Financial Support Mechanisms for CO2 Capture and Storage Final Report
Environmental Resources Management Ltd
According to the International Energy Agency, deployment of CCS could contribute nearly one-fifth of the total effort required to achieve stabilisation of atmospheric GHG concentrations and mitigate the most serious predicted impacts of global climate change. The importance of CCS as a GHG mitigation option has been acknowledged by an increasing number of policy-makers, as reflected in policy goals such as the G8 Energy Ministers’ target of launching 20 full-scale CCS projects and the EU’s aim of deploying 10-12 large-scale CCS demonstration plants by 2015.
Although a few large-scale CCS projects have been undertaken in Norway, Algeria, North America and elsewhere, to date CCS has only been deployed on a limited commercial basis. The major barrier to wider deployment is the investment risk that larger CCS commercial demonstration projects are likely to face. Governments in several world regions have developed, and are developing, a number of financing and incentives programs to support CCS demonstration projects. The IEA CCS Roadmap concludes that the next decade is a key period for CCS and that governments, industry and public stakeholders must act rapidly to demonstrate CCS at scale around the world in a variety of settings. The Roadmap also suggests that almost two-thirds of the capture projects required by 2020 can be deployed in industrial and upstream sectors. However, the study finds that, given the crucial role for deploying CCS in a range of industry and upstream sectors over the next decade, there is presently a lack of financing options and appropriate incentives available, and much uncertainty regarding their support levels and modalities.
This report presents an overview of existing and proposed near-term financing and incentive (F&I) support mechanisms in the EU, US and Canada to CCS projects. Based on the research undertaken, the impact upon financial viability is modelled for a range of CCS project types capturing CO2 from industrial and upstream sources (ranging from around $20 to $150/tCO2 avoided) under different potential support mechanisms.
The projects considered in this report are not undertaken by oil and gas companies as typical for-profit ventures in their core business; they are done for environmental reasons but must be commercially viable with manageable risks and reliable cost estimates for companies to be able to invest in them.
ERM has used conventional IRR analysis in this report to evaluate the financial viability of CCS projects, with transparent discount rates, weighted average cost of capital and other factors explained in this report. It is important to note, however, that project types which carry positive - even attractive - IRR figures in this analysis are typically not commercial ventures in their own right; they are environmental projects which show a given return on investment to justify them as investments when compared to commercial projects.