NAO raps department over carbon capture programme failings

Watchdog cites failure to get Treasury agreement for scheme's lifetime funding as contributing factor to the cancellation of a £100m competition

By Jim Dunton

19 Jan 2017

The Department for Business, Energy and Industrial Strategy has serious lessons to learn from its predecessor organisation’s handling of bids to encourage the development of cutting-edge carbon capture and storage technology, the National Audit Office has warned.

According to the watchdog, £100m was spent on an “ambitious but ultimately unsuccessful” programme to develop and deploy CCS technology that was launched in 2012 by the Department for Energy and Climate Change.

The NAO said the spending – which came on top of £68m spent in an earlier bid to support the development of CCS, cancelled in 2011 – had “not achieved value for money”.

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It said the development of CCS had a key role in helping the nation meet 2050 emissions targets by capturing and storing carbon dioxide from sources such as power stations and energy intensive industries, and that alternative strategies would cost £30bn for power-generation alone.

But the report found that the “untried nature of the technology” meant costs and benefits of the proposed projects were “inherently uncertain”, which had caused HM Treasury to baulk in its 2015 Spending Review and pull £1bn of capital support available to bidders.

“The department began the competition without agreeing with HM Treasury on the amount of financial support available over the lifetime of the projects,” it said.

“This ultimately contributed to HM Treasury’s decision to withdraw £1bn of funding from the competition, leading to its cancellation, as it was concerned about future costs to consumers.”

The department’s upper-range estimate of the cost to consumers of the programme was £8.9bn over a 15-year period, which would have commenced when the two planned projects started generating electricity.

NAO head Amyas Morse said it was vital that BEIS learned lessons from its experience if it was to stand any chance of seeing CCS plants built in the near future.

“The department has now tried twice to kick start CCS in the UK, but there are still no examples of the technology working,” he said.

“There are undoubtedly challenges in getting CCS established, but the department faced an uphill battle as a result of the way it ran the latest competition.

“Not being clear with HM Treasury about what the budget is from the start would hamper any project, and caused particular problems in this case where the upfront costs are likely to be high.”

A BEIS spokesman said the department hadn’t “closed the door” to CCS technology, but accepted that “decisions had to be taken” to control government spending and protect consumer bills.

“This is why the government ended the funding for the CCS competition, and ensured tax payers were protected from significant costs when the competition closed.” 

Despite the shortcomings identified on the part of the department, the NAO report accepted it had been an achievement to sustain negotiations with the 2012 competition’s two preferred bidders to the point where valuable technical and commercial knowledge was gained.

It said there were currently 15 examples of large-scale CCS operating across the world, and a further 23 being developed – none of them in this country. 

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