The future of Carbon Capture and Storage in Europe. --Summary note -

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1 The future of Carbon Capture and Storage in Europe --Summary note - How can the EU move forward on CCS in today s economic circumstances? Speaker: Michael Hager, Head of Cabinet of Commissioner Oettinger, European Commission Mr Hager started his intervention by underlining the EU s dependency on fossil fuels. The speaker reminded that the EU has an ambitious climate policy expressed by the targets set by the Climate and Energy Package 1 and the 2050 Roadmaps 2. Discussions on designing the 2030 framework for climate and energy policies and the post-2020 objectives are on-going. The 27 March 2013, the European Commission adopted a Green Paper entitled A 2030 framework for climate and energy policies 3, inviting other EU institutions and stakeholders to express their views on the type and level of potential climate and energy targets for Mr Hager recalled that the deployment Carbon Capture and Storage (CCS) technologies are a necessary part of the solution to reaching these objectives. He reminded that the EU CCS Directive 4 created the necessary regulatory framework for CCS deployment. The state of play of CCS results from the developments in the energy sector and the collapse of the EU carbon price 5. The European 1 These targets - known as the targets - set three objectives for 2020: (i) a 20% reduction in EU greenhouse gas emissions from 1990 levels, (ii) raising the share of EU energy consumption produced from renewable resources to 20%, (iii) a 20% improvement in the EU s energy efficiency. 2 European Commission, Energy Roadmap Com(2011) 885 final, EC, European Commission, A Roadmap for moving to a competitive low carbon economy in Com(2011) 112 final, EC. 3 European Commission, A 2030 framework for climate and energy policies, COM(2013) European Commission, Directive on the geological storage of carbon dioxide and amending Council Directive 85/337/EEC, European Parliament and Council Directives 2000/60/EC, 2001/80/EC, 2004/35/EC, 2006/12/EC, 2008/1/EC and Regulation (EC) No 1013/2006. Directive 2009/31/EC. 5 The EU carbon price has a direct effect on the amount of EU funds allotted for the CCS projects. The NER300 Programme and the European Energy Program for Recovery were designed to co-finance commercial scale demonstration CCS projects. The Impact Assessment of the 2007/8 Climate and Energy Package reckoned that a carbon price of 30 /tco2 was too low to stimulate investments in CCS demonstration installations, leading to the creation of the NER300 programme. The programme takes out 300 million EU Allowances from the New Entrant Reserve of the EU ETS to co-finance the installations of innovative renewable energy technology and commercial carbon capture and storage demonstration projects. However, with the collapse of the EU carbon price to around 4 /tco2, the amount of funds available through the NER300 instrument dropped significantly in value. For more information, Egenhofer C., Alessi M., Georgiev A., Fujiwara N. (2011), The EU Emissions Trading

2 Commission tried to restore balance between supply and demand in the EU ETS with the backloading proposal. Mr Hager added that a structural reform of the system might be envisaged in the future. While speaking of the financial instruments established by the EU to co-finance commercial scale demonstration CCS projects, the speaker reminded that six CCS projects were selected to receive funding under the European Energy Program for Recovery (EEPR) 6. Two of these projects were cancelled. No CCS projects have been awarded funding under the first call for proposals of the NER300 programme 7. The speaker explained that this situation was a result of funding gaps. Continuing his intervention, the speaker pointed out the Consultative Communication on the future of (CCS) in Europe, also adopted by the Commission 27 March The objective of the consultation document is to stimulate the discussion on CCS. The document highlights a number of options that could be implemented to encourage the deployment of CCS (e.g. mandatory CCS certificates or feedin tariffs). In his final remarks, Mr Hager stressed the importance of CCS development. According to him, if the EU does not move forward with at least some projects, CCS will be developed in other parts of the world and the front-runner role of the EU will be lost. The panellist invited national governments and the industry to join the EU in financing the development of CCS technologies. The EU cannot finance CCS alone. However, it can provide a certain regulatory framework to attract investors. Norwegian CCS Policy Speaker: Ane Hansdatter Kismul, State Secretary, The Royal Norwegian Ministry of Petroleum and Energy Ms Kismul started her presentation underlying that energy consumption is increasing. Fossil fuels will dominate the European energy mix in 2030 and beyond. To address the climate change challenge, improvements of energy efficiency and energy conservation are required alongside the deployment of RES and CCS. The deployment of CCS enables to reduce CO 2 emissions from the production and use of fossil fuels and is pivotal for reaching the climate targets. System and Climate Policy towards 2050: Real incentives to reduce emissions and drive innovation?, CEPS Special Report. 6 The EPR was set up in 2009 to co-finance projects designed to make energy supplies more reliable and help reduce greenhouse emissions, while simultaneously boosting Europe's economic recovery. The programme s budget is of 4 billion. For more information, European Commission (2009), Selection of offshore wind and carbon capture and storage projects for the European Energy Programme for Recovery, MEMO/09/ The NER 300 programme was established by Article 10a(8) of the EU Emission Trading Directive and further developed thought Commission decision 2010/607/EU (NER3000 Decision). The Programme takes out 300 million EU Allowances from the New Entrant Reserve of the EU ETS to co-finance the installations of innovative renewable energy technologies and commercial carbon capture and storage demonstration projects. The allowances will be monetised and distributed through two rounds of calls for proposals, covering 200 and 100 million allowances respectively. NER300 can cover up to 50% of the total costs of a selected project. For more information, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, The Future of Carbon Capture and Storage in Europe, COM(2013) 180 final.

3 The Norwegian CCS policy benefits from a broad political consensus on the importance of CO 2 storage. Norway introduced a tax on CO 2 emissions in The speaker added that Norwegian companies have to be both part of the EU ETS and pay a tax, which is around 55/tCO 2. In addition, all new gas-fired power plants are required to implement CCS. In Norway, 2 CCS projects are currently in operation: one at Sleipner and the other one at Snohvit. The technology Centre Mongstad was inaugurated in May The panellist added that in the EU, CCS projects using onshore CO 2 storage faced a strong public opposition. The State Secretary added that her country would be happy to contribute to the development on CCS. The speaker concluded her presentation by saying that optimism on CCS was hampered for a variety of reasons (i.e. the collapse of the carbon price, the financial crisis). She added that the development of large-scale CCS projects is more expensive than initially thought. She welcomed the publication of the Consultative Communication on the future of (CCS) in Europe, and confirmed the readiness of the Norwegian government to participate in the consultations. Ms Kismul agreed that national governments should not take the sole responsibility for the future of CCS in Europe. According to her, politicians can design the framework, but it is the industry and the research community that should develop CCS. The future of CCS seen from the European Parliament Speaker: Chris Davies, Member of the European Parliament, ALDE Group MEP Chris Davies argued that the public opposition to CO 2 storage in the EU results from a lack of awareness of CCS. The speaker shared Mr Hager s concern that, if no action will be taken to efficiently promote CCS deployment, Europe might lose its technological advantage vis-à-vis the rest of the world. Currently CCS projects are under construction in North America and China. According to him, the main problem faced by CCS is the lack of incentives for its development. The development of new financial mechanisms could be a way of improving the state of play for CCS. MEP Chris Davies argued that, if the overriding objective of the EU s climate policy if to lower the CO 2 emissions, funds for CCS should be found (i.e. supported by some sort of support schemes like RES). The panellist added that, apart from the creation of an appropriate regulatory framework, politicians should find a way to efficiently attract investors (i.e. through tax incentives). Before concluding his intervention, MEP Chris Davies expressed his hope that the cooperation between the EU and Norway in the field of CCS development will be strengthened. Mr. Davies was open for a decarbonisation target (including both CCS and RES) as part of the 2030-package. 8 This year the tax rate has been raised from 210 to 410 Norwegian Krone (or from 28 to more than 55) per ton of CO 2. For more information, Ministry of the Environment of the Kingdom of Norway, Press Release: the Government is following up on the Climate Agreement. Available at: (Consulted 29 March 2013).

4 Technology Centre Mongstad Lessons Learned Speaker: Tore Amundsen, CEO, Gassnova Mr Amundsen started his presentation by stressing that CCS technologies are currently used in Norway. The Technology Centre Mongstad (TCM) is a joint venture between Gassnova (on behalf of the Norwegian state), Statoil, Shell and Sasol. The main ambitions of TCM are to (i) test, verify and demonstrate post combustion CCS technologies, (ii) reduce costs, as well as technical, environmental and financial risks and (iii) share knowledge and enable a global application of the tested techniques. A decision whether to build a full-scale CCS project at Mongstad is planned for The technology centre was officially inaugurated in May Since its inauguration, more than people have visited the site. For the time being, Aker Clean Carbon and Alstom are conducting onsite operation working on improving their technologies. One source of emissions is the existing catalytic cracker facility at the Mongstad Refinery. The other source of emissions is the natural gasfired thermal power plant. The panellist added that technology vendors are invited to test a new generation of technologies in TCM. After 12 months of operations, the risks associated with the implementation of new technologies have been reduced. Innovative construction techniques have been tried successfully. Additionally, a lot of experience has been accumulated during the operations processes (i.e. the process models have been verified and the start-up and shutdown procedures have been considerably improved). Mr. Amundsen indicated a cost-reduction as a result of the experiences at the level of 20-30%. Despite ambitious goals, no large-scale CCS projects have made investment decision what happened and how do we take CCS forward in Europe Speaker: Graeme Sweeny, Chairman of the Advisory Council of the European Technology Platform for Zero Emission Fossil Fuel Power Plants Mr Sweeney started his presentation by admitting that the financial instruments aimed to co-finance CCS failed to deliver the expected results, and this is mainly due to the collapse of the EU carbon price. The speaker added that in the context of decarbonisation of the EU economy, the deployment of CCS is essential. The speaker shared the concern expressed by his co-panellists: if the current status quo of CCS in the EU will not be improved, the Union will lose its comparative advantage on CCS. The speaker stated that the costs of meeting the objectives set by the 2050 Roadmap could increase by 40% by Hence, efforts should be maximised, to allow the implementation of a number of demonstration projects. Moreover, it would be very helpful to have the possibility of recycling the funds that were allocated under the EEPR to projects that are now cancelled. According to Mr Sweeney, the debate on CCS should be reframed in order to become more engaging. CCS should be presented as a technology that could lead not only to job creation, but also to job preservation (i.e. in energy intensive-industries). According to the panellist, three issues should be 9 The International Energy Agency estimates that, without CCS, the delivery cost of meeting a 50% global emissions reduction target by 2050 will be 70% higher. For more information, The International Energy Agency, Technology Roadmaps: Carbon Capture and Storage, 2009.

5 addressed before a successful deployment of CCS: (i) the desired volume of CCS, (ii) how to cover the costs of CCS deployment and (iii) clarification that when CCS is deployed, it will work. Conclusions by the moderator The moderator, Ms. Sonja van Renssen noted that CCS appears as a game changing technology that could help combining the objectives set by the EU climate agenda and its dependency on fossil fuels. With the lessons learned in TCM, the deployment of a large-scale demonstration project could now be 20 to 30% cheaper. The Norwegian example and the use of a special tax on CO 2 emissions prove that fixing the EU ETS is important to allow CCS deployment. On the other hand, some more creative solutions can be used to improve the state of play of CCS. In the context of designing the 2030 Roadmap for climate and energy policies, the adoption of a single target for decarbonisation in addition to a CO2-reduction target and/or the allocation of allowances for CCS/certificates could be envisaged.