Financial Times: Backlash against carbon capture plan

By Rebecca Bream and Fiona Harvey
Published: October 12 2007 03:00 | Last updated: October 12 2007 03:00

Several energy groups led by Centrica are preparing to challenge a government plan for subsidising low-emission power generation, accusing ministers of poor consultation and potentially wasting taxpayers’ money.

John Hutton, the business and enterprise secretary, announced on Tuesday that the government would subsidise only one “carbon capture and storage” power plant, to be chosen through a competition among energy suppliers.

However, he drew fierce criticism from sections of the industry and the carbon markets by stipulating that the support would be awarded only to companies using “post-combustion” carbon capture techniques at a coal-fired plant. The result is that many companies’ plans have been suddenly made ineligible.

The method requires carbon dioxide to be separated from the flue gas produced when fossil fuels are burnt to generate electricity. A chemical solvent is used to take out the carbon dioxide, by a well-established industrial process.

An alternative method, rejected by the government, is to capture carbon dioxide pre-combustion, using technology called integrated gasification combined cycle.

This requires the fuel to be combined with oxygen, air or steam, to produce a gas consisting mainly of carbon monoxide and hydrogen.

A reaction between carbon monoxide and steam then produces hydrogen and carbon dioxide, which is separated off.

Mr Hutton said coal had been chosen as the fuel with which to demonstrate the project because it was abundant but dirty.

A spokesman said the technology was the most easily retrofitted to existing power stations, particularly in developing countries such as China.

He added that the US and Norway were working on different technologies, so it made sense for the UK to choose its own route.

But Ian Temperton, managing directory of the advisory unit at Climate Change Capital, an independent investment bank specialising in climate issues, said the government had made a mistake in picking a technology winner.

“We think that the government’s decision to back only a post-combustion carbon and capture power plant is wrong. The government is basically telling power companies that they can keep building conventional high- emitting coal plant and that the taxpayer will bail them out.”

Energy companies whose carbon capture projects are now not eligible for subsidies were yesterday preparing to mount a challenge to the government’s decision.

Centrica, owner of British Gas, is leading the formation of an industry group to oppose the policy, which is expected to include Shell, Marathon Oil, ConocoPhilips, BP, Scottish and Southern Energy, and Richard Budge’s Powerfuel group, as well as Climate Change Capital and Greenpeace.

Nick Luff, Centrica finance director, was last night due to raise the issue with Mr Hutton at a dinner, and top executives of the energy companies are planning to meet over the weekend to discuss what form the challenge will take.

Centrica accuses the government of not consulting energy companies properly before making its decision and says that funding post-combustion projects is not the best use of taxpayers’ money.

“Excluding pre-combustion capture technology in favour of post-combustion capture technology means bypassing a cheaper method for capturing carbon that will have more international application in favour of a technology largely used to retrofit existing coal plant,” said Jake Ulrich, managing director of Centrica Energy.

Centrica was planning to put forward its £1bn pre-combustion capture project on Teesside, but said that without government funding there was “a question mark over the economics of this project”.

Scottish and Southern Energy, Powerfuel and Eon have all been working on pre-combustion carbon capture projects that now look in doubt. Scottish and Southern said it would encourage the government to review its decision “to ensure that the scope of the competition allows the maximum possible participation”.

Copyright The Financial Times Limited 2007

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