How will the EU pay for demonstrating CO2 capture and storage?

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CO2 capture and storage (CCS) is a process wherein CO2 is removed from coal or gas fuelled power plants or other CO2-emitting industries, and transported to safe storage in geological formations underground. This process is key to reach necessary reductions in CO2 emissions, and, fortunately, the technology can pay for itself in a relatively short period of time.

In a new report, the McKinsey consultancy firm estimates that for new coal-fired plants, the cost of CCS by 2030 will average from 30 to 45 Euro per ton of CO2 can be prevented from entering the atmosphere. According to the Financial Times , the report has also established forecasts for carbon trading price, and estimates the price of CO2 quotas in the range of 30 to 48 Euro per ton by 2030.

Bellona believes in 2020
Bellona welcomes the endorsement by the McKinsey report of the vision of European Technology Platform for Zero Emission Fossil Fuel Power Plants (ETS ZEP), and the European Commission’s conclusions that CCS will become commercially viable as the price of emitting CO2 will rise, and the cost of CCS will come down.


Bellona also welcomes that McKinsey’s conclusions underscore the need for building demonstration projects as soon as possible in order to reduce the costs for CCS. Bellona does not, however, not share the time scenario for making CCS commercially viable as it is outlined in the McKinsey report.

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“The McKinsey report is ambiguous about when CCS will be commercially viable. It undermines the clear message articulated by the European Zero Emission Platform of enabling zero emissions by 2020,” said Bellona Europa Chair Paal Frisvold.


Profitable earlier
“The price of capturing CO2 that McKinsey refers to is not nuanced enough. It might seem as though McKinsey has listened too much to engineers in the larger utility companies that have always seen CCS as ‘too costly and too difficult,’” said Frisvold .

“The report could have been much better had McKinsey used the information available in the European Commission’s impact assessment reports on CCS and the ETS ZEP strategies for research and deployment,” he said.


Point Carbon – a widely recognised authority on carbon price, as well as on the European Commission, expects the price of emitting CO2 to reach 40 Euro 10 years before McKinsey forecasts that it will. If Point Carbon is right, CCS will become profitable much earlier than McKinsey predicts.


Technological breakthroughs
ETS ZEP, which the Bellona Foundation is a part of, has set 2020 as a target for commercially viable CCS. The European Commission has endorsed this target date.

Aside from economical and political factors, the possibility of technological breakthroughs will also play an important role in the process of deploying CCS.

McKinsey has a fairly conservative view on this, and has not considered the possibility of new technological breakthroughs. Bellona and others believe there is a good chance of such breakthroughs, facilitating an earlier arrival of commercially viable, lower cost CCS than is estimated by McKinsey.


In need of demo projects
Bellona is in any case hesitant to rely only on the price of carbon, and advocates mandatory CCS. Bellona would like to see the introduction of emissions performance standards for electricity production from 2020.

A study by Dr. Aage Stangeland of Bellona indicates that CCS alone can reduce global CO2 emissions by one third in 2050 compared to emissions today. In Europe, CCS can reduce the CO2 emissions by more than 50 percent by 2050. Since CCS is such a vital tool in the fight against global warming, the technology needs put to use as soon as possible.

“We need to realise those 12 demonstration projects for CCS that the EU has decided to build. When we have the experience from these projects, the price for capture technology will be reduced considerably,” said Frisvold.


‘Super Tuesday’ voting in Brussels
In March 2007, EU Heads of State pledged to identify a funding mechanism for 10-12 demonstration plants to be up and running by 2015. Since then, there has been a lot of debate on how to finance those large scale projects.

On October 7th the Environment Committee in the European Parliament will vote on a proposal from Member of European Parliament (MEP) Chris Davies. Davies has proposed to use 500 million emission allowances, which today equals approximately 15 billion Euro, from the new entrants’ reserves to fund the demonstration projects.

“The vote in the Environment Committee will be key to opening the dialogue with the Council of Ministers on how to fund demonstration projects,” said Frisvold.


The voting in the Environmental Committee is very important for deployment of CCS in Europe. A positive outcome in the vote will pave the way for deployment of CCS demonstration projects and commercialisation of CCS technology by 2020. 


A new directive for storage
At the same time as the Environment Committee will be voting on proposals for financing CCS, it will also be voting on a proposal for a directive on the geological storage of CO2.


On January 23rd 2008, the Commission proposed a directive to enable environmentally-safe storage of CO2 as part of a major legislative package on energy and climate. This directive will also be put to a vote on October 7th, a date that is now referred to as Super Tuesday in Brussels.


Lack of regulatory framework has for a long time been considered as one of the main barriers for CCS deployment. If the directive proposal is accepted, this barrier will be removed.

 

 

 

Anne Karin Sæther

annekarin@bellona.no