EU BANK FINISHES FIRST ROUND OF CO2 CREDIT SALES FOR CCS COMPETITION

Auctions Expected to Earn Fraction of Original Estimates 

Tamar Hallerman
GHG Monitor
10/5/12

The European Union’s central bank said this week that it has finished selling its first batch of CO2 allowances on the region’s emissions trading market to help fund its carbon capture and storage and renewables competition. However, as expected, early estimates are predicting that the auctions have earned a fraction of the money that policymakers had initially anticipated. The European Investment Bank (EIB) said this week that it has finished selling 200 million CO2 allowances on the EU’s Emissions Trading Scheme, ending a 10-month process that will help partially fund the first group of CCS and ‘innovative renewables’ projects under the European Commission’s (EC) New Entrants Reserve competition (NER 300). While EIB said it would not disclose the amount of money earned from the 200 million credits until next week, several officials with knowledge of the process indicated that the sales netted roughly €1.5 billion ($1.9 billion) for projects.

If that estimate is accurate, it will be a far cry from what NER 300 advocates had hoped to raise for projects through the competition, which aims to ultimately validate the full CCS value chain on a large scale by 2020. When the idea of a competition was initially floated several years ago, early estimates said that cashing in the first batch of credits could garner between €5 billion and €6 billion ($6.4 billion to $7.7 billion), enough to substantially fund six to eight large-scale CCS projects. However, that modeling was based on a pre-recession CO2 price of about €30 per ton. Since then, though, the continuing economic crisis in Europe has caused CO2 allowances on the ETS to plummet to prices as low as €7 per ton. Based on those figures, the EC said earlier this year that it will likely be able to partially fund only three CCS projects and up to 16 innovative renewables ventures.

CCS Projects in U.K., Poland First in Line for Funding

Large-scale CCS projects in the U.K. and Poland remain first in line for funding, according to the EC. In July, the body released an interim list of the CCS projects most likely to receive money under the competition. Those rankings were based primarily on cost per ton of CO2 stored, as well as other factors such as capture, transport and storage types, geographic location and outside funding secured for projects. Based on that criteria, the EC said that a $4.5 billion, 650 MW new-build integrated gasification combined cycle plant in the U.K.—2Co Energy’s Don Valley Power Project—tops the list of projects most likely to receive funding under NER. A post-combustion retrofit project in Poland and an industrial CCS venture at a hydrogen production facility in the Netherlands came in second and third, respectively. However, before projects are officially allotted funding, member states must guarantee to the EC that they will pay for remaining project costs, a commitment that could be a tall order given that many governments planned for contributing less based on initial NER estimates. Earlier this year, the PGE Group, the utility pursuing the Polish CCS project, said it would not move forward with the project without significant assurance from the EC. A final list of the projects funded under the first NER tranche is expected to be publically released by the end of the year. Calls to the energy ministries in the U.K., Poland and the Netherlands this week about the status of their commitments were not returned.

The EIB had been gradually selling off chunks of the 200 million credits on behalf of the EC since December 2011. Under competition rules, the bank must also gradually cash in another group of 100 million allowances to help fund a second batch of projects, however the body has not yet committed to a date by which to do so. “The European Commission and European Investment Bank have agreed that timing for the start of sales from the second tranche of 100 million allowances will be determined following a review of sales of the first 200 million allowances,” EIB said this week. However, the sales of the second tranche of credits must occur before the end of 2013, according to the bank. European leaders met this summer to discuss intervention options that could help prop up the price of CO2 emissions. If ultimately successful, those efforts could help bolster the amount earned for the second batch of NER projects.