Three big questions about the governments gas strategy
What will the government’s new gas strategy, released this week, mean for the future of the UK energy systems? As the dust settles, Carbon Brief investigates three big questions hanging over the strategy.
1. What does it mean for emissions reductions?
The strategy lays out three possible scenarios for the future development of the UK’s power sector, as we discussed yesterday. In the first, the emissions intensity of the UK power sector is reduced to 50g of carbon dioxide per kilowatt hour by 2030, in line with the recommendation from government watchdog the Committee on Climate Change (CCC). In the second, emissions from the sector are double that in 2030 – 100g of carbon dioxide per KWh.
But it’s the third scenario that has attracted most attention – with applause from the Daily Mail and criticism from the Guardian. Under this projection, emissions from our electricity sector in 2030 are four times bigger than the CCC recommends is necessary if the UK is to meet its carbon emissions reduction targets – standing at 200g of carbon dioxide per KWh in 2030. The CCC warns this ‘dash for gas’ isn’t compatible with the government’s emissions reduction commitments.
The strategy justifies the approach, saying that if emissions caps created by the EU’s Emissions Trading Scheme aren’t tightened up by 2014, the government will “revise up” the budget to align it with “the actual EU trajectory”.
In other words, if the rest of the EU doesn’t increase its level of ambition over the next two years, the strategy suggests that the UK will allow its emissions to increase more than the CCC recommends – thus raising the possibility of busting its emissions targets under the Climate Change Act.
2. Do the numbers add up?
Media commentators and campaigners appear to have identified some gaps in the logic underlying the gas strategy – which might mean emissions would be higher than the strategy suggests.
Greenpeace’s EnergyDesk says DECC’s new predictions for the amount of gas the UK needs by 2030 are out of kilter with analyses produced by consultants Poyry, and the scenarios produced by the National Grid.
DECC appears to have increased the number of gas plants it thinks the UK needs since last year. According to the Financial Times (FT), the Department for Energy and Climate Change (DECC) has increased its central prediction for how much gas plant could be built by 2030 from 8 gigawatts in October 2011 to 28 gigawatts in October 2012.
DECC seems to be revising its assessment upwards of how many of the gas power stations currently open will close before 2030 – so more will need to be replaced. But it’s not clear why this has been assumed.
The strategy also assumes that the new gas power plant will only be used for a small proportion of the time. DECC’s low emissions scenario predicts that 19GW of new gas plant could be built and emissions reduced to 50g carbon dioxide per KWh. According to the CCC this would keep the UK on track to hit its climate targets. But EnergyDesk also suggests that under this scenario new gas plant would have to run for just 15 per cent of the time in order to keep emission low. Under the central scenario where emissions are reduced to 100g carbon dioxide per KWh, new gas plant would be burning gas for 27 per cent of the time, it says.
These numbers seem low – and might not instil confidence in the gas industry. Of course, if the plant were used more than the government predicts, there would be more carbon emissions.
3. Is investment in gas actually going to happen?
It’s important to remember that in a market-based system, the government can’t determine how the energy sector develops. It can’t force companies to invest in new power stations.
BusinessGreen editor James Murray says the government is creating uncertainty for investors by proposing two strategies at the same time – one where it sticks to carbon targets, and one where it doesn’t. He says:
“The problem with running two parallel energy strategies is that businesses and investors have to choose which one they should base multi-billion pound investment decisions on. A recipe for policy certainty it is not.”
Representatives from the gas industry have made various comments to the media about whether they might be willing to invest in short-term – and the message seems to be mixed. An executive from a major energy supplier tells the FT:
“I don’t think anyone’s going to be rushing out to build on the basis of today’s statement”.
But a representative from KPMG says:
“I don’t care whether they’re saying 20 or 30 or 40 new gas plants are neededâ?¦ The main thing is that for the first time someone has actually said that gas will have a role within the wider UK generation mix.”
Both the Telegraph and the FT say that gas power plant are not being built because they are not economically viable at the moment. The comments from the energy industry indicate that investors more interested in upcoming reforms to the electricity market than in the gas strategy launched this week, if they are to invest in new gas power plant.
What’s going to happen?
The government’s gas strategy raises a lot of fairly substantial questions – not least of which is how the government’s scenarios will play out in reality, and whether the government is moving the UK onto a path where it abandons the targets in the Climate Change Act.
Under the “dash for gas” scenario, it seems very likely that the UK would fail to keep to its commitments to reducing emissions under the Climate Change Act. Even if the central scenario played out, with slightly less gas plant built, there seem be questions over whether emissions will be reduced as much as the government say they will.
Finally, it’s very hard to make definite predictions about how many gas plants will be built, as the market may not react as the government says it will.
So making definite predictions is probably a mug’s game. There is really only one thing that we can say with certainty. The new gas strategy pushes upwards on what has up until now been considered the acceptable upper bound for the carbon intensity of the UK power sector in 2030. That may seem like an uncontroversial or bland statement – but it’s not an unimportant one.