A STRATEGY FOR CCS IN THE UK AND BEYOND

Transcription

1 A STRATEGY FOR CCS IN THE UK AND BEYOND

2 Acknowledgements The CCSA wish to thank Mike Farley (Chair of the CCSA Strategy Task Force), the Strategy Task Force, members and secretariat for their contributions to this report. About the Carbon Capture & Storage Association (CCSA) The Carbon Capture and Storage Association (CCSA) exists to represent the interests of its members in promoting the business of Carbon Capture and Storage (CCS). The CCSA works to raise awareness, both in the UK and internationally, of the benefits of CCS as a viable climate change mitigation option, and the role of CCS in moving the UK towards a low-carbon economy. To find out more about CCS and the Association, please visit Contact us The Carbon Capture & Storage Association Suites , 4th Floor, Grosvenor Gardens House Grosvenor Gardens London SW1W 0BS Tel: +44 (0) Fax: +44 (0) info@ccsassociation.org Copyright 2011, CCSA. All rights reserved. The views expressed in this paper cannot be taken to represent the views of all members of the CCSA. However, they do reflect a general consensus within the Association. While the Carbon Capture & Storage Association (CCSA) considers that the information and opinions given in this Report and all other documentation are sound, all parties must rely upon their own skill and judgment when making use of it. CCSA will not assume any liability to anyone for any loss or damage arising out of the provision of this report howsoever caused. The report makes use of information gathered from a variety of sources that have not been subject to independent verification. The CCSA gives no representation or warranty as to the accuracy or completeness of the information collected from market participants or from sources in the public domain. The CCSA makes no warranties, whether express, implied, or statutory regarding or relating to the contents of this report and specifically disclaims all implied warranties, including, but not limited to, the implied warranties of merchantable quality and fitness for a particular purpose. A Strategy for CCS in the UK and beyond Carbon Capture & Storage Association 2

3 CONTENTS Table of figures...5 Foreword...6 Executive Summary...8 Chapter The need for Carbon Capture & Storage (CCS)...12 Summary The role of CCS for global emissions reductions The role of CCS in the EU The role of CCS in the UK UK climate change targets UK electricity mix...18 Chapter Costs of CCS as a low-carbon option for power and industry...19 Summary CCS in the power sector CCS costs and future projections The cost advantages of CCS CCS in process industries CCS deployment and the relevance of clustering Why clusters? Cluster costs...26 Chapter Current status of CCS in the UK...27 Summary Overview of current policy Regulation and permitting CO 2 capture plants CO 2 pipelines CO 2 storage International marine treaties Capacity and skills for CCS in the UK Research Process industry CCS research and demonstration Clustering benefits and regional interest Political and public support for CCS...33 A Strategy for CCS in the UK and beyond Carbon Capture & Storage Association 3

4 Chapter Ambitions and targets for CCS in the UK...35 Summary CCS in power and industry to Economic opportunities Enhanced Oil Recovery (EOR)...40 Chapter What is needed to achieve the targets?...41 Summary The targets Funding CCS in the power sector Funding CCS in process industries Infrastructure: networks and storage Enabling clusters Regulation and permitting Research and development Political and public acceptance Creating the capacity to deliver Activities to deliver economic opportunities International dimension...48 Appendix A...50 Post-doctoral training centres in the UK 50 UK universities active in CCS 50 Appendix B...55 Regional studies on clustering in the UK 55 Glossary...57 Conversions used 58 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 4

5 TABLE OF FIGURES Figure 1: Key technologies for reducing CO 2 emissions under the IEA BLUE Map scenario Figure 2: The contribution of sectors to CO 2 abatement through the use of CCS Figure 3: International roll-out of CCS and associated carbon abatement to Figure 4: EU GHG emissions towards an 80% domestic reduction (100% =1990) Figure 5: Estimated cost of low-carbon technologies (2011, 2020, 2030, 2040) Figure 6: CCS abatement cost range by sector (USD/tCO 2 avoided) Figure 7: CO 2 emissions and potential CCS clusters in the UK (Left, Source: National Grid) and potential storage locations in the UK (Right, Source: BGS) Figure 8: A step-change in CCS deployment (Current policy) An unsustainable business model Figure 9: A Progressive Roll-Out of CCS to 2030 a sustainable model, as recommended by CCSA Figure 10: Timeline for project initiation, final investment decisions and operation to deliver the Progressive Roll-Out of CCS Figure 11: Potential carbon abatement from CCS in the UK Figure 12: The economic opportunities from CCS for the UK A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 5

6 FOREWORD By the CCSA s Honorary President, Lord Oxburgh There is wide agreement that the emissions produced by burning fossil fuels oil, gas and coal - are a major cause of damage to Earth s climate. Yet whether we like it or not the world depends on these fuels for around three quarters of its energy and will continue to do so for a number of decades. This is partly because the demand for energy by the world s growing population continues to rise, and partly because alternative energy sources are not yet available at the scale needed to meet that demand and realistically cannot be expected to do so for some time. In the meantime there is no alternative to continuing to use fossil fuels. Although the best way of reducing carbon emissions is to use less fossil fuel the scope for doing this is limited. There is therefore an urgent need to find ways of reducing the environmental damage that comes from fossil fuels while we continue to use them. This is where Carbon Capture and Storage (CCS) comes in. Managing the emissions from fossil fuels is not easy but over the last decade major strides have been made in the CCS technologies to capture and immobilise the emissions from power stations and other large industrial plants that are heavy users of fossil fuels. In essence, CCS makes it possible to produce low-carbon electricity from fossil fuels. Experience gained in the North Sea oil and gas industry, and the abundance of offshore geological sites where captured CO 2 may be stored underground have allowed the UK to become one of the global leaders in CCS. Capitalising on this early leadership is vital if the UK is to take advantage of a possible global CCS market worth over 10bn and with the potential for creating many thousands of jobs in the UK over the next three decades. The UK Government has recognised the vital role CCS will play in decarbonising the UK's electricity sector and CCS is one of the essential strands in the UK policy for low-carbon electricity generation and for providing the flexible backup that is needed to partner intermittent renewable energy sources such as wind. The UK Government has already committed up to 1bn to fund the first commercial-scale demonstration of the technology and committed to supporting a further three projects. The UK regulatory and policy framework is one of the most advanced in the world, helping create the right environment for industry to invest in CCS and to take advantage of the economic and environmental opportunities over the coming decades. Energy policy is always controversial and there are those who dismiss the whole low-carbon agenda and CCS along with it. They have to realise, however, that they are swimming against the tide of international opinion and recognise that successive meetings of world leaders at Kyoto, Copenhagen and other venues have agreed that emissions from fossil fuels have to be reduced. No one pretends that the low-carbon agenda is cost-free. But those who have looked at the economics agree that the costs of decarbonising energy generation are significantly lower that the environmental penalties of not doing so. As long as emitting CO 2 is cost-free there are few renewable energy sources that can compete on cost with fossil fuels. But if there is a cost to carbon emission, both CCS and renewables can hold their own, CCS being less expensive than many. Although CCS has yet to be deployed at scale costs are likely to fall. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 6

7 What is needed now is the rapid and sustained expansion of CCS deployment, with UK skills and industry helping to lead the way. If we leave our investment in CCS too long we miss a vital window of opportunity. A progressive and cost-effective roll out of CCS allows our skills and supply base to expand steadily to meet this challenge. Delay could mean throwing away the advantage of our current position. There is simply too much at stake for us to take this chance. We should not risk failing to meet our greenhouse gas emission reduction targets and losing out economically as well. Lord Oxburgh LORD OXBURGH is a graduate of the Universities of Oxford and Princeton, and taught geology and geophysics at the Universities of Oxford and Cambridge. In Cambridge he was Head of the Department of Earth Sciences, and he has also worked in the Universities of Cornell, Stanford and Caltech. He is former Chairman of Shell Transport & Trading and chair of the House of Lords Select Committee on Science and Technology. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 7

8 EXECUTIVE SUMMARY Carbon Capture and Storage (CCS) is a technology that can capture 90% or more of the carbon dioxide (CO 2 ) emissions produced from the use of fossil fuels in electricity generation. The captured CO 2 is then transported for permanent storage in depleted oil and gas fields or deep saline formations. CCS can also be applied to industrial processes such as chemical processing and steel and cement manufacture, preventing CO 2 from entering the atmosphere and contributing to climate change. The value of CCS as an important CO 2 abatement tool is already recognised by multiple authoritative organisations, including the UK Committee on Climate Change (CCC), the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA). The IEA asserts that CCS could deliver 19% of global emissions reductions, and account for over 30% of reductions from the power sector by 2050 and that reducing emissions without CCS is likely to be 70% more expensive. For many industrial applications, CCS remains the only credible abatement option. The need for CCS Fossil fuels currently provide 80% of the EU s primary energy supply and meet 72% of UK electricity demand. In the future, our total electricity requirements are likely to rise as we transition from fossil fuels for transport and domestic heating, to electric vehicles and heat pumps. While energy efficiency measures and low-carbon electricity from nuclear and renewables may reduce fossil fuel consumption, fossil fuels will remain an important part of the energy mix for some time to come. This is even more the case for rapidly expanding economies, such as China (now the largest global emitter of CO 2 ) which will almost certainly continue to remain dependent on fossil fuels far into the future. In order to combat global climate change, it is imperative that we drastically reduce the emissions associated with consuming fossil fuels both domestically and internationally. The CCC advocates an average emission intensity target of 50g CO 2 per kwh for the UK s electricity generating sector by 2030, with nuclear, renewables and CCS all playing key roles. The CCC also notes that, without CCS, required cuts in industry emissions to 2050 will be very challenging, highlighting the need to develop CCS for industrial processes. This is of critical importance as many industrial operators will face higher carbon prices as Phase III of the EU ETS comes into force in The cost of CCS The available evidence demonstrates that the levelised generation costs for CCS on coal and gas are already comparable with other low-carbon electricity generating technologies. Yet levelised costs tend to underestimate both the value for money that CCS offers and the total energy system costs of renewables and nuclear. CCS offers superior value for money as it provides both a reliable and flexible source of electricity. System costs for renewables include the significant back up generating capacity required to ensure continuity of electricity supply due to their intermittent nature. As an example, anti-cyclone patterns are commonly experienced during the winter, when low wind speeds combine with high winter demand for energy. This means that wind energy s contribution to the electricity supply is severely compromised. However the back up generation costs required to meet this loss of capacity are not included in levelised costs. Grid upgrades are also required to connect new, disparate, generating locations that are often far from where the electricity is required and these too are not counted in levelised costs, creating an unrepresentative picture of the cost of renewables overall. Nuclear plants have very high upfront capital costs so high load factors, or baseload operation, are required to make a plant economically viable. Since CCS has lower capital costs than nuclear plants it can operate economically at lower load factors, making it more cost effective than nuclear to meet fluctuations in energy demand. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 8

9 To maximise the competitive advantage of CCS and minimise the serious risk of carbon leakage (where energy intensive or large direct CO 2 emitting industries are forced to relocate to other countries due to carbon prices) the necessary CCS infrastructure, both pipelines and storage, must be developed in the most cost effective way. Several research papers on the regional deployment of CCS infrastructure suggest that sizing the spine transport pipeline and storage infrastructure associated with a first, anchor, project could enable industrial CCS and other follow on power projects to access transport and storage infrastructure at about 10% of the cost associated with the first project. Further research, suggests that a coordinated cluster, rather than a source-to-sink, approach to developing pipeline infrastructure, could lead to CO 2 transport cost savings of almost 40%, even if there were a gap of several years between subsequent phases of CCS deployment. Given that many industrial areas are tightly clustered, CCS networks are both technically and economically feasible. In addition, the technical, operational and commercial skills gained in developing these first networks would become highly valued on the international market, creating a significant opportunity for the UK to export goods and services. CCS also has a crucial role to play in sustaining energy intensive and carbon intensive process industries in the UK which are also required to make substantial CO 2 emissions reductions. With an EU ETS price of potentially 70t/CO 2 by 2030, CCS already presents a lower cost route to meeting carbon targets than buying carbon credits provided transport and storage infrastructure are available at modest cost. Furthermore, renewable alternatives for decarbonisation are not available for many industries. These sectors are currently under immense pressure both to decarbonise and to stand at the vanguard for the UK s economic turnaround. If they are unable to operate economically in this country, the UK s hopes of a strong return to a growth economy will be severely compromised. The current status of CCS in the UK The UK Government recognises the potential of CCS and is already gearing up to meet the challenge. It has committed to the Demonstration Programme: up to 1billlion to fund the UK s first commercial-scale demonstration project, and support for a further 3 projects, Projects 2-4, to be in operation by Yet the investment case for CCS remains uncertain due to the absence of a firm timetable and a clear roadmap for how these demonstrations will enable and form part of a large scale deployment of CCS in the UK. Project developers need greater certainty over the future of Government CCS policy in the UK to guide their investment decisions. Whilst the Government should be commended for establishing a strong regulatory regime, several significant hurdles remain. The CCS marketbased levy (introduced in January 2010) has been replaced by less certain funding from general taxation for the Demonstration Programme and potentially the funding instruments announced in the Electricity Market Reform (EMR) in July Crucially, the UK Government also needs to match its project selection timetable to the EU NER300 funding timetable, which requires projects to be operating by 2016 meaning financial close when all engineering and FEED studies have been completed must be reached by the end of 2012 or it risks the loss of a valuable investment source for UK projects. Electricity Market Reform, whilst welcomed and important, introduces another source of uncertainty, delaying the business case for further private investment in CCS. A satisfactory approach for meeting the Financial Security requirements of the CCS Directive is also needed, as is ratification of the London Protocol which currently prohibits the transboundary movement of CO 2 for CCS - a major impediment to the UK capitalising on its significant geological storage potential. Despite the uncertainty, academia and industry are confident in CCS and its ability to deliver, and the technology continues to attract interest and investment. The Carbon Capture and Storage Association represents over 70 organisations across several sectors, including engineering, electrical utilities, law and insurance. There are two large CCS pilot projects in the UK and around 12 companies with large collaborative R&D projects. There are 18 universities currently with major CCS research projects, spanning departments including engineering, earth science, economics and law. There are over 200 academics working in 36 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 9

10 universities in the UKCCSC network. UK Research Councils have committed over 47m to research in CCS. In short, academia and industry in the UK have the capability and capacity to deliver CCS. The targets for CCS in the UK The CCSA believes that the UK needs 20GW to 30GW of CCS fitted power plant in operation by 2030 if we are to meet our emissions targets and our growing demand for secure, cost effective, low-carbon electricity. Without a firm plan for how this will happen, the ability to meet this target is compromised. The UK Demonstration Programme (launched by the UK Government with a commitment to fund four CCS demonstration projects) should result in 1.6GW (400MW per project) of lowcarbon electricity capacity fitted with CCS by We must maintain the momentum of the Demonstration Programme, moving seamlessly on to more extensive deployment: a stopstart approach would necessitate a step-change in activity requiring that 3-4 GW of CCS capacity enters operation each year from , if we are to reach the conservative target of 20GW CCS by This would represent more than the dash for gas in the 80s and the consequent roll-out of Combined Cycle Gas Turbines in the 90s. This approach would severely delay CCS and our ability to meet climate change targets if there were not a progressive and strong uptake of CCS investment over that period. A CCS project takes about 7 years from initiation to operation so unnecessary delays in building on the experience gained from the Demonstration Programme would result in the loss of valuable engineering and build skills and of first-mover advantage. Such a step-change in deployment would also escalate costs considerably at a time where value for money for the taxpayer is paramount. The Demonstration Programme must represent the first stage of a CCS deployment continuum. A Progressive Roll-Out of CCS capacity is the most sensible approach, with the build rate increasing steadily from 1GW per year to 2GW and eventually 3GW per year. However we need early and decisive action for this to be possible: the longer the delay the more challenging and expensive CCS delivery becomes. To ensure a Progressive Roll-Out is delivered, Demonstration Project 1 needs to be operational by 2015 and Final Investment Decisions for Demos 2-4 are needed by the end of 2012, enabling their operation by 2017, or 2016 for projects aspiring to the receipt of EU NER300 funding. Project initiation of 1GW per year needs to commence in 2012 to deliver 10GW of CCS (additional to the Demonstration Projects) in operation between 2018 and Demonstration on industrial CCS should commence in 2013 with projects started onsite by Adopting this approach would abate 100Mt of CO 2 per year and sequester over 500Mt CO 2 by The export potential for CCS is considerable: 850 projects needed globally by 2030, or 85 projects annually from 2020 (based on IEA figures). UK plc business in CCS could be valued at more than 10bn/yr by approximately 2025 and create more than 50,000 quality jobs by What is needed to achieve the targets? The biggest challenge facing the development of CCS in the UK and globally is the establishment of policy incentives that provide sufficient return on capital investment, with a manageable risk profile. We therefore call upon the UK Government to: Rapidly conclude the contractual arrangement for Demonstration 1 Call for proposals for Projects 2-4 to be issued in autumn 2011 to meet the 2018 deadline for operation of the Demonstration Programme and maximise the potential benefit to the UK from NER300 funding Develop a mechanism to allow investment in industrial CCS networks in a timescale which minimises the effects of carbon leakage, maintains UK competitiveness, and meets the A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 10

11 emission reduction targets. CCS needs to be placed within a strategy to decarbonise industry as a whole Demonstrate commitment that EMR will drive 10GW of CCS (in addition to the Demonstration Projects) to progressively come online between 2018 and 2025 and show how it will deliver ongoing support to CCS Synchronise infrastructure development with the CCS roll-out programme and clarify policy on the long term development of CO 2 storage to qualify cost effective storage potential for 20-30GW of UK CCS projects Build regional pipeline networks in good time, with networks around each major industrial region, and ensuring that infrastructure planning supports CCS at both local and national level CCS is a core enabling technology to meet domestic and European emissions reductions commitments and to decarbonise industry and the energy sector internationally. Only when the Government has in place the right incentives framework will we see CCS projects being delivered at the pace and scale necessary to minimise carbon leakage and limit the worst impacts of climate change. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 11

12 CHAPTER 1 THE NEED FOR CARBON CAPTURE & STORAGE (CCS) Summary Carbon Capture and Storage (CCS) is a key climate change mitigation tool which captures the CO 2 emissions from power plants and industrial processes, transports them via pipeline or shipping, and then permanently stores the captured CO 2 in depleted oil and gas fields or deep, underground saline formations. Authoritative domestic and international research makes a strong case that CCS should play a key role in producing cost effective, low-carbon electricity and reducing greenhouse gas emissions from many industrial processes. Analysis by the International Energy Agency shows that CCS could contribute 19% of global CO 2 emissions reductions by 2050 and it could cost 70% more to reach global greenhouse emission reduction targets without CCS. In 2008, fossil fuels provided 81% of global energy demand and 72% of the UK s electricity. CCS is an important transition technology as we will continue to use fossil fuels for decades to come - it is estimated fossil fuels will still account for 79% of global energy demand by 2035, despite efforts to reduce their use. CCS can help avoid carbon leakage, where industries re-locate to lower cost economies and for many industrial processes CCS remains the only credible carbon mitigation option. Biomass combined with CCS will produce negative emissions, allowing further emissions reductions. The EU has provided support for 6 CCS projects through the European Economic Recovery Package, whilst the NER300 competition aims to fund up to 8 CCS projects across Europe - part of an aim to have CCS projects in operation across Europe by The UK Government competition for the first demonstration project is expected to be concluded by the end of 2011; and the competition for Projects 2-4 is to be launched this year. The White Paper on UK Electricity Market Reform (July 2011) noted that a third of electricity generation could come from renewable sources by To complete the UK s low-carbon energy mix, the remaining two-thirds should be met by nuclear, CCS abated fossil fuels and some unabated fossil fuel. According to the Committee on Climate Change, 70GW of new electricity generating capacity will be required by To maintain secure and lowcarbon electricity supplies, flexible fossil fuel power stations with CCS will be required alongside inflexible nuclear and intermittent renewable in the energy mix. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 12

13 1.1 The role of CCS for global emissions reductions CCS is a crucial technology for climate change mitigation. CCS involves capturing CO 2 from power plants or industrial processes, transporting the CO 2 by pipeline or shipping, and securely storing the CO 2 emissions in depleted oil and gas fields or deep saline formations. 1 CCS has a central role to play in the global fight against climate change, along with greater energy efficiency, renewables and nuclear power. Analysis by the International Energy Agency (IEA), which looked at the technology deployment needed to reduce global energyrelated CO 2 emissions by half of the 2005 levels by 2050, shows that CCS could reduce global greenhouse gas (GHG) emissions by 19% (Figure 1) and account for almost a third of emission reductions in the power sector 2. This analysis also found that including CCS in the portfolio of climate change mitigation technologies is the most cost-effective approach to addressing climate change; attempting to reach the emissions targets without CCS leads to an increase in costs of over 70%. Figure 1: Key technologies for reducing CO 2 emissions under the IEA BLUE Map scenario 3 (Source: IEA) According to the IEA 4 fossil fuels accounted for 81% of global energy demand in 2008, and are expected to account for 79% by 2035 under current policies. Furthermore, world primary energy demand is expected to grow by 1.4% per year to 2035 equating to a total increase in demand of around 47%, thereby implying greater consumption of fossil fuels by As rapidly developing countries such as China and India will continue to be dependant on fossil fuels for decades to come, CCS is of fundamental importance to ensure the reduction of CO 2 emissions whilst economies continue to rely on fossil fuels to meet energy demand, and as a key bridging technology while renewable technologies are developed and deployed. However, CCS is more than just a solution for CO 2 abatement in power generation from fossil fuel plants. CCS will also have a crucial role to play in non-power sectors, which could account for 51% of CCS-related emissions reductions by 2050 (Figure 2), through deployment in core industries such cement, iron and steel, chemicals manufacturing and gas processing 5. Furthermore, the combination of renewable biomass and CCS produces negative emissions (emissions removed from the atmosphere), resulting in even deeper emissions reductions. 1 For further information, please visit the CCSA website: 2 International Energy Agency, Energy Technology Perspectives 2010 Scenarios and Strategies to IEA Energy Technology Perspectives 2010 OECD/IEA, 2010, Figure ES.1, Page 47 4 International Energy Agency, World Energy Outlook International Energy Agency, Technology Roadmap: Carbon Capture and Storage 2009 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 13

14 Figure 2: The contribution of sectors to CO 2 abatement through the use of CCS 6 (Source: IEA) A key point highlighted by the IEA is the role that developed countries (defined as the OECD region) must play in the demonstration phase for the global development and deployment of CCS (Figure 3). The UK is well positioned to lead the global deployment of CCS through its existing offshore oil and gas and CCS research and development (R&D) expertise, as well as commitment from the UK CCS industry and Government. The IEA Roadmap indicates that OECD Europe will need to deploy around 100 CCS projects by 2030, storing over 300 MtCO 2 annually. This is in addition to the need for around 70 projects in the former Eastern European Union and Soviet Union. The IEA global target of 100 projects in operation by 2020 now looks ambitious but the need for 850 projects (42% in power) by 2030 remains and is achievable. This will require almost 85 projects going into operation each year from 2020 with an increasingly proportion of these projects being located in developing countries. This therefore represents an enormous potential export market for the UK. Figure 3: International roll-out of CCS and associated carbon abatement to (Source: IEA) The importance of CCS as a crucial technology in the portfolio of options for climate change mitigation is further reflected by the decision during the United Nations Framework Convention on Climate Change (UNFCCC) negotiations in Cancun in 2010 to include CCS in the Clean Development Mechanism (CDM) subject to a series of issues being resolved 6 IEA Technology Roadmap: Carbon capture and storage 2009 OECD/IEA, 2009, Figure 7, Page 16 7 IEA Technology Roadmap: Carbon capture and storage 2009 OECD/IEA, 2009, Figure 6, Page 16 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 14

15 satisfactorily. The CDM will allow developing countries to earn Certified Emissions Reduction (CER) credits through low-carbon projects, which can then be used by industrialised countries to meet emissions reductions targets under the Kyoto protocol. Chris Huhne, the UK Secretary of State for Energy and Climate Change recently highlighted the need for global action against climate change, This Parliament will end in If we have not achieved a global deal by then, we will struggle to peak emissions by It will be more expensive, more divisive and more difficult. 8 All low-carbon technologies, including CCS, need to be urgently deployed to ensure that global emission reduction ambitions are met to give the best possible chance that global temperatures do not rise above 2 C, thereby reducing the risks of extreme climate change. Whilst a number of other countries are also rapidly progressing the deployment of CCS, the UK has the opportunity to become a world leader in CCS if momentum for the UK demonstration programme is maintained and used as a platform for wide-scale CCS deployment. The UK is in a position to set an example to the world rapidly industrialising countries in particular - that fossil fuels can be used cleanly and CCS deployed rapidly and effectively, thereby progressing development whilst assisting in the global fight against climate change. 1.2 The role of CCS in the EU The European Union (EU) is committed to reducing greenhouse gas emissions by 80-95% by 2050 compared to 1990 levels. The European Commission s A Roadmap for moving to a competitive low carbon economy in highlights the need for R&D, demonstration and early deployment of low-carbon technologies including CCS, to ensure cost-effective and large-scale deployment later. The analysis demonstrated that a less ambitious pathway than that outlined could lock in carbon intensive investments, resulting in higher carbon dioxide emissions in the future and significantly higher overall costs 10. The electricification of domestic heating, the deployment of electric vehicles and decarbonisation of the transport sector will also require additional generation capacity to be installed in Europe, further enforcing the need to decarbonise the power sector (Figure 4). The European Commission s communication Investing in the Development of Low Carbon Technologies (SET-Plan) 11 found that Europe s primary energy supply was 80% dependent on fossil fuels, with networks and supply chains optimised to deliver from these sources. However, as more intermittent renewable resources come online, fossil fuels will be required for the foreseeable future to maintain security of supply by providing reliable and flexible back-up electricity. Furthermore, dependency on imported gas could be reduced by allowing coal (with CCS) to continue to play a role in the energy mix, but without the associated emissions, thus allowing all fossil fuels (with CCS) to continue to provide energy security. 8 Department of Energy & Climate Change Speech by Secretary of State for Energy & Climate Change, Chris Huhne: The Art and Science of Climate Change 9 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, A Roadmap for moving to a competitive low carbon economy in Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Energy infrastructure priorities for 2020 and beyond - A Blueprint for an integrated European energy network 11 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Investing in the Development of Low Carbon Technologies (SET-Plan), October 2009 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 15

16 Figure 4: EU GHG emissions towards an 80% domestic reduction (100% =1990) 12 (Source: European Commission) The EU s Roadmap also emphasises the necessity for CCS to be deployed on a wider scale after 2035, particularly for process and energy-intensive industries such as cement and steel. It is of critical importance to ensure that the EU remains competitive in these industries and to minimise the impact of carbon leakage (where businesses choose to invest in countries with no or lower carbon prices). The Roadmap also highlights the need for a large amount of investment in important infrastructure to facilitate full scale deployment of low-carbon technologies across Europe. The EU Spring Council of Ministers in 2007 announced the agreement for the EU to have CCS projects operational by The EU has therefore committed to funding CCS R&D and demonstration projects. European R&D funding commitments have been made through the Framework Programmes for Research and Technological Development, including 282million ( 245 million) budgeted for CCS research 13 in the 7 th Framework Programme ( ). Furthermore the European Commission granted 1 billion ( 870 million) for 6 CCS projects, during the financial crisis in 2009 as part of the European Economic Recovery Package (EERP) 14 which aims to reduce CO 2 emissions and increase security of supply whilst boosting economic recovery. This has been followed by the launch of the New Entrants Reserve NER300 competition, which aims to fund CCS and innovative renewables through the auction of 300 million EU Emissions Trading Scheme (ETS) credits, or EUAs from Phase III ( ) of the ETS. It is expected that this process will fund up to 8 CCS demonstrations across the EU. 1.3 The role of CCS in the UK There is cross-party support for the deployment of CCS in the UK, and explicit support in the Coalition Agreement for public sector investment in 4 CCS Demonstration Projects. 15 This was reiterated in the 2010 Comprehensive Spending Review with a commitment of up to 1 billion for the first Demonstration Project as well as continued commitment to fund three further commercial scale demonstration projects on both gas and coal power plants. 12 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, A Roadmap for moving to a competitive low carbon economy in 2050, March European Parliament Parliamentary Question, 15 April 2011, question E /2011, Answer given by Ms Geoghegan-Quinn on behalf of the Commission 14 For more information on the EERP and projects supported visit the European Commission website: 15 For further information, visit the website for the Office of Carbon Capture & Storage (OCCS), part of the Department for Energy & Climate Change: A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 16

17 1.3.1 UK climate change targets The UK has legally binding emissions reductions commitments as set out in the Climate Change Act The UK has targets to reduce greenhouse gas emissions by at least 80% by 2050 and at least 34% by 2020, compared to 1990 levels. 16 Targets for carbon reductions are proposed by the UK s Committee on Climate Change (CCC) 17 which defines 5-year carbon budgets, gives advice on how these could be met and comments annually on the Government s progress. The Government has so far accepted each of these carbon budgets 18. Analysis by the CCC, under its Medium Abatement Scenario, shows the need to add GW of low-carbon plants through the 2020s to decarbonise the power sector and reduce average emissions to 50g/kWh of CO 2 by It also highlighted the need for key technologies, including CCS in power generation and industry, to be demonstrated now for rapid deployment throughout the 2020s. The CCC High Abatement Scenario involves very large emissions reductions from CCS in industry and the power sector, highlighting the importance of CCS in reducing emissions in the UK. The CCC has emphasised the need for greater policy effort in four areas during the 2010s to develop options for roll-out in the 2020s and beyond one of which is the demonstration of a variety of CCS technologies by around This is to enable significant contributions by CCS to decarbonisation of the electricity supply and industry in the early 2020s onwards 19. Furthermore, the CCC notes the importance of CCS for process and energy-intensive industries, stating Without CCS, required cuts in industry emissions to 2050 will be very challenging. This has been reinforced more recently by a report from The Centre for Low Carbon Futures 20 who conclude that from a technology perspective, CCS offers the greatest opportunity for carbon dioxide (CO 2 ) abatement within the UK s energy intensive industries. This highlights the need to ensure demonstrations in industry, in order for CCS to be deployed as early as possible. Many energy intensive and process industries will become increasingly exposed to higher emissions costs from 2013 during Phase III of the EU ETS. Furthermore the free carbon allowances which these industries receive could be used to partially offset the cost of capture, provided deployment is early, as these free allowances are set to reduce over time. Widespread deployment of CCS in industry is possible by the early 2020s, allowing significant emissions reductions whilst minimising the risk of carbon leakage. This is of importance in the UK due to the combined effect of the EU ETS and the UK Carbon Price Floor (CPF), which increases the risk of carbon leakage should cost-effective mitigation options not be available at an early stage. According to Cambridge Econometrics 21, the UK is currently expected to miss the carbon budgets narrowly in the first two budget periods, and , but miss the third budget ( ) by a larger margin. The analysis also found that greater support measures will be needed to promote alternative low-carbon sources should the nuclear crisis in Japan cause plans for new nuclear to be halted over the periods covered by the carbon budgets. For this reason it is essential that that all technologies are deployed to their full potential from the early 2020s. The use of CCS with fossil fuels in particular will assist in deep emissions reductions, particularly if previous carbon budgets are missed. This would require the delivery of the UK CCS Demonstration Programme and subsequent seamless deployment of CCS for it to have a significant role in carbon mitigation during the 2020s as described in Chapter For further information, visit the Department of Energy and Climate Change website 17 For more information visit 18 For more information visit the DECC website: 19 Committee on Climate Change, The Fourth Carbon Budget- Reducing emissions through the 2020s, December The Centre for Low Carbon Futures, Technology Innovation for Energy Intensive Industry in the United Kingdom. July Cambridge Econometrics Press Release, The decline in UK s carbon emissions is set to accelerate after 2020 as power generation makes good progress towards decarbonisation. 10 May A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 17

18 1.3.2 UK electricity mix At the end of December 2009, the UK had a total generation capacity of 85 GW 22. In the first quarter of 2011, the electricity supplied was predominantly generated by gas (38.2%), coal (34%), nuclear (17.9%), renewables (8.1%) 23. It is expected that by 2030 baseload generation capacity will need to increase to account for the electrification of heat and transport, as well as providing back-up to intermittent renewable supplies. The recent White Paper on Electricity Market Reform suggested that around one third of electricity generation will come from renewables by This would imply that the remaining 2/3 of electricity generation would be provided by nuclear and fossil fuels (with CCS) and therefore requires 20-30GW of CCS to be deployed by The 2050 Pathways study by the Department of Energy & Climate Change (DECC) shows that 26GW of CCS may be required by 2030 should nuclear deployment be affected. A high penetration of intermittent renewables would also require a large fleet of flexible fossil fuel plants (with CCS) to meet demand. The UK electricity generation portfolio will require a significant overhaul over the next fifteen years as around 35 GW 25 of electricity generating capacity (mostly coal and nuclear plants) will be retired by the mid 2020s. According to the CCC up to 70 GW of baseload-equivalent low-carbon plants will be required by 2030, at a rate of 3-4GW per annum. In order to maintain security of supply whilst moving towards a low-carbon economy, these plants will need to be a combination of renewables, nuclear and fossil fuels with CCS. Furthermore, according to analysis by Element Energy (on behalf of the CCC) 26, 20GW out of 24GW of gas plant currently on the system can be retrofitted with CCS in the 2020s. CCS will also allow the continued use of coal whilst meeting carbon targets. This is recognised as important by the Government because of the advantages of an indigenous fuel which can be stored in large quantities. 27 Pöyry on behalf of the CCC have indicated 28 that there should be sufficient capacity for CO 2 storage in depleted oil and gas fields for 18GW of power plant to 2030 and, given the advancing knowledge of the CO 2 storage potential in saline formations 29, there will be scope for larger amounts of CCS deployment. Fossil fuels with CCS will be essential to provide secure energy supplies alongside the increasing penetration of intermittent renewables, particularly during anti-cyclone patterns when low wind speeds combined with high winter demand for energy will require demand to be met through fossil fuel plants with CCS alongside nuclear plants. Maintaining grid operability will become increasingly challenging as more renewable energy comes online. Deployment projections for renewables mean that there is a fundamental requirement for flexible, low-carbon backup-up generation going into the future, highlighting the crucial role that coal and gas plants with CCS will play. 22 DECC Digest of UK Energy Statistics, May DECC Statistical Press Release on Energy Statistics. Reference 2011/056, Date 30 June View 24 Department of Energy & Climate Change, Planning our electric future: a White Paper for secure, affordable and low-carbon electricity, July DTI, HM Government, Meeting the Energy Challenge, A White Paper on Energy, May Committee on Climate Change, The Fourth Carbon Budget: Reducing emissions through the 2020s, December View. 27 Charles Hendry, Minister for Energy, House of Commons, 29June 2011: There should be no doubt that we recognise that coal has been and will continue to be an integral part of our energy infrastructure. 28 Pöyry, Carbon Capture and Storage: Milestones to Deliver Large Scale Deployment by 2030 in the UK, Summary Report, October Scottish Centre for Carbon Storage, Progressing Scotland s CO 2 storage opportunities, March The study has found that the Captain Sandstone beneath the Moray Firth could store Mt of CO 2, or years worth of CO 2 emissions from Scotland s power industry. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 18

19 CHAPTER 2 COSTS OF CCS AS A LOW-CARBON OPTION FOR POWER AND INDUSTRY Summary This chapter considers the costs of carbon abatement through the use of CCS, the advantages of CCS compared to other low-carbon options for power and industry, and the benefits of clustering to support regional development and value for money in CCS deployment. CCS provides flexible power generation and several studies support the conclusion that CCS offers a cost effective carbon mitigation tool compared to other forms of low-carbon power generation and that regional clustering provides the most efficient model of deployment. CCS in power is cost-competitive versus other forms of low-carbon power generation and reduces the overall electricity system costs. It is the only one of the three anticipated large-scale sources of low-carbon power (CCS, nuclear and wind), to offer flexible low-carbon generation, and thus is the most credible back-up to intermittent renewables and baseload nuclear in a balanced electricity system. CCS in Process and Energy-Intensive Industries is the only technology that can credibly and materially reduce their CO 2 emissions. Figures published by the United Nations Industrial Development Organisation (UNIDO) indicate the costs for CO 2 abatement from CCS vary from $10-150/tCO 2 ( 6-95/tCO 2 ) for different industries. Clusters and regional networks provide a coordinated pipeline networks linking multiple sources of CO 2 to multiple CO 2 storage sites. The UK is particularly suited to the development of CCS on a cluster basis due to concentrated clusters of emitters at coastal and estuarine locations (the Humber, Tees, Thames, Forth and Mersey) and a large offshore storage capacity. Analysis by DECC and by a number of emerging CCS clusters support the advantages of developing right-sized pipelines and clustering. The analyses show that doubling the investment in a pipeline provides 10 times the capacity and that investing in additional pipeline capacity at the initial construction phase of a cluster offers significant value for money. Set against the increasing cost of carbon, UK businesses would be provided with a crucial mitigation option to manage their increased cost of emissions and a commercial advantage over their international competitors if they were able to capture and dispose of their CO 2 at a cost less than that of purchasing carbon credits through the provision of CCS clusters. Serving Enhanced Oil Recovery (EOR) projects will reduce CCS costs and increase revenue to the UK but requires robust CO 2 capture sites and infrastructure to attract long term commitments for the substantial capital expenditure required. A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 19

20 2.1 CCS in the power sector CCS costs and future projections There have been numerous estimates of the costs of CCS published in recent years. Whilst there are differences between these figures, there is a consistency emerging. The levelised cost 30 of electricity generation ( /MWh or p/kwh) from coal or gas with CCS is generally estimated to be mid-range amongst the other principal low-carbon generation technologies (solar PV, nuclear, onshore wind and offshore wind). The most recent publication of costs for low-carbon technologies is the CCC s The Renewable Energy Review, shown in Figure 5. Figure 5: Estimated cost of low-carbon technologies (2011, 2020, 2030, 2040) 31 (Source: Committee on Climate Change) 30 Levelised cost is generated using capital cost projections and other assumptions regarding non-fuel operational expenditure, fuel and carbon prices, plant performance parameters and discount rates. See Mott MacDonald, Committee on Climate Change, Costs of low-carbon generation technologies, May Committee on Climate Change, Renewable Energy Review, May 2011 (based on analysis by Mott MacDonald) A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 20

21 The European Zero Emissions Platform (ZEP) has also produced an in-depth report on the costs of CCS post-demonstration in Europe 32. It has found that the European CCS demonstration programme will help to prove the costs of CCS, provide the basis for future cost reduction, and that CCS will be cost-competitive with other low-carbon energy technologies The cost advantages of CCS Gas or coal powered generation with CCS has additional cost advantages, not recognised in the levelised costs of generation. Power generation with CCS has the additional advantage of producing reliable power that does not require back-up (in comparison with intermittent renewables) and has the ability to flex its output to match demand (in comparison with nuclear which will normally be baseload). Levelised costs of generation for renewables do not include the costs of back-up generation plants, extension of the electricity grid (onshore or offshore), or interconnectors. Levelised costs of generation do however include the costs of carbon dioxide pipeline networks and storage. Work carried out by PB Power 33 demonstrates that the additional system costs (such as grid reinforcement and back-up) for electricity mixes with high concentrated generation (such as nuclear or fossil fuel plants, and also applicable to CCS) are considerably less (+15%) than for electricity mixes with high renewables (+40%). This is because the CCS infrastructure costs are included in the levelised cost of electricity from this source and CCS power has less requirement for grid additions onshore or offshore than wind power and no requirement for back-up to cover intermittency. CCS power plants require less up-front capital investment than nuclear or offshore wind. The CCC quotes 34 the levelised investment cost for CCS to be 1-2 billion per GW. This is lower than that for nuclear ( 3bn/GW) or offshore wind ( 7bn/GW). The costs of electricity from CCS are calculated on the basis of reasonably high load factors (e.g. ~90% for the Mott Macdonald estimates). In the event that CCS power plants have to operate alongside large amounts of intermittent renewable capacity and if this capacity has priority on the grid, then the load factor of a power plant with CCS will be reduced. Mott Macdonald has calculated that reduced load factors are less of an issue for gas or coal power plants with CCS than for nuclear, as the up front capital costs are lower for power plants with CCS, thus allowing demand to be met flexibly and cost-effectively. Fossil generation with CCS thus will have a complementary role in a balanced generation portfolio alongside intermittent renewables and baseload nuclear. 32 Zero Emissions Platform, The Costs of CO 2 Capture, Transport and Storage, July View. 33 Paul Wilson (Parsons Brinckerhoff) Presentation, IPA Power Scotland conference, 1 February Committee on Climate Change, The Fourth Carbon Budget- Reducing emissions through the 2020s, December 2010 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 21

22 2.2 CCS in process industries The costs of carbon emissions abatement by CCS in process industries have been published in the Department of Energy and Climate Change (DECC) Industrial Strategy. The costs per tonne of CO 2 abated are shown to vary from just over $10 ( 6) to just under $110 ( 69) from for a variety of processes between 2010 and 2050 (Figure 6). Figure 6: CCS abatement cost range by sector (USD/tCO 2 avoided) 35 (Source: HMG/IEA) These costs for CCS in industry are supported by figures published by the UN Industrial Development Organisation (UNIDO) as part of their Industrial Sector Roadmap for CCS (which can be found on their website) 36 and have provided sectoral assessments on: Biomass High-purity Iron and Steel Refineries Cement Enhanced Oil Recovery These sectoral assessments show that the cost per tonne of CO 2 for CCS varies from as low as $10 ( 6) for certain high purity industrial processes to as high as $150 ( 95) 37 for smaller scale cement plants. These costs are within the range that would be offset by the cost of carbon emissions (EU ETS and CPF) of 70/tCO 2 by 2030 (Based on 2009 values) 38. These abatement costs are also lower than the abatement costs for some of the measures already being subsidised in power generation in the UK (see Figure 5) and elsewhere in Europe (e.g. solar photovoltaic, offshore wind). Additionally, CCS is the only credible carbon abatement technology available for several process industries. CCS applied to industrial sources therefore offers a highly effective route to meeting carbon targets than many alternatives. 35 HM Government, Clean coal: an industrial strategy for the development of carbon capture and storage across the UK, March Figure from IEA Technology Roadmap Carbon Capture and Storage OECD/IEA, United Nations Industrial Development Organization, Sectoral Assessments, accessed June Using the conversion $1 = HM Treasury, HM Revenue & Customs, Carbon price floor consultation: the Government response, March 2011 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 22

23 An ongoing project by OECD/IEA and UNIDO, which builds on their previous studies, has generated initial estimates 39 of $25-30bn ( 16-19bn) for the additional investment requirement in Western Europe by When capital expenditure, fuel and maintenance costs, and the cost of transport and storage are all included, the total additional costs in Western Europe rise to $50-65bn ( 32-41bn). The corresponding worldwide figures are estimated as $ bn ($ bn) and $ bn ( bn), with the total cost of transport infrastructure and storage amounting to approximately one-third of the latter value. It should also be noted that additional investments between 2030 and 2050 are expected to increase worldwide by a factor of four. In an analogous manner to the power sector, early deployment of process industry demonstration projects would lead to a significant worldwide market opportunity for UK businesses. 2.3 CCS deployment and the relevance of clustering CCS costs will be reduced by taking advantage of the benefits of scale through clustering of sources, networks of pipelines and groupings of stores. For wide CCS deployment the construction of pipeline networks linking multiple sources to multiple storage sites will be required, enabling clusters of CCS developments. The UK is particularly suited to the development of CCS on a cluster basis due to concentrated clusters of emitters at coastal locations, mainly industrial centres that have built up around major estuaries (Figure 7, left). Many of the country s existing large CO 2 point sources are located in distinct geographic clusters around (or with access to) the Humber, Tees, Thames, Forth and Mersey estuaries. These estuaries are within practical reach of significant potential CO 2 storage sites in the North and Irish seas which geologists agree have the capacity to securely store CO 2 from many decades in oil and gas reservoirs and saline aquifers (Figure 7, right). It is possible for the four planned CCS demonstration projects to link specific clusters of CO 2 emitters to areas where major storage opportunities exist. Hence the demonstration projects provide a major opportunity to put in place the trunk pipelines to connect clusters of emitters with areas where storage exists. Incorporation of the provision of this trunk infrastructure into the demonstration programme, providing it is appropriately sized, enables UK CCS deployment to proceed rapidly once the demonstration projects are in place, with substantially lower costs and reduced commercial risk to follow-on projects. The industrial history of these areas, and the nearby development of the UK offshore oil and gas industry, means there is a legacy of expertise, infrastructure and pipeline corridors to be exploited by the CCS sector. There are potential opportunities for synergies between the oil and gas and CCS sectors as the North Sea oil province is now mature and otherwise unrecoverable oil can be extracted from the use of CO 2 EOR (See Enhanced Oil Recovery (EOR)), providing long term continued employment, substantial additional tax revenue to the Exchequer and an export growth opportunity for the skill base involved. 39 These figures have yet to be finalised A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 23

24 Figure 7: CO 2 emissions and potential CCS clusters in the UK 40 (Left, Source: National Grid) and potential storage locations in the UK 41 (Right, Source: BGS) The interest in developing CCS clusters has led several regions in the UK to investigate the deployment of CCS on a cluster basis to facilitate the efficient and cost-effective deployment of CCS in the power sector and in industry. These studies found that: Enabling clusters requires an independent body to co-ordinate and develop the strategic case for the establishment of the cluster and manage the interests of individual project developers and other stakeholders Where there is a reasonable opportunity for the deployment of multiple CCS projects in close proximity in the next 20 years, the construction of CO 2 transport infrastructure on a cluster or network basis is considerably more cost effective than multiple pipelines on a point to point basis Once the transport and storage infrastructure is established the risk profile for companies making investment decisions on whether to implement CO 2 capture is considerably improved. A cluster approach brings significant volumes of CO 2 to the market and provides considerable risk reduction for developers across the CCS chain by bringing more counterparties into the market A cluster approach makes easier the exploitation of added value elements of CCS such as EOR, co-development of hydrogen distribution infrastructure and particularly the shared use of pipeline corridors and offshore infrastructure. The current status and experience of regions planning clusters is described in 3.4 Clustering benefits and regional interest. Appendix B also provides a list of studies on clustering from a variety of regions. 40 Courtesy of National Grid. (Image adapted from IEA Greenhouse Gas R&D Programme (IEAGHG), Updating the IEAGHG Global CO 2 Emissions Database: Developments Since 2002, , February 2006) 41 Source: BGS, Industrial Carbon Dioxide Emissions and Carbon Dioxide Storage Potential in the UK, Report No. COAL R308 DTI/Pub URN 06/2027, October 2006 A Strategy for CCS in the UK and Beyond Carbon Capture & Storage Association 24