The burning question: Can carbon capture and storage help the world deal with climate change?

Jennifer Rankin: Carbon Capture and Storage: namely the technology to capture carbon provided by industry and power companies and store it underground. If you do anything at all connected to the environment, you can’t escape the statistic that China is building a new coal fired power station every week and that carbon capture and storage will be one of the key technologies in the future to answer the challenges around CO2 emissions. Indeed, the International Energy Agency has predicted that half of the world’s energy supply will come from fossil fuels in 2050.

So this discussion about this technology is critical. But there are many difficult issues for this untested technology that we would like to discuss this evening. Firstly, there is cost; questions around storage of carbon emissions; and then a whole host of regulatory issues.

And, in order to have this discussion, we have a superb panel of experts for you tonight. I’d like to introduce our panel in the order that they will be speaking in. Firstly, on my immediate left is, Jos Delbeke, who is the Deputy Director General of the European Commission’s Department for Environment. Mr Delbeke was the first economist employed at DG Environment. He’s one of the architects of the Emissions Trading Scheme, the implementation of which he now oversees. He’s also responsible for the idea of trading in renewables which is causing a great deal of discussion at the moment. And he’s been the EU’s chief negotiator at UN climate talks.

Our second speaker tonight is the Member of the European Parliament, Chris Davies, a British member of the Liberal group, and he’s seated on my right hand side. Chris Davies joined the European Parliament in 1999, after serving as a British member of Parliament and also as a local councillor for many years. On his website he describes his first voluntary political job as clearing out the toilets in a derelict shop leased by the party, but he’s since moved on to bigger and better things and will be preparing the European Parliament’s opinion on carbon capture and storage, which he has promised will be done in the summer.

And then our third speaker, on my immediate right, is Mahi Sideridou, the EU Policy Director on climate change and energy at Greenpeace, which I see she’s described on her website as probably the dullest job in Greenpeace since everything in the EU moves extremely slowly and involves a painful amount of talking and listening, and then some more talking. Well, I’m afraid we’ve got some bad news for you this evening.

And our final speaker has not arrived yet but we hope to have him with us very shortly. He will be sitting on the far left, that is Martin Brough. He is a Director at the UK economics consultancy Oxera where he leads their work on energy.

But without any further ado, I would like to turn over to our first speaker, Jos Delbeke, Deputy Director General at the European Commission’s DG Environment.

Jos Delbeke: On the climate energy package, it was all about 2020 and by 2020 we were to improve our share of renewables and we would improve the reduction of greenhouse gas �' the famous 20 percentages, and all by 2020. Now on carbon capture and storage, we know that it is quite unlikely we will have a lot of carbon capture and storage facilities in Europe that are already able to reduce the emissions of greenhouse gases to a significant effect. Why then did we come forward with this technology and this proposal? We really think that the use of fossil fuels is going to be with us also beyond 2020, and that we have to prepare for technologies capable of dealing and using fossil fuels in a sustainable manner. So when we advanced the two degree centigrade that we would limit climate change to, it is clear that energy efficiency and renewable energy alone, unfortunately, is not going to do the trick.

So we have to look at energy technologies that are going to delivery beyond 2020, and we think that carbon capture and storage is clearly one of these technologies we have to look at. Why is that? Well, if you look at the two degree centigrade limitation on climate change, we need emission reductions of the order of magnitude of 50% to 80%. While if we would not go for appropriate technologies beyond 2020, we will see an increase in emissions of the order of magnitude according to the IEA of 30% to 50%. So all technologies are going to be important �' energy efficient, renewable technology. We will see also a share of nuclear energy generation in Europe but primarily what we are going to do on carbon capture and storage is going to make a major difference beyond 2020. Beyond 2020 means also once we have fully exploited the potential for energy technology and renewable energy technology that we think is possible today to cash in on.

So having a time perspective where we do not optimise everything towards 2020 is essential and that’s why basically we made a proposal on carbon capture and storage. We always look quite fundamentally at the economics of the equation and for what we have investigated so far beyond 2020 within the EU, we know that carbon capture and storage is going to be also essential to bring the big emission reductions in a cost effective manner. Without going for carbon capture and storage, even if we know that it is a quite expensive technology today, it’s not going to be possible beyond 2020.

But there are concerns and the concerns are with this technology, what’s to be done? Are we sure that once we have sequestrated the carbon, separated the carbon from the fuels or the fumes coming out of the chimneys, are we sure that the carbon stored is not going to leak? So that’s a very important question and that’s why we look today at the technologies available and what the results are, and we also wanted to have a legislation enabling the use of carbon capture and storage, not just for the sake of enabling it but once we enable it, to make sure that also the environmental concerns are going to be dealt with.

What do we know about carbon capture and storage? Well, I think we have to owe it to our Norwegian friends, that they have already have a decade now of experience on this, and this is very valuable. Without that I don’t think we would be very far. But we know that when we have to take care of the environmental concerns, that we have to be very cautious. We cannot store carbon anywhere where we would like to have it stored. We have to look at the underground, at the technique about how to separate the carbon and also how to safely bring it to the place where it can be stored, and once it is stored on the location that we have to select and choose very cautiously, then we have to make sure that the site is properly managed. So we have to make sure that the responsibilities lie with those who are going to put the carbon beneath the ground or beneath the seabed. And that is what the legislation we are proposing is doing. It is dealing with the liability. It is dealing with the very strict selection process of the sites, and it is also dealing with sanctions. And if carbon would leak out of the underground storages, then we would use the Emissions Trading Directive as a way of making sure that the leakages are being covered as an emission of carbon dioxide such as it is dealt with, with normal emissions.

So we think that our Directive is a good balance between, on the one hand, the technological potential, the environmental constraints we have to respect, and the management of risks that are related to this technology. Sometimes people think that it is a choice between having CCS done or not done. Today we know that, for example, the OSPAR Convention is already modified and we know that carbon capture and storage is going to happen. So we need this legislation to make sure that when CCS activities take place, that they take place in a safe manner and in a manner that we can for decades stand up that the benefit of the environment is taken care of.

There is a lot about incentivising the technology. The proposal that we have been making is foreseeing the enabling of legislation. And besides that, we hope to create an incentive by incorporating carbon capture and storage facilities into the Emissions Trading Directive and to the scope of the Directive. That means two things. When you avoid carbon, that you will have a benefit because there will not be a necessity to buy allowances on the market to the extent that CCS activities are deployed. Second, I also said that if there would be leakages out of the underground or out of the storage, then emissions would be dealt with under the ETS. But that will not be enough. We know that the ETS is having today a price on the market of around 20 Euros per tonne of CO2 and we know that that is at best only half of what it’s going to cost in terms of CCS. So we could say today commercially, through the ETS, half of the costs could be covered but there will be another half, and perhaps more than half, that will have to be covered to other ad hoc ways of financing the first plans on CCS. That’s why we launched the idea of demonstration plans and the heads of state endorsed the idea and now we have to find additional resources, public resources, to make sure that this finance is being brought in those places where it is needed.

ETS and the ETS proposal that we have been making has a quite important avenue, that is that we foresee quite an important share of allowances to be auctioned on the market as of 2013, and that is going to generate quite important revenues. And we think that it will be more than normal that part of these revenues would be used to finance carbon capture and storage for investments in addition to the commercial incentives offered through the ETS. For that reason, the use of those revenues is going to fall under the state aid provisions. We have in the state aid provisions that also were modified as part of the package, we have a clear indication that its revenues and the state aid provisions are going to cover rather generously the investments in carbon capture and storage facilities.

So, incentives, that’s what we are talking about. Demonstration plans, to have the technology up and running as soon as possible. But what we did not propose is to have mandatory carbon capture and storage. We had thought about this. We did an economic analysis related to that and all in all, and having the debates within the Commission, we thought that it was perhaps early to make CCS activities mandatory, given the state of research and the demonstration and technological experience that we have at this point in time; but we could return to that. As soon as we have convincing cases to make, and the demonstration plans should give us those convincing cases, I think there is another moment to look at things, and perhaps if that is in the cards, carbon capture and storage should be made mandatory if we are really delivering the proof that it is a promising technology that we can manage the costs, and that we can manage the environmental risks in a satisfactory way.

So we believe in carbon capture and storage. I think that part of the package is about the technologies of the future. We want to grasp this opportunity and we hope that, not only the power sector and the oil and gas sector is going to look into that, but also industrial activities, where a lot of carbon emissions are happening, like in the steel sector or in the cement sector, are going to look into this. Having said that, we are talking here about a technology that is going to require a number of changes also in transport facilities because after all, once the carbon is separated from the fuels we are using or the fumes, the emissions going into the air, we will have to transport the carbon where we can safely store it. So transport facilities over land and over sea is going to be an issue we have to look at. Again we have the legislation in place to cover that part of the story, but we will have to have the facilities built and invested in. And so the two, the industrial activity, the storage activity, but not to forget the transport activities that we are going to require is something that we will have to invest in.

I will leave it there. We know we are embarking on a new part. I think we were taking a balanced view of this and we hope that the private sector, that is the major driver of this technology and should be the major driver of this technology, is going to bring us a convincing case in the next three to five years.

Jennifer Rankin: I don’t know about you but I found that an extremely useful and interesting overview on the Commission’s thinking. Now I’d like to turn to our next speaker, Chris Davies, a Liberal member of the European Parliament who will be drafting the Parliament’s response on carbon capture and storage.

Chris Davies: Can I just say I’m hugely excited at this opportunity. This is the first occasion I’ve had to talk about CCS since I’ve nominally been appointed as the rapporteur on this report. Nominally I say because it’s subject to ratification by my full group and if you see from the front page of the European Voice this week, there’s a few people who perhaps feel that I ruffled too many feathers. But let’s assume that this will proceed. I have to say also that I was initially a huge sceptic about CCS. Ultimately, what we’re talking about here is treating CO2 as a waste and burying it underground, and I’m always on all environmental issues rather against, instinctively against, the out of sight out of mind mentality when it comes to dealing with waste �' be I radioactive or other; mercury for example, to mention one thing before the Parliament at the moment. But I’ve become a huge convert, partly I suppose because of what I’ve heard about the storage potential, that the time that this CO2 can stay down is potentially infinite in human terms. And really, even if it’s not that, you add a million years and maybe another million years and before very long, you’ve got a really long time you’re talking about. I’m sure it’s worth accepting.

And secondly, simply because of the huge potential this offers to making a real difference. And I may say that I look at some of the other proposals and declarations coming from the Council and I’m sceptical about our chances of meeting the targets being set. I look at these things from the UK point of view and I see, for example, if we look at renewables, that the UK is supposed to go from getting 2% of its energy from renewable sources to 15% within 13 years; and I don’t see any chance of my country achieving that target as things stand at the present time. It’s going to take quite a revolutionary transformation. What my country is looking for and what its politicians are looking for are quick fixes and, frankly, quick technical fixes and CCS offers the nearest thing to a technical fix to reducing overall carbon emissions.

Now within the Parliament I think this so far has been seen very much as a technical report and indeed, that’s how it’s been presented and therefore, perhaps a little unsexy �' it’s just preparing the ground for CCS. But I’m excited about it because I see it goes rather beyond that. I see this as an opportunity over the next 12 months or so to promote the whole idea of CCS to a wider audience, for it to become genuinely familiar with the public and with journalists as a whole. I see this as, indeed, an opportunity to address some of the remaining regulatory and safety issues which no doubt will be highlighted as omissions from the Commission’s current proposals. I see this as an opportunity to try and identify and promote some of the financial means of getting the demonstrations projects up and running as quickly as possible. We have a commitment here to get 10 to 12 demonstrations projects up and running in place by 2015. Well, I don’t see much of that commitment being realised yet. We’ve got to start building these plants on a large scale as soon as possible to get the costs down. And I do see this report �' you know, I love it, the Parliament’s not allowed to introduce legislation, we have to wait for the Commission to use its privilege of doing that but once it’s done it, we can do anything we like with it. And I like the idea of mandatory dates. And I read the impact assessment talks about 2020 and I kept looking at it and saying well, why not 2019? 2020’s okay but what about 2019, 2018, 2017 or something of that kind?

It does seem to me that at some point, I suppose we’ve got to stop building coal fired plants which emit carbon dioxide emissions, and every new coal fired plant just simply makes the problem worse. Every new coal fired plant takes us backwards. Every new coal fired plant should be seen as a failure. So the sooner we stop building these things as they are the better. And yet again, to use the example from my own country, I don’t see how we’re going to avoid a huge electricity gap within the next few years unless we build a lot of new coal fired plants. And that’s the case for the whole of Europe where replacement coal fired plants are going to be put in place �' each of them, so far as the Commission is concerned or almost each of them, are not fitted with this very necessary technology.

Timescale �' 2020. That’s an awful long time off, given that some people would say this technology is very near full scale commercial development stage. I came on the train today to Manchester Airport and I passed through a place called Rainhill and in Rainhill, a little village in 1829, four burley railway locomotives were tested against each other. And the first Intercity railway company in the world, the Liverpool and Manchester Railway, decided to pick the winner of this competition and they picked a locomotive called the Rocket. Within eight years of that competition, steam locomotive technology had advanced hugely and we had built new railway lines from London to Birmingham, London to Bristol and the rest of Europe was starting to notice what was happening and think maybe we should do the same? And that eight year period also is the period for the Apollo space programme. We put a man on the moon from the decision in the White House to say we will put a man on the moon to actually getting around to develop the technology necessary to do it. Eight years from now is 2016 not 2020 and this is basically fairly straightforward technology, much of which is being used in one part of industry or another already, and I don’t see therefore why we can’t be more ambitious.

So I want this legislation enacted quickly. I want to reach a first-reading agreements with the Council and, if at all possible, I will cooperate with the Presidency in trying to ensure that it is enacted by the end of this calendar year. But I do want to be ambitious. I want to work with the spokesmen of the other parties, who’ve yet to be appointed, and to try and build up a cross-party sense of unity in pressing our ambitions. I hope we will get an ambitious response from the Council and I hope that together we can make a difference.

Jennifer Rankin: Thank you very much Chris. We’ve heard from a convert to carbon capture and storage and now we’re going to hear a more sceptical point of view from Mahi Sideridou, EU Policy Director for Climate and Energy at Greenpeace.

Mahi Sideridou: Yes, I am the most sceptical side, very sceptical indeed. It’s quite amazing when listening to the previous speakers how much we actually agree on and how far away we end up being in the conclusion, because the motivation is very clearly climate change, the need to do something, the need to do something urgently and at a scale that matches the scale of the challenge that we’re faced with. So there’s no doubt about that. The question though is, do we need carbon capture and storage? I would answer no. Does it present certain very specific risks and uncertainties? I would answer yes. Do we actually have the tools in our hands to do what is necessary to stop dangerous climate change? I would answer yes. And I think this is the biggest disagreement �' the analysis that organisations such as Greenpeace have come up with about whether what is necessary to stop dangerous climate change is already here or not. So I would say that what we need to do is actually use as much as possible renewable energy sources that are already available, that are truly clean, such as onshore / offshore wind energy, solar power, sustainable biomass, to change dramatically the way that energy is consumed, to invest in efficiency measures, conservation measures, cut energy waste as much as possible and to also change the way energy is distributed. So instead of having the status quo which is large centralised power plants distributing the energy across big distances, going to a completely different model where the energy is produced sustainably, efficiently from clean sources as close to the consumer, be that a person or a business, as possible.

And these changes actually sound very simple the way I describe them but they are very, very radical. They require a complete change of the way we produce, we consume and we distribute energy. And if we want to make it in the energy sector to cut emissions to the level that is necessary, we have to start acting now. And this where carbon capture and storage comes into the picture and this is where the doubts come in, because carbon capture and storage is presented as this silver bullet that will come into the future and solve the very, very radical problems that we’re faced with right now. Our fear is that with that excuse we will continue the status quo. We will continue building coal stations instead of examining coal stations per se and saying can we actually afford a new coal station? Despite carbon capture and storage, despite whether they will come online or not inn time, can we actually afford to build another coal station? Or do we have to look at the cleaner alternatives that don’t have such a big climate penalty?

So this is the question. And another concern that we have is because of the way that carbon capture and storage is presented, we continue doing things. We don’t do the things that are necessary. In fact, there is also this concept of capture ready. A new coal plant is being built and we say don’t worry, it’s capture ready. This term is actually absolutely meaningless, technically, financially. It just means that at some point in the future, yes, carbon capture and storage comes online, then this plant can be equipped with it. Then the consequence by accepting this terminology is that we’re actually accepting a green-washing of a very polluting power station. An analogy that I like to the capture ready terminology is like saying that I should be buying a 4x4, a big car, because I’m in principle bicycle ready. It doesn’t mean I will actually use the bicycle. This bicycle will work when I buy it or I will actually take it to work rather than using my big polluting 4x4. And I know this is a very simplified analogy but this is the concern that we have.

And then we get to the other issue which is the environmental concerns; as Greenpeace, I have to mention the environmental concerns. So ruling out ocean storage altogether because I don’t think that would be even a consideration from the European Union to go to ocean storage. Just talking about geological storage, we can distribute the impacts on the environment, the potential impacts on the global and the local scale. The global scale impacts, very clear what they are. We have to store carbon dioxide, we have to ensure it doesn’t leak for hundreds, if not thousands of years. If it does come out, then we’re going to have a climate impact. The local environmental issues are of a different scale but not negligible. We’re talking about effects of slow leakage or catastrophic abrupt releases, contamination of ground-water, impacts on ecosystems, or even human health if we reach a concentration of carbon dioxide which is over a particular value, I think it’s 3% per volume. So we can’t ignore also the potential risks that carbon capture and storage is posing.

The Commission has put forward a proposal where they’re trying to tackle certain questions �' financial liability, political liability, legal liability, or leakage rates. These are issues that are very, very important, very complex when it comes to carbon capture and storage quite simply because we don’t have the experience to determine what they should be.

And then to just get to my final point, the reason Greenpeace does not support carbon capture and store, the reason why we do have concerns about this technology is because we think that it could potentially be a political or a financial distraction. We’re now hearing that state aid guidelines are being amended so that it can be allowed. Public money should be going into this end of type technology that should actually be privately funded rather than publicly funded. So we have a lot of concerns that this technology will be this false hope which will actually undermine efforts to stop climate change rather than support them.

Jennifer Rankin: Thank you Mahi �' so a false hope, a political distraction. I think there’s a lot in there that we can discuss in questions but before we get to that, I’d like to turn to our final speaker, Martin Brough, who is the Director and Head of Energy at Oxera Consulting Limited.

Martin Brough: I really wanted to focus on the economics issues because I’m certainly not an expert on the science of it or the legal framework. But I wanted to start before going onto carbon capture and storage just by giving a bit of a perspective on the climate change and carbon abatement policy sphere overall because, although the science has clearly moved on a huge amount over the last ten years, I think that the politics and political willingness to pay of consumers for climate change has actually moved on massively over the last five or ten years as well. But I’m not sure the economists have done a great job so far of actually setting up the mechanisms by which this will be achieved, and there’s a big debate about, are consumers willing to bear the costs of abatement on climate change? Well, yes, the Stern review on climate change is correct and we’re talking about 1% of GDP, something of that order and then I think the political willingness to pay is out there. I think consumers are willing to pay that.

I think the big problem is not necessarily trying to get even more willingness to pay for carbon reduction, it’s actually coming up with mechanisms that just don’t feel as costly as the current mechanisms do. If it really is only going to cost us 1% of our GDP to deliver all this, I think consumers would write a cheque tomorrow. It just feels an awful lot more expensive than that, and I think in terms of the mechanisms, one of the issues which I think is particularly appropriate to carbon capture and storage is whether you’re trying to use generic or specific targeted mechanisms on the economics side. And the generic mechanisms of just saying well, there’s a global carbon price out there now, so therefore that’s the framework from the economics point of view and we just need to put in place the legal framework which is necessary to facilitate the private sector from building these facilities. Is that actually going to be enough? Well, clearly a lot of other more expensive things are being funded like renewables, which wouldn’t be justified just simply on the basis of a global carbon price.

Now the advantage of very generic mechanisms is it maximises the scope for competition. All different types of technologies can compete against each other for delivering carbon abatements. The danger of generic mechanisms is that they require all consumers on all products to pay the marginal price of carbon abatement, which is being set by the most expensive technology which is required. Whereas very specific targeted mechanisms of subsidies given to CCS or given to renewables or other forms of carbon abatement feel less expensive to consumers because they’re not paying on every single product the full marginal price of carbon - they’re only paying selected subsidies in selected areas. I think the danger is that even though they feel less expensive to consumers, in actual fact, they may be causing excess amounts of money to go to technologies which may not in the long run prove to be the least cost.

Now in terms of the CCS in particular, I think what’s important is to try and say what exactly is it that we’re saying CCS is providing? Clearly it’s carbon abatement but are we saying that it’s providing additional security of supply benefits that other forms of generation, for instance, don’t provide? And are we confident that all of the products that CCS is providing are actually being priced? And I think clearly huge progress has been made on pricing the environmental aspects of CCS through value and carbon abatements, but there’s probably been less work in terms of saying well, is there a market failure of security of supply? Because one of the big political attractions of CCS in a way is reducing our gas import dependency, but it’s not as clear that we’re willing to say that that is a real market failure, or something that we’re willing to put a price on over and above the market prices for electricity which is in Europe at the moment.

The advantage of explicitly pricing all those things is then you allow other technologies providing similar combinations of these things to compete on a level playing field. The danger of not pricing them is that you’re giving specific subsidies to specific technologies without really having to do the joined-up thinking of justifying one against the other, and you’re really comparing apples with pears which is very hard to do. In terms of the mechanisms, again it comes down to should we be using generic or specific mechanisms? Now clearly, there’s a role for very specific targeted assistance on R&D where it’s an emerging field. And maybe the private sector, left to its own devices, wouldn’t do an appropriate level of R&D? But in terms of the general issue about carbon abatement, it strikes me that, wherever possible and within the bounds of political willingness to pay, it’s much better to try and stick to generic mechanisms. If the carbon price at the moment will not deliver CCS, maybe that means we need a higher carbon price rather than a specific CCS targeted policy?

The third thing that I’d say is the specific regulatory framework for CCS I think is moving on apace and it’s very helpful, a framework which is being set out, but from an investor point of view, one of the key things is setting out a credible framework ex-ante which reassures investors that if they are taking significant risks and ex-post, they make significant profits, that that won’t simply be clawed back. I think there is a risk for developers of spending billions of Euros trying to get CCS working and maybe it not working and maybe taking a bit of a hit on that. What needs to be clear ex-ante from the regulators is that, under regulator third party access arrangements or future regulatory arrangements, high levels of return in the future will not simply be clawed back as a windfall if they turn out to be successful ex-post.

So it’s those three things that I would emphasise. Firstly, work out exactly what it is that we’re saying CCS is delivering and make sure the market is pricing all of those things. Secondly, where possible, have regulatory mechanisms which are generic rather than specific. And thirdly, specify a credible framework ex-ante so that investors can feel confident that if they’re taking a risk, there’s at least a chance of them making significant levels of profits. Whether CCS within that framework would actually work or not, I’d be very reluctant to go down that road because I think this is precisely what we should be trying to avoid predicting �' is trying to pick the winners and say we need a target of X gigawatts by 2020 or 2040, other than the initial start-ups schemes just to prove the technology works. But, as I say, to me, the politics, the legal side and the science is moving on apace, but I think the economics has to catch up.