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16 | 11Th - 17Th JULY 2014 | UTILITY WEEK Policy & Regulation Market view I n May this year a short document entitled Summary for Policymakers IPCC WGIII AR5 was published under the auspices of the Intergovernmental Panel on Climate Change (IPCC). The report is a distillation of the most recent literature on the scientific, technological, environmental, economic and social aspects of climate change. It was pre- pared by one of the working groups involved in the preparation of IPCC's Fih Assessment Report (AR5), which is due to be completed later this year. Among other things, AR5 will assess the various mitigation options at different levels of society and in different economic sectors. Various scenarios are likely to be considered, and mitigants proposed, but it is clear from the summary that in the opinion of the IPCC carbon capture and storage (CCS) should play a key role in reducing carbon emissions in the future. Around the same time in May, the House of Commons Energy and Climate Change Committee published its own report, enti- tled simply Carbon Capture and Storage. The committee regularly discusses CCS in its sessions, and in 2011 in its report The UK's Energy Supply; Security or Independence? it concluded that the country could face a dilemma between its climate change obliga- tions and security of supply if full-scale CCS was not operational by 2020. Again in 2013 in its report on shale gas, the committee's frustration with the government's lack of progress on CCS was made clear and the gov- ernment was urged to get on with delivering CCS in short order. When it became clear that the 2020 date for delivering the first CCS project was look- ing imperilled, the committee decided that enough was enough and it duly launched its own inquiry in July 2013. The May 2014 report is the culmination of that inquiry. In the committee's view the UK is "ideally suited" to the deployment of CCS because of its geology, its engineering, industrial and academic capabilities and stated govern- ment policy, including framework enabling legislation, encouraging the technology. The capture, transport and storage technolo- gies involved are considered safe, and the scientific and engineering challenges are, relatively speaking, small. So why, the com- mittee asks, has progress been frustratingly slow? What needs to be done in the UK to ensure that CCS projects are built and up and running by 2020? The government has been trying to pro- vide capital support for a large-scale full chain CCS project for nearly ten years. Aer a much criticised failed first competition, a second competition was launched in 2012, and there are now two preferred bidders who have been awarded front end and engineer- ing design contracts. At the same time as the competition launched, the government published a CCS roadmap, which includes proposals for CCS to be supported through contracts for difference (CfDs). Despite these efforts the committee con- cludes that there is still a perception the process is taking too long and is too cumber- some. Indeed, the committee states the loss of a decade in the process is "extremely dis- appointing". It makes the following recom- mendations about what should be done to help CCS: • To ensure the credibility of the govern- ment's CCS policy, it is vital that final invest- ment decisions on the two projects in the CCS commercialisation competition are taken by early 2015, as originally envisaged, (rather than in 2106 as has been mooted recently) so there is a realistic chance of the first projects being operational by 2020. • CfDs for CCS are key to the success of the projects, but it will be necessary, and the energy minster Michael Fallon has rec- ognised the fact, to tailor the CfDs for CCS to individual projects. The generic CfD pub- lished under Electricity Market Reform does not adequately reflect the risk profile faced by CCS projects. Furthermore, the govern- ment should engage with those projects being developed outside the government competition and invite them to negotiate bespoke CfDs as soon as possible. • The government needs to provide clar- ity on the funding levels that will be avail- able for CfDs, and in particular CfDs for CCS under the Levy Control Framework. Cur- rently it is not known whether the level of funding post-2021 will be maintained or not. • One of the benefits of CCS in the UK is the potential for clusters of high-carbon emitters to share transportation and storage infra- structure, thus reducing costs and risks. To date there has been no indication how the costs of building such shared infrastructure would be dealt with. The CfDs in current form would not allow recovery of these costs, and the government is therefore encouraged to set out an action plan to incentivise clus- tering and provide support for these infra- structure costs. • The government needs to recognise the importance of communication with the public if lengthy planning delays are to be avoided. In addition, CCS licence conditions should require CCS companies to implement their own communication and engagement strategies with the local communities in which they operate • The government's scientific focus has largely been on transport capacity, and should be expanded to storage capacity. • CCS is regulated under the CCS Directive. There are concerns the directive imposes unreasonable and unnecessary burdens on CCS projects. The CCS Directive is due for review in 2015 and the government is urged to take a strong position in that review. In particular, the issues surrounding liabili- ties linked to long-term storage need further examination. Government support will be required for these long-term liabilities, and the government will need to consider tak- ing over the long-term ownership of stored carbon dioxide if investment is not to be deterred. There is certainly a lot to do, but the UK does at least have an established regime and a government committed to CCS. The IPCC WGIII AR5 report states that "for the large- scale future deployment of CCS, well-defined regulations concerning short and long-term responsibilities for storage are needed as well as economic incentives." The UK isn't there yet, but it is certainly well on the way. Lis Blunsdon, of counsel, Hogan Lovells Getting CCS back on track The government says it is committed to carbon capture and storage, but the climate change committee would like to see it do more to get a project up and running by 2020, says Lis Blunsdon.