In line with EU law, the UK has sought to reduce acidification, ground level ozone and particulates by controlling the emissions of sulphur dioxide, oxides of nitrogen and particulate emissions from large combustion plants by setting emission limits for those substances. In July last year, DECC published a White Paper setting out their proposed reforms to the electricity market to achieve decarbonisation, secure supply and ensure affordability in the electricity market. This White paper has now been superseded following the publication of the draft Energy Bill and associated documentation on 22 May 2012, which updates the White Paper proposals with a view to implementation.
A key measure within the Bill is the Emissions Performance Standard (EPS), which provides a regulatory backstop on the amount of CO2 new fossil fuel power stations with a declared net capacity over 50MW are allowed to emit. This applies to fossil fuel power stations only i.e. those operating on natural gas, coal or oil. Biomass and energy from waste plants are not affected.
The proposal would result in similar limits as apply under EU law to sulphur dioxide, oxides of nitrogen and particulate emissions being placed on CO2 emissions. This complements the UK Government's attempts to decarbonise power generation via the promotion of carbon capture and storage (CCS), the EU Emissions Trading Scheme (ETS) and its support for non-fossil fuel generation.
The key issues arising from the Bill on the EPS are as follows:
1. The Annual CO2 Limit
The Bill places a duty on operators of new fossil fuel generating stations to ensure their plants do not exceed an annual limit on CO2 emissions set at 450g/kWh at baseload. DECC estimates this would require typical coal fired stations to limit CO2 emissions by 40% compared to what they would otherwise emit.
If the actual emissions exceed this allowance abatement of the excess CO2 would be necessary, which may require the operator to implement abatement technologies/ processes or to curtail generation. The intention is for the actual emissions figures to be the same as those reported and verified under the EU ETS to avoid duplication of reporting. The EPS will be reviewed every three years in line with the decarbonisation reporting process already required under the Energy Act 2010.
2. Grandfathering of the EPS
DECC acknowledges that the EPS of 450g/kWh at baseload may need to be reduced in future, but this in turn could lead to uncertainty and deter investment in new power generation. To address this, the Bill will 'grandfather' the EPS - that is, plants falling within the EPS limit of 450g/kWh when consented will be unaffected by future changes in the EPS. This has been guaranteed until 2045.
Significantly the EPS will not apply to (i) plants covered by the UK's CCS Commercialisation Programme; (ii) plants benefitting from European or Contract for Difference funding for commercial scale CCS; or (iii) existing fossil fuel power stations. The exception to (iii) is that if an existing plant undergoes significant life extensions or upgrades it will become subject to the EPS. Examples of upgrades falling within this exception include upgrading an existing coal plant to supercritical technology or replacing its boiler further detail on this will be set out in secondary legislation. Upgrades to comply with EU law, retrofit of CCS and conversion works to facilitate use of biomass will not trigger the EPS requirement for existing stations. The Bill allows for further consultation on these provisions.
Special consideration has been given to Good Quality CHP plants to avoid them being penalised by the EPS system. Further regulations will be necessary but DECC's preference is that only emissions attributable to electricity production would count in determining compliance with the EPS. Heat production emissions would be discounted.
4. Administration of the EPS/ Impact on Environmental Permitting
Further regulation will be required to establish who will be responsible for administering the EPS, but DECC currently expects this to be done by the GB environmental agencies, namely the Environment Agency, the Northern Ireland Environment Agency and the Scottish Environment Protection Agency. It is therefore likely that environmental permits granted by those agencies for the operation of new power stations will include the EPS (much like they would include the relevant limits for other controlled emissions).
The Bill allows regulations to be made to cover the monitoring and enforcement of the EPS. It is intended that this will mirror the systems in place under the EU ETS to increase regulatory efficiency. In practice, this means operators are unlikely to need to undertake additional reporting on top of their EU ETS obligations.
5. Devolved Administrations
Although DECC has made clear their preference for the EPS to apply throughout the UK, discussions with devolved governments are ongoing.
It is interesting to note that as part of its consultation on the draft Electricity Generation Policy Statement, the Scottish Government issued an informal consultation (which closed on 7 May 2012) on the possibility of implementing a distinct EPS for power generation in Scotland. This included suggestions to set a different emissions limit, create a separate limit for gas stations or establish different or no grandfathering provisions. The outcome of this consultation has not yet been published.
DECC have confirmed that they will undertake further work with the Welsh Ministers and the Scottish Ministers on the application of EPS. The Northern Ireland Executive has confirmed that EPS provisions will apply to Northern Ireland.
The Bill has been introduced to allow for pre-legislative scrutiny and is expected to achieve Royal Assent in 2013. In the meantime, discussions with the Welsh Assembly Government and the Scottish Government are ongoing in relation to whether the EPS will be a UK wide standard.