Up in the air

As policies aimed at mitigating climate change settle into place, the focus of European Commission directives is shifting towards the other environmental effects of emissions – acid rain, eutrophication and ground-level ozone.

The National Emission Ceilings Directive (NECD) sets annual emission limits for SO2, NOx, VOCs and NH3 (ammonia), all of which can travel long distances – 1998 saw 14,000t of sulphur emitted by the UK deposited in Sweden.

IPPC in particular will be crucial if the UK is to meet its NECD targets, alongside the Solvent Emissions Directive and the upcoming Large Combustion Plant Directive (LCPD). The LCPD applies to combustion plants with a thermal output of more than 50MW – accounting for 65% of UK SO2 emissions and 25% of NOx emissions – and will mainly affect power stations, petroleum refineries, steelworks and other industrial processes running on solid, liquid or gaseous fuel.

Assessing the implementation options

DEFRA is developing an implementation strategy and must decide between two approaches – setting plant-specific Emission Limit Values (ELVs) or a National Emission Reduction Plan (NERP), which would set a national aggregate emissions cap to be divided among operators.

The drawback of the ELV option is its basis in

concentrations of pollutants in flue-gases. This means that actual emissions are linked to levels of generation, which could potentially rise significantly.

Because of this, the Environment Agency has “edged towards” a national plan approach, according to policy manager Neil Davies. “It gives us greater certainty of

environmental outcome,” he says. “If you go for ELVs, are you guaranteed you are going to meet the NECD figures? There is always the risk that the economy will pick up – and output with it – and emissions start to increase again.”

The proposed NERP caps are based on plant output from 1996-2000 – if output significantly decreases when the costs of compliance bite, it potentially offers greater flexibility. This fits in with the Agency’s policy of moving away from traditional command-and-control regulation, but industry is troubled by the small print.

The directive states that: “The closure of a plant included in the NERP shall not result in an increase in the total annual emissions from the remaining plants covered by the plan.” If this is interpreted to mean that the emissions contribution of a plant that closes remains within the plan, operators would have more room to move.

However, if the national emission allowance was cut to reflect plant closures, Powergen’s environment director George Barrett fears “NERP flexibility would drop to almost zero”. Barrett believes that under these circumstances, the ELV approach begins to look a lot more attractive.

Addressing industry’s fears

“LCPD explicitly applies ‘without prejudice’ to the IPPC Directive, meaning that all the requirements of IPPC have to be met,” a DEFRA spokesperson says. Herein lies another problem – that of laying the requirements of the LCPD over the IPPC framework without conflict or contradiction.

“We are facing major regulatory requirements, and to the LCPD, NECD and IPPC, you have to add CO2 targets and the EU Emissions Trading Directive, all coming more or less at once,” Barrett says. “Industry is asking for a co-ordinated, well thought-through plan for them all, rather than face being picked off piecemeal by each directive as it comes along. We deserve that and we can’t really ask for more. What we don’t want to see is willy-nilly application.”

A DEFRA spokesperson claims compliance will in fact be simplified: “Generally there will be a single permit that sets out, very specifically, what performance a plant must achieve and what emissions may be made. The permit will effectively summarise the requirements of all relevant legislation and express then in practical terms that make sense to the operator.”

Integrating systems

While the big decisions are in DEFRA’s hands, the Environment Agency is committed to a smooth integration of the LCPD into the existing regulatory framework. “It is absolutely imperative there is a joined-up policy, because each directive has an impact on the other,” Davies says. “We want to minimise the risk of red tape as much as possible, because what is bureaucracy for industry is bureaucracy for the regulator.”

One area that raises the possibility of both legal and philosophical incompatibility is the proposal to build an SO2 and NOx trading mechanism into the NERP proposal.

Davies believes that the IPPC Directive itself is at fault: “Sooner or later the Commission will have to realise that emissions trading has a place in environmental policy,” he insists. “Until it is looked at, we will be stuck with traditional command-and-control regulation, despite the Agency pushing for more flexible mechanisms.”

Daniel Smyth, from consultancy RPS, cites a “lack of incentive at Commission level” for a trading scheme approach and says that legal issues aside, an SO2 trading scheme would be at odds with the philosophy of IPPC: “IPPC requires every plant to be operating in accordance with Best Available Technology, which doesn’t imply an excess allowance of SO2 that could be traded,” he says.

Barrett also doesn’t share Davies’ enthusiasm. He stresses that trading should only be there to ease implementation: “We wouldn’t want to see an SO2/NOx trading scheme that set caps lower than the LCPD requires,” he says. “We are going to be facing significant costs to meet the LCPD and we don’t want a trading scheme that increases that cost.”

Counting the pennies

Cost is of course the primary concern of the companies facing curbs on their emissions under the LCPD. “The cost – and environmental impact – depends on the implementation route; how aspects of the directive are interpreted; and on whether it is possible to achieve the full flexibility of the national plan approach,” DEFRA says. Its estimates suggest an approximate range of £950m to £1,200m under the ELV approach and £150m to £800m under an NERP.

But Barrett believes “DEFRA has significantly underestimated the costs of applying the LCPD”. The DEFRA figures are based on DTI Energy Paper 68 (EP68), which predicts a much lower level of coal-fired generation than exists today, but shows gas-fired generation rising from 51.2 million tonnes of oil equivalent (mtoe) to 129.9mtoe.

Barrett points out that the paper is based on a scenario where coal and gas prices are such that gas-fired generation should be at a disadvantage. “EP68 makes mention of both the LCPD and the NECD,” he says. “The only conclusion is that due to the directives, environmental control costs for coal-fired generation are such that the balance tips the other way – EP68 assumes that coal-fired is declining because of LCPD – costs that are not included in DEFRA’s estimates.”

DEFRA begs to differ: “The estimate includes all costs of adding abatement equipment at stations that were assumed for the purposes of the study to have a long-term future – including FGD and the cost of abatement measures for the other pollutants,” its spokesperson says.

But Barrett pounces on the phrase “assumed for the purposes of the study to have a long-term future”. The plants without a long term future are those the LCPD will make uneconomic, he believes.

“DEFRA has started from the assumption that stations have closed due to LCPD and by cyclic reasoning have ended up with low compliance costs,” he says. “The fact that coal stations are assumed to close under business as usual disproportionately affects the cost calculations, making the NERP choice appear much cheaper.” Coincidentally, the NERP was originally mooted at EC level by UK negotiators.

Looking forward to 2008

Whichever route DEFRA chooses, there are going to be costs for industry – which may affect electricity prices. DEFRA says an LCPD-related price hike is “unlikely”, but Barrett is not so sure. “Applying the directive will cost money,” he says.

“Powergen has two major coal-fired plants, one is fitted with flue gas desulphurisation (FGD), one isn’t. We estimate it will cost £160m to fit at Kingsnorth. Finding £160m is not going to be easy, and a lot will depend on the regulator’s attitude to passing some cost on to customers.”

The LCPD could drive environmental improvement without placing a further burden on industry. But if the joined-up thinking the government boasts of is lacking, the LCPD could further damage the UK’s energy generation and heavy manufacturing industries. The proof will be in the policy.