Governments continue to recognise the strong long-term abatement role of CCS to limit average global temperature rises to 2°C. But with the changing fortunes in Europe, it is timely to consider current funding arrangements and allocations to date more broadly.

The expected value of funding support to EU CCS projects through the NER300 program has fallen substantially due to prices in the European Union’s carbon market falling 59 per cent last year. Currently, the price of those permits, which underpin the funding support, are trading at around €8/tonne through to December 2013. We estimate up to US$2.5 billion is no longer available to support European CCS projects.

We now estimate the total funding support available for demonstration projects to be US$21.6 billion, compared to the US$23.6 billion we estimated in October last year. (This analysis uses the same exchange rate assumptions as in the 2011 Global Status of CCS report, to allow for comparison). The fall in NER300 funding has been offset somewhat with increased expenditure in Norway for the Mongstad TCM capture facility recently.

Figure 1 - Public funding support commitments to CCS demonstration by country

While a significant share of total global funding has been allocated to date, there remain some regions with relatively large funding amounts still to be allocated including Australia (CCS Flagships Program), EU (NER300), and the United Kingdom. Furthermore, a portion of the committed funds has also been taken off the table with the suspension of the AEP Mountaineer and Scottish Power Longannet projects, among others.

‘Withdrawn’ here refers to the indicative value of funds not available for ongoing CCS projects due to project suspensions.

In North America, 90 per cent of the total funding available has been allocated. A key feature of North American activity is the availability of commercial opportunities for enhanced oil recovery operations for a number of projects.

The majority of the US$800 million of unallocated funds in the United States (out of US$7.4 billion in total) are available as tax credits. In addition to support for large-scale demonstrations, the US Government has continued to allocate funds to various R&D activities in the amount of US$140 million since July 2011. Similarly, in Canada funding allocations to three of four planned CCS projects was finalised by mid 2011. However, US$240 million remains to be allocated pending the successful outcome of the still ongoing funding negotiations for TransAlta’s Project Pioneer.

In Australia, challenges remain with proponents bringing forward projects with robust commercial models suitable for long-term operation. Discussions between governments (both federal and state) and a number of proponents such as Collie Hub, Wandoan and CarbonNet continue as funding support and project costing concerns are addressed.

In the EU, we are assuming that 50 per cent of the funds raised through the sale of 300 million allowances will be provided to CCS projects, while the remaining 50 per cent will fund other clean energy projects. Under current rules for the share of funds to any single project, the estimated US$1.7 billion available would be split between at least three projects.

With Longannet’s cancellation, the UK Government announced that it will continue to support CCS in a portfolio of projects, which will be selected through a restructured demonstration program. It has implemented a carbon floor price in support of the ETS from 2013 onwards, although there have been recent calls to abolish this. The Government is also exploring options to fix a carbon price for CCS projects through the use of contracts-for-difference to stabilise revenue expectations.

Norway continues to support CCS developments from its annual budget, allocating US$300 million to Mongstad TCM in 2012, which is expected to be commissioned in May this year.

At the same time, out of the initial commitments, some US$400 million is no longer available to support on-going CCS projects. This figure represents the funding awarded to CCS projects that have been suspended in the United States – AEP Mountaineer, CEMEX CO₂ Capture plant, Boise White Paper Mill, and in Europe – Vattenfall Jänschwalde. These projects have been recipients of government support under the American Recovery and Reinvestment Act (ARRA) and the European Energy Program for Recovery (EEPR), respectively. As these awards were authorised under stimulus packages, the unspent funds will no longer be available for other CCS projects.

Despite the challenges in a number of regions, it is worth noting that some US$13.4 billion has been allocated to large-scale demonstration projects around the world to date. These projects are in various stages of development and remain integral to accelerate the longer term development of the technology.