CCUS to drive a green industrial revolution

Last week, UK-based industry group the Carbon Capture and Storage Association (CCSA) held their ‘CCUS2020’ conference in a virtual format, allowing a noticeably more international scope. The event was riding high on a wave of optimism, coming just two weeks after the UK government had announced its ambitious ‘Ten point plan for a green industrial revolution’, which featured significant new targets for CCS deployment.

Positivity for CCS in the UK and globally has been growing since the mid-decade wilderness years for the technology, when the UK was just one of many countries to axe funding for major projects. Since then, the emergence of binding ‘net-zero’ carbon targets, both for nations and major corporations, seems to have been the major catalyst in forcing a rethink of the role of CCS.

Point 8 of the UK’s new plan: ‘Investing in carbon capture, usage and storage’ takes pains to present the technology not just as a climate change solution, but as a new lease of life for those industrial heartlands in economic decline. The headline ambition is to invest £1 billion (US$1.3 billion) in setting up two CCUS clusters by the mid-2020s, and another two by 2030, reaching a total CO2 capture capacity of 10 Mt per year. This represents a marked increase on targets set earlier in the year, which pledged £800 million to the fund and aimed for only two clusters by 2030. These clusters – now dubbed ‘SuperPlaces’ – are groupings of CO2 emitters which can tap into shared pipelines and geological storage sites, with initiatives such as ‘Zero Carbon Humber’ and ‘Net-Zero Teesside’ among many slickly branded examples appearing around the UK.

The UK’s overarching strategy is to use CCS as a multi-pronged tool to decarbonise gas power and manufacturing industries, provide negative emissions through bio-energy CCS (BECCS), and deliver low-carbon hydrogen. The country is somewhat unusual in Europe for its ongoing commitment to power with CCS, framed as a flexible complement to offshore wind, but there is real movement in the sector. Conference sponsors SSE Thermal signalled their ambition to launch the first gas power plant with CCS at the 910 MW Keadby 3 – part of the Humber cluster, with another proposal in the pipeline for their existing gas power plant at Peterhead in Scotland.

Hydrogen received a separate boost from the ten point plan, under Point 2: ‘Driving the growth of low carbon hydrogen’, which targets 5 GW of low-carbon hydrogen capacity by 2030, including both green hydrogen from renewable-powered electrolysers and ‘blue hydrogen’ made from natural gas reformers equipped with CCS. This clean fuel is intended to help decarbonise the gas grid, heavy transportation, industry, and even power. Speakers at the event discussed the potential transition from a first wave of natural gas plants with post-combustion capture to a new generation of hydrogen-fired turbines.

The UK is not alone in its renewed ambition, and one suspects that a bit of healthy international rivalry may be helping to drive up targets. In September, the Norwegian government formally unveiled its long-planned ‘Longship’ CCS project, which will establish a CO2 storage site in the North Sea with the aim of collecting CO2 from around Northern Europe by ship – starting with a cement plant near Oslo. Just days before the conference, this project moved a step closer to becoming a done deal, as parliament approved state funding, which could amount to €1.7 billion (US$ 2 billion) in total. With a capacity of up to 5 Mt of CO2 per year in its planned second phase, the success of this initiative will be measured in how many emitters in the region can be signed up.

The conference devoted a session to developments in the USA, where hopes for CCUS expansion were also given a boost by President-elect Joe Biden’s unprecedented mention of the technology in a town hall discussion last month. The US has an unrivalled system in place for supporting CO2 capture through its famous ‘45Q’ federal tax credit and other mechanisms, as well as the bonus of a well-established CO2 infrastructure built up for enhanced oil recovery. However, we heard concerns from several speakers over details of the expanded 45Q system introduced in 2018. So much time has been lost ironing out legal details that there remain only three years until the deadline for projects to ‘start construction’ – this may need an extension if the true potential of the incentive is to be realised. There are also calls to make the credits more monetisable, as currently they are of limited value to corporations with small tax bills, while a credit based on kWh generated is called for to help level the playing field for gas power. Although the US remains a global leader in terms of CCS activity, there is growing interest in taking inspiration from Europe’s new cluster-oriented approach, as most stateside projects currently adopt a straight-forward source-to-sink model.

Perhaps of most interest from a coal power perspective was an update on the situation in China provided by ‘ACCA21’ – a government department charged with sustainable development initiatives. China has long been active in CCS research and even established some decent-sized demonstration projects, but political backing for real roll-out of the technology has thus far been lacking. Speaker Zhang Xian confirmed widespread speculation that China’s own net-zero target for 2060, announced this September, will necessitate a much greater role for CO2 capture. Analysis by Tsinghua University indicated that up to 1.6 Gt of CO2 should be captured annually by 2060, including a peak of nearly 400 Mt from fossil power in 2040. The speaker highlighted enhanced oil recovery projects from Sinopec and China National Petroleum (backed by the international Oil and Gas Climate Initiative) as large-scale facilities which could come online in the next few years.

Despite the UK’s raised ambitions, the industry is still waiting for the government to provide something concrete on how the business of capturing and storing CO2 will be funded, but not for much longer: ‘Heads of terms’ for the hotly awaited ‘CCUS business model’ is expected from government within the next few weeks, to be followed by consultation and finalisation by the end of next year. Based on the findings of various government task forces and consultations, this looks likely to borrow from the highly successful ‘contracts for difference’ (CfD) model used for other forms of clean power generation, with some tweaking to value the dispatchable nature of CCS-power. The transport and storage infrastructure will probably be separately operated by licensees under a form of regulated asset base model, which pays a fixed rate of return based on their investment.

CCUS advocates in the UK love to draw parallels with the offshore wind industry – a once costly source of energy that saw dramatic investment and cost reductions once it was properly backed through clear government targets and adequately priced CfDs. Hopes that CCS could lead a new wave of green investment were given credence by finance sector representatives, who indicated growing interest in CCS and an abundance of private funds for new green projects, should the business case be sound. In keeping with the current policy mood, there is also a strong commitment for CCS to generate local jobs, retain oil and gas industry expertise, and avoid some of the reliance on technology imports which is widely seen as a blemish on the offshore wind success story. We still hear long-standing concerns around the commercial viability of CCS: issues around risk allocation, particularly long-term storage risk, and the ‘chicken and egg’ problem inherent in building shared infrastructure. But these are now spoken of as hitches to be overcome, rather than showstoppers. More longsighted commentators raised the question of how CCS can move to a ‘subsidy free’ business in future – perhaps one based on a ‘carbon take-back’ obligation on fossil fuel producers.

While the idea of coal power with CCS has been truly buried in the UK, these developments in the business and infrastructure behind CO2 capture and storage can only benefit its application across the global fossil energy sector. In this respect, I was somewhat surprised to hear UK Minister Kwasi Kwarteng’s view during the plenary session discussion that the first thing developing countries should do is stop using coal, and then think about CCS. Gas power with CCS may be a sensible choice for the UK, with its established gas infrastructure and ancient coal fleet, but the opposite scenario holds true for much of the developing world.

Brand new, efficient coal plants found across Asia can be equipped with CCS now, and need not wait for transition to a potentially short-lived gas-based power sector. Assisting these countries to establish coal-based CCS was once at the forefront of CCS strategy in the West, and it should remain so, particularly in view of obligations to international support made under the Paris Agreement.