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Carbon Capture & Storage (CCS) –supporting by carrots or sticks?8th Conference on Applied Infrastructure Research
10 October 2009
Jason Mann, Jens Perner, Christoph Riechmann
Key questions addressed
1. What are the specifics of CCS?
2. Why do politicians promote CCS?
3. What are the sticks and carrots?
4. What are the impacts?
● CCS Specifics
● Policy interest
● Sticks/carrots
● Conclusions
Carbon Capture and Storage (CCS) consists of…
Source: Economist, March 5th 2009, CO2CRC Online Image Library
1. Isolating carbon dioxide wherever it is produced in large quantities and compressing it (Capture)
2. Transporting it to a well-suited site (Transport)
3. And pumping it underground (Storage)
CCS Specifics
Capturing
~ 50%-70% of
extra costs
Transport
~5-25%
of extra costs
Storage
~10-25%
of extra costs
Transport & storage costs can vary significantly with site and transport distance!
…and there are major differences in cost estimates
● Questions of feasibility remain
● No leap in developments to date
● Higher up-front investment costs: about 30 to 70 % higher than for standard plants
● Higher operational costs especially due to Lower Efficiency: 8 to 10 %-points lower than without CCS
$150 per t CO2
US Department of Energy Website (Capture Costs)
Goal: <$10 per t CO2 in 2015
€35-45 per t CO2 in 2030Future
$100-300 per t CO2€60-90 per t CO2Current
McKinsey Report (10/2008)
US Department of Energy Website (Sequestration Costs)
CO2 abate-mentcosts
CCS Specifics
Only 85% to 90% of CO2 captured, CO2
cost incurred forthe remainder
CCS economics still a challenge…
Conclusions● CCS currently not viable
based on costs
● Extra-cost depend on fuel and investment costs and CO2 saving
● Specific CO2 abatementcosts□ lower for coal than for gas
□ lower for lignite than gas
● If built, CCS should be for baseload generation□ High fixed costs
□ Lower variable costs than the corresponding conventional plants (thanks to CO2 saving)
● Key Assumptions□ CO2 price 12.50 €/t
□ Coal price: 105 $/t (Cif ARA)
□ Gas price (GCV): 19 €/MWh (NGC)
□ Exchange rate: 1.40 $/€
□ No subsidisation of CCS plant
CCS Specifics
Indicative estimated long run marginal costs of power generation (2010)
0
50
100
150
200
250
300
350
400
450
500
100 500 1000 2000 3000 4000 5000 6000 7000 8000 8500
Load factor
LRM
C (€
/MW
h)
Hard CoalHard Coal CCS (IGCC)CCGTOCGTLignte CCS (IGCC)
h/a
● Specifics
● Policy interest
● Sticks/carrots
● Conclusions
Global CO2 targets drive political interest in CCS…
Decision rule:Keep temperature
change close to 2°CVery low <1% chance
of 4°C rise
Global emissions:Reduce 50% by 2050
and more by 2100
Burden sharing:Equal per capita
emissions imply 80% reduction for the
industrialised countries by 2050
G8 announcement
1990 2010 2015 2020 2050-20%-40% - 60 to 80%Current EU GHG reduction target
Tightened EU target If binding post-Kyoto agreement comes into force
Global CO2 targets drive emissionallowences in EU ETS
Policy Interest
Targets of EU ETS
● Reduction of GHG emissions in the EU ETS until 2020□ -21% without „post Kyoto“ agreement compared to 2005
□ Higher if „post Kyoto“ agreement comes into force
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
mt C
O2
Emission rights w/o CDM CDMs
Potential CO2 reductionpath (EU, power sector)
2013-2020: Phase with steep reduction targets in the power sector?
Long term: Other sectors contribute to a higher extent?
Source: Frontier scenario
CCS can be essential for reaching targets
Fossile Neubauten mit und ohne CCS
0
10,000
20,000
30,000
40,000
50,000
60,000
2008 2010 2015 2020 2025 2030 2040Jahr
MW
all_model
LIGNITE CCS
COAL CCS
LIGNITE w/o CCS
COAL w/o CCS
GAS w/o CCS
Erneuerbare Stromerzeugung in TWh und in % der Last
0
200
400
600
800
1,000
1,200
2008 2010 2015 2020 2025 2030 2035 2040Jahr
TWh/
Jahr
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
IT
PT
ES
GB
DK_W
PL
CZ
AT
CH
FR
BE
NL
DE
all_model
Erneuerbare Stromerzeugung in TWh und in % der Last
0
200
400
600
800
1,000
1,200
2008 2010 2015 2020 2025 2030 2035 2040Jahr
TWh/
Jahr
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
IT
PT
ES
GB
DK_W
PL
CZ
AT
CH
FR
BE
NL
DE
all_model
Back stop technologies…● …for low carbon power generation (plus
energy saving) in the long term essential for reaching CO2 targets
● Backstop technologies can be e.g.□ Renewables
□ Nuclear
□ CCS
CCS…● …expected not to be commercially
available before 2020-25
● However, after 2020/2025, CCS can be crucial for CO2 abatement
● Otherwise more nuclear (policy constraints) or more REN (costs?) needed - or non-compliance with targets
Potential power generation from renewables(based on policy announcements)
Capacity additions for fossil fuels w/o CCS
Source: Frontier assumptions and model simulations
CCS likely to beincreasingly
important
Significantincrease in
market share
Policy Interest
CCS may also have a limiting impact on CO2 prices and power prices
Jährliche CO2-Emissionen (ohne Einlagerung)
0
200
400
600
800
1,000
1,200
2008 2010 2015 2020 2025 2030 2040Jahr
t CO
2/Ja
hr
0
10
20
30
40
50
60
70
80
IT
PT
ES
GB
DK_W
PL
CZ
AT
CH
FR
BE
NL
DE
CO2 PriceEstimator
Annual CO2 emmissions and CO2 pricesFalling CO2
emission pathCO2 price peak(restricted CCS)
CCS com. available
CCS…● …may be able to limit
CO2 and power prices after 2020-25
● CCS can become important especially if□ REN integration
turns out to be costly or technically difficult
□ Nuclear production is politically limited
Source: Frontier assumptions and model simulations
CCS as an „insurance“ against exploding CO2 prices
Policy Interest
Promotion of CCS has an option value…but are there really market failures?
R&D phase● High risks and high upfront
costs □ Technology and costs still
unproven
□ But: Is this a reason for publicpromotion?
● External effects / public goods character leads to free-ridership□ Test of political acceptance
□ Test of public acceptance
□ Test of technical feasibility
□ Test of large scale costs
● CO2 price reflects the economic benefit of CO2 abatement□ CO2 prices reflect emission
constraints
□ Benefit for CCS if stored CO2 isnot subject to allowancerequirements
● Market failure only if CO2 market is not working effectivelye.g. □ Politically driven CO2 price caps
□ Uncertain policy framework
Commercial phase
Focus in the political discussion
● Specifics
● Policy interest
● Sticks/carrots
● Conclusions
Policy can choose between sticks and carrots to promote CCS
Carrots
Sticks
Schemes● Subsidisation schemes
□ Upfront lump sum payment (fixed mn€)□ Capacity payment to generators per kW
(upfront or per year)□ Payments based on electricity production
(per kWh)□ Payments based on avoided CO2 emissions
(per avoided t CO2)
● Obligatory CCS e.g. from 2020/2025□ Only new plants vs. retrofit of old plants□ Only coal vs. all fossil fuels
Examples
● Schemes on EU level and in some EU member states (e.g. UK)
● Currently discussion about CCS readiness for new plants
Sticks/Carrots
1
2
Indicative estimated long run marginal costs of power generation (2010)
0
50
100
150
200
250
300
350
400
450
500
100 500 1000 2000 3000 4000 5000 6000 7000 8000 8500
Load factor
LRM
C (€
/MW
h)
Hard Coal
Hard Coal CCS (IGCC)
CCGT
OCGT
Hard Coal CCS Subsidised(60% of variable costs)
Indicative estimated long run marginal costs of power generation (2010)
0
50
100
150
200
250
300
350
400
450
500
100 500 1000 2000 3000 4000 5000 6000 7000 8000 8500
Load factor
LRM
C (€
/MW
h)
Hard Coal
Hard Coal CCS (IGCC)
CCGT
OCGT
Hard Coal CCS Subsidised(80% of inv costs)
Lump sum support vs. output oriented support Lump sum & capacity payments● Current support schemes for
demonstration plants focus on lump sum payments or capacity payments (upfront)
● Risk that CCS plants would currently be used as mid or peak load (current CO2 price too low)
● Also less incentive to favour a technology with significant CO2 benefits
CCS maybecome
competetive in mid and peak
load
Energy related payments● Energy or output orientated schemes
would improve the competitiveness especially in base load
● Higher load factors of CCS than withoutsupport
● Also less incentive to favour a technology with significant CO2 benefits
CCS becomescompetetive in
base load
Sticks/Carrots1
How would markets and market participants beaffected by obligatory CCS (e.g. from 2020)?
2
CO2
New coal plants
● Potentially less investment in coal
+ old coal plants
● Potential shutdown of old plants
+ new gas plants
● No investment in new gas plants?
What is covered?
● No impact on emissions if CO2 caps are not adjusted downwards – otherwise only CO2 prices fall
● Dirigistic approach – risk of lower efficiency of CO2 abatement● Would the CO2-market (EU ETS) still make sense?
Generators
Mar
kets
● Higher incentive for R&D if early announcement of obligation
Sticks/Carrots
Power● Unambiguous
□ higher costs for fossil fuelled power plants - but which plant is „at the margin“ regarding LRMC in the reference case?
□ Lower CO2 prices (?) and impact on fuel prices (?)
Politics ● “Cheaper” than “carrots”
● Specifics
● Policy interest
● Sticks/carrots
● Conclusions
Conclusions
● Rely on the EU ETS! EU ETS can set the right incentives in the long term□ Requirement: no political intervention into CO2 prices
□ CCS would compete with other „back-stop“ technologies
● Develop the R&D optionMarket failure may justify support in the short/medium term
● Select an appropriate support scheme!Avoid capital grants (may be acceptable for single projects)
● Be careful with CCS obligation!Risk of reduced efficiency of CO2 abatement
● Use the EU ETS instead!Maintain competition among abatement technologies
Role of EU ETS
R&D subsidies
CCS obligation?
Appendix
CCS will only be technically and commerciallyavailable if further developed
Source: McKinsey Report, 2008
Phase in which CCS exhibits high upfront costsand external effects /public goods character•
Policy Interest
Major argument for political promotion
The EU currently discusses carrots for pilots
Carbon Capture and Storage Projects
Country ProjectEnvisaged
Community Contribution
CapacityCapture
Technology Storage Concept
Hürth 450 MW IGCC Saline Aquifer
Jänschwalde 500 MW Oxyfuel Oil/Gas Fields
Eemshaven 1200 MW IGCC Oil/Gas Fields
Rotterdam 1080 MW PC Oil/Gas Fields
Rotterdam 800 MW PC Oil/Gas Fields
Poland Belchatow €180m 858 MW PC Saline Aquifer
Spain Compostilla (Leon) €180m 500 MW Oxyfuel Saline Aquifer
Kingsnorth 800 MW PC Oil/Gas Fields
Longannet 3390 MW PC Saline Aquifer
Tilbury 1600 MW PC Oil/Gas Fields
Hatfield (Yorkshire) 900 MW IGCC Oil/Gas Fields
Italy Porto Tolle €100m 660 MW PC ?
France Florange €50m
Source: Jens fragen
Transport of CO2 from Industrial installation (steel plant) to underground storage (Saline Aquifer)
United Kingdom
Netherlands
Germany €180m
€180m
€180m
Financial stimulus package
EU ETS directive
Sticks/Carrots
● 300 million CO2 emission allowances for funding of clean energy demonstration projects including CCS projects.
● Allowances will be made available until 31 December 2015● Still open as to how the funding will be split between CCS projects and
other clean energy technologies (REN)
Source: EU Commission
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