Environmental Valuation & Cost-Benefit News

Link: http://www.globalccsinstitute.com/downloads/Status-of-CCS-WorleyParsons-Report-Synthesis.pdf

1. Executive summary
The Global CCS Institute was established as a key organisation charged with the responsibility of accelerating the deployment of carbon capture and storage (CCS) technology. In so doing it would work with other leading organisations to achieve the Group of Eight (G8) objective of launching 20 large-scale CCS demonstration projects by 2010, taking into account varying national circumstances, with a view to beginning broad deployment of CCS
by 2020.

1.1.1 What is CCS?
The set of technologies that encompasses CCS include those that capture, transport and safely store anthropogenic carbon dioxide (CO2) deep underground.
1.1.2 Is CCS optional to mitigate CO2 emissions to atmosphere to avoid dangerous climate change?
No. Development and deployment of CCS must occur to reduce CO2 emissions to the atmosphere as part of a portfolio of solutions to combat climate change. As estimated by the International Energy Agency (IEA, 2008) a variety of technologies and actions will be equired to reduce anthropogenic CO2 emissions by 50 percent by 2050, including CCS....
1.2.1 What does the G8 objective imply?
At the 2008 G8 Hokkaido Toyako Summit in Japan, the G8 committed to supporting the recommendations of the IEA and the Carbon equestration Leadership Forum (CSLF) to launch 20 large scale CCS demonstration projects globally by 2010, taking into account varying national circumstances. The purpose of this commitment is to support technology development and cost reduction to enable the broad deployment of CCS by 2020 (Group of Eight 2008). This study refers to these types of CCS projects as commercial scale, integrated projects which are defined as:
• projects storing or proposing to store 1 Mtpa or greater of CO2 using the metric suggested by the G8, IEA and CSLF (2007);
• CCS projects that are integrated, that is, combines the CO2 capture, transport and storage technologies. ...

1.2.2 Can the G8 objective be achieved?
Arguably, yes. The decarbonisation of society in order to avoid dangerous climate change will require an energy revolution. While the G8 objective is ambitious, the technologies are available today and have been demonstrated in industries such as natural gas processing although they have not been integrated at commercial scale for fossil-fuelled power generation. Proponents of CCS projects will face significant challenges, but the G8 objective can be achieved....

1.3.1 What is the asset lifecycle model?
The projects were categorised and analysed using a number of different metrics and classifications to undertake empirical analysis. One of these classifications was the asset lifecycle model, which ... [delineates] between the stages of a project’s development and operation. ... The key issue for CCS stakeholders is that from a project development perspective, industry experience suggests that approximately 10 to 15 percent of a project’s total installed cost is likely to be incurred to progress from the Identify to the Define stages prior to sanction. This means significant funding is required to develop the business case of CCS projects....
1.3.3 What is the status of CCS projects?
The Global CCS Institute projects database currently contains 499 CCS activities. The information provided in the database is categorised according to key parameters of project facility; region;
capture, transport and storage technologies; scale; asset lifecycle; and status.
When activities that were primarily research based were removed from the data set, 275 CCS projects remained:
--Completed - 34
--Total - 275
--Active or planned - 213
--Commercial scale - 101
--Integrated - 62
--Cancelled or delayed - 26
--Input withheld - 2
...
1.3.4 What is a commercial scale, integrated CCS project?
... Given that storage underpins the entire CCS chain, the metric suggested by the G8/IEA/CSLF of commercial scale CCS projects storing 1 Mtpa or greater of CO2 was applied. Of the 213 active or planned, CCS projects, 101 of these (47 percent) are considered commercial scale.

An integrated project is where the capture, transport and storage components are undertaken by a single project owner or operator with the view to developing and deploying a full source-to-sink CCS solution. Projects that have a CO2 capture, transport or storage component and are integrated with other components being undertaken by a separate entity have been classified as “dependent” integrated CCS projects.
1.3.5 Are there enough projects under development to achieve the G8 objective?
Not at this stage. ... Excluding the operational projects, the 55 active or planned, commercial scale, integrated projects have nominated start dates for operation ranging from 2009 to 2020. If all of these projects were to progress through to the Operate stage, they would meet the G8 objective....
...
1.3.6 What are the key characteristics of the active or planned, commercial scale, integrated CCS projects?
There are 62 active or planned, commercial scale, integrated CCS projects that are storing, or planning to store 1 Mtpa of CO2
or greater. ... Seven projects are already in operation. 66% of proposed projects are in the power generation sector. However, none of these have advanced beyond project sanction. The cement, aluminium and iron and steel production industries are significantly underrepresented in terms of proposed commercial scale, integrated CCS projects. In terms of geographic distribution, 37% of this subset are in Europe, 24% in the United States of America (USA), 11% percent in Australia and New Zealand, and 10% in Canada.
Of this subset of 62 projects, 63% are considering geological storage. Beneficial reuse (that is, EOR, enhanced gas recovery (EGR) or enhanced coal bed methane recovery (ECBMR)) represents a further 26% by storage type.

A number of the projects proposed in the Europe Area are considering offshore storage options. The costs of developing new storage sites offshore will likely be an order of magnitude greater than onshore storage options. Many of these are likely to be subject to transboundary transport challenges associated with the Basel Convention and the London Protocol that prohibit CO2 transport across national boundaries.

1.4.1 How long does it take to progress a CCS project through the development cycle to operation?
... Experience in large infrastructure projects such as those that could be installed with CCS suggests that seven to ten years will be required between undertaking pre-feasibility studies through to commissioning. China and some countries in the Middle East have some CCS initiatives and a track record of accelerating industrial projects if given the correct incentives. [In addition 20-30 years of operation and injection of CO2 is likely] before plant closure is considered; and 20-100 years or more to monitor a CCS site post-injection. ...

1.5 Cost of CCS
1.5.2 What happens to costs when CCS is included?
Using the USA Gulf Coast as a reference location, the analysis shows that the percentage increases in costs of production from the application of CCS, over non-CCS facilities, for power generation were:
• integrated gasification combined cycle, IGCC (39 percent);
• natural gas combined cycle, NGCC, (43 percent);
• oxy-combustion (55 to 64 percent); and
• supercritical pulverised coal (PC) technologies (75 to 78 percent).

The analysis shows that the percentage increases in costs of production from the application of CCS, over non-CCS facilities, for industrial processes were:
• natural gas processing (1 percent);
• fertiliser production (3-4 percent);
• blast furnace steel production (15 to 22 percent); and
• cement (36 to 48 percent).
The fact that the application of CCS increases the cost of production is unsurprising as non-CCS facilities currently emit all of the CO2 they produce to the atmosphere without any financial penalty and do not incur any cost for GHG mitigation.

CCS increases the cost of production because non-CCS facilities currently emit all of the CO2 they produce to the atmosphere without any financial penalty and do not incur any cost for greenhouse gas
mitigation

The results also indicate that the costs of CCS are lowest for processes that have CO2 capture inherent in its design, such as natural gas processing and fertiliser production. This is significant as the cost of CO2 capture and compression for coal-fired power plants in this analysis represented over 80% of the total integrated CCS costs.

1.5.3 How much does it cost to transport CO2?
While the cost of CO2 capture and compression generally represents the largest component of the CCS chain, at a project level, transport and storage costs could render a project uneconomic. Sensitivity analysis showed that significant cost savings can be achieved through increasing the CO2 flow through a pipeline. Results from this model revealed that the cost to transport CO2 by a pipeline will be between $3 to $4 per tonne CO2. By combining CO2 emissions from three or more industrial plants, the CO2 flow can be increased to greater than 10 Mtpa leading to a cost of between $1 to $2 per tonne CO2. This represents a saving of approximately 50%
.
1.5.4 How much does it cost to safely store CO2?
... For CO2 storage, significant investments could be made in finding and appraising a potential storage site only to learn that it is unsuitable. This is referred to as the finding cost. The finding costs are site specific. In regards to storage, the initial site identification and characterisation costs represent a significant risk to projects and could cost between $15 million to $150 million. Finding costs of $150 million were considered the threshold before project proponents would abandon investigations into a storage site.

Based on the modelling performed, this uncertainty can increase storage costs from $3.50 per tonne of CO2 to $7.50 per tonne of CO2, depending on the number of sites needed to be investigated in order to locate a suitable storage option. Reservoir properties, specifically permeability, impact the ease at which CO2 can be injected into the reservoir and the required number of injection wells.

Reservoirs with high permeability can reduce storage costs by a factor of up to two to below $5 per tonne of CO2 over reservoirs with lower permeability.

1.5.5 What is the cost of CCS for power generation around the world?
The installed capital costs of CCS technologies for power generation were estimated for various regions around the world. Low labour rates in China and India resulted in installed capital costs of approximately 30 percent less than other regions surveyed. Increasing the volume transported by pipeline to greater than 10 Mtpa can cut 50 percent of costs Initial site identification and characterisation costs represent a significant risk to projects and could cost between $25 million to $150 million. Projects in China and India, all things remaining equal, could be developed at a significantly lower cost relative to where the majority of proposed CCS projects are currently located....

The levelised cost of electricity (LCOE) variation across the regions illustrates the importance of fuel costs on plant economics. The low cost of natural gas in Saudi Arabia led to the lowest LCOE in this study. The LCOE for the Europe Area is higher by almost 30 percent due to the higher cost of fuel and installed capital costs.

1.5.6 What other factors have increased CCS costs?
Construction costs for conventional power plants with well known and proven technologies have doubled between 2000 and mid-2008 (Cambridge Energy Research Associates, 2008). Therefore, the high cost of CCS was significantly influenced by the general rise in the cost of equipment and in constructing large infrastructure facilities without CCS over this period.

1.5.7 What other cost issues need to be considered?
First-Of-A-Kind (FOAK) CCS plants inherently tend to have higher costs arising from greater risks in terms of finding and appraising a storage site, transport, financing, design integration and environmental licensing. In addition, the uncertainty surrounding the potential economic value of CO2 (that is, the future marginal cost of compliance with climate change regulations) has caused project proponents to be unable to identify potential long-term revenue streams. As a consequence, few CCS projects have been pursued without significant government financial incentives.

A number of project proponents in the Europe Area are pursuing offshore storage options and generally as a dependent arrangement with other parties. The costs of developing new storage sites offshore will be significantly higher than onshore options.

The availability of existing transportation and storage infrastructure can play a key role in significantly reducing the costs of CCS deployment as the experience of EOR in North America has shown. The availability of skilled labour is the key “soft” infrastructure that can have a significant impact on CCS costs. However, the availability of skilled labour to plan, design, execute, construct and operate CCS projects is limited in many regions of the world.

Construction costs for conventional power plants with well known and proven technologies have doubled between 2000 and mid-2008. The availability of existing transportation and storage infrastructure can play a key role in significantly reducing the costs of CCS deployment

1.5.8 Can the cost of CCS come down?
Yes. Costs can come down significantly but only through developing and widely deploying CCS projects so that the learnings can be used to optimise the designs of future CCS facilities. This represents a classic catch-22 scenario. The only way costs can decrease is by installing a large number of CCS projects worldwide. However, the high cost of CCS is challenging project development. Davison and Thambimuthu (2009) suggest that the cost of electricity (COE) from CCS power plants based on current technologies has the potential to decrease 10 to 18 percent after 100 GW of capacity has been installed. This is supported by Rubin et al (2007) who showed that reductions in the capital costs of flue gas desulphurisation (FGD) units decreased approximately 40 percent over two decades from when it was first introduced into the USA power generation market.

Furthermore, Rubin et al also showed that the global deployment of selective catalytic reduction (SCR) systems to power plants resulted in capital cost decreases of approximately 50 percent over two decades. These experiences show that costs will only decrease by developing and widely deploying CCS projects. As a result, the G8 objective is fundamental to cost reductions.

1.5.9 What is the estimated level of investment required to develop and deploy CCS technologies?
The energy revolution that must take place to enable deep cuts in CO2 emissions to atmosphere from CCS will not be cheap. The magnitude of this challenge is similar to investing in the entire infrastructure for the hydrocarbons industry developed over the past century in the next 40 years. To achieve this goal some estimates suggest $100 billion annually is required.

1.5.10 How much is available to fund CCS projects?
Globally, approximately $17-20 billion is available through a range of government schemes and voluntary industry levies.

1.5.11 What is the value of CO2 required to develop CCS projects?
The CO2 credit value was estimated in this study to guide decision-makers on the required value a unit of CO2 will need to be before owners of power utilities for example, will pursue the concept of CCS or alternatively, to purchase emissions credits. For the USA Gulf Coast region the analysis shows that the oxyfuel combustion technology has the lowest CO2 credit value breakpoint at approximately $60/tonne of CO2. The lower costs for implementing CCS for oxyfuel combustion is related to eliminating solvent capture from the CO2 from the gas stream. However, while the model shows that this technology CCS is in a catch-22 situation - the only way costs can decrease is by installing a large number of projects worldwide, however, the high cost of CCS is challenging project development. Some estimates suggest $100 billion annually is required to develop CCS. Globally, approximately $17-20 billion is available through a range of government schemes and the voluntary industry levies requires the lowest CO2 credit value, the commercial application of this technology for power generation is limited.

Currently, the largest application of this technology for power generation is 30 megawatt electrical (MWe). The CO2 credit value for IGCC technology is approximately $80/tonne. This is related to the higher capital costs of IGCC. For the supercritical pulverized coal technologies with post-combustion capture, the cost breakpoints are approximately $90/tonne of CO2. This is largely due to the greater auxiliary loads required to capture CO2 from a dilute gas stream.

The high CO2 credit value breakpoint, of approximately $112/tonne, for NGCC technology, is related to the lower CO2 emission intensity of natural gas and higher cycle efficiency compared to coal-fired technologies. The low CO2 emission intensity results in more electricity generation (in terms of MWh) for each tonne of CO2 emitted.

1.6.1 What has been the role of Government?
The Federal Governments in the USA and Australia are developing legislation for national-level schemes to introduce market based mechanisms to assign a value to carbon. The schemes proposed in the American Clean Energy and Security Act (ACES Act) and the Australian Carbon Pollution Reduction Scheme (CPRS) Act will provide a market ased mechanism to assign a value to carbon. They propose to also provide bonus allowances and other incentives to assist with the funding of CCS facilities.

1.6.2 What changes need to be made to government policy and regulations around the world?
In developed economies, existing legal frameworks designed to deal with waste, transport, property rights and pollution liability do not readily accommodate the whole CCS project cycle. This will hamper investment not only in CCS projects but in the technologies required to achieve scalable projects within the G8's timeframe. Developing economies have not yet generally enacted specific CCS laws or taken steps to amend existing legislation to accommodate the CCS project cycle.
...
Key policy and regulatory recommendations to enhance further CCS development include:
• immediate implementation of market based schemes to assign a value to carbon such as the ACES Act and CPRS Act;
• aspects of the CCS specific laws and policies adopted by some governments (including the EU, USA, Japan and Australia) should be used as components of a "CCS friendly" legal framework in those countries wanting to host such projects;
• where time or other circumstances do not permit the development of integrated or dedicated CCS legal schemes, governments should amend existing legislation applicable to the CCS project cycle with particular emphasis on transport, storage and leakage liability;
...
1.8.1 What is the business case for CCS?
The application of CCS has been undertaken at commercial scales in the natural gas processing and EOR industries. A viable business case for commercial scale, integrated projects has not been established at this time for coal-fired power generation and other large CO2 emitting industries. Without policies and legislation to assign a value to CO2 or to compel large stationary emitters to reduce CO2 emissions to atmosphere, industry has limited incentive to install CCS facilities.

First-of-a-kind CCS plants inherently tend to have higher costs arising from greater risks in terms of finding and appraising a storage site, transport, financing, design integration and environmental licensing. In addition, the uncertainty surrounding the potential economic value of CO2 has caused R&D in CCS technologies plays a vital role in developing innovations but R&D gaps will not hinder the G8 objective of launching 20 projects by 2010. A viable business case for commercial scale, integrated projects has not been established at this time for coal-fired power generation and other large CO2 emitting industries
project proponents to be unable to identify potential long-term revenue streams. ...
1.8.2 What has been the impact of the Global Financial Crisis on the business case for CCS?
In the post Global Financial Crisis (GFC) environment the financing of infrastructure assets are likely to face serious challenges in securing private equity funds.
1.9 So, where do we stand?
There is potential that the ambitious G8 objective can be achieved. There are 62 fully integrated, commercial scale CCS projects identified in this study. Of these, seven are already operating and 55 are at various stages of progress. ... This study found that the cost of CCS for power generation in China, for example, could be 30 percent less than other regions of the world. However, given the failure rates associated with new technology dependent markets that apply to CCS there is a significant need to rapidly advance more integrated, commercial scale CCS projects or risk achieving the G8 objective. Many of the technological options of the CCS process are, by and large, commercially available today. ... It is highly unlikely that CCS project proponents will be able to finance their projects from private capital markets alone.

Dozens of recommendations are presented

by WorleyParsons Services Pty Ltd (WorleyParsons) leading a consortium comprising of Schlumberger, Baker & McKenzie and the
Electric Power Research Institute (EPRI).
Global CCS Institute www.globalccsinstitute.com

In describing this report Keith Johnson writing in the Environmental Capital blog of the Wall Street Journal notes:

You know clean coal is in trouble when Greenpeace and the coal industry basically agree: Clean coal is going nowhere fast.

There’s plenty of lip service for the idea of capturing carbon emissions from coal plants and sticking them underground—from the International Energy Agency, the G-8, lots of big countries, plenty of huge companies, and even the Obama administration. And yet–the actual outlook for carbon capture and storage isn’t getting any brighter.

Take this new report commissioned by Australia’s Global CCS institute, a body created and funded by a coal-dependent government with the express idea of making clean coal a reality.

The upshot? Yes, the world could possibly meet its modest goals of starting to develop carbon capture and storage by 2020—but only if governments cough up a lot more money, pass environmental regulations that make carbon emissions a lot more expensive, assume liability for storing the stuff, and underwrite the massive infrastructure expansion needed to make it happen.

The report surveys the state of carbon capture and storage. ... Out of the 275 CCS projects worldwide, only 62 both capture and store emissions, and only 7 of them are actually underway. That leaves 55 other projects as candidates in the clean-coal pipeline.

And since it takes about a decade to get a project from drawing board to operations, the report says, those 62 projects are all the world can count on until 2020. And since a lot of big, complicated energy-infrastructure projects fall by the wayside eventually, chances are somewhere between 11 and 26 of those will ever happen. ...
The economics aren’t very compelling: “A viable business case for commercial scale, integrated projects has not been established at this time for coal-fired power generation and other large CO emitting industries.” That’s because every step of the process adds costs: Mostly in capturing emissions, but also in transporting them ($3 to $4 a ton) and storing them ($3.50 to $7.50 a ton). To begin to make economic sense, large-scale carbon capture and storage needs carbon emissions to be really expensive—a lot more expensive than in Europe today or America in the future: $80 to $90 a ton. Sure, the economics could improve once a lot of plants are built; but few plants will be built until the economics improve. ...

And don’t forget, this would be a really, really big undertaking, ... “The magnitude of this challenge is similar to investing in the entire infrastructure for the hydrocarbons industry developed over the past century in the next 40 years.” Figure expenditures of at least $100 billion a year, the report says ($4 trillion is in the ballpark of what the IEA expects, too).

Some of the countries with the highest hopes for carbon capture and clean coal are starting to freak out at the yawning gap between what’s needed to make it happen and what’s actually being done. Australia’s report is just another reminder of how daunting it really is to reinvent the global energy system.

By Keith Johnson
Environmental Capital Blog (Wall Street Journal) http://blogs.wsj.com/environmentalcapital
http://blogs.wsj.com/environmentalcapital/2009/10/29/clean-coal-the-futures-not-so-bright/