Climate change costs to rise due to removal of Carbon Capture support
The cancellation of a £1bn competition to develop carbon capture and storage (CCS) technology could push up the costs of meeting climate targets according to Whitehall's spending watchdog.
The Treasury made the decision last year to ditch the competition which would capture emissions from fossil fuel power stations or heavy industry and store them permanently underground.
The move will delay deployment of CCS – an initially costly technology which is expected to fall in price after the first projects are up and running – until after 2030 and could make long-term carbon cuts more expensive, the National Audit Office (NAO) said.
Without the technology, a more expensive mix of low carbon technologies will be needed to cut the UK's greenhouse gas emissions by 2050 in line with legally-binding targets to tackle climate change.
A report by the NAO revealed that the Department of Energy and Climate Change (DECC) warned the Treasury before the decision that meeting the targets by 2050 without CCS would cost an extra £30bn.
Yet neither the Treasury or DECC, which had spent £100m on the competition before it was cancelled, estimated the cost of delaying the roll-out of the technology.
Up to two projects would have benefited from £1bn funding and an estimated £570m over 15 years in contracts for the energy they generated, paid for through consumer bills.
Yet they would have brought down the costs of CCS by 23 per cent and delivered an estimated £4.3bn in benefits to society, according to the NAO's briefing for the parliamentary Environmental Audit Committee (EAC).
The surprise announcement to cancel the competition, buried on the day of the spending review, means CCS will not meaningfully contribute to cutting emissions before 2030.
A government assessment has shown that the UK is currently set to miss its targets for the 2020s by around 10 per cent.
There is also "no viable way to achieve deep emissions reductions from the industrial sector in the near future," meaning industry will have to buy permits to cover their pollution, exposing businesses to fluctuating carbon prices, the NAO said.
The cancellation also increases the risk that investors will be deterred from dealing with the government in the future, or will demand higher returns to do so.
The risk is further increased by the timing of the announcement at a late stage in the competition.
In response to the report, EAC committee chairwoman Mary Creagh said: "The last minute cancellation of support for carbon capture and storage 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.”
A government spokeswoman said: "We are committed to meeting our climate change targets in a way that is affordable and provides secure energy to our families and businesses.
"We haven't closed the door to CCS in the UK, but we are clear that it needs to come down in cost and are considering the role that it could play in long-term decarbonisation."
A report by the Committee on Climate Change last month found that CCS was essential to developing a larger-scale fracking industry in the UK without breaking climate change targets.