OCTOBER 07

The European Perspective on Power Generation and Carbon Capture and Storage

Derek M. Taylor, Energy Adviser, European Commission1

1. The views expressed here are those of the author and may not necessarily reflect those of the European Commission

OCTOBER 07

Outline

The three challenges for an energy policy Security of supply

Competitiveness

Sustainability

The role of coal and other fossil fuels Shares in energy consumption

Prices of fossil fuels

Environmental impacts of fuels

Key issues that must be urgently addressed Reduction of carbon emissions

Demonstration of Carbon capture and storage (CCS)

Deployment of CCS technologies in EU and globally

International Research Co-operation

OCTOBER 07

The three challenges

Security of Supply

Competitiveness

Sustainability

OCTOBER 07

Security of Supply – Import dependence

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total oil natural gas solids

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OCTOBER 07

Security of Supply - Sources of imports of fossil fuels

Main suppliers of oilRussia (31%)

Norway (20%)

Saudi Arabia* (13%)

Libya (10%)

Iran* ( 7%)

(* Total Middle East ~22%)

Main suppliers of gasRussia (33%)

Norway (29%)

Algeria (21%)

Mainly LNG (12%)

Main suppliers of coalSouth Africa (26%)

Russia (16%)

Australia (15%)

Colombia (12%)

OCTOBER 07

Competitiveness - Border prices for oil and gas

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OCTOBER 07

Sustainability – carbon dioxide emissions

CO2 from energy production and use makes up CO2 from energy production and use makes up 80% of EU Greenhouse gas emissions80% of EU Greenhouse gas emissions

OCTOBER 07

Sustainability – quantities of carbon dioxide from energy

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OCTOBER 07

The role of coal and other fossil fuels

Shares in energy consumption

Prices of fossil fuels

Environmental impacts of fuels

OCTOBER 07

Gross inland consumption – 2004 (Mtoe)

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OCTOBER 07

Role of different fuels in electricity production (BAU)

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OCTOBER 07

Reserves of coal - global

Coal is an abundant energy resource:

Global reserves: 900 billion tonnes

Annual production: 4.5 billion tonnes

Lifeline: 200 years

Coal is a reliable energy source:

Fairly even reserve distribution, on almost all continents

- Accessible at reasonable costs

- Low risks in transport, handling & storage

OCTOBER 07

Indigenous resources of solid fuels in the EU

The total solid fuel resources in the EU amount to around 438 billion tonnes

Of which 309 Bt are hard coal

The total solid fuel reserves in the EU amount to close to 88 billion tonnes

Of which 36 Bt are hard coal

Production in 2004 was 187 Mt of hard coal and 392 Mt of lignite (total 579 Mt)

Source: Euracoal

OCTOBER 07

Solid fuel – benefits for security of supply for EU

So indigenous reserves of hard coal are equivalent to close to 200 years of production at its present level.

Reserves of lignite are equivalent to around 130 years of production at its present level.

Resources of both are significantly greater – especially those for hard coal

OCTOBER 07

Oil price - $/bbl Spot Brent Crude – Source BP

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OCTOBER 07

Gas price - $/billion BTU – cif Europe – Source: BP

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OCTOBER 07

Coal price – $/t - coal marker price (NW Europe) – Source: BP

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OCTOBER 07

Fossil fuel price evolution – 1988 – present - Summary

Oil and gas prices have quadrupled in the last 20 years

Coal prices have (only) doubled

OCTOBER 07

Key issues that must be urgently addressed

Reduction of carbon emissions

Demonstration of Carbon capture and storage (CCS)

Deployment of CCS technologies in EU and globally

OCTOBER 07

An Energy Policy for Europe

Adopted by the European Commission in January 2007

Endorsed by the European Council in March 2007

One strategic objective:

Reduction in CO2 emissions by 20 or even 30% - by 2020

OCTOBER 07

CO2 emissions from energy in EU-25 – million tonnes

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OCTOBER 07

Sustainability – future emission trend ….. (BAU)

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OCTOBER 07

Carbon dioxide emissions during electricity generation

OCTOBER 07

The key issue for coal – view of the European Commission

Coal is a key contributor to the EU's security of energy supply and will remain so.

However, coal can continue to make its valuable contribution to the security of energy supply and the economy of both the EU and the world as a whole only with technologies allowing for drastic reduction of the carbon footprint of its combustion.

OCTOBER 07

The need for carbon capture and storage (CCS)

Future coal (fossil fuel) generation to be low carbon

The Commission would like to see all new fossil fuel generating plant built after 2020 to include CCS

The need for commercial scale demonstration of CCS

In order to demonstrate the variety of different option for CCS up to 12 large-scale demonstration plant need to be constructed - by 2015

If demonstration is delayed then deployment will be delayed

The need for public funds to support such demonstrations

There will need to be very significant industry and public funding if the necessary demonstration plants are to be built

……..and very strong political support over a period of time

The European Commission is expected to adopt a Communication on support for CCS tomorrow………

OCTOBER 07

The cost of CCS – a critical issue Mobilizing decisive industry commitment will be crucial

Without such funding complementary public funding may not be triggered

The dedication of substantial resources by companies is a precondition for the stimulation of the technologies

Paving the way for strong Member States’ involvement Some MS have identified possible approaches

Feed-in tariffs, up front investment grants, guaranteed CO2 prices

Use of revenues from ETS auctions might be appropriate

Structural funds in new MS (EU-12)

Revision of State Aid guidelines for environmental protection

Identifying sources of financing at EU level Financing low-carbon technologies to be addressed

European financial institutions could be instrumental

Continuing support under the EU’s Research Programme

OCTOBER 07

Creating the right conditions for CCS

The need for clear regulation for CCS – both in EU and globally

The European Commission is expected to propose framework legislation for CCS tomorrow (23 January)

Recognition of CCS in the EU Emission Trading Schemes

The issue of CCS will be addressed in the new Directive on the ETS expected to be adopted by the European Commission tomorrow……

Greater international co-operation on CCS

The European Commission is developing bilateral activities with India, China and South Africa

The EU and many of its Member States are active in the CSLF

OCTOBER 07

International Research Co-operation

FP7 Energy ThemeConcrete opportunities in New

Calls

OCTOBER 07

o Topics for Collaborative Projects especially designed and devoted to the international cooperation with targeted ICPC – including India

o Address problems, on the basis of mutual benefit, of shared interest and importance e.g. the environment consequences of energy policies, energy supply inter-dependency, technology transfer and capacity building

Specific International Cooperation Actions (SICA)

OCTOBER 07

SICA Topic 5.2.1: CCS capacity building with the large

emerging economies (EE)

• Content and scope: research aimed at first global estimate of the CO2 storage capacity in large EE, matching sources and sinks and identification of a few potential storage sites for large emission point sources. Capacity building in CCS inc. development of transport infrastructure

• Funding scheme: Collaborative Project (2 X MS + 2 X ICPC*)

• Expected impact: allow deployment of zero emission fossil fuel based power plants in large EE with sufficient pre-requisite knowledge (CO2 storage potential) and technical know-how

• Other information: SICA; balanced partnership between EU and Large EE members of the CSLF; institutions from developed countries also members of CSLF welcomed)

* International Co-operation Partnership Country

OCTOBER 07

Two stage Evaluation Procedure

OUTLINE PROPOSAL

• Submission deadline: 26 February 2008, 17:00:00

• Evaluation: March-April 2008

FULL PROPOSAL

Submission deadline will be specified in invitation letter (indicative: 29 May 2008)

Evaluation: June 2008

Full proposal should be complete and precise, but as concise as possible

OCTOBER 07

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Some basic conclusion

OCTOBER 07

Coal – secure and competitive, but ……

The European Union is increasingly dependent on imports to meet its energy needs

Coal is a more secure source than other fossil fuels – because of world and European reserves/resources

Coal has economic benefits over other fossil fuels – including the price is generally less volatile and is increasing at a slower rate

However coal is a major source of carbon dioxide emissions

It is the main source of carbon emission in power production

OCTOBER 07

What we MUST do ….

The world needs to reduce its carbon dioxide emissions to slow down climate change

Removal of carbon dioxide from the waste stream from coal-powered electricity production is a vital part of this reduction

Commercial scale carbon capture and storage needs to be demonstrated urgently

Demonstration of CCS will require changes to legislation and strong public and political support

Full deployment of CCS will require very significant funding by industry and also significant public funding and other forms of support