2 Policy frameworks and public financial support

Large-scale projects are receiving substantial support with US$11.7 billion allocated internationally to date and more than this amount yet to be allocated. Twenty-two projects account for 87 per cent of funding.

Key messages

• Since 2005, governments have made announcements for funding CCS projects that have been valued at between US$33 and US$41 billion. Around US$14 billion has been allocated to specific CCS projects. Up to US$21 billion is expected to be allocated in the next couple of years.
• Almost 90 per cent of all confirmed funding announcements (around US$22 billion) have targeted, or are targeting large-scale CCS demonstration projects, while almost US$12 billion in government funding has been specifically awarded to large-scale projects since 2005.
• The largest CCS funding initiatives were announced in 2008 and 2009 (up to US$31.7 billion). In 2010, funds provisioned in the previous years were allocated to projects, or an allocation process for those funds was put in place.
• The United States is the largest provider of direct government funding to CCS projects, with close to US$8.8 billion in both state and federal funding. Around US$2.6 billion of that funding is yet to be allocated.
• Significant funding initiatives have been announced by the European Commission and the national governments of Norway and the United Kingdom, with a total of up to US$17.4 billion for this region. However, most of those funds are yet to be allocated, with US$14.7 billion (84 per cent) still available.
• Seventy-seven per cent of government funding directed to large-scale CCS demonstration projects was allocated to power generation projects; the remainder was mainly allocated to projects in the oil and fertiliser industry (14 per cent), and coal gasification (5 per cent).
• There is a strong early-stage support for pre-combustion capture technologies, which represent 46 per cent of funds allocated to large-scale demonstration projects. However, government funding is increasingly shifting towards the development of oxyfuel (18 per cent) and post-combustion (33 per cent) capture technologies.
• At this stage, there is limited clarity on how large-scale CCS demonstration projects will be supported by governments in the operational stages.

Government policies for accelerating the development and deployment of CCS are driven by broader climate change policy to meet domestic targets and international commitments to reduce greenhouse gas emissions. The importance of CCS in supporting climate change policy is also influenced by objectives regarding energy security in a carbon-constrained world that will continue to use fossil fuels, at least for the medium term. Depending on the country, other complementary policy objectives might include:

• fostering a clean energy technology sector that can compete globally in offering CCS technologies or services;
• reducing the carbon footprint of exports;
• promoting regional economic development where opportunities exist to establish a CO₂ ‘hub’; and
• injecting CO₂ to undertake enhanced hydrocarbon recovery in conjunction with permanent geological storage.

Reducing greenhouse gas emissions most efficiently and effectively requires placing a price on carbon, a price that is fairly uniform and pervasive within each country and across countries. Placing a price on carbon would assist in deploying existing low-carbon technologies and provide additional incentives for innovation to improve existing technologies and develop new low-carbon technologies. However, a carbon price alone is not sufficient to achieve the level of innovation and deployment of new technologies as innovation and technology development face a number of challenges, or market failures, which need to be addressed through government intervention.

A key challenge is that the benefits to society from innovation cannot be fully captured by those undertaking costly research and development including pilot or large-scale demonstrations. Investments in innovation generate knowledge that spills over to other firms and users, reducing the returns to innovators and the incentive to marshall sufficient resources to fully support innovation in new technologies. Overall, this leads to underinvestment in developing new technologies and a slower and less efficient path of innovation, including for responding to the challenges of climate change. In large energy-intensive industries, this issue is exacerbated due to the long life span of capital investments and the significant uncertainty about the long-term future.

Governments, through technology and innovation policies, directly address the risks and barriers faced along the cycle in commercialising new technologies (Figure 5).

Figure 5 Technology cycle

CCS policy ‘frameworks’ define the support measures, initiatives, or interventions undertaken by governments to accelerate it through the technology cycle. Beyond accelerating specific R&D activities around new capture technologies or CO₂ storage, this includes providing incentives for early-stage, large-scale CCS demonstration projects in the Adoption phase. These incentives include direct financial support through mechanisms such as grant or tax credit programs. As explained in more detail below, they also include more indirect incentives such as the use of regulations to direct behaviour through setting emissions performance standards or the like, on top of any regulated carbon price.

These incentives may also be complemented by other policy measures for supporting and requiring knowledge sharing on CCS technology investments, undertaking public awareness and consultation activities, seeking support for CCS under the UNFCCC, establishing CCS-specific legal and regulatory frameworks to protect human and environmental health and safety, or identifying viable geological storage sites.