Defining CCS Ready: An Approach to An International Definition

More documents

Recommendations

Info

Appendix C: Policy Considerations and Assessments of CCS Ready EconomicsMarket Imperfections That Justify CCS Ready Policies• Project developers do not perceive economic value in making facilities CCS Ready, because they do notappreciate or they underestimate the likelihood of future requirements for GHG reductions;• There is a lack of knowledge about CCS and how it can be applied as a GHG mitigation technology forpower plants and industrial facilities;• There is much greater perception of technology risks for CCS than those seen by policymakers;• The expected future GHG allowance prices are seen as too low to ever make CCS economic for projectsbeing designed now;• There is a misperception that potential storage sites are geographically ubiquitous and simple to identify,rather than being unevenly distributed with complex characterisation processes like all other subsurfaceresources; or• Project developers do not appreciate the complexities and will not adequately investigate the availabilityand feasibility of transport and storage options for the plant.However, large uncertainties about GHG policy, future cost of fuels/carbon, and cost andperformance characteristics of CCS technologies can reduce the perceived economic valueof CCS Ready investments from a developer’s perspective. In addition, the “private”discount rate for cost of capital used by plant developers may be higher than the “social”discount rate that policymakers might attribute to GHG mitigation initiatives. Hence,industry might continue on a BAU path for determining plant production economics thatmay not be optimal from a broader social-cost perspective—thus, justifying some form ofgovernment-initiated CCS Ready policy. A CCS Ready policy is most justified when one ormore market imperfections, such as those indicated in the text box below, exist.Do the Society-wide Benefits Outweigh the Costs?In many jurisdictions, public policies are adopted and justified by cost-benefit analysis. Thesociety-wide economic perspective for costs and benefits encompasses the developer’scosts and revenues related to the plant’s economics and its ability to supply electricity andother products with the smallest feasible use of resources. In addition, the society-wideperspective adds other considerations such as the improvement of human capital (educationand skills formation), job creation, human health, and the reduction of environmentaldegradation. Also the society-wide perspective is often longer-term and values futurebenefits more highly (i.e., has a lower discount rate) than does the perspective of adeveloper. Basing a CCS Ready policy (including the subject industries and types of plants)on an economic rationale ensures a reasonable chance that the policy will reduce total longruncosts (including the time value of money) of complying with the jurisdiction’s generalGHG policy.C.2 Treatment of Uncertainty under Economic AnalysesThe Considerations and Recommended Practices discuss two types of economic analyses thatmight be done as part of designing and implementing CCS Ready policies. One type isconducted by policymakers in determining whether to implement a CCS Ready policy at alland, if so, when and where it would apply. These analyses are done on the basis of socialcosts and benefits using “example” or “pro forma” cost parameters for different industryand plant types that might be considered for coming under the policy. The relevant question23 February 2010 102
Appendix C: Policy Considerations and Assessments of CCS Ready Economicsfor policymakers is: Does the application of CCS Ready to an industry/plant type reduce theexpected overall lifecycle cost of complying with the existing or expected GHG policy?The second type of economic analysis would be the “acceptable economic cost” test that isproposed as a criterion for defining what a CCS Ready plant is. That analysis would be donefor an individual plant using plant-specific engineering and cost parameters. Here therelevant question is: Does the proposed CCS Ready plant design allow for future economicretrofit to and operation with CCS?Both types of analyses consider similar CCS technology and cost parameters within amarket context for fuel prices, carbon prices and values for plant outputs (e.g., electricityprices). The economic evaluation usually is done using discounted cash flow analysis to takeinto account the time value of money. Some of the key issues involved in doing sucheconomic analyses are discussed below and some example results are provided.Whether these economic analyses are being done by policymakers for an entire industrysegment of a jurisdiction or by a developer for a single plant, they would project costs andbenefits into an uncertain future. Therefore, any economic analysis of CCS Ready has tomake assumptions regarding many future factors and uncertainties including:• GHG policies and when they will be implemented or modified, including, setting a priceon carbon emission and the potential for CCS mandates that could force the use of CCSregardless of economics;• Expected future price of carbon;• Expected timing of the commercialization of CCS and the enabling legal and regulatoryframework;• Performance characteristics and costs of current and advanced CCS technologies andcompeting alternative emissions mitigation options;• Expected economic environment regarding an industry’s or plant’s fuels, feedstocks andother operating costs;• Expected competitive environment regarding an industry’s or plant’s output product(s)(such as electricity in the case of a power plant);• Relative capital availability and costs of capital—incorporating potential legal, regulatory,technical, and economic risks of CCS compared with pursuing alternative emissionsreduction strategies; and• Level of government support (if any) for some or all components of the CCS value chain.These complexities and uncertainties can be incorporated into economic analyses by a)carefully considering each item and developing a single “most likely scenario” thatincorporates a best judgement as to the expect outcome for all parameters, b) developing afew “alternative scenarios” for how the parameters will play out or c) developing a largenumber of alternative scenarios through a probabilistic “Monte Carlo” process. Because ofits complexity, Monte Carlo analysis is most appropriate for a cost benefit analysis of ajurisdiction’s overall CCS Ready policy – usually not to evaluate the design of a single plant.23 February 2010 103
Page 1:
Defining CCS Ready: AnApproach to A
Page 4 and 5:
PrefacePrefaceThe Global CCS Instit
Page 6 and 7:
Acknowledgements and CitationsThe c
Page 8:
Executive SummaryThe components spe
Page 12 and 13:
Executive SummaryExhibit ES-3: Illu
Page 15 and 16:
Chapter 1: IntroductionDevelopers o
Page 17 and 18:
Chapter 1: Introductionor more, lic
Page 19 and 20:
Chapter 1: Introductionrelatively n
Page 21 and 22:
Chapter 1: IntroductionExhibit 1-3:
Page 23 and 24:
Chapter 1: IntroductionJustificatio
Page 25 and 26:
CO2 Transport Ready PlantExhibit 1-
Page 27 and 28:
Chapter 2: Capture Ready Plant Defi
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Chapter 3: Transport Ready Plant De
Page 45 and 46:
Page 47 and 48:
3.3.2 Environmental, Safety, and Ot
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Chapter 4: Storage Ready Plant Defi
Page 57 and 58: • Site DesignChapter 4: Storage R
Page 59 and 60: Chapter 4: Storage Ready Plant Defi
Page 75 and 76: Appendix A: Summary of Reviewed Exi
Page 83 and 84: Appendix B: Technology Design Optio
Page 107: Appendix C: Policy Considerations a
Page 111 and 112: Appendix C: Policy Considerations a
Page 131 and 132: Appendix D: AcronymsAppendix D: Acr
Page 133 and 134: Appendix D: AcronymsNGONO XNSBTFNSP
Page 135 and 136: Appendix E: ReferencesInternational
Page 137 and 138: Appendix E: ReferencesIntergovernme
Page 139 and 140: Appendix E: ReferencesNational Coal
Page 141 and 142: Appendix E: Referencesfrom http://w
show all

Defining CCS Ready: An Approach to An International Definition

Create successful ePaper yourself

Delete template?

Save as template?