EU NEEDS TO LOOK BEYOND CARBON MARKET FOR CCS SUPPORT, GOV’T POLICY PAPER SAYS

Tamar Hallerman
GHG Monitor
1/18/13

A leaked European Commission white paper on the future of carbon capture and storage indicates the need to look beyond the European Union’s Emissions Trading Scheme (ETS) to deploy the technology on a wide scale. Instead, the draft document, obtained this week by GHG Monitor, pitches the idea of layering on either an emissions performance standard or CCS portfolio standard to help provide an extra jolt for the technology in Europe. “Considering the delays in the CCS demonstration program as well as the decreasing number of realistic projects it is time to … reorient our policy towards realistic goals,” the document says.

The white paper acknowledges a gap between the economic support the EU’s ETS can provide to incentivize demonstration projects and the long-term policy backing needed to grow a new sector of commercial-scale plants. “Both the Commission and member states should advance policies in the near-term that address the financial gap and risk associated with early-mover CCS demonstration and subsequent deployment, and that complement the ETS to signal the phase out of unabated fossil fuels in the medium- to long-term,” the paper says.

In order to bridge that gap, the paper pitches the idea of implementing a greenhouse gas emissions performance standard, similar to plans in place in California and Canada and proposed by the U.K. and U.S. federal governments. That approach would set emissions caps for certain sources of electricity like unabated coal. “A sector-specific emissions performance standard for new installations would give the carbon market certainty concerning future developments, and would therefore be aligned with the current ETS system, as full information of its scope and impact would be known,” the paper says. It also suggests the idea of a CCS or ‘clean coal’ portfolio standard on par with the policy in place in Illinois since 2009, which requires 25 percent of the state’s electricity to be generated from ‘clean coal’ facilities by 2025.

Public Discussion on CCS Expected Soon

The policy paper suggests that the EC will likely launch some sort of public consultation regarding CCS in the coming months as it draws up a concrete climate and energy policy framework for 2030. As is custom in the EU, after a policy paper is published and goes through public consultation, it will likely be followed by some sort of legislative proposal. An EC spokeswoman would not comment on the paper since it has not yet been published but did confirm that the Commission plans on releasing a paper on CCS in the first quarter of this year. In the meantime, the draft paper appears to still be under debate within the EC. Some climate officials there have taken issue with the fact that the alternative policies proposed could ultimately weaken the ETS as the main driver for clean energy investment., one source said. 

Despite Ambitions, CCS has Stuttered in EU

CCS demonstrations in Europe have faced tough headwinds over the last several years. During the late aughts, EU leaders set up one of the world’s most robust mechanisms for bringing large-scale projects online at the time. European heads of state pledged in 2007 to have 10 to 12 large-scale projects online by 2015, and the EC doled out hundreds of millions of euros for CCS under its 2009 stimulus program, the European Energy Program for Recovery. The European government also took steps to lay out a uniform legal and regulatory framework for CO2 transport and storage in 2011 with mandatory requirements for member states.

But the recession took an outsized toll on the ETS, effectively sinking any incentive for the continent’s major polluters to clean up emissions and invest in an expensive technology like CCS. Prices for carbon allowances have nosedived to less than €6 ($8) per tonne (the EC estimates that a price of €40 to €70 ($53-$93) is needed for CCS to become economically attractive). The sunken ETS also took a large bite out of the first round prize money from the EC’s much-hyped New Entrants Reserve clean energy competition, which last month did not award funding to any CCS projects, half of the contest’s initial mission. “There is no rationale for economic operators to invest in CCS, as the additional investment and operational costs are not covered by the revenue accrued from the reduced emissions, through having to buy considerably less ETS quotas,” the white paper says.

Paper: Time to Look Beyond ETS

The tone of the policy paper reflects a governing body that acknowledges Europe’s failure to move forward on deploying CCS projects in line with its initial 2015 goal. But it does convey the urgent need for the EU to deploy CCS on a wide scale if it is to meet its strict emissions target of reducing greenhouse gas emissions 80 percent below 1990 levels by 2050, which would essentially require the decarbonization of the electricity sector by 2030. It says there is a need to “reorient” the EU’s CCS agenda to reflect the fact that CCS will not be deployed as quickly as initially thought. “While it has become unrealistic to operate 12 demonstration projects by 2015 in Europe, it will even be a great challenge to realize a smaller number of projects. This will only happen if industry and member states increase their efforts and commit significant funds,” the paper outlines.

While CCS projects entered into the New Entrants Reserve still have a smaller second round of European funding to vie for later this year, the white paper says that additional steps will need to be taken to drive the technology’s deployment. It calls for more of an effort to educate the public on CCS in order to gain more political acceptance—sour public opinion sunk demo projects in Germany and the Netherlands in recent years. It also acknowledges the fundamental need to boost the carbon price under the ETS. Short of changing the underlying laws governing the ETS that would permanently remove credits from the scheme and up the carbon price—a move that faces a veto threat from fossil-reliant nations like Poland—the EC announced in November that it would propose back-loading 900 million CO2 allowances. That move, if approved by EU member governments, would temporarily “remove” the credits from the ETS between 2013 and 2015 and reinject them back into the market in 2020, which would help boost carbon prices at least temporarily.

Paal Frisvold, chairman of the Oslo-based environmental group Bellona Europa, said the ideas presented in the paper represent a step forward for the EU in the way it approaches the deployment of CCS. “These policy proposals are interesting because they inject something new into the debate, and that is very welcome because with the failure of NER 300, we must think in new terms to get CCS off the ground,” he said in an interview. “I’m very encouraged by the fact that the Commission now acknowledges the need to complement the ETS. The ETS sets a cap for emissions, but it doesn’t provide a sufficient incentive to kick start expensive technologies. We welcome this new thinking.”