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A 94% solution – low carbon energy without nuclear power A Liberal Democrat proposal to create a low-carbon electricity generation system, without recourse to nuclear power David Howarth MP Liberal Democrat Shadow Energy Spokesperson Chris Huhne MP Liberal Democrat Shadow Environment Secretary Susan Kramer MP Liberal Democrat Shadow Trade and Industry Secretary May 2007 1 Status of this paper: This is a paper produced by the shadow spokespeople responsible for the areas that it covers. It is compatible with existing party policy. The Liberal Democrats will be discussing a full package of climate change measures at their conference in September 2007. 2 A 94% solution – low carbon energy without nuclear power We can create a low carbon energy system to tackle climate change without nuclear power, according to research carried out for the Liberal Democrats. The research shows that by 2050, a 94% reduction in carbon emissions from electricity generation can be achieved without resorting to nuclear power. Summary Contrary to the government’s claims, a low carbon electricity supply system is possible without resorting to nuclear power. The long-term aim should be a fully renewable system. Only such a system will be truly sustainable and secure. The choice we have now is between carbon capture and nuclear power as transitional technologies to take us towards a fully renewable system. Carbon capture is better on grounds of flexibility, compatibility with renewables and microgeneration, safety, waste, proliferation, counterterrorism, security of supply, and benefit to the British economy. The key to a sustainable system is raising the cost of carbon. Doing so will help the economy because it will raise investment levels. Carbon prices for the electricity generating industry around the levels implied by Stern mean a 94% drop in carbon emissions from electricity generation compared to 1990 levels without the need to resort to nuclear. A wide range of policies, including feed-in tariffs and minimum auction prices on carbon allowances, are required to raise the cost of carbon for electricity generators. Energy efficiency remains the cheapest way to tackle carbon emissions. Policies to encourage energy efficiency include not only the policies announced in our paper on emissions from housing but also far greater encouragement of combined heat and power and microgeneration. Allowing nuclear back into the picture crowds out renewables more than gas. It leaves us further away from the long term goal of a fully renewable system and provides no significant benefit in terms of security of supply. 3 A 94% solution – low carbon energy without nuclear power We can create a low carbon energy system to tackle climate change without nuclear power, according to research carried out for the Liberal Democrats. The research shows that by 2050, a 94% reduction in carbon emissions from electricity generation can be achieved without resorting to nuclear power. By 2050, the energy mix would include wind power, wave power, tidal power and gas and coal using carbon capture and storage. Britain would be well on its way to a completely sustainable electricity generating system. In contrast, if nuclear power were allowed into the mix, it would crowd out renewable energy, leaving us further away from the eventual goal of full sustainability. A non-nuclear low carbon electricity generating system is within our grasp if we are prepared to encourage renewables and carbon capture and storage. The industry could achieve this given the right incentives – essentially if it faced a cost of carbon similar to that which the Stern Report suggests is necessary to take into account the adverse effects of climate change. Concerns about competitiveness at these levels of carbon price are misplaced. Decarbonisation will boost the economy through inducing investment. Britain will benefit from taking the lead in technologies such as carbon capture and storage. To achieve a carbon price near to the Stern Review‟s estimate of the environmental and social cost of carbon, an intelligent mix of policies and means of energy generation is needed. Relying on, or championing just a few generation methods will negatively affect the UK‟s ability to reduce carbon emissions and encourage renewable energy production. If that is done, renewable power and massive reductions in emissions become economic. A slightly higher cost of carbon would produce further progress towards a fully renewable system. Nuclear vs Carbon Capture The goal of a completely renewable energy system in Britain is entirely plausible in the long term. Britain is enormously rich in renewable energy resources. There is sufficient wind, tide and wave energy, not to mention solar energy, biomass and geothermal energy, to provide Britain‟s current electricity demand many times over. Even looking at readily accessible resources, it is already possible to envisage an entirely renewable electricity generating system. A fully renewable system would simultaneously solve the two biggest problems of energy policy: it produces no carbon emissions and its fuels – the wind, the tide, the waves and the sun – would be entirely secure. 4 The central problem is that it will take a long time to transform a system that is almost completely non-renewable into one that is completely renewable. By 2050 we can make enormous progress, but even by then the work will far from be complete. That means that we will have to rely on other technologies to help us make the transition. The most important immediate question is which transitional technology we should use. Nuclear power is one possibility for such a transitional technology, but it now has a rival in the form of the rapidly emerging carbon capture and storage technology. Progress on carbon capture and storage has been so fast recently that, according to a spokesperson for Scottish and Southern Electricity, which is proposing a 350 MW carbon capture gas-fired power station at Peterhead, “All the technology is proven at the desired scale – we are only demonstrating the ability to integrate technologies.” Liberal Democrats argue that the real choice now is between nuclear power and carbon capture and storage as a transitional technology. We believe that the ultimate goal has to be a fully renewable system, but the immediate question is how to reach that goal. Our contention is that carbon capture and storage is a better interim solution than nuclear power. In terms of costs, carbon capture is likely to be no more expensive than nuclear, and, given the opportunities for technical and organisational improvements, may well turn out to be cheaper. Already questions are being raised about whether the recent interest in financial circles in financing new nuclear power stations can be maintained in the light of the increasing interest in carbon capture. The principal reasons why Liberal Democrats prefer carbon capture to nuclear power as an interim technology are: Carbon capture allows continued use of gas and coal fired power stations, which are flexible in output. That means that they are ideal to use in conjunction with some forms of renewable power, such as wind power, that are themselves not very flexible (or at least flexible in only one direction). Nuclear power, in contrast, is difficult and costly to use flexibly and thus puts barriers in the way of renewable energy. Both carbon capture and nuclear power produce waste and both forms of waste have their risks, but the waste produced by nuclear power is far more dangerous than CO2. Carbon capture, unlike nuclear power, is not an inherently dangerous technology using inherently dangerous materials that have military or terrorist uses. It thus poses no risks for proliferation and does not require an extensive and costly security apparatus to protect it. The risks associated with nuclear accidents are so great that the industry has needed a vast hidden subsidy in the form of a cap on liability to be viable. Carbon capture will not need such hidden subsidies. Carbon capture and storage is a technology in which Britain is in a position to take a lead, especially using skills developed in the North Sea, whereas nuclear power can only go ahead on the basis imported technology. In terms of security of fuel supply, nuclear power uses an entirely imported form of fuel, namely uranium, whereas carbon capture will allow the continued use of a domestically produced fuel, namely coal. Moreover, carbon capture works in terms of timing. The government makes much of the fact that all but one of the existing nuclear power stations will come out of commission in the next 20 years. But the government has also admitted, in its 5 responses to the Commons Environmental Audit Committee, that even if the planning and licensing systems are both extensively reformed to favour nuclear power, replacement nuclear power stations will make little or no contribution to generation capacity before 2020.1 Any problem of security of supply before 2020 will have to be managed without nuclear power, even by those who favour it. Not entirely by coincidence, the European Commission is proposing that after 2020, all fossil fuel power stations in Europe must operate carbon capture and storage. Nuclear and carbon capture are thus directly in competition for precisely the same period. Decisions taken now to favour nuclear power, however, would tend to undermine the development of carbon capture over precisely the period of time when carbon capture needs most support. Finally, we believe that the effect of going forward with both carbon capture and storage and nuclear will be to crowd renewables out the market. We need to make progress towards a truly sustainable system. Only by choosing between carbon capture and nuclear can that be done. Getting to a 94% cut in carbon emissions All serious commentators agree that the key to reducing carbon emissions into the atmosphere and thus to making a contribution to tackling climate change is the cost of carbon. Unless the cost of emitting carbon (and other greenhouse gases) rises substantially, the electricity generating industry will continue to make decisions about which technologies to use based solely on the private costs it faces, not on the costs to the environment that carbon emissions cause. Raising the cost of carbon is the principal policy instrument that governments have to reduce emissions. Raising the cost of carbon will inevitably lead to higher energy costs for industry and consumers, although in our estimation the increase needed will be much less than the rate of growth in the economy as a whole. Individual bills will, of course, not necessarily rise at the same rate since many businesses and households will be able to economise on energy. It is crucial that other efforts to encourage energy saving are made – including the wider adoption of combined heat and power and microgeneration, which will both reduce bills and save more carbon. In addition, the EU needs to embark on a review of single market regulations that will ensure energy efficiency is built into European product standards, curbing electricity use. The Stern Report has pointed out that the cost of doing nothing about carbon emissions will be greater than the cost of taking effective action. Indeed, new work in the economics of technological change has shown that policies that tackle climate change by driving up the cost of carbon can have a beneficial effect on the economy as a whole by inducing new investment.2 In addition, using revenues from auctioning carbon allowances and carbon taxation to reduce other taxes can itself bring an economic benefit by reducing the distortionary effects of taxation. 1 Environmental Audit Committee, „Government Response to the Committee‟s Sixth Report of 2005-6: “Keeping the Lights On: Nuclear, Renewables and Climate Change”‟ (2007) HC 196 p 15. 2 See eg Köhler, J., M. Grubb, D. Popp, O. Edenhofer and M Galeotti (2006). “The Transition to Endogenous Technical Change in Climate-Economy Models.” Energy Journal - Special Issue, Endogenous Technological Change and the Economics of Atmosperic Stabilization, 17-55. 6 The appropriate cost of carbon is a matter of policy rather than economics. The question is what level of carbon price will produce the effect we want to see. We can however get some idea of what price we should be prepared to pay from thinking about the effects of climate change that we are setting out to avoid. Sir Nicholas Stern estimated that this „social cost of carbon‟ depended to some extent on whether and when we took effective action to reduce the level of carbon emissions, and he cautiously excluded from his estimate costs associated with the possible societal effects of climate change, such as mass movements of population, civil strife and wars between states. If we were to set the cost of carbon at somewhere around the middle of the Stern range, new research carried by the Liberal Democrats, using readily available data and moderate assumptions about the cost of generating electricity by various methods, shows that even without resorting to nuclear power, it is possible to move to a situation by 2050 in which emissions from electricity generation would be 94% lower than their 1990 levels. With a carbon price right at the top of the Stern range, solar power comes into the picture and the carbon savings rise to a staggering 97%. On this scenario, electricity prices would rise over the long term, but at a rate that over the entire period between now and 2050 would be less than normal economic growth. The additional investment induced by the policy might also raise economic growth. Although rising prices might in principle present difficulties for those whose incomes rises more slowly than the economy as a whole, in practice this problem can and should be addressed specifically and not become an excuse for wider inaction. We have already set out ambitious plans that will give the first priority in improving energy efficiency in the home to those on low incomes. Electricity Generation Mix in 2050 (no nuclear scenario) Imports, 4% Onshore Wind, 11% Imports, 4% Solar, 18% Onshore Wind, 11% Offshore Wind, 35% Offshore Wind, 35% Wave, 10% Tidal, 14% Hydro, 1% Other, 1% Wave, 10% Gas, 19% Tidal, 14% Gas, 7% Coal, 5% £ 40 /tCO2 £ 65 /tCO2 Carbon price faced in generating market 7 The percentage reduction in carbon emissions by 2050 is not, however, the most important measure of carbon emissions. Because carbon dioxide stays in the atmosphere for a century, a more important consideration is the total amount of carbon emitted across an entire period. Our research shows that with determined action now, carbon emissions from electricity generation can reduce quickly enough after 2015, and especially in the 2020s, that total emissions (indicated in the chart by the area beneath the curve) can be contained to acceptable levels. Carbon Emissions from Electricity Generation 1930 1950 1970 1990 2010 2030 2050 Nuclear Crowds Out Renewables More Than Gas Our modelling also illustrates what might happen by 2050 if nuclear power is allowed back into the picture in the presence of the carbon capture and storage option. The government gives the impression that nuclear would not affect renewables but would eliminate dependence on foreign gas. Our research indicates a very different, and more realistic, result. Although the amount of gas used might go down, from 19% to 15%, that is hardly a significant change in terms of security of supply, especially when more gas is used to heat buildings than to generate electricity. Our proposals to improve the energy efficiency of buildings would have a vastly bigger impact on gas dependency.3 The overwhelming majority of the adverse effect of nuclear power would be on renewables, especially on offshore wind power and wave power. We would be left further away from the goal of an entirely renewable system, but without any substantial benefit in terms of security of supply. 3 Chris Huhne and Andrew Stunell, „Climate Change Starts At Home‟ (Liberal Democrats 2007) 8 Electricity Generation Mix in 2050 (with or without nuclear) Imports, 4% Onshore Wind, 11% Imports, 4% Onshore Wind, 11% Offshore Wind, 27% Offshore Wind, 35% Wave, 7% Wave, 10% Tidal, 14% Hydro Nuclear, 15% Other Tidal, 14% Gas, 19% Gas, 15% Coal, 5% Coal, 5% No Nuclear With Nuclear Increasing the Cost of Carbon Liberal Democrats already support a range of policies the effect of which would be to raise the cost of carbon emissions to the electricity generating industry and to the economy as a whole. We envisage using a wide range of policy instruments including changes to taxation, design of the electricity supply market, reform of emissions trading schemes and direct regulation. Some policies change the price of carbon across the economy as a whole, while others change the price of carbon only in the areas of the economy they cover. What we are interested in here is the combination of the two in changing the effective price of carbon faced by generators in the electricity market. Policies to produce an effective carbon price in the electricity generating market of around the Stern level include: Encouragement of renewables in the short term using a „feed-in tariff‟ system. In Germany a feed-in tariff system has produced four times the progress in renewables than that achieved in Britain. Feed-in tariffs operate by requiring the grid to take minimum amounts of electricity generated in particular ways at minimum prices. The British alternative, the „renewables obligation certificate‟ system has proved to be ineffective and should be phased out. 4 A tighter emissions trading system that includes auctioning of permits, with government setting a reserve price for carbon emissions below 4 For a comparison of ROCs (including the possible „banding‟ reform) with a plausible feed-in tariff system for Britain, see Angus Johnston, Amalia Kavali and Karsten Neuhoff, „Take-or-pay Contracts for Renewables Deployment‟ (Cambridge, January 2007) CWPE 0723 & EPRG 0707 http://www.electricitypolicy.org.uk/pubs/wp/eprg0707.pdf. 9 which permits would not be released onto the market. Electricity generators would have to buy at the reserve price to stay in business. Auctioning with reserve prices would also generate revenue for the government that it could use to reduce other taxes, fund research and development and help low-income families with fuel bills. Supply-side measures such as implementation of the proposed European Directive of Carbon Capture and Storage that will require the use of carbon capture and storage after 2020. Liberal Democrats would also launch a series of radical energy saving measures designed to hold demand for electricity for existing uses at about the same level as now despite rising incomes and population. This would allow the greater use of electricity for uses such as transport, further reducing emissions. These include: An extended and tradeable energy efficiency commitment system Regulation to eliminate, preferably through labelling schemes (such as compulsory energy rating of a wide range of products) or, if necessary, through direct prohibition, energy inefficient products, from standby devices to high energy plasma screens Greater use of combined heat and power Incentives for increased efficiency in power transmission, including dynamic demand technology Better treatment of microgeneration, including paying microgenerators a fair price for electricity sold back to the grid Summary Contrary to the government’s claims, a low carbon electricity supply system is possible without resorting to nuclear power. The long-term aim should be a fully renewable system. Only such a system will be truly sustainable and secure. The choice we have now is between carbon capture and nuclear power as transitional technologies to take us towards a fully renewable system. Carbon capture is better on grounds of flexibility, compatibility with renewables and microgeneration, safety, waste, proliferation, counterterrorism, security of supply, and benefit to the British economy. The key to a sustainable system is raising the cost of carbon. Doing so will help the economy because it will raise investment levels. Carbon prices for the electricity generating industry around the levels implied by Stern mean a 94% drop in carbon emissions from electricity generation compared to 1990 levels without the need to resort to nuclear. A wide range of policies, including feed-in tariffs and minimum auction prices on carbon allowances, are required to raise the cost of carbon for electricity generators. Energy efficiency remains the cheapest way to tackle carbon emissions. Policies to encourage energy efficiency include not only the policies announced in our paper on emissions from housing but also far greater encouragement of combined heat and power and microgeneration. Allowing nuclear back into the picture crowds out renewables more than gas. It leaves us further away from the long term goal of a fully renewable system and provides no significant benefit in terms of security of supply. 10
"Outline of Energy White Paper Response"