Presentation to Westminster Energy, Environment and Transport Forum conference on CCS, 20th January 2009

1. Financing CCS
Westminster Energy, Environment
and Transport Forum
Chris Littlecott, Senior Policy Adviser, Green Alliance
London, 20th January 2009

2. “green alliance…
Independent organisation: our purpose
is to make the environment a priority in
British politics. Increasingly active on
EU matters.
Policy thinking combined with the
construction of coalitions for change.
See CCS as a strategically significant
step in the delivery of emissions
reductions and the transition to a low
carbon economy.
Published ‘a last chance for coal’ in
October 2008 – pushed for EU funding
for CCS demonstration programme,
combined with supportive regulation
such as emissions performance
standards.

3. ‘Turner Tests’ for UK CCS policy & coal
Turner says Ten Turner Tests
A clear policy Is the policy sufficiently unambiguous?
is needed now Does it apply immediately?
that buttresses ETS Is it manifestly additional to ETS?
guaranteeing Is it sufficiently binding? Does it have dangerous caveats?
All plants Does it adequately tackle new and old coal plants?
full CCS Does it require 90% capture of CO2?
in the early 2020s Does it require integrated CCS for new plants coming into
operation from 2020? Does it require CCS retrofit for old
coal plants (and any built between now and 2020)
completed by the latest 2025?
Or are closed or subject to Does the policy guarantee (a la LCPD) that plants will be
very limited running closed? What is “very limited running”?
Alongside a stronger Is the CCS demo programme good enough?
CCS demo programme
Risk of non-CCS plants Does it sufficiently remove the risk of plants being built or
remaining in 2025 operated without CCS by 2025?

4. Significant EU progress made
• 300million EUAs secured from ETS = €5bn +
• CCS demonstration programme to comprise of “up to 12
commercial demonstration projects” that “provide for the
development in geographically balanced locations, of a
wide range of CCS and innovative renewable energy
technologies that are not commercially viable yet.”
• “Support for these projects shall be given via Member
States and shall be complementary to substantial co-
financing by the operator of the installation. They could
also be co-financed by the Member State concerned, as
well as other instruments.” [should be expected for UK]
• UK pressure was key: Chris Davies MEP in Parliament,
Gordon Brown in Council negotiations. FCO and DECC.

5. UK aspirations
• Gordon Brown says:
quot;I can announce that Britain will be bidding for at least
one of the new European funded carbon capture and
storage demonstration plants. This could potentially
be worth over £1 billion to the UK, creating new jobs
in a global industry which I believe Britain can and
will lead.quot;
• Is this additional or the same plant as the UK
competition? Will it meet the EU criteria if so?
• How many UK plants could be proposed
given the ‘geographically balanced’
requirement?
• Who can deliver quickly? Bid now, built
before 2015?

6. The way forward
• European Commission and Council have to
decide on criteria for demo programme and
distribution of funding. Moving ahead now.
• This needs to be approved by European
Parliament – likely September?
• Must see clear progress this year:
– Industry early movers need confidence that
funding can be secured to enable 2015 delivery;
– Copenhagen climate negotiations need proof that
the EU is serious about emissions reductions.
CCS can be at the heart of a low-carbon economic
recovery package: green jobs, skills, industrial
networks, infrastructure, international markets.
Could also unlock further funding e.g. EU Budget.

7. Co-financing and EU ETS
• Even a successful bid to the EU programme
will require co-financing from government and
industry. How to deliver this?
• EU ETS agreement specifies that:
– “At least 50% of the revenues generated from the
auctioning of allowances…or the equivalent in
value of these revenues, should be used for one
or more of the following”:
• Adaptation; Afforestation; Admin costs; Avoided
deforestation; Energy Efficiency; Fuel Poverty;
Renewables; R&D; Technology Platforms… AND…
• “for the environmentally safe capture and geological
storage of carbon dioxide, in particular from solid fossil
fuel power stations and a range of industrial sectors and
sub-sectors, including in third countries.”

8. Early incentives required
• Need is for innovative financing which incentivises early
deployment of CCS. Will need a clear source to provide
certainty. Can ETS auction revenues provide that?
• USCAP approach: joint proposals from NGOs and
Industry for US climate legislation, including cap-and-
trade buttressed by Emissions Performance Standards
and CCS financing:
– direct cash payments for sequestered CO2; first come-first-served
basis; payments set using a sliding scale payment, based on the
level of capture achieved; payment to cover the incremental cost
of CCS; and potentially top-up carbon price in later years.
– divided into tranches of generating capacity, with an initial tranche
of 3 GW at the highest payment level, with successive tranches
receiving lower per-ton payments. Eligibility for payments should
terminate for CCS projects commencing operation after of the
order of 72 GW of CCS have been deployed in the United States.

9. Summary and Conclusion
• Significant funding for EU demonstration programme
now available. Pressure on to deliver by 2015. Will
require UK co-financing: must incentivise early movers.
• Opportunity to be seized by projects not in the UK
competition – can you deliver quickly?
Credibility Crucial, Delays Dangerous
• CCS only required because of climate change.
• Industry challenge: CCS must be seen to deliver
reductions in emissions. Perceptions that it is used as
cover for inaction are threats to industry potential.
• Government challenge: must set out a framework for
meeting Turner Tests – no unabated coal by 2025, gas
rapidly following behind. Needs more innovative funding,
but must also consider how an EPS could be configured
to provide a backstop. Pressure is on post-Heathrow!

10. Many thanks
Chris Littlecott
Senior Policy Adviser
Green Alliance
36 Buckingham Palace Road
London
SW1W 0RE
Tel: +44 (0) 207 630 4516
Mob: +44 (0) 7734 910 180
clittlecott@green-alliance.org.uk