Is 2009 the Year of Carbon, Capture, and Storage?

Posted by: Mark Scott on February 16

What’s the best way to cut the world’s greenhouse gas emissions? That question is getting a lot of play recently, particularly ahead of a UN conference in Copenhagen at the end of the year to negotiate a replacement to the Kyoto Protocol. Within the energy community, one of the largest outstanding issues is what should be done with coal — a fossil fuel that generates roughly one quarter of the world’s CO2 emissions, but remains a key component in the global energy mix.

For many, the solution to this conundrum is carbon, capture, and storage (CCS) technology. In a nutshell, CCS traps carbon dioxide from power plants or heavy industry before it’s emitted into the atmosphere, transports it through pipelines to storage facilities, and then pumps the CO2 underground where it can’t escape into the ozone layer. Energy companies like the idea, but many, including environmental NGOs and renewable energy promoters, say carbon sequestration merely allows the “dirty” coal industry to keep going — albeit in less polluting form.

No matter which side of the debate you’re on, a new report by Emerging Energy Research (EER) paints an interesting picture of CCS’ future. According to EER analysts, more than $20 billion will be spent on CCS projects this year, including 50 schemes from global energy companies that will generate 16 Gigawatts — equivalent to 20 regular coal-fired power plants – of electricity.

At $11.6 billion, the European Union’s investment is ranked No. 1 globally, followed by the U.S. (at $6 billion) and Canada (at $2.7 billion).

“If demonstration projects are successful, CCS strategies will be well-positioned to scale after 2016,” the report says.

So who's leading this push into CCS? Surprisingly, it's the oil and gas industry. Companies like Shell, Total, and Chevron have been using the technology for almost 30 years to extract oil worldwide in a process called enhanced oil recovery. Basically, the companies pump CO2 into a depleted oil well where the gas expands and pushes oil to the surface. Now, the same process can be used to offset carbon emissions.

Of course, there are a number of technical problems still to be overcome, but EER says: "several of the largest oil and gas players have been the main participants in key projects demonstrating CO2 storage on a commercially significant scale."

Indeed, these flurries into CCS, along with similar -- but less advanced -- trials by energy utilities, should help turn CCS into a multi-billion dollar industry over the next 20 years. According to EER estimates, project investment in carbon sequestration could reach between $30 billion and $70 billion per year by 2030. That also should help to offset as much as 15% of the world's total carbon dioxide output over the same period.

Yet like all new technologies -- and CCS definitely remains a nascent carbon-fighting option -- cost will play a large role in its short-term development. Sure, more than $20 billion will be spent on CCS this year. But that figure isn't a lot of money when you consider individual energy infrastructure investments are measured in billions, not millions, of dollars.

Central to the argument will be the cost to offset CO2. Europe's already halfway through its second phase of a cap-and-trade scheme. And most analysts expect the U.S. to unveil a federal system in the near future. In an ideal world, the higher the cost of carbon, the more cost effective companies' CCS investments would be because the savings from carbon sequestration would outweigh the cost to offset CO2 in the market.

According to EER, companies will need a price between $38 and $85 per ton of carbon to let them to break even on the upcoming round of CCS investment. A previous report by consultants McKinsey estimated CCS projects would become financially viable at carbon prices between $45 and $64 per metric ton.

Yet at present, Europe's carbon price stands at $10.7 a ton (CO2 prices have fallen more than 70% since their highs last summer), while offsetting carbon emissions in the U.S. is even cheaper. Under these current prices, analysts reckon it's not cost effective for companies to invest in carbon sequestration.

So why has more than $20 billion been earmarked for the industry this year alone? For one thing, governments worldwide have offered subsidies to offset the high investment costs. Yet more importantly, there's a recognition within the energy industry that CCS will become economically viable if/when the carbon price reaches a certain level. As one energy consultant puts it: "That day will eventually come. And companies want to be ready when it does."

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/