healthier, happier and richer

Rapid and extensive demonstration of carbon capture and storage (CCS) is necessary to show that it works as well at larger scales as it does at smaller scales, and that it works throughout the generation, capture, transport and storage process. Given the large coal reserves of many member states, widespread CCS deployment would increase EU energy security without causing extreme damage to the climate.

Demonstration and deployment could also make EU businesses world leaders in CCS technology. China, the US and Australia are all now actively pursuing CCS, making public funds available, and the new Japanese government may well do the same. Therefore, if Europe wants to secure business benefits, it will have to move extremely fast.

Demonstration projects will require very significant financial support, because CCS will not be as cheap as burning coal or gas without capturing CO₂. As with any new technology, early demonstrations will be more expensive than later projects. Pipelines to transport CO₂ will also need to be installed.

The experience of California shows that, if there is no public funding, CCS will not happen. It introduced an Emissions Performance Standard in 1998, meaning that no unabated coal generation would be allowed. However, no CCS plant has yet been built in California, but a major demonstration plant now looks likely, only because the Obama administration has now provided considerable funding.

Demonstration plants should cover the portfolio of potential technologies, including pre-combustion and oxyfuel demonstrations at large scale (see Carbon capture and storage for an explanation of different technologies). There should also be some post-combustion, since this can be retrofitted, but it should be demonstrated on existing coal power stations, not on new capacity. There is no justification for paying for – or indeed allowing – new coal stations to prove that a technology can be retrofitted. Post-combustion should be demonstrated on an existing power station, either in the EU or elsewhere.

Oxyfuel can also be retrofitted and, at this stage, looks the better climate option. However, it is too early to conclude that this is the only retrofittable technology that should receive public funds.

The EU and energy policy

The EU, in its different manifestations, has always been involved in coal policy:

“The 1951 European Coal and Steel Community was the essential building block for the European Economic Community… It became essentially a social instrument to assist, with money, the run-down of west European coal mining.“

(David Buchan, Energy and Climate Change: Europe at the crossroads, OUP 2009).

The 1986 Single European Act acknowledged the economic importance of energy. Therefore, it became part of the subsequent single market programme. The 1992 Maastricht Treaty increased the EU’s role in environmental issues and gave it powers to improve cross-border energy infrastructure through Trans-European Networks. The Lisbon Treaty contains a specific chapter on energy, which promises the development of new and renewable forms of energy.

In addition to this, the original Treaty of Rome gives Brussels substantial powers over energy policy through the market-opening and market-liberalising provisions. The Commission has also acquired a role in energy policy by means of anti-trust and state aid activity. The result is that:

“Brusels has greater potential power to shape the energy market design of its member states than Washington has over US states” (ibid).

The EU and CCS

The EU has been funding research into CCS for the past fifteen years. For example, oxyfuel combustion was demonstrated at a small scale programme during 1994/1995. The Commission has also supported research into storage options, for example through the €14 million project to inject CO₂ into a saline aquifer at 600m depth near Berlin. This started in 2004 and was scaled up significantly in 2008.

In the past three years, there has been more serious discussion of moving beyond research, to demonstration. More important than discussion or policy, there has also been agreement to pay for some demonstration projects. In March 2007, heads of government agreed that ten to twelve CCS demonstration plants would be funded and operational by 2015. However, two and a half years later, not nearly enough practical progress has been made and no large plant is under construction in Europe.

The projects must be constructed without further delay and there must be full knowhow sharing between all the projects and all the member states. In this way, what is learnt can be spread across the wider energy industry and mass commercial deployment can be accelerated.

The EU Economic Recovery Plan (EERP)

The EERP provides €1,050 million for CCS demonstration projects. This will be funded from unspent money in the existing EU budget. The Commission has now picked seven projects to receive this money (although member states have another week to protest and argue for changes):

• The UK. A 900Mw IGCC pre-combustion project in Yorkshire, with CO₂ stored in oil and gas fields – €180 million.
• Germany. A 500Mw pre-combustion project at Jaenschwalde, with CO₂ stored in oil and gas fields – €180 million.
• The Netherlands. A combination of the two Rotterdam post-combustion projects, with CO₂ stored in oil and gas fields – €180 million.          
• Poland. A 250Mw post-combustion project at Belchatow, with CO₂ stored in a saline aquifer – €180 million.
• Spain: a 500Mw oxyfuel project at Compostella, with CO₂ stored in a saline aquifer – €180 million.
• Italy. A 300Mw post-combustion project in the Po River Delta, with CO₂ stored in an underground reservoir (not yet selected) – €100 million.
• France. Transport of CO₂ from a steelworks to a saline aquifer – €50 million.

This is welcome, but is not nearly enough to get any large plants built. When member state additional co-finance is added (EU contribution is a maximum 50% of public funds), the funds are still inadequate for the plants to be built.

New Entrants Reserve

The EU has also agreed to use the revenue raised by auctioning “up to 300 million” permits for the Emissions Trading System for CCS and “innovative renewable technology demonstration”. To do this, it has created a New Entrants Reserve (NER). But it has not yet been agreed how this will be divided between CCS and renewables. The Commission, with the support of member states such as Germany, originally proposed 80% for CCS and 20% for renewables. Some member states oppose any subsidy to CCS. It is likely that the division will be somewhere between 50 and 80% for CCS, and 20 and 50% for renewables. A 50 : 50 split would not provide enough money for major CCS demonstrations.

The NER funds should be divided 80% for CCS and 20% for renewables. Renewables benefit significantly from member state feed-in tariffs or renewable portfolio standards, and EERP grid funding (for example, the European Investment Bank lent €300 million to lay an electricity cable between Ireland and Wales in September). Renewables will, in future, benefit from the EU funding of North Sea and (possibly) Mediterranean grids. Giving less than 80% to CCS would mean that not enough funding was available for the ten to twelve projects mentioned above.

Even once the split between CCS and renewables is agreed, the amount of funding will still not be certain, because the value of ETS permits is not fixed. The Commission says that the value of the 300 million permits could be €7 billion, but it is unlikely to be this high. To protect their value and to improve the impact of the ETS, there should be a floor price for carbon.

The Commission has said that it aims to make NER awards in mid-2011. This must be achieved. The schemes chosen under EERP, which cover the range of technologies for coal (though do not include gas) and have good geographic coverage, should be given preference under the NER process.

Member state financial support

Member states will have to give at least the same amount of financial support as a project receives from EU funds. It has not been particularly difficult to get governments to support CCS as a concept or to name lists of projects that they would consider supporting. The difficulty has been getting them to narrow down to large-scale projects that they will actually fund. For example, the UK competition for one, post-combustion project has already been underway for two years and no announcement of the result is expected before the general election in spring 2010.

The small demonstration plants operating now have all been financially supported by governments. However, funding for large-scale demonstration projects has not yet been identified, partly due to the recession and partly for political reasons. For example, the German debate was effectively on hold during its general election campaign.

EU regulatory role

Sufficient subsidy will be enough to get major demonstration projects constructed, but a clear regulatory framework is needed to achieve CCS deployment. The EU’s 2008 Carbon Dioxide Geological Storage Directive does not make CCS mandatory – it simply includes regulations to ensure that the CO₂ can be legally and safely stored. CO₂ limits should be included in the Industrial Emissions Directive (IED) that is currently being negotiated – though German MEP Holger Krahmer, who is steering this through the European Parliament, told electricity industry representatives on 8 October 2009 that he would not do this (see EurActiv: Parliament set to strip CO2 caps from EU air pollution law).

And the Commission should clarify that member states are permitted to set stricter standards than any EU ones. In particular, a North Sea “hub” of member states should be encouraged to move ahead. In the past, the Commission has said that this is not allowed. However, it is constitutionally strange (and politically foolish) to argue that California has the right to set an Emissions Performance Standard, but that EU member states do not.

Sweden and Spain

Spain holds the Council Presidency in the first half of 2010 and, because it has significant coal reserves (see Spain – climate and energy statistics), it is likely that sorting out CCS funding will be high on its list of priorities. Sweden, which has the current presidency, has a less clear interest in coal (see Sweden – climate and energy statistics), but a very strong commitment to controlling climate change. Therefore, it should begin the process of securing and allocating the New Entrants Reserve revenues, amend the draft IED to include a CO₂ emissions performance standard and make it clear that member states will be permitted to set higher national standards.