in the european unioneiwf.eu/socdial/ei/2014/infrastructure first-bostan-08052014.pdf · •each...

Infrastructure first

The benefits, design and financing of a CO2 transport and storage infrastructure

in the European Union

Mike BostanPolicy OfficerEURACOAL

Sectoral Social Dialogue Committee for EXTRACTIVE INDUSTRY Working Group Meeting on 8 May 2014Bruxelles

Overview of the paper

• Underlying theme: wealth creation

• chapter 2: why the energy system is fundamental to the

competitiveness of the EU economy

• chapter 3: EU climate and energy policy – security of supply,

economic development, environmental sustainability

• chapter 4: Options for a low emissions economy

• chapter 5: the need for a CCS infrastructure

• chapter 6: conclusions and recommendations – CCS

infrastructure offers the chance to balance policy objectives

at an affordable cost

8 May 2014, Extractive Industries Sectoral Social Dialogue Committee– Slide 1

1. Why a CCS Infrastructure

Europe needs industry, for several reasons:

• each additional job in manufacturing creates 0.5-2 jobs

in other sectors

• each euro of final added demand generates 50 cents of

additional demand in other sectors of economy

• declining manufacturing erodes knowledge and the

technology base for the whole economy

• the European Union has a competitive advantage in

many industrial sectors

Source: European Commission, Competitiveness Report 2013



Source: Eurostat, 2013



• All industries use energy, with different shares, from 5% for motor vehicles to

21% in chemicals and 32% for basic metals. Mining is around 7%.



• Current energy policies, which aim to reduce the GHG emissions are focusing almost exclusively on renewables

• For example, the effectiveness of the German energy policy is heavily contested by IHS and EFI



Source: GCCSI, 2011

• A study looking for a low-carbon economy shows that CCS (coal/gas) is

cheaper than offshore wind and PV (GCCSI, 2011)

• A similar study find that costs for a coal-fired power plant with CCS

increase between £335 and £900/kW, still LOWER than offshore wind

(UKERC, 2012)


2. Value for industry

• No value for CO2

• Risks related to CO2 price:

Government/ policies might change

Future carbon prices may not make future CCS projects commercially viable


3. Shape of CCS Infrastructure

• Several ways to transport CO2

• But pipelines prevail

• Already substantial experience

• Can follow routes of already

established gas/oil networks

• Effective way to use clusters

• Most environmentally-friendly

method

Source: Element Energy 2010


3. Economies of scale• the larger the capacity of the system being developed, the lower the fixed

costs associated with running the project, hence a lower cost-per-unit-

capacity

• the cost of providing each additional unit of capacity for new operators

decreases, therefore a lower marginal cost of capacity (National Grid,

2013)

+

• reduced barriers to entry

• reduces community and environmental disruption

• creates and protects industry and employment


3. Economies of scale

The nature of investments for pipelines has specific risks:

• The pipelines are locked-in physically to a specific location between

the carbon collecting point and the storage point.

• It is specific to the output of the field and has little, or no value in

alternative use once the carbon collecting point is turned off or the

storage field is depleted.

• Both the pipeline operator and the emitting company are depending

on each other for mutual gains

private investment unlikely and inefficient (due to commercial

pressures, economies of scale will be disregarded) (BERR, 2007)


3. Costs

• European Commission puts

forward the figure of 2.5 bn EUR for

2000 km of CO2 pipelines

(JRC data)

• Other studies (ARUP, 2010

for DG Energy) suggest 2 bn EUR

for 6800 km of CO2 pipelines

Source: JRC, The evolution of the extent and the

investment requirements of a trans-European CO2

transport network, 2010, p.7


3. Costs

Source: ICF International, 2009

• Cost of pipelines is relatively low in comparison with other parts of the CCS chain


5. Public or private investment?

Substantial risks for private developers:

• Technology and construction risks (cost overruns, delays,

performance risks)

• Contractual and integration risks (dependency on others)

• Uncertainty around CCS policy

• Obsolescence risks

• CO2 storage risks (reluctance to take on extremely long-term

liability)

Government support for CO2 pipelines needed. Kick starting for private investment.

Source: Insight Economics, 2011

8 May 2014, Extractive Industries Sectoral Social Dialogue Committee– Slide13

6. Analogue with the gas sector

STUDY CASE: UK natural gas pipelines

• 1960-mid 1980s: gas infrastructure under nationalized governance with the Gas Council as the dominant actor. The introduction of the North Sea gas in the late 1960s contributed as well to new interconnections, storage and new control technologies

• after mid 1980s: only after the network was fairly developed, privatisation and market liberalisation took place.

Source: Arapostathis et al, 2011

Source: UKERC, 2011


7. Cluster proposals

Several projects already planned:

• Rotterdam

• Humber

Source: GCCSI, 2011

Red dots = CO2 sources


8. Conclusions

• CCS is the most affordable and reliable solution to tackle

both high energy prices and environmental concerns.

• Private investment will not follow CCS due to high risks and

uncertainties.

• Government intervention in the form of CCS infrastructure

will act as a “catalyst” for CCS development. Several large

projects of CCS infrastructure would be enough to show

government commitment.


Thank you!

Questions?

Mike Bostan, EURACOAL

[email protected]


in the european unioneiwf.eu/socdial/ei/2014/infrastructure first-bostan-08052014.pdf · •each...

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