Archive for the ‘Carbon capture & storage’ Category

Revisiting Kaya

Today we see a huge focus on renewable energy and energy efficiency as solutions for reducing CO2 emissions and therefore addressing the climate issue. Yet, as I have discussed in other posts, such a strategy may not deliver the outcome people expect and might even add to the problem, particularly in the case of efficiency. I am not the only one who has said this and clearly the aforementioned strategy has been operating for some 20 years now with emissions only going one way, up.

Kaya Yoichi

A question that perhaps should be asked is “why have many arrived at this solution set?”. Focusing on efficiency and renewable energy as a solution to climate change possibly stems from the wide dissemination of the Kaya Identity, developed in 1993 by Japanese energy economist Yoichi Kaya (pictured above). He noted that:

 Kaya formula

 Or in other words:

Kaya formula (words)

Therefore, by extension over many years (where k = climate sensitivity): 

Climate Kaya formula (words)

In most analysis using the Kaya approach, the first two terms are bypassed. Population management is not a useful way to open a climate discussion, nor is any proposal to limit individual wealth or development (GDP per person). The discussion therefore rests on the back of the argument that because rising emissions are directly linked to the carbon intensity of energy (CO2/Energy) and the energy use per unit of GDP (Energy/GDP or efficiency) within the global economy, lowering these by improving energy efficiency and deploying renewable energy must be the solutions to opt for.

But the Kaya Identity is just describing the distribution of emissions throughout the economy, rather than the real economics of fossil fuel extraction and its consequent emissions. Starting with a simple mineral such as coal, it can be picked up off the ground and exchanged for money based on its energy content. The coal miner will continue to do this until the accessible resource is depleted or the amount of money offered for the coal is less than it costs to pick it up and deliver it for payment. In the case of the latter, the miner could just wait until the price rises again and continue deliveries. Alternatively, the miner could aim to become more efficient, lowering the cost of pickup and delivery and therefore continuing to operate. The fossil fuel industry has been doing this very successfully since its beginnings.

The impact on the climate is a function (f) of the total amount delivered from the resource, not how efficiently it is used, when it is used, how many wind turbines are also in use or how many people use it. This implies the following;

Climate formula (words)

This may also mean that the energy price has to get very low for the miner to stop producing the coal. Of course that is where renewable energy can play an important role, but the trend to date has been for energy system costs to rise as renewable energy is installed. A further complication arises in that once the mine is operating and all the equipment for extraction is in place, the energy price has to fall below the marginal operating cost to stop the operation. The miner may go bankrupt in the process as capital debt is not being serviced, but that still doesn’t necessarily stop the mine operating. It may just get sold off to someone who can run it and the lost capital written off.

This doesn’t have to be the end of the story though. A price on the resultant carbon emissions can tilt the balance by changing the equation;

Climate formula with carbon price (words)

When the carbon price is high enough to offset the profit from the resource extraction, then the process will stop, but not before. The miner would then need to invest in carbon capture and storage to negate the carbon costs and restart the extraction operation.

What this shows is that the carbon price is critical to the problem. Just building a climate strategy on the back of efficiency and renewable energy use may never deliver a reduction in emissions. Efficiency in particular may offer the unexpected incentive of making resource extraction cheaper, which in turn makes it all the more competitive.

 

The EU ETS isn’t out of trouble just yet

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On January 22nd the EU Commission launched its White Paper which lays out the major components of its energy and climate policy through to 2030. This is the first major step in what could well be a lengthy debate and parliamentary process before a new package of measures is finally agreed. The Commission has proposed a 40% EU wide greenhouse gas reduction target for the year 2030, an EU wide target of 27% renewable energy by the same year and a supply side mechanism to adjust the overall number of allowances in circulation within the EU ETS.

The latter component is clear recognition by the Commission that the ETS has been awash in allowances for some time now and with a price of just a few Euros is doing nothing to drive emissions management across the EU. There are multiple reasons for the situation the ETS currently finds itself in, but one major contributor has been overall energy policy design in the EU. This has imposed renewable energy targets to the extent that further emission reductions under the ETS are not required once the former have been met. Hence the near zero CO2 price. There are two parts to this particular story – the first is the overall level of the renewable energy target and the second is the reality that transport (oil) and commercial / residential (natural gas) sectors hardly contribute to this, so it forces a much higher renewable energy penetration in the power sector, which is under the ETS.

But with a 2030 reduction target of 40% and a new renewable energy goal of 27%, is the problem now remedied?

This of course depends on how the renewable energy target is met. Importantly, it will not be imposed on Member States as it was in the period to 2020, but is only binding at EU level. This could mean that the Commission expects to be at 27% renewables based on the impact of policies such as the ETS, rather than requiring that Member States guarantee a certain level of renewable energy use and therefore effectively forcing them to enact policies to deliver such goals. But many Member States are likely to continue their support of renewable energy and may force it into the overall energy mix right through to 2030.

The worst case outcome for the ETS would be one that sees the whole 27% renewable energy goal met with explicit policies at Member State level. The chart below shows this – note that this is a simple model of the EU for illustrative purposes. Assume that at the end of 2012 EU power generation and industry sector emissions are at 2000 million tonnes CO2. By 2020, with a 1.74% annual reduction under the ETS, they need to be at ~1730 million tonnes. But with renewable energy being forced into the power generation system (although not quite reaching the 20% across the EU) and the EU easily meeting its overall 20% CO2 goal, sector emissions are below the ETS cap, which implies nothing else need be done, hence the low CO2 price. Projecting this out to 2030 with the proposed 2.2% annual reduction and meeting the 27% renewable energy goal across the EU energy system, shows that sector emissions are only slightly above the cap (about 50 million tonnes), which again implies a low to modest CO2 price. Assume further that a CCS programme is actually running and delivering 50 mtpa storage (through direct incentives) and no further action is required – so a zero CO2 price once again! The model also assumes about 30% growth in electricity generation from 2012 to 2030.

 EU ETS RET impact to 2030

This very simple model doesn’t account for the large allowance surplus that exists in 2012 (> 1 billion allowances), which would therefore be unlikely to vanish through normal growth in electricity demand, industrial production and so on. This makes it imperative that the EU also implements the supply side mechanism within the ETS, which would then remove much of the surplus through the early 2020s. Ideally, implementation of this should be immediate and also with immediate effect, rather than waiting until post 2020.

Should Member States not implement specific renewable energy policies and the supply side mechanism is active and functioning, we might just have an ETS that actually drives change in the large emitters sector, but there are two big “ifs” here. Otherwise, expect continued price weakness and probably a higher overall cost of energy as a result.

As the EU Commission gears up to release its 2030 Energy and Climate White Paper in Davos week, there is considerable discussion regarding the emissions reduction target that will be recommended. Historically the EU has been keen on multiple targets, but in recent years this has backfired, with conflicting goals and multiple policy instruments leading to a weak carbon market and a lack of investment in one critical climate technology in particular, carbon capture and storage (CCS).

For the period 2020-2030, it is hoped that the EU will retreat on the number of targets and focus instead on a single greenhouse gas target that then becomes the main driver of change in the energy system. Such an approach could help restore the EU ETS and ultimately deliver the key carbon emissions goal at a lower overall cost, therefore also helping restore some EU positioning in terms of international competitiveness.

Most commentators are expecting the GHG target to be in the range of 35 to 40% from a 1990 baseline (vs. 20% for 2020), but there is very little discussion on how that target might be structured. There are two basic approaches;

  1.  Emissions must meet a particular goal in a given year.
  2. Cumulative emissions over a period of time must be below the baseline year on an average basis.

While a single statement such as “Emissions in 2020 must be 20% below 1990” is often used to cover both these cases, the goals are very different. This is a critical consideration as the EU sets out its position for 2030, but perhaps more importantly as future goals are tabled for the UNFCCC in Q1 2015.

The UNFCCC has, to date, monitored and reported on national objectives through the Kyoto Protocol, which is based on the second approach given above, i.e., cumulative emissions. In the Doha Amendment to the Kyoto Protocol, the EU commitment for the period 2013-2020 is a reduction of 20% below 1990. This is because the Kyoto Protocol is based on allowances (Assigned Amount Units or AAUs) and that these must be surrendered for each tonne emitted over the period. This is also how the atmosphere sees CO2 emissions – cumulatively. Every tonne matters as CO2 accumulates in the atmosphere over time. It doesn’t matter at all what the emissions are in a given year, only that the cumulative amount over time is kept below a certain amount. The EU ETS works in the same way – every tonne counts.

However, as if to confuse, the Doha Amendment also gives the EU Copenhagen pledge of a 20% (or 30% under certain conditions) reduction in greenhouse gas emissions by 2020 as a percentage of the reference year, 1990. In the particular case of the EU, due to the expectation of relatively flat emissions over the period 2013 to 2020, these two goals are very similar, such that the difference issue hasn’t really seen the light of day. Further to this, the Kyoto Protocol allows for carryover of AAUs from 2008-2012 into the 2013-2020 period, so the difference is further dampened. But when it comes to 2030, big differences could show up (see chart below).

 Eu Emissions Goal 2030

 In the case of a 35% target (for example), the brown line shows a pathway to this as a fixed goal in 2030, but equally any pathway would be okay as long as the emissions are 35% below 1990 levels in 2030. But on a cumulative emissions basis, assuming a linear reduction, this is only a 28% reduction for the period 2021 to 2030.

The green line equates to a 35% cumulative emissions reduction for the same period, but in the year 2030 a reduction of about 47% is actually needed to achieve this, a much more ambitious requirement then a simple 2030 goal.

Exactly what the EU says on January 22nd remains to be seen, with considerations such as the high level number itself and domestic vs. international action being the main discussion points. But the big difference might just lie in the eventual wording (“by 2030” or “through to 2030”) and the need to table commitments with the UNFCCC at some point, particularly if the latter still works on a cumulative basis after a global agreement is reached.

Selling CCS at a climate conference

As COP 19 rolls on in Warsaw, both delegates and observers that I have talked to are seeing little agreement, despite the sometimes upbeat assessment coming from the UNFCCC. It may well be late on Friday or even Saturday before something appears from this COP.

Meanwhile the side event and external (to the formal COP) conference programmes continue. It is through these processes that participants can meet and discuss various aspects related to climate change. This being a meeting about climate change, it might be expected that attendees would be interested in hearing about carbon capture and storage (CCS), but it turns out this is a hard sell here. The problem seems to start at the COP venue itself, where the meeting room banners feature various approaches to energy and environmental management. CCS doesn’t get a mention.

 COP Banners

All I could find were Energy Efficiency, Renewable Energy Sources, Air Protection and Water & Wastewater Management.

This theme continues in many presentations, speeches, dinner conversations and panel discussions. While CCS does of course feature when organizations such as GCCSI hold events, at more general climate solution events it struggles to hold its own. Rather the focus is solidly on energy efficiency and renewables. Neither of these are anything close to sufficient solutions to the climate problem as it stands today, yet you could sometimes come to the conclusion that this is what the COP is actually about.

Energy efficiency has transformed global industry since the first day of the industrial revolution. Everything we do is possible through a combination of technology innovation and energy efficiency, from power stations to vehicles to mobile phones. The result of this has been tremendous growth, but with it has come a continuous rise in greenhouse gas emissions, particularly CO2. We use more goods and services, buy more stuff and travel further than at any point in human history and there is no apparent let up in this trend as it continues to pervade the entire global economy. But now energy efficiency is being sold as a mechanism for reducing emissions, throwing into reverse a trend that has been with us for over 200 years and fundamentally challenging economic building blocks such as Jevons Paradox. A parade of people representing business organizations, environmental NGOs and multilateral institutions will wax lyrical about energy efficiency. In one presentation an airline industry spokesperson talked about the tremendous improvements in efficiency the industry was making, through engine design, light weighting, route optimization and arrival and departure planning. There is no doubt that this is happening, but it is also bringing cheaper air travel to millions of people and of course forcing up emissions for the industry as a whole. There is no sign of this trend reversing itself. Adding a carbon price to the energy mix is the way to change this trend and still make energy efficiency improvements. 

The renewable energy story is told in a similar way. While there is also no doubt that the application of renewable energy is bringing benefits to many countries, offering distributed energy, providing off-grid electricity and supplementing the global energy supply in a tangible way, the global average CO2 intensity of energy has remained stubbornly the same since the 1980s when it dropped on a relative scale (1990 = 100) from 107 in 1971 to 100 in 1987 (Source: IEA). It was still at 100 in 2011. This is not to say it will never change, but simply advocating for renewable energy is very unlikely to take us to net zero emissions before the end of this century. The fossil fuel base on which the economy rests is also growing as demand for energy grows. As recent IEA World Energy Outlooks have repeatedly shown, much of this new demand is being met with coal. The only way to manage emissions from coal is the application of CCS, yet this seemingly falls on deaf ears here in Warsaw.

When CCS does get a mention, it is increasingly phrased as CCUS, with the “U” standing for “use”. In her one upbeat mention of CCS that I have heard, UNFCCC Executive Secretary also referred to it as CCUS. In another forum, one participant even talked about “commoditizing” CO2 to find a range of new uses. The problem is that CO2 really can’t be used for much of anything, with one modest (compared to the scale of global emissions) but important exception. The largest use today is for enhanced oil recovery where the USA has a mature and growing industry. It was originally built on the back of natural CO2 extracted from the sub-surface, but the industry now pays enough for CO2 that it can provide support to carbon capture at power plants and other facilities (usually with some capital funding from the likes of DOE).  This has helped the US establish a CCS demonstration programme of sorts.

There are other minor industrial gas uses (soft drinks), some scope for vegetable greenhouses such as the Shell project in the Netherlands (which provides refinery CO2 to Rotterdam greenhouses for enhanced growing, rather than have them produce it by burnaing natural gas) and a technology that quickly absorbs CO2 in certain minerals to make a new material for building, but all of these are tiny. The problem is that CO2 is the result of combustion and energy release and therefore any chemistry that turns it into something useful again requires lots of energy – nature does this and uses sunlight. Even if such a step were possible, this wouldn’t change the CO2 balance in the atmosphere, just as any bio process doesn’t change the overall balance in the atmosphere. Only sequestration, either natural or anthropogenic, changes that balance.

“Show me the money” or CO2 mitigation at COP 19 ??

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After the first week of the Warsaw COP, an observer could be excused for wondering what exactly the thousands of delegates meeting here were actually discussing. The closest the assembled negotiators, NGOs, business people and UN staff came to seriously talking about CO2 mitigation was when Japan announced its new 2020 target, an increase of 3% in emissions vs. 1990 (but positioned as a decrease of 3.8% vs. 2005 emissions). The change in target by Japan is a consequence of their decision to stop all use of nuclear power following the Fukushima disaster.

Curiously, the Japanese announcement was criticized by China, with their climate negotiator Su Wei saying: “I have no way of describing my dismay” about the revised target. The European Union also expressed disappointment and said it expected all nations to stick to promised cuts as part of efforts to halt global warming. Christiana Figueres, the Executive Secretary of the UNFCCC told Reuters that, “It is regrettable.” Somewhat predictably, she forecast that Japan’s planned investments in energy efficiency and renewable power would prove that the target could be toughened.

The Japanese decision sent one other major ripple through the football stadium holding the COP, that being the realization that national pledges are wide open to correction and change as circumstances dictate. Given that “pledge and review” is the likely foundation of the global deal that negotiators are aiming for in 2015, the Japanese move brings into question if such an approach has any legitimacy at all. Had the original Japanese target been underpinned by carbon market instruments with the robustness that we expect of financial markets, they might have felt compelled to buy the difference, which would have at least financed equivalent compensating mitigation actions in other parts of the world (although that being said, Canada took no such action when it failed to meet its goals under the Kyoto Protocol, it just rescinded its ratification instead).

But Japan and CO2 was a momentary distraction from the real discussion, money. This has appeared in a variety of forms and is endemic within the process. There is endless questioning about the $100 billion pledge made in Copenhagen;

In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries.

. . . with the most often repeated phrase from many countries being akin to “Show me the money”. Of course, the intention of the Copenhagen Accord was never to have $100 billion per annum deposited in the Green Climate Fund by Annex 1 countries, but to develop approaches which would see at least $100 billion per annum in mitigation and adaptation investment flow to developing countries, leveraged by instruments such as the Green Climate Fund. Unfortunately this interpretation of the pledge is largely ignored.

show-me-the-money-38mm 

Money also rears its head in the Loss and Damage discussion where agreement was reached in the dying hours of the Doha COP to agree a mechanism for this in Warsaw. The horrors appearing across the media of the aftermath of Typhoon Haiyan in the Philippines has of course focused minds on this discussion. In their various opportunities to speak in the plenary sessions, many nations called for the Loss and Damage issue to be rapidly progressed in Warsaw. 

Even within the discussions on technology transfer there is a renewed call from some nations for the opening up of patents (money) on a variety of “climate friendly” technologies.

The other half of any COP is the side event programme and here CO2 mitigation didn’t get much of an airing either. There were many side events on financing and adaptation and those on energy primarily focused on energy efficiency and renewables, neither of which offer a direct path to measurable and sustained CO2 mitigation. By contrast, the few side events on carbon capture and storage were rather sparsely attended.

The rather sparsely attended but content rich GCCSI event on CCS developments.

The rather sparsely attended but content rich GCCSI event on CCS developments.

 Even the “Green Climate” exhibition in the Palace of Culture was principally focused on energy efficiency in buildings, solar PV and waste management. However, Shell at least kept the CCS flag waving with its novel CCS lift / elevator (something of a virtual ride to 2 kms below the surface where CO2 could be safely stored).

The Shell CCS “lift” in the Palace of Culture and Science in Warsaw.

The Shell CCS “lift” in the Palace of Culture and Science in Warsaw.

So to week 2 of the Warsaw COP, which will likely end in the usual rush to a declaration of some description at the end, although in the very last hours of Week 1 on Saturday night the collected negotiators came away with nothing agreed on FVA and NMM.

It is widely known that Poland gets much of its energy from coal (it is even a net exporter). Many countries do, so it is hardly alone in this regard. In my last post I illustrated the increasing global dependence on coal through a recent tender issued by two states in India for a total of 8 GW of coal. At the recent Chatham House Climate Conference, one speaker noted that current Asian coal projects will add some 250 GW of capacity by the end of this decade. These facts highlight the challenge that we face in trying to manage global emissions.

In light of the above, what should we then make of the Warsaw Communique released recently by the World Coal Association and the Polish government. Of course Warsaw is the location of the COP 19 Climate Change Conference and the Polish government will preside over the event. For many environmental NGOs and others the Communique was a step too far, with “outrage” emanating from some green groups.

On the surface, there is a contradiction between coal use and managing global emissions. After all, coal is the most carbon intense fossil fuel and its global use has risen sharply in recent years along with a corresponding rise in emissions. If it were not for this significant increase in coal use, renewable energy would actually be making inroads into the global energy mix and taking some measureable market share. In reality, it isn’t. But the Communique argues that increasing the efficiency of coal combustion can go a long way towards addressing its increased use. The text also makes some reference to carbon capture and storage and clean coal, but its focus is solidly on efficiency.

Like it or not, coal use is going to continue, but arguing for increased efficiency as an approach to managing its emissions is where the criticism should be leveled, not at the idea that coal use is potentially compatible with a very low emission future.

Increasing the efficiency of coal use is really where the whole issue of rapidly increasing global emissions started, so it is very unlikely to be the place where it stops. It was William Stanley Jevons who noted that coal use increased as efficiency improved. Jevons Paradox is the proposition that technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource. In 1865 Jevons observed that technological improvements that increased the efficiency of coal use led to increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological improvements could not be relied upon to reduce fuel consumption. There are more modern versions of this analysis, one of which I wrote about in a post last year.

While individual coal plants may well become more efficient as a result of a global efficiency initiative, total coal use and therefore the total accumulation of emissions over time will likely rise. This then pushes us faster towards some fixed amount of atmospheric warming (as this is directly related to cumulative emissions over time).

So the Warsaw Communique is barking up the wrong tree, even as it opens up the valid discussion about growing global coal use in the face of a desire to see emissions fall. The focus of the Communique should have been Carbon Capture and Storage, not efficiency. CCS is the bridge technology between a world that will use more coal but also wants to reduce emissions. There are more than enough people already barking up the efficiency tree, but precious few trying to hold a real conversation about CCS.

A Communique that focused on CCS would have been a real achievement and a welcome addition to the COP. Unfortunately the Communique that did emerge may turn out to be an “own goal”.

Realities in the energy mix

There is an interesting article in The Economist this week which discusses the impact that renewable energy is having in Germany. As renewable energy use grows, there is the perverse effect that coal is staying put and natural gas is getting backed out. As a result, German emissions aren’t really doing much at the moment. They certainly aren’t continuing to fall.

 German Emissions

This is just one example of the overall challenge of actually seeing a sustained fall in fossil fuel use and therefore emissions. Another was highlighted in last week’s Economist, but not as an article, rather a call for tender in the rear of the magazine. India coal

 

Two Indian states called for interested parties to pre-qualify for the construction of 8 GW of coal fired power stations – just two examples of many similar cases around the world. These power stations, once constructed, might run for up to 50 years, delivering some 2.5 billion tonnes of CO2 to the atmosphere or nearly 700 million tonnes of carbon. Against a global cumulative limit of 1 trillion tonnes of carbon (for 2°C), of which 570 billion tonnes has been used, this one set of tender documents represents nearly 0.2% of the all-time remaining carbon emissions.

They will likely be built, as will many others, bringing much needed electricity to rapidly emerging economies. In this particular case, this development will deliver about the same electricity as all the currently installed wind and solar capacity in India. That’s about 22 GW, but with a load factor of about 0.3, gives something similar to 8 GW of coal.

Given its longevity, this facility should be built with carbon capture and storage, but there is no sign of that happening. While India has made great strides in renewable energy investment and energy efficiency, it has yet to tackle CO2 emissions from fossil fuel use. Given the growing Indian economy, fossil fuel use is also growing and alternatives aren’t even close to keeping pace with the overall demand. So far this century (13 years) Indian CO2 emissions have approximately doubled.

With COP19 in Warsaw just around the corner and then only two years before a comprehensive global deal is supposed to be agreed in Paris, developments like this raise the question as to what could possibly happen in such a short space of time to fundamentally turn the corner.

Despite the efforts made and the best of intentions, is it really conceivable that the deal in Paris in 2015 will change the terms of this tender, and others like it, to ones that requires CCS?

One of the real frustrations I find in climate forums, ranging from business groups to policy makers, is the lack of understanding of the role that fossil fuels play in the energy system, the scale on which we use them, the rate at which we might be able to displace them and therefore the critical and important role that CCS will have to play over this century. Trying to explain all this has proved elusive and working for a fossil fuel company makes this even harder – accusations of self interest end up being made.

To try and help with this problem, Shell has turned to Myles Allen, Professor of Geosystem Science in the School of Geography and the Environment, University of Oxford and Head of the Climate Dynamics Group in the University’s Department of Physics. He kindly agreed to make a video which explains in pretty simple terms what the climate issue is all about and why CCS ends up being the game changer in terms of mitigation. You can see this video on YouTube by clicking here or in the picture below.

IMG_0101

The video explains the issue in terms I have used in older postings, which was also drawn from work that Professor Allen published in Nature.

IMG_0105

IMG_0102

A recent story on the BBC illustrates his point well. It talks about a town in Germany which has been abandoned and will be demolished as a new coal mine is developed – this in a country that is embracing renewable energy.

But the challenge to “sell” CCS continues, as is shown in an article by energy researchers in Australia. They argue that CCS shouldn’t be supported as renewable energy will eventually be cheaper. This may well be the case, but while waiting for that renewable energy pot of gold and even when it finally comes, we will collectively emit a great deal of CO2 from ongoing fossil fuel use. CCS is the only technology that can tackle this directly.

A rewind back to 2007 reveals an EU Parliament that was very keen on carbon capture and storage (CCS) and gave it tremendous support through the CCS Directive and the NER300 financing mechanism. Five years on and for all the reasons discussed in recent posts, only the UK looks likely to see any near term CCS development and this is entirely due to its own additional policy development.

In March 2007, the Presidency Conclusions of the Brussels European Council stated;

 Aware of the huge possible global benefits of a sustainable use of fossil fuels, the European Council:

    • underlines the importance of substantial improvements in generation efficiency and clean fossil fuel technologies;
    • urges Member States and the Commission to work towards strengthening R & D and developing the necessary technical, economic and regulatory framework to bring environmentally safe carbon capture and sequestration (CCS) to deployment with new fossil-fuel power plants, if possible by 2020;
    • welcomes the Commission’s intention to establish a mechanism to stimulate the construction and operation by 2015 of up to 12 demonstration plants of sustainable fossil fuel technologies in commercial power generation.

CCS couldn’t have had a much harder push out of the starting blocks, yet none of this project activity has happened and CCS is virtually at a standstill in the EU. This has led the EU Parliament to look more closely at the issue and in the very near future we should see the Environment Committee release a report on CCS. In the meantime the Committee on Industry, Research and Energy (ITRE) has posted a short draft opinion on CCS on the EU Parliament website. This may give some early insight into the likely direction of the more critical Environment Committee report. Key findings from ITRE are as follows;

    • Failing to include CCS within a long-term energy strategy will severely hamper national, Union and global efforts to address climate change;
    • Believes that the EU’s mandatory renewable target has undermined investment in CCS, and calls, therefore, for a technology-neutral approach to the Union’s 2030 energy goals, in line with Article 194(2) of the TFEU, in order to create a level playing field and ensure effective competition amongst varying low-carbon energy technologies;
    • Calls on the Commission and the Member States to address the main barriers to the deployment of CCS, such as the granting of permits and funding, the establishment of a CCS skills base and the development and testing of technologies for effective capture, transport and storage;
    • Believes that incentives and policy measures should target both CCS demonstration as well as subsequent longer-term operational projects and must provide greater certainty for private sector investment; believes, furthermore, that incentives and measures should be split efficiently both within the power-generation sector and CCS within industrial production processes;
    • Considers that the low carbon price delivered through the EU’s Emissions Trading Scheme (ETS), and subsequent revenues generated from the sale of allowances under the New Entrants’ Reserve of the ETS (NER300), has failed to deliver an attractive business case for early long-term private sector investment in CCS;

This is all solid stuff and it would appear that ITRE have got to grips with both the important role that CCS must play and the challenges that CCS faces to deploy. Perhaps one surprise is the reference to Article 194(2) of the Treaty of the Functioning of the European Union (TFEU). It is difficult to see how this particular part of the treaty actually supports the need for CCS. Rather, it tends to support the set of actions that have contributed to the problems that CCS is having, namely the focus on renewable energy.

ENERGY

Article 194

  • In the context of the establishment and functioning of the internal market and with regard for the need to preserve and improve the environment, Union policy on energy shall aim, in a spirit of solidarity between Member States, to:
    •  ensure the functioning of the energy market;
    •  ensure security of energy supply in the Union;
    •  promote energy efficiency and energy saving and the development of new and renewable forms of energy; and
    • promote the interconnection of energy networks. 
  • Without prejudice to the application of other provisions of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the Committee of the Regions. Such measures shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c).  

Many will argue that support for renewable energy is the right approach to address climate change, but as I have discussed in numerous posts, it’s not quite that simple. There is little doubt that renewable energy is part of our future and in the next century it may well be the major component, if not all, of our energy system. But in the meantime we are using fossil fuels to power pretty much everything and that is going to take a century to change. If we don’t capture the majority of the CO2 associated with that ongoing use (even with it declining throughout the century) then 2°C isn’t achievable, but nor for that matter is 3°C.

The TFEU doesn’t really give much guidance to help solve this, although Article 191 states;

. . . promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change.

This then comes down to interpretation of the phrase “combating climate change”. A hardnosed analysis of the global emissions  issue leads to the necessity for a CCS strategy, irrespective of any personal views on whether we should or shouldn’t power the world with fossil fuels. The fact is that we currently do and this existing reality won’t change anytime soon.

 

In conjunction with its request for submissions on the 2030 policy framework, the EU Commission posed a series of questions on carbon capture and storage (CCS) to be answered separately. This follows on from the failure of the NER300 policy framework to deliver an EU CCS demonstration programme.

One question within this new consultation is of particular interest in that it opens up the possibility of a dedicated instrument designed specifically for the deployment of CCS. The Commission asked;

Should the Commission propose other means of support or consider other policy measures to pave the road towards early deployment, by:

a.      a support through auctioning recycle or other funding approaches

b.      an Emission Performance Standard

c.       a CCS certificate system

d.      another type of policy measure

One of the leading CCS focused industry / society groups (European Technology Platform for Zero Emission Fossil Fuel Power Plants, or ZEP) responded to this and argued for consideration of a CCS Certificate system should its preferred Feed-in-Tarrif approach not be acceptable. Such a system would require a certain (and annually increasing) amount of CO2 storage for each tonne of CO2 emitted, but the storage could take place in another location with proof of such storage coming in the form of a tradable certificate. But ZEP noted that;

Any system of certificates should be designed in such a way as to avoid any negative interaction with the existing ETS. Measures to ensure this could include making CCSCs fungible with a certain number of EUAs, or retiring EUAs, as CCSCs are supplied into the market.

While a robust carbon market is the preferred approach for driving investment in technologies such as CCS, frustration with price development is leading policy makers and some CCS proponents to consider targeted policies. The ZEP caveat is important in that overlapping policies have been a real problem for the EU ETS. With other polices taking away the need for the carbon price to trigger investment,  higher overall  costs of mitigation result, but at the same time weakening the visible CO2 price.  The same would be true of a CCS policy instrument. However, an EU wide CCS Certificate mechanism which operates for all the same facilities as the ETS could be designed as follows, delivering a first round of CCS projects but working within the ETS to at least mitigate the overlap issue to some extent:

  • For the period 2021-2025, each 100 tonnes of CO2 emitted would require the surrender of 99 EUAs (EU ETS Allowances or equivalent instruments) and 1 CCSC (carbon capture and storage certificate).
  • The CCSCs are tradable instruments and would be granted for each tonne of CO2 stored in the EU from 2015 onwards. This would give the EU some lead time to build up a modest bank of CCSCs.
  • From 2026 onwards, the CCSC requirement would increase by 1 in 100 each year, i.e. by 2030 the minimum compliance requirement for each 100 tonnes of CO2 emitted would be 6 CCSCs and 94 EUAs (or equivalent).
  • A facility that generates CCSCs would be deemed as emitting one tonne of CO2 for each CCSC sold into the market.
  • CCSCs could be banked for future use.
  • The initial 2021-2025 period would require about 20 million CCSCs in each year across the EU, therefore underpinning a number of projects.
  • As a “relief valve” mechanism for the period 2021-2025 only, an EUA could be converted to a CCSA for a fee, for example at the current ETS non-compliance penalty level (€100), with the money being placed in a CCS technology fund for disbursement to CCS projects.
  • Total EU allowance auction / allocation for the period 2020-2030 would be adjusted downwards on the basis of the creation of a certain number of CCSCs.
  • The approach could also inspire the EU to lead the development of an international CCSC at the UNFCCC which could also be used for compliance in the EU.

A CCS Certificate approach has a very modest price impact on the consumer (of electricity). Under an ETS, the marginal cost of compliance is reflected in the cost of everyone’s electricity and this must rise to levels above €50 per tonne before any CCS project activity is firmly triggered. This equates to quite an increase in electricity prices. But the CCSA not only ensures delivery but quickly socializes the cost of CCS, in that each electricity purchaser pays a fraction of the cost of the first CCS facilities. If a CCSC was trading at €80 per tonne of CO2 stored, then in the period 2021-2025 the consumer would see a cost per tonne of CO2 of only 80 € cents, or for coal fired power generation at 900 gms CO2/kWh, a price increase of less than a tenth of a €-cent per kilowatt hour.

So should we opt for CCS Certificates? Although they will deliver CCS, the approach isn’t as economically efficient as the carbon market left to its own devices. But as already noted, carbon markets aren’t being left to their own devices as other policies continually encroach on their turf (e.g. renewable energy targets), which means that CCS may be significantly delayed.

One further thought. Arguably, the increasing requirement to provide CCSAs could continue past 2030 until the ETS is fully replaced later in the century. This would at least align any use of fossil fuels with the long term requirement to store all the resulting CO2.