Part 1: Carbon Capture and Storage and Decarbonisation Summary  and Background
10.Carbon Capture and Storage (CCS) is a process involving the capture of carbon dioxide from the burning of fossil (or other combustible) fuels, its transportation, and permanent storage in underground geological formations, for example in old oil and gas fields, or in saline aquifers. CCS could reduce the carbon dioxide emissions from a range of industrial processes, including coal-fired and gas-fired electricity generation, by around 90%.
11.The Stern Review(2) highlighted the potential role that CCS could play in tackling climate change and analysis by the International Energy Agency (IEA)(3) shows that CCS will need to deliver almost 20% of the total greenhouse gas emissions reductions we need to achieve by 2050 if we are to stabilise carbon dioxide concentrations in the atmosphere at an acceptable level cost-effectively. The same analysis by the IEA concluded that the global costs of tackling climate change would increase by 70% without CCS available as a proven technology. While pilot CCS projects for power generation (up to about 30MW) have been taken forward and will provide valuable lessons, CCS has never been applied at commercial-scale on a power station – and this transition to commercial-scale use is the critical next step.
12.The Government launched a competition in November 2007 to build one of the world’s first commercial-scale CCS demonstration projects in the UK. In June 2009 the Government published a consultation document: A Framework for the Development of Clean Coal(4). Amongst other things, this consultation set out proposals for a financial incentive mechanism to support up to four commercial-scale CCS demonstrations, including the winner of the competition launched in 2007. In the response to this consultation(5) (published in November 2009) the Government announced that this financial support mechanism would also provide funding, if required, for the retrofit of CCS to the full capacity of power stations hosting demonstration projects funded by the Government. The 2009 Pre-Budget Report confirmed that the mechanism would be used to support four commercial-scale demonstration projects on coal-fired power stations.
13.This Part of the Act sets the statutory framework for establishing a mechanism to provide financial assistance to commercial-scale CCS demonstration projects and, should it be needed at a future date, support for additional CCS use at those initial demonstration projects which will have received funding.
14.The mechanism will be funded through a levy paid by electricity suppliers in Great Britain which will be collected by an administrator (which will be Ofgem unless regulations under section 6 provide for it to be another public body). The administrator will also be responsible for disbursing financial assistance to CCS projects (for demonstration and the subsequent installation of additional CCS capacity) either in the form of payments made directly to projects, or to the Government to fund payments to such projects made by the Secretary of State. The Government intends to select the projects that will receive financial assistance through one or more competitive processes.
15.Where the administrator is providing financial assistance direct to CCS projects, arrangements for this will be set out in assistance schemes established specifically for this purpose. These schemes will be made by the Secretary of State and may include provisions such as the requirements to be met in order for CCS projects to receive financial assistance, the level of that assistance, and any requirements about the provision of information. CCS project developers must comply with the terms of the scheme to which they have consented as failure to do so may leave the developer subject to the imposition of civil penalties or, depending on the provisions of the scheme, to its termination.