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Carbon Capture and Storage Project Investment Update

October 14, 2009

In recent months we seem to have heard repeatedly of flagship Carbon Capture and Storage (CCS) projects being cancelled due to industrial co-investors pulling out. Perceived high technical risks, long project and technology lead-times, and capital intensity of these projects may all have played a part. It has led some to question the feasibility of CCS in meeting its promised and required potential.

The IEA WEO specifies that, in the 450 PPM target scenario, 9% of the required $6600 billion spend on low emissions power generation in the period 2010-2030 needs to be in coal and gas generation capacity with CCS. It would deliver the third largest contribution to emissions abatement out of the low emissions power generation sector sub-components – over 1000 Mt CO2e. It should constitute more than 150GW of power production in OECD+.  Coal represents 40% of global carbon emissions.

In this context, in 2007 the EU agreed to establish up to a dozen CCS demonstration projects by 2015, and mandate new coal-fired plants to have CCS by 2020. Projects would be funded from 300 million allowances from the EU Emissions Trading Scheme ‘New Entrants Reserve’, and a commitment of €1050 from the European Economic Recovery Plan, agreed in April.

Six CCS projects have been selected following the close of a request for proposals, which closed in July, with projects restricted to one in each of the UK, Germany, Spain, Netherlands, Poland and Italy.

However, the industry association representing those with interests in CCS, the Zero Emissions Platform (ZEP) has criticised  certain aspects of the mechanism of the allocation of funding from the New Entrants Reserve and the selection criteria. In particular they argue that the approach discourages some of the more ambitious or technically risky propositions – e.g. saline aquifer storage – which must be addressed due to the limited opportunities for depleted gas sequestration opportunities.

They argue that such propositions are exactly those that need to receive the funding, in order for the technology and cost step-change required to occur. The criticisms include those relating to the reluctance to offer up-front payments, and the insistence that the payments be made in cash, rather than allowances, which might be more highly valued by participants than cash.

The fact that up to a dozen such projects were slated, but only six have been forthcoming, may lend credence to the importance of some of these points.

There may be some lessons to be drawn from the EU process in terms of the type and use of compensation under the Australian Carbon Pollution Reduction Scheme.

In any event, given the challenge that exists in order to meet the goal of reaching 450ppm, which clearly entails a full spread of technology development and application across major emissions sources, investment in half a dozen large-scale CCS demonstration projects should be welcomed. 

It is not yet clear in what capacity the Global Carbon Capture and Storage Institute (GCCSI) will participate in demonstration and deployment. Its foundation funding is $100m, provided by the Australian Government, which is by no means sufficient to fund projects (all but one of the EU projects received €180m each).

Earlier this week, the US Energy Secretary Steven Chu postulated that the U.S. could have 10 demonstration projects in place by 2016.  The US is committing USD $4bn of public money to leverage (it is hoped) $7bn of private investment.  The additional cost of CCS for a coal-fired plant is estimated currently to be approximately $1bn.

The question that the renewable energy and energy efficiency industry might ask (and the average taxpayer), is why such relatively expensive and risky technology projects should be funded at all in order for the carbon intensity of electricity supply to be reduced. However, practical and political reality looks likely to dictate that CCS will be pursued, and we should hope that it works. 

More anon on this subject.

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