Uncertainty over CO2 capture in ‘fossil future’

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With hundreds of new coal-fired power plants planned within and outside Europe in the coming decades, pressure is growing on the EU to commercialise and export carbon capture and storage (CCS) technologies to prevent a massive rise in global CO2 emissions. But difficult financing issues remain unresolved.  

EU policymakers and key stakeholders met several times this week (26-30 May) to discuss CCS, including at a 27 May meeting organised by the competition service of the Commission, a 27 May Friends of Europe roundtable and a 28 May workshop organised by UK Liberal MEP Chris Davies.

Davies, who wants all existing fossil fuel power plants to be retrofitted with CO2 capture and storage technology by 2025, is calling for a moratorium on new plant construction after 2015 unless the facilities are able to prevent 90% of their CO2 emissions from entering the atmosphere (EURACTIV 07/05/08). The MEP has organised a further workshop in the Parliament devoted to CCS financing on 3 June. 

But this week’s apparent surge in interest in CCS did not produce any signs of a breakthrough on key financing issues. Instead, the discussions revealed a range of diverging views (see positions).

Justifying CCS

Despite growing concerns about the impact that run-away CO2 emissions could have on the earth’s climate, most industrialised and rapidly developing countries are building and planning massive investments in new coal-fired power plants, widely considered to be the ‘dirtiest’ producers of electricity. 

Germany is planning 20 new plants in the coming decades. And China alone is expected to install 800 gigawatts of new electrical power capacity in the next eight years, and will rely on coal for 90% of that effort, according  the International Energy Agency (IEA), which points out that 800 gigawatts is equivalent to all of the power capacity installed in the EU since 1945.  

In this context, there is a growing chorus of support for CCS as the only option to prevent disastrous climate change fallout as a result of what is being called a global ‘flight to coal’. 

Europe leading the way?

Many observers claim Europe should be the leader in developing and commercialising CCS, so that the technology can then be exported to developing states like China and India. 

But EU member states have made little progress towards realising their March 2007 pledge to build 10-12 CCS demonstration projects by 2015, with most progress coming from non-EU member Norway, which already has one CCS plant up and running and is constructing a further two. 

Norway’s Minister of Petroleum and Energy Åslaug Haga and EU Energy Commissioner Andris Piebalgs agreed on 29 May that Norway’s three CCS projects “could be defined as part of the 12 projects the EU intends to develop in order to prove the viability of this technology”. The announcement was made as part of the energy dialogue between the EU and Norway, which is rich in fossil fuel reserves and is the second largest supplier of oil and gas to the EU. 

The money conundrum

While the EU’s budget is ‘locked’ until 2013, there are several ideas about how and by whom CCS could be financed, including:

  • Counting the CO2 that is sequestered, or captured, through CCS as double within the EU Emissions Trading Scheme (EU ETS);
  • Public financing, possibly by a select group of member states that rely on coal for a large part of their energy mix;
  • A special fund with proceeds obtained from CO2 permit auctions in the EU ETS and/or funds diverted from the Common Agricultural Policy (CAP), and;
  • Letting industry foot the bill, with the argument that the investment presents a future ‘business opportunity’. 

In addition to calling on member states to provide the necessary support, EU Energy Commissioner Andris Piebalgs is also looking for commitment "on a big scale" from industry itself. Business must see CCS as an opportunity, he said.

Jan Panek, head of unit for Coal and Oil in the Commission's Energy and Transport Directorate (DG TREN), pointed to the possibility of "quick money" through a combination of public and private funding sources, whereby member states could use EU ETS auctioning revenues to help with their share of the bill. 

A double credit scheme under EU ETS is favoured by UK Liberal Democrat MEP Chris Davies, who wants to restrict the time-frame of the scheme and limit the volume of CO2 that could be credited to 2.5% of the EU's total emissions. 

But Italian Green MEP Monica Frassoni argued that the EU "cannot afford" CCS, claiming that the double credit plan would "kill" the EU's carbon market. Furthermore, CCS funding will divert public funds from renewables, she said. 

Mark C. Lewis, the managing director of Global Company Research at Deutsche Bank, believes markets should decide and that ultimately "consumers have to pay". Lewis also slammed EU policymakers for undermining the EU ETS by over-allocating free emissions permits in the first trading period (2005-2007). Brussels should leave the markets alone, he said, because they "cannot pretend they know the market".

His comments caused a spirited reaction from Davies, who described the notion that policymakers should not intervene in carbon markets as "tosh".

Energy firms like Shell  and E.ON are looking for a greater commitment of funds from public authorities in order to "kick start" CCS.

Henry Edwardes-Evans, managing editor of Platts Power, an energy markets news service, said the EU's current CO2 price, which hovers around €25 per tonne, is "not nearly high enough" to drive CCS, citing "underestimation" of CCS costs.

Lewis commented that "we would get there" with a CO2 price between 40 and 45 euros per tonne. 

Jeff Chapman, the chief executive of the UK Carbon Capture and Storage Association (CCSA), pointed to a "missing incentive for member states to incentivise". A select group of member states should pay for CCS but could "share the burden" by being allowed to count CCS funding towards their renewable energy targets, he suggested. 

Gavin Edwards, head of Climate and Energy at Greenpeace International, voiced firm opposition to CCS, advocating that existing, available technologies like renewable energies and energy efficiency technologies should be "rewarded" instead. 

In contrast, the WWF's EU ETS coordinator Sanjeev Kumar, whose organisation supports CCS, argued at a 27 May Commission workshop that public funds should be used to support the technology since it is a "public good".

Carbon capture and storage (CCS) is a process involving the separation of carbon dioxide from the gases produced by large stationary power plants. The CO2 is then compressed, transported and stored in geological formations, either on land or in the ocean (EURACTIV LinksDossier).

The Commission backs CCS as an essential part of its CO2 reduction efforts, and put forward a communication on a legal framework for storing CO2 as part of its climate and energy package of 23 January (EURACTIV 28/01/08). And in March 2007, EU member states pledged to have 10-12 CCS demonstration plants up and running by 2015.

Oil and gas firms have extensive experience with pumping and storing gas into geological formations. They say there are few technical obstacles in the way of more fossil fuel and in particular coal-fired power plants being outfitted with CCS.

But the technology is expensive and decreases the average efficiency of power plants by up to 20%. The public is sceptical about the safety of geological storage sites, particularly 'in their own backyard'. Environmental NGOs are split on the issue, with the WWF and Bellona, for example, in support, while Greenpeace continues to raise doubts about the wisdom of pumping billions of euros into CCS rather than using the money to promote renewables and energy efficiency.

  • By end 2008: Commission to table a communication on CCS financing; possible agreement on financing among member states under French EU Presidency.

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