Atmospheric Emissions – Supplementary Statistics and Commentary

As the economy has shifted from reliance on manufacturing to services and energy efficiency has improved, less energy has been required per unit of output. Overall, the energy intensity of the UK’s output has halved since 1970, with reductions in coal (82%) and oil (63%) intensity leading the way. However, the use of natural gas has increased dramatically with the volume of gas consumed in the creation of every £1 of output having almost tripled since 1970. The use of renewables and hydro-electricity in output creation has more than quadrupled since 1970, but the starting point was so small that even in 2005 only 2% of energy used per £1 output was attributable to this type of energy.

UK Energy Intensity 1970-2005

The UK is committed under the Kyoto Protocol and the EU’s burden sharing agreement to reduce greenhouse gas emissions by 12.5% in 2008-12 (as an annual average) compared with its emissions in 1990. Furthermore, it has set its own target of reducing carbon dioxide (CO2) emissions by 20% between 1990 and 2010. As figure Env5 shows, the UK is already on course to meet the Kyoto objective for emissions.

UK Greenhouse Gas Emissions 1990-2006

Gas is much less carbon intense than coal or oil and it is also much more thermally efficient in power generation, so the switch to gas for electricity production since 1990 has enabled the UK to record a reduction in CO2 emissions despite a 10% increase in overall energy demand. This major contribution to efforts to reduce emissions of greenhouse gases is also reflected in the emissions intensity of energy consumption which fell by 23% between 1990 and 2006.

Although CO2 emissions have recently been seen to rise, this probably resulted, in the main, from greater use of coal fired power generation during 2005 and 2006, when higher gas prices made coal more economic. Now that gas prices have fallen sharply and with the closure of many coal fired power stations due between 2008 and 2015 on account of the Large Combustion Plant Directive, it is likely that gas will resume its previous growth as a fuel for power production. Its share of electricity generation is forecast to rise from 35% in 2005 to possibly as much as 60% in 2020, and so it can continue to help reduce the UK’s emissions of CO2, but depending on the mixture of gas, nuclear and, perhaps, “clean coal” generation capacity that is built to replace older coal fired and nuclear plant.

EU Emissions Trading Scheme
The EU’s Emissions Trading Scheme (EU ETS) is now in the third and final year of Phase I. This first phase was always intended as a trial, before the more important Phase II which lasts from 2008 until 2012, the same as the Kyoto period. It is clear that too many allowances were allocated by Member States (MSs) in Phase I, although not in the UK, such that the traded price of a Phase I allowance has crashed (see Figure 55). However, the European Commission has been taking a much stricter line with MSs’ plans for Phase II (these plans limit the emissions of CO2 permitted by the industries participating in the EU ETS for all MSs). As a result, the traded value of a Phase II allowance, ahead of its commencement, has been in the range €15-20 per tonne.

Nonetheless, the UK would appear to be shouldering its full share of the burden of the scheme and, by comparing practices across the offshore oil and gas industry, it seems clear that the UK is implementing the requirements of the scheme in a more stringent manner than is to be found elsewhere in the EU.

EU ETS Carbon Allowance Prices April 2005- March 2007

The EU is now considering a third phase for the EU ETS due to start in 2013. It is likely that this will proceed, whether there is another international agreement to follow the Kyoto protocol or not. Among the questions being considered in this review are the length of the phase, whether an overall EU limit should be set as the starting point for MSs (currently it is built upwards from MS plans), methods for allocating allowances, harmonisation of implementation across MSs, whether other greenhouse gases should be brought into the scheme etc. This should lead to legislative proposals to amend the Directive being tabled in late 2007/early 2008, with amendments taking place so that MSs may implement the changes during 2010 in readiness for 2013. It will be essential that carbon capture and storage (CCS) is recognised under Phase III, if it is to take its place as a means for managing carbon emissions.

Carbon Capture and Storage
Increased awareness of climate change, with CO2 being seen as its principal cause, has led to greater interest in carbon abatement technologies. This is also driven by the provisions of the Kyoto protocol. Carbon capture and storage (CCS) is one such technology which has the capability to reduce substantially CO2 emissions created by the use of fossil fuels. It involves three separate stages: capture, transport and storage. The CO2 from large industrial or power generation sources is first captured (pre- or post-combustion) using a combination of physical and chemical processes, then transported to a storage location and finally stored in a geological structure such as suitable, mature oil or gas reservoirs, or an aquifer.

Europe is believed to have extensive CO2 storage capacity, predominantly located beneath and around the North Sea. The British Geological Survey has estimated the potential storage capacity under the whole of the North Sea at around 20 billion tonnes of CO2 in oil and gas fields, with an additional 20–70 billion tonnes of CO2 in confined aquifers. This compares with the UK’s current emissions of around 560 million tonnes of CO2 per year. CCS has, therefore, the potential to enable the production of low carbon electricity and provide an environmentally attractive method of disposing of CO2.

In the autumn of 2006, the Stern Review of the Economics of Climate Change was published. The review recognised the importance of CCS and stated that it is essential to maintain the role of coal in providing secure and reliable energy. The 2007 Budget responded to the Stern Review and set out the next stage in the Government’s strategy for tackling climate change both domestically and globally. The British government declared its intention to finance the first full scale demonstration of CCS, in order to raise its profile; in the recently published Energy White Paper, a competition is planned for the autumn of this year.

In addition, the Department of Business, Enterprise and Regulatory Reform (BERR) has launched an invitation to tender for a study into the development of CO2 transport and storage infrastructure in the North Sea. Final results of this work will be reviewed by the North Sea Basin Taskforce and reported to Norwegian and British Ministers in July 2007.
Currently, CCS is not legally permitted under the sea; CO2 is officially designated a waste product and injection beneath the seabed is only allowed in international law if it is associated with enhanced oil recovery (EOR). There are two governing conventions:

• The London Convention has been amended under Annex 1 of the protocol to allow CCS in subsea geological structures; this amendment was approved in November 2006 and entered into force on 10th February 2007;
• The OSPAR Convention; Amendments to annexes of the OSPAR Convention have been adopted, which now allows storage of CO2 in geological formations beneath the seabed. The convention amendments will allow geological storage, but ban direct storage.

It should be noted that various other methods of primary and secondary EOR have been employed by the offshore oil and gas industry for many years and so it is important to remove these legal obstacles promptly, if EOR using CO2 is to be applied to the UKCS. As time passes and the depletion of fields progresses, the opportunities for further EOR diminish and become less and less attractive. In addition, the fields in UK waters most suitable for CO2 injection lie in the southern North Sea – a gas producing area – thus eliminating any need for EOR applications.

In the longer term, for CCS to become a workable method of carbon abatement there are other, major issues which must be addressed. Principally, the market price of carbon would need to increase from its current value of €15-20 per tonne in Phase II of the EU ETS; it would require a price several times higher than this before projects using CCS become commercial.

In the current market, if CCS is to be used to enable the generation of low carbon electricity, there needs to be the same economic encouragement as is provided for renewables – this includes renewable obligation certificates (ROCs) and levy exemption certificates (LECs) which prove the reduced carbon associated with the electricity produced. At least eight major CCS projects are currently being considered in various parts of the UK, encompassing some 7,000MW of electrical generating capacity. In addition to higher prices of traded carbon and consistency with renewables, there should also be recognition within the EU ETS for low carbon sources of electricity with an allocation of credits equal to carbon abated.

The 2007 Budget also initiated a consultation on the “Change of Use” of offshore oil and gas fields which may in future be converted to CCS or gas storage. Discussions are continuing, but it is clear that the existing fiscal regime presents a range of barriers to such re-use of old assets. These will have to be overcome, if the ultimate potential of the UK’s offshore fields and their associated infrastructure is to be realised.

For more information on Emissions and the EU ETS please see either DEFRA’s website or Oil & Gas UK’s Environment page
For more information on EEMS please see www.eems.co.uk