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Letter: The need for a carbon intensity target in the power sector

From: Lord Deben & The Committee
To: Rt Hon Ed Davey MP

We are writing to express the great concern of the Committee on Climate Change about the recent Government statement “that it sees gas as continuing to play an important role in the energy mix well into and beyond 2030…[not] restricted to providing back up to renewables”.

Extensive use of unabated gas-fired capacity (i.e. without carbon capture and storage technology (CCS)) in 2030 and beyond would be incompatible with meeting legislated carbon budgets. These are, of course, designed to balance the costs and risks of meeting long-term objectives and they require significant investment in low-carbon power generation over the next two decades (see Attachment). Unabated gas-fired generation could therefore not form the basis for Government policy, given the need under the Climate Change Act to set policies to meet carbon budgets and the 2050 target. This does not deny the important medium-term role of gas in meeting our energy needs which is already factored into the budgets (i.e. predominantly for heat in buildings and industry), nor does it prohibit the use of our own gas resources for this purpose, if environmental concerns can be addressed.

However, the apparently ambivalent position of the Government about whether it is trying to build a low-carbon or a gas-based power system weakens the signal provided by carbon budgets to investors. It makes more pronounced the perceived risk that the Electricity Market Reform (EMR) will perpetuate the current stop-start approach to investment in low- carbon technologies. As a result, the cases for low-carbon business development, capital allocation, innovation and supply chain investment are undermined, damaging prospects for required low-carbon investments. This has been made clear to us in our extensive discussions with the energy and supply chain companies who it is hoped will fund the very significant investments needed in power generation over the next two decades, and who have suggested to us that the sector investment climate is currently very poor.

To address this risk, and to buttress the signal provided by carbon budgets, an appropriate approach would be to set a clear carbon objective for the EMR in secondary legislation (to reduce carbon intensity of power generation to around 50 gCO2 / kWh by 2030), as recommended by the Energy and Climate Change Select Committee.

This would provide more confidence about the direction of travel for the power system through clarifying and getting agreement on specific implications and underpinning assumptions of carbon budgets, and guiding EMR implementation through the Delivery Plan, therefore bringing forward low-carbon investments required to meet carbon budgets at least cost to the consumers.

It would also allow flexibility for periodic review (e.g. prior to drafting a Delivery Plan) and possible modification based on new information about technology costs, gas prices, carbon prices and feasible build rates.

It could be designed in a way to provide incentives for innovation and cost reduction, for example, through conditioning the level of ambition in the target / support for low-carbon technology on cost reductions being achieved.

We therefore strongly urge that you accept the recommendation of the Select Committee and address investor concerns by setting a 2030 carbon intensity target in secondary legislation with a reference to this in the next draft of the Energy Bill.