Governments must set out clearer policies and regulation for storage capacity to help drive investment in the carbon capture sector, senior industry executives told a recent Transition Economist webinar, held in association with Deloitte, titled ‘An industry transition: Carbon capture, utilisation and storage and the energy ecosystem’.
Potential investors and developers of storage facilities such as depleted oil and gas fields need a clearer view of how their assets will be regulated and how much ongoing support they will receive though contracts for difference and other mechanisms, enabling them to assess long-term project economics, speakers said.
“There is some real work that needs to be done in the regulatory environment in a lot of jurisdictions around the world on what to do with the storage part of this,” says Andrew Botterill, global leader of energy resources and industrials at professional services firm Deloitte. “It is great to have the technology be able to do it, but we have got to park [the CO₂] somewhere.”
David Phillips, head of UK and investor relations at Norway-based Aker Carbon Capture, adds: “The CO₂ storage angle is really the obvious speed bump for [CCUS]. If the storage doesn't exist on a credible timeline, then ultimately no one's going to be ordering any plants from us and you'll be looking at a bit of a different market.”
Progress in developing storage and associated regulation varies by region, and the US has a head-start, says Michelle George, vice-president, new energy technologies, at energy infrastructure company Enbridge. She points to the 8,400km of dedicated CO₂ pipelines already in place in the US, with storage potential of 3,000Gt. “The financial support framework is already there—it is proven to work and it is understood,” she says.
In Canada, there is federal and provincial support that recognises the importance of CCUS, she says, adding that the country has an “innovation advantage” in the sector. Canada has seven large sedimentary basins that are ideal for permanent geological sequestration, she adds.
Local challenges
CCUS also faces regulatory challenges at the local level in the US in the form of lengthy environmental permitting and planning approval processes, says John Nixon, senior director at US software company Siemens Digital Industries Software. “There are some challenges at the local level, not just at the national level, from a policy and regulatory framework and a permitting framework perspective that really need to be addressed. The devil is in the details,” he says.
Nixon notes that CCUS accounts for a “very small minority” of the capital invested in the wider energy sector. Projects underway in the CCUS sector are worth $170-200bn compared with $11.2tn for projects across the whole energy sector. Of the CCUS developments in process, about 70pc are in the feasibility stage, with 30pc at various phases of design or construction.
Carrot and stick
In Europe, Aker has recently seen an increase in interest from potential clients, and Phillips puts this down in part to the “carrot and stick” incentives to use CCUS in the region. The carrots are direct funding available from the European Commission and from the UK and other individual governments, as well as the carbon price set in the EU and UK emissions trading scheme.
The stick is the EU green finance taxonomy, with which companies must align to retain access to finance from providers with stringent ESG criteria. “If you do not move to act on your emitting base, then things could happen,” he says. “You may get characterized by the financial world as sort of category B or C, which means you probably can't access green bond markets easily and some investors might not be able to own you.” In the US, there is more “carrot” in the form of upfront funding and the 45Q tax credits, he says.
Clusters
Much of the recent government funding and development of CCUS has been focused on industrial clusters, which can pull together critical mass of emitters and achieve cost savings through the sharing of infrastructure, including connections to storage facilities.
Europe has been especially active on cluster developments, which have provided a “very important spark” in getting the CCUS value chain moving and in fostering deep cooperation across industries and companies, says Aker’s Phillips.
Clusters offer the opportunity to scale up beyond the initial CCUS capacity and to bring focus to policy and state support because they give governments “a nice big target to aim at”, he adds. However, many emitters looking to use CCUS are not located near clusters or by coasts, raising challenges around the need for additional pipeline or maritime transportation of CO₂ and separate storage facilities.
These topics are further addressed in the webcast, An industry transition: Carbon capture, utilization and storage (CCUS) and the energy ecosystem, held in association with Deloitte, which is now available on demand.
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