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Underground off the ground
By Catrinus J. Jepma
So far, CO2 capture and underground storage as a technology to save time in the transition towards low-carbon energy systems has acquired less attention than it probably deserves. Until recently, a relatively small group of experts discussed CCS technologies, with little public awareness and support. It may be time to get the option ‘out of the shadow’.
Why has attention for CO2 Capture and Storage (CCS), e.g. during climate negotiations, been so little? Let us first compare CCS with the ‘competing’ storage technologies of land use, land-use change and forestry (LULUCF), which have received much attention in the Kyoto discussions. Discussions on LULUCF have made clear that this option has problems with respect to permanence and measurement. CCS, instead, seems to suffer less from these problems because:
stored CO2 can remain underground forever and
the monitoring of the storage is relatively easy, amongst others because, on the whole, the proven leakage seems rather limited if not negligible (certainly < 0.1%/y.).
Moreover, unlike LULUCF, CCS does not require scarce land, the use of which may compete with other socially desirable uses (e.g. food production). Therefore, CCS has no opportunity costs (except for the few cases where storage capacity could be used to store other gases). In fact, insofar as CCS enhances oil, coal bed methane or even gas recoveries, its opportunity costs can be negative!
So, why has underground storage of CO2 received so little attention in the climate debate so far?1 Could it be that the worldwide storage capacity is rather limited? Probably not. Tentative IEA-data suggest that deep saline acquifers offer storage capacity of at least 1,000 Gt (but probably much, ten times, more) and depleted oil and gas fields and unmineable coal seams offer another approximately 1,000 Gt storage capacity. Theoretically, underground storage capacity is therefore sufficiently large to capture all likely anthropogenic CO2 emissions projected for the next 50-100 years, even if fairly pessimistic assumptions about future emissions are used (CCS also compares favourably with LULUCF in this regard).
Perhaps the limited attention for CCS could be explained by the fact that its impact on global emissions is likely to be small altogether. Again, this seems an unlikely explanation. IEA scenarios, based on their Energy Technology Perspectives (ETP) model, suggest that in the scenario-specifications where a US $50/tCO2 penalty is introduced (during 2005-15 and 2020-30 in the industrialised and developing countries respectively), the introduction of the CCS option in the model lowers cumulative emissions until 2050 by about a quarter as compared to a without-CCS scenario. The IEA further argues that if the same cumulative emission reduction (as achieved in the scenario with CCS) were to be achieved without CCS, “the undiscounted cumulative systems cost […] increases by $11 trillion, or 63%” (IEA, 2004: 120).2 Although such outcomes are very sensitive for a wide range of assumptions and should be taken with a grain of salt, it is altogether clear that CCS deserves active public support from now on and that it would simply be unwise not to include the option in the portfolio of mitigation options.
Finally, could the little policy attention to and public support for CCS be due to a lack of positive externalities? The answer, once again, seems to be negative. The enhanced recovery impact has been mentioned already. Moreover, CCS technology development may also have a wider application. After all, successful CCS requires further technology development and application regime information of CO2 capture, transport and storage. Such technology and further information can also enhance knowledge of capture, transport and storage of other GHGs, such as methane, nitrogen or hydrogen.
But, probably more important, CCS could assist rapidly developing countries with a large coal basis, such as China and India, in achieving benefits in terms of GDP growth, contributing positively to mitigation, ‘saving time’, and having to rely less on foreign energy sources (and/or nuclear energy). This could be helpful in mitigating pending worldwide concerns about the security of supply of energy, and add to world stability.
Probably the most serious factor explaining the limited attention for CCS thus far is its perceived high costs. On the whole, the costs of capture and pressurisation are typically responsible for the bulk of the costs, whereas CO2 transport and storage costs are modest (although this can obviously differ from case to case). Whether or not there is enhanced fossil-fuel recovery involved in the CCS activity (although this will be the exception rather than the rule) also makes a large difference. Keeping all this in mind, the present per tCO2 costs of the full CCS chain (if no-regrets options are disregarded) probably range from very little for a number of options, such as transporting and storing pure CO2 residues from industrial processes, to €40-80 for most other cases.
Such costs are indeed considerable, but not insurmountable if serious public support would enable progress with the CCS technology. It seems fair to assume that such costs could probably be halved over approximately the next 25 years (IEA, 2004:17). In other words, investing now in learning about CCS application in combination with CO2 penalties increasing to about US $50/tCO2 levels, could bring large-scale commercially feasible CCS within reach within a decade, especially if coal prices remain low in comparison to prices of other energy sources.
Along that track, it seems logical to start with developing low per tCO2 CCS options first, e.g. enhanced recovery projects, projects where pure CO2 is released from industrial processes, or projects where CO2-storage can be combined with hydrogen production (e.g. from methane). The present problem, however, is to get such activities off the ground in the absence of clear incentives for potential private investors to do so.
First, stable and predictable long-term public investment support for such technology development has thus far remained very modest internationally, if not virtually absent. Second, it is even still unclear how underground CO2 storage can be dealt with in the Kyoto–regime. Indeed, insofar as the KP provides incentives for mitigation, it is as yet unclear how this would apply to CCS, irrespective of whether CCS would be set up as domestic action (i.e. how CCS should be accounted for in national inventories), or as an element of any of the KP flexibility mechanisms. Even in the EU ETS the role of CCS is unclear, because its inclusion in the scheme would require national storage monitoring and verification guidelines, which are not (yet) in place.
In the hypothetical case where a private investor would be prepared to act as a first mover and set up a commercially non-viable CCS project with a considerable learning potential an odd question is raised: what would be a fair public support level? Assume that an EU-based investor is willing to transport and store domestically a considerable amount of a CO2 residue from externalities for the country in terms of employment and surrounding economic activities. However, what would be a fair public incentive in the absence of inclusion of the project’s mitigation in any public policy scheme?
One could argue that a Kyoto credit price per tCO2 would be fair, but that would not cover the innovation aspect. Moreover, the project is a domestic activity, so it seems unreasonable to compare it with the theoretically most efficient foreign option. One could also argue that the EU ETS allowance price levels provide a good yardstick for determining the support level, but that approach would suffer from the same objections. Moreover, since the EU allowance prices seem to be highly sensitive to sudden events and fluctuate strongly, it is unlikely that our investor would want to act on such an unpredictable incentive.
Finally, one could argue that the costs of alternative domestic mitigation options provide reasonable guidance, but then the question arises whether marginal or average costs apply, and how the innovation aspects and learning potentials of various options should be taken into account. So, in our example per tCO2 incentives could range between < €10 and > €100, depending on a number of already arbitrary criteria!
In short, as long as CCS has not received a proper place in the accepted climate policy schemes, there is no clear guidance as to what fair incentives would be. This creates the risk that support schemes differ widely between countries, and that the CCS options do not or only slowly get off the ground thereby losing time in the energy transition process.
Maybe the Pigovian approach taken by the Norwegian government in the Sleipner CCS demonstration project is not a bad idea for the time being: companies that store CO2 underground which otherwise would have been released as part of the oil production process receive a specific tax rebate (now about €45) for each tonne stored, based on a long-term commitment.
Let’s get the use of the underground off the ground.
Catrinus J. Jepma
Chief editor
April 2005
December 2004
October 2004
July 2004
March 2004
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