Six Thousand Feet Under: burying the carbon problem

Six ThousandFeet Under

Burying the Carbon Problem

Stuart Haszeldine and Gil Yaronedited by Tara Singh and Thomas Sweetman

Scientists and politicians have agreed on the need to reduce ouremissions by between 60-80% or face catastrophic climatechange. The issue now is exactly how we can achieve thesereductions. Carbon Capture and Storage (CCS) is an innovativetechnology that could reduce fossil fuel power station emissionsby up to 95%. Globally it has huge potential with estimatesshowing that fitting CCS technology could slash worldwideemissions by between 28-50% by 2050. However CCS is notwithout its problems: it is still at the demonstration stage andmuch like other low carbon energy sources, will require initialsubsidy to get it off the ground. In the meantime with new fossilfuel power stations being planned, decisions need to be madenow to ensure these new stations are compatible with CCSwhen it comes. This report from Policy Exchange looks at theissues behind CCS and assesses if enough is being done toharness its potential. In particular it examines the role CCS hasto play in bridging the gap between present energy demand andthe capacity of renewables to supply it; past and currentgovernment efforts to support the technology, including howpresent policy is insufficient to ensure the adequatedevelopment of CCS; and what can be done to ensure that notonly does the UK lead the world in CCS but also avoids beinglocked in to another generation of high carbon emissions.

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Six Thousand Feet UnderBurying the Carbon Problem


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About the authors

Stuart Haszeldine is a Professor ofGeology at the University of Edinburgh.His current research focuses on establish-ing the technical feasibility, financing, andoperation, of carbon dioxide storage as onestrand of cleaner energy delivery for cli-mate change mitigation. He leads theScottish Centre for Carbon Storage, withspecial relevance to UK storage site vol-umes, injectivity, and long-term site per-formance. He was a technical adviser tothe House of Commons Science andTechnology Committee on CCS in 2006,and has also published extensively on thegenesis of coal deposits, hydrocarbon reser-voirs, and radioactive waste disposal.

Gil Yaron is the founding director of theconsultancy GY Associates and works onsustainable development issues. He has adoctorate in economics from OxfordUniversity and is the author of four booksand numerous papers and reports on dif-ferent aspects of sustainable development.Prior to founding GYA, Gil worked main-ly on energy sector issues for NERA and

London Economics and for OxfordUniversity.

Tara Singh is former head of theEnvironment Unit at Policy Exchange. Sheread Social and Political Sciences at ClareCollege, University of Cambridge. After grad-uating with a first-class degree, Tara worked inadvertising. She then spent two years as anadvisor on green issues with the ShadowCabinet. Tara joined Policy Exchange inSeptember 2007 and is now working on theEnvironment for Portland PR.

Thomas Sweetman is a Research Fellow atPolicy Exchange. Having studied both artsand sciences at Durham University he hassince worked as both consultant andresearcher in a major city firm as well asseveral leading think tanks. Specialising inEnvironmental Policy he has also conduct-ed research on issues from Gang Crime toHealth and Finance. His most recentreports include “Green Dreams – a decadeof missed targets” and “Is Britain Ready forCarbon Capture and Storage?”.

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Contents

Executive Summary 4List of Terms 6

1. The Background 92. The Role of Carbon Capture and Storage 133. The Situation Today 184. Moving Forward: Developing CCS in the UK 22

Appendix: Study Estimates and Key Assumptions 36References 37

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Executive Summary

The challenge of reducing emissions totackle climate change is one of the tough-est faced by modern economies. The polit-ical consensus is that we need to reduce ourcarbon emissions by 60-80% by 2050 andyet, instead of falling, they continue to rise.Worldwide emissions from fossil fuels areexpected to rise 62% by 2030, with twothirds of that in India and China.

Carbon Capture and Storage (CCS) is aterm for a set of technologies which couldtackle part of this problem by capturing upto 95% of the carbon dioxide (CO2)released by coal and gas fired power sta-tions.

The CO2 is captured from the stationemissions, liquefied for transport by shipor pipeline before being finally storedunderground in depleted oil and gas fields,coal seams or deep saline aquifers.

Our report finds that:

� Fitting CCS equipment to coal and gaspower stations could slash global emis-sions by between 28-50% by 2050;

� Fitting CCS to UK plants could cutemissions by 20% by 2020;

� These emission reductions could beextremely affordable. If all large gas andcoal fuelled electricity plants in the UKwere fitted with commercially viableCCS, the additional cost of electricitywould be around £60 per household peryear. This is similar to the UK price cur-rently paid for wind, the cheapest renew-able technology currently available.

However, CCS is currently at demonstra-tion stage. To develop and take full advan-tage of this technology requires the cre-ation of a commercial CCS industry.

The UK is in an excellent position to dothis, with world leading experts, an estab-lished engineering base and a selection ofavailable and known storage sites.

In the UK, the cost of initial demonstra-tion projects could also be partially offsetby using CCS to extract extra oil fromdepleted reservoirs in the North Sea(Enhanced Oil Recovery, EOR).

Previously the UK government has suc-cessfully led domestic and internationalefforts on CCS legislation, but it is nowfailing to deliver real projects. In fact,recent government support has been woe-fully inadequate:

� Unlike for other low carbon tech-nologies such as wind, there exist nocommercial incentives to developCCS in the UK. Investors originallyasked the Government to allow CCSthe same price support as that givento wind power. The Governmentrefused;

� Instead, the Government has put all itseggs in one basket with a state spon-sored competition. This will deliverjust one small plant by 2014, a plantwhich according to our estimates willreduce carbon reductions at a cost ofaround £70/tCO2;

� Moreover, the number of commercialCCS propositions in the UK has halvedsince 2007;

� In comparison, the proposals in thisreport would develop a full generation ofnew power stations at a cost of just£30/tCO2 – saving 20% of UK emis-sions.

Our report concludes that theCompetition is inadequate – instead, it isessential that Government gives investors acommercial incentive to back CCS. Thiscan be done by giving carbon saved viaCCS a carbon price of the same level givento other low carbon sources of energy, suchas wind. We suggest that the Governmenteither:

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Executive summary


a. Creates a Decarbonised RenewableObligation Certificate band to giveCCS the same level of support asonshore wind or offshore wind; or

b Works towards introducing long-termpurchase contracts for decarbomisedfossil fuel electricty; or

c Allocates free EU Emission TradingScheme allowances after 2012 toreward CO2 stored. This would allowCCS stations to sell permits when theygo up in value in the future, therebyrecouping their costs.

These proposals will help create an indus-try for new build CCS plants. However, itis likely that fossil fuel plants will be givenplanning permission before this technolo-gy is fully developed.

The Government has claimed a newgeneration of fossil fuel power stations willbe built ready to retrofit CCS when thetechnology becomes commercially viable.However, attempts to define how stationscould be built ready to retrofit have beennon existent or clumsy.

If the Government is serious aboutmeeting this claim, we propose instead a

series of stepped emissions standardsdependent on worldwide progress on CCS:

� From 1 January 2009, all new fossilfuel power plants must have averageannual emissions from the whole plantof 350 kg CO2/MWh. This wouldeliminate new-build coal with no CCS,but would still enable unabated gasplant to avoid electricity shortages;

� By 2015, new build stations must meetan emissions standard of 170kgCO2/MWh or better for coal, and 70kg CO2/MWh on gas. This wouldrequire CCS to be fitted for both coaland gas;

� By 2020, old build power stationsshould be retrofitted to meet this stan-dard.

Taken together, our proposals wouldencourage the development of a world-leading industry in a technology vital tothe fight against climate change. Not onlywould we go a long way towards solvingour own emission problems but we wouldalso leave a lasting legacy to those in thedeveloping world.

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6

List of Terms

Annex 1 Countries – 38 industrialisedcountries given targets for reducing emis-sions under the Kyoto Protocol. It nowalso includes Belarus, Turkey andKazakhstan.

Capture – The first stage in Carbon Captureand Storage. Before the CO2 can be trans-ported away for storage underground, itmust first be separated from the power plantemissions. This can either be done before thefossil fuel is burnt (pre-combustion) or after-wards (post-combustion).

Capture Ready (CR) – The notion thatplant built before Carbon Capture andStorage is ready can be constructed in sucha way as to allow CCS equipment to be fit-ted to them once it is commercially viable.

Carbon Capture and Storage (CCS) –The process whereby carbon in the form ofcarbon dioxide is separated from plantemissions (captured), compressed andtransported in pipes or containers andthen, finally, stored underground.

Carbon Markets – A broad term thatrefers to the use of markets to create a priceand therefore an economic incentive forreducing carbon. Also referred to as “capand trade” or “emissions trading”.

Clean Development Mechanism (CDM)– An arrangement under the KyotoProtocol that allows Annex 1 countries tomeet some of their emission reduction tar-gets through investing in cheaper projectsin developing countries, as opposed tomore expensive ones at home.

Climate Change Levy (CCL) – The cli-mate change levy is a tax on the use ofenergy in industry, commerce and the pub-lic sector.

Combined Heat and Power (CHP) – Inconventional energy industries, electricityand heating are generated separately. Thisis very inefficient as electricity generationalone also produces a significant amount ofheat which is then wasted. Combined Heatand Power seeks to address this by integrat-ing both heating and electricity generationinto one process, increasing efficiency to75% or more as opposed to 50% in con-ventional generation.

Demonstration Plant – Although all theseparate elements of Carbon Capture andStorage are already used in industry theyhave yet to be integrated into a single plantfor electricity. Demonstration plants arethe next step in the deployment of CCS.These will generate information on run-ning expenses and technical issues that willallow the cost of CCS to be lowered to acommercially viable level and thus for fullscale deployment to begin.

Enhanced Oil Recovery (EOR) – A termfor techniques that increase the amount ofoil that can be extracted from an oil field.In the case of Carbon Capture and Storagethis would involve injecting the carbondioxide from power plants into a depletedoil field. The carbon dioxide would thenexpand, pushing the oil out of the reservoirand allowing it to be extracted.

EU Allowances (EU-A) – These areallowances to emit carbon dioxide givenout under the EU Emissions TradingScheme which can then be bought or soldas needed.

The European Union Emissions TradingScheme (EU-ETS) – A carbon marketbased on the cap and trade principlewhereby binding emission targets are set bythe EU and allowances to emit up to these

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List of Terms

targets then sold. Companies that pollutemore can buy surplus credits off those whopollute less provided the level of overallemissions does not exceed the cap limit.

Feed-in-Tariff (FIT) – Electricity generatedfrom low carbon sources (be they renewablesor plants with Carbon Capture and Storage)is often more expensive to produce than themarket price. To encourage low carbon gen-eration governments can opt to buy thiselectricity at higher rates (so called feed-in-tariffs). These tariffs decrease year on year asit becomes cheaper to generate from low car-bon sources until they fall to a level compet-itive with conventional forms of generationand support is no longer required. Such tar-iffs have widely been credited with the suc-cessful expansion of renewables in othercountries.

Kyoto – Refers to the 1997 Kyoto Protocolwhere ratifying countries agreed to engagein emissions monitoring, reduction and/ortrading with an overall objective of reduc-ing overall greenhouse gas inputs into theatmosphere, helping to prevent climatechange. By the end of 2007 175 countrieshad ratified the protocol.

London Convention (1996 Protocol)/OSPAR Treaty – These are treatiesdesigned to protect the offshore marineenvironment from dumping waste at sea.Although legal under these agreements,care must be taken that implementation ofCCS does not undermine these frame-works.

Natural Gasification Combined Cycle(NGCC/CCGT), Integrated GasificationCombined Cycle (IGCC) and PulverisedCoal (PC) – All are types of fossil fuelpower plant. NGCC is an advanced formof Combined Cycle Gas Turbine (CCGT)power plant. It runs on gas and emits lessCO2 than the other two while both PCand IGCC run on coal.

Near Zero Emissions Coal Programme(NZEC) – A joint venture initiativebetween the UK and China. It consists ofan 18-month work programme designedto help build capacity for carbon captureand storage technology in China.

Parts per million (ppm) – Since globalwarming is largely driven by the concentra-tion of greenhouse gases in the atmospheretargets for avoiding such warming are usu-ally put in those terms. The concentrationof carbon dioxide (the major componentof greenhouse gases) in the atmospherecurrently stands at 387ppm. If we contin-ue to emit carbon dioxide at our currentrate this is expected to reach around700ppm by 2100 with potential rises inglobal temperatures of 6C. At such tem-peratures the extinction of life on earth aswe know it becomes a distinct possibility.In order to avoid more than a 2C rise,which will still have adverse impacts, weneed to stabilise at 550ppm, or better yetat 450ppm, by 2050.

Renewables Obligation (RO) – This isthe primary support scheme for renewableelectricity projects in the UK. Under thescheme UK suppliers of electricity have anobligation to source an increasing propor-tion of their electricity from renewablesources.

Stern Review – Conducted by Sir NicolasStern, Head of the UK Government’sEconomic Service, and his team ofresearchers this was published in 2006. Thereview provides the definitive account of theeconomics of climate change as well as an in-depth examination of its consequences.

Storage – The final stage of CarbonCapture and Storage. At this point theCO2 being transported is pumped under-ground where it is kept away from theatmosphere. Options for storage include:at the bottom of oceans or in deep saline

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Six Thousand Feet Under

8

aquifers. However the most favoured at themoment is in depleted oil fields. This islargely due to the fact that the geology ofsuch fields is already well known and theprocess of storing the CO2 can be used inEnhanced Oil Recovery which offsets thecost of CCS.

Transport – After the CO2 is separatedfrom the rest of the power station emis-sions it needs to be transported to a suit-

able storage site. This can be done eitherthrough pipelines or by container overroad, rail or sea.

United Nations Framework Conventionon Climate Change (UNFCCC) – Signedat the 1992 Earth Summit in Rio deJaneiro. The treaty is aimed at stabilizinggreenhouse gas concentrations in theatmosphere at a level that would avert cli-mate change.

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1The Background

Electricity has to be delivered abundantly,securely, and cheaply in industrialisedcountries. Now an additional objective isto deliver electricity with minimum green-house gases. Carbon Capture and Storagehas emerged rapidly from obscurity tobecome seen as the saviour of manynational energy policies which have lowCO2 objectives, including policy in theUK. CCS can greatly reduce CO2 emis-sions at coal and gas fired power plant. InGermany, which has an economy similarto the UK, it is calculated that after easyand profitable energy-saving gains aremade, commercially viable CCS will berequired after 2020 for emissions reduc-tions in excess of 30%1. Consequently,expectations of CCS are very high, but willnot be met unless much greater effort andacceleration is put into development anddeployment by national governments.

The need for CCS arises from the posi-tion the industrialized world finds itself in,with over 90% of its energy supplied fromfossil fuel and increasing rates of carbonemissions. The UK has no proven route toenable rapid building of renewable elec-tricity projects, and only onshore windpower as a proven renewable technologyfor routine use. Worse still, all the optionsfor future near-term clean electricity havebig disadvantages. Offshore wind, tides,waves and solar PV are all developing rap-idly, but are not yet able to supply nation-al or regional grids with industrial-sizedflows of electricity. Nuclear power will pro-vide only ten percent of UK electricity by2020, a small percentage of total energysupply, and takes decades and billions of

pounds to build. To develop a set of choic-es for future electricity production, the UKgovernment has to support the develop-ment of several new technologies. CCS isone of these, which can provide resilientdiversity of fuel, and help to bridge theclean power gap until 2020, then 2050 andbeyond, whilst renewables continue todevelop. This view has been endorsed bythe Government not least in May 2008when David Miliband said, “We need toshift to low carbon, investing not only inrenewables and nuclear, but also moving for-ward with Carbon Capture and Storage tolimit the damage of our continued depend-ence on coal.”

None the less CCS has significant disad-vantages: it relies on imported fuels(although the UK could extract indigenouscoal resources); it uses more fuel in a powerplant to strip the CO2 from waste gases(currently 30%, though expected to be10% or less by 2020); it continues to dam-age landscapes by mining and it willincrease the price of electricity (but bymuch less than recent fluctuations).

Nobody would undertake CCS if therewas an established alternative which could

1 McKinsey, “Cutting carbon,

not economic growth:

Germany’s path”, 9 April 2008,

see http://www.mckinsey quar-

terly.com/Energy_Resources_Ma

terials/Strategy_Analysis/

Cutting_carbon_not_economic_g

rowth_Germanys_path_2104

“ Developing CCS is not a single magic remedy, but it

can provide carbon dioxide reduction at a large scale,

rapidly, directly, and with minimal behaviour change by

voters, and at low or no extra cost to consumers in the

EU who are already paying through the EU-ETS ”

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have the same impact on the sametimescale. Developing CCS is not a singlemagic remedy, but it can provide carbondioxide reduction at a large scale, rapidly,directly, and with minimal behaviourchange by voters, and at low or no extracost to consumers in the EU who arealready paying through the EU-ETS. Theclimate message is clear: the UK and theworld cannot continue to burn fossil fuelsand release CO2. Either fossil fuel burningmust cease completely, or CCS must beinstalled rapidly. Neither of these is hap-pening.

So what are we doing about it?The UK Government has stated that itwishes to be a leader in CCS, and willbuild an operational CCS power plant by2014. The UK has had many successes inpreparing for CCS nationally and interna-tionally. But a project has not yet beenbuilt. Past efforts are not encouraging. TheUK Government failed to recognise thesignificance of one of the world’s first largeCCS possibilities at Forties oilfield in 2003which would have put the UK over tenyears ahead of the rest of the world onCCS, and later chose not to support earlydevelopment of CCS at Peterhead gas plantoperating from 2009. The UK also rejecteda diversity of industry CCS propositions in2007 which, if built, could decarbonise thesupply of 20% of all UK electricity startingfrom 2012.

In 2008 the UK is showing indecisionand lack of forethought on how to makenew and existing power plants “captureready” and how to ensure those plants trans-fer to CCS operation. Meanwhile the rulesfor the UK’s flagship CCS power plant com-petition enable the single winner to delayfull CCS operation until 2020.

Making sure that CCS happens and isfunded is obviously very difficult. However,the longer that CCS takes to arrive, the worseclimate change effects for the long term will

become, and the more expensive adaptationwill be. The Stern Review of climate changeeconomics in 2006 stated that CCS supportneeded at least a five-fold increase worldwide.Now is the time to do that.

The Wider Picture: Policy and Climate Change The current political consensus in the devel-oped world is that atmospheric concentra-tions of Carbon Dioxide must not rise above550 parts per million, or 450 parts per mil-lion CO2e, at the lower end of the scale.

The atmosphere in 2007 contained 383parts per million CO2e. It is clear that allthese limits to CO2e will be surpassed unlessemissions decrease within ten years, orshortly after.

UK climate policyThe questions now are around ‘what todo?’ It is well understood that lifestylechanges can play a part – yet changingbehaviour is very difficult. Many peoplereduce, re-use, or recycle – yet still chooseor are forced to use private road transport,and allow themselves aviation travel forvacations. The barriers to individuals andsmall businesses changing energy use, orinvesting in efficient equipment includethe lack of short term financial payoff.More substantial changes such as alteringour houses and buildings are an evenlonger term activity, taking many decades.The Stern Review of 20062 found a way toexpress the scientific knowledge in eco-nomic terms. It is clear those actions takennow to reduce the causes of climate changewill be much cheaper than in the future.

Yet abundant contradictions exist inUK policies and approaches: on roads,airports and economic growth byincreased consumption. Plans are madefor leisurely CO2 reductions to meet a60% cut by 2050. This does not matchwith the evidence of climate change. Ifthe UK is committed to evidence based

2 Stern, “The economics of cli-

mate change”, Cambridge

Press, 2006.


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The Background

policy, then much more rapid emissionsreductions are needed. If the UK is com-mitted to being a leader in global change,then unilateral actions may be required. Ifnew businesses, technologies, machinesand methods of operating are needed –then these can be turned into opportuni-ties for the UK, not costs.

Is the UK doing well?The UK Government argues it is “leadingthe world on climate change.” (Fig. 1)However, the real reason that CO2 emis-

sions appear to have declined is not due tosuccessful green policies, but to three otherfactors:

� Switching fuel – The dash-for-gas from1990 meant electricity productionswitched from coal to cleaner gas fuel.This one-off benefit cannot be repeat-ed, and UK Energy policy now wishesto reduce dependence on importedgas3. If the price of gas remains high,then coal will recover as a cheap fuel ofchoice;

1200 -

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1990 1992 1994 1996 1998 2000 2002

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emissions

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of carbon

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from tourism

Kyoto emissions

UK greenhouse gas emissions (no allowance for EU-ETS)

UK greenhouse gas emissions, progress towards Kyoto target (with allowance for EU-ETS)

Kyoto target for greenhouse gas emissions

UK carbon dioxide emissions (no allowance for EU-ETS)

UK carbon dioxide emissions, progress towards domestic goal (with allowance for EU-ETS)

Domestic goal for carbon dioxide emissions

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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Fig 1 DEFRA CO2 emissions since 1990 and progress towards targets

Source: Budget 2008, Chapter 6

Fig 2 UK CO2 emissions consumption basis

Note: Bunker emissions include radiative forcing factor of 3 for international aviation.

Source: ONS (2007) and CAIT Database and Vivid Economics

3 DTI, “The energy challenge: a

report”, 2006, see www.dti.

gov.uk/energy/review/CM6887

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12


� De-industrialisation – A growing econ-omy whilst manufacturing less and;

� Exporting emissions to developingcountries.

The UK manufactures fewer goods nowthan in 1990. This has driven a decline inpower related emissions. Because so manygoods are imported the UK is effectivelyreducing its CO2 emissions through theimport of products, mainly from China.However because of the way the UnitedNations Framework Convention onClimate Change (UNFCCC) calculatesemissions (attributed only to those arisingdirectly in the UK), these emissions areattributed to China, even though the prod-

ucts are made for, and consumed within,the UK.

If these emissions are repatriated, (seeFigure 2) outline calculations indicate thatimports add around 20% to the UK annualemissions figures. Net imports in 2006 fromChina (calculating both China imports andUK exports) were around 125 Mt CO2e in2006, adding to a declared UK total4. Whenall countries are considered, the UK tradedeficit of greenhouse gases rises from 110Mt CO2e in 1990 to as much as 620 MtCO2e in 2006. In light of such figures it isclear we must consider all our options forreducing emissions. Exactly what placeCCS has in reducing these is discussed fur-ther in the following chapter.

4 Helm, Too good to be true?

The UK’s climate change record,

2007, see http://www.dieter

helm.co.uk/publications/Carbon_

record_2007.pdf

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5 IEA, World Energy Outlook,

p76, 2007, see www.iea.org

6 IPCC, “Special report on car-

bon capture and storage”, 2005,

see www.ipcc.ch


2007 see www.iea.org


mate change”. Cambridge

Press, 2006

9 Batelle, “Global Energy

Technology Strategy: addressing

climate change”. Phase 2, 2007,

see http://www.pnl.gov/gtsp/

docs/gtsp_2007_final.pdf


2The Role of CarbonCapture and Storage

Additional methods of reducing the envi-ronmental impact of our lifestyles areneeded, and needed quickly. The onlymethod currently proposed, to directlyreduce CO2 emissions from fossil fuel use,is carbon capture and storage.

It is clear from Business as Usual projec-tions by the International Energy Agency(IEA) that, if nothing changes, the use offossil fuels will continue to increase up to2030 and beyond5. The growth of renew-able energies (biomass, hydro, wind, waveand tide) will only equate to 14% of worldsupply. Nuclear will grow slowly, formingonly 5% of world energy supply. Thiswhile fossil fuel use (oil, gas and coal) willbe double that of 2005 in 2030, with CO2

emissions increasing by 55%. The biggestgrowth (73%) is in coal use – which is thefuel that emits the most CO2 per unit ofenergy – and most of this increase is inChina and India. Even on scenarios of‘Alternative Policy’, where world govern-ments take some action on energy securityand climate change, the use of fossil fuelsincreases by 1.5% per year. Only in the2006 Beyond Alternative Policy Scenario(BAPS), do emissions actually decline. Theuse of CCS around the world is essential tomake 11 of that 29 GtCO2 per year emis-sions reduction happen.

Carbon capture and storage can be builtrapidly, fitted within the existing industri-al system, and operated to make a profit, iffit-for-purpose pricing of electricity isintroduced. Essentially a suite of equip-ment, it can be fitted to new and retro-fit-

ted to existing coal and gas fuelled powerstations. This equipment then captures85% to 95% of the CO2 which is current-ly discharged into the atmosphere. Oncecaptured the CO2 is liquefied by pressure,transported through pipes like natural gasnetworks, and finally injected by a bore-hole into the microscopic pores of deeplyburied rocks, where it will remain isolatedfrom the atmosphere.

Potential ImpactStabilising global CO2 emissions at the lev-els of 2008, or even 1990 is not enough,emissions must fall in order to reduce CO2

concentration in the atmosphere.According to a special report by the

IPCC6, CCS is capable of reducing world-wide CO2 emissions by 50% by 2050. Asimilar requirement for CCS is indicatedby the IEA WEO7 BAPS – forming 11 Gtof that 29 Gt CO2 per year emissionsreduction. The Stern Review8 also high-lighted CCS prominently, with potentialto contribute up to 28% of global carbondioxide mitigation by 2050. In 2007 therespected USA Battelle institute analysis9

of global energy technologies stated thatthe technical challenge involved in reduc-ing CO2 emissions towards zero is“unprecedented”. A portfolio of technolo-gy solutions are needed, ranging fromdemand reduction to nuclear. Of these, upto 40 Gt CO2/yr could be stored by CCS(compared to 25 Gt CO2/yr emitted fromhumans in 2005).

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Thus, rapid growth is required from CCS.To stabilize the atmosphere at 500ppm CO2eCCS must grow rapidly from around 4.4 MtCO2/yr in 2008 to store 2,160 Mt CO2/yr in2050, and 22,330 Mt CO2/yr in 2090 (27%of possible CO2 emissions). Our calculationssuggest that for CCS alone to achieve thesafer 450ppm CO2e limit, these storage fig-ures would have to be doubled.

For the large USA economy, which isdependent on coal for electricity, CCS isfundamental. Likewise in the developingeconomies of China and India, the applica-tion of CCS is critical for its domestic ben-efits of air quality and world benefits ofreduced CO2. In China coal met over 60%of all energy needs during 2007. Coal use inelectricity generation is expected to grow, asis the manufacture of liquid fuels from coal,so that CO2 emissions, 5,200 Mt CO2/yr in2005, reach 11,400 Mt CO2/yr in 203010.India has a less certain path, but is veryreliant on domestic and imported coal, sothat emissions could grow from 1,100 MtCO2/yr in 2003 to 3,900 Mt CO2/yr in2030. In both countries, the homeland pri-ority is to provide more electricity reliablywith efficient power plant, without reduc-ing output and expenditure through CCS.To develop both within and without Chinaand India CCS needs start-up help fromoutside. Building demonstration CCSplants eligible for EU-ETS allowances inthese countries is one method.

These trends are not just confined to thelargest economies. Worldwide we are wit-nessing a “dash for coal”, for cheap electric-ity generation and as a secure means toavoid imports of liquid vehicle fuels.Burning coal for electricity, or makingdiesel from coal, produces twice to threetimes as much CO2 as using crude oil. Thisis in direct conflict with climate impera-tives to reduce CO2 emissions.

All recent major reports show that CCShas a fundamental role in tackling world-wide emissions causing climate change.CCS could provide from 27% to 50% of

the solution, that in combination with awide range of energy conservation andtechnology change measures, will providethe answer to our emissions problem.

What is involved?Simply put carbon capture and storage is amethod which could enable fossil fuels toform the backbone of worldwide electrici-ty production, but with greatly reducedemissions of CO2 from combustion. In theUK, CCS will consist of three activities:

� Combustion of fuel in a power plant.This can be coal, gas, petroleum coke, orbiomass. The CO2 is separated from theplant emissions before or after combus-tion (see Methods for CO2 Capture);

� Transport of CO2 away from the powerplant. This is undertaken by pressurisingthe CO2 to form a liquid, drying the liq-uid, and transporting it in a dedicatedpipeline for distances of hundreds of kilo-metres;

� Injection of liquid CO2 into the micro-scopic pore space of sandstone rocksburied deeper than 800m beneath thebed of the North Sea. Here the CO2 willremain trapped, or dissolve in surround-ing saline water for tens of thousands ofyears.

Long term safetySecure retention in engineered storage sites issometimes considered to be a safety problemby members of the public. However there aremany natural occurrences where CO2 hasbeen retained as pure gas or fluid for manymillions of years (in Italy, Arizona, Utah), oras a large component of the crude oil mixture(North Sea). Therefore there are extremelygood reasons to believe that engineered stor-age to make artificial CO2 accumulationsshould be successful – provided that goodquality site surveys enable resilient sites to bechosen.


2007, see www.iea.org

14


6000Ft Under_HDS 18/6/08 19:46 Page 14

“Learning by Doing”In 2008, a limited number of experimentalsmall prototypes of CCS have been builtonto full-size operating power plant in theEU, Canada, Australia and USA. From theseexperiences, there are many reasons to beconfident that CCS will work quickly, and atlarge-size scale. All the component technolo-gies are built and deployed at significantscale, for other purposes. CO2 capture worksdaily in oil refineries, in natural gas separa-tion and in large ammonia plants. Pipeline

transport of CO2 has operated for thirty yearsin the USA. Injection of CO2 deep under-ground has been undertaken for EnhancedOil Recovery since the 1970s.

The main doubts for CCS lie in the build-ing and operating costs of a large and inte-grated system. In such situations the organi-sations who build the first plants will learnrapidly, and so gain ‘first mover advantage’,but this will come at a financial cost whichhas not been quantified. Deep pockets areneeded.

The Role of Carbon Capture and Storage


Methods for CO2 capture

There are three main methods proposed for CO2 capture at a full-size power plant:

a Post-combustion capture – where the fuel is burned and the CO2 is separated from flue gas byan amine or ammonia solvent. This can be applied to coal or gas combustion.

b Pre-combustion capture – where the fuel is gasified (if coal or petroleum coke), and the syngas(if an IGCC coal fired plant) or natural gas (in a normal combined cycle gas turbine plant) ischemically split to form CO2 and hydrogen.

The high concentration of CO2 enables easier solvent separation, and the hydrogen can beburned to produce heat for electricity, or can be sold as hydrogen energy carrier, or can be usedin the chemical industry to upgrade oily or tarry hydrocarbons to liquid fuels.

c Oxy-fuel combustion – where pure oxygen is separated from air, and then used to combust thegas or coal fuel. This produces heat for electricity generation and the waste CO2 is easily separat-ed from water.

1. Power station with CO2

capture plant

2. CO2 transport

by pipeline

3. CO2 injection

4. CO2 storage in old oil or gas reservoir

Fig 3 CCS system diagram

6000Ft Under_HDS 18/6/08 19:46 Page 15

Affordable AbatementThere have been a number of detailedstudies of the costs of CCS but it can bedifficult to compare results as they are sen-sitive to (amongst other things) differentassumptions on the CCS technology, coaland gas prices and whether the alternativeis an existing coal or gas plant. The costsreported below all compare CCS with anexisting coal plant and have been convert-ed into pounds in 2007 prices.

As the graph below shows, the estimatedadditional cost of adding CCS to pul-

verised coal (PC) plant – the government’spreferred option – is most likely to bearound 1.9p/kWh for plant built betweennow and 2015. In comparison the whole-sale price of electricity is currently around6p/kWh.

We arrive at this estimate by drawing onfour major studies (these are based onmature CCS costs rather than demonstra-tion, for more details see Study EstimatesAppendix). Fitting CCS to CCGT orIGCC11 plant is estimated to cost less inp/kWh terms but, as we see later on, this

11 See Appendix 2: List of

Terms

16


PC CCGT IGCC

Technology

Ad

ditio

nal C

ost

(p/k

Wh)

3.0 -

2.5 -

2.0 -

1.5 -

1.0 -

0.5 -

0.0 -

45 -

40 -

35 -

30 -

25 -

20 -

15 -

10 -

5 -

PC NGCC IGCC

Technology

Ad

ditio

nal C

ost

(£/t

CO

2)

Figure 6: Cost of generating electricity for different technologies

Costs of clean fossil technologies are not yet certain. Estimates overlap with each other, with

nuclear, and with developed renewables. With such uncertainty there are no compelling cost

reasons to choose a winner. The situation is also likely to change. Costs of clean fossil fuels

with CCS and of renewables are likely to fall as learning develops while costs of nuclear are like-

ly to rise as more accurate cleanup costs are included. Information in this compilation is from

the DTI’s 2006 energy review, these are lower than the 2007 prices in the graph above.

Figure 4: Additional Electricitycost depending on technology

Figure 5: Additional Electricitycost depending ontechnology

Solar Photo-voltaic

Offshore wind

Onshore wind

Gas with CCS

New coal with CCS pre-combustion (IGCC)

New Coal with CCS post-combustion

Retrofit coal with CCS

Nuclear

- - - - - - -

0 20 40 60 80 100 120

Cost of electricity £/MWhr

Carbon price of €25/t CO2

Sensitivities: Discount rate, capital costs, O&M costs

fuel prices, carbon prices load factor and

interest rate margin

6000Ft Under_HDS 18/6/08 19:46 Page 16

12 Climate Change Capital, ZEP:

Analysis of funding options for

CCS demonstration plants,

2007, see www.climate

changecapital.com ZEP, Zero

Emission Fossil Fuel Power

Plants General Assembly, 2007,

see http://www.zero-emission-

platform.eu/website/docs/

GA2/sweeney.pdf

13 DTI, Meeting the energy chal-

lenge, A white paper on energy,

CM7124, May 2007, see www.

berr.gov.uk/energy/whitepaper/p

age39534.htm Science and

Technology Committee, Meeting

UK Energy and Climate Needs:

The Role of Carbon Capture and

Storage, Westminster, HC 578-I,

2006

14 Off-shore wind generation

costs are in the range p/kWh 5.1

– 6.8 p/kWh according to BERR

(2008b) and Anderson (2006)

with RAE (2008) pricing on-shore

wind (including backup genera-

tion) at 3.7p/kWh. Using

Anderson’s marker price for the

current mix of generation of

2.6p/kWh gives an additional

cost for on-shore wind of 1.1

p/kWh and off-shore wind of

2.5-4.2 p/kWh.

15 ZEP, see http://www.zero-

emissionplatform.eu/website/


mate change”, Cambridge

Press, 2006

17 NZEC, “UK-China Near Zero

Emissions Coal project”, 2008,

see http://www.nzec.info/en/

The Role of Carbon Capture and Storage


advantage can disappear once the amountof CO2 emitted is taken into account.

Thus these and other figures frombanks, the fossil fuel power industry12 andfrom the UK Government13 suggest thatCCS will add approximately 25% to thewholesale cost of electricity.

As can be seen in Figure 6 this estimat-ed additional cost makes electricity fromCCS potentially more expensive than on-shore wind but less expensive than off-shore wind generation14 and solar.

Scope for further cost reductionThe greatest hurdle for CCS is reducingthe cost of Capture. At present, post-com-bustion capture can be undertaken withamine solvents for €60(£40)/tCO2. Thiscost includes a large penalty in the energyused to separate CO2 during post combus-tion capture; so that up to 25% of the ther-mal energy produced in a coal plant mustbe used in the capture and compressionprocesses. However, new solvents are underdevelopment. One example is based oncool ammonia and is undergoing large tri-als on power plants in four countries com-mencing in 2008-09. This and otherimproved solvents are anticipated toreduce capture costs to €12(£8)/tCO2 by2012.

For pre-combustion capture systems,the inherent energy penalty of CO2 separa-tion can be only 5%. Even here, develop-

ment is underway to produce new solvents,membranes or microporous materials,which will separate CO2 more cheaply,rapidly and with less energy input.

The power industry objective is to build12 full-size demonstration power plants inthe EU. The experience and learninggained will reduce costs of CO2 capturetransport and storage to €25-30(£18-21)/tCO2 by 202015. This is substantiallycheaper than the cost of present day envi-ronmental damage calculated in 2006 bythe Stern Review16 as $85(€55, £43)/tCO2.

In the emerging economies of Chinaand India, there is no current plan tomake large scale investment in CCSDevelopment or Demonstration. Thesecountries expect to await the results ofexperimentation and innovation by richerdeveloped nations. CCS will need to bedeveloped first by EU nations, USA,Canada and Australia. Experience withthe Clean Development Mechanism(CDM) shows that achieving greenhousegas reductions in China and India will becheaper than in the EU. Consequently, itwill be very useful to extend the CDM toinclude CCS, and to build one or moreCCS demonstration plant in China andcrediting the CO2 reductions to UK, orother EU states.

This is one possible outcome of theUK-China Near Zero Emissions CoalProgramme17. A more detailed look at thecurrent status of CCS follows.

6000Ft Under_HDS 18/6/08 19:46 Page 17

3The Situation Today

WorldwideCCS is already an international activity.From being amongst the first nations toconceptualise and investigate CCS, theUK has now been joined by many EUcountries (notably Norway, GermanyDenmark and Holland), USA, Canada,Australia and China. The international dis-cussion and communication body, theCSLF (Carbon Sequestration LeadershipForum) now has 21 nation state members.

There are four large scale operationsunderway worldwide which separate morethan 1 Mt CO2 per year. These provideinsight into the CCS chain envisaged forpower stations.

� The Sleipner oilfield of the North Seahas been operating CCS since 1996. Aprocessing plant on the offshore oilplatform strips CO2 out from its mix-ture with produced hydrocarbon, andre-injects the CO2 into the 1km deepUtsira sandstone for long-term storage.This clearly demonstrates the feasibilityof capture and injection;

� The Great Plains syngas plant atBeulah North Dakota takes lignite(brown) coal, gasifies it, and separatesthe CO2 for sale via a long pipeline toinject into the Weyburn oilfield, wherearound 10% additional oil will be pro-duced. This has been operating since2000, and demonstrates CCS connect-ed to a chemical plant;

� The In Salah gas field in Algeria hasbeen separating CO2 from naturalmethane gas since 2004. The CO2 isinjected into the water filled part of the

same sandstone which produces thegas;

� The Snøhvit gas field of the Barents Seaseparates CO2 from produced gas, andre-injects the CO2 for storage intowater filled sandstone deeper than theoriginal reservoir. This commenced in2008.

Numerous CCS research projects havebeen underway worldwide during the last15 years. Many new projects are becominglarge enough to act as pre-commercialdemonstrations. A worldwide map view ofCCS research, demonstration, and com-mercially planned sites is available at theScottish Centre for Carbon Storage(SCCS) website18. About 15 projectsworldwide are being seriously funded toproceed towards commercial construction.None of these have yet achieved full fund-ing. Governments are very cautious whenspending on large single projects which donot have an immediate short term appealto voters. CCS certainly falls into that cat-egory.

This illustrates a fundamental dilemmaafflicting CCS: on one side CCS is seen asenvironmentally essential and in urgentneed of validation; on the converse sideCCS is seen as expensive, unproven, and arisky option compared to unpopularnuclear plant or popular but small scalerenewables.

In the UK, there have been about nineserious CCS projects publicly proposedsince 200519. The form of the CCS competi-tion announced by the Department ofBusiness, Enterprise and Regulatory Reform

18 SCCS, “Worldwide listing of

CCS commercial storage proj-

ects: actual and proposed.”,

2008, see http://www.geos.ed.

ac.uk/sccs/storage/storageSites.

html

19 “A fuller overview of the UK

CCS landscape” in Bushby,

“Carbon capture and storage in

the UK”, 2008, In Galbraith C.A.

and Baxter, J.M.(eds), “Energy

and the Natural Heritage”, TSO

Scotland, Edinburgh

18

6000Ft Under_HDS 18/6/08 19:46 Page 18

(BERR) in 2007 has greatly affected progresson all these projects. This is discussed belowin the Competition section.

The UK can correctly claim to beamongst the world leaders in CCS. Thisclaim is especially valid in the workachieved in changing international marinetreaties, and in designing domestic legisla-tion. The UK claim is more equivocalwhen intended CCS projects are comparedworldwide (Table 1). Currently the UK iscertainly planning to host the largest proj-ect, but this will be storing CO2 severalyears after large scale demonstrations havebeen operated in the USA, Australia, andprobably Norway, Denmark and evenChina.

The UKThe UK has an ambition to reduce emis-sions of CO2 and other Greenhouse Gases.In the recent 2007 Energy White Paper20

there is a clear commitment to at least a60% reduction in carbon dioxide emis-sions by 2050, and a 26-32% reduction by

2020, against 1990 levels. In order to dothis a wide range of technologies will needto be developed.

To incentivise emerging technologies,such as offshore wind power the whitepaper sets out the introduction of bandingto the Renewables Obligation. This wouldallow the scheme to support a wider rangeof technologies than it does at presentwhere onshore wind is the primary benefi-ciary. Financially, taken together theRenewables Obligation and ClimateChange Levy will provide £1 Billion annu-ally by 2010 and £2 Billion annually by2020. This price support for renewables ofabout £35 per MWh (currently £45 in2008) typically adds at least 50% to thewholesale electricity price. The extra costof electricity is passed on to the consumerin form of higher retail prices spread acrossall the electricity purchased by consumers.However the value of this has been ques-tioned and in 2007 Ofgem stated that theRenewables Obligation should be replacedas it does not link with the EU-ETS and isexpensive21. According to the regulator

20 DTI, “Meeting the energy

challenge”, A white paper on

energy, CM7124, May 2007, see

www.berr.gov.uk/energy/whitepa

per/page39534.htm

21 Ofgem, Response to

Consultation on Renewables

Obligation, Jan 2007, see

http://www.ofgem.gov.uk/Sustai

nability/Environmnt/Policy

/Documents1/16669-

ROrespJan.pdf

The Situation Today


Table 1 CCS Propositions – whole chain only (*=state funds)

Country (Project) Capture Technology Store Start Date Size

USA (Mountaineer, AEP) Post-combustion Aquifer 2008 0.1Mt/y

USA (Shadyside) Post-combustion Aquifer 2008 0.3Mt/yr

France (Lacq) Oxyfuel EOR 2008 0.08 Mt/yr

Germany (Schwarze Pumpe) Oxyfuel Aquifer 2008 0.25/2Mt

China* (Green-Gen) Pre-combustion EOR 2009/15 1.5-2.7Mt/yr

Australia (Callide) Oxyfuel Aquifer 2010 0.05Mt/yr

USA (Oologah) Post-combustion EOR 2011 1.5 Mt/yr

Australia* (Zero-Gen) Pre-combustion Aquifer 2011/12 0.4Mt/yr

Norway* (Mongstad) Post-combustion Aquifer 2011/14 0.1-1.5Mt/yr

Abu Dhabi* (Masdar) Pre-combustion EOR 2012 1.8Mt/yr

USA (Sugar Land) Post-combustion EOR 2012 0.7-1Mt/yr

USA (North East, AEP) Post-combustion Aquifer 2012 1.5Mt/yr

Denmark (Vattenfall) Post-combustion Aquifer 2013 1.8Mt/yr

UK*(???) Post-combustion Aquifer or EOR 2014/19 2.0Mt/yr

Canada* (Boundary Dam) Post-combustion EOR 2015 0.4Mt/yr

6000Ft Under_HDS 18/6/08 19:46 Page 19

“there are cheaper and simpler ways of meet-ing these aims than the RO scheme which isforecast to cost business and domestic cus-tomers over £30 billion”. Ofgem proposedlong term contracts with generators as acheaper and simpler method.

The Government has also declared itsdesire to incentivise and expand nuclearpower in its nuclear white paper and sub-sequent press statements. The price struc-ture is, as yet, unclear although it is obvi-ous that substantial help is needed toincentivise private developments wherenone have occurred in the UK for 20 years.This help may be in the form of eitherlong-term electricity purchase contracts,low interest loans, or a reliable high carbonprice to disadvantage electricity generationfrom unabated fossil fuel.

Both the Renewables Obligation and thepotential support for nuclear power electric-ity are distortions of the UK electricity mar-ket, and make free competition impossiblefor new entrants such as CCS. The 2007Energy White Paper did state that the EU-ETS will provide funding and incentives forcompanies to invest in cleaner large scaleelectricity generation but there was noattempt to specify how this will operate.

In fact, if the Government wishes toachieve its fossil fuel strategy it will need toact on all of the following:

� Efficiency and energy saving – fromhouses to big businesses;

� Support for electricity and heat genera-tion by renewable energies, and theirconnection to users – by electricitywires or by heat pipes;

� Storage of fuel and power – to provideresilience against oil and gas supplyvariations, and to best utilise variablerenewable;

� Higher efficiency fossil fuel conversionprocess to reduce the amount of fuelconsumed and the associated CO2

emissions. This can contribute to emis-sion reductions of 10-30%;

� Fuel switching to lower carbon alterna-tives – such as natural gas and co-firingwith 5-10% CO2 neutral biomass;

� Carbon Capture and Storage with thepotential to reduce emissions by 85-90%.

Achievements So FarLooking at CCS the UK has led many inter-national and national innovations and can bejustifiably proud of its achievements:

� International treaties regulate disposalof waste in the sea and beneath theseabed. The UK has played a majorpart in negotiating permission for CO2

storage beneath the seabed in theLondon Convention Protocol forworldwide effect, and in the OSPARtreaty for NW Europe;

� International technical leadership andcommunication has been enabled by anactive role in the Carbon SequestrationLeadership Forum;

� European legislation on CCS has beenshaped by UK influences and advice;

� The UK is the first nation to commit tolegally binding values of greenhouse gasreduction in the Climate Bill of 2008;

� The UK has framed the world’s firstcomprehensive offshore CCS legisla-tion and regulation in the 2008 EnergyWhite Paper;

� The UK has advised and assisted withthe creation of carbon reduction targetsand carbon markets worldwide –notably in California;

� The UK has successfully engaged withChina to commence on the NZECproject which may build a CCS plantin China by 2014;

� The UK has been amongst the firstnations to develop methods for evalua-tion of its CO2 storage resources.

Yet more needs to be done. Carbon captureand storage in the UK has not reached thestage of a real development of a real project

20


6000Ft Under_HDS 18/6/08 19:46 Page 20


The Situation Today

and is quickly being eclipsed by efforts inother countries.

To move forward on CCS theGovernment announced a Competition in2007 to build CCS fitted onto a coal-firedpower plant in the UK. Examined in moredetail in subsequent chapters, we estimatehere that it will cost £1.5 billion to buildand operate.22 Even if this single plant doesget built, it is hard to see how this will cre-ate a CCS industry in the UK, either byencouraging other coal and gas plants to bebuilt, or encouraging the development ofmultiple industries supplying design, skillsand components to the UK and interna-tionally. Multiple CCS projects are neededto create a new supply industry, to provide

a flow of work and a diversity of experi-ence.

What is needed has been clear for sometime. Commercial developers of CCS proj-ects have persistently stated that price sup-port is needed to enable the introductionof CCS. The predicted price of allowanceswithin the EU-ETS is only €35 from2013, and this will not cover the initialadditional costs of CCS. Developers haverequested price support either less than,or similar to, the Renewable Obligation.Without such price support, theDevelopment and Deployment of CCS inthe UK is not commercially viable, andcannot exist in the UK electricity marketsystem.

22 This is based on a calculation

by the report authors, based on

typical 2008 prices

6000Ft Under_HDS 18/6/08 19:46 Page 21

4Moving Forward:Developing CCS inthe UK

In light of current events the UK has twopriorities for developing CCS. It must pro-vide a framework to support the develop-ment of not just a single project, but a newindustry in CCS. In addition, with powercompanies already proposing to buildmore fossil fuel power stations such asKingsnorth, it must also ensure that, ifbuilt, these stations are ready for CCSwhen it is adequately developed.

Recent HistoryThe prospect of CCS as a large scaleopportunity to mitigate GHG emissions ofCO2 first came to wide public prominencein the UK at the 2005 G8 internationalleaders’ summit, chaired by the UK. Thesummit provided a large political impetusfor CCS in the UK. However the conceptwas not new. CCS was first suggested inthe UK in 1994 by the IEA GreenhouseGas unit23 based in Cheltenham. TheBritish Geological Survey has been leadingEuropean work on CCS since 199624.Since 2002 the Department of Trade andIndustry (formerly DTI now BERR) hasbeen undertaking a consistent small-scaleprogramme of work within the cleaner fos-sil fuels programme25, including an assess-ment of the feasibility of CCS in the UK in200326. This stated that:

“Large-scale deployment of CCS may beneeded for electricity generation and hydro-

gen production from about 2020, but ear-lier deployment could occur to tie in withthe pattern of electricity plant replacement.In addition CCS in combination withEnhanced Oil Recovery (EOR) could beimplemented from around 2010.”

However, it was not until June 2005 thatCCS became formalized within the DTICarbon Abatement Technologies (CAT)strategy27. Here the vision was to undertakegradual improvements in technologieswhich act as components in coal-firedpower plants, leading to a commercial-scale project with CCS by 2010-2012, andeconomically viable deployment sometimeafter 2020. From 2005-08, a sum of £20million was allocated, which was subse-quently increased to £30 million in total.

The March 2005 Budget announcedthat the UK Government was examiningthe potential for new economic incentivesto support the development of carbon cap-ture and storage technologies and applica-tions. Following the Gleneagles G8 sum-mit in July 2005 the UK presidencyannounced,

“We will work to accelerate the develop-ment and commercialisation of CarbonCapture and Storage technology”

The BERR Competition for UK CCS power plantSubsequent to the G8 and CAT strategy,the Government moved at a slow pace todevelop a CCS option. The GovernmentEnergy Review of 2006 stated that a logicalnext step for CCS in the UK would be theconstruction of a full-scale Demonstrationplant. The Pre-Budget Report in December2006 announced that an independent firmof consulting engineers (PB Power) wouldexamine CCS costs. The details of thisreport have not been made public but theMarch 2007 Budget confirmed that a CCScompetition would be held. The 2007

23 IEA GHG IEA/GHG/SR3, The

disposal of carbon dioxide from

fossil fuel fired power stations,

June 1994

24 BGS JOULE II Project No.

CT92-0031, The underground

disposal of carbon dioxide,

British Geological Survey, 1996

Holloway, Energy Conversion

and Management 38, S193-

S198, 1997

25 DTI Capture and geological

storage of carbon dioxide: a sta-

tus report on the technology.

URN No: 02/1384, 2002

26 DTI, A review of the feasibility

of carbon dioxide capture and

storage in the UK URN 03/1261,

2003

27 DTI, CAT strategy : a strate-

gy for developing carbon abate-

ment technologies for fossil fuel

use URN 05/844, 2005

22

6000Ft Under_HDS 18/6/08 19:46 Page 22

Energy White paper28 then announced thata UK competition would be launched inNovember 2007.

On 9th October 2007 the Secretary ofState for Energy announced that theCompetition would be restricted to onepower plant, and would consider onlypost-combustion options. The reasongiven was that post-combustion and retro-fit, will be most applicable to the existingUK fleet, and especially for its applicationto the worldwide coal fleet – includingChina.

Finally on 19th November 2007, theUK Prime Minister29 formally announcedthe CCS competition, to be operational by2014.

Submission of the first stage Pre-Qualification Questionnaires for the CCScompetition closed in March 2008, withnine statements of interest. BERR willselect from these, and then invite finalbids, with the intention of closing thefinancial contract with the wining consor-tium in early autumn 2009. That CCS sys-tem has to demonstrate the full chain ofcapture, transport, and storage at 50MWscale by 2014 and at 400MW scale “assoon as possible” thereafter.

But what exactly does this mean forCCS? Three aspects are important inunderstanding the implications of theCompetition for UK CCS: funding, thenovelty of the project for BERR and thechoice of technology. These are examinedin more detail below.

FundingThe BERR competition30 aims to focus onjust one subset of CCS technologies: post-combustion CO2 capture from coal firedpower plant. The competition will providefunds for the additional costs (on top ofnormal generation) of capture and com-pression, transport, and storage.Although no figures have been publishedby BERR, these costs can be estimated as£1,450 million from 2014 to 2024 (seeEstimated costs of one 400MW coal CCScapture)31.

At present it appears that this will bepaid for from public funds, i.e. from tax-payer income to Treasury. Alternativefunding mechanisms, based on market sys-tems, are examined below. These can passcosts onto electricity users, a fairer systemwhich minimises risk and cost to Treasury,and can fund multiple projects. There isstill time to switch to an alternative fund-ing mechanism, or to run two systems –one as procurement, the second as a com-mercial market.

Timeline for delivery The timeline to demonstrate the full CCSchain, from capture to transport to storage,is 2014. However, cautious wording byBERR permits only 50MW to be opera-tional by end 2014, with the full capacitydemonstrated, “As soon as possible there-after.”

Although the intention may be to have aCCS system operating on a full power

28 DTI, Meeting the energy chal-

lenge, A white paper on Energy.

May 2007 CM7124, see www.

berr.gov.uk/energy/whitepaper/p

age39534.htm

29 No 10, CCS competition,

2007, see http://www.number10

.gov.uk/output/Page13791.asp

30 BERR, UK CCS competition,

2007, see http://www.berr.gov.

uk/files/file42478.pdf

31 See footnote 20.

Moving Forward: Developing CCS in the UK


Estimated costs of one 400MW coal CCS capture

� Capture equipment at the power plant £600M; � New build pipeline £200M;� New subsea injection facility offshore £50M

(Or offshore platform modification £100M);� Offshore Operation and Monitoring costs £10M/r for 10 yr = £100M;� Operation of capture at power plant £40/ton x 2.0Mton CO2 x10 yr,

Less EU-ETS price @ £20/ton = £400M.2014-2024 TOTAL: £1,450 M

6000Ft Under_HDS 18/6/08 19:46 Page 23

32 SCCS, Worldwide listing of

CCS commercial storage proj-

ects: actual and proposed. 2008,

see http://www.geos.ed.ac.uk

/sccs/storage/storageSites.html

24


plant, this wording leaves it open to thewinning power company to add-on a largepilot plant to an existing power station,remove CO2 from a site by boat, avoidbuilding a pipeline, and only seriouslyaddress the full-size aspect when the EUrequires it, for example after 2020.Consequently, there is a risk that the pro-curement rules are not sufficiently rigorous.

The procurement project also states:

“When the UK Project is operational, by2014, it will be a world leader in thisglobally important technology. As well asbeing one of the first full-scale CCSdemonstrations, it will be the first todemonstrate post-combustion capture ofCO2 at scale on a coal-fired power stationin the world.”

This may have been true at the time it waswritten in early 2007, but is a hard claimto substantiate into the future. As can beseen in the previous chapter it is veryapparent that combinations of state andprivate funding are set to develop full scalecoal-fired CCS plant in Australia, USA,China and Canada – with full scale gas-fired plant also being planned and fundedin Norway and Abu Dhabi32. It is clear thatmultiple demonstrations of CCS compo-

nents will occur from 2008 onwards, espe-cially using new solvent capture methods,and using injection into a diversity of geo-logical deep storage sites. Several claims arebeing made that commercial sized plantwill start operation in 2012 to 2015,including both new-build for gas andretrofits on gas and coal.

Does that matter? The UK project willprovide a reliable and well-documentedprocurement, and is likely to be amongstthe first in the world. In that sense, it willachieve its objectives. However the UK isrecognizing that there are substantial newbusiness opportunities being created inCCS, renewable energies, and carbontrading.

To take advantage of those opportuni-ties requires development of practicalexpertise in real projects. In a competitiveworld market, being number three ornumber eight to arrive in the marketplace,even with an excellent single product is ahigh-risk gamble. This is what the out-come of the BERR Procurement will pro-vide. It is better perhaps to arrive as num-ber two in the marketplace, with a diversi-ty of rapidly evolving and flexible prod-ucts. This outcome could be the result ofcreating opportunity now for businesses todesign, fund, build and operate multiple

Advantages of the CCS Procurement Competition:� A good understanding is gained by government of the costs at each step;� A functioning power plant will be obtained;� The type of power plant is suitable for large numbers of sales worldwide;� Accurate cost discovery enables setting of support levels in future.

Disadvantages of the CCS Procurement Competition:� Reduced flexibility to react to events;� The cost limits are not well defined at the outset;� Funding comes from Treasury, not from users;� One project does not create a diverse supply chain of UK businesses;� Choosing one technology reduces UK expertise in IGCC or gas plant;� Competition is delayed and does not drive down prices;� Reduced ability to create a pipeline network, or subsequent plan.

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CCS plants in the UK. What is needed is afunding mechanism which is ‘blind’ to thetype of CCS, and can support several CCSprojects in a competitive market setting.

A unique Government projectThis CCS procurement project is uniquein the history of BERR. Never before has aproject this size been handled in this way.The technology is viewed by BERR as“undeveloped”, giving less certainty aboutthe results and prices. The companiesinvolved, dominated by the power indus-try, are not experienced in dealing withGovernment on this scale.

Choice of technology: Post-combustionAs part of the CCS Competition, BERRhas chosen to focus on post-combustioncapture, or oxy-fuel retrofit, to existing ornew-build coal fuelled power plant.BERR’s reasons for this are that Post-com-bustion capture is considered to havegreater UK-wide applicability, and a greaterapplicability for retrofit to coal fuelledpower plants in China and India. Howeverit does have the consequence that the UK ismaking an early choice of one CCS tech-nology, which may prove to be only part ofthe technology spectrum. The UK usuallyprofesses to be against technology choices –but has made choices frequently in the past– for example by investing in onshore wind

power devices, or investment in particularnuclear power rectors.

Post–combustion capture on a coal plantdoes have particular advantages (Benefits ofPost-combustion). One of these is the speedat which the equipment can be developedand improved. A major cost of CCS, andpenalty of additional energy used for CO2

separation, is the capture and compressionsteps. Because post-combustion is notessentially integrated into the combustionprocess, the capture and compressionequipment, and different solvents or mem-branes and materials use for capture, can beindividually replaced and improved duringthe evolution of the power plant over yearsor decades. Consequently, the benefits ofexperimentation, and the benefits of learn-ing from other power plants in the world,can be used without the time delay andhuge expense of rebuilding an entire powerplant.

CCS Project Failures in the UKBP (British Petroleum) investigated CCS asearly as 2003 in the UK. That project was tosupply 2Mt CO2/yr from the Grangemouthoil refinery, to enhance oil recovery from theForties oilfield.

That project did not proceed, because ofthe low price of oil at that time, the expenseof offshore engineering, and ironically

Benefits of Post-combustion� Can be fully or partially retrofitted to existing plants (with a suitable design) and is a very pow-

erful means of substantially reducing their greenhouse gas intensity.� Can also be integrated into new plants, or as “capture ready” plant.� Can be very flexible during operation (zero to full capture operation) in response to varying

demand from National Grid electricity. � If necessary, CCS can be turned off to deliver full electric power to the Grid.� Has the ability for staged implementation, which is not possible with competing technologies.� Can be fitted to capture CO2 from gas fired power plant, or other large stationary sources of

CO2, such as steel, paper, fertiliser or cement.� Can easily be upgraded with improved components such as solvents or compressors as these

become available.

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26


because a long-term supply of CO2 could notbe guaranteed. Forties oilfield was sold toApache, and oil is now produced using seawater injection.

In 2005, BP announced a second CCSproposition for the UK. This was timed tocoincide with the opening of the G8 atGleneagles, chaired by the UK. This was abold proposition for the world’s first inte-grated CCS power plant, in partnershipwith Scottish and Southern Energy, whichwould have started operation in 2009. Thiswould have taken an existing feed of natu-ral gas into the Peterhead power station,derived from the northern North Sea. Thegas would have been chemically split toform hydrogen – which would have thenbeen burned to generate electricity, and theCO2 transported offshore, via an existingCO2-resistant pipeline, to produce addi-tional oil from the Miller oilfield.

This project had several unique advan-tages to the UK:

a A cheap entry point to North Sea stor-age would be gained with re-use of anexisting pipeline saving £200 million ofcosts;

b A secure storage site – proven to havestored both oil, gas and CO2 for manymillion years;

c A tax take to the Treasury of 40 millionbarrels of extra oil production (i.e.£1,000 million if oil is £50/barrel andtaxed at 50%);

d Timely establishment of a pipelinepathway to Enhanced Oil Recoveryusing CO2 in the North Sea, by afinancially secure trans-national oilcompany, with a potential of 1,500million barrels on the UK sector and afurther 1,500 million barrels in theNorwegian sector;

e A worldwide lead in CCS deploymentof 3 to 6 years.

Following the G8 statement on “accelerat-ing and commercializing CCS” augment-

ed by positive statements in the March2005 Budget and 2006 Energy Review, aflurry of commercial interest was created inthe UK to develop CCS projects.

In early May 2007 there were nine com-mercial propositions for CCS in the UK.

This was by far the greatest number, andgreatest diversity, of commercially pro-posed CCS plant in the world.

Were all these to have been built, 20% ofUK baseload electricity could have beendecarbonised by 2015. However this num-ber was reduced as BERR refined the speci-fication for the procurement Competition.In March 2008, a different nine proposalshave been submitted to BERR for the CCSCompetition, of which just one may bedeveloped on part of a power station, some-time after 2014. Is this the rejection ofanother gift-wrapped opportunity for CCS?

Why did Peterhead fail?From their initial announcement in mid-2005, BP made it clear that that:

1 This offer was limited in time, becausethe Miller field would start to bedecommissioned in 2007;

2 This offer would require price supportby the Government, because of its ‘firstof a kind’ nature, and the lack of explic-it support from the EU-ETS.

The request from BP was for a “decar-bonised Renewable Obligation Certificate(ROC)” of £30 per MWh, to take thewholesale electricity price to £60 perMWh. This compared favourably with theROCs given for onshore wind power,resulting in an income to the plant opera-tor of £70 per MWh. If the decarbonisedelectricity was 400MW, at 8,000 hr/yrplant operation, then that would require£96 million per year of subsidy – and halfof that when CCS becomes included with-in EU-ETS from 2013. BP provided theUK Government with a ready-made CCS

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package. However nothing happened. TheGovernment let the opportunity slideaway, and with that, gave up leadership inCCS projects, and the chance for a low-cost link to storage of CO2 in oilfields.

On 23 May 2007, timed to coincidewith the publication of the Energy Whitepaper, BP very publicly withdrew its offerof Peterhead-Miller from the UK. An iden-tical plant developed by BP is now sched-uled to be commercially operating in AbuDhabi by 2012.

The electricity subsidy would have costconsumers (not the Treasury) £1,150 mil-lion over the project life. Set against thiswould be the tax income of about £1,000million, and creation of many hundreds ofjobs. This compares very favourably withthe projected £1,450 million of tax incomethat the Treasury will provide to BERR forthe current CCS Competition. A simpleconclusion is that the UK is now about toembark on a difficult CCS venture, when aless expensive pre-packaged solution wasnot taken up.

The inertia by Government during thePeterhead-Miller debacle is explainedaway with reasons such as a lack of cer-tainty on costs, a need to discover operat-ing costs, and lack of sufficient enablinglegislation. An alternative explanation isthat this was in reality an immense failureof foresight, which led to the Governmentbeing caught unawares by a large com-mercial proposition. Faced with insuffi-cient established information and uncer-tainty on precise costs, the Governmentexperienced a lack of will to take rapidand bold decisions to control the situa-tion on a commercial timescale. Insteadof learning that the commercial world canmove rapidly and flexibly, theGovernment still seems intent on control-ling the details of CCS development bymeans of the CCS procurement competi-tion. An alternative method is to loosendirect control, and set up a market systemto enable commercial creativity.

An Additional UK Route to CCS DeploymentIt is proposed here, that a second route bedeveloped to encourage building of CCSpower plant in the UK. This could bemore rapid and simpler than the currentcompetition, be commercially based, cre-ate multiple projects, and leave most of therisk with the developer. The concept issimple: five projects were disallowed by theBERR stipulation of the power plant tech-nology; nine projects have been proposedin March 2008, only one can win theCompetition. Will any of the 13 disal-lowed or losing projects wish to take a dif-ferent route? If just 3 or 4 do, the UK willbe extremely well-positioned for rapidCO2 reduction, and future CCS business.

The crucial barriers are funding, licens-ing, and regulation. UK efforts haveensured that the second and third are onthe way to being solved. Can the UK cre-ate a method of solving the financing?

As CCS would provide generators witha means of reducing their CO2 emissions,payments from the European UnionGreenhouse Gas Emission Trading Scheme(EU-ETS) could be used to pay for elec-tricity produced by CCS-fitted plant.Restating the additional costs of CCS interms of £/CO2 saved gives an estimate ofaround £27/tCO2.



45 -

40 -

35 -

30 -

25 -

20 -

15 -

10 -

5 -

0 -

PC CCGT IGCC

Technology

Ad

ditio

nal C

ost

(£/t

CO

2)

Estimated phase 3 EU-ETS

Figure 7: Additional cost ofabatement depending on theestimated EU-ETS level

6000Ft Under_HDS 18/6/08 19:46 Page 27

However as seen in Figure 7 the level ofsubsidy provided by the EU-ETS from2013 onwards (Phase 3) is only estimatedto be around €35/tCO2.

In addition the significant variability inthe prices in earlier Phases means thatthere is quite a lot of uncertainty over thisestimate. This uncertainty would probablybe sufficient to deter investment in CCSeven if the estimated value covered the esti-mated additional cost of CCS.

In fact this is an inevitable result of theway the EU-ETS works – it sends a pricesignal from the market based on the mix oftechnologies currently available to provideemissions reductions.

In the power sector the most importantof these opportunities to reduce emissionsis the switch from coal to gas (both with-out CCS). There are also energy savingtechnologies for industry that help keepthe ETS price relatively low. So left on itsown the ETS is a way of paying for deploy-ment of existing technologies not develop-ment of new technologies.

Given this reality, CCS will need a subsidyin much the same way as on-shore windpower has required a guaranteed subsidy tomove from the demonstration to what theGovernment terms a reference Phase.

How much?The current government-funded CCS com-petition will reduce the uncertainty overcosts (mainly for PC plants) once one isbuilt in 2014. That is to say that the errorbar around the central point for PC inFigure 7 will get smaller but there is stilllikely to be a gap between this central pointand the EU-ETS level. Hence if the UKwants to develop CCS there will be a fund-ing gap that has to be filled until the costs ofCCS fall to enable it to survive on the EU-ETS (or whatever sets the carbon price forgeneration in future).

Our best estimate for the required initiallevel of subsidy (based on the centralpoints in Figure 2) is £22-£29/tCO2. To

cover the full range of potential costs thesubsidy would be £11-£40/tCO2.

The way this subsidy is delivered (as wellas its level) matters for getting CCS built.There are a number of reasons for this:

� The very large private sector capitalinvestment will require a commitmenton the time the subsidy will be avail-able and the conditions for revising itas CCS costs fall. Lowering uncertain-ty reduces the cost of financing andmakes it more likely that CCS will bebuilt;

� The private sector is best placed to bearrisks related to construction costs(where it has more information, experi-ence and control than government).The subsidy should therefore be paidon delivery of CO2 stored;

� Information generated on the costs ofCCS as early plants are built should beshared to reduce the uncertainty fornew investment. Information sharingcould be made a condition for receivingfunding.

However the single key requirement forthese projects to move from the desktopto the concrete foundations is a suitablyhigh, and especially a reliable, incomestream.

There are already a wide range of sub-sidy mechanisms for renewable energywithin the EU.33 It makes sense to adaptone of these for CCS as using an existinginstrument reduces uncertainty.

Policy mechanisms to enable widerCCS Deployment and DiffusionA suite of established policy options areavailable which could be applied to CCS.These need to address the following fund-ing questions:

� Is the base price secure enough for com-mercial CCS development in the UK?

33 See for example, Oxera,

Renewables support in selected

countries: report prepared for

the National Audit Office, 2005,

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� How can funds be raised and distrib-uted simply?

� Can this fit well with existing UKand/or EU mechanisms?

� Will this method for CCS damageinvestment in renewables?

� Can a competitive UK market developfrom this start-up system, to reducecost, and add to UK export potential?

� Is the risk low enough to Governmentand to consumers?

� Does this help achieve the Governmentenvironmental objectives?

Although the present UK electricity supplysystem is supposed to be a ‘free market’, it iscurrently distorted by the existing ROCfunds and by the Government’s preferencefor nuclear34 as base-load plant in the medi-um term. These distortions tend to favourthe choice of those technologies over cleanfossil with CCS. The challenge to provideelectricity sustainably is on three timescales:

� Near term (to 2020) – providingenough electricity during plant clo-sures, whilst demonstrating a variety ofrenewables and CCS;

� Medium term (2020 to 2050) – mak-ing renewables and CCS routinelyprofitable and reliable;

� Long term (2050 onwards) - decreasingreliance on fossil fuels and providingabundant reliable and cheap renewableenergy.

Mechanisms for the UK of providingsecure financial support during the transi-tion to routinely commercial CCS can beconsidered in related themes:

Working within EU-ETS 1. Free award of EU-ETS permits based onhistoric emissions within EU-ETS, whichcould be sold profitably by CCS plant opera-tors in the high carbon price market.This is flawed, as the price of EUAllowances (EU-A) from 2013 is predicted

to be only around €35, rather than the€60-80 required. There is no guaranteethat the plant will run, and operators couldmaintain dirty plant to gain EU-A’s. TheEU-A becomes an opportunity to makeprofit, rather than an imperative to reducecost.

2. Advance sale of future EU-ETS permitsat low present prices, to enable future sale bycompany at higher price.This can create a market in EU-ETSfutures. The advantage is that emitters canbuy in advance at a cheap cost, install CCSso that the emission allowance is not need-ed and then, at a later date, sell the EU-Allowance into the carbon market of theday at a higher price.

Advantages of this method are its mar-ket basis, uniformity across the EU, andability to extend to larger markets as theyemerge worldwide.

Disadvantages are the lack of certaintyover future EU-A prices, which would stillneed to double, to achieve the requiredincome. Prices in the power sector EU-Awould need to be separate from, and sub-stantially higher than, the industry sector.

3 Auctioning of EU-ETS permits to thepower sector.Free allocation of permits is not working.Phase 2 of the EU-ETS is producing per-verse profits of €6-15 billion in the UKover 5 years, which stay as windfalls withthe power companies35.

Auctioning has been proposed (January2008) by the European Commission, andrequires uniform EU action, because themarket spreads across the entire EU. Thishas dual benefits, as the carbon willbecome a cost to power producers (ratherthan the profit opportunity in EU-ETSPhase 1), and a large new income will bereceived by the Member State.

For the UK, at a carbon price of€30/ton and power sector emissions of160Mt/yr CO2, the new income will be

34 Secretary of State John

Hutton, “New Nuclear Build:

How do we make progress?”, 26

March 2008, see http://www.

berr.gov.uk/pressroom/Speeches

/page45417.html

35 WWF, EU ETS Phase 2- the

potential and scale of windfall

profits in the power sector,

Point Carbon Report for WWF,

2008 (March), see http://assets

.panda.org/downloads/point_car

bon_wwf_windfall_profits_mar08

_final_report_1.pdf

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€4,800 million per year. However, accord-ing to the EU, this system may increaseelectricity prices to consumers by €100 peryear. This crucially relies on the MemberState to capture the benefits by voluntaryspending to support CCS or renewableenergy projects. The UK has indicated thatit will not be bound by a stipulation toallocate funds to any topic36.

In principle, this new income could eas-ily provide the entire funding for one400MW CCS project each year in the UK.In summary, this is an excellent “stick” toencourage power industry take up of CCS,but the “carrot” is unreliably controlled byMember States, who have priorities whichare not CCS.

4. Multiple allocation of free EU Allowancesto CCS plant (MEUA).This appears paradoxical, as the polluter isrewarded not charged. But if the multipleallocations are paid after CO2 is stored,this becomes a reward for cleanup.

This is a simple and powerful method.Free permits would be allocated to coaland gas plant fitted with CCS, but wouldonly match the amount of CO2 capturedand stored. These permits would not beneeded, and could then be sold at the EUmarket rate into the power sector.

About 9% of the total power sector per-mits would enable 12.8GW of power plant,storing 60Mt/yr CO237 by 2020. To coverthe initial costs of CCS it is probable thatdouble, or even treble, allocations would beneeded. Power plant with no CCS wouldstill need to buy EU-A on the capped mar-ket. Free permits incentivise CCS plants tobe both built and to operate. Benefits arethat this is conceptually simple, with lowmonitoring and transaction costs, and thatpermits are directly controlled by Brusselsnot the Member State.

The costs of the current EU-ETS arealready priced into UK electricity38 so tofund demonstration projects consumers will

experience minimal price change. Full CCSdeployment will increase electricity pricesbut by less than the costs of buying expen-sive EU-ETS allowances in future. If theClean Development mechanism is extendedto include CCS, it could pay for CCS proj-ects in China to be operated from the UKand paid for by Multiple EU-Allowances.

Disadvantages are that this could be per-ceived as giving permits to polluters ratherthan charging them; and the price of EU-ETS is not guaranteed. Therefore companieswould need to share some risk if the shortterm price dropped, and a ceiling price maybe necessary to prevent unintended profits ifthe EU-ETS price increases. This system isjust for start-up of CCS, and has to be tran-sitional into a medium-term timescale post-2020, because all power plant will eventuallybe included if the system is successful. Ataper to zero free allowances is required, insynchronisation with a rising EU-ETS baseprice. Consequently, to terminate thismethod of funding requires a link to highEU-ETS prices outwith the power sector,which may not be desirable.

Working within UK systems5. Government underwrites the EU-ETSminimum base price.This involves a risk for Government, to pro-vide baseline funds of €30 to 60/ton CO2 ifthe EU-ETS market remains low. It is notclear how the Government recoups itsmoney, except by waiting to sell EU-A at ahigh price some years later, or by cross-sub-sidy from the new Phase 3 Auction revenue.

6. Regulation to enforce CCS on all new-builtplant from 2008, operational by 2020. Such a policy would reduce the ‘lock-in’ ofCO2 production from newly-constructedplant during its 30 + year lifetime. There ishowever no current requirement to fitCCS, as demonstrated by the applicationfrom E.ON to build a new coal-fired plantat Kingsnorth. The developer has offered

36 DEFRA, Consultation on EU-

ETS Phase 3, 2008, see

http://www.defra.gov.uk/corporat

e/consult/euets-2013amend-

ments/consultdoc.pdf

37 Climate Change Capital, ZEP:

Analysis of funding options for

CCS demonstration plants,

2007, see www.climatechange

capital.com





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“capture ready” for this plant, but itremains unclear how a transition would beenabled from capture ready to the costs ofbuilding a full capture plant, and then theincreased running costs of operating thatplant. This could create a moratorium onnew coal plant in the UK, but provide noremedy elsewhere in the world. In isola-tion, without extra funding, this will notpromote CCS projects.

7. Create a new band of DecarbonisedRenewable Obligation Certificate (DROC). Such a method, focused on decarbonisedfossil fuel – either coal or gas, could run inparallel with the present Banded ROC, ata level to be decided.

The recent innovation of Banding is aresponse to the great success of onshorewind (supported by 1.0 ROC), but apaucity of development for offshore wind(ROC 1.5), or wave and tide (ROC 2.0).There is a similar need to financially incen-tivise CCS. Industry predicts that CCS atmaturity would need less than 1.0 ROC.

The advantage of DROC is that it workswithin the existing UK system. However,extra costs to the consumer may arise in addi-tion to the EU-ETS costs already priced in tofossil-fuelled electricity and it is not clear ifprimary national or regional legislation isneeded, or whether this can be adapted fromthe present Energy Bill.

Disadvantages are that: it is unclearexactly what level is appropriate forDemonstration plant; perverse profits canbe made from sale of DROC derived fromnon-operating plant; the system is complexand according to Ofgem39 not the route tocheapest electricity.

Once decided, the DROC agreed into thefuture for Demonstration projects has to bemaintained, not reduced. In the mediumterm (post 2020), the correct DROC pricewill be known, and will also be less if the EU-ETS price continues to rise. This requirescontinued government intervention.

8) Creating a Decarbonised Obligation toSupply Electricity (DOSE).A national DOSE could be set, for exam-ple as a percentage of fossil-fuel electricityfrom each generator. Those without CCSplant would need to purchase off rivals,resulting in an incentive to build and oper-ate plant. Decarbonised fossil electricitycould be imported from Germany, Norwayor Holland if their plant was operatingfirst. The increased DOSE price would becombined into the tariff to consumersfrom each generator, so that all wouldmove forward at a similar rate.

Advantages are periodic opportunitiesfor government control: the DOSE withinthe UK could grow at a defined rate, withforward visibility for 10 to 15 years. Thiscreates some incentive to develop CCScapability within each generators portfolio.

Disadvantages are that a too-ambitiousdefined growth curve may reduce theopportunity to transfer power generationfrom fossil to renewables and to nuclear (ifthat is what is desired), and would amountto a technology choice for clean fossil. Thisrequires continued government interven-tion.

9. Tax exemption to provide enhanced capi-tal allowances on construction of facilities. This doesn’t really help the long term run-ning and operation costs and is an insuffi-cient single incentive.

10. Tax allowances at 100% for losses on anew project. This doesn’t really help the long term run-ning and operation costs and is an insuffi-cient single incentive.

Working within other systems11. Create a decarbonised electricity feed-intariff (DEFIT). This type of approach originated in theUSA, where it is sometimes known as aPower Purchase Agreement. This is a long-





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term contract to buy power from a compa-ny that produces electricity. The providingcompany assumes the risks and responsi-bilities of ownership when it purchases,operates, and maintains the generationfacility.

A key benefit is that the known priceenables the electricity company to borrowmoney to construct the facility. Thisapproach has recently been very successfulin producing large availability of renewableelectricity from small-scale sources,notably in Germany and also in Denmarkand Spain. However it has not beenfavoured in the UK, because it is not basedon a market price.

Such a method would oblige Ofgem topurchase this electricity from producers for aprice higher than the minimum, and thensell to suppliers on the UK grid where theextra cost is spread over all consumers.Contracts can be signed for 5, 10, or 20years into the future. The setting of the priceis by negotiation with the Government (orother controlling organisation).

Other advantages of this method, arethe enabling of a diversity of CCS supplytypes, and the ability to price independent-ly of, and outlast, the EU-ETS.

A disadvantage is that it does not explic-itly drive down prices, and the true price ofCCS to set for the opening years is not yetknown from operational experience.However this can be mitigated if theDEFIT decreases into the future.

A method to set the percentage of decar-bonised supply may be needed, to enablecompetition with conventional ‘dirty’ coaland gas, to avoid crowding-out renewablegeneration, and to reach an appropriatebalance with nuclear generation. As a fur-ther finesse, it could be considered that thesetting of price is least well done byGovernment, who are typically interestedin short-term trends, and long term pric-ing may best be achieved by an independ-ent body, analogous to the way interest

rates are set by the Bank of England andnot the Government.

Which one?As seen above many options exist but 4)Multiple allocation of free EU Allowances toCCS plant (MEUA), 7) Create a new band ofDecarbonised Renewable ObligationCertificate (DROC), or 11) Create a decar-bonised electricity feed-in tariff (DEFIT),would be the most effective.

Of these, the only one to work withinthe EU-ETS market is the allocation ofmultiple allowances. This can also enablebuilding of CCS plant in China, if theClean Development Mechanism is adapt-ed to include CCS.

The advantages of these three systemsare firstly that costs lie with the consumer,not with the taxpayer via government.Secondly, several projects can be devel-oped, with several different carbon capturetechnologies, and several different storagesites. Thirdly, this programme will enablea CCS supply industry to develop in theUK, which can reduce costs by learning onseveral domestic projects, and can thendesign and develop projects worldwide.

On their own the implementation ofany of these would be sufficient to supportthe development of a CCS industry in UK.Which one to choose is thus up for politi-cians to decide.

Having supported the creation of anindustry we now turn to making sure weare ready for it when it comes.

Making ReadyCapture Ready (CR) is a concept whichtries to address the probability that newcoal and gas plant will be built in the UK,in the EU, and worldwide before a fullyfunctioning CCS market exists.

The fundamental concept of CR is thatnew plant will be built in a way which per-mits (and certainly does not preclude) the

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fitting of CO2 capture equipment at sometime in the future. What this actually for-mally entails in the UK remains obscure.

In the intervening time, many UK andEU power plants will close because theyreach the end of their working lifespan, orbecause of NOx and SOx emissions regula-tions affecting coal plant. It is estimated byRWE npower (and many other powerindustry organizations) that the UK willneed 20-40 GW of new power plant by2020. This renewal of power plant providesan opportunity to construct renewables,nuclear, or new efficient coal and gas fuelledelectricity generation. Simultaneously thisalso raises a problem of what to do beforeCCS is ready and fully-proven. Does theplant get built, to add to CO2 emissions?Or does the plant get banned, until CCS isready – risking the security of electricitysupply?

A detailed analysis of CR40 suggests thatthe CR concept is simple on a site, butmuch more complex if it is to be a meansto operating CCS. In this larger view, thenCR is really better considered as CCS-ready, as that is the ultimate purpose. Ifthis is adopted, then CCS-ready includesan assessment not just of fitting carboncapture equipment to a power plant, butalso evaluation of the method and route ofCO2 transport, and evaluation of the stor-age site, development of skills and capabil-ity to operate CCS in the power company,the chain of business connections toachieve the capture transport and storage,and the imposed regulatory and financial

systems to enable the enterprise to be prof-itable. Lastly, there needs to be a set ofconditions, based on technical progresswith CCS worldwide, to trigger mandato-ry conversion to CCS operation.

The UK has already consented to fournew gas-fired plants being constructed asbeing Capture Ready, without any defini-tion of what this means. In 2008, theapplication by E.ON for a new coal-fuelled power plant at Kingsnorth wastemporarily withdrawn after Greenpeaceand media interest in its Capture Readyproposals exposed the lack of definitionwithin the BERR rules on capture ready.

Capture Ready can become an opportu-nity to mandate and enforce CCS at anearly date in the UK, or it can become abattleground for confrontation betweengreen activists, Government, and powercompanies. CR can be an excuse for com-panies to build new fossil fuel power plant,without a clear means for conversion toCCS, or it can be a strong signal fromGovernment that CCS is required andinevitable.

Putting into practiceCapture Ready may be simple in concept,but it is hard to specify, and requiresdetailed regulation and intervention byGovernment. A simpler route may be tocontrol Greenhouse Gas emissions from apower plant.

This method, of performance standards,is used elsewhere in UK Government. Inprinciple, it is similar to the standards pro-

40 WWF, How ready is capture

ready? Scottish Carbon Capture

Centre report for WWF. 2008

(May), see http://www.geos.

ed.ac.uk/sccs/publications.html



Table 2 Emissions data for new plant (Rubin 2007)

Kg CO2/MWh Coal Gas

PC IGCC NGCC

w/o capture 736-811 682-846 344-379

with capture 92-145 65-152 40-66

Reduction, % 81-88 % 81-91 % 83-88 %

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posed for the emission of a mass of CO2

per km of car driving. Transferred to apower plant, that would be emissions (kgCO2) for each unit of electricity produced(MW hr). The emissions for different typesof power plant are well known now, andcan be predicted with CCS (Table 2).

Using emissions standards to covert theUK fleet of fossil fuel power plant to CCSrequires at least three steps. One possiblemethod is simplistically outlined here.Numerous complexities are possible, notleast the choice of different emissions stan-dards for different types of plant, with dif-ferent fuels, with and without CombinedHeat and Power.

First, Government rules that all new fossilfuel power plants built after 1 January 2009,must have average annual emissions fromthe whole plant of 350 kg CO2/MWh.

This would eliminate new-build coalwith no CCS, and still enables gas, toavoid power shortages. Developing newcoal plant with CCS is still feasible withinthis emissions limit. Existing plants con-tinue unaffected. Power companies canexperiment with post-combustion cap-ture, if desired, by fitting experimentalcapture equipment to cleanup part of theflue gas stream. RWE has stated that theirexperiment from 2008 of 1MW (8,000t/yr) capture facility on Aberthaw will cost£8.5M, and RWE plan a further 25MW(200,000 t/yr) pilot unit at one of theirown plants. These costs may be reduced, ifpower companies create shared facilities –as in the EU-funded project at EsbjergPower Station operated by Elsam inDenmark (CASTOR 2008), where 30organisations share the results, for a total

price of £12.5M for 8,000t CO2/yr overfour years.

Second, the emissions standard thenmust step down to become even morestringent for new plant.

This is for two reasons, firstly to bring gasinto the CCS requirement; secondly tobring coal fully fitted with CCS into therequirement. This standard could be intro-duced from 2015, and be 170 kgCO2/MWh for the whole plant, which per-mits IGCC with CCS, and Pulverised Coalwith CCS operating most of the time, butallowing venting of CO2 during ramp-upand ramp-down of electricity generation tofollow electricity sales to the grid. A separatestandard of 70 kg CO2/MWh could be con-sidered for gas plant, to gain maximumdecarbonisation benefit.

These plants will not be commerciallyviable unless financial support is provided toexceed the expected EU-ETS price of €30per ton, and give a guaranteed floor price ofat least €40-80 per ton for the interim peri-od until the EU-ETS price reaches a similarlevel. Any CCS plants commissioned before2015 will also need this floor price guaran-tee. A hgher price for CO2 is not expecteduntil after 2020 or 2025, but could be soon-er if tighter emissions caps are enforcedacross the EU from 2020. That is not in theUK’s control.

Third, the older existing plant isbrought into the system, by CCS retro-fitting.

This can share the same standard of170kg CO2/MWh for coal, and potentially70 kg CO2/MWh on gas, for the same rea-sons as discussed above. The date forenforcement is logically from 2020, if theEU-ETS base price can be guaranteed from2020 by the capped market. This gives theopportunity for 5 years operational experi-ence after the first demonstration plantsstart in 2015. Substantially longer experi-ence may be gained if companies invest intheir own, or shared, pilot facilities.Commercial capture by retrofitting is


34

“ If Government takes heed and acts now we can

ensure that CCS does not become just another missed

UK opportunity”

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expected to be demonstrated from 2012 inthe USA, Norway and Australia. The paceof transition to CCS is important. A fastpace is required if climate change impera-tives are dominant. This can benefit theearly deployment of CCS in the UK, andhence assist creation of a diverse UK supplychain for CCS. A slow pace is allowed ifconservative industry interests and ‘securityof supply’ arguments are dominant.

Into The FutureIf Government takes heed and acts now wecan ensure that CCS does not become justanother missed UK opportunity. A widerange of options exist to make sure wedevelop our industry and if done properlywe can ensure we are ready to take advan-tage of it when it comes.

The UK was first to industrialise. TheUK can be first to decarbonise.

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Appendix: Study Estimates and Key Assumptions

Notes: The average cost range for IPCC and Anderson is applied to BERR and IEA estimates

36

Key assumptions in the studies used:

BERR_Poyry IPCC Anderson for Stern review IEA

When in operation 2015 Now Within 10 years 20102006 prices

Counterfactual Existing coal station Existing station Unknown Existing station ofof same type of same type

CCS technology Upgrade to super critical New build Unknown New buildand retrofit MEA

Coal price £3.78/MWh £2.73/MWh unknown £2.75/MWh

Gas price £11.95/MWh £7.85/MWh £14.4/MWh £5.50/MWh

Ad

ditio

nal C

ost

(p/k

Wh)

3.0 -

2.5 -

2.0 -

1.5 -

1.0 -

0.5 -

0.0 -

BE

RR

-Poyry

-

IPC

C -

And

ers

on -

IEA

-

Study estimates for additional cost of PC technologies

Ad

ditio

nal C

ost

(p/k

Wh)

3.0 -

2.5 -

2.0 -

1.5 -

1.0 -

0.5 -

0.0 -

IPC

C -

And

ers

on -

IEA

-

Study estimates for additional cost of IGCC technologies

Ad

ditio

nal C

ost

(p/k

Wh)

3.0 -

2.5 -

2.0 -

1.5 -

1.0 -

0.5 -

0.0 -IP

CC

-

And

ers

on -

IEA

-

Study estimates for additional cost of CCGT technologies

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References

Anderson, D., Costs and Finance of Abating Carbon Emissions in the Energy Sector, paper prepared for the Stern Report, 2006, see

http://www.hm-treasury.gov.uk/media/2/D/stern_review_supporting_technical_material_dennis_anderson_231006.pdf

Batelle, Global Energy Technology Strategy: addressing climate change. Phase 2, 2007, see http://www.pnl.gov/gtsp/docs/gtsp_

2007_final.pdf

BERR, Wind Background, 2008, see http://www.offshore-sea.org.uk/site/scripts/documents_info.php?documentID=6&pageNumber=2

BERR, RENEWABLES OBLIGATION CONSULTATION: Government Response, JANUARY 2008, see http://www.berr.gov.uk/files/file

43545.pdf

BERR, UK CCS competition, 2007, see http://www.berr.gov.uk/files/file42478.pdf

BERR, Meeting the energy challenge, a white paper on nuclear power, CM7296, Jan 2008

BERR, CAT strategy, 2008, see www.berr.gov.uk/energy/sources/sustainable/carbon-abatement- tech/page19502.html

BGS, JOULE II Project No. CT92-0031, The underground disposal of carbon dioxide, British Geological Survey, 1996

Bushby, Carbon capture and storage in the UK, in Baxter, J.M. and Galbraith, C.A.(eds), “Energy and the Natural Heritage”, TSO

Scotland, Edinburgh, 2008

CASTOR, CO2 from Capture to Storage, 2008, see http://www.co2castor.com

Climate Change Capital, ZEP: Analysis of funding options for CCS demonstration plants, 2007, see www.climatechangecapital.com

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DTI, A review of the feasibility of carbon dioxide capture and storage in the UK URN 03/126, 2003

DTI, CAT strategy: a strategy for developing carbon abatement technologies for fossil fuel use URN 05/844, 2005

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page39534.htm

Hansen, Letter to the UK Prime Minister, 2007, see http://www.columbia.edu/~jeh1/mailings/20071219_DearPrimeMinister.pdf

Hansen, Target Atmospheric CO2: Where Should Humanity Aim?, 2008, see http://arxiv.org/abs/0804.1126v1

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record_2007.pdf

Holloway, Energy Conversion and Management 38, S193-S198, 1997

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IPCC, Special report on carbon capture and storage, 2005, see www.ipcc.ch

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McKinsey, Cutting carbon, not economic growth: Germany’s path, 9 April 2008, see http://www.mckinseyquarterly.com/

Energy_Resources_Materials/Strategy_Analysis/Cutting_carbon_not_economic_growth_Germanys_path_2104

Miliband D, Green Peace: Energy Europe and the Global Order, 2008, see http://www.lse.ac.uk/collections/LSEPublicLectures

AndEvents/pdf/20080507_Miliband.pdf

No 10, CCS competition, 2007, see http://www.number10.gov.uk/output/Page13791.asp

NZEC, UK-China Near Zero Emissions Coal project, 2008, see http://www.nzec.info/en/

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Policy/Documents1/16669-ROrespJan.pdf

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tions/2113/debating-the-true-cost-of-wind-power-electricity.thtml

Rubin E.S., et al, “Cost and performance of fossil fuel power plants with CO2 capture and storage”, Energy Policy 35: 4444-4454, 2007

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pressroom/Speeches/page45417.html

Stern, The economics of climate change. Cambridge Press, 2006


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38


WWF, EU ETS Phase 2- the potential and scale of windfall profits in the power sector. Point Carbon Report for WWF, 2008 (March), see

http://assets.panda.org/downloads/point_carbon_wwf_windfall_profits_mar08_final_report_1.pdf

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publications.html

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sweeney.pdf

6000Ft Under_HDS 18/6/08 19:46 Page 38

Six ThousandFeet Under

Burying the Carbon Problem


Scientists and politicians have agreed on the need to reduce ouremissions by between 60-80% or face catastrophic climatechange. The issue now is exactly how we can achieve thesereductions. Carbon Capture and Storage (CCS) is an innovativetechnology that could reduce fossil fuel power station emissionsby up to 95%. Globally it has huge potential with estimatesshowing that fitting CCS technology could slash worldwideemissions by between 28-50% by 2050. However CCS is notwithout its problems: it is still at the demonstration stage andmuch like other low carbon energy sources, will require initialsubsidy to get it off the ground. In the meantime with new fossilfuel power stations being planned, decisions need to be madenow to ensure these new stations are compatible with CCSwhen it comes. This report from Policy Exchange looks at theissues behind CCS and assesses if enough is being done toharness its potential. In particular it examines the role CCS hasto play in bridging the gap between present energy demand andthe capacity of renewables to supply it; past and currentgovernment efforts to support the technology, including howpresent policy is insufficient to ensure the adequatedevelopment of CCS; and what can be done to ensure that notonly does the UK lead the world in CCS but also avoids beinglocked in to another generation of high carbon emissions.

£10.00ISBN: 978-1-906097-25-7

Policy ExchangeClutha House

10 Storey’s GateLondon SW1P 3AY

www.policyexchange.org.uk

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Six Thousand Feet Under: burying the carbon problem

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