Alternative fuel: the burning issue

Akbar Ali and Michael Crookes of solicitors, Davies Arnold Cooper, look at how British manufactures can facilitate the development of cleaner energy.

The dawn of the 21st Century has seen a new age in environmental protection in Britain. Manufacturers finding their way around the legalities and technicalities of this new age will be given a range of opportunities to enhance their businesses. November 2000 saw the publication of the UK Climate Change Programmes setting out a range of integrated policies including Climate Change Agreements and an Emissions Trading Scheme designed to reduce UK emissions well below its Kyoto Protocol target (by as much as 23 per cent if some reports are to be believed). Consequently, from aerospace to marketing, meat processing to wall coverings, British manufacturers, through their individual associations, have taken the opportunity to enter into Climate Change Agreements in order to receive an 80 per cent discount from the Climate Change Levy over the next two years (from April 2003).

Furthermore, such energy intensive companies can also meet emissions targets by trading allowances in the UK Emissions Trading Scheme. Buying and selling allowances takes place on the Emissions Trading Registry through trading accounts. Some sector associations do the trades on behalf of their members although manufacturing companies can opt out of such trading opportunities and trade on their own account or not at all. As yet these schemes and trades are in their early days but moves to link the scheme with the Kyoto Protocol (see the latest consultation paper from DEFRA April/September 2003 inviting views on EU proposals for a directive to amend the EU Emissions Trading Scheme to link with Kyoto mechanisms) clearly indicate there will be no lifting off in the acceleration to establish improved emissions trading systems especially in the UK.

The UK Government programme is already established to provide ways and means for businesses to interact and progress along the routes proposed. Some 44 manufacturing sector associations have signed on to Climate Change Agreements. Others may follow once the benefits become clearer as they surely must. Individual manufacturing companies can still proceed outside their associations to trade in the Emissions Trading Scheme. It will become increasingly important as the years progress for manufacturing companies to make important strategic decisions upon the positions they wish to take as environmental protection measures take hold.

One of the ways that manufacturing companies might be able to take a strategic advantage could be from the developments that need to take place in the electricity power generation industry. The Climate Change Levy is of course chargeable on the supply of electricity (Schedule 6 Finance Act 2000). Exempt supplies are not subject to a levy. What is happening in the power industry now may well have a profound effect on what will be the full range of exempt supplies in years to come.

In the power industry the role of law in recent years tends to have been usurped by the role of the regulator. However, with concern thatlow prices, created by a competitive de-regulated electricity market, will lead to ever more withdrawal of generating plant (and consequently increasing risk of power cuts), the burning issue has to be what fuels can economically be consumed in such a way as to make the maximum impact on cutting greenhouse gas (GHG) emissions without pushing the supplier, the producer and the manufacturer to bankruptcy. The way such fuels can be introduced then becomes a matter as much for the lawyer as the environmentalist in ensuring the requirements of the environmental and emissions trading laws and directives are met. For manufacturers who need this power every saving that can be made and any environmental advantage that can be taken is crucial.

When climate change concerns first roared at the beginning of the 1990s the consensus was that emissions reductions do not come about in a way that would be economically profitable for the market. Nevertheless by a combination of astute management and innovative trading techniques it has been demonstrated for all to see, especially from the US market, that atmospheric pollutant reduction can be achieved without sacrificing the bottom line and without infringing legal requirements.

Britain has not been lagging in the pursuit of environmental improvement. Its laws have now been tuned to accept umbrella climate change agreements for manufacturing industries giving the opportunity to mitigate the necessary climate change levy and the development of emissions trading. This will now be backed by enforceable penalties in advance of the implementation of the EU directive establishing the Greenhouse Gas Emission Allowance Trading Scheme at the end of this year. Add these to the emphasis on renewables such as wind and wave power and the way has been paved despite the lack of any discernable government energy policy.

Despite a surplus of generating plant in excess of the generous reserve created by the nationalised Central Electricity Generating Board (CEGB) at the time of privatisation in Britain, there is genuine and mounting concern that because of the economic situation wide-scale black-outs could occur because we have not addressed future power production. Mothballing of acceptable but uneconomic plant, the imminent collapse of the nuclear power industry and the impact of EU directives - the closure of aged and uncleaned coal fossil-fuelled plant in 2013 (if not 2008 when the Kyoto Protocol must be implemented) - will lead to a deficit in available plant equal to the surplus we currently have even if some of the natural gas plant (now allowed following the lifting of the gas moratorium) does come on stream by then.

Manufacturing industries have for decades been reliant upon the power produced from fossil fuel sources. The increasing strain of continuous pressures to cut costs ensure environmental clean-up and reduce carbon emissions could be the death knell for what has been left of these industries following the closures of the past decades. This will be more pronounced if they do not take advantage of the climate that has been created by signing on to take their power from existing renewable sources which are exempt from the Climate Change Levy and keeping au fait with current power generating technological developments which could provide additional renewable sources in the future. For the power industry (and by derivation manufacturing industry) what is needed urgently is acceptance of additional fuel sources which hitherto have suffered from adverse public perception and these can be provided relatively instantly in two forms, nuclear and underground coal gasification (UCG).

At the time of privatisation CEGB was planning the next wave of power plant to maintain the reserve and keep the lights on without difficulty. Larger pressurised water reactor (PWR) nuclear stations and 900MW fossil-fuelled units were all in the planning pipeline and had to be halted when privatisation occurred. There is no need to revert to these ambitious schemes now but there is no doubt that a small but fresh nuclear development and other innovations should find a place not just to meet the pending problem but also to restore Britain's position at the forefront of technological advances. To achieve this public perception needs to be overcome.

Nuclear power lives with the stigma of fearing what you cannot see for many years. The NIMBY (not in my backyard) syndrome tended to win the day despite the obvious attractions of a fuel that is environmentally neutral. As traditional fossil fuels cease to be available over the next 300-500 years the need to maintain scientific progress must be ensured. One day coal nuclear fusion has to be the power source of choice secured in a manner which combines health and safety with environmental protection. The only way to keep this hope alive is to continue to develop the technology and to continue limited and controlled nuclear power station development.

The fears that accompanied Sizewell PWR must surely have been quelled by its successful operation over the past few years joined with the lack of any disasters on the other side of the English Channel. Local populations both on the east and west of England have seen the benefits to their communities of this industry. Continuing to address and satisfy their concerns would reduce the ardour of public antipathy to this technology. However, under current regulations nuclear power is not yet defined as a renewable energy source. Maybe this will happen if fresh developments are promoted and meet with government approval.

Another technological advance that should be addressed similarly and perhaps even more so is UCG. This technology has been devised to improve the efficiency and utilisation of coal stocks for power station fuelling. By drilling injection wells into the coal seam controlled and environmentally safe combustion of the coal can be procured leading to the creation of coal gas which is forced out through the production well into clean up facilities and then through pipelines or directly into power station boilers refurbished for (integrated) combined cycle gas turbines) (I)CCGT to provide an economically efficient fuel utilising a resource that has also fallen from grace in recent years.

Extensive practical trials of this technology in the past decade or more has now established this burn can be accomplished without any impact upon ground water, and without any danger of underground explosions or uncontrolled fires, bringing it within existing environmental laws. Utilisation of old power stations located close to suitable coal seams will reduce the environmental impact and the clean coal technology, that has been created with aesthetically designed facilities and pipelines, will do much to reassure those who do not want to see the 'dirty' coal industry again whilst at the same time assisting local communities to re-establish themselves through the development of ancillary by-product industries.

It is particularly with regard to this latter technology where manufacturing can find synergies to secure a revival. New industries can be developed from the by-products in this process. Industries that can demonstrate they are reducing emissions will be those that can benefit by taking up carbon credits and using the trade in these to enhance their profit margins.

The importance of these revitalised fuels however is not only to redirect, recreate or redefine an energy policy that is conspicuous through its lack of existence but also in its carbon credit impact. They should be treated in a manner that attracts green tickets. UCG in particular must be viewed as a fuel that has a resounding effect on improving the GHG position. Whilst the actual production of the gas itself does not improve the carbon dioxide position, the ultimate burn with carbon dioxide sequestration ensures an overall reduction in carbon dioxide of 25 per cent, a strong case for supporting this technology and the ability to improve it economically through carbon credits. There is a strong case for UCG to be defined as a renewable energy source - under the most recent Climate Change Levy (General) (Amendment) No 2 Regulations 2003 coming into force on November 1, 2003 coal mine methane is to be regarded as a renewable. It is only a small gaseous step to treat UCG coal gas likewise.

Wind farms, hydropower and other renewable sources of power can have a similar impact. Renewable energy certificate systems establishing a standard certificate as evidence of the production of renewable energy and providing a methodology for trading will have the same effect and manufacturers should by individually contracting for their power elect to take power from that fuelled by sources that attract carbon credits. So the opportunities given by the emerging GHG trading activities do not only address emissions trading but can also produce ways to improve fuelling technology within the current legal constraints which will benefit the immediate resurrection of the British power generation industry.



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