EU making headway on getting carbon-capture ready

EU making headway on getting carbon-capture ready

by Hughes Belin

Supporters of Carbon Capture and Storage (CCS) are beginning to see light at the end of the tunnel. Back in 2007, in response to a request from the industry, EU leaders called for a demonstration programme of 10-12 CCS plants (costing around €1bn each)  to be put in place in a number of EU countries. But no progress was made in terms of finding funding for the plants until the European Parliament started securing some money for CCS via the energy climate package in late 2008. That has given CCS promoters fresh hope that their zero-emission dreams can soon be fulfilled.

Vattenfall's CCS project in Schwarze Pumpe, Germany

Article Highlights:

- The European Commission has recognised CCS as one of the most promising technologies to combat climate change and has made initial funding of €1 billion available.

- However, the full “demonstration programme” needed to make CCS a commercially viable technology, will take €20 to €30 billion.

- Some representatives say much more public funding is needed.

- In addition, “regulatory uncertainties” will need to be tackled before industry can be expected to invest heavily in CCS.

- In the meantime, a new European project network has been set up to help EU-funded CCS projects and speed up technological development.

The CCS community’s aim this year was to ‘get ready for Copenhagen’ and they have been busy doing just that.

First of all, they have the backing of the International Energy Agency (IEA), which acknowledged in its Energy Technology Perspective 2008 that CCS is the third most powerful solution for mitigating CO2 emissions after energy efficiency and renewables. According to the IEA, by 2050, CCS could represent 20-28% of all CO2 emission reductions. The IEA also said that CCS would bring the cost of meeting emissions targets by 2050 down by some 70% and that CCS would be a solution that could be applied by both the power generation sector and energy intensive industries.

CCS supporters have also successfully achieved their aim of gradually moving the technology towards the top of the EU agenda. ‘It makes sense for the EU to adopt a CCS policy goal to make it commercially viable by 2020 in a fully functioning carbon market,’ said Jan Panek, Head of the European Commission’s Coal and Oil Unit in DG TREN (Directorate-General of Energy and Transport), at a CCS summit held in October in Brussels.

The European Commission has now officially recognised CCS in its European Strategic Energy Technology Plan (SET-Plan) as one of the most promising technologies in Europe’s efforts to create a low-carbon economy ‘For the first time, this technology lines up with other energy technologies,’ says Panek.

But there are people who want more to be done. Chris Davies, a British Member of the European Parliament and a former rapporteur on the European Directive on geological storage (the so-called ‘CCS Directive’), is CCS’s number one cheerleader in the EU institutions. He laments what he sees as a lack of leadership. ‘Is there a top executive CCS spokesman in the European Commission?’ he asks, pointing out that there is only support ‘here and there’ from various EU commissioners.

Big money

However, Davies recognises that CCS ‘is not an easy political sell’ because the technology is new to the public and to most politicians. He points out that the main difficulties lie in uncertainties about its technical viability and safety, about whether it will be accepted by the public and most of all about how to finance it.

As Lars Strömberg, Vattenfall’s Vice President for R&D, put it at the summit: ‘It takes 25 years to introduce a commercial technology with all the necessary steps. And on top of that it takes a lot of money.’

The EU’s future demonstration programme is ‘a costly programme’ (about €20-30bn in total), confirms Gijs van Breda Vriesman, member of the coordination Group of the Zero Emission Platform (ZEP, see box) and General Manager of Shell Hydrogen Europe.

ZEP’s three-phase blueprint is as follows:

• ‘Demo’ phase (with 4 GW installed capacity) by 2015
• an ‘Early commercial’ phase (with a total of around 20 GW installed capacity and a typical plant size of 100-400 MW) by 2020
• a ‘Mature commercial’ phase in 2030 with 80 GW installed capacity.

Zero Emission Platform (ZEP) Founded in 2005, the Brussels-based European Technology Platform for Zero Emission Fossil Fuel Power Plants (ZEP) is a unique coalition of stakeholders (European utilities, petroleum companies, equipment suppliers, scientists, academics and environmental NGOs) united in their support for CO2 Capture and Storage (CCS) as a key technology for combating climate change. Its mission is to identify and remove the barriers to creating highly efficient power plants with near-zero emissions. Some 200 experts in 19 different countries contribute actively to ZEP’s activities, while a total of 38 different companies and organisations are represented on its governing bodies In 2008, ZEP carried out an in-depth study into how a CCS demonstration programme could work in practice, from every perspective – technological, operational, geographical, political, economic and commercial – backed up by robust R&D activity. The resulting report – “An EU Demonstration Programme on CO2 Capture and Storage (CCS) – ZEP’s Proposal” – describes precisely what the Programme should cover; how it could be funded and what steps must be taken to ensure it is up and running by 2015 in order to commercialise CCS by 2020.

Strömberg notes that the CO2 price is estimated to lie in the range of €30 to €40 per tonne for the first 450 CCS plants wherever they are built. ‘This means that the first ones will not be economically viable, but plant number 450 in 2020 will be.’ CCS costs are then expected to reach the same level as CO2 prices. In the meantime, ‘it is industry which is taking the risk since it has to take the risk’, Strömberg says.

Of course Strömberg only speaks for Vattenfall, which is committed to reducing its emissions to zero by 2050. Its aim is to bring down the cost of avoiding CO2 to €20 per tonne by 2020 with a 95% capture rate of Vattenfall’s emissions. The electricity industry as a whole is calling for public money to boost R&D in CCS technology. In a short position paper issued in September 2009, Eurelectric, the Union of European Power suppliers, said that, ‘unless sufficient and timely financial resources are made available in a properly co-ordinated manner by the EU and its member states to enable rapid CCS development, there is a significant risk that the EU’s medium and long-term climate goals will not be met and security of supply will be jeopardized’. In Brussels, most observers interpret this as a sign that the power industry is reluctant to bear the financial risks associated with the development of CCS in its early stages.

Financing schemes

This is where the EU can make a contribution with its two financing schemes for CCS. The first one was secured as part of the European Directive on the European Emission Trading System (ETS), which is itself part of the EU energy and climate package, in late 2008. Some 300 million ‘allowances’ (CO2 emission rights) from the ‘new entrants to the carbon market’ section were set aside to finance CCS and renewable projects. Since then, formal discussions have been ongoing between European governments and the European Commission as to the best way to disburse this money and on according to what criteria it should be allocated to projects.

The adoption of the EU’s formal Decision and the publication of a first call for proposals are expected in early 2010. There will be two calls for proposals: a first one of 200 million allowances and a second of 100 million allowances. The deadline for the submission of proposals from member states to the European Investment Bank (EIB) is expected to be November 2010. The deadline for the award decisions on the first call is set to be 31 December 2011 and the deadline for award decisions for the second call is set to be 31 December 2013. The EIB (subject to the approval of its governing bodies), will select projects according to the terms set out in the formal Decision. The EIB will sell the allowances corresponding to the cash value of awards and pass revenues on to member states for disbursement. The selected projects could then be up and running by the end of 2015.

However, there are three main uncertainties hanging over this source of funding. One is that the price of CO2 is highly volatile. In other words, it is not clear how much the allowances will be worth in future. A second is that the split in terms of funding between CCS projects or other renewable projects is unknown. Thirdly, no one currently knows when the money will actually be paid: through an upfront payment, by instalments or when the projects are proved successful.

‘The public pot of money is relatively tiny and is the absolute minimum with which we could hope to make a difference’

Industry is arguing for an upfront payment of the allowances to the CCS projects instead of a disbursement through annual instalments because this would double the value of the allowances, according to Van Breda Vriesman. This has been proposed to the European Commission but it fears that industry would make windfall profits. Industry’s response is that ‘the disbursement of allowances should be conditional on performance’.

The second EU financing scheme for CCS comes under the so-called ‘EU recovery package’. The European Commission put together a list of 13 projects that were deemed eligible for a total of €1.05bn of funding from the EU recovery package. It then selected seven of the eleven projects that had applied for funding by the mid-July deadline. The projects are in Hatfield in the UK, Jänschwalde in Germany (Vattenfall), Belchatow in Poland, Rotterdam in the Netherlands (Eon and Electrabel), Porto Tolle in Italy (Enel), Campostilla in Spain (Endesa), and Florange in France (a CO2 transport project). The Commission’s proposal is for each of the seven projects to receive up to €180m of EU funding. On 9 December, the Commission announced that all but the last of these projects will receive funding of €180 million each (except for the Italian project, which will get €100 million).

Tiny pot

IEA roadmap for CCS development The roadmap, presented at the CSLF (Carbon Sequestration Leadership Forum) ministerial meeting in London in mid-October, spells out a detailed scenario for the development of CCS from its current demonstration phase to full commercialisation and large-scale deployment between now and 2050. Some key findings include: • 100 CCS plants will need to be up and running by 2020 (and 3,400 by 2050) to achieve the aim of stabilising climate change at 2°C • CCS will need to begin in OECD countries but must then rapidly expand to all fossil-fuel based developing countries, which are expected to account for 65% of the CO2 captured in 2050 • CCS is not just a ‘clean coal’ strategy: emissions-intensive sectors such as cement, iron & steel and chemicals as well as upstream fuel transformation activities will also need to use CCS to achieve climate change goals. In fact, by 2050, the IEA estimates that less than 40% of the CO2 captured will be from coal-fired power plants. This is confirmed by Bjørn Utgård, from Bellona’s Oslo Office, who says he is looking ‘beyond power and power plants’ as there are a lot of other sources of emissions, such as refineries, steel, silicon fertilisers and cement plants, where CO2 can be captured and stored. Industry emissions account for 12-15% of global emissions and these come from large plant sources.

But that is not enough for some people. ‘The public pot of money here is relatively tiny and is the absolute minimum with which we could hope to make a difference,’ said Jessie Scott, the Brussels Programme Leader for,the Environmental think-tank E3G, at the CCS summit in Brussels. Building some CCS plants in China rather than in Europe would even be more cost-effective for European companies, she pointed out.

Demonstrating CCS outside the EU is indeed another of the CCS community’s aims.  Bellona, a Norwegian NGO with offices in Brussels, Russia and Washington, who were the organisers of the summit, argued that CCS should have its place in a Copenhagen/post-Kyoto regime. If CCS is officially recognised on the main list of CO2 mitigation technologies, ‘only new mechanisms could institutionalise the role of CCS in CO2 mitigation options’ said Pål Frisvold, the Brussels Director of the Bellona Foundation. The environmental NGO was among the first ones to lobby for de-carbonising fossil fuels through CCS. Frisvold hopes that CCS will find its way into the CDM (Clean Development Mechanism) in some way or another, ‘although it will not be easy to include’ as there is opposition from island states and emerging economies.

Nevertheless, pro-CCS lobbying has been given a voice at many international for a, including the CSLF (Carbon Sequestration Leadership Forum) ministerial meeting in London in mid-October, the MEF (Major Economies Forum) in mid-November and the Copenhagen climate change summit in December. Speaking at the CCS summit, Debbie Stockwell, the Head of “CCS in Developing Countries” at the UK’s Department of Energy and Climate Change, emphasised that the UK argues strongly in favour of encouraging key emerging countries such as China, India, South Africa, Indonesia and Brazil to take up CCS. The UK is already working with these countries on CCS.

‘It cannot be started in Europe and deployed later on in developing countries,’ she explains.  At the Copenhagen summit, the UK wants to see pilot CCS plants included in the CDM and CCS included in the post-2012 sectoral mechanisms. ‘The UK sees CCS as being an important feature of some developing countries’ Low Carbon Growth Plans (LCGP)’, says Stockwell.

For an overview of carbon storage sites across the world, see:
http://www.geos.ed.ac.uk/sccs/storage/storageSitesFree.html

CCS projects in the EU:

For a list of the projects running in the EU and their status click here.

Regulatory uncertainties Funding demonstration projects is not the only hurdle that needs to be overcome. Regulatory uncertainty has also been cited as one of the main threats to the development of CCS. ‘Regulatory uncertainty is a killer for these sorts of things,’ says Alain Berger, Vice President for European Affairs and Head of the Brussels Office for Alstom. Many stakeholders fear that the implementation of the CCS Directive may be delayed in some EU member states. ‘If the [CCS] Directive is not implemented in a way that enables companies to take on appropriate commercial risks and also enables public confidence in the arrangements around CO2 storage, we will not be building any CCS plants in Europe and we will not be leading the rest of the world by example,’ argued Jessie Scott, Brussels Programme Leader for Environment 3rd Generation (E3G). The regulatory issue is directly linked to the problem of the public accepting CCS. An EU CCS programme would bring down costs and contribute to public awareness of CCS, by ‘not telling but showing’ through real data, explained van Breda Vriesman of the Zero Emission Platform (ZEP). So far, industry has played a dangerous game either by playing NGOs against each other or by ‘forcing it [CCS] down citizens’ throats’, something which is ‘not the right way forward’, said Sanjeev Kumar, the ETS coordinator at the WWF’s European Policy Office. ‘If you sit down and engage and build trust, it takes time, but that time is money well spent,’ he added. But there also needs to be some knowledge sharing in order to maximise innovation, minimise the risk and speed up the commercial roll-out. Knowledge sharing is explicitly foreseen in the EU legislation. One of the aims is to maximise public understanding of the elements that will affect public acceptance of CCS. ZEP has recently issued a paper on knowledge sharing in order to maximise sharing without discouraging innovation, says Van Breda Vriesman. The paper proposes practical solutions for sharing intellectual property (IP) and know-how, ensuring both the rapid dissemination of the intellectual property worldwide and taking account of commercial aspects by maintaining the incentive to invest in it. In this regard, ZEP calls on companies to use the ‘European Carbon Dioxide Capture and Storage (CCS) project network’, an independent body recently set up by the European Commission to help CCS projects financed by the recovery package. (http://www.ccsnetwork.eu/)  Its legal status is currently being discussed but it will not be a new European institution. Its purpose will not be to distribute EU funding but to be the ‘face of CCS’ for all stakeholders, including the public and international partners. The launch event of the network will be in Oslo in December. The event will be open to pre-selected projects and will discuss their progress with their application for funding, the criteria for membership of the network and possible plans for international cooperation. The overall aim is to identify best practices and to allow different projects to share their knowledge with each other. Technology assets are key here. According to Alain Berger, when equipment companies invest in R&D for CCS, ‘it is not to have it given for free to people in other countries, but rather to have some sort of assets recognised there’ as well as some technology licensing mechanism and IPR  (intellectual property rights) protection which will allow technology to be deployed quickly. Intellectual property is a ‘very controversial’ point of discussion among ZEP members, says Jessie Scott.