Financing CCS

Financing Carbon Capture & Storage

Figure 1: The Contribution of Technologies to Achieve a Global Reduction in Emissions of 50% by 2050

Source: IEA Energy Technology Perspectives 2008

Significant investments are needed in Carbon Capture and Geological Storage (CCS) to allow the technology to play its critical role in global efforts to address climate change.

Studies on the technologies needed to stabilise atmospheric concentrations of CO₂ show that CCS will make a major contribution to efforts to lower emissions. CCS is expected to make a contribution to emissions reductions equal to, or greater than, that provided by renewable energy technologies (Figure 1). However, current investments in CCS are tiny relative to the sums being invested in renewables. This does not mean that investment should be shifted from renewables to CCS; instead the world needs to invest greater sums of money to increase the use of all low-carbon technologies if climate change is to be successfully tackled (Figure 2).

The investment needed to commercialise CCS can be thought of as the ‘learning cost’ and is an upfront cost that will be borne only by the first commercial-scale projects. Importantly, the cost savings generated by CCS will be many times greater than the investment needed to address this learning cost investment.

There have been a number of recent positive steps by governments on CCS who are starting to show a willingness to extend investments in low-carbon technologies to carbon capture and storage. The US allocated US$3.4 billion to CCS in its recent economic recovery package; the UK announced plans to introduce a mechanism to deliver up to four CCS demonstration projects, including both pre- and post-combustion coal projects; and Australia announced funding for 2-4 coal-fired CCS plants.

Figure 2: Average Annual Power Plant Investment Needed Between 2010 - 2050 to Reduce Emissions by 50% from Current Levels

Source: IEA Energy Technology Perspectives 2008

Investments in Renewables & CCS

Annual investment in renewable energy technologies is estimated at over US$100 billion per year - excluding subsidies. By comparison, current investments in CCS are only a fraction of this amount.

The G8 group of countries has agreed to commit to build 20 CCS plants by 2010. This is an important first step in the worldwide deployment of CCS. The cost of these projects is estimated at between US$30 – 50 billion over the total lifetime of the projects – which if financed over 35 years will cost just 0.9-1.4% of what is being invested annually in renewables.

The difference in funding between CCS and renewables is repeated at the regional level. For example, the European Union has committed to meet 20% of its energy with renewables by 2020 at an annual cost of €13 – 18 billion. In comparison, the total cost of EU investment in CCS is expected to cost between €5 – 13 billion.

Cost of CCS Components

The costs of CCS projects can be broken down into the costs for the individual technology components: capture, transportation and storage.

Capturing the CO₂ from power stations and other industrial processes is often the most expensive part of a CCS project and can be responsible for 70 - 80% of the total project cost. However, low-cost capture opportunities are available from industrial activities – such as natural gas production - that separate CO₂ as part of an existing industrial process. These projects essentially have no capture costs and operators only have to pay for transportation and storage.

The cost of transporting CO₂ is relatively low and is similar to the technologies used to transport natural gas around the world. Where a number of CCS projects are sited close to one another they can share a CO₂ pipeline which can lower the transportation costs significantly.

The cost of storing and monitoring stored CO₂ typically comprises only a relatively small portion of the overall project costs. Costs are higher where the geological storage sites are located offshore below the sea bed.

CCS projects can be developed at very low-cost where industrial activities that already separate CO₂ as part of the industrial process - so avoiding high capture costs – are sited close to good storage sites. These projects can store CO₂ at a cost as low as US$6 tCO₂. Deploying CCS at power plants is more expensive due to the high cost of capturing the CO₂. The first commercial-scale power plants fitted with CCS cost between US$80 – 120 tCO₂ stored. These costs are expected to decline significantly to US$40 – 60 tCO₂ as increased investment is made in the technology.

The costs of CCS will lower over time as greater use of the technology will generate economies of scale from the construction of larger CCS plants and allow CCS projects to share CO₂ pipeline networks and geological storage sites. Technological advances also promise significant opportunities to lower the costs, particularly for CO₂ capture which is commonly the most expensive part of a project.

CCS & Carbon Markets

The current price of carbon in international carbon markets can support low-cost CCS projects. However, the carbon price is too low to support the development of CCS projects in the power sector where the technology is most needed. Once the costs of CCS are lowered and carbon prices rise as caps on CO₂ emissions become tighter - then CCS will be supported by the price of carbon. In the meantime it is necessary to identify alternative ways to support CCS.

A number of other low-carbon technologies – such as wind and solar power - are reliant on mechanisms to support them as the cost of electricity they generate is higher than that provided by conventional electricity generation technologies. CCS projects can be developed now if provided with the equivalent level of support given to other low-carbon technologies.