Ambitious Emissions Cuts:

Catalyst Commercial Services Ltd — Thu, 24 Dec 2009 10:24:30 +0000

As nations debate sweeping carbon-emission cuts in Copenhagen, one country has become a model of ambitious targets the U.K. Whether it has the right system in place to achieve those goals is another matter. Britain has one of the most open, competitive energy markets in Europe. Its system has delivered real benefits to consumers in the form of lower prices for electricity and gas. But there is growing skepticism that the U.K. will be able to hit its target of a 34% cut in greenhouse-gas emissions by 2020 and 80% by 2050 with the kind of deregulated, liberalized energy system it currently has in place.

It’s still cheaper for U.K. power providers to entice consumers with inexpensive energy generated by dirtier technologies such as gas-fired power plants than through cleaner means such as nuclear or wind power. Critics of the government say Britain hasn’t yet come up with a financial framework that adequately encourages construction of cleaner plants.

Many Western governments have championed energy deregulation, even as they face doubts about whether decarbonizing an economy can be left to the market. A recent report by the U.K.’s Committee on Climate Change, or CCC, an independent body advising the government, said it was unsure the market in its current form “will deliver required investments in low-carbon power generation” through the 2020s.

“You can’t be confident that arrangements designed to deliver the efficient dispatch of a fossil-fuel fired plant can deliver a totally different objective” of big investment in nuclear and renewables, says David Kennedy, the CCC’s chief executive.

The U.K.’s record in reducing emissions leaves room for improvement. The CCC says they fell at less than 1% annually from 2003 to 2007, and will need to fall at 2% a year for the U.K. to meet its targets. The government says Britain’s greenhouse gases have come down by more than 20% from 1990 levels and that it is on track to meet its goal of a 34% reduction by 2020.

The U.K. broke up and privatized its electricity monopoly in the 1980s and 1990s, and removed controls on prices. But a big chunk of the U.K.’s electricity-generation capacity will disappear over the next decade, as high-emitting coal-fired power stations and older nuclear reactors are shut. What replaces them will have huge implications for the U.K.’s ability to keep to its carbon targets.

In theory, the price of carbon should dictate decisions on such investments. The European Union’s emissions-trading plan sets an overall cap on the output of greenhouse gases. The price of permits to emit CO2 then creates incentives to cut emissions and invest in low-carbon technology.

But the recession triggered a steep fall in the price of carbon in the EU trading system, and it has languished at about £15 a ton for months, down from around £30 in the summer of 2008. The result: the economics of capital-intensive projects like offshore wind farms still don’t add up.

Instead, companies tend to opt for gas-fired power stations, which are cheap, quick and easy to build. But burning more of the fossil fuel means the U.K. may miss its emissions target.

Sam Laidlaw, head of utility Centrica PLC, has called for a support mechanism to be activated if the price of carbon in the emission-trading system fell below a certain floor. This would provide the certainty companies need to make investment decisions, he says.

Others advocate tougher state intervention. Even the opposition Conservatives say they are looking at ways of supporting the carbon price. From the party that drove through the privatization of the U.K.’s energy sector, that is a big change.

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The Market Leading Energy Consultant - Catalyst-Commercial.co.uk » Ambitious Emissions Cuts:

Ambitious Emissions Cuts:

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