It has been a good month for the fledgling carbon trading business. Most notable was Russia’s U turn on Kyoto, which will have the effect of bringing the treaty into force and triggers the introduction of a global regulations as from 2008. And then there were the reports of sharply increased atmospheric carbon dioxide levels measured for two years in a row at the Mauna Loa observatory.
While it is probably too early to read too much into these readings from Hawaii, the transformation of the Kyoto protocol into a piece of international law, specifically identifying trading as one of the mechanisms for reducing greenhouse gas emissions, provides a firm foundation for the growth of a significant market in CO<sub>2</sub>. The Russian ratification could “kickstart a multibillion pound industry”, in the words of one observer, and indeed the immediate effect in Europe was a 20% rise in the price of carbon dioxide – to the dizzy heights of around $10/t CO<sub>2</sub> - with a major rise in volumes.
In turn the development of a value for CO<sub>2</sub> – the CO<sub>2</sub> value chain as some describe it (see, for example the website of CO<sub>2</sub> Norway (www.co2.no)) – could, at least in the longer term, change the outlook for carbon dioxide sequestration (normally taken to mean capture and storage), currently seen as very expensive and high risk.
But there are of course many uncertainties. One rather fundamental issue is the need for confirmation that carbon dioxide sequestration is indeed eligible for carbon credits under Kyoto. It is expected that the position will become clearer in late 2005 when the IPCC (Intergovernmental Panel on Climate Change) special report on CO2 capture and storage is due to be published.
According to a paper presented by Bill Senior et al of BP’s CO<sub>2</sub> Management Programme at the GHGT (Greenhouse Gas Control Technologies) 7 conference held last month in Vancouver, “A major issue of concern appears to be surrounding the permanence of storage.” They point out, however, that “ahead of the IPCC report”, “the EU has recently moved forward independently to agree that CO<sub>2</sub> stored geologically could be eligible under the EU ETS [Emissions Trading Scheme], assuming assurances on monitoring, reporting and verification are provided.”
The storage aspect of conventional CO<sub>2</sub> sequestration concepts does seem to be a weak point, requiring the availability of suitable geological formations in appropriate locations. Where feasible, use of the CO<sub>2</sub> for enhanced oil recovery (a proven technology) has much to recommend it and obviously can make a useful contribution to the value chain, particularly when oil prices are high. Other potential revenue earning applications of the CO<sub>2</sub> (as listed in a recent IEA report) might include: enhanced coal bed methane recovery; enhanced gas recovery; food processing; manufacture of mineral products (eg soda ash); fertiliser manufacture; algae growth promoter; and enhancing plant growth. Another possibility, being explored as part of the Zero Emission Coal Alliance programme in the USA, is disposal of the CO<sub>2</sub> as mineral carbonates, derived from magnesium silicates.
Assuming the concept of sequestration is deemed eligible as a means of gaining carbon credits, another key question is whether trading mechanisms will create CO<sub>2</sub> prices that are high enough to make investment in carbon dioxide sequestration an attractive prospect. This will clearly depend on how the carbon dioxide emissions market shapes up and what sort of prices will be achieved in the longer term, once the market has gained maturity (assuming it does). Current projections seem to be in the range $10 to $50 per tonne carbon dioxide by 2020, but it is anybody’s guess.
Meanwhile, the costs of carbon dioxide capture can be expected to fall. As a recent IEA report (CO<sub>2</sub> capture at power stations and other major point sources) notes, “This is precisely what occurred when FGD technology, using similar absorption technology to MEA[monoethanolamine]-based CO<sub>2</sub> capture was introduced. Costs are now around one-third of what they were when the technology was originally introduced some three decades ago.”
Senior et al suggest that “advanced pre-combustion technology and innovative membrane technologies could reduce capture costs by more than 50%...In addition there are precedents for cost reduction with NO<sub>x</sub> and SO<sub>x</sub> emissions technology through accumulated learning.” They estimate that capture costs will fall to $20-30/tonne CO<sub>2</sub> and below, while the CO<sub>2</sub> removal costs associated with IGCC could fall to as low as $10/tonne CO<sub>2</sub>, which is what the US Department of Energy is aiming at.
Low CO<sub>2</sub> removal cost is one of the key benefits of IGCC mentioned in the recent announcement by Cinergy/PSI, GE and Bechtel that they have signed a letter of intent to study the feasibility of constructing a commercial IGCC plant. This follows the formation of a GE/Bechtel alliance aiming to develop a standardised commercial IGCC, and is a further reflection of the growing momentum building behind the IGCC bandwagon in the USA.
This kind of development, coupled with the evolution of the carbon economy, and the recognition that, whatever one might think about the scientific uncertainties surrounding climate change, the prudent power generator should plan on the assumption of a carbon constrained future, suggests that carbon sequestration could become a key element in power generation technologies of the future.
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