Annex to Tracking Clean Energy Progress 2013
Energy‐intensive industries account for a significant part of global carbon dioxide (CO2) emissions. Industrial sectors such as cement, iron and steel, chemicals and refining represent one‐fifth of total global CO2 emissions, and the amount of CO2 they produce is likely to grow over the coming decades. Carbon capture and storage (CCS) in industrial applications refers to the prevention of CO2 emissions through the capture, transport and storage or use of CO2 from these sectors. Analysis by the International Energy Agency shows that CCS in industrial applications could represent around half of the emission reductions achieved through CCS by 2050.
CCS is the only option to decarbonise many industrial sectors. CCS is currently the only large‐scale mitigation option available to cut the emissions intensity of production by over 50% in these sectors. Further energy efficiency improvements, while urgently needed, have limited potential to reduce CO2 emissions, partly due to the non‐energy related emissions from many industrial processes. As a result, it may not be possible to decarbonise industrial sectors without CCS. Failure to make the case for CCS in industrial applications and to undertake the actions needed for deployment poses a significant threat to the world’s capacity to tackle climate change. In addition, economies where CCS is available may be better placed to host and benefit from industrial production in the future. Developing and deploying CCS in energy‐intensive industries is of critical importance.
CCS in industrial applications requires more attention from policy makers. Deploying a pollution control method such as CCS requires policy action; it is not something that a market will deliver if left alone. The third Clean Energy Ministerial meeting (CEM 3), held in London in 2012, identified CCS in industrial applications as a crucial area for action. This document complements and expands upon the more general analysis of the status of CCS provided in the main text of the International Energy Agency (IEA) Tracking Clean Energy Progress report for CEM 4. Three important impediments to deployment are identified: remaining knowledge gaps regarding costs and technical performance; potential impacts of CCS on competitiveness; and, limited engagement of industrial sectors in tackling common CCS challenges, such as developing public understanding of CO2 transport and storage.
Demonstration of CCS in industrial applications is not happening fast enough. CCS is already proven in some industrial sectors, such as natural gas processing, which offer low‐cost opportunities for early deployment of CCS. Yet, the commercial‐scale demonstration stage in key sectors such as iron and steel, cement or some processes in the refining sector has not yet been reached. All these sectors require further experience with CCS technologies. However, the policy drivers for gaining this experience are lacking. Coalitions of willing governments and companies can valuably drive the development of these crucial technologies now to make them available for the coming decades.
Policies must consider the global competitiveness of industrial sectors. The majority of the industrial sectors are active in global markets and exposed to global trade. The competitiveness of their products is highly sensitive to production costs. This issue significantly influences how policy architectures might be constructed. CCS increases production costs – by less than 10% for methanol production or refinery products, but up to 100% for cement – and could therefore distort existing competitiveness patterns if it is implemented on a regional basis only.
In 2011, the IEA and the United Nations Industrial Development Organisation (UNIDO) produced a Technology Roadmap for CCS in Industrial Applications, with key actions to advance CCS towards the levels of deployment considered necessary (IEA, 2011). These key recommended actions are listed in Annex I. None of the near‐term actions for 2015 or 2020 appear to be much closer to realisation, but all remain valid. A more focused suite of six inter‐linked recommendations is provided below to help policy makers to grasp this opportunity despite ongoing challenges in financing projects.
Develop, demonstrate and deploy
1. Commit public funds to around ten pilot and demonstration‐scale projects that show the technical and economic feasibility of large‐scale CO2 capture in sectors such as iron and steel and cement.
Such projects are of the utmost importance in the near term and should receive the greatest attention from both government and industry. Today’s political and financial environment has been unsuccessful in driving sufficient private investment in research and development (R&D) for CCS systems in these sectors, yet the technologies need to be available in the next decade in order to achieve deep reductions in greenhouse gas (GHG) emissions. Overall expenditure would be minimised by supporting regional and international consortiums of industrial partners that can jointly lead technology development programmes. Funds could come from CO2 certificate revenues or sectoral production levies, in addition to R&D budgets.
2. Scale up step‐by‐step. Support projects according to their contribution to knowledge, not their short‐term impact on emissions reduction.
Different sectors are at different levels of development and their CCS cost estimates vary. This means that funding programmes need to be tailored to the various stages of technical maturity. Demonstration projects provide a considerable return on investment globally in terms of reducing policy makers’ uncertainty about technologies. Rather than emphasising immediate CO2 emission reductions, current demonstration programmes should ensure that they maximise learning and knowledge sharing in areas where there are gaps, in order to increase confidence in the technology.
Create a policy environment to support deployment
3. Governments should incorporate CCS into forward‐looking industrial strategies.
Experience indicates that for CCS in industrial applications, investments will flow where the sector has a confident outlook and is a governmental priority in the region. Investor confidence is crucial when considering the location of demonstration projects that require a production plant to remain competitive for a decade after the start of project planning. Governments need to be aware of the ways in which technologies and sectoral dynamics could change in the next twenty years. Longer‐term confidence that climate policy will support industrial production will stimulate industry to actively develop CCS solutions.
4. Start to address competitiveness concerns in relation to energy and climate policies.
Companies that compete internationally see fragmented regional climate policies as a risk to competitiveness, while governments see them as a risk to jobs and carbon leakage. After the demonstration phase and as a complement to CO2 pricing, international or national sectoral policy instruments – such as quantity measures, consumption‐based accounting, emissions standards or “feebate” schemes – could provide greater security for investors to plan for a low‐carbon future that includes CCS as a competitive advantage.
Engage all sectors in strategic CCS activities, including CO2 transport and storage needs
5. Exploit synergies between sectors, including the power sector.
There are many opportunities to reduce costs through cooperation on challenges and infrastructure, including with the power sector. Examples include: open‐access pilot facilities for optimising the various CO2 capture technologies on different flue gases; sharing CO2 transport and storage infrastructure of first‐mover (e.g. power sector) projects with next phase projects (e.g. iron and steel sector) through co‐location; effort‐sharing for cluster development and public communication. The construction and operation of a third‐party commercial CO2 transport and storage network is a common and crucial need among all sectors.
6. Involve all relevant stakeholders.
All relevant industrial sectors should be included in actions to advance CCS. This will raise the level of knowledge among all companies that will need to use CCS and will recognise that the local endorsement of CCS will be crucial to the future of industrial sectors in the region. This should include national and regional actions to reduce risks and uncertainties through: public engagement; knowledge sharing; CO2 storage capacity mapping; exploration and operation; and, R&D across the CCS value chain.
We believe that implementing the full suite of recommendations in a co‐ordinated manner would be the most effective approach to addressing the identified obstacles. Policies will vary across countries, however, as the impacts on competitiveness and the levels of awareness of CCS will be different in each jurisdiction.
This report sets out the need for CCS in industrial applications and the main obstacles that it faces. In general, these obstacles are found to be common across the sectors studied, but individual sectors present specific costs, challenges and levels of readiness for CCS. The resulting policy recommendations take into account these differences. They aim to provide carbon capture, use and storage (CCUS) Action Group governments with the tools to prepare the ground for CCS to make a significant contribution in the timeframe of agreed climate targets, starting next decade.
Timing is crucial. Analysis has indicated that no more than one‐third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the goal of limiting warming to 2°C, unless CCS technology is widely deployed (IEA, 2012a). If it is widely deployed, CCS could contribute one‐ sixth of cumulative emissions reductions between now and 2050, with half of this contribution coming from industrial applications (IEA, 2012b). To have a significant impact, commercial deployment of CCS will be required from 2030 in most CO2‐intensive sectors. Yet it can take five years to pilot a technology, and 10 to 15 years before sufficient demonstration is complete. Reaching the 2030 target for wide deployment in all sectors requires the development process to start in earnest today, otherwise the risk of further locking‐in emissions in long‐lived infrastructure will increase.
The scarcity of policies to reward the switch from unabated use of fossil fuels to CCS has no doubt contributed to the slow rates of CCS project development and hesitation by private actors. This paper explains why it is not just because we anticipate a continued – and in many regions, growing – role for fossil fuels that we need CCS, but also because we expect the economy to continue to rely heavily on materials whose production cannot be decoupled from high CO2 emissions without CCS.
Government actions that assert the importance of CCS will help unlock the necessary actions in the private sector and establish confidence in the ability of industrial sectors to limit their emissions.