Revised Large Combustion Plant Directive – DEFRA proposes National Plan approach for the UK

Introduction

On 30 June 2003, DEFRA released a consultation paper on the implementation of the revised Large Combustion Plant Directive (Directive 2001/80/EC) – the "LCPD". The revised LCPD has as its objective the reduction of emissions of sulphur dioxide (SO₂), nitrogen oxides (NO_X), and dust (particulate matter) from large combustion plants. It sets new, stricter caps on the levels of emissions permitted, taking into account recent innovations in combustion and abatement methods used within the industry.

The consultation paper seeks responses on how best to implement the LCPD in the UK.

Who is affected?

Large combustion plant, defined as having a rated thermal input equal to or greater than 50 MW, consist mainly of power stations, crude oil refineries, large industrial boilers, and the iron and steel industry, which together, produce almost 70% of the total UK SO₂ emissions. In addition, gas turbines now fall within the LCPD, due to the rapid growth in their usage over the last decade.

Three classes of large combustion plant are affected by the LCPD: 'new' plant, 'existing' plant, and 'existing' plant with an extended capacity.

'New' plant, licensed on or after 1 July 1987, will already be subject to stringent emission targets, as established in the initial version of the Directive (88/609/EEC). These targets are to be further tightened.

'Existing' plant, licensed before 1 July 1987, must reduce their emissions following either an ELV or a NERP approach, as determined by each Member State. Alternatively, 'existing' plant may accept a limited hours derogation, which forces closure upon such plant after 20,000 operational hours, with time running from 1st January 2008. During this period, the plant must operate in accordance with all other appropriate permits and regulatory requirements. Once the 20,000-hour period has expired, the plant should close or, should it continue to operate, it will be classed as a 'new' plant.

An 'existing' plant that chooses to expand its capacity by 50 MW or more becomes subject to the same measures as those applied to a 'new' plant.

Implementation for 'existing' plant

Broadly, there are two implementation options: the Emissions Limit Value (ELV), and the National Emissions Reduction Plan (NERP), the latter being favoured by Ministers and the Environment Agency.

The ELV approach requires plant to adopt set limits for each of the emissions covered by the Directive, limits which must be attained by a specific date. The type of fuel that the plant concerned operates with determines the severity of the emission limits imposed upon it. The operator concerned is entitled to use a range of options to ensure compliance.

The NERP approach requires that a national limit – the "bubble" – be applied to each of SO₂, NO_x and dust emissions. In support of this method, DEFRA proposes to establish an emissions trading scheme, based on a cap and trade model. Under such a scheme, each plant would be allocated a fixed number of allowances up to a cap. The plant could then buy and sell allowances depending on whether it was over or under achieving against its cap. Operators would have a choice as to whether they wanted to trade allowances. Borrowing from experience gained in developing the UK and EU greenhouse gas emissions trading schemes, the consultation paper develops the options available for allocation under a NERP scheme, ranging from free allocation to auction processes. As to the trading rules, there are differences in approach that may impact on liquidity – for example, it would not be possible to bank or borrow allowances between compliance years.

The difference between the ELV and NERP approaches revolves principally around the type of limit that the LCPD requires to be applied to emissions. If the ELV approach is adopted, limits must be set based on the concentration of emissions per unit of output but this could allow actual emissions to rise unabated in real terms if output increases, as long as the relative proportion of SO₂, NO_x and dust to output remain the same. On the other hand, if the NERP approach is adopted instead, an overall mass limit must be set so any increase in output would require the implementation of more stringent abatement procedures to ensure the emission level remains below the allocated mass emissions cap. Coal burning plants would be hardest hit by this measure, as they continue to search for means of increasing production yet, if they close, they are unlikely to be allowed to benefit from the 'windfall' of the resulting surplus allowances.

Many industrialists prefer the ELV approach because of its inherent directness in targeting the reduction of emissions by way of concentration limits. However, DEFRA, Ofgem and the Environment Agency are rallying behind the NERP approach. They reason that it would be the most cost-effective and flexible way of reducing emissions, allowing market forces to determine where and how emissions are reduced. At the same time, DEFRA argues that this method is environmentally more sound, with the focus being on reducing the absolute level of emissions.

Quite apart from the requirements of the LCPD, by 2010, the UK must achieve compliance with a 'national emissions ceiling' (which includes national caps on SO₂ and NO_X). If the ELV approach is adopted and emissions (whether from 'existing' or 'new' large combustion plant or other sources) increase unacceptably in absolute terms, this could jeopardise compliance with the ceiling. This in turn could force UK regulators to set mass, as well as concentration, limits in permits for 'existing' large combustion plant. Consequently, the distinction between the ELV and NERP approaches in terms of guaranteeing the environmental outcome could become much less clear.

Other issues

The LCPD overlaps with a host of other environment laws, many of which, in respect of large combustion plant, will be implemented through the Pollution Prevention and Control ('PPC') regime.

By 2006, all large combustion plant will be subject to the PPC regime and will have to apply 'best available techniques' for preventing or minimising pollution (similar to the existing regime but bound to follow yet-to-be-finalised European-derived guidance). In particular, in the setting of permit conditions, regard must be had to, amongst other things, potential local and trans-boundary pollution effects and the need to meet European air quality standards. In principle, emissions controls under PPC could be stricter than the LCPD would require in isolation. This complicates the DEFRA proposals on LCPD. For example, if the NERP approach is adopted, it is unclear whether the ability to trade should only arise in respect of emissions reductions below PPC requirements. It is also unclear to what extent proper application of the Directives implemented by the PPC regime should limit the ability to trade emissions allowances, affecting market liquidity, since unrestricted trading could allow emissions to concentrate unacceptably in certain locations.

The LCPD applies a definition of 'combustion plant' which may include more than one unit where the units could discharge through a 'common stack'. The term 'common stack' is not defined but the Government proposes to interpret this such that, for example, each power station flue is a 'common stack' through which several boilers and turbines vent. Current UK practice is to consider the power station 'chimney' as the 'common stack' through which several flues may vent. The proposed interpretation could lessen the impact on industry of the LCPD although questions remain about the correctness of either interpretation and how well either fits with the parallel definition of an 'installation' under the Pollution Prevention and Control regime.

The US experience

The Acid Rain Program in the US, introduced under the Clean Air Act 1990, brought in strict limits on the total national emissions of NO_x and SO₂ from fossil fuel-fired electricity generating plant. The Program applies both traditional and market-based approaches to emission control. It introduced an allowance trading system for SO₂ in which affected generating plant are allocated allowances based on their historic fuel consumption and a specific emissions rate. Allowances may be bought, sold, or banked. Anyone may acquire allowances and participate in the trading system. However, regardless of the number of allowances a source holds, it may not emit at levels that would exceed federal or state limits set under the Clean Air Act.

The system provides flexibility as to where, how and when emissions are reduced and has proven to be successful and cost-effective. It has provided incentives to develop innovative technologies rather than just reducing emissions to comply with permits as in traditional command and control regulation. The market for SO₂ emissions has flourished and the program has resulted in emissions being cut about 30 percent more rapidly than expected and at well under half the cost originally forecast. While the US experience may not be a reliable guide to the likely success of DEFRA's proposals in the UK, it may well be a valuable source of practical experience as trading develops.

Where next?

Comments on the consultation paper are being accepted up until 29 September 2003. The decision on implementation of the Directive in the UK must be communicated to the European Commission by 27 November 2003. Whichever approach is finally adopted, the prescribed level of emissions must be attained by 1 January 2008. Before that, however, all large combustion plant will be subject to CO₂ caps under the EU emissions trading scheme from 2005 and will have to comply with tighter regulation under the Pollution Prevention and Control regime by 2006.

For more information, please contact Amanda Seaton (Energy) at [email protected] or +44 (0)20 7367 3454 or Paul Sheridan (Environment) at [email protected] or +44 (0)20 7367 2186.