The Coalition Government has announced plans to introduce an EPS for coal-fired power stations, which may be included in the Energy Bill 2010.

An EPS is a restriction on the amount of carbon dioxide that can be emitted from power stations per kilowatt-hour which aims to prevent new coal-fired power stations from being constructed, unless they are equipped with CCS facilities. The purpose of an EPS would therefore be to drive forward the development of low carbon generation.

In order to find out the true implications of an EPS on future investments, the UK House of Commons Energy and Climate Change Committee invited three representatives from business: Matthew Farrow from the Confederation of British Industry (CBI), Dr Jeff Chapman, Chief Executive of the Carbon Capture and Storage Association (CCSA) and Dr John McElroy, Chairman of the Association of Electricity Producers.  

This session was followed by a hearing of governmental representatives: Charles Hendry MP, Minister of State, Department of Energy and Climate Change (DECC) and three officials from the Office of Carbon Capture and Storage and the Energy Futures of the DECC.

During the first session, the discussions started and ended with the key question of whether or not an EPS would be an incentive for investments in CCS; the business representatives did not believe EPS would drive investments in CCS and enable the deployment of CCS on commercial scale, unless it is complemented by carbon floor price mechanism.

The causality link between EPS and investment certainty would not be effective without financial support to guarantee a return on investment.

The EPS design and level are also crucial questions, an EPS on the annual emissions would enable more flexibility, but ”a wrong level would drive the investments away.”

Demonstration is the priority but it requires that the government funds it. CCSA precisely urged the UK to move right away beyond the first four CCS demonstration projects in order to move the technology policy development forwards and thereby define the most efficient EPS design. ”Demonstration will get us there, not the EPS,” said Jeff Chapman from the CCSA. The Department of Energy and Climate Change agreed on the need of further technology demonstration:  “An increase in regulatory certainty will only support the development of CCS once there is confidence in its commercial and technical feasibility at this scale.”

Business representatives said that by 2030 an EPS will be necessary to prove that a power plant is decarbonized, but for now it cannot be a sign which secures the investors as it is bound to change gradually, unless the government anticipates the evolving design.

In the meantime, the planned CCS levy could be a significant incentive.

If an EPS is established at the national scale, the UK EPS must be appropriately designed to fit in a reboosted EU ETS. Otherwise, the emissions reductions will be offset by higher emissions in the EU due to the EU ETS cap. The EU ETS emissions cap must be urgently tighten up to incentivize investments in low carbon genration and give better visibility for post-2020 investments.

Furthermore, the business representatives expressed the wish that similar regulation were adopted in the rest of the EU.

Listen to the session on the Parliament TV website.