Defining CCS Ready: An Approach to An International Definition

Appendix C: Policy Considerations and Assessments of CCS Ready EconomicsPublic policy decisions are sometimes made using “social (public) discount rates” rather thancost of capital of private companies. Assuming that the public discount rate is 5% real, the6th column of Exhibit C-7 shows the revised NPVs 155. Using this criterion the best option isCCS Ready 1 option followed by the Not CCS Ready and CCS Ready 2 options. The use ofsocial discount rates for public policy decisions is often controversial in free marketeconomies because it implies that private companies might have to loose money to complywith policy mandates. That is, power plant developers have to pay a high private cost ofcapital for an incremental invest that yields a return consistent with a lower, social discountrate. Therefore, policymakers should consider policy mechanisms that subsidize CCS Readyexpenditures if the policy is based on net benefits computed using social discount rates.C.4.8 Sensitivity Case: Implementation of a General GHG PolicyThe first sensitivity case assumes that the general GHG policy is implemented sooner withthe cumulative probability reaching 100% by 2018 (rather than by 2025 as in the Base Case).The key inputs to this case are shown in Exhibit C-9 and the summary outputs are shown inExhibit C-10 and Exhibit C-11. Because the GHG restrictions start on average 3.6 yearssooner, the allowance prices are higher in any given year compared to the Base Case. For2030 allowance prices average $27.96 per ton (versus $21.77 in the Base Case) and $107.20per ton in 2050 (versus $90.32 in the Base Case). Since electricity prices are modelledpartially as a function of allowance prices, electricity prices are also higher in theAccelerated GHG Restrictions sensitivity case. For 2030 off-peak/on-peak electricity pricesare about $3.80 per MWhr higher than the Base Case and in 2050 about $10.40 higher.155 The social discount rate is used only to discount the plants’ cash flows. The decision to retrofit to CCS is unchanged (i.e.it is still made based on private discount rate).23 February 2010 116