Accelerating CCS development: a project funding mechanism, for demonstration only, built into ETS

Accelerating CCS development: a project funding mechanism, for demonstration only, built into ETS

About E3G Third Generation Environmentalism Independent not-for-profit environmental organisation focused on cross-sectoral coalition-building strategies that accelerate the transition to sustainable development www.e3g.org Slide 2 of xx

Basic recommended text IPCC Special Report on Carbon Capture & Storage (2005) Summary for Policy-Makers & Technical Summary Slide 3 of xx

Where are we going? Slide 4 of xx

Where do we start? The present package, based on an interim -20% GHG commitment, does not correspond to <2 Celsius goal. However, within a new global deal, next year, a -30% domestic commitment would correspond to <2 C goal Such a target matrix must also include 2050 horizon, within which almost all scenarios include CCS, not least because of other sectors will rely more on electricity Additional policies & measures to 'buy' more mitigation, correcting market failures, are therefore unavoidable Slide 5 of xx

CCS elements in package (so far) An enabling framework, for geological storage plus amendments to seven other laws; good (generally) Inclusion in ETS & 100% auctioning good (generally) A new demo network secretariat ok (small budget) The SET Plan? no resources, so far Call for State aids, e.g. auction revenue? maybe Large-scale demo finance: more discussion not good Slide 6 of xx

Remember 2005? October: EU summit in London, launch high-level integrated climate-energy POLICY strategy December: EU summit in Brussels closes a 7-year deal on RESOURCES (budget framework) For fiscal (on-budget) measures, macro stability-flexibility trade-off is imbalanced Even with a good Budget reform, new budget lines implemented only from 2014 (?) Slide 7 of xx

A balanced expanded CCS package Overall context is a new global deal in Copenhagen In simplified terms, relevant industries want incentives, while others want more regulation: a politicallyacceptable balanced expanded package must include of both elements So, it is essential also to add a roadmap towards deployment, e.g. installation-based, time-tabled, emissions standards, e.g. 150g/kwh, on new & eventually all non-chp fossil-fuel plant. Slide 8 of xx

Public aid for demonstration A New Storage Reserve (NSR) of e.g. 500M EUAs (or equivalent ticket) over e.g. first 10 years of operations = ~12 projects at 500MW emitting 4-5mt/yr = ~2.5% of cap in yr1, rising to ~3% of cap in yr 10 = proportional less revenue to public bodies = much lower impact on price, due to avoided emissions Below the currently-projected cap (no consensus) Slide 9 of xx

Example implementation Implementation by Commission & Comitology Based on pre-defined criteria, e.g., re technical & sectoral scope, geographic spread, contained in an Annex to GSD Based on competitive tendering for support contracts, e.g. 2009-11, with EUAs used thereafter to reward actual CO2 stored for duration of contact Each project-level contract specifies e.g. the period, ratio, maximum volume, & terms of verification and payment Slide 10 of xx

What about ETS 'purity'? ETS works at the margin. Even after the current review, the medium-run EUA price is likely to be too low to motivate new technology first-movers, esp. those with high capex & infrastructure costs e.g. if ETS 'next phase' ends when cap reaches zero, at -1.74%/yr linear reduction this would be ~2069 (later with imported offsets), i.e. too late to de-carbonise power in line with <2 C goal Slide 11 of xx

Is NSR an ETS market distortion? 'No' Environmental markets, e.g. ETS, delivering public goods, e.g. mitigation and/or new technologies, are most often 'paper' or 'derivative' markets, i.e. they are artificial ETS is already over-inflated, as cap is too high and, at only -1.74% linear reduction, will remain so (cf.<2 C goal) Cf. If we change the Budget, do we say we have distorted the Budget? Usually not. Slide 12 of xx

Is this a double credit? 1 + 1 = 2 too low, too high? 1 + 2 = 3 too low, too high? 1 + x = 1 + x = best value public aid = industry exposed to C risk = balanced PP risk sharing Slide 13 of xx

What is a para-fiscal aid? Fiscal (on budget) measure = payment in EURs Para-fiscal (off budget) measure = e.g. payment in EUAs Slide 14 of xx

Conclusions Accelerated CCS development needs additional public aid on time-, project- &/or volume-limited bases Only a Union-level mechanism could be coordinated to deliver most public goods at least economic cost Union-level para-fiscal support, building on ETS, such as a New Storage Reserve can be delivered most easily and rapidly, i.e. in the present package, and ahead of a new global deal in Copenhagen. Slide 15 of xx

Discussion http://www.e3g.org/ mark.johnston@e3g.org Slide 16 of xx