EU nations should peg CfDs to carbon prices to raise CCS cash -Sandbag

Published 18:10 on June 29, 2015  /  Last updated at 18:10 on June 29, 2015  /  EMEA, EU ETS  /  No Comments

European nations should subsidise CCS project by agreeing Contracts for Difference pegged at EUA prices to provide stable investment in the fledgling technology, environmental campaigners Sandbag said on Monday.

European nations should subsidise CCS project by agreeing Contracts for Difference pegged at EUA prices to provide stable investment in the fledgling technology, environmental campaigners Sandbag said on Monday.

Contracts could be agreed that mean companies would receive the difference between an agreed strike price per tonne of CO2 abated and the EUA price.

This would effectively guarantee a higher carbon price for the firms while avoiding governments paying over-the-odds if EUA prices rose higher.

This could be paid for using revenues raised from government EUA auctions, which Thomson Reuters Point Carbon analysts have said could amount to €151 billion over 2015-2025 Europe-wide.

With just 4-5 ongoing commercial-scale CCS projects under development, Europe is lagging behind other regions and big emitting companies are unwilling to invest in the technology without further government support.

To help close the funding gap, several European oil majors are in early discussions with other industry groups and technology providers to find a way of pooling their cash to help get more projects off the ground, an EU source told Carbon Pulse.

FUNDING SHORTFALL

Extra government support is needed because a centralised EU funding system won’t be enough to fund more than a handful of projects, Sandbag said.

EU leaders have agreed to increase the amount of auctioned EUAs dedicated to support low-carbon technologies from 300 million over 2013-2020 to 400 million over 2021-2030. They also agreed to focus more on industrial sectors rather than renewables, which have received the lion’s share of cash under the NER300 scheme in the current trading phase.

If sales from all the 400 million units were dedicated to CCS it could cut bury 70 million tonnes of CO2, or around 0.4% of all EU industrial emissions, assuming CCS costs of €140 per tonne of CO2 stored, Sandbag said.

It added that the UK had already agreed to pay offshore wind developers the equivalent of £300/tCO2 abatement via its CfD pegged at the UK electricity price.

“The CfD model has been instrumental in helping to build the largest offshore wind industry in the world around the UK. Could the success be replicated for industrial decarbonisation?” they said in a statement to the report.

UK PROJECTS

The UK’s Drax White Rose coal-fired capture project last year won the right to €300 million of EU cash under the NER300 programme, the only CCS project to do so.

The project is also in the running to receive a share of £1 billion that the UK is putting up for CCS, which could be shared with Royal Dutch Shell’s Peterhead gas-fired CSS project in Scotland.

Shell hopes Peterhead can help enhance gas recovery at its disused Goldeneye North Sea field 100km offshore by pumping the gas into the depleted deposit.

Shell’s Bill Spence, Peterhead project leader, told the FT ($) that if successful, the CCS project may lead to other North Sea platforms being used this way, putting off the costs of decommissioning.

A report this month by the London School of Economics and the Grantham Institute estimated that the cost of installing 11 gigawatts (Drax’s total capacity is 4GW) of electricity generation with CCS in Europe by 2030 would be €18-35 billion.

The report found the EU needs new policies to ensure enough CCS plants are built to meet long-term climate goals, as EU carbon prices are unlikely to make the technology viable for at least a decade.

By Ben Garside – ben@carbon-pulse.com

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