Is Carbon Capture And Storage Unavoidable?

Carbon Capture and Storage (CCS) has so far been more notable for its failures than its successes. In North America, only two commercial-scale post-combustion projects have been completed, both retrofitted to existing coal-fired power plants, Boundary Dam in Canada and the Petra Nova plant in Texas.

The more innovative pre-combustion Kemper County Energy Facility in Mississippi saw its capture component mothballed in 2017. All have served mainly to prove that CCS is very expensive based on current technologies, not least because of the efficiency penalty it imposes on a power plant's operation.

In Europe, despite an original desire to get 12 CCS projects up and running by 2020, only six were awarded funding by the EU and not one made it to completion. The last one, ROAD CCS in the Netherlands, was suspended in 2017. The reasons for failure largely revolved around inadequate and inflexible public funding, the long-term risks placed on operators by the EU's CCS Directive and antipathy towards CCS being used as an enabling technology for coal-fired generation.

In this, the US and EU appear to have parted directions at least at government level.

In the US, last year's Bipartisan Budget Act revised the 45Q tax credits available for CCS. These will rise gradually from $10 to $35/ton for CCS with Enhanced Oil Recovery and from $20 to $50/ton for dedicated geological storage by 2024. The credit lasts for 12 years from project operation and applies to an unlimited amount of CO2. Although this still falls perhaps $20-$30/ton short of the total cost of CCS, it provides significant support targeted primarily at coal-fired generation, and thus the longevity of the US coal industry, and at oil recovery.

However, the US is also engaging in some innovative-CCS related investments, which are at demonstration stage; advanced carbonate fuel cells, supported by ExxonMobil, and Net Power's 'Allam Cycle' project at La Porte, Texas, both of which potentially offer a step-change reduction in CCS costs. Both are envisioned as gas decarbonisation technologies, indicating the gap in thinking between industry and the Trump administration's more coal-orientated policy goals.

In Europe, while R&D funding for CCS technologies continues, large-scale projects are now reduced to waiting for a revamp of EU funding post-2020, which will be supported by sales of carbon allowances into the EU Emissions Trading Scheme (ETS). The ETS too is in the process of a reform, one which has seen a substantial revival in carbon prices from around €5/mt ($5.6/mt) to above €20/mt, although whether and how far this upward trajectory will be sustained remains a major uncertainty.

The European approach has also changed following the experience of previous project failures. New projects are focussed on gas-fired generation and industrial emissions, CO2 utilisation technologies and the creation of CCUS hubs with shared transportation and storage infrastructure, the former now comprising CO2 shipping as well as pipelines. CO2 utilisation represents a group of largely pre-commercial technologies, which are part of the EU's broader circular economy ambitions.

In particular, the CCS sector is pushing hard for a public component to the ownership of this shared infrastructure, the aim being to change the risk-sharing structure of CCS ventures. Essentially, the aim is to split off the longer-term obligations and risks imposed by the EU CCS Directive to some form of public-private style utility, most likely with regulated returns. Industry argues that the creation of open-access CCS infrastructure is akin to the early establishment of an electricity grid and therefore requires public subsidy.

The likelihood is that three north European CCS clusters will emerge in the period 2020-2030, the most promising projects being the Norwegian CCS cluster, the UK's Acorn Sapling CCS project and the Rotterdam Nucleus project. The first has funding, Acorn Sapling has been designated an EU Project of Common Interest, which makes funding more likely, while the Dutch government has set out clear goals for CCS, despite the suspension of Road CCS.

Least-cost approach

The EU cannot avoid financing at least an exploratory phase for CCS projects because of the ambition of its climate change goals and its desire to avoid carbon leakage. It is aiming for an 80-95% reduction in greenhouse gases by 2050 from 1990 levels and is determined to avoid the relocation of industry to outside the EU to avoid the costs of emissions regulations.

But there are cost caveats. Both the EU and national governments say CCS projects between 2020-2030 need to demonstrate cost effectiveness if they are to be an option for large-scale deployment post-2030. The message is that CCS is an option, but not one that will be pursued at any cost.

There is also competition, which finds articulation in political opposition to CCS policies. The falling cost of renewable energy sources suggests carbon emissions can be avoided in the first place. Proponents argue that funding CCS crowds out resources for these better options. While wind and solar have become cost competitive without subsidy, CCS continues to look like a potentially bottomless sink for public funds with uncertain outcomes.

Yet also evident is that 2030 emissions reductions targets cannot be achieved without substantial coal-to-gas switching, while the expansion of renewables - despite their generally forecast-beating performance to date - is unlikely to be so great as to meet both electricity generation requirements and provide the excess power required for heat and transport decarbonisation via hydrogen production or transport electrification.

This suggest growing, long-term dependence on natural gas, which can only be sustained in environmental terms with CCS. This is a scenario that sits well with the oil and gas companies involved in both CCS research and development of global gas and LNG portfolios.