4.5 Challenges and outlook

Carbon prices are currently recognised as essential but not sufficient drivers of CCS projects. The importance placed by project proponents on carbon prices emphasises the need for governments to continue both national and international actions to put a price on carbon emissions. To this end, there have been some positive developments in the past year, such as the introduction of a carbon price in Australia. However, much more needs to be done.

The challenges of addressing climate change are often presented in the public domain as being insurmountable and politically fraught. While the challenges remain great, there is clearly a substantial level of international collaboration, goodwill, and legal basis to form a legitimate expectation that sustained mitigation action will not only form tomorrow’s business-as-usual expectations, but will increasingly be deliverable and affordable. Nevertheless, it is clear from the negotiations throughout 2012 that reaching agreement on the post-Kyoto framework will experience substantial challenges.

At the level of international negotiations, key issues include the length of the second Kyoto commitment period and the extent to which surplus ‘rights to pollute’ (allowances) from the first commitment period can be carried over to the second. This latter point is very important, as it will influence the supply of allowances and hence the global price of carbon. While the second Kyoto commitment period starts on 1 January 2013, there is still debate whether it ends in 2017 or 2020.

Within the UNFCCC framework, the AWG-LCA and AWG-KP are destined to end their work plans in 2012. Any outstanding issues will thus need to be tasked to the remaining bodies – the ADP, SBI, and/or SBSTA. The SBI is already managing the implementation of the institutional arrangements supporting NAMAs, for which the issues of technology transfer and climate financing remain critically important.

The post-2020 action (mitigation and adaptation) to combat climate change is being negotiated in the ADP. The first meeting of the ADP was held in May 2012, and it is clear that the lack of distinction between developed and developing nations in the need for action will create some tension for some time. This makes the concept of ‘equity’, in conjunction with the NAMA process, fundamental to the success of any new climate change regime.

International action is also commencing to develop standards for CCS. As noted above, the setting of standards on the basis of incomplete information could potentially lead to overly conservative permitting requirements being imposed on demonstration and pre-commercial CCS projects, which could undermine the ability of proponents to proceed with innovative and often first of-a-kind demonstration projects.

To overcome these problems, it is suggested that a ‘one size fits all’ approach should be avoided where possible. When appropriate, a fit-for-purpose approach is sufficient to provide for accurate, conservative, relevant, credible, reliable, complete, and verifiable data monitoring plans and measurement methodologies. A large number of published peer-reviewed expert reports exist that provide for approaches and/or recommendations to address and/or redress CCS-related issues. The adequacy of applying these existing and extensive suites of best practice guidelines and protocols should be tested first before imposing additional sets of rules on CCS projects. It would seem that sufficient technical and scientifically valid analysis, methodology, and procedures currently exist to appropriately address CCS demonstration-related issues.

There has been good progress over the past year in relation to one international marine agreement affecting CCS (the OSPAR Convention) but not the other (the London Protocol). While many LSIPs may undertake offshore CCS transport and storage, at this stage their planned CCS activities require CO2 to cross international boundaries only from domestic to international waters, and not into another contracting party’s jurisdiction. Considering that this does not amount to ‘cross-border’ movement of CO2 from one jurisdiction to another, the IEA (2011c) argues that it is unlikely that the situation would be covered by the London Protocol prohibition. While there is little information to suggest that these projects are planning to send captured CO2 to another jurisdiction for storage, any cross-border plans may be precluded by the current prohibition under the London Protocol. Eliminating the prohibition against cross-border transport and storage of CO2 will be especially important for jurisdictions that find that CCS is a viable GHG mitigation option but which do not have the suitable geology for storage or have limited storage capacity.

Delays posed by slow progress internationally will inevitably require national and sub-national policies to address any associated uncertainty around investing in low-carbon technologies such as CCS, and to address more general carbon-related obligations.

Modest policy developments have been reported over the past year, with the most notable perhaps being the ongoing implementation of the UK’s climate change policies, Australia’s establishment of a carbon price, Korea’s adoption of an emission trading scheme in 2015, and South Africa’s budgeting for a phased introduction of a carbon tax in 2013. Increasingly, carbon pricing arrangements (carbon tax and emissions trading schemes with international linkages between national schemes) are emerging, as are performance standards and innovative financing and funding measures.

Governments have a wide array of policy and regulatory instruments available to use to address the level of emissions and facilitate climate mitigation action. These include:

  • a range of policy levers that in effect establish a price on carbon emissions, such as establishing a tradable market in emissions (the EC’s ETS), imposing a direct tax on emissions (Norway), setting a minimum ‘floor’ price to drive technology deployment (the UK’s carbon floor price scheme), or a combination of these approaches (such as Australia’s initial carbon tax moving to a trading scheme);
  • market-based and/or technology-specific drivers to favour deployment of low-carbon or ‘clean’ technologies, such as feed-in tariffs, portfolio quotas for electricity supply companies, and a range of other market mechanisms aimed at harnessing the power of the market to support the development and ultimate deployment of low-carbon technologies;
  • direct policy and/or regulatory action to prevent or limit emissions, such as emissions performance standards (Canada and UK), direct bans on certain technologies such as no new coal-fired power stations (Denmark, New Zealand), specific requirements on deployment of some technologies such as new fossil fuel generation (above a certain capacity) to integrate CCS (Scotland) or to undertake a CCS Ready assessment (EU CCS Directive), and requirements that new plants be CCS Ready (France, UK); and
  • both direct and indirect support for the development and deployment of emerging technologies, such as direct capital assistance (Australia’s CCS Flagships program, EC NER300 grants), and aid for focused research and development.

Within this context, the perception of CCS project participants is that only modest policy change has taken place recently, and that while the current mix of policy settings are viewed as being supportive of positive investment decisions in CCS projects, they are seen as inadequate. Investors in CCS projects (including financial institutions, emitters, manufacturers, and service providers) are clearly focusing on the opportunities and risks presented by an evolving balance of policy settings aimed at supporting CCS projects while also intended to drive commercially attractive mitigation outcomes.

The IEA (2012c) observes that the technologies with the greatest potential for saving energy and reducing CO2 emissions are making the slowest progress. In particular, they state specifically that CCS is not receiving the necessary rates of investment into full-scale demonstration projects and that nearly half of new coal-fired power plants are still being built with inefficient technology. In addition to broad climate policy, adequate government funding of demonstration projects is also required to spur investment. In this regard, available funding, while considerable, is shrinking and is increasingly vulnerable. A major challenge for government is to ensure that CCS is treated equitably with other emerging clean-energy technologies.