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Juho Lipponen - CCS incentive policies: lessons and strategies - Presentation at the Global CCS Institute Members’ Meeting: 2011


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Juho Lipponen - CCS incentive policies: lessons and strategies - Presentation at the Global CCS Institute Members’ Meeting: 2011

  1. 1. Incentive policies for Carbon Capture and Storage: Lessons and Strategies 5 October 2011 Juho Lipponen Head of Unit, Carbon Capture and Storage International Energy Agency© OECD/IEA 2010
  2. 2. International Energy Agency IEA countries OECD countries, but not IEA members Inter-governmental body founded in 1973, currently 28 Member Countries Policy advice and energy security coordination Whole energy policy spectrum and all energy technologies Key publications: World Energy Outlook and Energy Technology Perspectives Host to more than 40 technology-specific networks (“Implementing Agreements”) Operated independently with their own membership and financing Includes IEAGHG, IEA Clean Coal Centre etc. Active in CCS since 2000; dedicated CCS unit created in 2010 Provides policy advice Supports broader IEA cross-technology analysis© OECD/IEA 2010
  3. 3. CCS @ IEA: WORK PROGRAMME CCS Strategy & Policy Technical & Economic Capacity-Building & Legal & Regulatory Collaboration Global Policy Fora© OECD/IEA 2010
  4. 4. CCS in Industrial Applications: 4Gt of reductions potential in 2050 © IEA/UNIDO 2011
  5. 5. POLICY IS CRITICAL FOR CCS 1. Enabling CCS as part of energy portfolio 2. Making CCS a legal activity & clarifying responsibilities 3. Ensuring safety and environmental viability of operations 4. Providing incentives for demonstration and deployment Business models & financing of projects 5. Contributing to public acceptance© OECD/IEA 2010
  6. 6. INCENTIVES? FINANCING? INCENTIVE Policy push or market pull mechanism that provides an earning logic for CCS projects (”ensures bankability”) FINANCING Becomes possible when the earning logic or bankability is established© OECD/IEA 2010
  7. 7. Business Government© OECD/IEA 2010
  8. 8. WHY DO WE TALK ABOUT INCENTIVES? 2,500 1. LEVEL OF ECONOMY / 2,000 SOCIETY: 1,500 $bn To meet the IEA CCS Roadmap ambitions, almost USD 5 trillion 1,000 will need to be invested in CCS installations. 500 0 2010-2020 2020-2030 2030-2040 2040-2050 Other OECD USA China India Other Non-OECD Coal Natural gas Fuel (similar for all capture routes; (post- 2. PROJECT / COMPANY LEVEL: relative to a pulverized coal combustion) baseline) Investment in early CCS facilities Efficiency represents prohibitive capital 10 %-points 8 %-points penalty cost and decreases efficiency leading to increased operating Capital 3 800 USD/kW 1 700 USD/kW cost. costs (74% increase) (82% increase) Cost of CO2 55 USD/tCO2 80 USD/tCO2 avoided© OECD/IEA 2010
  9. 9. WHY DO WE TALK ABOUT INCENTIVES? (2) Source: EU Zero-Emissions Platform © OECD/IEA 2010
  10. 10. ECONOMIC CHARACTERISTICS OF CCS TECHNOLOGY WILL EVOLVE The cost of most applications of CCS is currently significantly above carbon prices/penalties (where they exist); by 2050 it is expected that this will reverse. CCS Costs/ carbon price CCS unit costs Middle stage Late stage Early stage Carbon price or tax Time© OECD/IEA 2010
  11. 11. ARE POLICY OBJECTIVES CLEAR? Reducing emissions Ensuring technology learning Ensuring access to capital markets© OECD/IEA 2010
  12. 12. CCS POLICY OBJECTIVES WILL EVOLVE Short to mid term focus on learning and access to capital Long term focus shifts towards emissions cuts Different objectives – different policy tools Policy objective Example policies Importance over time Carbon tax, emissions Emissions reduction trading Technology learning Feed-in tariff Access to capital Provision of debt, market equity, insurance Optimised Regulation Infrastructure© OECD/IEA 2010
  13. 13. POLICIES TO ADDRESS DIFFERENT OBJECTIVES Reducing Technology Access to emissions learning capital markets Cap and trade Capital grant Co-investment equity Carbon tax Production Provision of debt subsidy Baseline and Investment tax Credit guarantees credit credit Feebate Production tax Insurance credit products Emissions Feed-in tariff performance Standard CO2 purchase Premium feed-in contract tariff Portfolio standard© OECD/IEA 2010
  14. 14. TOWARDS A POLICY STRATEGY INCENTIVE POLICY ARCHITECTURE Long-term framework of how different policies are employed POLICY TOOLS Individual policy tools responding to relevant objectives POLICY GATEWAYS Breakpoints in time/development when policy moves from one stage to next© OECD/IEA 2010
  15. 15. POLICY “GATEWAYS” CCS a challenging area for policy-makers Ability to adapt and modify policy as technology changes or new information comes to light... ...but the (perception of) changing policy may damage investment “Policy gateways” might help overcome this challenge: policies employed in each stage Criteria defining when or if policy will move to next stage an outline of the reaction if gateways are missed Can lower government risk from imposing poor value for money Can lower policy risk for investors© OECD/IEA 2010
  16. 16. POLICY ARCHITECTURE AND GATEWAYS Long-term policy architecture can enhance credibility and effectiveness CCS Cost/ carbon price Technical Sector-specific deployment Wide-scale deployment demonstration Carbon price CCS unit Capital grants costs Operating Quantity support Carbon price subsidies mechanism Loan guarantees Time First Gateway Second Gateway Technical feasibility Further cost reductions First cost threshold Infrastructure development Availability of firm Availability of firm storage storage capacity capacity© OECD/IEA 2010
  17. 17. EXAMPLES OF CURRENT INCENTIVE POLICIES US: Demo funding EU: NER300, EEPR AUS: Flagship pr. UK: CCS competition NO: Mongstad UK: 2011 NO: Carbon tax Etc.. Electricity Market Reform US: EOR projects CCS Cost/ carbon price Technical Sector-specific deployment Wide-scale deployment demonstration Carbon price CCS unit Capital grants costs Operating Quantity support subsidies mechanism Carbon price Loan guarantees Time© OECD/IEA 2010
  18. 18. FURTHER ANALYSIS Incentives suited for industry-CCS Quantifying the value of transferring long-term liability Extra incentives for biomass-CCS (”valuing a ton removed vs. reduced”) Innovative solutions esp. for developing countries© OECD/IEA 2010
  19. 19. CONCLUSION: ”Generic policy advice” 1. Be clear about policy objectives 2. Suit incentive policy to technical maturity 3. Plan incentive strategy long-term 4. Plan for a coherent mix of incentives, not just one 5. Create certainty!© OECD/IEA 2010
  20. 20. Thank you!© OECD/IEA 2010