How to fund CCS

Jill Duggan, Doosan Babcock, UK, makes the case for funding carbon capture and storage with a levy on coal extraction.

The crisis in Ukraine has refocused thoughts, particularly European thoughts, on energy security and the sources of imports of fuel and energy. Although gas has been close to the heart of the issue, the impact on coal’s current and future demand cannot be ignored. The desire to make Europe less dependent on resources from outside the EU and, in particular, the desire to strengthen the EUs ability to distance itself from regimes with which it may be uncomfortable, has turned minds back to Europe’s indigenous fossil resources as a means to supplement both renewables and nuclear power.

Climate action

Of course, this heightened concern for security of supply does not mean that the need to take action on climate change has gone away. The EU is still committed to an 80% reduction on 1990 CO2 levels by 2050 and is currently deliberating the European Commission’s proposal to cut CO2 emissions by 40% of the 1990 level by 2030. In the US, the Environmental Protection Agency (EPA) has recently published its proposed rule for existing power plants, which would require a 30% reduction in CO2 from power plants by 2030 (with individual state targets).

While the demand for coal continues to grow, as the developing world seeks to fuel its growth, it would be a mistake to think that growth in Asia, South America and Africa will render any gains made on the carbon issue negligible. South Korea has a carbon trading system in place, while China has seven demonstration systems with plans to roll out the best of these nationally in the next few years. South Africa has a carbon tax in place. Tackling climate change is no longer the preserve of the richest countries looking back at their historical emissions; it is clearly a concern of developing nations looking at their future emissions.

Meanwhile, analysis from the International Energy Agency and Carbon Tracker indicates that two thirds of current fossil fuel reserves cannot be utilised without breaching the internationally accepted goal of limiting global temperature increase to 2° – adding further grist to the mill.

Clean coal

The extraction industry itself cannot ignore these pressures. The answer to squaring the circle of fossil fuel and climate change is, of course, carbon capture and storage. However, the development and deployment of this technology has been painfully slow. The global downturn, naturally, made it less likely for investments to take place at all – but policies have, pretty spectacularly, failed to push this technology forward. Many within the energy industry have taken this as a sign that there is no need and no appetite for CCS. They are wrong. The difficulties in progressing CCS cannot be overlooked: the additional cost added to electricity, the political difficulty of appearing to support fossil fuels by allowing their continued exploitation for electricity generation and the public's concern over underground CO2 storage all add to the difficulty. And then there is the money.

Europe had intended to have 10 – 12 large-scale CCS demonstration plants underway by now. It will be lucky to have one or two in the foreseeable future. North America has progressed only slightly faster. The energy sector can either wait for governments to resolve the funding issues (accepting that policymakers often fail to understand the energy fundamentals), or it can put forward solutions of its own to fund the continued development and deployment of CCS across the globe.

The advantages of CCS

There are huge advantages in the industry tackling this voluntarily. Firstly, it will accelerate development of the technology and smooth the future demand for coal. Secondly, it will provide solutions that are practical to the industry as a whole. Thirdly, it is the best chance of getting a global push on funding CCS demonstrations and ultimate uptake – and therefore avoiding competitive distortions. That is not to say that there are not significant difficulties in designing and implementing any funding solution from the sector.

What is required? While there are insufficient CCS projects to generate a crediting or obligation scheme, a levy on extractors, which is fully reinvested in CCS projects, is a feasible proposition to kick-start CCS projects across the globe. Given the global scale of extraction, this levy could be pretty insignificant but still provide the funds to get projects off the ground. Once CCS becomes a reality, it could transform into a tradeable obligation with extractors required to purchase CCS credits, maintaining the development and cost competitiveness of a technology that allows fossil fuels to continue to play a role in the future energy mix.

Yes there are implementation and governance issues: how would the levy be collected and how would it be administered? But if the industry shows itself willing to assist then it will become easier for policymakers to get to grips with these thorny issues. The time has come for a new funding mechanism for carbon capture and storage.

Written by Jill Duggan. Edited by Jonathan Rowland.

Read the article online at: https://www.worldcoal.com/special-reports/28082014/world-coal-how-to-fund-ccs-coal1256/