By 2030, the cost of capturing and storing carbon dioxide emissions from heavy-polluting coal power plants could be reduced to levels where it can compete with other low-carbon technologies, including renewable energies, according to a new study by McKinsey & Company, a business consulting firm.
If successfully rolled out, the technology would allow countries such as Poland and Germany to continue using coal as a major part of their energy mix while meeting their commitment to reduce CO2 emissions, according to the report, which was presented in Brussels on Monday (22 September).
"CCS has potential to play a significant role in the European and global response to climate change by 2030 as the only technology that can address emissions" from coal-fired power plants, the report says. CCS could also reduce emissions from all sort of industrial installations already regulated by the ETS, such as steel, cement and refineries, it added.
"Our reference cases have shown that the costs for integrated CCS projects could come down to 30-45 €/tonne of CO2 abated for new coal-fired power by 2030," McKinsey notes. According to the report, this price range is "in line with expected carbon prices" under the EU CO2 emissions trading scheme (EU-ETS) for that period.
Filling the 'economic gap'
But in the meantime, Europe will be left with an "economic gap" that needs to be filled if CCS technology is to take off. Early demonstration projects, which according to McKinsey are not expected before 2012-2015 "at the earliest", will typically cost 60-90 €/tonne, representing a gap of "0.5-1,1 billion euro per project".
For Europe as a whole, this 'economic gap' is estimated at "around 10 billion euro", according to Chris Davies, a British MEP in charge of steering an EU legislative proposal on CCS through the European Parliament.
According to the study, the main costs in early demonstration plants will mainly be absorbed by the CO2 capture phase, representing roughly two thirds of total costs. The remainder is divided between the transport phase - via existing pipeline networks - and the actual injection of CO2 in underground rock formations.
But both transport and storage costs could vary widely according to the ability to 'cherry pick' projects with favourable storage locations in order to minimise transport distance, the study said. Long-distance transport to a suitable storage location "could increase the cost of transport significantly," it said, potentially adding 10-12 euro per tonne for distances of 200-300 kilometres.
But these are expected to go down as CCS technology moves from the demonstration phase to the early commercial scale (at the beginning of the 2020s "at the earliest", according to the study). Tomas Nauclér, a director at McKinsey's Stockholm office, told EurActiv: "As you go from the demonstration phase to the first commercial full-scale phase, prices will come down pretty fast. Then, you will need a number of projects over the next 5-10 years in order to get down to the 30-45 euro price range we mentioned in the report."
Time is of the essence
But time is running out. According to the report, "if projects are delayed due to difficulties with permits or other uncertainties, CCS could struggle to reach large scale in 2030". To achieve the 2030 goal, it says the first commercial projects would have to be started shortly after the demonstration phase.
In March 2007, EU heads of state and government agreed to build 10 to 12 CCS demonstration plants by 2015 but securing enough funding for the demonstration projects has proved a major obstacle.
A proposal to draw funds from the 'New Entrants Reserve' under the EU-ETS is currently being examined in the European Parliament and could provide a solution (EurActiv 23/09/08).
Andris Piebalgs, the EU's energy commissioner, welcomed the report as "a valuable contribution to the discussions currently ongoing" about CCS financing. He said the revised Community guidelines on state aid for environmental protection "take a favourable view on CCS and indicate the legal grounds on which CCS demonstration projects can benefit from state aid". He added that the Commission "will, in the second half of 2008 propose a revision of TEN-E guidelines to encompass CO2 infrastructure".
Chris Davies, a liberal MEP (ALDE) who is steering a legislative proposal on CCS through Parliament, said time was running short to build the 10-12 demonstration plants which EU leaders committed to at the 2007 Spring Summit. "As this moment, one not single one of these demonstration projects has yet been identified," he said, adding that "even a short delay can have a huge significance in terms of the difference it will make by 2030".
Lars Joseffson, CEO of Vattenfall, a Swedish energy group, said companies were "ready to invest billions" in energy projects such as CCS or offshore wind but that public support was needed in order to achieve them. Otherwise, he said, boards of private companies will reject the projects as "totally uneconomical".
Tony Long, director of WWF's EU office, admitted that CCS was "controversial in the NGO community," with organisations such as Greenpeace rejecting the technology as a distraction from renewable energies. But WWF supports it as "absolutely essential" to tackle global warming as coal will continue to be a major part of the energy mix in Europe, the US and China. "The climate systems will not be able to stand it and neither will we have any chance of meeting our EU climate target. So timing is essential and the race is on now."
Endorsing the McKinsey study, Lord Stern, author of the Stern Review on the Economics of Climate Change, said CCS "is an important measure to achieve CO2 reduction targets, given the likely widespread use of coal and gas in the coming few decades". "The facts in this report illustrate that a public investment in CCS now is more cost effective that investing later. There is an urgent need for policies that support demonstration and implementation of CCS in Europe."
- 7 Oct. 2008: Vote on CCS in the Parliament's Environment Committee.
- Nov.-Dec. 2008: First reading in parliament plenary.
- Dec. 2008: EU Council of Ministers expected to reach a political agreement on the climate change and energy package as a whole, including on CCS.