CCS – ‘it’s now or never’27 February 2014
In November the European ZEP initiative (Zero Emissions Platform) published two papers* – a comprehensive assessment of the measures needed to drive deployment of CCS, and an assessment of the necessary rate of deployment moving towards the critical 2030 target date. They conclude that urgent action is required if Europe is to stay on track and do its part in avoiding permanent climate damage.
The Zero Emissions Platform was founded in 2005 and is focused on CCS as a critical technology for achieving Europe's energy, climate and societal goals. It is formed from a coalition of over 200 members from 19 countries - scientists, utilities, suppliers and NGOs - and advises the European Commission on all aspects of CCS R&D and deployment.
The European Commission has asserted that Europe cannot be decarbonised cost-effectively - and maintain security of energy supply - without CO2 capture and storage playing a critical role. With fossil fuels currently meeting over 80% of global energy demand and as much as 85 GW of additional capacity expected to be needed in Europe alone, CCS, it says, will be a vital component in meeting the Union's greenhouse gas reduction targets. But demonstrating its effectiveness is essential to achieving commercial availability and public support, and to allow it to be widely applied from around 2030. Urgent action is needed at EU and member state level to deliver a sufficient set of demonstration projects.
CCS demonstration will require policy and regulation. ZEP believes that a phase of demonstration (2015 to 2020) followed by a phase of pre-commercial projects (2020 to 2030) will be required to have the technology commercially available by 2030. As the EU Energy Roadmap 2050 carries a CCS (for power) deployment rate of ~4 GW pa in the 2030s to ~11 GW pa in the 2040s, this sets the pace for deployment from 2020 to 2030 as ~1 GW pa in 2020 to ~3 GW pa in 2030 - and a minimum set of 3-5 demonstration projects between 2015 and 2020.
The case for urgent action
Greenhouse gas concentrations in the atmosphere will have to be stabilised to some 450 ppm by volume of CO2 equivalent by 2050 to deliver on the aspiration that came from the UNFCCC Conference of Parties 16 (COP16) in Copenhagen to limit global temperature increases from pre-industrial levels to 2°C. This is a significant challenge given the expected increase in global demand for energy and sustained use of carbon-based fuels in the energy mix.
Several options are available to reduce GHG emissions, including CCS. According to the International Energy Agency CCS has the potential to provide 14% of the global reductions in GHG emissions required up to 2050 (some 17% of the mitigation mix in the year 2050 itself) and significantly more in the decades after 2050. The European Commission's 'Consultative Communication on The Future of Carbon Capture and Storage in Europe' on CCS reaffirmed its critical role in meeting the EU's energy, climate and societal goals. Indeed, CCS is not only "vital for meeting the Union's greenhouse gas reduction targets", it provides a "very visible link between jobs in local communities and continued industrial production." This view is shared by ZEP. CCS also offers a broad range of societal benefits:
- It will ensure that Europe has access to a diverse, cost-effective and reliable energy supply - which must include fossil fuels - while meeting Europe's climate goals. It will complement the large-scale deployment of intermittent renewable energy with low-carbon baseload and balancing generation.
- CCS clusters will create thousands of skilled jobs throughout the economy and could generate an economic impact totalling billions of euros as early as the 2030s, plus saleable expertise.
- It will preserve thousands of jobs in industries beyond power such as iron, steel, cement, refining. In fact, in some sectors, CCS is the only means of achieving deep emissions cuts.
- Bio-CCS is the only large-scale technology that can remove CO2 from the atmosphere - in both power and industrial sectors - and is already being deployed at industrial scale in the USA.
- CCS must account for 20-30% of the EU's total CO2 reductions by 2050 in the power sector, while industrial applications are expected to account for half of the cuts required by 2050 from CCS. An average 900 MW CCS coal-fired power plant (operated in baseload) can abate 5 Mtonnes of CO2 a year - equivalent to 1000 wind turbines. Even a 10-year delay in CCS deployment will increase the global costs of decarbonising just the power sector by €750 bn.
Transitional measures - model and method
In order to identify how low-carbon technologies can decarbonise European power most cost-effectively towards 2050, ZEP developed a model based on an existing model from the Norwegian University of Science and Technology (NTNU) and linked to the Global Change Assessment Model (GCAM). (See Figure 1.) ZEP's model was designed to select the lowest-cost investments to meet expected electricity demand, while replacing plants that exceed a defined lifetime - country by country. It takes into account optimised operating costs hour-by-hour, and also a dispatch model of renewable power based on capacity factors and historic weather data. The GCAM model provides inputs on the global economy, energy demand and carbon price, according to several scenarios. ZEP selected the 'Global 20-20-20'scenario equivalent to EU policy and the 450 ppm scenario equivalent to global emission targets for input on the EUA price, fuel commodity prices, energy demand in the power sector in Europe and economic growth but does not include explicit state subsidies for any technology. These gave similar results and therefore the GCAM results shown in Figures 1-4 represent both.
Baseline test cases were run to establish Europe's electricity generation infrastructure, based on published data for 2012 and a calculated projection of new-build power plants from now until 2050, taking into account published government capacity constraints (eg nuclear), physical constraints (eg onshore wind), technology investment costs and cost learning curves provided by ZEP members, and operating costs.
CCS insensitive to input variations
The sensitivity of the model and input data was assessed by varying assumptions in the GCAM model - fuel prices, CO2 prices and electricity demand: cases included a 25% increase in fuel prices, 100% increase in fuel prices, a reduction in CO2 price and a reduction in European electricity demand.
While modelling results are always dependent on the inputs, it was found that the results of the baseline case were insensitive to these changes in terms of CCS deployment.
Figure 5 shows emissions reductions for the European power industry to 2050, as modelled for various sensitivity cases. Figure 6 shows the carbon stored as calculated by the model over the period 2010 to 2050. In the baseline case, over 240 Mt/year are stored by 2030 and over 1400 Mt /year by 2050. The case with increased fossil fuel price achieved a similar result, but storage commenced earlier.
Cases studied using the baseline modelling (Figures 5 to 7) show that the wide and progressive use of lignite, coal, gas and biomass with CCS between 2030 and 2050 - combined with hydro, wind and solar - is the lowest-cost route to reducing emissions from electricity generation, driven by the EU ETS. Given the assumptions made, the model suggests that a CO2 price ramp rising from current low levels through 35-40 €(2010)/tonne at 2030 is sufficient for CCS to be deployed, taking into account cost learning curves. However, this relies on CCS demonstration projects delivering results before 2020 to reduce costs, so that the next wave of projects can commence from the early 2020s, leading to wide deployment by 2030. The necessary deployment rate in the power sector is demanding - about 1 GW p.a. in 2020 rising to ~4 GW p.a. in the 2030s and ~11 GW p.a. in the 2040s. But the generation mix including CCS reduces emissions by 76% in 2050 (compared to 1990 levels); without CCS, this figure drops to just 34%. CCS also reduces the total cost of electricity to the consumer by 4-10% (compared to cases without CCS).
CCS combined with sustainable biomass is shown to be effective as the only large-scale technology that can actually remove CO2 from the atmosphere. Combined with sustainable biomass, it shows CCS can move beyond zero emissions to deliver net negative emissions.
Transitional measures essential
The modelling assumes that the ETS will be the most cost-efficient mechanism for driving decarbonisation in the long term. In the short term, however, the price of Emission Unit Allowances (EUAs) has fallen to a level where it provides no incentive to invest (€2.5-5/tCO2 in Q2 2013). This situation will continue until the ETS has undergone structural reform - in particular setting a tighter cap out to 2030 and beyond, as part of a holistic EU Energy and Climate Policy framework. Yet even if action is taken now, it will still not result in EUA prices that are high and robust enough to deploy CCS in time to meet EU climate targets. In the meantime, EU policy currently offers targeted support (eg feed-in-tariffs) to wind, solar, biomass, biofuels etc. - but not CCS. Indeed, few member states have a national strategy for CCS development. ZEP focused on measures that would create minimal distortion to the liberal markets of Europe and a minimal subsidy.
Identifying best incentives
In the next stage of modelling, ZEP added various support measures for CCS to test their effectiveness in incentivising demonstration and early deployment projects in Europe. (This was based on a defined volume of 5 GW by 2025 as an example, but a larger volume may also be achieved.) The conclusions were as follows:
- Public grants need to cover capex and opex to incentivise CCS 'first movers'. This is because capex grants alone - even equivalent to 100% of the marginal capital costs of CCS - do not ensure that CCS power plants will be dispatched, as the operating costs of electricity production may still be higher than electricity prices for demonstration and early deployment projects. It is necessary to ensure that first movers are compensated for taking the lead in CCS deployment.
- ZEP therefore recommends establishing a 'CCS Fund' large enough to support EU demonstration projects in both the power and industrial sectors, but which takes into account the lessons learned from recent EU funding schemes. Funding could come from the Commission (e.g. by setting aside sufficient EUAs from the New Entrants Reserve, or from the EU budget, and from Member States (e.g. by using some of the proceeds from ETS auctions)
- Feed-in premiums (FiPs) offer investors the greatest security of income. This is because well-designed FiPs provide support to power plants in a form that best ensures them access to the electricity grid, reducing both revenue and price risk. This correspondingly lowers the cost of capital. Only the technological risk therefore remains. If construction and operational costs are greater than expected, these are borne by the developer.
- CCS certificates are a potential option, but require careful design. The modelling, which could not simulate a market for CCS certificates (CCSCs) - only the effect of a functioning CCSC market - estimated that 25% and 35% of opex support advances lignite and gas CCS respectively. ZEP recognises that when considering this option, specific issues have to be addressed, such as the high transaction costs incurred in setting up the system, while the market for such a small volume could be open to competitive misbehaviour. Furthermore, investors still carry the main risk since forecasting the CCSC price may be challenging and the return on investments may fall if it is low. In the certificate system, power plant receives money only if it is actually operated - unless, under the scheme, plants are guaranteed to dispatch and operate over the lifetime of the project.
- Emission performance standards (EPS) in the short term will not incentivise CCS in Europe. If an EPS is set at 450g/kWh in 2030, the effect in 2025 does not advance early CCS, while the effect in 2050 is small. It would also lead to a shift to gas, and not CCS, in the early years. An EPS set at 225g/kWh in 2030, on the other hand, prevents investment in unabated gas and gas with CCS is selected; it then advances lignite, coal and gas CCS and by 2050 increases the total level of CCS deployment.
Based on the modelling, the deployment of CCS in Europe will create and secure an estimated total of 330 000 jobs in fuel supply, CCS equipment manufacture, plant operation and CO2 storage facility peration, while creating a whole new infrastructure for CO2 transport and storage which can also be utilised by energy-intensive industries (e.g. steel, cement, refining etc.).
Security of energy supply
The rapid growth of renewables in Europe, alongside the exploitation of indigenous fuel sources, is an important step towards ensuring diversity in energy supply. However, the modelling shows that intermittent renewable generation needs to be supported by conventional power plants operating in base-, medium- and peak load. Without CCS, this support would come from a narrow range of fuels, but with it, from a mix of gas, lignite and coal.
Urgent policy actions
If the European power industry is to reduce CO2 emissions substantially and cost-effectively by 2050, the modelling shows that CCS must play a significant role in any future energy system. Yet without transitional support measures for CCS demonstration and early deployment, CCS will not be widely deployed in time to meet EU climate targets.
Transitional measures are also needed to stimulate CCS in industry sectors beyond power (e.g. iron, steel, cement, refining) - now expected to deliver 50% of the global emissions reductions required from CCS by 2050. Indeed, in some industries, it is the only means of achieving deep emission cuts. Several have almost pure CO2 streams, dramatically reducing the cost of CO2 capture, while clustering different CO2 sources will result in significant economies of scale for both industrial and power projects.
Finally, in order to fulfil the significant potential of Bio-CCS, negative CO2 emissions via the capture and storage of biogenic CO2 must also be rewarded under the ETS - to the same extent as for fossil CCS. The carbon emissions breathing space still available to the world is small; it is filling up quickly and the time to take action is running out.
Staff report based on the following papers from the European Zero Emissions Platform