E3G

Taming King Coal - the EU’s energy policy

By Nick Mabey

Delivering CCS demonstration

No single European country can alone take on developing an effective demonstration programme on CCS. While active industry and Member State support is critical for moving CCS forward, “bottom-up” activity is not currently delivering a comprehensive and accelerated demonstration programme. 

A critical reason for this is that none of the countries or companies can on their own deliver a definitive assessment of CCS technologies and networks which would lead to market deployment. The resulting market failure leads to systematic underinvestment in CCS projects. 

Producing high quality, comparable data to deliver an early resolution of many of the issues surrounding the technical and environmental feasibility of CCS, together with decisions on network investment inside a context of public acceptance, requires concerted EU action as a whole. And action must also be rapid. 

Even starting immediately, it will take a decade to define and begin delivering this infrastructure at the scale needed to make a real difference to European carbon dioxide emissions. 

The current Commission proposals foresee policy intervention: “a focused R&D and demonstration effort can bring down costs of CCS by 50% between now and 2020, facilitating commercial deployment.” But to deliver this outcome, the Commission looks primarily to the EU Emissions Trading System (ETS), where “under the carbon market, CCS will be deployed if and when it is cost-effective”. 

This model will fail. From 2013 power plants face paying for 100% of their carbon permits, clearly creating stronger disincentives for building new coal plants. Even then, the carbon market cannot on its own deliver adequate investment in zero-carbon power to meet EU targets. CCS is likely to require prices of at least €75-85 a tonne of CO2 to be competitive with unabated gas power in the next two decades. 

If power station construction costs continue to escalate, the threshold price needed for CCS deployment will continue to increase, with estimates as high as €100-120 tonne CO2; a figure comparable with the cost of large scale offshore wind power and concentrated solar thermal power stations. Forward prices in the ETS are not currently providing these incentives. 

Further, from 2009, if a strong global climate deal is concluded at Copenhagen, European emission trading prices will effectively be capped by the price of externally purchased permits which could cover up to 50% of the EU’s effort beyond the 20% (or rather, Europe’s multilateral 30%) target by 2020. 

The price of these permits will be set by the cost of decarbonisation in China and India, and is highly unlikely to reach levels necessary to deploy CCS.

In short, there is a fundamental tension between using international trading in the ETS to lower the cost of meeting the EU’s targets, and expecting the ETS to send sufficient price signals to drive the low carbon power investment needed to reach the EU’s 2050 objectives. 

Supplementary policies – both European public funding and clearer regulation – are needed to shift EU investment patterns. 

Market pull instruments

Already, some utilities argue that unless they continue to receive free ETS permits there will be a collapse in investment and Europe’s lights will go out. The answer to this dilemma is to give the utilities the regulatory certainty they say they need. 

Without the prospect of significant CCS deployment by 2020, even if the technology is proven, companies will have weak incentives to invest their own financial and technical resources in accelerating the improvement of risky CCS technology through demonstration programmes. 

As with large scale renewable energy technologies, a regulatory approach could give effective market incentives for private investors.

This should take the form of either CCS as a mandatory requirement on new fossil fuelled plants from 2020 at the latest, or of an immediate carbon emission standard (tonnes CO2 per MWh generated) precluding the construction of unabated coal power. 

Both rules should be technology neutral between CCS options, and between CCS and other low carbon power options. Unlike renewable energy there should be no obligation to build CCS power stations, but a requirement to fit CCS if a fossil fuel power station is being built.  Any regulation should be reviewed in 2014 based on the demonstration programme results, and revised if serious problems with CCS have arisen.

The current legislation on storage needs to include these provisions.