EU Demonstration Programme for CO2 Capture and Storage (CCS)

About the report

In 2006, ZEP outlined the technology and deployment roadmap necessary to achieve this goal. In 2007,
we then presented our vision for an EU Flagship Programme of large-scale CCS demonstration projects as
the next – and final – step. This will ensure the implementation of complete CCS value chains – from the
capture of CO₂ at large emission sources, its transportation to storage sites, to its storage in geological
formations deep underground. This has now been re-named an “EU4 Demonstration Programme”.

In 2008, ZEP carried out an in-depth study into how a Carbon Capture and Storage (CCS) demonstration programme could work in practice, from every perspective – technological, operational, geographical, political, economic, and commercial – backed up by robust R&D activity. It is the most extensive ever undertaken on the subject, anywhere in the world.

Over several months, we have engaged with a comprehensive range of experts and stakeholders – not only within ZEP, but also the wider CCS community, including trade associations, other European Technology Platforms and Governments. We have conducted interviews, organised workshops and employed sound fact-based analysis.

This report describes the results of that investigation: what an EU Demonstration Programme should
cover; how it could be funded; and what steps must be taken to ensure it is up and running by 2015 for CCS to be commercially viable by 2020. At its heart is the optimal portfolio of projects necessary
to cover the full range of CCS technologies and fuel sources, geographies and geologies, Europe-wide.
Time, however, is running out. If we are to achieve our goal, investment decisions must be made
imminently. With over 40 European CCS demonstration projects already planned or being considered,
industry is more than ready.

Executive Summary

With CCS, Europe can grow its economy, enjoy a secure energy supply – and meet its CO2 reduction targets

Scientists have confirmed that unless we stabilise CO₂-equivalent concentrations at their current level of
450 parts per million (ppm), average global temperature is likely to rise by 2.4ºC to 6.4ºC by 2100. If we
fail to keep below 2ºC, devastating – and irreversible – climate changes will occur.

This means reducing CO₂-equivalent emissions by 50% by 2030. Yet with world energy demand expected
to double by this date and renewable energy to make up only ~30% of the energy mix, only a portfolio of solutions will achieve this goal. This includes energy efficiency, a vast increase in renewable energy, and CO₂ Capture and Storage (CCS). Indeed, if implemented without delay, CCS could reduce annual CO₂ emissions by 0.6-1.7 billion tonnes in the EU and by 9-16 billion tonnes worldwide by 2050.

As a safe and efficient method of capturing and storing billions of tonnes of CO₂ underground for
thousands of years, CCS therefore represents the bridge to a truly sustainable energy system. It will enable Europe to grow its economy, enjoy a secure energy supply – and meet its CO₂ reduction targets.
Time, however, is of the essence. CO₂ concentrations are already rising at over 2 ppm a year, and it is
estimated that delaying the implementation of CCS by just 6 years would mean CO₂ concentrations
increasing by around 10 ppm by 2020.

The European Council has therefore called for a demonstration programme of up to 12 large-scale CCS
projects to be operational by 2015 to kick-start its urgent, wide-scale deployment. This reflects
the recommendations of the European Technology Platform for Zero Emission Fossil Fuel Power Plants (ZEP), a broad coalition of stakeholders united in their support for CCS and its leading authority in Europe.

An EU Demonstration Programme: the key to kick-starting CCS in Europe – and beyond

In 2007, ZEP presented its vision for an EU demonstration programme on CCS, integrating all aspects
of CO₂ capture, transport and storage – including technology, infrastructure, the environment, health
& safety, legal and regulatory issues and funding. At its heart is a network of large-scale demonstration
projects covering the full range of CCS technologies, Europe-wide.

This major European technology initiative is essential in order to accelerate technology development, drive down costs, build public confidence, and ensure CCS is commercialised by 2020. As importantly, it will spur action by other countries – especially large CO₂ emitters, such as China, India and the United States.

As a global solution to combating climate change, CCS could therefore also boost European industry, creating new jobs and promoting technology leadership.

Establishing the optimal portfolio of demonstration projects

Now, in 2008, ZEP has carried out an in-depth investigation into precisely how a demonstration programme could work in practice, consulting an extensive range of experts and stakeholders. Our aim:
to establish the optimal portfolio of projects necessary to cover a full range of CCS technologies and fuel
sources, geographies and geologies, Europe-wide.

The conclusion: a total of 10-12 demonstration projects is required to de-risk CCS for all players within the value chain and achieve commercialisation by 2020.

This is the result of a clear, three-step process:

• Identify the technological gaps within the CCS value chain
• Define the selection criteria necessary to meet Programme objectives
• Determine the number of projects required to satisfy these criteria

Experts within ZEP and the wider CCS community have now identified the functional, operational and
technical specifications for the technologies that require validation and integration across the entire CCS
value chain. Known as Technology Blocks, these were a key driver in establishing all the technical and
commercial criteria that needed to be fulfilled by the Programme – by both the portfolio as a whole and
individual projects in particular.

In an ideal world, only 7 projects would be needed to satisfy these criteria. However, an ideal combination
does not exist, and the high-risk profile of some of these ‘archetypal’ projects10 means they are unlikely
to materialise. When matched against the list of currently announced projects in the EU and EEA, it
is therefore found that 8 projects will satisfy the vast majority of the criteria, while an additional 2-4
projects will cover the remainder that cannot yet be assessed (because the information is not available).
This brings the total to 10-12 projects.

Time, however, is running out. If our goal is to be achieved, investment decisions must be taken
imminently. Yet as of today, the incentive mechanism first called for by the European Council in 2007 to
“stimulate construction and operation by 2015 of up to 12 demonstration plants” is still not available.

An EU Demonstration Programme needs an EU-wide funding mechanism

Like all major new technology initiatives, the cost of an EU Demonstration Programme will be high, but
experience, technology development and economies of scale should drive the cost of CCS down. It is
expected to fall from its current level of 60-90 per tonne of CO₂ 11 to 35-50 per tonne of CO₂ in the
early commercial phase (2020+) and to 30-45 per tonne of CO₂ when total installed capacity increases
to ~80 GW (giga watt).

Without CCS, however, abatement costs would be far higher. According to the European Commission, “the costs of meeting a reduction in the region of 30% GHG12 in 2030 in the EU could be up to 40% higher than with CCS”; while in the IEA’s Blue Map14 scenario, which halves CO₂ emissions between 2005 and 2050, the costs of doing so without CCS would be USD 1.3 trillion per year – a stark 71% more!

Nevertheless, the incremental costs of the first large-scale CCS demonstration projects will be
exceptionally high – too high to be fully justifiable to shareholders. This is because all ‘First Movers’ will
incur:

• Unrecoverable costs from making accelerated investments in scaling up the technology.
• Significant risk because it is not yet known which CCS technologies will prove the most successful; the future CO₂ price is highly uncertain; and construction and operational costs are highly unpredictable.

In fact, the risk is of an order of magnitude similar to the total incremental costs of CCS.

Based on an independent study recently undertaken by McKinsey and Company, it is therefore estimated
that an EU Demonstration Programme of 10-12 CCS projects requires 7-12 billion16 additional funding to close the economic gap.

Industry has already declared its willingness to cover a major portion of the costs and risks of
implementing an EU Demonstration Programme. However, given that it will bring incalculable benefits to
both the public and European industry, ZEP asks that these costs and risks be shared through private and
public co-investment.

This means Industry taking on the base costs of the power plant and the risks outlined above, while the
incremental costs of CCS are covered by public funding. (A competitive tender process will incentivise
companies to submit their most competitive bid concerning risk/cost sharing.) This is in line with the
precedent set by other new low-carbon technologies – and requires the urgent implementation of national and European funding mechanisms.

Achieving 80-120 commercial CCS projects by 2030

Without a demonstration programme, the commercialisation of CCS will undoubtedly be delayed – until
at least 2030 in Europe. Even if it does take place, however, delays in the decision-making process could
significantly affect the end result.

Building a CCS project is a lengthy process: a fully integrated project can take 6.5-10 years. However, final
investment decisions can only be made once permits have been awarded across the entire value chain.
This means that even a commercial project started as early as 2016 may not become operational until 2024.

There are several ways Industry can accelerate this process, such as condensing feasibility studies
and making faster investment decisions. But the EU can also play its part, accelerating the process for
obtaining both building permits and public funding.

Early business models also need to be developed on optimal CCS value chains – including a CO₂ transport infrastructure, based on a comprehensive assessment of large CO₂ point sources and storage sites. This, in turn, will enable us to determine the potential and cost of developing CCS clusters in specific regions within Europe.

If such steps are taken and an EU funding mechanism is rapidly established, the outlook for CCS is highly
favourable. Indeed, we could see 80-120 commercial projects in Europe by 203017 – avoiding ~ 400 million tonnes of CO₂ per year, with the potential to reduce annual global CO2 emissions by 9-16 billion tonnes by 2050.