GOV’T WHITE PAPER ACKNOWLEDGES EUROPE’S CCS TROUBLES

Tamar Hallerman
GHG Monitor
3/29/13

A white paper released this week by the European Union’s executive arm acknowledges that the policies currently in place to drive investment in carbon capture and storage are not doing enough to spur development in the 27-nation bloc. In a long-awaited ‘consultative communication’ about the future of CCS in Europe, the European Commission said March 27 that the EU will have to do more than rely on its emissions trading scheme (ETS) and clean energy funding competition if it wants to see rapid and widespread deployment of CCS. “CCS is now at a crossroads,” the document states. “Despite much effort and significant EU support, CCS commercial scale demonstration projects in the EU are delayed and available funding is not sufficient.” Acknowledging recent delays in deploying large-scale demonstration projects on the continent, the EC argues that it is time to “reorient” the EU’s policy goals and instruments.

With the 28-page document, the EC is asking for input from the public on the idea of implementing a greenhouse gas emissions performance standard—similar to the proposal currently being mulled by the U.S. Environmental Protection Agency—as a way to drive investment in low carbon technologies like CCS. The EC also pitches the idea of a ‘clean coal’ portfolio standard similar to the mandate in place in Illinois, which requires 25 percent of the state’s electricity to be generated from such facilities by 2025.

The document mostly mirrors a leaked draft measure, obtained by GHG Monitor in January, that proposed the performance standards and ‘clean coal’ certificates while also emphasizing the need for the EU to do what it can to bolster its ETS. The EC acknowledges that the price of carbon allowances on its ETS—currently trading at about €5 ($6.40) each—is far below the level needed to spur investment in CCS. “One could draw a conclusion that, as long as the expected carbon price will be low, the private sector will expect the CCS development to be co-financed on a large co-share by public funds, which is a proof of the ongoing challenges in the sector,” the report states.

Shift in Tone

An “urgent policy response” is needed, the paper says, if the EU truly cares about deploying the technology and meeting its ambitious emissions reduction goals. “It is in our longer term competitive interest that our energy and industrial sectors gain experience in progressing CCS to commercial scale roll-out that can reduce costs, demonstrate the safe geological storage of CO2, generate transferrable knowledge about the potential of CCS and de-risk the technologies for investors,” the white paper outlines. In addition to the emissions performance standard, ‘clean coal’ certificates and efforts to bolster the ETS, the EC suggests more outreach to boost public awareness and support of CCS. In recent years, sour public opinion has poisoned the prospects for onshore storage projects in Germany and the Netherlands.

The communication is notable mainly in that it shows, for perhaps the first time officially, that the EU’s leadership realizes that its CCS strategy has not been working and that reform is overdue. The document directly acknowledges that the EU will not be able to meet its 2007 pledge of bringing 10 to 12 large-scale demonstration projects online by 2015. It indicates that the ETS will only be able to provide a limited measure of support for incentivizing those projects, and that there is still a gap between that and the economic signals that are ultimately needed to grow a new commercial technology like CCS.

The release of the white paper launches a public consultation process as the EC draws up an energy and climate policy framework for 2030. After hearing from members of the public and stakeholders, EU lawmakers could follow up with some sort of legislative proposal, as per custom.

‘Abject Failure’

The United Kingdom’s Chris Davies, a member of the European Parliament who has become the body’s de-facto leader on CCS-related measures, said in an op-ed March 27 that the white paper is “long on analysis and short on solutions.” He called the EU’s CCS RD&D scheme an “abject failure.”  “Greater political commitment and a less rigid approach on the part of the Commission and some EU governments might have secured a more positive outcome, but CCS projects do not come cheap and this is not an easy time to persuade national finance ministries to part with cash,” Davies said. He added that Europe is quickly losing any chances to lead on the technology moving forward. “We risk passing the baton of technological leadership to countries that are making firm commitments, including Canada, the United States, Australia and, nearer to home, Norway,” he said.

Davies said the European Parliament’s Environment Committee agreed this week to draft a report on the future of CCS in Europe. The report will likely propose new instruments to fund and promote CCS development, according to the Oslo-based environmental group Bellona, as well as probe the EC’s failure to secure any funding for CCS demonstration projects under the first round of its New Entrants Reserve clean energy competition (NER 300). Davies said in a follow-up on Twitter that the bloc in Parliament known as the Alliance of Liberals and Democrats for Europe will be leading the drafting of the document and that he will likely play a lead role in its formation. “Both institutions hope to stimulate discussion and identify practical means of promoting the technology’s development that can become binding legislative requirements. Fresh thinking is needed and political support on a much greater scale than hitherto,” Davies said in the op-ed.

Green Paper Released

The CCS white paper was released as part of a larger effort to hash out climate and energy goals for 2030. One the same day, the EC released a green paper, seeking public comment on the framework for EU energy and climate goals for 2030. The document builds off targets in place for 2020 and asks what should be changed terms of the type, nature and level of the goals. “Providing clarity on this will give certainty to investors and stimulate innovation and demand for low-carbon technologies, thus supporting progress towards building a more competitive, sustainable and more energy-secure European economy,” an EC fact sheet said. The 2020 goals require member states to reduce greenhouse gas emissions 20 percent from 1990 levels and to ensure that renewables comprise of 20 percent of electricity generation. Those targets are moving the EU toward its larger goal of reducing greenhouse gas emissions 80 to 95 percent compared to 1990 levels by mid-century.

The EC said it would be open to public comment on the paper through July and that it hopes to table the framework by the end of the year. “We need to define our climate and energy policy framework for 2030 as soon as possible to ensure proper investment that will give us sustainable growth, affordable competitive energy prices and greater energy security,” EU Commissioner for Energy Günther Oettinger said in a statement. “The new framework must take into account the consequences of the economic crisis, but it must also be ambitious enough to meet the necessary long-term goal of cutting emissions 80 to 95 percent by 2050.”

CCS Faces Uphill Battle in EU

CCS demonstration projects 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. In addition to the goal of bringing 10 to 12 demos online by 2015, European lawmakers doled out €1 billion for CCS projects under the EU’s 2009 stimulus program, the European Energy Program for Recovery (EEPR). The European government also set aside 300 million carbon allowances to be sold on the ETS for CCS and other clean energy projects (NER 300) and 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 Europe and the ETS, effectively sinking any incentive for the continent’s major polluters to clean up emissions and invest in an expensive technology like CCS. Project after project funded under EEPR stalled as prices for carbon allowances under the ETS nosedived, hitting an all-time low of €3 ($3.85) in January. In response, European lawmakers last month began considering a last-ditch legislative proposal to temporarily prop up the carbon price on the ETS in the hopes of warding off collapse.

Meanwhile, the low prices on the ETS dramatically slashed the amount of funding available for CCS and clean energy projects under NER 300. Leaders had initially hoped to co-fund up to eight large-scale CCS projects with a pot of at least €6 billion ($7.7 billion) in NER’s first round, but that was based on the assumption that carbon prices would remain high at around €30 per ton. But the recession and subsequent crash of the EU’s carbon market enabled the EC to sell off carbon allowances at an average price of only about €8 a piece, leading the body to earn only a small fraction of the money it initially anticipated for clean energy projects. The sale of the 200 million NER allowances ultimately netted the competition only €1.5 billion ($1.95 billion) last year, all of which went to renewable projects.

The EC is expected to launch the second round of its New Entrants Reserve competition (NER 300) next week and will soon begin auctioning off the remaining 100 million emissions allowances set aside the competition. Many observers say it will likely be the last chance for CCS project developers to vie for substantial European funding for demonstration plants. However, the amount accrued from the sale of the 100 million credits is expected to be relatively meager given the stubbornly low carbon prices.