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Carbon Capture and Storage: Is There a Future?
And is it all about the money? M.J. Huijbers LLM EHS Consultant Enhesa Carbon dioxide emission reduction is moving to the forefront of priorities in many jurisdictions to combat climate change and maintain environmental stability. In the European Union, the major goal is to reduce greenhouse gas emissions by 80-95% compared to the 1990 levels in all 28 Member States by 2050. In the European Commission’s view, it is not enough that industries reduce their greenhouse gas (including carbon) emissions to achieve this aim. The Commission is stressing that carbon dioxide capture and storage (CCS) should also be used as a mechanism. What is CCS? CCS is a process that allows carbon dioxide from large point source installations to be captured, compressed and injected into and stored underground in geological formations to prevent it from being released into the atmosphere. Currently, CCS is not actively taking place in the European Union. Many reasons like social acceptability, cost and infrastructural needs that are not yet in place cause overall scepticism. Therefore, there is a concern for the future for carbon capture and storage in Europe. The following will discuss the issues around CCS and whether it is an appropriate way to reduce greenhouse gas emissions within Europe. Problems that CCS is facing Finance Cost is the initial problem. Currently, it is more profitable for companies to buy emission allowances under the EU Emission Trading Scheme (EU ETS), which cost approximately €3 per tonne of CO2, while for CCS the price is approximately €30-100 per tonne of CO2. In addition, the funding provided under the New Entrance Reserve 300 (NER300) and the European Energy Programme (EEPR) needs the co-funding of public authorities in order to launch CCS demonstration projects. No such projects have started yet. Further, as CCS has not yet started in the European Union, no infrastructure is yet in place. Social Another problem is public opposition against carbon dioxide storage onshore. A good example is the Dutch Barendrecht case, where storage of CO2 under land would take place, was not carried out, as it was not socially accepted. The reason the project did not take place, was that civilians felt uncomfortable about having carbon stored under their land and the dangers linked to this storage. Still the decision was taken to store carbon under the land of these civilians and they felt that the decision was taken without them. In addition, scientists did not agree on whether carbon storage under land was considered to be safe and the local government opposed against the project while the national government was in favour of the project. Policies and legislation The final problem relates to current policies and legislation already in place. Under Directive 2009/31/EC on CCS, the storage company is, at least for 20 years, responsible for this storage. After those 20 years, once the CO2 storage is stable, the Member State government will take over this responsibility. However, storage companies do not want to be responsible for 20 years, because of the extensive period with which they will be liable. It should be noted that companies that capture and transport the carbon dioxide are exempted from this responsibility. Also, under the London Protocol, carbon dioxide cannot be stored underwater, because it is classified as waste. This further limits the availability of storage facilities and hinders the CCS movement. . Incentives for CCS When looking at these problems it would appear that CCS does not have a future, but this is not necessarily true. CCS also has some advantages and is an essential part of reaching the 2050 low-carbon economy goal. Some examples of CCS incentives are: – a reduction of greenhouse gas emissions. Modelling undertaken by the International Energy Agency (IEA) forecasts that CCS could contribute to a reduction of 19% of total global greenhouse gas emission reductions by 2050. This includes reductions from coal and natural gas-fired power plants, as well as all other sources. The overall goal is a reduction of 50% of global greenhouse gas emissions compared to the 1990 levels; – the oil and gas industry will get more oil and gas by injecting carbon dioxide. This is achieved by the technique of enhanced oil/gas recovery. For example, carbon dioxide is injected and this leads to an extraction of 30 to 60% or more of the reservoir’s original oil can be extracted, compared with 20 to 40% using primary and secondary recovery. (In the primary recovery phase natural pressure within the oil drives the oil towards the production wells and, with the help of pumps or other mechanisms, to the surface. In the secondary recovery phase water is injected into an oil reservoir to increase the pressure and again drive the oil towards the production wells.); – the creation of many more jobs, which is a very desirable development in times of a high EU unemployment rate. For example, the Carbon Capture and Storage Association (CCSA) states that CCS could create 100,000 jobs across the United Kingdom by 2030. This would contribute to £6.5 billion to the economy of the United Kingdom. Future of CCS? When looking at the problems and incentives of CCS it is difficult to say whether CCS has a future. Despite the financial problems, another major problem is that CCS is not yet socially accepted. Within the European Union, people do not yet fully understand why carbon dioxide should be stored under the ground and they want to see proof that health will not be negatively affected. The European Union public believes that carbon dioxide emissions have negative health effects, but this is something that will always be there to a certain amount. This is the complete opposite of Norway, where the public also finds that carbon dioxide emissions have negative health effects, but carbon dioxide emissions should be completely avoided. More specifically, in 2000, the Norwegian government resigned over the proposed construction of two gas power plants, which would lead to an increase of carbon dioxide emissions. Therefore, applying CCS is seen as a very positive development as carbon dioxide emissions are reduced and as mentioned above the good thing is more oil and gas is retrieved. However, it should be noted that storage of carbon dioxide is within the EU a major issue as the EU does not have as much storage place under the sea as Norway. Therefore, storage under land will be a necessity. In conclusion, the European Commission, together with the governments of the 28 Member States and CCS scientists should cooperate to bring the same message across, namely CCS is a bridging technology that is necessary to obtain a low-carbon economy by 2050. (See also statement of the European Commission in the Consultative Communication on The Future of Carbon Capture and Storage in Europe, COM (2013), 180 final of 27 March 2013, page 22: “CCS is at present one of the key available technologies that can help to reduce carbon dioxide emissions in the power generation sector”.) In addition, having more projects in place which show that CCS works, and is not dangerous (living on a natural gas well is more dangerous) and brings people something (such as jobs), then CCS has a bright future. M.J. Huijbers LLM is EHS Consultant for NL and partially EU for Enhesa. Continue reading
Carbon Market Helps Cut Emissions
Carbon market helps cut emissions Updated: 2013-07-29 08:39 By Jiang Xueqing and Chen Hong (China Daily) Substantial step taken to clean up environment and save energy, report Jiang Xueqing and Chen Hong in Shenzhen, Guangdong province. On July 18, one month after China launched its first pilot carbon-trading program in Shenzhen, Guangdong province, the city began consulting local businesses and government departments about its draft regulations for the project. The regulations emphasize that carbon credits are corporate assets. The launch ceremony of the Shenzhen Emissions Trading Scheme saw Shenzhen Energy Group sell 10,000 metric tons of carbon credits to PetroChina International Guangdong at 28 yuan ($4.60) per ton. Hanergy Holding Group also bought 10,000 tons at 30 yuan per ton. Both businesses purchased the credits for investment purposes. “The launch of the carbon-trading market in Shenzhen demonstrates that China has taken a substantial step in reducing carbon emissions. Following Shenzhen, other carbon-trading pilots at provincial and city levels are making big strides,” said Wu Delin, deputy secretary-general of the Shenzhen municipal government. It has taken nearly three years to establish China’s first pilot carbon-trading market. In July 2010, Shenzhen, seven other cities and five provinces were named the sites of China’s first low-carbon program. The announcement by the National Development and Reform Commission was followed by the foundation of the China Emissions Exchange in Shenzhen two months later. The move from low-carbon programs to carbon trading came in 2011, when the central government announced pilots in two provinces and five cities, including Shenzhen, Beijing and Shanghai. One year later, China’s first regulations on the administration of carbon emissions were enacted by the Standing Committee of the Fifth People’s Congress of Shenzhen Municipality. Market-oriented measures “By founding the exchange, we are trying to use market-oriented measures, rather than administrative and taxation measures, to promote emissions trading and the construction of low-carbon cities,” said Chen Haiou, president of the China Emissions Exchange. “Three years ago, we didn’t expect the government to make such great efforts to develop carbon trading at such a high pace.” A major target for carbon trading is to push the city forward in areas such as energy saving and emissions reduction, said Wu. Research conducted over recent years revealed that industrial enterprises, transport, buildings and waste disposal are responsible for most of Shenzhen’s carbon dioxide emissions. In the initial stages of the carbon-trading project, Shenzhen’s municipal government put 635 manufacturers and 197 buildings, including shopping malls, hotels and office buildings, under carbon-emission management. The companies are mostly large enterprises with high levels of emissions. Research carried out in the period 2009-11 found that in 2010 alone, these companies emitted 31.73 million tons of carbon dioxide, accounting for 38 percent of the 83.4 million tons of the city’s carbon dioxide emissions. They also accounted for 59 percent of Shenzhen’s total “industry value added” – its contribution to national GDP – and 26 percent of its own GDP. By 2015, the city will cut carbon dioxide emissions per unit of GDP to 21 percent below the 2010 level, according to its low-carbon growth plan. However, because it’s extremely difficult and expensive to reduce transport and residential emissions, the municipal government set a reduction target of 25 percent for industrial enterprises. To that end, the government has allocated the 635 businesses more than 100 million tons of free carbon credits over the next three years, based on their previous emissions and industry value added. Companies that exceed their emissions quotas will be fined at a rate three times the average market price of the excess emissions. Before they signed their quota agreements with the government, each participating company took part in the allocation process by assessing the potential for further reducing its carbon intensity and estimating its annual growth of industry value added in the period 2013 to 2015. If a company has failed to cut carbon dioxide emissions per unit of GDP at the agreed rate a year after they signed their quota agreements, and its industry value added does not increase as quickly as estimated, the government will take back a proportion of its carbon credits accordingly. Striking a balance The use of adjustable carbon credits means Shenzhen will be able to balance allowance supply and demand and stabilize carbon prices, a lesson learned from the European Union’s carbon-trading market. In recent years, the price of EU carbon credits has fallen from more than 30 euros ($40) per ton to 5 euros. The price of carbon offsets, also known as certified emission reductions, slumped from more than 20 euros to around 50 euro cents. The price decline has been caused, in part, by a recession in Europe, which led to a decrease in industrial output and, in turn, resulted in fewer emissions and an overabundance of allowances. Moreover, the EU allocated all its carbon credits simultaneously, thus making it impossible to reduce credits when the eurozone economy began to weaken. Shenzhen can avoid similar problems by the adoption of adjustable credit allocation, said Xiao Ming, chairman of GDR Carbon, a consultancy specializing in carbon-asset management and investment. Unlike in the EU, carbon trading is a new phenomenon for most Chinese companies, which regard carbon credits as a huge responsibility, one they have to adhere to by remaining within their emissions limits. Since that first transaction at the China Emissions Exchange on June 18, a number of individual investors have opened accounts and expressed strong interest in buying emission allowances. The highest price listed is 33 yuan per ton, but so far no company has offered to sell its credits. “Many companies have no idea of how much carbon dioxide they have emitted in the first half of 2013 and therefore dare not sell their emission allowances. Even if some of them have realized that carbon credits are corporate assets which can even be used as pledges for bank loans, they do not have a clear procedure for making investment decisions on carbon trading, nor do they have any information about the trend of domestic carbon prices because of a lack of long-term market research and analysis,” said Ge Xing’an, vice-president of the China Emissions Exchange. The companies are in no hurry to make decisions about when to buy or sell their carbon credits, the number of credits they should sell or the prices they should ask. They won’t make those decisions until the first year of their contracts ends in June 2014, he added. However, with limited emission allowances, the companies have already felt pressure to cut emissions and need to take advice from low-carbon consulting services, according to Xiao. He said consultancies that specialize in carbon trading offer a variety of services that could help businesses improve their ability to monitor emissions sources and collect verifiable data. The consultancies can also help companies investigate their greenhouse gas emissions, reduce emissions by optimizing management, technology and corporate structures, exploit potential carbon assets, log accurate records of carbon assets and make a profit from carbon investment. “Carbon trading is used as a tool to promote energy saving and the reduction of emissions,” said Chen of the China Emissions Exchange. “During the process of developing the market, we will provide not only a trading platform but also a wide range of financial support to help businesses build their carbon management and trading systems.” For example, the exchange is planning to help a wind power company issue a 1 billion yuan bond in early September. Futures and options Carbon market helps cut emissions Because only carbon credits and Chinese certified emission reductions are tradable in China, experts and professionals have called on the central government to open the futures and options market as soon as possible. “Without futures and options, it is hard to find long-term investment value in the carbon-trading market and the development and application of low-carbon technologies will be hindered by a lack of funding,” said Xiao. Ge pointed out that carbon credits can be problematic financially and the risks must be countered by risk-management tools, such as futures and options. The China Emissions Exchange holds a training session once a week, where it provides training for participating companies and listens to their demands. The ultimate aim of the exchange’s founders is to build a carbon-trading financial center in China. “Cultivating the carbon-trading market in China will be a long process. We shouldn’t pull at seedlings to help them grow, or dream of huge transaction volumes immediately. That’s unrealistic. We’ve got a lot of work to do to build a solid foundation for the market,” said Chen. Contact the writer at jiangxueqing@chinadaily.com.cn Wu Wencong also contributed to this story. Continue reading
EU’s Carbon Pricing Strategy Takes A Potentially Fatal Hit
Posted by Anthony Harrington , July 29, 2013 If you believe that global warming is the biggest catastrophe and economic disaster coming our way, then attempts to retrofit measures to contain CO2 emissions onto a global industrial base that has evolved largely without regard to emissions (other than as pollution) is a hugely important task. Finding a way of putting a price on carbon is the obvious route to go. The EU set itself up to be the global leader in creating mechanisms for carbon pricing but its emissions trading scheme, which has been copied by a number of countries, including Australia, South Korea and some Chinese provinces, is now in disarray. A vote by the European Parliament in April effectively holed the EU’s carbon pricing scheme below the waterline, to quote a recent article in The Economist . There are basically two ways to get industry to reduce its carbon emissions . You can mandate it by law, in a command-and-control manner, using the power of the state to force compliance, with massive fines and even prison as the ultimate sanctions for non compliance. Or you can set a cap-and-trade policy and leave it to the market, which is what the EU has done. Under a cap-and-trade approach you set limits to the emissions of the heaviest producers and then allocates or auctions carbon credits to cover production up to the limit. Firms that manage to reduce their emissions below the limit will have surplus credits that they can sell to other companies. By lowering the limit over time, the government can bear down on emissions, gradually reducing them over time, while trading in carbon credits creates a true, market based per-tonne price for carbon. That, at least, is the theory. What the EU did not count on when it set up the scheme back in 2005 was that advanced markets would suffer a global financial crash which would lead to years of no-to-very-low growth. This resulted naturally in falling emissions and so to surplus numbers of credits washing about in what was supposed to be a limited-supply market. It is now obvious that the EU handed out far too many carbon allowances from day one, back in 2005, and every year since, to the point where, according to The Economist , there is now a surplus of about 1.5 to 2 billion tonnes of carbon allowances in the system, causing the price per tonne to drop from twenty euros in 2011 to just five euros a tonne in 2013. The EU’s solution to this was a plan to withdraw some 900 million tonnes of carbon allowances off the market, with the idea of reintroducing them at some unspecified point in the future when the price per tonne of carbon had firmed up. The idea was dubbed “backloading” by the EU. Constraining supply has always been a good way of driving up price and since the whole market is artificially created there is probably no logical reason why the EU shouldn’t be able to tinker with the scheme to firm up prices. But the EU needed the European Parliament’s approval to put this scheme into action and on 13 April 2013 the European Parliament rejected the idea. The price of carbon sank like a stone, bottoming at under 3 euros. Since the International Energy Agency is warning that the price of carbon needs to be at least fifty euros to be effective in moving power generation companies away from coal to gas and renewable sources, this does not look hopeful for the EU’s best lever against global warming. There is now a serious question mark over the future of emissions trading schemes generally, which is not particularly helpful for California, which introduced its cap-and-trade scheme in January 2013 . The Californian scheme raised far less, by way of auctioning of carbon credits, than State authorities had anticipated and the tribulations of the EU scheme will not go unnoticed. Australia had been planning to link its cap-and-trade scheme to the EU’s scheme, creating an international trading market in carbon allowances, but that too, now looks rather unappealing. Right now the EU’s ETS scheme looks like no more than a rather useless additional “green” tax which the power companies simply pass on to the consumer. As a behaviour changing mechanism, it is dead in the water until and unless the EU finds a way of shoring up the price. Unfortunately for the EU no one actually wants carbon in the way that they want gold. The market is entirely artificial and carbon allowances, as a tradable asset class have just given a graphic illustration of what is meant by “political risk”. Continue reading
