Tuesday, 06 October 2009 20:10

Carbon Capture and Storage – European bridge to global low emission economy?

Agata Hinc*

Despite all the efforts aimed at development and global deployment of sustainable energy, the world is going to depend on fossil fuels in the next decades. Green technologies are being developed, energy efficiency is one of the top priorities of energy policies of countries all around the world but to counteract global warming we will need to reduce the emission of CO2 into the atmosphere very rapidly. United Nations Climate Change Conference (COP15) taking place in Copenhagen in December this year is supposed to conclude a new global deal - the 192 countries involved hope to agree terms for tackling climate change beyond 2010, after the current Kyoto Protocol expires. In order to make it happen, developed states will need to offer the developing ones instruments which would foster their transition into low emission economy and their development at the same time. The task will not be easy. Can the storage of CO2 in geological formations be a part of the solution?

 

The final talks before Copenhagen are going to take place in Barcelona at the beginning of November. There is a chance that during this meeting 30 OECD nations and China will agree to phase out import tariffs on goods such as wind turbines, renewables and green technologies. This would be very good news, but the most difficult negotiations are still in front of us. China on its own accounted for 42% of global coal consumption in 2008, compared to 17% for the US and 16% for Europe and Eurasia. This means that in order to achieve global goals China, the US and Europe will need to agree to drastically reduce their consumption of coal and set a plan for transition to low carbon global economy. That is why the deployment of clean coal technologies is of key importance here.

 

The world is more interested in Carbon Capture and Storage than ever before. Clean coal technologies have the potential to become one of the most important components of the global strategy towards greenhouse gasses emission reduction, next to energy efficiency and renewable sources of energy. The race for full-scale deployment of CCS has begun. If we were to select current leaders, we would need to point at Australia, the US and Norway. The EU would probably get the fourth place. Extremely important elements for development of CCS technology are legal, institutional and financial frameworks. The EU has adopted the CCS Directive, although the way it will be implemented lies in the hands of Member States. The European Commission has provided financial support from different instruments, although the way these sources will be spent depends (again) on EU Members. Therefore it is up to them to make the best use of existing European frameworks and to create new ones that can help the EU jump on the podium.

It is clear that developed countries will need to lead the process of global deployment of CCS. There is a general consensus, reflected by the declared aims of the G8, the International Energy Agency and the European Technology Platform for Zero Emission Fossil Fuel Power Plants (ZEP), that the next step towards commercialisation of CCS is commercial scale demonstration. The G8 set a goal of announcing 20 full-scale demonstration projects by 2010. These projects are supposed to develop the technology and make it commercially viable, in order to enable developing countries to make use of it. Ministers from 23 countries, representatives of the European Commission and industry stakeholders are due to take part in the sequestration forum next week in London. UK Department of Energy and Climate Change (DECC) seeks to build on the ambition of the G8 group of leading nations to get up to 20 carbon capture and storage projects up and running by next year. Hopefully, Ed Miliband, the British Secretary of State for Energy and Climate Change will move the discussion on CCS forward, because without a global consensus it will be very difficult to have things in place in the European Union.

In order to make capturing, transportation and storage work together a solid legal and institutional frameworks need to be established. In the current state of play, the regulatory framework is (next to economic feasibility) the most important challenge for the deployment of CCS technology and the most important challenge for policy and legislation makers is to ensure that CO2 capture, transportation and storage is safe for the environment and for the population. Therefore, a regulatory framework for CCS must include powers that cover: (a) risk assessment and management - most of the potential mechanisms leading to CO2 leakage can be managed through the selection, proper characterisation, appropriate design and operation of the well bore and the injection point; (b) verification and assurance - especially standards for storage site selection; (c) liability arrangements including: liability for any local or global environmental damage that may occur, upfront financial provisions in the event of insolvency of the operator, rules governing transfer of liability to the state. These parts of the regulatory framework are therefore of utmost importance. Although, we need to bear in mind that CO2 storage sites present the greatest regulatory challenge because of the novel nature of the activity and the lack of analogous regulatory regimes in place. The EU has agreed a directive, but in order to implement it each state will need to prepare its own act, which is to be done within two years and simultaneously with feasibility studies, testing and deployment of the technology. What is more, regulatory framework and public acceptance are very closely related, therefore it is up to the authorities of each Member State to ensure the environmental integrity and safety of the technology through a transparent regulatory framework.

Current R&D and CCS demonstration efforts focus around several types of coal power generation: (1) post-combustion: CO2 capture from the flue gas after combustion of the fossil fuel; (2) pre-combustion: removal of CO2 from the fossil fuel prior to combustion and (3) oxyfuel: combustion of fossil fuel with pure oxygen rather than air. Plans for new coal power plants often focus on the IGCC technology (Integrated Coal Gasification Combined Cycle), where coal is converted into CO2 and H2 before combustion. Pre-combustion capture is considered the optimal technology for application to Integrated Coal Gasification Combined Cycle (IGCC) power stations. CCS gives the potential for any coal power station constructed today (which will be open for next 40-50 years) to substantially reduce its emissions within its lifetime. The key is therefore to ensure that the technology is economically viable. The US government seems to understand this message. The U.S. Department of Energy will support with 12.7 million USD forty-three research projects that will advance CCS technologies while providing graduate and undergraduate student training opportunities. This regional sequestration training projects will be managed by the Office of Fossil Energy’s National Energy Technology Laboratory. The projects are funded through the 2009 American Reinvestment and Recovery Act. They aim at advancing CCS scientific, technical, and institutional knowledge while simultaneously producing the expertise and workforce needed for the emerging carbon capture and storage industry. If the UE does not want to become of technology leaders, it will need to use the same kind of stimulus.

Carbon Capture and Storage is currently (at an early stage of development) very costly and market forces alone are unlikely to deliver sufficient investment in this technology, therefore both the costs and risks of demonstration projects can proceed only with governments financial support. To give one example - feasibility study for a single project can cost up to 500 000 EUR. This study does not give any assurance that the project will receive further financing. What is more, in the current regulatory and fiscal environment, commercial power plants and industrial facilities are very careful when it comes to the investments in CCS, because at this stage of development, it reduces efficiency, adds cost and lowers energy output. Therefore a strong need to fund both near term demo plants as well as to provide additional financial incentives for CCS in the longer term.

Being convinced that only with CCS the EU will be able to achieve its emission reduction target, the European Commission has decided to assign special financing for CCS from additional sources. The European Union has also decided to link Carbon Capture and Storage to the GHG regulation by setting aside allowances from the Emissions Trading Scheme (ETS) for CCS project development. ETS should be one of the global instruments aiming at emissions reduction. Economic studies show that so called carbon price stabilizes at the level of 40 EUR for a tone of CO2, the power plants with CSS will then become competitive to those without CCS installation. It is obvious that the price of power for consumers will need to increase. We do not have any other choice if we want to limit greenhouse gases emissions. To make the transition period less nagging for consumers, the European Commission has proposed (in the New Entrants Reserve non paper) to allocate “300 million allowances in the new entrants reserve for the co-financing of CCS and RES demonstration projects which provide for the development of a wide range of technologies that are not yet commercially viable”. In the first draft of the document the EC indicated itself to carry out the project selection. After a huge opposition from the Member States it pointed at the European Investment Bank, but again some of the Member States questioned this methodology. The biggest European coal consumers would prefer the EIB to be involved in the process of projects’ verification and to deal only with eligibility criteria and the Member States to have bigger influence and final say on projects’ verification and approval.

This shows that European countries are not ready to sacrifice their national interests in the name of common goals. This, in spite of relatively big achievements in terms of common legal frameworks for CCS, does not give us much credibility before the COP15, where we will need to take into the consideration not European, but a global interest. The European Union needs to dissolve its internal disagreements soon in order to prepare a good offer for other global players in Copenhagen in December this year.

This shows that European countries are not ready to sacrifice their national interests in the name of common goals. This, in spite of relatively big achievements in terms of common legal frameworks for CCS, does not give us much credibility before the COP15, where we will need to take into the consideration not European, but a global interest. The European Union needs to dissolve its internal disagreements soon in order to prepare a good offer for other global players in Copenhagen in December this year. What is more, the EU should be the first one to agree to pay for the development of clean coal technologies, because otherwise the process of global CCS deployment will slow down together with it the low carbon transition and not Europe, but someone else will build the bridge to a global low emission economy.

* Agata Hinc, Project Leader, Low Emission Economy, demosEUROPA – Centre for European Strategy