UK govt starts competition to incentivise the capture of carbon...and may have found a place to store it

UK prime minister Gordon Brown has officially launched a competition that could see the development of the world’s first commercial-scale carbon capture and storage (CCS) plant.

The competition is part of wider government plans to tackle climate change and secure diverse future energy supplies in the UK. It is expected to attract major energy industry players such as E.On and RWE with proposals for a project demonstrating the full CCS chain from power generation to CO2 injection.

Mr Brown launched the competition alongside a number of other measures that are designed to put the UK at the forefront of pioneering low carbon technology development. In a major speech on climate change, Mr Brown said that an announcement on the future of nuclear power in the UK will be made in the new year.

The speech came on the day that the Commission on Environmental Markets and Economic Performance (CEMEP) published its government-commissioned report setting out the steps needed to unlock the business opportunities that exist in tackling climate change.

The UK?government has identified low-carbon technologies, from clean coal to renewable energy, as being key to the future of the country’s economy. ‘The direct link between tackling climate change and long-term wealth creation is now beyond doubt’ said business and enterprise Secretary John Hutton. ‘The business opportunities, once fully unlocked, will be vast.’

‘In a global market the UK’s expertise in developing these technologies will also open up business worth billions’ said Hutton. ‘With China alone building an average of two coal-fired power stations every week, the development in the UK of technology to capture and safely store up to 90 % of CO2 emissions is critically important.’

The CCS project selected by the government is expected to be operational by 2014 and will receive funding to support its development, design, construction and operation. The government anticipates that the demonstration period will be at least 15 years and is likely to select from technologies that are transferable to key global economies such as China and India.

The government says it will provide up to 100 % of the additional capital and operating costs incurred by the project developer for demonstrating the CCS. The project must have an electrical output of at least 300 MW and capture at least 90 % of the CO2 in the flue gases.

The financial support offered to the winning project will be structured so as to incentivise efficient operation. It is likely to be based on the amount of carbon abated and linked to the market price for carbon.

Qualified participants will be expected to submit final bids in early 2009, with the winner selected by September 2009. The CCS competition aims to develop within seven years a commercial-scale CCS demonstration project using post-combustion capture on a coal fired power plant, with storage of CO2 offshore in the North Sea.
Storage
A recent study carried out by the Norwegian and UK governments for the North Sea Basin Task Force found that between 200 and 350 million tonnes CO2/year could be captured in the period 2030-2040 if CCS facilities are fitted to all large UK and Norwegian onshore stationary sources. Around 290 potential CO2 sinks exist in the North Sea, although the dynamic nature of the oil and gas industry means that the availability of each sink varies over time.

The cost of CO2 abated, including capture, transport and storage, is estimated to be £24/tonne, £18 of which relates to capture alone. Abatement costs could rise to £35/tonne if CO2 is used for enhanced oil recovery (EOR), although this would be offset by oil revenues.

The joint UK-Norwegian report notes that power plants fitted with CO2 capture facilities and connected to a transport and storage network will be more expensive in terms of up-front and on-going costs, and in the absence of a high CO2 price or other economic support will have low positions in the merit curve. Regulation may therefore be required to make sure plants fitted with capture equipment run at baseload conditions.

One of the key recommendations made in the CEMEP report (see above) is that the government and its EU partners should consider options to reduce the uncertainty in carbon prices under the EU emissions trading scheme (ETS).

Limited future price visibility, excessive price fluctuation and more latterly a persistently low price for carbon under the ETS has reduced the impetus for investment and innovation to cut emissions, says CEMEP. A number of measures could be considered to help guarantee a minimum cost of emitting carbon, including improvements to the ETS scheme or higher carbon taxes.

Another key recommendation is the use of regulation to create early markets for technology development in the electricity sector, as well as sectoral deployment support in the renewables sector to help build scale and reduce unit costs.

CEMEP believes that government and industry should agree on and adopt standardised protocols for measurement and reporting of carbon in order to provide a credible indicator of resource use. It has also suggested widening the role of the energy regulator to encourage innovation in the sector.

The CEMEP report describes how the threat of climate change will stimulate investment in new technologies and innovations, transforming existing sectors of the economy and creating entirely new industries. It states that the low carbon energy industry could be worth $3 trillion/year worldwide by 2050 and employ over 25 million people.

The report notes that by making the UK one of the best places in the world to develop and commercialise new low-carbon technologies and businesses, the country will attract investment as well as achieve environmental targets. This goal will require a policy framework that goes beyond current policies and recent policy developments such as the CCS competition.

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