Eight years
on since the United Nations IPCC was awarded the Nobel Peace Prize in
recognition of its effort in combating climate change, fossil fuel remains the
most dominant global energy source. As the total replacement of fossil fuel
burning is not expected to take place immediately in the near future, the International
Energy Agency (IEA) has repeatedly declared carbon capture and sequestration (CCS)
as a key technology for mitigating climate change.[2]
Although
CCS is envisioned to play critical role in the fight against climate change,
why have these technologies not had an international breakthrough? And what
needs to be done for it to happen?
From an economic
perspective, there are 3 major barriers for CCS technology development. The
first arises from the competition from non-fossil based energy carriers
including renewables and nuclear. The second concerns the maturity of the CCS technology.
The last is related to the cost of capture and storage.
Let us
first consider the competition from other energy carriers. Wind and solar, when
coupled with storage technologies to tackle intermittency issue, allow power
generation without the emission of greenhouse gases. The same is true for
nuclear energy but its public acceptance has been on decline following the
Fukushima Daiichi nuclear disaster. Therefore, wind and solar are considered the
most serious competitor with the CCS-mitigated fossil fuel. However, the
formers’ high costs compared to the fossil fuel render unlikely threats to the
use of CCS.
Turning to
the degree of maturity of the CCS technology, one has to recall that CCS has
three major components: (CO2) capture, transportation (of CO2
in a liquid-like state) and geological storage. Although these three components
are in commercial use, their integration and the scaling up of CCS is yet to be
seen. The Saskpower’s
Boundary
Dam CCS project in Saskatchewan,
Canada, has been plagued
with numerous shutdowns that cost CAD$1.2 million (HKD 7 million) in penalties.
Similarly, the CCS facility in Mississippi Power’s Kemper County lignite plant has
been struggling with delays, most recently, related to the ash removal system.[3] From these examples, it is
evident that the CCS technology has been facing first-of-its-kind risks to
costs.
The last barrier,
that is, the cost of CCS, is apparent. A lower cost of CCS per ton CO2
will make it more economically feasible. Yet, according to the report of the Office of the Canadian
Parliamentary Budget Officer (see p 40), the cost for the Boundary Dam CCS project has come
in at CAD$ 917 million (HKD 5.32 billion) — it was originally budgeted to cost CAD$800
million (HKD 4.64
billion). Putting
together estimates of revenues and expenditures, the project is expected to
generate a loss of CAD$ 1 billion (HKD 5.8 billion).[4]
In order to overcome these barriers, two factors stand
out. The first one concerns the carbon policy. The second one is an improved technology
that would allow for a successful integration the three major components at a
lower cost.
Carbon policy is
imperative for CCS. Unless CO2 emissions are taxed, a coal-fired power plant
will have no incentives for using CCS. It will simply release CO2 into the
atmosphere. The same applies if the emission tax is lower than the cost of CCS.
It has been estimated that emission tax of CAD$ 57 (HKD 331) per ton CO2 will be
necessary to motivate a power plant to undertake a CCS project.
To improve the technology, an
important component is learning-by-doing (LbD). LbD is simply productivity
gains through production practice, minor innovations, and specialization.
Saskpower stated that LbD can reduce costs by approximately CAD$200 million (HKD
1.16 billion) on its ongoing CCS activities. In this case, a CAD$47 (HKD
273) per ton CO2 carbon tax will allow the power company to undertake a CCS
project.
With the
growing number of CCS projects, it is only a matter of time before all the technological
drawbacks are properly addressed. Thus, to have CCS, what remains to be seen is
a credible carbon policy that can allow investors to undertake CCS projects. This
will be crucial in building a global CCS industry to deal with fossil fuels as
the dominant energy source in the coming decades.
[1] Econ. Dept. Yildiz Technical University. PostDoctoral Fellow at SEE
2015-2016.
[2] https://sequestration.mit.edu/bibliography/ccs-crossroads.pdf
[3] It is estimated that any extension of the in-service date past Feb.
28 can add around $30 million a month to the total cost of the project.
[4] There are also new costs that have been coming out of the
operational side of CCS. As an example, the cost of amine, an ammonia
derivative used to clean particles of CO2 from exhaust, is much higher than
anticipated for Sask Power due to the solvent being degraded much more quickly
than expected. The cost of amine, which was budgeted for CAD$5 million per year,
is now budgeted for CAD$20 million. See http://www.cbc.ca/news/canada/saskatchewan/saskpower-carbon-capture-1.3896487
