healthier, happier and richer

Foreword

As we enter a new decade, energy providers across Europe are finding themselves with three fundamental challenges: the need to maintain secure power supplies; the need to keep that power affordable for our domestic, commercial and industrial consumers; and the need to ensure that the energy we produce is both reliable and sustainable in the long term.

At ScottishPower we, alongside government, believe that the response to these three challenges lies in having a threefold solution. First, we need to move rapidly towards greater energy efficiency through smart meters and smart grids. Second, we need to continue to develop our portfolio of renewable energy sources such as wind and marine. And third, we need to develop reliable and flexible low carbon electricity generation which will include a fresh role for nuclear and a long-term future for coal.

In taking these steps towards our energy future, we have been at the forefront of carving out a new role for coal in the energy mix. Coal presents us all with a particular challenge. On the positive side, it is relatively cheap, it is abundant, and it can be easily extracted from most parts of the world. Set against that is its environmental price tag. It emits carbon dioxide when burned, which all the available science tells us is a key contributor to climate change. So, if we are to continue to be able to use it and meet the appropriately tough emissions reduction targets set for the end of this decade, then we have to tackle head on the CO₂ that this remarkable source of energy gives off.

We believe the answer lies with carbon capture and storage (CCS). We are committed to being among the first in the world to deliver a full-scale, commercially viable CCS system at our power station at Longannet in Fife, Scotland, by 2014. We have made great strides already, but know we aren’t there yet. To take CCS out of the lab and make it an operational reality will take national and international support and collaboration.

This report is an eloquent argument for concerted European action to promote CCS. It paints a picture of uneven political focus in Brussels. It outlines too what could be achieved if politicians and energy providers all pull in the same direction. I am proud that we at ScottishPower have sponsored this insightful document. We support its findings and urge those who can make a difference on the European stage to act on the recommendations it makes without delay.

Nick Horler

Chief Executive, ScottishPower

1 Introduction

The global demand for electricity is set to boom. As people in China, India and other developing countries become wealthier, their use of electricity will rise dramatically, in spite of growing efforts to curb the use of energy. Electricity is already the main source of power for trains and will almost certainly replace oil as the power source for most road transport, as cars switch from internal combustion engines to batteries. Rising temperatures mean that electricity-hungry air conditioning will become more widespread. And heat for buildings will increasingly be provided by electricity rather than oil or gas boilers. Europe will be no exception to this global trend towards higher electricity consumption, notwithstanding its efforts to improve energy efficiency.

The challenge the world faces is to meet the burgeoning demand for electricity while delivering big cuts in emissions of greenhouse gases. Renewable energy will become an increasingly important source of electricity. The EU may well reach its target of meeting 20 per cent of its energy needs from renewable sources by 2020.1 But it will not be until 2050 – and probably well beyond then – that energy in the EU or elsewhere could feasibly be fully renewable. In the meantime we must produce electricity in a way that involves pumping less carbon dioxide into the atmosphere.

At present, around half of the EU’s electricity is produced by burning fossil fuels, of which two-thirds is accounted for by coal. EU countries are currently planning to build 50 large conventional coal fired power stations, a move which would severely compromise Europe’s efforts to reduce its emissions of greenhouse gases. Some people therefore argue that governments should leave coal aside and instead focus on an aggressive expansion of nuclear energy, which is close to being carbon neutral. The tide is certainly turning in favour of nuclear across Europe. Italy is rethinking its ban on new nuclear capacity, Britain is gearing up for the construction of a large number of new plants, and France remains as committed as ever to nuclear energy. The recent election of a centre-right government in Germany could lead to that notoriously nuclear-sceptic country postponing the closure of its nuclear power plants and conceivably to it constructing new ones. But nuclear power stations will only ever be part of the solution to the energy challenge, because nuclear energy is very costly.

As a result, coal will continue to be the most important single source of electricity in Europe for decades to come. It will also be the dominant source globally, not least because most of the new energy capacity coming on stream in India and China will involve burning coal. The EU needs to burn coal and gas in a way that is less damaging to the environment.

The technology to do so does exist. Carbon capture and storage (CCS) involves capturing carbon dioxide from power stations and other major industrial users of coal and gas, compressing it, transporting it, and then storing it safely underground. Employing CCS does impose an ‘energy penalty’: a coal or gas-fired power station incorporating CCS technology will use more fuel to produce electricity and operate more expensively than a plant that simply releases the carbon dioxide into the air. The reason for this is that it requires extra energy to separate and capture the carbon dioxide. But the world is not short of coal. What is required is a way of using it to generate electricity in a less carbon-intensive fashion. Approximately 500 industrial facilities account for 25 per cent of the EU’s emissions of carbon dioxide. Fitting CCS technology to them all would make a dramatic contribution to decarbonising the European economy.

The capture, compression, transport and storage of carbon dioxide have all been shown to work, but only on a small scale and not in an integrated fashion. The world needs to see that CCS works just as well on a large scale, through each step of the process. Unfortunately, the EU has not yet put in place the policies to demonstrate the commercial viability of CCS and bring about its mass deployment. But if Europe fails to do so, it is very hard to see how it will be able to make the big cuts in emissions of carbon dioxide needed to meet its environmental targets. And Europe will fail to assume leadership of what promises to be a crucial 21^st century technology.

The problem is money. Industrial emitters of carbon dioxide are not prepared to invest in CCS because they fear that they will be unable to recoup the investment. The costs of CCS are formidable. There is no agreement over how much it would cost to construct an integrated CCS demonstration project that captures, transports and stores carbon dioxide, and then there is the ‘energy penalty’ to consider. In theory, the EU’s emissions trading scheme (ETS) should provide financial compensation for investment in CCS: from 2013 carbon dioxide captured and stored will not be counted as emitted under the ETS. The EU’s carbon market caps the volume of carbon dioxide that heavy industry is allowed to emit and auctions emission permits to companies that need them. If utilities stored and captured carbon they would be freed from having to purchase carbon permits. But unfortunately carbon prices – around S13 per tonne in February 2010 – are too weak to provide sufficient financial incentives to invest in low-carbon technologies, such as CCS, and are likely to remain so for several years.

The construction of large demonstration projects will therefore require a lot of public financial support. The EU wants ten to 12 large-scale CCS demonstration projects to be in operation across the EU by 2015 and has made two sources of funding available for this purpose. First, in 2008 the European Commission set aside S1 billion from the EU’s European Economic Recovery Plan (EERP), and has since allocated this to six CCS projects spread across the different member-states. Second, the revenues from the sale of 300 million emissions permits under the ETS will be put into the so-called New Entrant Reserve (NER) and used to fund investment in low carbon energy sources.2 Unfortunately, the money from the EERP (even taking into account the need for member-states to provide matching funds) will not be enough to get the demonstration projects off the ground. And it is unclear how much money from the NER will be available for CCS because of uncertainty over the level of carbon prices. The UK government wants to introduce levies on electricity suppliers in order to help finance investment in CCS, but there appears little appetite for such an approach among other EU governments.

The mass deployment of CCS will also need a clear regulatory signal. Without it, energy companies will instead invest in new conventional coal-fired power plants, or in more gas-fired generating capacity – which is less environmentally polluting than coal generation without CCS, but worse than coal with CCS. Unfortunately, the EU has not agreed a date after which all generators and intensive industrial users of fossil fuels will be required to incorporate CCS technology. The EU’s 2009 Carbon Dioxide Geological Storage Directive does not make CCS mandatory; it simply requires member states to ensure that the carbon can be legally and safely stored.3

CCS must be a top priority for the new European Commission that took office in February 2010. The new commissioner for climate change, Connie Hedegaard, has primary responsibility for ensuring that the EU meets its emissions targets, and that the ETS functions effectively. The new energy commissioner, Günther Oettinger, has responsibility for bringing about the decarbonisation of EU energy supplies, while Janusz Potocnik, the environment commissioner, is charged with promoting eco-innovation and the adoption of new environmental technologies. All three commissioners and the Commission president, José Manuel Barroso, must work closely together to ensure that CCS is demonstrated and deployed as fast as possible. The time for debate about which low-carbon technology is ‘best’ has passed. The EU needs to accept that in order to reduce carbon emissions far enough and fast enough to meet its targets, it will have to support a range of low-carbon technologies.

Chapter two of this report discusses the technology of CCS and the practical (as opposed to financial) obstacles to its use. Chapter three reviews what steps governments outside the EU are taking to accelerate the take-up of CCS, while the fourth chapter contrasts this with what EU governments are doing. Chapter five lays out the EU’s current strategy for CCS and assesses its chances of success. The final chapter makes a series of recommendations to the EU. The report concludes that CCS is an invaluable bridge technology until countries can rely fully on renewables, but that much more needs to be done in the EU to secure its mass deployment.

2 The technology

The impact of CCS on carbon emissions

Carbon capture and storage will not make coal a fully sustainable fuel source, so the label ‘clean coal’ is not strictly accurate. But CCS has the potential to make coal a low-carbon fuel source. For example, according to the UK Energy Research Centre (a publicly funded research institute looking at sustainable energy), a conventional coal plant releases 950 grams of carbon dioxide per kilowatt-hour of electricity generated. The same plant fitted with CCS would emit between 50 and 90 grams per kilowatt-hour. By way of comparison, a typical gas-fired power station produces 400 grams of CO2 for every kilowatt-hour generated; a nuclear plant 120 grams; and a solar plant 110 grams. Only wind power does better than a coal plant incorporating CCS technology, producing just 25 grams per kilowatt-hour.

CCS is also required to reduce emissions from industrial sectors, such as the cement and petrochemicals industries. The International Energy Agency (IEA) announced in December 2009 that the cement sector could reduce its emissions by 18 per cent by 2050 (compared with the current level) by incorporating CCS and increasing the efficiency with which plants use energy. The IEA estimated that 20-33 per cent of the world’s existing cement kilns will be replaced before 2020, rising to 40-45 per cent by 2050.4 However, energy-intensive sectors such as cement and petrochemicals raise legitimate concerns about ‘carbon leakage’. This refers to the relocation of industries from countries with tight environmental standards to those with lax ones. For example, if EU regulations requiring industrial plants to incorporate CCS technology were not replicated elsewhere, there would be a risk that industrial capacity would move from the EU to China or other emerging economies.

The currently available carbon capture technologies can be divided into three categories:

• Pre-combustion. This approach involves capturing the carbon dioxide before the fuel is ignited and burning the remaining hydrogen-rich gas to produce power. The technology should reduce carbon emissions by 90 per cent. It is widely used in the production of fertiliser and hydrogen, and can be employed with ‘integrated gasification combined cycle’ (IGCC) power generation, which works by converting coal into gas. However, pre-combustion technology cannot be retrofitted to existing power stations.
• Oxyfuel. This approach captures carbon dioxide during the combustion process. Prior to combustion air is separated into nitrogen and oxygen. Fuel is then burned in the oxygen, producing carbon dioxide and water vapour, which can easily be separated. This process should enable up to 90 per cent of the carbon dioxide emissions to be captured, although the initial process of separating the oxygen from air demands a lot of energy. The technology can be retrofitted to existing plants, whereas pre-combustion CCS cannot. The largest demonstration facilities operating in the EU use oxyfuel technology: a 40 megawatt test facility in Scotland, a 30 megawatt retrofitted gas plant in France and a 30 megawatt retrofitted coal plant in Germany.
• Post-combustion. This technology is well understood and is already used in other industrial applications, though not at the level required for a large commercial power plant. It involves capturing the carbon dioxide after the fuel has been burnt. Post-combustion CCS can be added to existing coal or gas-fired power stations, but unlike the pre-combustion and oxyfuel approaches it does not necessarily cover the entire capacity of the plant.

All three technologies must be demonstrated at scale in order to assess which deliver the greatest climate benefits and which are most cost-effective. Oxyfuel is very promising because it can be fitted to existing plants. But it would be premature to focus all public subsidies for CCS on this technology, not least because its energy demands could reduce its attractiveness, especially in developing countries. Post-combustion technologies also need to be demonstrated: the rapid reduction of carbon emissions will require retrofitting coal plants in China, India and other developing economies, as well as in the developed world.

Transport and storage

Carbon dioxide must be transported from the power plant (or industrial facility) to a site where it can be safely stored underground. The most obvious answer to the transportation question is to move the gas by pipeline. This is a proven technology: it has been used since the 1970s to transport carbon dioxide in oil fields where it is used to enhance oil recovery. For example, the 225 kilometre Canyon Reef Carriers Pipeline in Texas has been in operation since 1972, and there are now approximately 5,800 kilometres of CO2 pipeline in use across the United States. Carbon dioxide could also be moved by ship, in much the same way that liquefied natural gas is transported, although transporting large volumes by sea is likely to be much more costly than using pipelines, and would increase marine tanker traffic and hence emissions. CO2 could also be carried by rail or road tankers, but this would be unlikely to be suitable for large-scale transportation for safety, cost and environmental reasons.

The need to identify secure ways to store the huge amount of carbon dioxide produced during the burning of coal or gas arguably presents a bigger challenge than capturing it. Depleted oil and gas fields are one obvious option. As already mentioned, the Americans have been doing this since 1972, and the Norwegians started to do so in 1996. The Norwegians extract carbon dioxide from natural gas – they need to do this since Norwegian gas has a much higher CO2 content than customers would accept – and then pump it into an aquifer. Since the natural gas stayed in these fields for millions of years, there is no obvious reason why carbon dioxide cannot also be stored in them for a very long time. The Intergovernmental Panel on Climate Change (IPCC) concludes that “the fraction [of carbon dioxide] retained in appropriately selected and managed geological reservoirs is very likely to be 99 per cent over 100 years and to exceed 99 per cent over 1,000 years.”5

The pumping of carbon dioxide into oil and gas fields reduces the net cost of storage because it leads to enhanced oil or gas recovery. However, it could also reduce the climate benefit if it leads to more fossil fuels being readily available from known and accessible fields, thus reducing pressure on governments to expand the use of renewable energy. Nevertheless,  while oil and gas are being used – which they will be for the next three decades at least – it is better for the environment to extract oil from the North Sea than it is from the Canadian tar sands. It is also better in terms of energy security for the EU to use North Sea gas than, for example, to import more gas from Russia.

The obvious drawback with relying exclusively on offshore oil and gas fields to store carbon dioxide is that they are not evenly distributed around Europe. An elaborate pipeline infrastructure would be needed to connect the sources of carbon dioxide with the storage sites. Such a network would be costly to construct and would doubtless generate considerable opposition from affected communities. CO2 can also be stored in fresh or salt-water underground aquifers, which are better distributed and have significantly greater storage capacity than oil and gas fields. The storage of carbon dioxide in saline aquifers should be demonstrated on a large scale, particularly since these are likely to be the best option for storing the CO2 from Chinese power stations. The Norwegians already capture carbon dioxide from the Snøhvit and Sleipner gas fields and store it in saline aquifers. By contrast, fresh water aquifers offer less potential as storage sites, as they are important sources of drinking water and used for irrigation, and are in any case being rapidly depleted in many countries.

Other storage options are also problematic. There is strong popular opposition in many EU countries to storing carbon dioxide underground in old onshore gas fields and coal mines. Carbon dioxide is not toxic, but it is heavier than air, so leakage carries the risk of suffocation. In March 2009, a Dutch council objected to Shell’s plans to store CO2 in depleted gas fields under the town of Barendrecht, near Rotterdam, following strong local opposition. In November 2009, the national government overruled the council, and announced that the project would be allowed to proceed, but only on the condition that strict safety conditions are met. There is also strong popular opposition to onshore storage of CO2 in Germany. The carbon dioxide from the oxyfuel demonstration plant operated by Vattenfall in eastern Germany was to be stored in an old onshore gas field, but is now simply being released in the atmosphere.

The storage sites for carbon dioxide will need to be monitored accurately over very long periods of time. In order to demonstrate compliance with emissions reductions targets, and to maintain public support for CCS, there will have to be rigorous verification of the amounts of carbon dioxide being stored, plus regular testing for possible leakages.

3 Policy and practice outside the EU

The EU is far from being the global leader when it comes to the demonstration and deployment of CCS. As noted in the previous chapter, the US has been using carbon dioxide to enhance oil recovery for over 30 years, and Norway has been actively using CCS for 15 years. Indeed, carbon capture and storage is now being promoted all over the world: major economies such as China, the US, Canada and Australia are developing large demonstration plants with the benefit of substantial public subsidies. This is good news. It is unavoidable that coal will be burnt, so it is crucial that it is burnt in a way that limits the damage to the environment. But it is less good news for European businesses that hope to become world leaders in this technology. Unless Europe gets its act together it risks getting left behind.

The United States

The US is home to a quarter of the world’s known coal reserves, and relies on coal for half of its electricity. Had the country ratified the UN’s Kyoto protocol, its target would have been a 7 per cent reduction in emissions of greenhouse gases from their 1990 levels by 2012. By 2007, US emissions had risen by 17 per cent compared with 1990. The country will struggle to bring about rapid reductions in its emissions without the mass deployment of CCS.

During President George W Bush’s second term of office, the US Department of Energy started a Regional Carbon Sequestration Partnership (RCSP). This is a joint government/industry initiative charged with determining the most suitable CCS technologies, and the regulations and infrastructure needed to bring about the take-up of CCS in different parts of the country. Local variations in the use of fossil fuels and the distribution of potential storage sites across the United States mean that such a regional approach makes sense.

The incoming Obama administration moved quickly to provide more money for carbon capture and storage. The federal government allocated $2.4 billion (S1.8 billion) to CCS under the American Recovery and Reinvestment Act (ARRA), the economic stimulus package introduced in February 2009. This money is intended to promote the use of CCS in industrial plants and in the energy sector. The government has also made available an additional $2.3bn in tax credits to manufacturers of clean energy equipment. This covers not only CCS but also fuel cells, batteries, electric cars, advanced grid systems, solar, wind and other energy conservation technologies. In addition, the US also intends to set aside substantial funds – the bill before the senate proposes $1.1 billion a year – from the sale of carbon permits under a future federal emissions trading scheme for the research and development of CCS.

The American authorities have also made progress in selecting specific CCS schemes to spend money on. In July 2009, a project called the FutureGen Alliance, a public-private partnership, was awarded $1 billion from ARRA funds. FutureGen will now construct a 275 megawatt pre-combustion coal plant in Illinois. The private sector members of the Alliance have agreed to contribute $400-600 million. Hydrogen Energy International, a joint venture between BP and Rio Tinto, plans to build a 250 megawatt pre-combustion CCS plant in California. The estimated cost of the project is $2.3 billion: the Californian government has awarded $30 million and the Department of Energy $308 million. The carbon dioxide will be piped to local oil fields and used to enhance recovery, and the plant is due to enter operation in 2016. The Department of Energy has also provided $100 million to retrofit post-combustion technology to a 120 megawatt coal power station in North Dakota, which is due for completion in 2011.

In December 2009, the Energy Secretary, Steven Chu, also announced further awards totalling $1 billion to three more power stations to incorporate either pre- or post-combustion CCS. He also awarded $22 million each to 12 industrial facilities (such as cement and chemical plants, as well as major manufacturing facilities) to help finance the adoption of CCS technology.

Canada

Canada’s Kyoto target is for a 6 per cent reduction in greenhouse gases by 2012. The country has no chance of meeting this target: by 2007 greenhouse emissions had increased by 55 per cent compared with 1990. Much of this rise reflected the impact of changes in land-use, such as the cultivation of more land for agriculture, and rising emissions from road transport, rather than from increased electricity generation.

Over half of Canadian electricity is produced by hydroelectric schemes; only 17 per cent is accounted for by coal and just 5 per cent by gas. Nevertheless, the Canadian government and private sector are investing heavily in CCS. Canada’s Economic Action Plan, introduced in the aftermath of the financial crisis, created a C$1billion (S683 million) Clean Energy Fund. The government of the state of Alberta has also established a C$2 billion fund to support CCS.

Both Canada’s federal and state governments have moved quickly to allocate the funds. TransAlta (a Canadian energy company) and Alstom (a French transport and energy conglomerate) will build a new coal-fired power station in Alberta, and then ‘retrofit’ postcombustion CCS. (They will build a new plant first and then fit postcombustion CCS, rather than retrofit the technology to an existing plant.) Some of the CO2 will be used to enhance oil recovery while the remainder will be stored in saline aquifers. The Canadian government has awarded C$343 million (S233 million) to the project, while the government of Alberta has invested C$436 million.

In another scheme in Alberta, Shell, Chevron and Marathon Oil Sands will use CCS to reduce emissions from an existing plant to turn oil sands into petroleum. Around 40 per cent of the emissions will be captured and transported by pipeline to a nearby fresh water aquifer. The federal and Alberta governments announced in October 2009 that they would provide a total of C$865 million in public subsidy to this project. Finally, in Saskatchewan, SaskPower plans to retrofit a 100 megawatt plant with post-combustion technology, and have this fully operational by 2015. The Canadian government has provided C$240 million to this project, with the private sector expected to provide the remaining C$400 million. The CO2 will be transported to a nearby oil-field and used to enhance oil recovery.

China

China now produces more carbon dioxide annually than any other country in the world. The country accounts for 46 per cent of global production of coal, and 20 per cent of global consumption, and relies on it for almost 80 per cent of its electricity. The Chinese have considerable domestic reserves of coal and intend to use them to produce electricity. According to the International Energy Agency (IEA), Chinese coal-fired generating capacity is set to expand from 350 gigawatt in 2006 to 950 in 2030.6

The Chinese authorities are very concerned about climate change, not least because of desertification in northern China and because of the vulnerability of the country’s low-lying coastal regions to rising sea levels. The country is engaged in a number of international CCS projects and programmes, such as the Carbon Sequestration Leadership Forum, and Chinese companies are working closely with foreign firms on CCS schemes in China.7 A group of investors, including the US coal company Peabody Energy, five of China’s largest power companies, two Chinese coal companies and the Chinese government, is constructing GreenGen, a 250 megawatt pre-combustion CCS plant that is due for completion in 2011. There are plans to expand this to 650 megawatt by 2016.

Duke Energy, the third largest electricity producer in the US, is collaborating with the Chinese company Huaeng, which generates more than 10 per cent of the electricity consumed in China and is one of the firms behind GreenGen. Together with Duke, Huaeng is considering building a large CCS plant near Shanghai. The Australian government also worked with Huaeng to build a small post-combustion CCS demonstration plant near Beijing, which opened in July 2008.

By contrast, there is little in the way of EU-China co-operation to hasten the roll-out of CCS in China. In 2005, the EU and China agreed to build a large CCS demonstration plant in China, but the deadline for construction has been pushed steadily back, and it is not now expected to enter operation until 2020 at the earliest. Moreover, the European Commission has only agreed to provide S50 million of the estimated S550 million cost of constructing the plant. Private businesses will have to provide the rest, but have yet to commit to doing so, casting doubt on the likelihood of the plant ever being built.

Japan

Japan’s Kyoto target is for a 6 per cent reduction in emissions of carbon dioxide between 1990 and 2012 – in 2007 emissions were 6 per cent up on their 1990 level. Japan may still meet the target, but only because of the severity of the country’s economic recession, which has depressed energy consumption.

The country now produces three times as much electricity from burning coal as it did in 1988, but is wholly dependent on imports as it has no domestic coal reserves. A quarter of Japan’s electricity is generated from coal, and a quarter from gas. The Japanese authorities have invested heavily in R&D into CCS, including into how to store carbon dioxide in aquifers. Japanese firms such as Mitsubishi are also aiming to be world leaders in pre-combustion and oxyfuel technologies, for both coal and gas generation. A 250 megawatt coal gasification plant is operational in Japan, but the carbon is currently being released into the atmosphere rather than captured and stored. Field studies are underway to explore how it can be piped to and stored in offshore gas fields.

Australia

Australia only ratified the Kyoto treaty in 2008, following a change of government and the election of the country’s Labor Party. Australia’s Kyoto target is for an 8 per cent increase in emissions of greenhouse gases by 2012 (from 1990 levels), which it will meet. The prime minister, Kevin Rudd, has also set a target of a 25 per cent reduction in emissions by 2020, which poses a much stiffer challenge.

Nearly 80 per cent of Australia’s electricity is generated by burning coal; a further 12 per cent is accounted for by gas. The country is working hard to foster the demonstration and deployment of CCS. The federal government has a A$500 million (S318 million) low emission technology demonstration fund, of which more than half has been allotted to four projects (the private sector has already committed to invest a total of A$1 billion in these), and an additional A$500 million has been made available through various regional programmes.

The most advanced plan is for a pre-combustion coal-fired power station called ZeroGen in Queensland. The project is supported by the state’s government, the Australian Coal Association, Mitsubishi and Shell. Stage one of the scheme involves the building of an 80 megawatt coal gasification demonstration plant, with the carbon dioxide to be transported by lorry and stored in deep onshore underground geological formations. If this works as expected, the capacity of the plant will be expanded to 300-500 megawatt. The aim is to have the plant operational by 2015.

Norway

Norway’s Kyoto target is for a 1 per cent increase in emissions of carbon dioxide by 2012. By 2007 they were 11 per cent higher than in 1990, mainly due to increased road transport. The Norwegian government has set a target of making the country carbon neutral by 2030.

Norway relies for its electricity almost entirely on hydroelectric power stations. But it is the world’s leader in CCS largely because it uses the technology to maximise gas extraction by pumping CO2 into offshore gas fields. Norway has a public organisation called Gassnova, which is responsible for encouraging the take-up of CCS by the oil and gas industry as well as the electricity sector. In 1991 Norway introduced a carbon tax covering its substantial offshore oil and gas industry. The tax – levied at $50 (S37) per tonne – helped to encourage firms to store unwanted carbon dioxide under the sea bed. Firms extracting natural gas off the coast of Norway produce particularly large amounts of surplus carbon dioxide, because the gas contains far more CO2 than is acceptable to customers. Statoil has separated and stored carbon dioxide from the Sleipner offshore gas field since 1996, while in 2007 the company began capturing the gas from the Snøhvit gas field and storing it in an offshore saline aquifer.

As a result of rising domestic demand for electricity, Norway plans to build a number of gas-fired power plants. The Norwegian government has announced that all of these new plants will be required to capture and store the carbon dioxide released through the burning of the gas. The Mongstad plant (on Norway’s coast), which is due to enter operation in 2010, will burn gas to generate electricity and at the same time use the heat produced in the process for domestic heating. Another Norwegian scheme to deploy CCS is at the existing Kårstø gas-fired power plant, one of the country’s largest sources of CO2. The Norwegian government postponed this CCS project in June 2009 because the plant had been out of operation for extensive periods since it opened in 2007. However, in its 2010 budget the government allocated Krona3.4 billion (S418 million) to CCS, which will be divided between the Mongstad and Kårstø projects.

This is the first part of a Report published by the Centre for European Reform on 1 March 2010.  The second part can be found at CCS: What the EU needs to do – Part 2.

1 Stephen Tindale, ‘How to meet the EU’s 2020 renewables target’, CER policy brief, September 2009.

2 The New Entrant Reserve comprises emissions allowances which have been set aside for new entrants to the EU ETS.

3 Directive 2009/31/EC of the European Parliament and of the European Council on the geological storage of carbon dioxide, European Commission, April 2009.

4 Michael Taylor, ‘Cement scenarios for 2030-2050: Energy technology perspectives’, International Energy Agency, 2009.

5 Edward S. Rubin, ‘Report on carbon dioxide and storage’, IPCC, 2005.

6 A gigawatt is equal to a thousand megawatt.

7 The Carbon Sequestration Leadership Forum is an international initiative to advance carbon capture and storage technology.

Simon Tilford is chief economist at the Centre for European Reform. His previous CER publications include: ‘Rebalancing the Chinese economy’, November 2009; (as co-author) ‘The Lisbon scorecard IX: How to emerge from the wreckage’, February 2009; ‘The euro at ten: Is its future secure?’, January 2009; (as co-author) ‘State, money and rules: An EU policy for sovereign investments’, December 2008; ‘Is EU competition policy an obstacle to innovation and growth?’, November 2008; and ‘How to make EU emissions trading a success’, May 2008.

Authors’ acknowledgements

The authors would like to thank all those who provided input and ideas for this report, in particular Jesse Scott, Craig Jones and Ben Caldecott, and also Kate Mullineux for layout and production. The views expressed in this publication, and any remaining errors, are those of the authors alone. The publication of this report would not have been possible without the sponsorship of ScottishPower.

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