to amount to several hundred millions of pounds, to soften the impact of the “carbon price floor”.
Green campaigners such as Sandbag have set out how big businesses, including steel makers and energy companies, have benefited from the EU’s emissions trading scheme by receiving millions of permits for free.