Financing CCS

The next phase for developing CCS is to build large-scale demonstration plants, and EU leaders have called for the building of 10-12 full-scale CCS demonstration projects by 2015. The cost of these projects could amount to about 1 billion euros per project. But who will pay for the CCS demonstration plants? Private companies say it will be too expensive for them to pay the entire costs so public funding is required. Below you will find the results of a Bellona study where we have identified and analyzed possible funding mechanisms.

Download paper

The paper from the study was published November 2008. The paper can be downloaded as a PDF file, and the summary of the paper is given below.

Summary

EU leaders have called for the building of 10-12 full-scale demonstration projects of CO₂. This calls for at least a substantive share of EU-level funding for the projects. Such funding could trigger Member State and industry co-financing.

Building large scale plants for CO2 capture and storage (CCS) by 2015 – hereafter the Flagship Program -  requires financial commitments by governments and industry). At a CO₂ emission price of €35 per tonne, such a program will cost approximately €13bn (net present value) in capital and operating expenditure if spread over 20 years. Annual costs will be approximately €1.3bn. There is at present no major financial benefit of CCS, which means that even cash-rich energy utilities will demand that the bulk of the costs of CCS be subsidised. The European Commission has thrown the ball over to the Member States to provide the funding. However, the UK is the only Member State that so far has committed itself to financing. As the first CCS projects are likely to be more complicated and expensive than subsequent projects, no one wants to be first.

A large number of funding options exist, falling into three main categories: 

1. Those relying on carbon markets:

• ETS auction revenues
• Additional EUAs
• Inclusion of CCS in CDM/JI

2. Direct public subsidies:

• Member State aid
• EU budget

3. Renewable energy type support measures:

• Mandatory targets of CCS-generated electricity for Member States.
• Feed-in tariffs. What is crucial is that a sufficiently large financing mechanism is put in place immediately. The only proposal on the table as of October 2008 that (1) can be adopted within the end of 2008/early 2009 and (2) can trigger investment decisions on a complete matrix of CCS plants, is to set aside EUAs in the 2013-2020 period, as supported by the European Parliament’s Environment Committee on October 7, 2008.

While all funding options have benefits and disadvantages, Bellona believes that any options in categories 1 and 2 above could be designed to provide a complete Flagship Program with maximum public value for money. Funding should be allocated based on competitive tendering and verified storage of CO₂.

If the political situation were to change, e.g. if more Member States were confident about the advantages of being a first mover on CCS, other funding options would be more promising.

In any case, a variety of funding options in categories 1 and 2 are likely to be used for the Flagship Program.