CCS faces mounting obstacles

Carbon capture and storage (CCS) has been widely touted as a ‘bridging technology’ to take us from an economy based on fossil fuels to one based on renewables. However, high costs, public opposition and lack of political support make its prospects increasingly uncertain. Not all is lost for the proponents of CCS, though. It may find s...

CCS faces mounting obstacles

CCS pilot plant at lignite power station Schwarze Pumpe in Brandenburg (Photo: Vattenfall)

In December 2008, as part of the EU Climate and Energy Package, European leaders committed to building up to 12 large-scale CCS demonstration plants in the EU by 2015. The goal was to have the technology ready to go commercial by 2020. Today these goals look highly ambitious. ‘I think we will see fewer projects coming forward than originally planned,’ Jeff Chapman, chief executive of the Carbon Capture and Storage Association (CCSA), which represents companies with an interest in CCS, told a CCS conference in Brussels in January. Most stakeholders now expect a smaller group of some 5-8 projects to lead the way. They see three major problems: financing difficulties, public opposition and a lack of high-level political commitment.

Timetable

Industry representatives warn that the 2015 deadline is at risk because billions in EU funds are set to arrive too late. One source of EU-funding is the planned sale of 300 million carbon emission permits under the EU’s emission trading scheme (ETS). The auction of these permits, which are being taken out of a reserve fund for new entrants to the ETS in 2013-20, is expected to generate some €4.5bn. This money is intended to be spent both on CCS projects and on renewable energy schemes. Project developers, who can seek to have half of their costs covered, must submit applications to their governments by 9 February 2011. Member states must then submit their candidates to the European Investment Bank (EIB) for evaluation by 9 May. However, it now appears that funding decisions from the EIB are not expected until the end of 2012, despite an initial Commission pledge that decisions should come by the end of 2011.

The delay is ‘simply too long to meet the 2015 deadline,’ said Graeme Sweeney, chairman of the industry-led Zero Emissions Platform (ZEP), at the conference in Brussels. The EIB made it clear that there is little chance the timetable can be brought forward. ‘If we can contribute to any reduction of the timeline we will, but we are not being remunerated to take risks,’ Christopher Knowles, head of climate change and environment at the EIB, responded.

A one-year delay may not seem like such a big deal, but it is likely to have a knock-on effect, pushing back the date of full-scale commercial deployment of CCS beyond 2020. Moreover, in many ways, this represents just the tip of the iceberg when it comes to the problems of financing CCS.

So far six CCS demonstration projects have received EU funds totalling €1bn from Europe’s economic recovery package (see the box below). Five got €180 mln each, one received €100 mln. These funds

CCS has slipped down the priority list along with the whole climate agenda, making its future all the more uncertain

were issued last year and are being spent on activities such as carbon capture pilots (in Italy for example) and storage site exploration (in the UK). Nevertheless, the net cost of a CCS-project is about €1-1.5bn, so the subsidies are little more than starting capital. For none of the six projects a final investment decision (FID) has been taken. FIDs are unlikely before companies find out if they are eligible for the next round of EU funding, says Sweeney.

Rigorous

The six EU beneficiaries to date are widely expected to apply for and be awarded fresh EU funds, with some exceptions. The Dutch project for example has received €150m in national government assistance, in return for which it has promised not to apply for further EU support. The Dutch will put forward another candidate instead. The company running the 900 MW Hatfield project in the UK went into administration late last year. The UK government has now announced it will give priority to smaller projects of 300-400MW for the next batch of EU funds.

Criteria for the next tranche of funding are much tougher than for the economic recovery money. The projects will be judged entirely on the basis of one criterion: the cost per unit of CO2 stored. In other words, only the lowest-cost projects will receive funding. What is more, the projects will only receive their money after the first CO2 has actually been stored. Many would prefer a less rigorous approach. In Alberta, Canada, for example, CCS projects eligible for public funding get 40% up front, 20% when the plant starts running and 40% when CO2 is actually being put into the ground.

Even the projects that do win new EU funds are faced with plenty of uncertainties. They can get up to half their net costs reimbursed, but what about the other half? Member states and the private sector are

The Commission predicts a carbon price of €16.50 in 2020. Most CCS stakeholders say €100 per tonne is more like what is needed

expected to put up the rest. So far only two member states have announced support: the Netherlands, with its €150m, and the UK, which has awarded £1bn to ScottishPower’s Longannet CCS project in Scotland. Other countries are expected to announce support for their preferred candidates in May, but the difficult economic situation does not make this a given.

The good news is that the private sector remains highly interested in investing in CCS, says Angela Whelan, CEO of the Ecofin Research Foundation. Her firm has interviewed over 30 senior providers of capital through both debt and equity. ‘I was quite amazed at the level of interest,’ she says. Still, the respondents did indicate that they are concerned that public funding is not clear at this stage. They also said that they would prefer a smaller number of pilot projects to reduce the risks.

Environmental concern

Another, entirely different problem faced by CCS is public opposition, both to CCS and towards coal plants more generally. In the Netherlands, local resistance led to the abandonment last year of a plan to store CO2 under a residential neighbourhood near Rotterdam. In Germany, matters are even more serious. Strong local opposition is holding up the writing into national law of the EU’s CCS directive, which is part of the Climate and Energy Package of December 2008. The deadline for transposition is June 2011, but Germany for one looks set to miss it. This has implications for its otherwise well-on-track CCS demonstration project at Jaenschwalde. It seems unlikely the EIB will consider this project eligible for fresh EU funds if there is no legal framework in place.

In Germany CCS is partly a political issue, with a few states, notably Schleswig-Holstein, reportedly flexing their muscles ahead of a series of regional elections by demanding the right to ban CCS on their territory. The issue may resolve itself after the elections have passed.

Pipes carrying liquid CO2 at the Black Pump power station near Berlin, where greenhouse gases are captured (Photo: AFP/Getty Images)

But there is also genuine environmental concern. German NGO BUND has warned of risks to groundwater and says the country’s CO2 storage capacity is overestimated. A study undertaken for the Commission by the UK firm Ove Arup, published in January 2011, does indeed cite potential storage shortages in central European countries such as Germany, Poland and the Czech Republic. This means CO2 would have to travel further for storage. Meanwhile, an alleged leak at the Canadian CO2 storage site Weyburn in Saskatchewan in January remains under investigation. There are reports of dead animals and algae in ponds around the site. With stories like these and a technology that remains at a very experimental stage, storing CO2 under people’s homes is likely to run into many more problems than storing it offshore – even if it is an inert gas and we are happy to pipe its explosive cousin methane into our houses, notes British Liberal MEP Chris Davies.

Davies, who led the European Parliament’s work on the EU CCS directive, says that for CCS to become a success in Europe requires above all renewed political commitment to it at the highest levels. It is not on the lips of the EU energy commissioner nor many ministers, he says. Davies suggests CCS has slipped down the priority list along with the whole climate agenda, making its future all the more uncertain.

Carbon price

What could policymakers do if they want to drive forward CCS? Several representatives at the conference in Brussels called for renewed EU – and member state – support for Europe’s €50bn Strategic Energy Technology (SET) plan, which is supposed to help bring pre-commercial low-carbon technologies to market. Its future today is unclear with member states yet to commit funding and it being absent from the priority list for the next EU budget from 2014.

Giles Dickson of French engineering company Alstom suggests that feed-in tariffs could help pay for CCS. Others still pursue the idea of Emission Performance Standards (EPS), which have effectively been ruled out at EU level for the time being, but are being looked into by some individual member states such as the UK. This would effectively impose CCS on new power stations.

The policy instrument that was originally supposed to drive CCS was the EU’s emission trading scheme (ETS). But the problem is that the price of carbon in the ETS is too low. The Commission predicts a carbon price of €16.50 in 2020. Most CCS stakeholders acknowledge that €100 per tonne is

The gas industry, which is promoting gas as the ideal bridging fuel to a low-CO2 future, may have to turn to CCS to make their fuel acceptable

more like what is needed. Neither tighter emission reduction targets nor a carbon price floor will lift the price into this range. In its latest Energy 2030 Scenarios, the Commission forecasts a carbon price of just €18.70 in 2030, assuming the full Climate and Energy Package is implemented. The low carbon price is the result of the growing penetration of renewables and lower electricity demand due to energy efficiency measures.

A study by the Wuppertal Institute in Germany published in August 2010 suggests that renewables may be competitive with CCS-equipped power plants by 2020. The European Wind Association (EWEA) agrees. ‘Given the economies of scale, it is likely that the price of wind energy will be much less than the price of coal-CCS [in 2020],’ says Rémi Gruet, senior climate change and environment advisor at EWEA.

Manufacturing

Still, not all the news is bad for adherents of CCS. The technology is increasingly being viewed as suitable for applications other than just coal-fired power stations: namely biomass- and gas-fired power plants, and in heavy industry.

The gas industry, which is promoting gas as the ideal bridging fuel to a low-CO2 future, may have to turn to CCS to make their fuel acceptable. ‘By 2030, 36% of [European] power emissions will come from unabated gas plants,’ says Dickson from Alstom. ‘There is no way we can decarbonise the power sector in Europe without tackling gas plants.’ Many stakeholders are calling for at least one EU-funded gas-CCS demonstration project in future.

CCS is also finding its way into the manufacturing sector. The International Energy Agency (IEA) predicts that by 2050, half of all CCS projects will be in the industrial manufacturing sector (up from less than 10% today). Industry will be heavily dependent on CCS to reduce its greenhouse gas emissions, says the IEA. In a report by Dutch institute CE Delft for the Climate Action Network (CAN) Europe last October, the authors identified potential to cut emissions in the steel sector by up to 80% and in paper and cement by at least 80% by 2050 – largely through extensive use of CCS.

‘We need to put more effort into CCS for industry and biomass’, says Eivind Hoff from NGO Bellona, which supports CCS. The Wuppertal study also foresees a more targeted role for CCS in Europe in these sectors, with CCS-equipped biomass-fired power plants acting as net carbon sinks. MEP Davies points out that developing the technology at the smaller scale of industrial plants would cost millions rather than the billions required to apply it in the power sector. He notes that CCS will only be cost-effective in industrial plants if these are located close together so they can share transport and storage facilities.

Scenarios

The world outside of Europe has not given up on CCS either. The IEA says CCS could deliver about one-fifth of the worldwide emission cuts needed to limit global warming to two degrees Celsius. This means 100 CCS plants should be built worldwide by 2020, half of them in developing countries (where

A joint EU-China CCS project already underway on Chinese soil may lead to China exporting CCS-technology to Europe rather than the other way round

there is just one today). The US expects an energy mix of 43% coal, 25% gas, 17% nuclear and 14% renewables in 2035, according to energy counsellor Louis Bono from the US embassy in Brussels. This argues strongly for CCS, all the more so because CCS with enhanced oil recovery (EOR) – or pumping CO2 into the ground to get oil out – is commercially interesting in the US (unlike in Europe so far). The Canadian province Alberta expects CCS to deliver 70% of the 50% cut in business-as-usual emissions it plans for the next 40 years.

Fossil fuel-intensive emerging economies such as China and South Africa are also expected to become more and more interested in CCS. It will be a ‘major priority’ in China’s next five-year plan, says Chen Jingquan, Second Secretary at China’s embassy in Brussels. But he also notes that a CCS-equipped coal plant uses a quarter more coal than a regular one. If China equipped all its coal plants with CCS, it would need 300 million tonnes of extra coal. This means big extra costs in terms of both raw material and infrastructure. China already has entire railways dedicated entirely to coal transport. Nevertheless, many expect that the result of a joint EU-China CCS project already underway on Chinese soil may lead to China exporting CCS-technology to Europe rather than the other way round.

Jesse Scott from environmental think tank E3G outlines three possible scenarios for the future of CCS in Europe. One, it proves technically very difficult and the whole idea is abandoned. Two, it’s technically feasible but horribly expensive and ends up as a niche ‘pollution control technology’ for situations where fossil fuel use cannot be avoided, e.g. in certain industrial plants. Power plants would switch to renewables. Third, costs come down, more and more firms jump on board and it becomes a commercial product in its own right.

All three remain open possibilities at this point. What everyone agrees on is that the acid test is now.

A helpful source of more information on CCS in the EU is the CCS support network. CO2CRC (the Australian based Cooperative Research Centre for Greenhouse Gas Technologies) has a nice overview of leaders in research into Carbon Capture and Storage.

EU-funded CCS projects so far

Jaenschwalde Demonstration of the Oxyfuel and the post combustion technology on an existing power plant site. Two storage and transport options are analysed.	Vattenfall (Germany)	€180m
Porto-Tolle Installation of CCS technology on a new 660MW coal power plant. The capture part will treat flue gases corresponding to 250 MW electrical output. Storage in an offshore saline aquifer nearby.	Enel Ingegneria e Innovazione S.p.A. (Italy)	€100m
Rotterdam Demonstration of the full chain of CCS on a capacity of 250MW equivalent using post-combustion technology. Storage of CO2 in a depleted offshore gas field near the plant. The project is part of the Rotterdam Climate initiative that aims at developing a CO 2 transport and storage infrastructure for the region. Expected to capture 1.1m tonnes annually	Maasvlakte J.V. / E.ON Benelux and Electrabel (Netherlands)	€180m
Belchatow Demonstration of the entire CCS chain on flue gases corresponding to 250MW electrical output in a new supercritical unit of largest lignite-fired plant in Europe. Three different saline aquifer storage sites will be explored nearby.	PGE EBSA (Poland)	€180m
Compostilla Demonstration of the full CCS chain using Oxyfuel and fluidised bed technology on a 30MW pilot plant which to be upscaled by December 2015 to a demonstration plant of more than 320 MW. Storage in a saline aquifer nearby.	ENDESA Generacion S.A.(Spain)	€180m
Hatfield Demonstration of CCS on a new, 900 MW IGCC power plant. Storage in an offshore gas field nearby. The project is part of the Yorkshire Forward initiative that aims at developing a CO 2 transport and storage infrastructure for the region.	Powerfuel Power Ltd. (UK)	€180m