Official says former energy department “understood the need” to rein in spending

The Treasury has denied forcing the now-defunct Department of Energy and Climate Change (Decc) to axe a competition for carbon capture and storage pilot projects in late 2015.

Presenting evidence at a one-off session for the House of Commons’ Public Accounts Committee’s investigation into the future of carbon capture and storage (CCS), a senior Treasury official rejected suggestions by former Decc shadow secretary Caroline Flint that 11 Downing Street was “driving” energy policy.

Neil Kenward, deputy director for energy, environment and agriculture at HM Treasury, said that the department had “not imposed” the CCS axe, adding that Decc had “understood the need” to rein in spending on low carbon technologies after the levy control framework had gone over budget due to greater than anticipated demand for projects.

He said the withdrawal of £1 billion worth of capital funding by the government had taken place as part of a wider review of government spending.

“Within that context, CCS had to compete against alternative projects: £1 billion spent on CCS would be £1 billion less on schools or hospitals.”

Kenward added that the Treasury had been “fully aware” of the role that CCS could play in decarbonising the UK economy.

Pressed by the committee on the impact of its decision to cancel the competition at the eleventh hour, Kenward said the government “understood that withdrawal of funding would affect confidence of investors in that area”.

However, he added that investors were continuing to invest heavily in other types of energy generation, such as offshore wind. 

Alex Chisholm, permanent secretary at the Department for Business, Energy and Industrial Strategy (BEIS), said that the government continued to see a role for CCS which would feature in the emission reduction plan, which he said that the government expected to publish “this year”.

He said the real advantages of CCS would kick in during the 2030s, when projections showed that it would become more expensive to achieve decarbonisation of the energy system without access to the technology.

Commenting on the hearing, Chris McGarvey, energy partner at Pinsent Masons, said: “Although not mentioned in the UK’s recent industrial strategy, it’s encouraging to hear that CCS will feature in the forthcoming emissions reduction plan.

“It’s therefore essential that positive lessons are learned from the cancellation of the previous two UK government funding competitions before any further initiatives are commenced.

“In particular, the fundamental concept of a ‘winner takes all’ procurement approach should be revisited and a more national collaborative approach involving government and a wide base of industrial stakeholders should be considered.”

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