4. Role of CO2 reuse in facilitating CCS

This section considers a number of case studies to determine the role of CO2 reuse in facilitating CCS. The case studies consider the technologies by category (as defined in Part 1 – Section 3) with a focus on answering the following pertinent questions:

  • How beneficial is CO2 reuse as a transitional measure to CCS?
  • To what extent might the implementation of CO2 reuse technologies bring forward the date at which high-cost forms of CCS such as power generation become viable?

This section is segregated into two parts. Section 4.1 provides an understanding of the key costs and revenues associated with CCS, while Section 4.2 reviews a number of development scenarios based on varying market assumptions and examines the overall impact that CO2 reuse technologies may have on the deployment of CCS.

4.1 Key costs and revenues associated with CCS

As discussed in Section 3, there is a significant funding gap in large scale demonstration of the high-cost forms of CCS, such as power generation and steel and cement making. The largest element of the costs for CCS with power generation and steel and cement making is the capture plant. The following discussion focuses on carbon capture from power generation (a major CO2 source for which carbon capture needs to be demonstrated at commercial-scale), but will also consider carbon capture from other industrial sources that may have lower capture costs than for power generation. The lower costs for capturing CO2 from industrial sources are due to the relatively high concentration CO2 stream from gas processing and fertiliser plants when compared to emitted gases from power generation and steel and cement making.

The success of CO2 reuse technologies in facilitating CCS will be affected by the outcomes of the following three questions:

  • What is a realistic level of revenue to be expected from the sale of CO2 for reuse?
  • How much does CCS cost now, and how much will it cost in the future?
  • What is the carbon price expected to be in the future?

These questions have been addressed in the previous sections, however they are summarised and detailed below as necessary.

4.1.1 What is a realistic level of revenue to be expected from the sale of CO2 for reuse?

The 2009 price of gaseous CO2 for EOR (US$19/t) and the high end of the price range for CO2 from ammonia plants (US$15/t) are considered to be indicative of the upper end of realistic future revenue from the sale of CO2 reuse.

As per Section 2, there is presently a significant general supply surplus which is likely to remain in the future and consequently revenue from the sale of bulk CO2 will be relatively low. The 2009 price of gaseous CO2 for EOR (US$19/t) and the high end of the price range for CO2 from ammonia plants

(US$15/t) is considered indicative of the upper end of realistic revenue from the sale of CO2 for reuse. These levels of revenue will be used as the basis for the development scenarios later in this section.

4.1.2 How much does CCS cost now, and how much will it cost in the future?

Capture costs are a significant portion of the capital cost of CCS for power generation and for steel and cement making. Emerging technologies typically display improvements in costs as their level of deployment increases. Based on cost reduction estimates of Rubin et al (2007), a plausible experience curve derived for integrated CCS projects indicates a nominal decrease in the costs of power generation CCS from US$81/t CO2 avoided to US$59/t CO2 avoided following 10GW of deployment. This experience curve forms the basis for the development scenarios.

As noted in Section 3.2, current estimates of the cost per tonne of CO2 avoided are given in the Global CCS Institute foundation report Economic Assessment of Carbon Capture and Storage Technologies (2011 Update). The cost per tonne of CO2 avoided is based on comparison against a reference plant for the same product. The analysis shows the following costs per tonne of CO2 avoided, once the relevant technology is mature (and so Nth of a Kind or NOAK costs):

  • US$44 to US$103 for power generation technologies. Post-combustion technologies, the dominant current technology, has costs in the range US$57 to US$78.
  • US$49 for cement and US$49 for steel production.
  • US$20 for fertiliser production and US$19 for natural gas processing.

The Global CCS Institute report also shows that capture costs are a significant portion (∼82 per cent) of the capital cost of CCS for an integrated post combustion power plant with CCS. The Global CCS Institute analysis also concludes that there are likely to be high initial contingencies related to both cost and process. Contingencies for early mover projects are estimated at upwards of 20 per cent.

In terms of future costs of CCS, emerging technologies typically display improvements in cost as their level of deployment increases. Each successive plant design benefits from knowledge gained from the deployment of previous plants, such that incremental improvements are continually being made. Naturally improvements are easier to discover whilst the technology is still relatively immature, the rate of cost reduction is initially high but gradually reduces as the technology matures. The resulting characteristic cost reduction curve is referred to as an experience curve.

A plausible experience curve for integrated power generation CCS projects is shown in Figure 4.1. This makes use of the cost reduction estimates of Rubin et al, who developed a rational basis for their estimates by considering historical technology experience curves for relevant technologies including flue-gas desulphurisation, selective catalytic reduction, oxygen production, LNG production, and others. The curve presented is for carbon capture from a coal-fired power station, and shows a nominal 27 per cent decrease in the costs of CCS, from US$81/t CO2 avoided to US$59/t CO2 avoided following 10GW of deployment.

 

Figure 4.1 Plausible CCS experience curve for integrated power generation projects with CCS

The study of Rubin et al is one of a number of studies that examine the impact of learning on cost reduction for new technologies. The Global CCS Institute analysis has also indicated the possible nature of improvements to generation and capture technology. Changes in capture technology, or improvement in performance of existing mature technologies, can reduce the high energy demand for current technologies and their cost impact.

It should be noted that there will always be uncertainty attached to potential cost reductions. Figure 4.1 represents one plausible scenario, however, the real cost reductions achieved could be significantly greater, or significantly less.

4.1.3 What is the carbon price expected to be into the future?

A carbon price trajectory based on the ‘450 Scenario’ modelled by the International Energy Agency (IEA) is a relatively aggressive scenario and estimates that a global CO2 price of approximately US$50/t by 2020 and US$110/t by 2030 would be needed to stabilise atmospheric CO2 at 450 ppm.

Following on from Section 2.2, it is assumed that the preferred means of achieving global emissions reductions is through the implementation of a global carbon price. Even if other mechanisms are utilised in the future, they can essentially be reduced to some equivalent carbon price that drives emissions reduction activities.

Significant uncertainty surrounds what will be the future carbon price trajectory. For the purposes of the development scenarios that follow, a carbon price trajectory based on the ‘450 Scenario’ as modelled by the International Energy Agency is assumed, which indicates global CO2 pricing required to restrict atmospheric CO2 concentration to no greater than 450ppm. The ‘450 Scenario’ estimates that a global CO2 price of approximately US$50 / tonne by 2020 and US$110 / tonne by 2030 would be required to achieve the 450ppm target.

The ‘450 Scenario’ could be considered a relatively ambitious scenario, with a relatively rapid rise in carbon price that governments may find difficult to adopt. However, it is important to note that less aggressive assumptions on carbon price will not affect the conclusions of this section, other than stretching the graphs over a longer timeline. The conclusions would generally be unaltered.

4.2 Interaction of key costs revenues

A graphical representation of the key costs and revenues associated with CCS and CO2 reuse is presented in Figure 4.2.

Figure 4.2 Interaction of key costs and revenues

The graphical representation above shows the relativity between the carbon price trajectory, the cost of conventional CCS for power generation, the cost for capture-only, and the potential revenue from CO2 reuse. The interactions between these variables is complex; the graph is only intended to demonstrate the upper and lower limits of each variable and to give an indication of the relative impact of carbon price and reuse revenues on CCS costs.

The grey shaded area on the graph represents the potential carbon-price over the period, bounded by the 450 Scenario (upper line) and an alternative scenario in which the CO2 price is weaker (lower line). The carbon-price will depend on a number of variables such as national and international emissions limits, and the implementation of effective regional & global CO2 markets, and so is difficult to predict. For this reason, it is shown as a wide range. It is assumed that the carbon-price will grow in the long term and so is shown as a general upward trend.

Potential revenues for reuse are shown in blue. The revenue from reuse at the outset is assumed to be US$19/t which is equivalent to the current typical revenue from EOR. Over time, reuse revenues are expected to fall as the carbon-price increases and there is greater incentive to capture and either store or reuse CO2. In this environment, CO2 is expected to become a surplus commodity, which in turn will exert a downward pressure on the bulk CO2 price. As such the reuse revenues are shown as a general downward trend.

It should be noted that the revenue from reuse is modest, relative to the costs of CCS and therefore reuse will at best provide only a moderate offset to the costs of capture.

The point at which the cost for CCS (magenta line) and the carbon-price (grey) intersect, is the point at which it becomes more economical to implement CCS, than to continue to pay the carbon-price. At this point, CCS can be said to be commercially viable.

From the graph it can be concluded that, at current technology maturity levels, a strong carbon price is key to the acceleration of CCS. Reuse revenues will by contrast, only provide a modest offset to the costs, and cannot be considered to be a commercial driver of CCS.

4.3 Development scenarios

Four scenarios for the future reuse of CO2 are discussed. These scenarios consider a growing carbon price (weak to strong), and also how effectively each technology will permanently store CO2. These factors have a significant bearing upon the potential impact of reuse technologies to accelerate CCS deployment and are described below:

A weak carbon pricing scenario represents a world where carbon pricing is localised and inadequate to materially restrain either global CO2 emissions or the growth in fossil fuel consumption. Its implications include relatively weak growth in the availability of captured concentrated CO2 for reuse or conventional storage, and relatively strong growth in the demand for CO2 use in EOR and possibly in other forms of enhanced fossil fuel production. It is a world where the pricing of CO2 for reuse remains at the upper end of the current price range.

A strong carbon pricing scenario represents a world where carbon pricing is sufficiently widespread and substantial to materially restrain global CO2 emissions and the growth of fossil fuel consumption. Its implications include relatively strong growth in the availability of captured concentrated CO2 for either reuse or conventional storage, and relatively moderate growth in the demand for CO2 use in fossil fuel production. It is a world in which there is a strong downward pressure on CO2 prices, caused by a surplus of bulk CO2 captured from point sources.

CO2 reuse technologies that permanently store CO2 include carbonate mineralisation, CO2 concrete curing, bauxite residue carbonation, and ECBM, with EOR likely to be considered storage when appropriate MMV programs are in place. Carbonate mineralisation and CO2 concrete curing use flue gas directly, whereas EOR and bauxite residue carbonation require a concentrated CO2 stream. CO2 reuse technologies that permanently store CO2 can be considered a complement to conventional sequestration, since they can provide long-term CO2 abatement.

Reuse technologies that temporarily store CO2 are those with end products that release the CO2 again when they are used. They include urea yield boosting, renewable methanol and other liquid fuel production, and food and beverage industry uses of CO2. Their emissions mitigation credentials are limited, and are generally restricted to those indirect circumstances where anthropogenic CO2 replaces naturally occurring reservoir CO2 in the process, or where the end product replaces a product which would otherwise be sourced from fossil fuels. For example, it could be argued that the use of anthropogenic CO2 in the enhanced production of algal biofuels has a mitigation effect stemming from the replacement of fossil fuels even though the anthropogenic CO2 is released to the atmosphere when the biofuel is used.

4.3.1 Development scenario 1 – when a strong carbon price is in place, what benefit will CO2 reuse provide when the reuse permanently stores CO2?

With a strong carbon price, reuse technologies which permanently store CO2 (e.g. carbonate mineralisation, CO2 concrete curing, bauxite residue carbonation, ECBM and EOR) will be attractive because they can simultaneously provide revenue and avoid carbon emissions (thereby reducing exposure to the carbon price). However, with a strengthening carbon price, a downward pressure on the bulk CO2 price is expected and therefore the revenue to be derived from selling CO2 for reuse is likely to be minimal (as shown in Figure 4.2). Reuse would be viable only where it provides a lower cost disposal option than conventional geological storage.

In the near term (e.g. during the time period in which CCS must be demonstrated) it is unlikely that strong carbon pricing will be observed, and as a result it will not act as the driver for demonstration CCS projects. The funding shortfall will instead be met by government funding, contributions from project proponents, and other funding bodies. Reuse revenues in the near term will not be a primary driver for demonstration projects. However, where demonstration projects do proceed, reuse revenues can act as a moderate offset to CCS costs. In reality EOR is likely to be the key contributing reuse technology due to its maturity and capacity for CO2 utilisation. This is supported by the fact that many of the presently proposed CCS demonstrations intend to supply CO2 for EOR.

In the long-term, CCS deployment will only be driven by a strong carbon price and reuse revenues will likely be subjected to downward pressure from a surplus of bulk CO2.

Reuse technologies which do not require a concentrated CO2 stream (e.g. carbonate mineralisation) may have significantly lower capture costs, and are likely to have a positive impact on advancing the demonstration of alternative forms of CCS, providing that the technologies are at a suitable level of maturity.

The recognition of the abatement credentials for reuse is critical to the uptake and growth of reuse technologies. For instance, the application of enhanced fossil fuel production (EOR, EGR, ECBM) requires MMV validation of storage permanence, and regulatory acceptance that the storage mitigation effect is not offset by the additional emissions arising from enhanced fossil fuel production.

Provided that their abatement credentials are recognised, permanent storage reuse technologies may have a niche role where their net cost is less than the net cost of conventional geological storage or the net cost of paying the carbon price for emitting the CO2 to the atmosphere.

Overall mature CO2 reuse technologies such as EOR can play a useful role in supporting early CCS demonstration, but as the surplus of available CO2 grows and as the longer term bulk CO2 market price weakens, the scope for EOR and the longer-term permanent storage technologies will depend on recognition of their mitigation credentials and their cost competitiveness relative to alternative mitigation options.

4.3.2 Development scenario 2 – can a CO2 reuse technology that does not permanently store CO2 become commercially viable when a carbon price is in place?

CO2 reuse technologies that do not permanently store CO2 include urea yield boosting, renewable methanol and other liquid fuel production, and food and beverage industry uses, amongst others. Since this development scenario focuses on the sale of CO2 to reuse technologies that do not permanently store CO2, the resultant net cost will depend on:

  • the structure of the particular emissions trading or taxation system that is in place
  • the approach taken to carbon liabilities (e.g. whether the carbon price is passed on to the end product of CO2 reuse or remains with the original CO2 source/emitter), and
  • whether the end use for the CO2 remains competitive with non-carbon based alternative products. Competition may restrict the extent to which any carbon price can be borne by the end product of reuse.

With a strong carbon price and surplus supply of CO2, the key issue governing the uptake of these technologies is the extent to which they are accepted as having an abatement effect and are validated as an emissions offset. This suggests that with a weak bulk CO2 market price for reuse, the prospects for reuse technologies that provide only temporary storage are very uncertain.

At face value reuse technologies with only temporary CO2 storage characteristics have no real prospect of being credited with a CO2 abatement effect. The exception may be where it is accepted that anthropogenic CO2 used in the reuse technology effectively replaces naturally occurring reservoir CO2 in the process, or where the end product replaces a product which would otherwise be sourced from fossil fuels. This is a reversal of the logic which would potentially discount EOR for mitigation purposes because it increases fossil fuel production and consumption.

Overall there is very limited potential for reuse technologies where CO2 storage is temporary in a strong carbon price environment – except in circumstances where regulators accept that the process either replaces natural reservoir CO2 or the product replaces products derived from fossil fuels.

4.3.3 Development scenario 3 – can CO2 reuse technologies accelerate the demonstration of individual elements of the CCS chain, in lieu of fully integrated demonstration projects?

The G8 target is for 20 CCS demonstration projects operational by 2020. In practice this might mean a cumulative abated capacity of 6GW by 2020. The Global CCS Institute report The Global Status of CCS: 2010 has shown there appears to be enough government funding to support 25 large scale projects globally. Issues and challenges with public acceptance, proving of storage locations, process and planning delays in approvals, or the commercial challenges in developing, completing, negotiating and awarding such complex projects may mean that implementation of the full suite of fully integrated projects may be more protracted than initially thought.

In such circumstances, it is not unreasonable to assume that stand-alone capture plant demonstrations might continue in lieu of fully integrated projects, as governments and operators seek to use the available, committed funding to bridge the CCS knowledge gap where possible. In such a scenario, use of the captured CO2 would be both logical and economical.

In the case where fully integrated CCS projects are delayed and limited to a small number of projects, reuse technologies that require a concentrated stream of CO2 (from a conventional capture plant) could act as a demonstration substitute to fully integrated projects to bring forward capture plant cost reduction, capability building, knowledge sharing, and learning. Such a scenario would maximise the cost reductions that are achievable for the capture plant, albeit in a non-integrated project.

4.3.4 Development scenario 4 – will CO2 reuse be commercially viable in a weak carbon price environment

If there is a weak carbon price, the revenue generated by selling CO2 for reuse must be greater than the costs of CO2 capture in order for it to be considered a commercially viable option. As is demonstrated by Figure 4.2, this is unlikely to be the case.

The permanence, or otherwise, of storage associated with the reuse of CO2 is less important under weak carbon pricing than the value of the reuse product and the cost competitiveness of the technology in question. For example the use of anthropogenic CO2 in enhancing the production of algal biofuels would be driven primarily by the value of the biofuel rather than the by the value of its emissions abatement effect.

While the permanence of storage is less of an issue, so too would be consideration of indirect effects on fossil fuel production and consumption. The emissions abatement benefit of biofuels centres on their ability to replace fossil fuels as an energy source, and the value attributed to that benefit will be lower in a world of weak carbon prices. Enhanced biofuels would therefore be less valued for their mitigation effect. Similarly there would be less concern that the additional oil-derived CO2 emissions arising from EOR should be discounted from the CO2 storage value of EOR.

4.4 Conclusions

This section presented a broad overview of the potential of CO2 reuse technologies to accelerate the development and deployment of CCS and provided the following insights:

  • Strong carbon pricing or equivalent regulatory mechanisms will ultimately be necessary to drive widespread commercial deployment of CCS. However, where demonstration projects do proceed, reuse revenues can act as a moderate offset to CCS costs and help to accelerate the demonstration phase which is an essential pre-cursor to the later commercial deployment phase of development.
  • Based on current and forecast markets, the potential CO2 reuse demand is too small for it to make a material contribution to global CO2 abatement, and it does not provide a material alternative to conventional geological storage at the scale required. The value of reuse as a means of accelerating the demonstration and commercial deployment of CCS centres on the supplementary revenue that mature reuse technologies, particularly EOR, provide to demonstration project development in the absence of strong carbon prices.
  • Mature CO2 reuse technologies such as EOR can play a useful role in supporting early CCS demonstration, but as the surplus of available CO2 grows and as the longer term bulk CO2 market price weakens, the scope for EOR and the longer-term permanent storage technologies will depend on recognition of their mitigation credentials and their cost competitiveness relative to alternative mitigation options.
  • In a strong carbon price environment there is limited potential for reuse technologies where CO2 storage is temporary – except in circumstances where regulators accept that the process either replaces natural reservoir CO2 or the product replaces products derived from fossil fuel.