Moving ahead with CCS in Europe

Thursday, April 15, 2010

CO2 capture and storage offers a real solution to the climate change problem but it will need a huge financial commitment and speedy decision-making by the EU to make it happen, writes Veronica Webster of Bellona Europa

Carbon dioxide (CO2) emissions rise year on year, despite the International Panel on Climate Change (IPCC) finding that greenhouse gas emissions should be reduced by 50 to 85 per cent by 2050 to prevent catastrophic climate change.

Clearly, something has to be done to reduce emission levels. The most obvious solutions are enhanced energy efficiency, more renewable energy and improved management of forests. But even if we utilise all of these solutions it still would not be enough given rising population trends. Additional solutions are required.

At The Bellona Foundation, an environmental NGO of Norwegian origin, we are convinced that CO2 capture and storage (CCS) will have a key role to play in the fight on climate change.

In a nutshell, CCS can remove CO2 emissions from all large emission sources, such as coal or gas-fired power stations, steel mills or cement factories. It operates in three stages. First, CO2 is captured. This can be done through three different technologies. The simplest and most well-tested consists of "scrubbing" CO2 from the flue gas coming from the chimneys. The CO2 is then compressed so that it behaves like a liquid, and is transported by pipeline or ship to a geological storage site. Finally, it is stored safely in suitable underground geological structures such as depleted oil or gas fields. If all large factories and coal or gas power plants were equipped with CCS technology, about half of global man-made CO2 emissions could be eliminated.

While each of the three steps are well-tested at large scale, they have so far not been put together for a large scale power or industrial plant. This means that the main question for CCS now is how much will it cost.

In order to answer this question, a number of CCS demonstration projects are moving ahead across the world. In the UK, the government has pledged to fund one large-scale CCS demonstration project at a coal-fired power station, and the successful project will soon be known. The EU has set up two major funding schemes for CCS. One UK project, in Hatfield, has already been selected to receive €180m from one of these pots.

The challenge for CCS is indeed cost. The cost per tonne CO2 avoided – about €60-90 according to a study published last year by consultants McKinsey & Co – is similar or lower than that for, say, solar power. Nevertheless, the sheer size of the projects make the total cost huge – for example, a CO2 capture project from a relatively modest coal-fired power plant of 400 megawatts could reach about €800m over its entire lifecycle.

All global emission scenarios that give us a reasonable chance of restricting global temperature rises of under 2°C require large-scale CCS demonstration projects to be in place by 2015 and commercially viable from 2020. It is therefore imperative that wealthy developed nations take the lead in this process despite foreseeable financial costs. As it stands within the EU, however, there is a lack of adequate incentives in place to ensure that this happens.

In the EU, the main incentive to invest in CCS currently in place is an emission trading scheme (ETS) for greenhouse gases, which creates a "carbon market" that allocates a price to CO2 emissions. But the cost of emissions is too low – currently barely €15 per tonne CO2 – and so does not create a large enough incentive for the private sector to install CCS. Furthermore, investments in power plants and CCS are very long-term, so certainty about future legislation is needed. After the price of CO2 emissions collapsed from more than €30 in summer 2008 to €10 in December last year, it is hard to make the case for huge investments in CCS solely on the basis of the ETS. This highlights a need for further "sticks" and "carrots" at EU level to phase out investments in conventional coal-fired power and phase in investments in CCS.

The Bellona Foundation believes that we should complement emission-trading schemes with CO2 emission performance standards (EPS) – setting a limit to the amount of CO2 emitted per kilowatt-hour – so that the most emission-intensive options are simply banned. In the US, California and Washington states have already introduced such a limit, and the current versions of the US climate and energy bill include the same regulatory tool for new plants. It is therefore not very surprising that both the UK government and the Tories advocate the same idea for new coal-fired power plants. Whilst it is a useful first step to introduce this for new plants, it is also necessary to set a date in the future by when also existing plants have to comply with the limit.

Both in the EU and the US, similar mandatory emission ceilings for SO2 from power plants have successfully reduced acid rain. In other words, emission ceilings or performance standards have been successfully used in the past to provide certainty to investors. This is particularly needed now, given that the current financial turmoil has destroyed lending for capital-intensive projects.

For CCS to become commercially viable by 2020 and thus able to mitigate the effects of climate change will, clearly, require a huge financial commitment, ample research and development and speedy decision-making at EU level. In order to bring down costs per plant, approximately 100 plants have to be built in Europe before CCS is expected to be more profitable than non-CCS power generation. The path from where Europe stands now – at the planning stage of 10-12 demonstration plants with the help of public funding – to the 100th plant requires the establishment clear long-term incentives.