European Scenarios of C[O.sub.2] Infrastructure Investment.

• Author: Oei, Pao-Yu

1. INTRODUCTION

   Carbon Capture, Transport, and Storage (CCTS) was originally seen as a central element for decarbonized electricity systems, worldwide (e.g. IEA, 2010). The International Energy Agency (IEA) consequently underlined its importance with a 20% contribution to achieving emission reduction goals and 40% cost increase for decarbonization in its absence (IEA, 2012). Even higher cost increases of 29-297% were estimated by the IPCC (2014) for reaching the 2[degrees]C target. Estimates for the European energy system projected 77 GW (IEA, 2012) to 108 GW (EC, 2011) of power generation capacity, respectively, to be equipped with CCTS and a C[O.sub.2] transport network of over 20,000 km by 2050 (JRC, 2011). The reality, however, is in stark contrast to these expectations, as documented in a special issue by Gale et al. (2015) commemorating the 10th anniversary of the IPCC (2005) special report. Not a single full-scale CCTS project with long-term geological storage has yet been realized worldwide (GCCSI, 2014). At the same time, C[O.sub.2] transport infrastructure projects have been removed from the list of critical infrastructure projects of the EU (EC, 2013a). Furthermore, the London Protocol still prohibits the movement of C[O.sub.2] across marine borders for the purposes of geological storage (GCCSI, 2014). Facing these adverse developments, academia as well as technical reports have become more balanced or even critical with respect to CCTS deployment (Hirschhausen et al., 2012).

   The gridlock in the deployment of CCTS can be partly explained by low EU Emissions Trading System (EU-ETS) C[O.sub.2] prices which have remained in the range of three to eight [euro]/tC[O.sub.2] since the start of the third trading period in 2013. These low prices--with little hope for significant rise in the coming years (Hu et al., 2015)--give insufficient incentive for investment into mitigation technologies such as CCTS. Investment costs for renewables, in contrast, have profited from high learning curves and have become a much cheaper abatement option. Even additional financial schemes such as the European Energy Program for Recovery (EEPR) proved unsuccessful in enabling projects (GCCSI, 2014). The New Entrance Reserve (NER300) program, originally designed to provide up to [euro]9 bn worth of funding renewables and CCTS projects, has a budget of only [euro]1.5 bn due to its revenue being based on the sale of 300 million C[O.sub.2] allowances. As a result, none of the 12 CCTS projects that applied for funding in the first round were supported (Lupion and Herzog, 2013). In July 2014 the second round of the NER300 granted [euro]300 million to the UK White Rose CCS Project. Meanwhile, the original project timeline was pushed back by two years, aiming at completion only in 2020. (1) The project outcome became even more unlikely when one of the main investors decided to withdraw in September 2015. (2) Martinez Arranz (2015) identifies various blind spots in the EU demonstration programs, as Europe, in comparison to other regions, is a relatively resource-poor but advanced economy. He therefore recommends a stronger focus on the industrial use of CCTS as well as other non-CCTS mitigation possibilities in the power sector.

   In Europe, the directive on the geological storage of C[O.sub.2] (so-called "CCS Directive") is the central regulatory element intended to govern the process of CCTS commercialization. (3) However, this directive limits the scope of underground storage to non-commercial sizes, which is insufficient for large scale projects. (4) Although focusing on the storage part of the technology chain, the Directive also requires "CCTS readiness" for new fossil generation capacities. Lacking a clear definition for this "readiness", the Directive leaves space for interpretation. A review process conducted by the Directive in 2014 highlights the need for running CCTS demonstration projects in Europe. In particular, it criticized the lack of progress of CCTS for industrial applications such as steel or cement facilities, which contribute up to a quarter of the world's energy-related C[O.sub.2] emissions. One option that many stakeholders requested during the review process was a successor NER300 scheme starting in 2020 onwards to support future projects. (5)

   Complementary to price incentives, CCTS in some countries is promoted via climate-oriented regulation or in combination with enhanced oil recovery (C[O.sub.2]-EOR) projects. The introduction of Emissions Performance Standards (EPS) in the UK, Canada and the U.S. restrict the annual amount of C[O.sub.2] emissions per installed unit of generation capacity and thereby the operation of new coal power plants without C[O.sub.2] capture. (6) Using captured C[O.sub.2] for EOR purposes contradicts the idea of long-term geological storage but significantly improves the cost effectiveness of a CCTS project. Successful projects like Boundary Dam in Saskatchewan, Canada (in operation since October 2014), as well as the majority of upcoming projects in 2016-17 (e.g. Kemper County Energy Facility and Petra Nova Carbon Capture Project in the US) are associated with C[O.sub.2]-EOR. Little progress, however, is seen in the EU as only a few riparian states of the North Sea are capable of C[O.sub.2]-EOR projects. Nevertheless, the EU framework for climate and energy still aims at a commercial CCTS deployment by the middle of the next decade (EC, 2014).

   In this paper we present a model analysis and interpretation of the potential role of CCTS to support the EU energy system transition to meet the emission reductions goals that are consistent with an international goal of staying below 2[degrees]C of global warming. Our hypothesis is that CCTS--contrary to the dominant belief until recently--will at best be a niche technology applied in regions with highly conducive conditions, e.g. parts of the North Sea, but that due to its cost disadvantages and recent setbacks in many EU countries, will not contribute significantly to overall EU decarbonization. Moreover, the discrepancy between locations of C[O.sub.2] emissions and the availability of potential C[O.sub.2] storage sites call for regional cooperation, which is vital to the economies of scale associated with C[O.sub.2] transport infrastructure. Few papers currently address this issue (e.g. Geske et al., 2015) or try to find solutions to the resulting coordination game (e.g. Massol et al., 2015). We quantify scale economies of different CCTS network coverages.

   Section 2 provides a non-technical description of our CCTS-Mod; a multi-period, scalable, mixed integer framework calculating beneficial investments in the C[O.sub.2]-chain (capture, transport, storage). Section 3 presents the outcome of the European-wide results. We find no role for CCTS in the 40% mitigation scenarios. In the 80% mitigation scenarios, some C[O.sub.2]-intensive industries might start to abate, followed by the energy sector at a high C[O.sub.2] price (above 100 [euro]/tC[O.sub.2]). We consider this scenario unlikely, because most of the countries involved have already given up CCTS as a mitigation option, e.g. Germany, Poland, France, and Belgium. Section 4 focuses on an alternative driver for C[O.sub.2]-abatement through C[O.sub.2]-EOR. We find that for North Sea riparian countries that have not given up on C[O.sub.2] capture, mainly the UK and Norway, the use of C[O.sub.2]-EOR might be an economical option, depending on oil prices and prices of C[O.sub.2] certificates. Once C[O.sub.2]-EOR resources are fully exploited, further C[O.sub.2] capture activity is solely incentivized by C[O.sub.2] certificate prices, which must cover at least the variable costs but also potential new investment costs. Also, the speed and extend of the deployment is highly dependent on assumptions for initial technology costs and learning effects. Section 5 concludes by analyzing the chances for a regional vs. European-wide CCTS application depending on the availability of C[O.sub.2]-EOR and other storage potentials.

2. MODEL, DATA, AND ASSUMPTIONS

   2.1 The Model CCTS-Mod

   For our numerical analysis, we use the "CCTS-Mod" (Oei et al., 2014). The model is a multi-period, scalable, mixed integer model coded in GAMS (General Algebraic Modeling Software) and solved with a CPLEX solver. For each power plant or industrial facility covered in our input database (see section 2.2), an omniscient planner decides on whether to invest into a CCTS chain or to buy C[O.sub.2] certificates. The model decides in favor of CCTS whenever the net present value of C[O.sub.2] certificates required to cover emissions during the model horizon (2055) is higher than the net present value of all costs related to CCTS.

   In this case, investments into a capture unit facing respective capital costs have to be made. It takes five years after the investment decision before the capture unit becomes operational. Whenever a facility is used to capture C[O.sub.2], variable costs are induced. The capture rate is capped at 90%. C[O.sub.2] capture has to be balanced with C[O.sub.2] transport and storage. Again, respective infrastructure investments have to be made taking into account a construction period of five years. Capital costs for transport cover right of way (ROW) costs and other investment cost parameters. If a new pipeline is constructed along a route that is already developed, ROW costs do not apply. This ensures that transportation routes are bundled in corridors, which is consistent with practices for laying natural gas or crude oil pipelines. The construction of a pipeline is a binary decision with discrete pipeline diameters and associated throughput volumes. C[O.sub.2] storage is again subject to a five year construction period and has associated variable and capital costs.

   A refined version of the model which is used for the model runs of this paper includes the option to use captured C[O.sub.2] for...