Carbon capture: Why the EU approach just isn't working

Carbon capture and storage is not going to save us. We must wean ourselves off fossil fuels as quickly as possible.

It has emerged that it is now likely that just one carbon capture and storage project in the UK will receive funding from the European Investment Bank. This is the Don Valley Project, which has already received €180 million of European funding, and is now the only one of the nine projects put forward by the UK for European funding which will get anything at all.

This is due to the pitiful amount of cash now expected to be realised from the sale of carbon emission permits by the European Investment Bank this year under the NER300 financing package. A maximum of €1.5 billion is anticipated, due to the collapsing of carbon prices to record lows and the inability of the European Commission to do anything about it.

This cash must be shared between at least half of the 27 nations in the European Union. The Commission has stated that it wants the funding to be prioritised for member states “in economic and fiscal difficulty”. You would think that this would mean Greece, Italy, Spain and Portugal.

Actually, it appears that Sweden is likely to receive funding for three proposals, the UK and Greece for two each, and Belgium, Portugal, France, Finland, Czech Rep., Germany, Austria, Italy, Poland and the Netherlands would get one each, when the final list is confirmed.

(I have put the full draft list of projects that may be funded at the bottom of this column.)

Moreover, in the second call, the remaining 15 Member States (Croatia will have acceded) will have to share a pot that might, if the carbon price remains at its current level, be half the value of the current pot. Some exciting proposals have failed to make the list, including an innovative floating wind turbine concept, a Romanian biofuels from algae project in Romania and the installation of smart grids in Hungary.

From the start, carbon capture and storage in the UK has suffered setback after setback. There have been a mixture of delays and price increases: the addition of carbon capture and storage technology to a coal-fired power station can add between 25% and 100% of the cost. Potential developers have pulled out.

The International Panel on Climate Change has always been somewhat sceptical of this technology, but nevertheless, given that most energy scenarios foresee that the world’s supply of primary energy will continue to be dominated by fossil fuels until at least the middle of the century, it has been seen to be necessary to achieve stabilisation of atmospheric carbon dioxide levels.

I have shared this scepticism for most of the last decade, but more recently I have been inclined to accept that, while it does seem to let fossil fuel producers continue to satisfy society’s addiction to their products into the distant future, to the detriment of the development of alternatives, it nevertheless must become an unfortunate part of our armoury of weapons with which to fight the war against rising average global temperatures, because of the dire straits in which we find ourselves.

Now, the developer of the Don Valley Power Project, 2CO, has previously indicated a need for grants totalling £1 billion to enable it to proceed. Under the terms of NER300, at least 50% of the funding must be provided by the member state. The EC can’t give any single project more than €315 million (£230 million). CCS projects originally asked for far more than this (€600-700 million or £0.5 million).

To save face, DECC needs to provide much of the remaining cash, which could be up to £500 million. How likely is this? Last week, Greg Barker admitted that the cost of looking after existing radioactive waste will rise from eating up half of its annual budget to a staggering 75%. And, with the Treasury’s Mr. Micawber eyes watching every remaining penny it spends, and a shopping list that includes the Green Deal, tax breaks for the North Sea oil and gas industry, new nuclear power stations, offshore wind farms and so on, something is going to have to give.

In April DECC launched another £1 billion competition to fund CCS projects which pledged ongoing finance through the forthcoming Contracts for Difference framework, assuming this becomes law. Meanwhile, the CCS Cost Reduction Task Force is supposed to be coming up with an action plan to reduce the costs of CCS. Samsung C&T and BOC have each agreed to take an equity stake in the Don Valley Project and will provide some match funding.

The 650 MW facility is supposed to be completed in 2016 and connect up to a host of additional CCS projects in the area. If built, it will be one of the most advanced projects of its kind in the world. I hope it goes ahead, but I equally hope that it is not to the detriment of the funding of other low or zero carbon initiatives.

The news also provides another reason why, later this month, the European Commission must urgently take steps to reduce the number of emissions allowances on the market in order to stimulate the price of carbon.

Above all, the delays in rolling out carbon capture and storage should send a deafening message to society that its get-out-of-jail-free card is actually an illusion. Business as usual cannot continue. We must wean ourselves off fossil fuels as quickly as possible.