Global Status of CCS Report highlights modest policy developments over past year

The Global Status of CCS: 2012 includes an update on the international and domestic policy environments affecting the development and deployment of CCS. The policy update is supplemented with results from a survey of project proponent attitudes towards policy issues affecting them. The survey gives some novel insights into how the CCS community is thinking about the challenges confronting the current fleet of known CCS proposals and projects. For example, many survey respondents expressed views on what they considered were the most effective policy instruments to cater for the commercial and operational requirements of their projects. Many agreed that most of the heavy lifting for future CCS development and ultimately commercial deployment will need to be given effect through carbon pricing arrangements, which was clearly identified as the most important factor. Other important arrangements include access to power purchase agreements, feed-in tariffs, up-front capital subsidies (such as grants or low-interest loans), viable storage solutions, and regulated returns (especially in the US where some projects will be operating in regulated electricity markets).

In a period where global climate change negotiations continue to generate a high degree of policy uncertainty for CCS development and application, government commitments to supporting CCS projects remain strong, as demonstrated by the levels of public expenditures available to support many of them. However, these funds and other support mechanisms are increasingly vulnerable to prevailing economic conditions. Indeed, the past 12 months saw only modest CCS-specific policy developments occur. However, these modest developments do include what seems to be a rebalancing of climate policy settings towards carbon pricing more generally. For example, Australia introduced a carbon pricing arrangement (transitioning to an emission trading scheme (ETS) in 2015), California commenced its ETS, Mexico passed its General Law on Climate Change (GLCC) encouraging the development of an ETS, and South Africa’s latest Budget Statement indicates that a revised White Paper on a carbon tax will be forthcoming for a potential 2013 introduction.

This recent experience seems to recognise a number of things. First, an almost universal acknowledgment by governments of the need to keep the option of CCS on the policy table so that in the future, it can deliver a significant level of medium to long term and commercially attractive mitigation that will enhance the world’s chances of avoiding the impacts of dangerous levels of climate change at least cost. But the reality is that the pace of CCS demonstration and deployment over the next decade or so, as provided for through policy support, will largely be coupled to a number of non-CCS specific policy events. This includes a growing fragility in the global political will to adopt substantially more stringent legally binding carbon constraints within a time frame that the latest climate science indicates as being critical to preserving the health of the planet.

The climate dialogue is of course progressing under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC) on the basis of common but differentiated responsibilities(CBDR). For CCS, CBDR means that the relevance of its geographic application will depend very much on localised circumstances, including emission reduction targets and pledges, and access to energy and indigenous resource endowments. Across the globe at the moment, the most abundant and competitively priced energy resource remains fossil fuels (coal, oil and gas).

In this regard, there is growing tension between the way the value of global fossil fuel reserves are currently being optimised and the longer-term climate policy goal of containing aggregate atmospheric greenhouse gas emissions by 2050 to levels that can avoid the dangerous impacts of climate change. While the energy intensity of economic growth continues to improve for many developed countries over recent times (due to continuous productivity improvements), fossil fuels continue to occupy a large and critical role in protecting and enhancing economic prosperity, while absolute emissions continue to grow. This seems unlikely to change for many decades to come. Some two-thirds of current annual global emissions of greenhouse gases are produced by the burning of fossil fuels. If the proven global reserves of fossil fuels are combusted unabated (without CCS) then they could produce double the carbon budget needing to be preserved for a 50 per cent chance of holding global average temperature rises to 2^oC from pre-industrial times.

Second, while it has been globally recognised for some time that the individual components of a CCS solution are proven, it is the configuration of integration that remains to be demonstrated at scale from both a technical and economic perspective. This aspect of the CCS development story is vitally important to understand, as criticism is currently levelled at CCS for not being commercially attractive. CCS has not reached its commercial deployment phase because global climate change policy settings are not yet demanding the scale and cost-reflective mitigation afforded by CCS. It may take another decade or so before the benefits of first, second and third of a kind demonstrations meaningfully drive commercial deployment costs lower. But this is true of most large-scale and low-emission energy base load technologies, such as solar thermal with storage and geothermal.

Finally, many in the clean-energy community (including governments, international environmental non-government organisations, energy producers and manufacturers) continue to retain high confidence in the potential of CCS to ultimately drive clean, competitive, safe and secure energy to satisfy the world’s ever growing need to access affordable energy. But the mere existence of carbon constraints and carbon prices alone do not address the complete needs of the CCS innovation chain, and it is clear that other complementary measures such as knowledge sharing, access to effective funding measures, streamlined regulatory frameworks and efficient markets need to be harnessed or established so as to provide for greater private sector investment certainty and participation.

There seems little global disagreement over the need for governments to establish enabling environments at policy, regulatory and market levels as prerequisites for the sustained development of low emission technologies. This is especially true for CCS projects, which often require quite complex localised investment environments such as prescribed under the modalities and procedures of the UNFCCC’s Clean Development Mechanism (CDM), operate under multi-national regimes (including private sector engagement and markets such as enhanced oil and gas recovery), and may require a degree of regional co-operation (due to transboundary movement and handling of CO₂ or siting of geological storage reservoirs). These conditions often co-exist within a policy context of common but differentiated climate change mitigation efforts as well as ambitions conducive to enhancing access to modern energy services and alleviating extreme poverty.

As such, many governments continue to negotiate under the UNFCCC and send strong domestic policy signals that these kinds of institutional arrangements can and will be in place to efficiently support the early stages of commercial CCS deployment. For example, the recent inclusion of CCS in the CDM provides real potential to positively supplement the project economics of CCS in developing countries, as well as indicate international acceptance of the rules needed for project owners to secure a ‘social licence’ to operate. In this regard, the International Standards Organization (ISO) is also about to commence in earnest a concerted effort (over probably a five year period) to achieve some global consensus on the standardisation of the implementation and operation of CCS activities (including capture, transport and storage).

Host countries to CCS projects in the CDM are obligated to comply with commitments prescribed under the UNFCCC during (and potentially beyond) the scope of any registered CDM project life. As permitting will likely need to be done on a ‘fit for purpose basis’ rather than an in overly prescriptive way (due to the specificity of storage sites according to the prevailing geology), there will need to be in place an effective regulatory framework and institutional arrangements capable of encouraging investment in CCS projects as well as complying with the CDM’s modalities and procedures. Regulatory issues affecting CCS will be covered in a separate post.