Executive Summary

Carbon capture and storage (CCS) has an essential role in reducing global greenhouse gas emissions. As part of a portfolio of low-carbon technologies, CCS is needed to stabilise atmospheric greenhouse gas concentrations at levels consistent with limiting projected temperature rises to 2°C by 2050, as recommended by the United Nations Intergovernmental Panel on Climate Change.

The specific challenge for the CCS industry is to demonstrate the entire chain at commercial scale—incorporating CO2 capture from large point sources, CO2 compression and then transportation and injection into suitable storage sites or for a use that results in permanent emissions abatement.

Progress is being made

In 2011 the CCS industry exhibited measured progress, with an increase in the number of large-scale integrated projects (LSIPs) in operation or under construction and a clustering of projects around the advanced stages of development planning.

There are eight large-scale projects in operation around the world and a further six under construction. Three of these projects have recently commenced construction. Importantly, these include a second power project, Boundary Dam in Canada, and the first project in the United States that will store CO2 in a deep saline formation, the Illinois Industrial Carbon Capture and Sequestration (ICCS) project.

The total CO2 storage capacity of all 14 projects in operation or under construction is over 33 million tonnes a year. This is broadly equivalent to preventing the emissions from more than six million cars from entering the atmosphere each year.

In the Institute’s annual project survey for 2011, eleven projects reported that they could be in a position in the next 12 months to decide on whether to take a final investment decision (FID) and move into construction. Power generation projects are prominent in this group and include Project Pioneer in Canada, the Texas Clean Energy project in the United States and the ROAD project in Europe.

While the prospect of a number of power projects moving to a FID in the next year is a positive development, this is contrasted with other high-emitting industries such as iron and steel and cement, where there is a paucity of projects being planned at large-scale.

In total there are 74 LSIPs recorded in this report, compared with 77 reported in the Global Status of CCS: 2010 report. These CCS projects continue to be concentrated in North America, Europe, Australia and China with few large-scale projects planned in developing countries. It is vital that the lessons learned from demonstration projects in developed countries are conveyed to developing countries, and that capacity development activities and customised project support are undertaken so that these countries can eventually deploy CCS.

Factors influencing a project’s success

As with most industrial projects, building a viable business case for a CCS demonstration project is a complex and time consuming process that requires both the project economics and the risks to be understood prior to a FID.

All projects in operation use CO2 separation technology as part of an already established industry process and either use CO2 to generate revenue through enhanced oil recovery (EOR) and/or have access to lower cost storage sites based on previous resource exploration and existing geologic information sets. Six of the eight operating projects are in natural gas processing, while the other two are in synthetic fuel production and fertiliser production, and five of these projects use EOR.

A number of projects in operation or under construction are undertaking CCS in response to, or anticipation of, longer-term climate policies and/or potential carbon offset markets. While this is promising, developing a business case is challenging especially when projects do not have access to either revenue streams, such as EOR or other opportunities, or where CO2 capture is not already part of an established industrial process.

There are 11 LSIPs that are considered on-hold or cancelled since the Institute’s 2010 report, with eight in the United States and three in Europe. The most frequently cited reason for a project being put on-hold or cancelled is that it was deemed uneconomic in its current form and policy environment. The lack of financial support to continue to the next stage of project development, and uncertainty regarding carbon abatement policies and regulations were critical factors that led several project proponents to reprioritise their investments, either within their CCS portfolio or to alternative technologies.

This clearly indicates that substantial, timely and stable policy support, including a carbon price signal, is needed for CCS to be demonstrated and then deployed. This support will give industry confidence to continue moving forward and invest in CCS. In turn, such investment would ensure continuing innovation which will ultimately help to drive down capital and operating costs.

Both government and the private sector have a role in resolving and bringing greater transparency to business case issues so that the demonstration of CCS progresses and associated learnings and benefits are realised.

CCS in the power sector

Power generation projects have significant additional costs and risks from scale-up and the first-of-a-kind nature of incorporating capture technology. Electricity markets do not currently support these costs and risks, even where climate policies and carbon pricing are already enacted. A major cost for CCS is the energy penalty or ‘parasitic load’ involved in applying the technologies. Going forward a major emphasis in pre-, post- and oxyfuel combustion capture applied to power stations (and other industrial applications) is on research into reducing this cost.

Despite these challenges, construction of a post-combustion capture project (Boundary Dam in Canada) and an integrated gasification combined cycle (IGCC) project (Kemper County) is proceeding. This indicates that the technology risk for these applications is considered manageable and the technical barriers are not insurmountable, if other conditions are right, such as allowance for the added cost into the rate base and other incentives. Both these projects received government support and will be selling CO2 for EOR, thus tapping into another revenue stream. They are also demonstrating some elements of risk mitigation in the project design, by either having a relatively low CO2 capture rate from the flue gas stream (in the case of Kemper County) or capturing CO2 from a relatively small power unit (in the case of Boundary Dam).

It is vital these and other planned demonstration power projects are successful in carrying out CCS on a commercial-scale and operating in an integrated mode, in real electricity wholesale markets and with storage at sufficient scale to provide the confidence and benchmarks critical for future widespread deployment.

Capture, transport and storage issues

The eight operating CCS projects in the natural gas processing, synthetic fuels and fertiliser production industries attest to the proven nature of the capture technology in these applications. As noted above, while there are projects proceeding to construction in the power sector, there is a need for more projects to demonstrate the range of possible capture technologies that could be applied. There have been limited recent developments in iron and steel sector demonstrations of capture technologies. In the cement sector, capture technology is still at an early stage. Both these industries are major emitters and further developments are expected and necessary.

Pipeline transport of CO2 is a proven and well developed technology, but it is the scale of the future CO2 transport requirements that will require strong investment support. While pipelines are expected to be a cost-effective transport solution, with increasing distance and in certain circumstances, shipping can be cost competitive and offers greater flexibility to serve multiple CO2 sources and sinks. Significant economies of scale can result from shared transport infrastructure, but establishing a network is a large investment that can add considerable risks to early mover projects. These risks need to be understood, in particular by governments when providing incentives for demonstration.

The operating projects demonstrate storage of CO2 in both deep saline formations and through EOR, showing that viable storage is achievable. The storage challenge ahead is with increasing injection volumes, gaining site-specific experience and with continuing improvements to the design and methodologies of measurement, monitoring and verification of storage in effective and appropriate regulatory environments.

Information from project proponents indicates that storage assessment and characterisation requires considerable investment and can have long lead times of five to 10 years or more for a greenfield storage site, depending on the existing available geologic information about the site. Policymakers need to factor these lead times into their assessment of a project’s progress. Projects that have not yet commenced active storage assessment may have a challenge to achieve operation before 2020.

As with storage, public engagement is situation and site specific and on a local level must address all aspects of the project, including its possible and potential impacts and benefits. Project proponents need to continuously review their public engagement approach to identify and mitigate potential challenges.

Policy and legal developments

CCS applied in new and large-scale applications is at the demonstration phase and requires substantial policy and financial support. Governments should continue to send strong, consistent and sustained policy signals (including incentives, legislation and regulatory frameworks) to support this early stage of transitioning towards commercial deployment. Some project proponents perceive policy uncertainty as a major risk to project development and it is of particular concern when governments articulate policy intent without implementation.

In the past year the development of CCS laws and regulations has continued, with a number of jurisdictions completing framework legislation and commencing implementation of secondary regulations and guidance. Effective regulatory regimes on a national level play a significant role in the development of CCS projects globally. Notwithstanding these efforts, project proponents have identified a number of issues that in some cases have yet to be adequately addressed, including regulation that is incomplete in nature or delayed. A number of proposals, amendments and review exercises have already been put in motion by regulators and policymakers across several jurisdictions to address such issues. Whether or not these activities will sufficiently address projects’ concerns will be an important consideration in the forthcoming years.

Many of the countries and regions that have been acknowledged as leaders in the deployment of laws and regulation for CCS have continued in these roles. In the past year, several European Union Member States, Australia, the United States and Canada have all sustained their regulatory momentum and delivered a number of new proposals, laws, regulations and initiatives. The importance of effective regulation has also been recognised by the many countries that are to become the second generation of CCS lawmakers. Korea is one such example. While many of these countries have yet to pass legislation, or complete the design of their regulatory frameworks, it is clear that significant actions are being taken to facilitate their development. This is particularly noticeable in a number of developing countries that are keen to integrate CCS into future climate change mitigation strategies.

This year, the Seventeenth session of the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP 17) in Durban, South Africa, could see an international framework established that provides for the institutional arrangements of CCS under any future UNFCCC mechanism and/or adopted within national government policy settings. Inclusion of CCS in the Clean Development Mechanism (CDM) or any future mechanism post the Kyoto Protocol’s first commitment period (2008 to 2012) is of particular importance for the future demonstration of the technology in developing countries.

Government funding to support large-scale CCS demonstration projects has remained largely unchanged in 2011. In total, approximately US$23.5bn has been made available by governments worldwide. Competitive funding programs designed to measure and fund the ‘gap’ required to make projects financially viable have been widely adopted by governments internationally. This approach will be taken by the European Union’s NER300 program where 13 CCS projects, together with 65 innovative renewable projects, were identified as meeting the criteria to go forward to the next stage with decisions on funding allocation expected in the second half of 2012.

In the near-term, government policy and funding levels will impact strongly on the rate at which demonstration projects progress and their overall viability. For this to be done effectively, ongoing cooperation between government and industry is required to address the complex challenges in establishing early-mover CCS projects. In the long-term, the value of CCS demonstration can only be realised and supported through sustained forward looking climate change policies and carbon-price signals that will underpin the future deployment of CCS.