This post represents the text of an address by the Institute's CEO, Brad Page, to the European Commission Directorate - General for Energy; CCS Roundtable: Addressing the Short Term Challenges for the CCS Demonstration Programme in Brussels on Friday 21 September 2012.
Commissioner, thank you for inviting me on behalf of the Global CCS Institute to address this important meeting today. The Institute was established three years ago to accelerate the demonstration and deployment of large-scale integrated CCS projects (LSIPs) globally. We do this by acquiring, generating and sharing knowledge as well as monitoring and analysing the barriers and enablers for carbon capture and storage (CCS) adoption. I should mention at this point that the Institute is proud to host the Secretariat of the European CCS Demonstration Project Network along with our partners. This a great honour for us to be recognised for the work we have done on knowledge sharing. Facilitating knowledge sharing is a key objective of the Institute. The lessons that have been learnt by projects are central to driving down costs, reducing the development times and risks, and addressing the problems and management issues faced by projects across the world. I’m going to give an overview on what is happening on CCS globally, but an important point that I will come back to is that supportive government policies must be in place to ensure that CCS is developed and deployed in a timely manner.
The world needs energy
My first point is that the world needs energy and is going to need a lot more of it in the decades ahead. Our world is changing. Fast developing nations like China and India are industrialising and through this raising their populations’ standard of living. They are consuming energy at increasing rates. Close behind them is a raft of emerging economies which are also increasing their energy use. Unsurprisingly all of these economies are accessing the lowest cost energy sources – fossil fuels. Developed nations are also large energy consumers. While energy intensity has been improving for many decades, and most developed countries have actively encouraged renewable energy sources, it remains that fossil fuels continue to occupy a large and critical role in modern economies. This is unlikely to change for many decades. The International Energy Agency (IEA) in its 2011 World Energy Outlook has made this abundantly clear. Without going in to all of the detail, Juho has already more than adequately covered this, several points stand out: Under the reference scenario, which includes all of the commitments countries have made to arrest emissions growth, global primary energy consumption will increase by 40 per cent between 2009 and 2035. Developing countries account for 91 per cent of this demand growth, while close to 55 per cent of the growth is met from fossil fuels, dominated by coal and natural gas. This results in an increase in total energy related emissions of 26 per cent by 2035 and puts us on a course for a 3.5oC temperature increase in the longer term. To remedy this we will need almost all of the currently available and nascent low and zero emission technologies. But the good news is that it is achievable even with fossil fuels remaining a key plank in the global energy future and for a long time. But two critical things are needed to realise this. Technology and rational, supportive government policy that facilitates private investment.
Global CCS overview
I think we would all agree that when it comes to dealing with emissions from fossil fuels, CCS is the vital technology. With a few exceptions, the only solution for reducing emissions from the combustion of oil, oil products, gas and coal is CCS. There really are no other options.
The Institute catalogues each year all of the LSIPs in the world. Today there are eight of these industrial-scale projects in operation. Natural gas processing dominates the plants currently in operation though there are also examples of fertiliser manufacture and synfuel production. Often, the captured CO2 is used for enhanced oil recovery (EOR), especially in North America, providing a valuable revenue stream which in the absence of a strong carbon price is necessary to make a positive business case for CCS. We have also identified another eight very large projects that have passed final investment decision (FID), seven of which are under construction. The eighth, Shell Quest in Canada, announced a positive FID just last week. We are hopeful that a ninth project, the Texas Clean Energy Project, will also proceed to positive FID shortly after its recent announcement of securing Chinese investment along with executing power, CO2 and urea sales contracts. On this basis, by 2015 there will be as many as 16 or 17 LSIPs in operation across the world capturing and storing more than 35 million tonnes of CO2 every year.
Importantly, of the seven projects now under construction, two are in the power generation sector and both are in North America. These will be the first power plants at large scale to have integrated CCS equipment. And in both cases, a positive business case has had as a key feature the sale of the CO2 for EOR. This is also true for the Texas Clean Energy Project that will soon make its FID. But this is not the full extent of CCS activity globally. Our survey records that there is a total of 74 LSIPs around the world at various stages of progress. It also reveals that despite numbers dropping from 31 to 24 in the past three years, North America remains the action centre. Europe continues to have a significant number of projects in train at 21 projects. However, disappointingly, several advanced European projects have either been cancelled or put on hold during the past year. Replacement projects are few and appear to be largely dependent on positive outcomes from the UK CCS competition as well as favourable treatment under the NER 300 process. But this may only facilitate two or at most three projects. 'Is this really enough?' must be the question to address.
To complete the high level picture, it is important to note that while China is coming off a low base it is accelerating quickly with 10 new LSIPs identified in our latest survey. In the past 18 months, China’s total LSIPs have increased by 100 per cent. It is notable that globally there has been a stalling in the total numbers of projects being proposed. Those that do manage to pass their FID are often taking longer to do so than initially expected. With global climate policy seemingly in the slow lane compared to say three years ago, the only driving force behind many CCS projects and especially in North America is EOR. EOR helps technology developers to bring down costs and contributes to improved energy security while addressing some of the associated emissions. But we know that the storage opportunity afforded by EOR, though substantial, is inadequate if CCS is to meet its share of emissions reductions that the IEA models is necessary for the achievement of a 2oC global temperature change at least cost.
Supportive government policy required
If we are to do more with CCS than just EOR projects, then supportive government policies are necessary to ensure that CCS is developed and deployed in a timely manner. The data and forecasts from many well-credentialed organisations make it clear that climate change objectives cannot be achieved without CCS. Renewable sources of energy are important for our energy and climate future but alone they cannot solve the twin challenges of energy availability for all and maintaining global temperature increase at 2oC. Fossil fuels will continue to be used for many decades to come and in increasing amounts. Without abatement of the resulting emissions, this reality is at odds with the need to constrain global temperature increases.
In the power sector, CCS remains at a comparative cost disadvantage to mature but emissive technologies for power generation. However, cost studies undertaken by credible, independent institutions that we have critically reviewed and compared, reveal that CCS is a cost competitive technology with a range of other low and zero emission power generation technologies that have yet to achieve fully commercialised status as well as some low emission technologies that are commercially available today. But this raises the question – why then is CCS not being deployed more quickly? There are a range of reasons, including the need for better community understanding of the importance, safety and advantages provided by CCS, the difficulty of securing, characterising and proving up greenfields storage sites and resolving related long-term liability matters in some jurisdictions. But fundamentally, government policy settings lie at the heart of the challenge.
In our annual project survey, we examine the extent of government support for CCS around the world. We find that there is over US$21 billion of government support being made available to CCS projects. About 40 per cent of this is yet to be allocated. Almost universally this support is in the nature of capital expenditure assistance. It recognises that first of a kind facilities have higher capital costs than mature technologies and seeks to bridge some of this gap. This is a valuable contribution. However, limiting assistance to only capital support tends to overlook that in the absence of strong carbon pricing, these new low emission facilities usually compete with emissive and very low cost existing facilities as well as heavily subsidised renewables. The operating cost disadvantage is often so large that the business case cannot be made out for the CCS facility, despite generous capital support from some governments. This contrasts with the treatment we observe that governments provide to renewable energy sources. Globally, there is a strong and widespread mix of both capital and operating cost support measures for renewables. Renewable energy targets, feed-in tariffs, solar PV purchase subsidies and the like are commonplace, even if in some countries their level of support is being wound back. They have resulted in relatively fast development and deployment of a range of renewable energy sources, leading to quite rapid reductions in unit costs. This is generally a positive outcome. However, when viewed through the prism of achieving energy security and emission reductions at least cost the case is not so convincing. Often, the real cost of avoided emissions from these programs is well in excess of $100 per tonne; a level far above any carbon pricing scheme in place or under contemplation. The effect of this is that government action to encourage renewable energy is distorting the operation of otherwise efficient energy markets. It also distorts the development of new and emerging technologies often favouring ultimately more expensive alternatives. Increasingly CCS appears to be a victim of this reality.
CCS is not an optional technology if we are to meet global energy availability, energy security and emission reductions objectives. There is a healthy but largely stagnant number of LSIPs globally today. Consistent with this, European efforts have essentially stalled and the outlook currently hinges on the results of the UK CCS competition and the NER 300 process. These initiatives alone may not be enough to reinvigorate CCS projects in Europe. Much more needs to be done to educate the community on CCS but government policy settings need further attention if we are to unlock the substantial private sector investment that is required to get CCS moving quickly. In our view, government policy to support the development and deployment of low and zero emission technologies in addition to setting strong carbon targets, should move back from favouring particular technologies. Policy settings need to be more neutral. We believe that they should enable the market to determine which technologies have the greatest potential for the abatement of greenhouse gas emissions at the least cost. With these policy features in place, we believe that CCS will have a much better chance of delivering its appropriate contribution to the climate change challenge.
Thank you for your time.