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Carbon Capture and Storage:
Lessons and Strategies
5 October 2011
Juho Lipponen
Head of Unit, Carbon Capture and Storage
International Energy Agency
© OECD/IEA 2010
2. International Energy Agency
IEA countries
OECD countries, but not IEA members
Inter-governmental body founded in 1973, currently 28 Member Countries
Policy advice and energy security coordination
Whole energy policy spectrum and all energy technologies
Key publications: World Energy Outlook and Energy Technology Perspectives
Host to more than 40 technology-specific networks (“Implementing
Agreements”)
Operated independently with their own membership and financing
Includes IEAGHG, IEA Clean Coal Centre etc.
Active in CCS since 2000; dedicated CCS unit created in 2010
Provides policy advice
Supports broader IEA cross-technology analysis
© OECD/IEA 2010
3. CCS @ IEA:
WORK PROGRAMME
CCS Strategy & Policy Technical & Economic
Capacity-Building &
Legal & Regulatory Collaboration
Global Policy Fora
© OECD/IEA 2010
4. CCS in Industrial Applications:
4Gt of reductions potential in 2050
© IEA/UNIDO 2011
5. POLICY IS CRITICAL FOR CCS
1. Enabling CCS as part of energy portfolio
2. Making CCS a legal activity & clarifying
responsibilities
3. Ensuring safety and environmental
viability of operations
4. Providing incentives for demonstration
and deployment
Business models & financing of projects
5. Contributing to public acceptance
© OECD/IEA 2010
6. INCENTIVES?
FINANCING?
INCENTIVE
Policy push or market pull mechanism
that provides an earning logic for CCS
projects (”ensures bankability”)
FINANCING
Becomes possible when the earning
logic or bankability is established
© OECD/IEA 2010
8. WHY DO WE TALK ABOUT INCENTIVES?
2,500
1. LEVEL OF ECONOMY /
2,000
SOCIETY:
1,500
$bn To meet the IEA CCS Roadmap
ambitions, almost USD 5 trillion
1,000 will need to be invested in CCS
installations.
500
0
2010-2020 2020-2030 2030-2040 2040-2050
Other OECD USA China India Other Non-OECD
Coal
Natural gas
Fuel (similar for all capture routes;
(post- 2. PROJECT / COMPANY LEVEL:
relative to a pulverized coal
combustion)
baseline)
Investment in early CCS facilities
Efficiency represents prohibitive capital
10 %-points 8 %-points
penalty cost and decreases efficiency
leading to increased operating
Capital 3 800 USD/kW 1 700 USD/kW
cost.
costs (74% increase) (82% increase)
Cost of CO2
55 USD/tCO2 80 USD/tCO2
avoided
© OECD/IEA 2010
9. WHY DO WE TALK ABOUT INCENTIVES? (2)
Source: EU
Zero-Emissions
Platform
© OECD/IEA 2010
10. ECONOMIC CHARACTERISTICS OF CCS
TECHNOLOGY WILL EVOLVE
The cost of most applications of CCS is currently
significantly above carbon prices/penalties (where they
exist); by 2050 it is expected that this will reverse.
CCS Costs/
carbon
price
CCS unit costs
Middle stage Late stage
Early stage
Carbon price or
tax
Time
© OECD/IEA 2010
11. ARE POLICY OBJECTIVES CLEAR?
Reducing emissions
Ensuring technology learning
Ensuring access to capital markets
© OECD/IEA 2010
12. CCS POLICY OBJECTIVES WILL EVOLVE
Short to mid term focus on learning and access to
capital
Long term focus shifts towards emissions cuts
Different objectives – different policy tools
Policy objective Example policies Importance over time
Carbon tax, emissions
Emissions reduction
trading
Technology learning Feed-in tariff
Access to capital Provision of debt,
market equity, insurance
Optimised
Regulation
Infrastructure
© OECD/IEA 2010
13. POLICIES TO ADDRESS DIFFERENT
OBJECTIVES
Reducing Technology Access to
emissions learning capital markets
Cap and trade Capital grant Co-investment
equity
Carbon tax Production Provision of debt
subsidy
Baseline and Investment tax Credit guarantees
credit credit
Feebate Production tax Insurance
credit products
Emissions Feed-in tariff
performance
Standard
CO2 purchase Premium feed-in
contract tariff
Portfolio standard
© OECD/IEA 2010
14. TOWARDS A POLICY STRATEGY
INCENTIVE POLICY ARCHITECTURE
Long-term framework of how different
policies are employed
POLICY TOOLS
Individual policy tools responding to
relevant objectives
POLICY GATEWAYS
Breakpoints in time/development when
policy moves from one stage to next
© OECD/IEA 2010
15. POLICY “GATEWAYS”
CCS a challenging area for policy-makers
Ability to adapt and modify policy as technology changes
or new information comes to light...
...but the (perception of) changing policy may damage
investment
“Policy gateways” might help overcome this
challenge:
policies employed in each stage
Criteria defining when or if policy will move to next stage
an outline of the reaction if gateways are missed
Can lower government risk from imposing
poor value for money
Can lower policy risk for investors
© OECD/IEA 2010
16. POLICY ARCHITECTURE AND GATEWAYS
Long-term policy architecture can
enhance credibility and effectiveness
CCS Cost/
carbon price
Technical Sector-specific deployment Wide-scale deployment
demonstration
Carbon
price
CCS unit
Capital grants costs
Operating Quantity support
Carbon price
subsidies mechanism
Loan
guarantees
Time
First Gateway Second Gateway
Technical feasibility Further cost reductions
First cost threshold Infrastructure development
Availability of firm Availability of firm storage
storage capacity capacity
© OECD/IEA 2010
17. EXAMPLES OF CURRENT INCENTIVE POLICIES
US: Demo funding
EU: NER300, EEPR
AUS: Flagship pr.
UK: CCS competition
NO: Mongstad UK: 2011
NO: Carbon tax
Etc.. Electricity
Market Reform US: EOR projects
CCS Cost/
carbon price
Technical Sector-specific deployment Wide-scale deployment
demonstration
Carbon
price
CCS unit
Capital grants costs
Operating Quantity support
subsidies mechanism Carbon price
Loan
guarantees
Time
© OECD/IEA 2010
18. FURTHER ANALYSIS
Incentives suited for industry-CCS
Quantifying the value of
transferring long-term liability
Extra incentives for biomass-CCS
(”valuing a ton removed vs.
reduced”)
Innovative solutions esp. for
developing countries
© OECD/IEA 2010
19. CONCLUSION:
”Generic policy advice”
1. Be clear about policy objectives
2. Suit incentive policy to technical
maturity
3. Plan incentive strategy long-term
4. Plan for a coherent mix of
incentives, not just one
5. Create certainty!
© OECD/IEA 2010
20. Thank you!
juho.lipponen@iea.org
www.iea.org/ccs
© OECD/IEA 2010
Notas del editor Very quick intro “15 seconds” Challenges remain (no need to go into detail here) Challenges remain (no need to go into detail here) Challenges remain (no need to go into detail here) Challenges remain (no need to go into detail here) Expected change in the characteristics of CCS, and associated focus of incentive policy, creates a challenge for policy-makingon the one hand, want to be able to adapt and modify policy as technology changes or new information comes to lighton the other hand, the (perception of) changing policy may damage investment“Policy gateways” might help overcome this challengeGateways would consist of three componentspolicies that will be used in each stagecriteria that will define when or if policy will move to the next stagean outline of the reaction if gateways are missedProtects government from overstretching resources, from imposing poor value for money, and lowers policy risk for investors