In its latest annual review of the ailing prospects for the deployment of Carbon Capture and Storage (CCS), the International Energy Agency’s (IEA) has tentatively suggested that the cost of developing and deploying the expensive technology should be paid for by coal, oil and gas producers. It is, however, a suggestion guaranteed to be rejected by the coal industry which has most to lose.
The glum title of the IEA’s latest review –What’s in store for CCS? – is symptomatic of the gloom enveloping even the most ardent supporters of CCS. In their review, which was released earlier this week, the IEA complains that “CCS investment, demonstration projects and large-scale deployment are well behind the targets envisaged by analysts, governments and industry”.
One of the key factors in the slow rate of construction of demonstration plants has been the decade long tug of war over who carries the costs for CCS: fossil fuel producers, the companies that burn the fossil fuels or taxpayers? Or a mix of all three?
For coal companies the widespread equipping of coal-fired power plants with CCS plants would be a boon.
In an April 2013 presentation, the Policy Manager of the World Coal Association, Aleksandra Tomczak, explained (page 12) that “if CCS is viable and carbon prices high, coal power can be competitive with gas.” Even though CCS is far from being “viable” without taxpayer subsidies and the coal industry vehemently opposes “high” carbon prices, Tomczak bluntly pointed out a potential upside for coal companies: “coal demand further boosted by increase in coal consumption per GW [gigawatt] vs straight coal”. Estimates vary, but CCS plants could require an extra 20-30% more coal to produce the same power output.
What is good about CCS for coal companies though is bad for utilities.
The extra capital cost of a CCS increases the financing cost, not to mention the extra operational costs of increased coal and water consumption and the disposal costs of the compressed carbon dioxide in underground storage areas, if they exist in close proximity to the power plants.
All up, the extra costs of CCS make coal-fired plans with the technology very expensive when designed into new plants. Earlier this year the US Department of Energy (DOE) estimated that based on current technology to capture 90-95 per cent of the carbon dioxide in waste stream would increase wholesale power prices by approximately 70 to 80 percent. The costs of retrofitting CCS to existing plants, let alone those in old age, would be prohibitive.
As the costs and difficulty of developing CCS have become apparent, utilities have become exceedingly wary of carrying the coal industry’s can. But if utilities don’t want to fund it, who will?
For the best part of a decade the coal industry persuaded a number of governments to pledge to fund various R&D projects, map potential underground storage reservoirs, run pro-CCS PR campaigns and fund some test scale projects.
Despite the expenditure of billions of dollars many projects have faltered while some in the US and Europe struggle on. The Global Financial Crisis and austerity budgets sapped the financial commitment of some governments. Even some of the hardest line pro-coal governments – such as that led by Australian Prime Minister Tony Abbot – have retreated from funding new CCS projects.
New factors are in play too. In major economies the era of building new coal plants is all but over with electricity demand stalling, if not declining. The rise of renewables is depressing wholesale market prices while energy efficiency and rooftop solar are further cannibalising the profitable peak power spikes. The economic assumptions which underpinned the optimism towards CCS a decade ago have changed profoundly.
Which is why the IEA’s notes in its report that “in the case of power plants, operating in highly competitive electricity markets, special power purchase agreements including electricity price agreements are likely to be needed.” In other words, to be viable in the power sector, CCS needs to propped up by being shielded from falling wholesale electricity prices, which is precisely what energy efficiency and renewables deliver.
The coal industry’s dilemma – to love or leave CCS?
But having hyped the potential of CCS for the best part of twenty years, coal industry lobby groups now find themselves in a bind.
In a historically coal-addicted country such as Australia, the Minerals Council of Australia (MCA) – which represents major coal companies such as BHP Billiton, Peabody Energy and Rio Tinto – hyped CCS as a solution to the greenhouse gas emissions of coal plants. But even the MCA now cautions that “the cancellation or postponement of some CCS demonstration projects in Australia and around the world is not unexpected, particularly given global economic uncertainties, and should not be taken to reflect a failure of the technology itself.”
At the same time, the National Mining Association (NMA) in the US – which represents some of the same companies as the MCA – recently launched an advertising campaign arguing against the Obama administration proposal requiring CCS to capture part of carbon dioxide emissions would dramatically push up electricity prices.
Where once the coal industry had successfully sold the idea to policy makers and most commentators that CCS was an inescapable element of any emissions reduction strategy, that idea is now falling from favour.
Three weeks ago Jonas Rooze, an analyst from Bloomberg New Energy Finance Europe said that they hadn’t included CCS-fitted power plants in their European generation scenario “because we don’t really see enough evidence of it happening enough to be relevant to our forecast.”
If utilities don’t want to fund it and many governments are at best luke-warm to it, who is left?
In the absence of better options the IEA’s has floated the idea that fossil fuel industry itself should be the ones contributing most to the cost of developing CCS.
For the thermal coal industry, most of which is struggling with low profit margins and in the midst of a vicious round of cost-cutting, the idea of stumping up billions of dollars for a technology that may never be viable is implausible.
Nor is the gas industry, which has taken great pains to push coal to the fore as the fossil fuel industry’s bad boy, likely to come to the rescue of its rival.
In the absence of enthusiastic deep-pocketed sponsors, CCS is gradually being pushed off into the twilight zone where it is likely to quietly fade away when existing government funded programs run out of cash.
Bob Burton is a Contributing Editor of CoalSwarm and a Director of the Sunrise Project, a non-profit group promoting a shift away from fossil fuels. With Guy Pearse and David McKnight he co-authored Big Coal: Australia’s Dirtiest Habit. Bob Burton’s Twitter feed is here.