realistic estimate. “We should focus on the vital few that need to get done”, Sweeney explained. Eight would have been needed to test all the different technological options, he added, but if the 4-6 that deliver are bound to share their knowledge, the whole industry will benefit. Here the critical importance of the knowledge-sharing requirement coupled to EU funds and creation of a CCS Network. A similar tale of dwindling numbers marks the story of money to finance the demonstration plants. So far, as part of its economic recovery package, the EU has split €1bn among six demonstration projects. The next round of EU funds is due from the sale of 300 million carbon allowances set aside from Europe’s carbon market specifically to raise money for CCS and renewables. But, points out Chris Davies, the British Liberal MEP who has led the European Parliament’s work on CCS, the 300 was 600 before political negotiations whittled it down and the carbon price at the time of the proposal (2008) was twice what it is today (less than €10 per tonne). At best, today, the CCS industry can hope to gain €1.4bn from the first batch of 200 million allowances, which will start being sold in the coming months. This is assuming it gets about two-thirds of the total, with the rest going to renewables. No more than 3-4 projects are expected to benefit from this first sale. Twelve projects (taking into account the cancellation of Longannet) have been put forward by member states for these funds, including the six that have already benefited from economic recovery money. They are currently being assessed by the European Investment Bank. Eligible projects will be announced in May 2012. Then, national governments are also expected to announce financial backing for those projects selected. The hope is that sufficient public backing will draw in private investors. So far, these have been reluctant to invest in CCS. A lawyer says investment banks still say “we do not see how we’re going to make enough money quickly enough”. It is not the CCS industry, but the world that has changed since 2008, says Sweeney. We have had the economic crisis, Fukushima, the hype around shale gas, the Arab spring, the warmest year ever (2010), the EU under unprecedented pressure (through the Euro-zone crisis) and a €10 carbon price. Some of these factors make life more difficult for a fledgling CCS industry seeking funds to develop a large-scale, capital-intensive new technology. Others, such as Fukushima and the discovery of shale gas, bolster it by strengthening the case for a long-term future for fossil fuels. “The platform believes Europe can still make a case for CCS”, says Sweeney. He points to what has already been achieved: an EU directive setting up a regulatory framework for storage, a €1bn investment from EU economic recovery funds, the promise of carbon market funds to come, and a strong base for knowledge sharing in the form of the CCS Network. “We want to get on with it”, says Farley.
The climate arguments for CCS still stack up, its supporters argue. In 2009 the International Energy Agency calculated that the cuts in global greenhouse gas emissions to limit global warming to two degrees Celsius would cost 70% more without CCS. The European Commission does not foresee a long-term future for gas or coal without CCS. “For all fossil fuels, CCS will have to be applied from around 2030 onwards in the power sector in order to reach the decarbonisation targets”, says the draft of the 2050 Energy Roadmap. Gas is increasingly expected to take over from coal as a less polluting, more flexible partner to balance out renewables. At ZEP’s recent General Assembly, Philip Lowe suggested that industry and policymakers should perhaps concentrate less on CCS with coal plants and more on CCS with gas-fired power. In practice, this could mean revisiting the main criterion for handing out EU carbon market funds to demonstration projects. This is currently cost per unit of CO2 stored, which favours coal over gas. Gas would fare better if it was cost per unit of energy. The question policymakers must answer is: is the final goal to store the maximum amount of CO2 or to provide lowcarbon electricity at lowest cost? Today’s main incentive for the EU-wide deployment of CCS is the price of carbon allowances in the EU’s emission trading scheme, or carbon market, says ZEP. But, based on current trajectories, it adds: “This will not be a sufficient driver for investment after the first generation of demonstration plants is built.” Even if the troubled demonstration programme is successful, there will need to be fresh support from policymakers to bridge the gap between this and the carbon price being high enough to make CCS commercially viable. This would require an EU carbon price of €34 per tonne for lignite, €37 per tonne for hard coal and €90 per tonne for gas-fired power plants, ZEP has calculated. Crucially, this assumes a first postdemonstration handful of large-scale CCS plants to enable rapid technological learning – without them, the commercialisation price for CCS would be much higher, some €100 per tonne. Policymakers in Brussels are now starting to discuss how to ratchet up the carbon price. Energy and oil companies are getting interested in an idea that has been promoted mainly by NGOs and parts of the Commission to date: it is the idea of taking out (“setting aside”) carbon allowances from the pot for 2013-20 and legally cancelling them. “We need a set-aside and we need it now,” says Sweeney. The logic behind it varies depending on whom you speak to: it could be to take into account the recession (less production has led to lower emissions and hence a larger supply of allowances), proposals for a new energy efficiency directive (more efficiency also means lower emissions and therefore more allowances) or a belief that the EU should increase its overall emission reduction target for 2020 from 20% to 30% to lead the world in decarbonisation. 44
Communications Report 2011