Bloomberg News

Carbon Capture Vital for EU as Fossil Fuels to Stay, Draft Shows

March 12, 2013

The European Union will seek to promote the deployment of technology to capture carbon dioxide to attain its climate goals as fossil fuels are to remain a part of the bloc’s energy mix, according to a draft EU document.

The price of carbon is too low to stimulate investment in carbon capture and storage, or CCS, and existing policy tools have so far failed to encourage the development of large-scale demonstration projects, according to the draft prepared by the European Commission, the EU’s regulatory arm in Brussels.

To stimulate the CCS projects, the 27-nation bloc could consider using its emissions-trading system to provide incentives for the technology, a certificate program or a requirement to install special equipment for new investments, the commission said in the document, which was obtained by Bloomberg News.

“In order to allow fossil fuels to remain an integral part of the energy mix and the EU and to offer a potential for a green re-industrialization of Europe’s declining industries, early deployment of CCS technology at a large scale is needed,” the commission said in the document, due to be published later this month.

The EU is set to discuss this year the future of its climate and energy policy after carbon prices in the bloc’s market plunged 76 percent in the past four years amid a recession and member states consider options for renewables and energy efficiency after 2020. The document on the CCS, to be published along with a consultation paper on a 2030 energy and climate framework, will start a public debate on those issues involving national governments, industry, non-governmental organizations, analysts and experts.

Climate Goals

The energy and climate consultation paper will build on the commission’s earlier assessments, which showed that the most cost-efficient way for the EU to attain its long-term climate goals is to cut greenhouse gases by 40 percent in 2030, according to a draft obtained by Bloomberg News. Leaders of the bloc, which has a binding target to reduce emissions by 20 percent in 2020 compared with 1990 levels, voiced political support for cutting pollution by at least 80 percent in 2050.

Carbon capture and storage plays an important role in the EU decarbonisation scenarios, with between 7 percent and 23 percent of power generation using the technology by 2050, according to the commission. By 2035 it starts to contribute “on a broader scale” to reducing carbon emissions, according to assessments by the commission in the past two years.

‘Greater Costs’

“But the CCS is now at a crossroads,” the EU said in the draft document on carbon capture. “Delays of CCS on coal and gas-fired power will likely lead to greater costs for decarbonizing the electricity sector in the longer term, especially for those member states that rely heavily on fossil fuels.”

Following a decline in coal and carbon prices, coal has become “a new and economically interesting input for power production in the EU,” the commission said.

No CCS demonstration projects got subsidies in the first portion of EU aid from a special carbon-permit reserve, known as NER300, last year. While the bloc aimed to fund at least eight CCS projects when it started the contest two years ago, most were not confirmed by national governments and could not be considered for funding. The 275 million euros ($359 million) envisaged for CCS in the first portion of the aid remains available to fund projects under the second phase, which will cover the sale of 100 million carbon allowances.

‘High Share’

To “revitalize” CCS, the commission plans to seek comments from governments, industry, lobbies and experts on the role of the technology in Europe, according to the draft communication. Under the first scenario, member states that have a “high share” of coal in their energy mix and industrial processes could be required to develop a roadmap on shifting their power generation towards nuclear or renewables by 2050 or present a national strategy to prepare for the deployment of the CCS, the commission said in the draft.

Another option would be to “re-structure” the EU emissions trading system, or the EU ETS, so that auctioning revenues could stimulate the deployment of carbon capture, “in a similar exercise to NER300,” according to the commission.

Other policy tools (EUGNEMUQ:US) that the EU could propose are mandatory emission performance standards or a CCS certificate system, which would require some carbon emitters or suppliers of fossil fuels to buy certificates equivalent to a certain amount of their emissions, the commission said in the draft.

CCS Certificates

“Such a system could work well with the ETS, as the volume of CCS certificates that would be required would have its equivalent in ETS allowances, which would therefore be withdrawn from the market,” it said. “If targeted in scope, the impact of the functioning of the ETS would be limited whilst still allowing the flexibility to business to meet the cap.”

The commission will also be seeking views on whether utilities should be required to install CCS-ready equipment for all new investments in coal and potentially also in gas to facilitate the CCS retrofit, according to the draft document. Two other questions the EU is planning to ask is whether fossil fuel providers should contribute through “specific measures that ensure financing” for the deployment of CCS and how can public acceptance for the technology be increased.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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