Today we publish the second part of a three-part interview by Shayne MacLachlan of the OECD Environment Directorate with Kamel Ben Naceur, Director of Sustainability, Technology and Outlooks at the IEA
SMacL: I’d like to know more about the assertion that CCS is the only known technology that can reduce CO2 emissions from various industrial activities, such as iron and steel, chemical and cement production. Can you explain why this is the case and whether there are any competing alternatives under development? How much would CCS raise the cost of a tonne of steel or cement?
KBN: CCS can play an important role in the decarbonisation of various industrial processes and, in some cases, may be the only option for deep emission cuts. For example, the production of iron, steel and cement emit CO2 from generating heat and electricity, but also from chemical reactions inherent in the process, including the reduction of iron ore to iron and the heating of limestone to produce cement. There are some emissions in industrial processes which can be reduced through energy efficiency and switching to low carbon heat and electricity generation, but CCS is needed to reduce the majority of emissions generated in these processes.
The increase in the cost of a tonne of product due to CCS depends on a range of factors including the process, technologies and the proportion of CO2 being captured. The indicative cost increase per tonne of steel, depending on the production technology, could be USD150 to USD250.
SMacL: The IEA has said that CCS gives the fossil fuel industry, and especially coal resource holders, a chance to protect the assets they have. Why haven’t large fossil fuel companies poured more resources into the development and implementation of this technology?
KBN: The IEA has highlighted that the deployment of CCS becomes a major determinant of the demand for fossil fuels in a climate constrained future. In our 2 degree scenario, more than 95% of coal-fired power generation and 40% of gas-fired generation will need to come from plants equipped with CCS by 2050. Deployment of CCS therefore presents an opportunity for fossil fuel resource holders to secure future demand and revenue, which the IEA has estimated could amount to around $1.3 trillion each for coal and gas between now and 2040.
For owners of emissions-intensive assets, including coal and gas-fired power plants, CCS can also provide a type of insurance mechanism. The option of retrofitting CCS to planned or existing plants can prolong their economic life and reduce the risk of asset stranding. With around half of global power generation owned by governments, there is also a strong public interest case for CCS.
An estimated USD13 billion in private investment has gone into large-scale CCS projects, including from fossil fuel and technology companies. This figure will need to increase by orders of magnitude if deployment of CCS is to be accelerated, however the conditions to support private investment have largely been absent. Policy and regulatory frameworks that provide targeted support for CCS and certainty for investors will be essential.
SMacL: If fossil fuel companies cannot be relied upon to deliver CCS on their own, what policies can governments put in place to stimulate the development and deployment of CCS? I have heard that carbon prices above fifty dollars would be needed, but is carbon pricing sufficient by itself?
KBN: CCS is an emissions reduction technology that will ultimately require a price on carbon if it is to be commercial. In the near-term, targeted policies will be needed to overcome the technical and commercial barriers to large-scale deployment – in much the same way that targeted policies have supported the deployment of renewable technologies with great success. Policy options for CCS include capital grants, taxation arrangements, regulation and (for power applications) feed-in-tariffs or contracts for difference which offset the higher operational costs associated with capturing and storing the CO2. Governments can also take a major step towards stimulating CCS deployment by identifying and developing CO2 storage infrastructure.
The costs of different CCS applications vary greatly. In natural gas processing, CO2 separation is already an inherent part of the process and the additional costs of CCS can be as low as USD5-20 per tonne of CO2 avoided. As an example, the investment in the Sleipner CCS project was in response to the Norwegian Government’s upstream CO2 tax, which in 1996 was around USD35 per tonne and currently stands at around USD50 per tonne. However the cost per tonne of CO2 avoided in power generation is significantly higher, at USD48-109 for a coal-fired power plant in the United States.