Emissions Performance Standards

The Coalition Agreement contained a commitment to establish an emissions performance standard (EPS) that will prevent coal-fired power stations being built unless they are equipped with sufficient carbon capture and storage to meet the required standard. The Government plans to consider proposals for an EPS alongside a number of electricity market reforms in the Autumn of 2010.

The Committee on Climate Change has argued that the most cost effective pathway to meeting the UK’s 2050 carbon emissions target would involve a significant decarbonisation of the power sector by 2030, reducing the carbon intensity of the whole sector to less than 70 gCO /kWh. The existing policy framework, including the EU Emissions Trading 2 System (ETS), the Renewables Obligation and the Carbon Capture and Storage (CCS)

demonstration programme, does not appear to us to be sufficient to deliver the level of investment in new low-carbon generating capacity that will be needed to meet this target.

We therefore welcome the Government’s decision to conduct a review of the electricity market and to consider introducing an EPS. However, we are concerned that the interactions and overlaps of an EPS with existing policies as well as proposed new market reforms are not yet sufficiently understood. We therefore call for an independent review of regulations and market reforms in the electricity sector.

Emissions Performance Standards have been used in California and a number of other American States to prevent new unabated coal-fired power stations from being built. It is slightly less clear what a UK-based Standard would be intended to achieve. An EPS could be designed to meet a number of policy objectives which we have considered:

• An EPS could force faster emissions reductions from the power sector in a way that the EU ETS cannot do because the cap is too high and because high carbon power stations remain free to operate by purchasing allowances in the market.

• An EPS could be used to prevent new high-carbon infrastructure being built, and so avoid the risk of the UK becoming “locked-in” to a high-carbon energy system.

This could be a legitimate role for an EPS, although there are other measures, such as tighter planning policies, that could achieve the same end.

• An EPS could provide a robust emissions reduction framework for the electricity sector, providing clarity about the Government’s expectations in this area.

• An EPS could stimulate the development of carbon capture and storage (CCS) and other low-carbon technologies, especially if it was part of a package of wider measures including a financing framework. However, there is a risk that, if introduced too quickly on its own, an excessively stringent EPS could undermine investment in this sector.

• An EPS could ensure the deployment of CCS technology, once it has been successfully demonstrated at scale.

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There is a range of options to be considered in designing an EPS for the UK, including the way in which the limit is expressed, the facilities to which it applies, when it should come into force, whether and how it should be made more stringent over time and whether there should be any exceptions to the regulation. It is vital that all options are given full consideration to avoid unintended outcomes as far as possible, such as:

• creating uncertainty for investors and thereby undermining investment in new low-carbon electricity infrastructure; • preventing adequate capacity from being available to meet peak demand; • driving investment in new infrastructure elsewhere in Europe; and • having too great an impact on the prices electricity consumers have to pay.

The introduction of a UK-based EPS presents an opportunity for the UK to demonstrate leadership and commitment to the climate change agenda. The UK’s EPS could serve as a template for other countries to use when developing their own proposals. There is also scope to collaborate at the wider international level with other countries that are considering introducing such a scheme. An EPS may also be helpful in developing sectoral approaches to international agreements for the power sector. We urge the Government to engage more closely with our European neighbours in sharing best practice in this area.