Rong Kang 1,2, Jinfeng Ma, 2,3

Transcription

1 The Barriers of Initiating Programs to Stabilize the Climate and the Potential Contribution of Economic Research Based on the Practice of Yanchang CCUS Project in China Rong Kang 1,2, Jinfeng Ma, 2,3 1. School of Economics and Management, Northwest University, , China 2. National CCS Engineering Center, Northwest University, , China 3. Department of Geology, Northwest University, , China Abstract: Facing the serious environmental problems, various ways have been designed and implemented to stabilize the climate. CCS or CCUS in Yanchang case is one of the cases. The scientific researches help solve the potential usage of CO2, which is vital to indirect cost cut of such projects. However, such projects are initialed and developed in complicated environment, micro, macro and meso level issues or barriers twisting together, resulting the difficult situations of fully implementing such programs. Based on the practice of Yanchang CCUS project in China, we identified four categories of difficulties and proposed the potential contribution of economic research. The paper is to show how economic research can contribute such programs to stabilize the climate. Key words: CCS/CCUS, Yanchang Project, economic research I. Introduction As the world s largest carbon dioxide (CO2) emitter, China is facing serious tasks of decarburizing its economic growth. Since the Eleventh Five-Year Plan, the Government of the China has made unprecedented efforts in shifting the China s economy on a more sustainable, low-carbon growth path. By 2014, the China s (i) carbon intensity decreased by 33.8% from the 2005 level; (ii) share of non-fossil fuels in primary energy consumption reached 11.2%; and (iii) installed renewable power generation capacity reached about 425 Gigawatt (GW). Looking

2 forward, by 2030, the government committed to (i) achieve a peaking of CO2 emissions and make best efforts to peak even earlier, (ii) reduce the economy s carbon intensity level by 60% to 65% from the 2005 level, and (iii) increase the share of non-fossil fuels in primary energy consumption to 20%. For the Thirteenth Five-Year Plan (13th Plan), , the government announced a target to reduce carbon intensity by 18% from 2015 levels and increase non-fossil fuel share of the primary energy mix to 18% by This carbon intensity target, if met, will exceed the pledge Copenhagen by To meet these targets, the Government of the China has introduced in its 13th Plan, a total energy consumption cap of 5 billion tons of standard coal equivalent, a requirement that any new coal-fired power plants must be ultra-low emissions and a call for the replacement of coal in non-power sectors either with electricity or natural gas. CCS is a crucial climate change mitigation technology for the China. To date, fossil fuel accounts for more than 85% of primary energy supply in the China and coal contributes about 70%. The power, heat and the industrial sectors are predominantly coal-based. CO2 emissions of the power and heat sector contribute 50% to China s CO2 emissions and other industrial sectors contribute another 30%. 3 Even when non-fossil fuel, low-carbon energy sources and energy efficiency will be deployed rapidly and at a large scale as planned, coal energy will continue to be the backbone of economic growth in China. The Chinese Electricity Council projects that by 2030, the China would have added another 300 to 400 GW of coal-based power generation. Moreover, China is planning to largely increase its gas-based power generation capacity. CO2 emissions from continued fossil fuel use are, therefore, likely not to be curtailed sufficiently with the current mix of mitigation measures to achieve a long-term, sustained deep decarburization of China s economy and a decoupling of fossil fuel based industrial growth and carbon emissions in the long-run. CCS is the only available near commercial technology to abate 90% or more of CO2 emissions from large-scale fossil fuel industrial and power plants. 4 CCS is, therefore, a crucial low-carbon technology to attain this goal. Without this technology, near zero emissions from fossil fuel based power plants would likely be at best very costly, at worst not feasible. The 1 Government of the People s Republic of China, National Development and Reform Commission Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People s Republic of China. Beijing (adopted in 2016). 2 The Copenhagen round negotiation pledged Governments to reduce carbon intensity by 40% 45% by 2020 (based on 2005 levels). Should the Government of the China s target under the Thirteenth Five-Year Plan be met, carbon intensity will have been reduced by 48% by International Energy Agency CO2 emissions from Fuel Combustion. Paris. 4 Carbon Capture and Storage is an integrated system of technologies involving (i) separation and capture of carbon dioxide (CO2) from large point emitting sources, (ii) compression of captured CO2 and its transportation to a geological site, and (iii) injecting CO2 into a suitable sequestration site for permanent storage.

3 Fifth Assessment Report of the International Panel on Climate Change concluded that the costs of decarburization and long-term achievement of limiting global warming to two degrees centigrade without the deployment of CCS will increase decarburization costs by more than 138%. Potential early-stage demonstration projects, mainly from the coal-chemical sector, were identified and ranked in China within last dozen years. Among those projects, a number of CCS projects at coal-fired power plants were identified which had already made some significant progress, but due to high cost they may be only implemented during the 14th plan period, Yanchang CCUS Project, located in Shaanxi Province of China, belongs to early-stage demonstration projects with the most mature technology. Even though, the Yanchang CCUS project has shown difficulties or barriers from various levels. As shown in the following figure, the paper will focus on the difficulties of designing and implementing CCS projects and how economic research can help. Research on ways to lower the cost and enhance the benefit Research on market machenism to help initiate CCS project Cost and Benefit Market issues Contribution to Economy Policy Issues Research on comprehensive contribution of CCS project International and National policies to help promote CCS projects Figure 1 The frame of difficulties and potential research II. The Difficulties of Initiating Programs to Stabilize the Climate: taking

4 Yanchang CCUS Project as a case Yanchang Group (hereinafter referred to as YPG) is spearheading the advancement of CCUS on coal chemical plants in the Ordos Basin. In 2012, YPG built a 50,000 metric tons per year (tpa) CO2 capture pilot at its Yulin coal chemical plant in Yulin City. The captured and compressed gas is trucked to Jingbian Oilfield, which is 200 kilometers (km) from the coal chemical plant where it is injected for a CO2 EOR pilot test. The test injection started in September 2012 and is ongoing. As of May 2015, the accumulative total amount of CO2 injected reached 41,000 metric tons. Based on the pilot study, YPG is considering to implement a commercial scale demonstration project, the Yanchang CCUS project, which would have the capacity of 1 million metric tons per annum (tpa) of CO2. This project is likely to be the first full-chain large-scale project in China. The project has been selected as the flagship CCUS demonstration project by China during the 13th Five-Year Plan period and endorsed by President Xi Jinping in The project comprises CO2 capture from the Yulin Coal-to-chemical Plant in Jingbian County with transportation to a storage site in a distance of 200 km. To date, the feasibility study for the 0.36 million tpa project has almost completed. The scale-up of a pilot CCUS project to 1million tpa full-chain project is associated with a challenge of full understanding by YPG of the technical, financial and economic feasibility of the project, its safe and environmentally sustainable operation as well as the legal, regulatory and policy environment for the company to take the decision. Significant barriers to YCG s CCUS large-scale demonstration persist. The enabling environment for large-scale demonstration lacks important supporting elements. 1. Cost and benefit. Firstly, the direct cost in the process of CO2 capture and storage covers a range of expenses, such as capture, environmental monitoring, storage, transportation, etc. The high cost, especially the high cost in capture, has hindered the development of CCS projects. For example, capturing CO2 from power firms need further cost to increase the concentration to storage standard. Given the lack of an established fiscal and financial support program, as well as the high regulatory uncertainty paired with a low oil price market environment, the risk of the investment not achieving commercial viability is high and project developers are reluctant to implement costly feasibility assessments and even more costly front end engineering and design studies. Secondly, such studies for large-scale CCUS demonstration projects are far more costly than for other infrastructure projects due to the complexity of the projects and the need for costly

5 geological seismic studies. In particular, the projects involve costly storage site characterizations as well as pilot testing. Moreover, the preparation of feasibility studies also take longer than average infrastructure projects. Thirdly, with the decline in oil and gas prices since the middle of 2014, CO2 EOR alone is not sufficient to make early stage demonstration project financially viable. It requires additional revenue and capital support to establish a business case for such early stage projects. 2. Market issues. Generally, it is easy to understand that the increased oil recovery may compensate part of the cost, but the real oil price can not realize that goal. The enabling environment for large-scale demonstration lacks commerciality, mainly due to the absence of market system and dedicated funding; and lacks a price for CO2 template off-take agreement to facilitate the commercial cooperation between emitting industries and oil and gas companies in CCUS projects. Without a market mechanism, the emitting industries will not have sufficient motivation to invest and the research and development will be hindered. 3. Contribution to economy. The enabling environment for large-scale demonstration lacks understanding of the contribution of CCS projects to the whole economy. In China, owing to the cost issue, the financial investment to such project can clearly categorized into two parts, one is the scientific research fund to support key projects by national government; the other is the investment of individual enterprises to carry on the project. Since the investment to such CCS project comes from both central government and local government, if the contribution of CCS to the economy in the meso and macro level cannot be shown, the continuous investment cannot be guaranteed. 4. Policy issues. The enabling environment for large-scale demonstration lacks a clear policy framework efforts of government support are not clearly coordinated, neither between ministries nor between central and provincial governments, and even less so between provincial governments; financial support program for (very costly) pre-investment activities and investments in early stage demonstration projects; environmental management standards, post-closure stewardship regulations and clearly defined approval process for projects; a dedicated institution to facilitate CCS/CCUS demonstration; certainty on storage potential and feasibility of CO2-EOR requiring detailed and very costly storage site assessments; and commitment from the government to cover long-term liability for potential carbon leakages for first-of-its-kind projects.

6 III. Potential Contribution of Economic Research The cost issue is critical to healthy development of CCS project, the barriers in terms of cost, market, policy are internally connected. Hence the economic research is to show or help solve problems relating to cost, market, policy and understanding the contribution of such project to economy. Research on ways to lower the cost and enhance the benefit Lowering the cost of CCS is critical to further develop and implement CCS project. Therefore, economic research should be done to show ways of lowering the cost. The research should focus on the micro level. For example, in Shengli Oilfield, it has been proved that the operation cost has been lowered by 35% by increasing the abstracting capacity of material and reducing energy consumption by making use of heat pump. Segmenting the cost structure and identifying the potential cost cut route together with technicians may demonstrate the use of economic research. Another example is that incubator or similar organization can be established to form R&D platform by combining various firms, such as petroleum and power companies, in order to realize the cost-cut objective. Studying the mechanism of such agencies and operation will help lowering the cost of CCS. Early CCS deployment is particularly important in carbon-intensive China. To date, investment costs for demonstration projects are high, but with demonstration and deployment, cumulative cost reductions are expected; essential for the wider deployment of the technology. Given the long-lived characteristic of electricity and industrial infrastructure, early deployment can lock-in long-term low-carbon growth path. While economic analysis shows that at current costs the technology is not economically viable, the construction of first-of-its-kind demonstration projects is essential, because the cost reduction realized will determine the relative cost competitiveness of the technology with other low-carbon solutions and eventually the wider the deployment of the technology. Hence, the research on cost cut method for the demonstration projects is critical. Research on market mechanism to help initiate CCS project China s Special Envoy on Climate Change launched the Roadmap at the sidelines of the 21st Conference of Parties of the United Nations Framework for Climate Change. The Roadmap identified CCS on coal chemical plants as the lowest cost capture option. In

7 addition, the Roadmap provides practical recommendations to improve the enabling environments for CCS demonstration in the China during the Thirteenth Five-Year Plan and beyond. But for the long run, market mechanism is the best way to promote the healthy investment of companies to CCS project. The national carbon trade system is to be established in China this year. If the cap can be set for the high-emission firms and allowance can be distributed to the firms using CCS, the system will realize ideal goal. The basic statistical research on carbon emission; the economic research on carbon trade, the allowance distribution methods, the compensation mechanism should be the tasks of economists. Research on comprehensive contribution of CCS project Generally in terms of CCS in China, key CCS projects have been launched by important oil companies, such as China National Petroleum Corporation Jilin Oilfield, Daqing Oilfield, Sinopec Group Shengli Oilfield and Zhongyuan Oilfield. Yanchang s CCUS has been listed as demonstration projected. But understanding the comprehensive contribution of CCS projects is very important. There are two main categories of this understanding. The first is the political economic understanding of such project, especially integrating the social, environmental impact with economic impact. The second is the potential understanding by establishing satellite account to demonstrate the contribution of CCS project to local economy. Different CCS projects may require different technology procedure, involving different input, identifying the direct industries and related and influenced industries, calculating the percentage of all revenue to GDP of CCS projects, can be a direction of understanding the contribution of the technology. International and National policies to help promote CCS projects International comparison study is a good direction to promote CCS projects. China has built sufficient capacity to move towards large-scale demonstration. Since the Eleventh Five-Year Plan, , China has included the research of the CCS technology, including in combination with CO2 enhanced oil recovery (EOR), commonly known as carbon capture, utilization, and sequestration (CCUS) into its National High-Tech Development Program and collaborated with development partners in capacity building, policy development, and pilot testing of various technology components along the CCS/CCUS technology suite. In total, China invested an estimated amount of about CNY3

8 billion on CCUS development. To date, there are 14 pilot projects in operation. In addition, as a result of a note published by the NDRC in May 2013, encouraging provinces and corporations to develop large-scale demonstration projects, there are now nine large-scale demonstration projects in China in different stages of development. Domestically, in China, neither the NDRC nor the National Energy Administration have a dedicated center, which facilitates the development of an appropriate enabling environment for CCS demonstration, acts as a knowledge bank for CCS related information for the central government, and facilitates the various multilateral and bilateral partnerships of the government. Projects such as Yanchang CCS, are facing serious difficulties. To study how governments promote similar projects in their countries may benefit China. For example, Canadian government supported implementation of its flagship project, the Boundary Dam CCUS Project, by establishing national research and CCUS promotion centers. Internationally, the research on policies in terms of technical, regulatory, financial, and other institutional aspects will benefit CCS development nationwide. And countries developing CCS projects are in different phases, if the international platform can be set to help transferring know-how to lower research cost and manufacture cost, all interested countries will benefit. Moving developing member countries onto low-carbon growth paths by improving energy efficiency has been identified as one of the key means of addressing climate change issues. In CDR projects such as CCS, key stakeholders from central and local governments, project developers, financial institutions, civil society organizations, and development partners, are involved. The high cost and related environmental complex have brought about barriers for the development of CCS in emerging economies in general and, in particular in China. Therefore, economic research can focus on these barriers, seek way out to solve these problems. In sum, economic researches from micro, meso, and macro levels can contribute to the better understanding of CCS project and its benefits to economy, from commercial, financial, regulatory, policy, strategy, business model and risk management.

9 Reference 1. Government of the People s Republic of China, National Development and Reform Commission Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People s Republic of China. Beijing (adopted in 2016). 2. International Energy Agency CO2 emissions from Fuel Combustion. Paris. 3. Global Carbon Capture and Storage Institute. Project database. accessed 12 October 2015.