Treasury cut to carbon capture will cost UK £30bn, says watchdog

The government’s cancellation of a pioneering £1bn competition to capture and store carbon emissions may have pushed up the bill for meeting the UK’s climate targets by £30bn, according to a report from the UK’s official spending watchdog.

The National Audit Office (NAO) report, published on Wednesday, says the move has delayed by a decade the deployment of carbon capture and storage (CCS) technology in the UK, which takes emissions from power stations and industry and buries them so they do not contribute to global warming.

The Treasury was warned by officials about the cost implications and that the last-minute cancellation could cause damage to the government’s reputation with industry and the international community.

But the government, amid cuts to spending, decided the competition was aiming to deliver CCS before it was necessary and cost-efficient to do so..

Both the UK government’s official advisers, the Committee on Climate Change (CCC), and the UN’s climate panel have warned that the cost of tackling climate change will be doubled without CCS, as more expensive alternatives are needed instead. The UK is well placed to develop CCS, with access to depleted oil and gas fields in the North Sea to store CO2. But these now risk being shut down before CCS is developed, the NAO report said.

The CCS competition axed in November was the second cancelled by government, with the first starting in 2007 and ending in 2011. The NAO said there is now “no viable way to achieve deep emissions reductions from the industrial sector in the near future”.

In June, the government’s climate advisers warned that the UK has no policies in place to meet more than half of the carbon-emission cuts required by law by 2030, saying CCS was a crucial missing component.

The NAO report was commissioned by a cross-party committee of MPs, the Environmental Audit Committee. Its chair, Mary Creagh, said: “CCS is essential to meet our 2050 climate change targets. It is critical that government establish a new strategy for supporting large-scale deployment.”

The Department of Energy and Climate Change (Decc), now being disbanded, calculated that the CCS competition would deliver £4.5bn in benefits for the £1bn spent. About £100m of taxpayers money and £80m from private investors had been spent before the abrupt cancellation.

A government spokeswoman said: “We are committed to meeting our climate change targets in a way that is affordable and provides secure energy to our families and businesses. We haven’t closed the door to CCS in the UK, but we are clear that it needs to come down in cost and are considering the role that it could play in long-term decarbonisation.”

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But Luke Warren, the chief executive of the CCS association, said: “The NAO report unequivocally shows that the full costs and impact of delaying CCS were not adequately considered in the run-up to the cancellation. The Energy Technologies Institute has shown that a 10-year delay to CCS could add £1bn to £2bn to consumers’ bills every year throughout the 2020s.” He said a new plan for CCS was urgently needed.

Prof Stuart Haszeldine, a CCS expert at the University of Edinburgh, said: “Thinking of CCS as high-cost electricity is totally wrong. It has ramifications across the economy.” These include enabling heavy industry to cut emissions and developing UK expertise in a business of the future. “We now live to regret the consequences of the decision,” he said.

The NAO report also examined how the government’s 2015 spending review, which sets all budgets for five years, supported environmental sustainability.

It found spending at the Department of Environment, Food and Rural Affairs will fall by almost 50% between 2010 and 2020. It also found that the Treasury “did not make the most of the opportunity to encourage departments to work across government on environmental issues” in the 2015 spending review, but had done better in coordinating green issues than in the 2010 one.

Creagh said: “There is a gap between our stated ambitions on climate change and the policies and spending the government is bringing forward to get us there.”

A second report published on Wednesday by MPs on the public accounts committee (PAC), harshly criticised ministers over the ill-fated green deal scheme. It aimed to deliver 3.5 million loans for improving household energy efficiency, which would cut energy bills and reduce carbon emissions. But it issued just 14,000 loans, costing taxpayers £17,000 per loan, or £240m in total.

Meg Hillier, the PAC chair, said: “Not enough work went into establishing the scheme’s appeal to households, nor to its implementation, nor to examining the experience of governments setting up similar schemes overseas. This blinkered approach resulted in a truly dismal takeup [and] savings in CO2 were minimal.”

She also said another energy saving scheme, the energy company obligation (ECO) was flawed: “The government is unable to measure adequately the success of ECO. There is no doubt householders and taxpayers in general have been ill-served by these schemes and the government must learn from its mistakes.”

In April, the audit office said ECO had increased customer energy bills by increasing the costs for energy companies. In 2011, before the green deal began, the government’s official climate adviser said such schemes “have never worked anywhere in the world”.

A spokeswoman for the Department of Business, Energy and Industry said: “ECO is a success of this government, reducing people’s energy bills and making their homes warmer. More than 1.8m energy efficiency measures have been installed and consumers are expected to save more than double the cost of delivering them.” She said the government had set up an independent review of the energy efficiency sector.