4.3 Project views
Projects across all locations largely back up the view that only moderate progress has been made in policy settings over the past year (Figure 38). Recent policy changes are viewed more positively in some locations than in others, especially in (where carbon pricing commenced on 1 July 2012), (UAE) (likely driven by increasing interest in EOR), Europe (with implementation of the CCS Directive and significant national action in the UK, the Netherlands, and Romania), and (with draft regulations for an emissions performance standard on all new coal-fired plant).
FIGURE 38 Project views on whether policy has changed over the past year
Projects in these jurisdictions seem to be signalling greater confidence in government intent to establish and/or implement more CCS-friendly policy settings. A positive observation is that very few projects consider the current policy environment to be materially worse than last year. The perceived value of these policy settings by project proponents varies considerably (Figure 39).
FIGURE 39 Value of the prevailing suite of government policy settings in supporting a positive business case
Projects in Asia and North America place much less value on prevailing policy settings than do projects in Europe, perhaps indicating a need for further support in these regions if demonstration projects are to proceed. The importance of policy for projects is also clearly indicated by responses to a range of questions asked around a range of policy issues (Figure 40).
FIGURE 40 Project attitudes to policy issues (high-resolution version)
Perhaps not surprisingly, project proponents are increasingly optimistic about the role that CCS must play in climate mitigation over time, and as such consider that fossil fuel technologies can continue to deliver highly competitive, secure, and reliable energy to support essential economic activity. Mostly they consider that CCS can be commercially viable by 2020, but also view market-oriented carbon regimes as being important to achieve this outcome.
Many project proponents also draw a link between their national government’s emission reduction commitments or pledges under the UNFCCC and the nature and adequacy of domestic climate change policy settings as a major driver of investment in CCS projects. Policy uncertainty remains a major risk, but interestingly proponents are split on the adequacy of existing policy settings in securing project finance, and in minimising the risk of projects being commercially stranded in the future. It does seem that early mover proponents (i.e. pre-commercial demonstration) are generally not in a position to bear all of the commercial project risk and prefer instead some form of equitable risk sharing arrangement with governments.
This year’s survey also raised some novel ways for how the CCS community might think about addressing some of the better known challenges of CCS projects. For example, about two-thirds of those surveyed did not disagree that getting the storage site selection right can be far more important than resolving upfront long-term liability arrangements (40 per cent agreed and one-third neither agreed nor disagreed). This is not to say that resolving liability arrangements is not critical, but rather that if the site is well selected then the associated liability risks may also diminish and/or be more readily acceptable to permitting authorities. Perhaps related to this matter is a strong preference for government support to be prioritised towards storage solutions over more upstream CCS components.
Interestingly, respondents rated the implementation of policies to access common user infrastructure (CUI) as being relatively low among a range of CCS-relevant policy options however, the majority (not all) view such infrastructure to be primarily the responsibility of governments. While investment in or the construction of pipelines tends not to be the domain of capture plant and/or storage developers, the efficient linking of source to sink will be critical to the successful commercial deployment of CCS more generally. It may also influence the location of new additional projects, and given the future volumes of CO2 that it is envisioned need to be handled, it will certainly be critical for governments to consider upfront what the future capacity requirements may be and the extent to which public-private partnerships must financially provide for such investments.
Project proponents have a variety of views as to what are the most effective policy instruments that can adequately cater for the commercial and operational requirements of their projects (Figure 41). Project proponents consider that most of the heavy lifting for future CCS development and ultimately commercial deployment needs to be given effect through carbon pricing arrangements (clearly identified as the most important), followed by power purchase agreements, feed-in tariffs, up-front capital subsidies (such as grants or low-interest loans), access to viable storage solutions, and regulated returns (especially in the US where some projects will be operating in regulated electricity markets). Streamlined regulatory approvals were considered an operational priority for projects in the post-FID (execute and operate) stage, as well as the natural gas processing sector, but less of an imminent consideration for projects in the pre-FID that may still be undertaking pre-feasibility analysis.
FIGURE 41 Project proponent preferences for enabling policy instruments
|Highest importance||Second most important||Third most important|
|Carbon pricing arrangements||✓|
|Regulated returns on investment||✓|
|Access to direct subsidies||✓|
|Access to a viable storage solution||✓|
|Streamlined regulatory approvals||✓|
|Access to indirect subsidies||✓|
|Access to common user infrastructure||✓|
|Emissions performance standards||✓|
|Clean energy targets||✓|
There is relatively less support among the project sample for the implementation of policies such as energy performance standards (EPS) or accessing CUI such as CO2 pipelines. In regards to an EPS, this may reflect the nascent stage of CCS technology developments and, as such, CCS is still viewed as being very much in a pre-commercial demonstration phase (albeit at an increasing engineering scale). As for CUI, this could reflect the EOR nature of the current fleet of CCS projects (already with pipeline access), as well as a lack of critical CO2 volume needing to be transported due to either a weak compulsion for emitters to have to manage their emissions and/or the fledgling state of the CCS industry.
A policy preference for implementingtargets also seems to hold low purchase among the project sample (except in Canada), which is a little surprising given the popularity of such a policy choice among many jurisdictions for supporting renewable technology development, deployment, and diffusion.
A majority of project proponents are also of the opinion that their current regulatory environment would readily facilitate an investment decision (Figure 42). This figure represents a broad spectrum of projects geographically, and includes many jurisdictions which have established, or are in the process of implementing, legal and regulatory frameworks for the technology.
A smaller number of project respondents, however, have indicated that the regulatory environment in their jurisdiction remains inadequate to enable them to make an investment decision. While it is notable that the number of projects within this category is relatively small, their geographical distribution may be of concern for governments which have sought to enact regulatory frameworks, or provide funding and incentives to drive national development of the technology. From these results it is clear that project respondents from Australasia and Europe appear evenly split on the question, with projects in both regions offering divergent opinions on their regulatory environment. Projects in the US and Asia offer a very different perspective, however, with projects in both regions suggesting that their regulatory environment is overwhelmingly supportive of an investment decision.
FIGURE 42 Do the current regulatory requirements within your project’s jurisdiction(s) facilitate an investment decision within your organisation?
The negative responses observed in some of the regions above may be tempered by the fact that, in many jurisdictions, there have been few perceived changes to the regulatory environment in the past 12 months (Figure 43). A large majority (73 per cent) of projects have reported their regulatory requirements as unchanged, or that their activities remained unfettered by regulatory developments. The pace of development and seeming lack of progress suggested by European projects in response to this question may also help to explain why project proponents in the region believe the regulatory environment is unsupportive of an investment decision. In some circumstances – only 6 per cent of the responses – regulatory requirements are considered to have regressed to the extent that they now hinder the making of an investment decision. These particular responses, however, are attributable (unsurprisingly) to the small number of projects which have been cancelled in the past 12 months.
FIGURE 43 Have there been changes to these regulatory requirements in the past 12 months?
For the large majority of projects, these results are perhaps symptomatic of a more restrained pace of legal and regulatory development in many jurisdictions over the past 12 months. The promulgation of fewer new laws, and a focus upon the implementation of regulations and processing amendments to existing frameworks, has perhaps resulted in some issues, previously viewed as uncertainties, to be now considered by some project proponents as unresolved. More encouraging are the occasions where project proponents have highlighted progress and changes to their regulatory environment, which have assisted in the making of an investment decision.
A number of project proponents in Europe, Australasia, and MENA all highlighted recent changes that demonstrate progress by governments and which inspire more commercial confidence. Two of the regions, Europe and Australasia, where project proponents have suggested their regulatory environment did not support an investment decision at present, have also been named as jurisdictions where there is progress from regulators.
The results from these particular questions also reveal a clear dichotomy in the responses received from Australasian projects. Despite proponents in the region indicating that their regulatory environment did not support a firm decision about funding, the responses also suggest that there has been substantial progress by regulators in progressing regulations, which assists in the making of an investment decision. These responses are perhaps indicative of the success of project-specific legislation, which has enabled the development of individual projects through the crafting of dedicated regulatory models to address the precise requirements of both the project and regulator.
The 2012 survey also sought a project-level appraisal of a number of legal and regulatory elements that were either ‘addressed’, ‘partly addressed’, or ‘not addressed’ by regulation and guidance in their particular jurisdiction (or ‘not applicable’).
FIGURE 44 Project-level appraisals of the domestic regulatory environment (high-resolution version)
Figure 44 details the number of project-level responses by individual issue. It would appear that several of the legal and regulatory elements, highlighted for consideration in the survey, have been addressed to a significant extent by laws and regulations enacted in some jurisdictions. The view of a number of project proponents is that the selection and evaluation of storage sites, the definition of project boundaries, and issues regarding property and access rights appear to have been addressed to an extent in many countries worldwide. These responses also suggest, conversely, that the current legal and regulatory regimes are incomplete in various jurisdictions and that there are issues requiring further clarification from regulators. The adoption of rules to accommodate CCS under market-based mechanisms, an operator’s duties with regard to remediation and financial security, the post-operational transfer of long-term liability, and standards for the cross-border movement of CO2 have all been indicated as ‘unaddressed’ by project proponents in some jurisdictions.
The survey responses also indicate that a number of these issues have only been ‘partly addressed’ by the legal and regulatory regimes in some jurisdictions. A constructive interpretation would therefore suggest that many regulators have already begun the process of regulatory development, or that these jurisdictions already provide, to some extent, a supportive environment for CCS activities. Such a positive outlook, however, does not take account of the details omitted from the regulations, particularly the effect of partial regulation upon projects at different stages of the project lifecycle.
A different perspective, perhaps one borne out by many project proponents’ portrayal of the regulatory environment, is that the regulatory process in several jurisdictions has progressed but at a slower rate (as regulators take steps to implement overarching regulatory requirements or make broader policy considerations around the technology).
Appendix F provides a detailed breakdown, by region, of the legal and regulatory issues which several have identified as insufficiently addressed by regulators in their respective jurisdictions.
In the survey responses the partial development, or failure to address, market rules to accommodate CCS within prevailing market mechanisms was highlighted as particularly significant by LSIPs.
Notable from the responses is that for projects across Europe, Asia, Australasia, and North America the number of negative responses far outweighs the examples of successful or complete development of legislation to address this issue. For LSIPs in Asia, this disparity is possibly symptomatic of the immaturity of CCS legal, regulatory, and policy frameworks within the region. In North America however, the negative results perhaps indicate the uncertainty many LSIPs continue to face with regard to policies around carbon pricing. North American proponents have also classified the issue as ‘not applicable’ in some instances, indicative perhaps of the role EOR plays in supporting project development in Canada and the US. These particular results may be of concern to regulators and policymakers in Europe, who have sought to clarify the role CCS will play under the EU Emissions Trading Scheme and climate change policy architecture.
Similar assumptions may also be behind proponent responses to issues of standards for the cross-border movement of CO2, operator’s remediation and financial security requirements, and the post-operational transfer of liability. Respondents in Asia highlighted these issues as insufficiently addressed in their domestic systems, perhaps underlining once more the nascent stage of development of the legal and regulatory frameworks in these jurisdictions. However the responses to these issues from proponents in the US and Canada suggest a different situation, with far fewer proponents viewing the legislation as entirely incomplete or indeed applicable. These results are perhaps again symptomatic of the nature of operations undertaken by LSIPs in North America where there is a prevalence of EOR activities regulated under well-characterised legal and regulatory regimes. A more detailed exploration of the legal and regulatory regimes governing EOR is provided in Chapter 9.
Most notable within these responses are those from European and Australasian project proponents, which highlight deficiencies in some aspects of their domestic frameworks. Despite considerable legislative activity at the national and supranational levels in these regions, it would appear that several specific issues remain. In the EU, these responses are perhaps symptomatic of the pace of the transposition process within several Member States, with a number of delays observed in the past 12 months. The issues of remediation and liability have also proven to be of particular concern for potential operators in Europe and Australia, with some concerned that framework legislation and secondary guidance does not go far enough in determining the extent of their operational and long-term responsibilities.
The responses received to these questions from projects in Asia and North America are particularly striking when contrasted with their earlier responses to the questions addressing the ability to make a FID. Despite the majority of projects in these regions suggesting that their legal and regulatory environment supports a final investment decision, it would appear that this view is not substantiated when considering many of the elements which conventionally make up a regulatory regime for CCS. One explanation is that some of these projects, particularly in North America, have already passed this point in the project lifecycle, or are to be regulated under pre-existing regulatory regimes for EOR operations. The reasons behind these results are less clear in Asia, where many of the projects surveyed remain in the early phases of the project lifecycle.
Project respondents have also highlighted several areas of successful regulation. The law and regulations governing the definition of project boundaries, the drafting and implementation of a monitoring plan, and the selection and evaluation of a storage site have all been identified as sufficiently addressed (to an extent) by projects in Australasia, Europe, and North America.
Conceivably, positive responses are to be expected (to a degree), especially in those regions where there has been widespread development of regulatory frameworks for the technology. Europe’s Member States and Australia have enacted substantial regulatory frameworks for CCS in recent years, supported in many instances by extensive secondary legislation and guidance. The breadth and sophistication of the regulatory models developed have in some measure inspired confidence in LSIPs in these regions. There are however, qualifications to these examples, notably the number of projects which have indicated that some of these issues remain only ‘partially addressed’. In the EU, as suggested previously, this is the likely result of an ongoing process of transposing the requirements of the EU Directive into national laws. In Australia, an example of project-specific legislation has provided the clarity and assurances required by operators.
The issue of incorporating CCS activities into pre-existing planning and permitting regimes has also revealed some not entirely unexpected results, with project respondents in North America, Europe, and Australasia all signalling that the issue has been addressed or partially addressed by domestic legislation. In Australia and many European Member States, CCS activities have in some circumstances been brought within the scope of existing regulations, ensuring that the technology is subject to existing obligations around industrial operation, health and safety, land use planning, and environmental protection.