Carbon budget: How funding cuts stalled the fight against climate change and shredded the UK's reputation

On 25 November 2015 Britain terminated a £1bn fund to advance a green technology experts say is essential to averting a climate disaster. Now, internal UK government emails obtained by IBTimes UK bring to light the international diplomatic embarrassment the decision caused just days later at the Paris Climate Conference.

The UK was going to be lauded in Paris for its admirable £1bn Carbon Capture and Storage (CCS) Competition. Yet just five days before the negotiations began the government announced that the money was "no longer available".

Multinational oil and gas giant Shell, and energy group Drax, had spent years and multiple tens of millions of pounds vying to win the cash and fit the technology either to a coal, or to a gas-fired, power plant.

According to most experts, without CCS technology the world is going to bake. Coal and gas-fired plants are among the largest sources of carbon emissions on Earth. Fossil fuel combustion makes up about 90% of global emissions. Coal power alone represents nearly half the world's electricity generation.

Carbon capture and storage — or CCS for short — promises to take most of those emissions out of the air by fitting these industries with technology that liquefies the emissions and stores them kilometres deep in the Earth's crust.

The technology is essential to mitigate the 2,440 new coal plants planned to come online worldwide by 2030. It's also key to the UK meeting its 5th Carbon Budget targets announced today (30 June) by Amber Rudd, the UK's Secretary of State for Energy and Climate Change.

It's expensive, but it works, and was dreamt up as a stopgap as fossil fuels are phased out by greener technologies. Electricity right now is the largest source of UK emissions. Without CCS, the UK Energy Technologies Institute calculates it will cost Britain an extra £32bn each year to run its economy by 2050 than it would otherwise.

Living up to carbon emission targets in pacts like the Paris Agreement, signed in April, and the UK's own 2008 climate change law, will force Britain to invest in ways to reduce its emissions by 80% in the next 30 years or pay the price.

Cutting the fund won't only cost the UK. In the days after the £1bn cut a high-level International Energy Agency official wrote a series of damning emails to Britain's top Paris climate negotiator, Peter Betts, Director, International Climate Change at the UK's Department of Energy and Climate Change (DECC).

The move was "very bad news for CCS internationally," according to the official, who has a leading role at the IEAGHG — the International Energy Agency's Greenhouse Gas R&D Programme, which represents OPEC, 16 nations - including the US and Canada – and multinationals such as GE, ExxonMobile, and Chevron.

The emails, obtained through a Freedom of Information request, show that two days before the Paris climate conference Betts heard that a new "high-level" United Nations Framework Convention on Climate Change (UNFCCC) report would hold up CCS as one of six global priorities to tackle climate change.

The report underscored the "significance of the
 UK's £1bn commercialisation programme as one of four examples of best practice" to reduce carbon emissions globally, the IEAGHG official wrote.

The report was published and distributed at the Paris conference with references to the UK's £1bn investment left intact. Carbon capture programmes like Britain's, it read, are essential to build up the technology so it can be shared between nations.

The UK's funding, the report said, will "generate learning-by-doing, help drive down the costs of CCS," prove carbon regulations work, develop the foundations of a business model, and create the infrastructure — such as pipelines — needed for the future. The UK was working with China, Canada, and other nations to lead the way in CCS.

So the investment cancellation "may prompt questions to the Prime Minister and other HMG delegates" from Britain's international partners, wrote the IEAGHG official. "I am running the only main UNFCCC Side-event on CCS.... so I would like to ask if I could be given the official DECC lines and response."

On the second day of the conference, the IEAGHG official is told that the "government's view remains that there is a potential role for CCS in the long-term decarbonisation of the UK."

He is asked to highlight a £1.7m fund spread across three small CCS projects as a sign of British good will. The £1bn funding cut, he is told to tell international officials, "was a difficult decision, reflecting the very challenging fiscal context."

For the UK to wipe out a fund that "the UNFCCC themselves had signalled as being one of the key indications of progress, I do think shows the significance of this backtrack," said Labour MP Barry Gardiner, Shadow Secretary of State for Energy and Climate Change.

"This U-Turn from the government has actually much, much wider ramifications than just saving the odd billion pounds to the Exchequer."

The decision's cost to taxpayers, and impact on the country's "objectives of decarbonisation," will be summed up this summer by a National Audit Office review . The UK is known to have spent some £100m on feasibility and design studies for the defunct projects and has invested £60m in the World Bank's CCS fund — as well as at least £13m spent setting up its own CCS research branch.

This cash, not to mention the political capital and diplomacy the UK invested in international partnerships, has been needlessly squandered, Gardiner said.

The UK had built international partnerships to develop the technology with nearly every major nation. In 2013 the UK's CCS research branch signed a memorandum of understanding with China to exchange staff and expertise: for the most part this was going to focus on the project built with the £1bn fund. "We've put a lot of diplomatic energy and effort into that relationship with China in doing the joint development of CCS," said Gardiner.

At the Paris Climate Conference, frustration and disappointment from the UK's other international partners was palpable.

Senior US Environmental Protection Agency administrator Gina McCarthy spoke out about Britain scrapping the £1bn fund. "Why would anyone want to identify such an important technology as off the table for consideration as moving to a low carbon future?" she asked a BBC reporter. "Why would you do that?"

Her frustration is shared by other nations. As late as 5 November 2015, top UK DECC officials met with their counterparts from China, Canada, Russia, Germany, and the United States at the 6th Carbon Sequestration Leadership Forum Ministerial Meeting in Riyadh, Saudi Arabia, to share details of the UK's grand CCS plans.

These meetings – a forum for nations to share technical information about CCS and devise policy – have taken place for more than ten years. There were great expectations amongst the 23 member nations for the project that would emerge from the UK fund.

In 2013, at one of these meetings in Washington DC, Britain and Canada's environment ministers issued a joint statement. "Carbon Capture and Storage is a technology of global importance in efforts to reduce carbon emissions to meet the shared challenge of climate change," they said. It highlighted all the collaboration they have done to advance the technology.

Around the time of the joint statement, seven members from Britain's Energy and Climate Change Select Committee travelled to Canada's capital to learn about the country's CCS progress from top government officials. Documents released through a Freedom of Information request in Canada show that the delegation was keen to hear about whether the "UK government's approach, set out in its CCS Roadmap, [was] likely to incentivise development of CCS in the UK," what impact the technology would have to mitigate climate change, and the role UK CCS could play globally.

Canada has three large commercial CCS projects operating today — including the world's first commercial scale coal-fired power plant fitted with the technology. Another large project is also under construction. The select committee travelled to Regina and Calgary in western Canada to tour two of them.

British researchers work at a UK-funded CCS research initiative in Alberta. The UK even has a diplomat stationed at the British Consulate in Calgary who monitors Canada's progress in CCS technology.

Canadian officials admonished the UK's backtracking on CCS and the work they've done together. "The success of the CCS technology worldwide requires a global collective effort toward its broader deployment," said a spokesperson from Natural Resources Canada.

Cancellation of the UK's funding, they said, "could have an impact globally, since the International Energy Agency (IEA) has said that the technology is essential for limiting climate change to 2°C worldwide."

Amidst the flurry of emails sent to and from the UK's DECC and the IEAGHG official ahead of the Paris conference, the official points out that Luke Warren, CEO of the Carbon Capture & Storage Association (CCSA) — which represents 34 industry players including BP, Statoil, and Shell — pulled out of attending the conference because of the UK's decision.

This showed the immense disappointment in the UK, not just from nations, but business too.

"There was an absolute incoherency," Warren said, between cutting the £1bn fund and the UK government the next week going to Paris "to push for an outcome that requires the very technology they just scrapped."

All of the climate "modelling work for how the UK is going to deliver on its carbon budgets says that we still need this technology," Warren said. "If the government wishes to still be able to use gas to generate electricity to use for heating, wants to retain energy intensive industries in the UK, it's going to have to develop CCS."

The CCS development program in the UK had been underway for 10 years. "We were literally weeks from having the projects submit their formal bids into government, and almost at the final hurdle," he said.

Before the funding was pulled Shell had been working for four years on the Peterhead Project, a gas plant in Aberdeenshire, Scotland, that promised to create 600 jobs in the UK's north-east. It looked like a shoe-in for the £1bn fund after Drax stopped financial support for its White Rose coal-plant proposal last September.

If built, Peterhead would have captured around 85% of the plant's emissions and become the world's first gas-fired power station fitted with CCS. The plant would have used an existing pipeline to pump the liquefied carbon 2.5km down into a depleted gas field beneath the North Sea.

Labour's Gardiner believes it "will take five years of stability" in government policy for it to regain the investor confidence of companies like Shell. That's a massive setback in moving to a low carbon economy.

Last October the investment management company Schroders, which handles £300bn in investments for clients globally, gave written evidence to the UK's Climate Change Select committee.

"Unless returns are raised or we are given concrete evidence of less policy risk going forward it's unlikely we will invest in UK energy or infrastructure," Schroders wrote. They were talking specifically about cuts to subsidies for renewable energy such as wind and solar power made last July that saw these industries lose as much as £600m. Fossil fuels, on the other hand, get £27bn in subsidies in Britain, IMF figures show.

"Five years ago the UK was considered the safest place in Europe to invest in UK energy and infrastructure as a result of policy confidence," Schroders wrote. "That has now evaporated and is no longer our perception."

Prime Minister David Cameron provided few details to explain the £1bn funding cut. On 12 January he told a Liaison Committee of MPs that the economics of CCS "at the moment really aren't working."

As it stands, Cameron said, it costs roughly £170 per megawatt-hour of energy from a CCS-equipped power plant. "Hold that £170 in your head," Cameron urged the MPs. "That compares with unabated gas costing £65, onshore wind perhaps costing £70 and nuclear costing, say, £90."

An unlikely ally in Canada shares Cameron's view that the economics of CCS don't bode well for the technology's future. Cathy Sproule is a member of the New Democratic Party — a party analogous to the Lib-Dems in the UK — in Saskatchewan's provincial legislature. Last year her office received a brown envelope containing leaked government documents that show the economics of commercial CCS in Canada appear untenable.

The world's first commercial CCS-equipped coal power plant is run by local power authority SaskPower. The documents revealed Canadian oil company Cenovus are paying roughly $25 per tonne of liquid carbon to pump into depleted oil wells to get the last drops of oil. But there's a problem if the price of liquefied carbon is too close to the price of oil, which now sits at $50 per barrel.

According to a briefing shown to British officials when they visited Canada in 2013, "many factors must align for there to be a viable business case for CCS."

If the Peterhead CCS project in the UK had gone ahead, the government may have had to pay for the operating costs of the plant as well, since oil recovery to subsidise the technology wasn't on the table.

In late 2013 Edward Davey, then UK Secretary of State for Energy and Climate Change, told an audience at UCL that CCS "could be a game changer" in the fight against climate change "if we get it to be commercially viable."

Yet "in a decarbonising world, the only plausible way of continuing with fossil fuel generation is with Carbon Capture and Storage," wrote the UK's Chair of the Natural Capital Committee, Oxford Professor Dieter Helm, in a recent paper.

In an announcement today (30 June) the UK's Secretary of State for Energy and Climate Change, Amber Rudd, will advance a plan to cut the UK's carbon emissions by 57% below 1990 levels by 2032. "The UK will not step back from that international leadership," Rudd said. "We must not turn our back on Europe or the world."

Right now the UK government is using small pots of money here and there for R&D and studies as "political cover to say that they're doing something on CCS," according to a source close to the energy industry. "They've said they're going to start consulting with industry before the summer. That conversation is absolutely critical."