Final report for One North East And NEPIC 21/12/10 - The Carbon ...

The case for a Tees CCS networkFinal ReportNon-technical SummaryTees Valley manufacturing industries are critical to the overall prosperity of the North Eastof England. The future commercial viability of several of these businesses is at riskbecause of increasing financial exposure to rising costs of compliance with regulationsdesigned to restrict carbon dioxide (CO 2 ) emissions to atmosphere and attendantcompetitiveness effects this could drive in global markets. Limiting this exposure will becritical to avoid businesses relocating production to jurisdictions which do not face suchthreats.The UK has adopted challenging targets to reduce emissions of greenhouse gases. TheNorth East industrial and power sector emitters will need to play their part if these targetsare to be met. Whilst some measures such as energy efficiency and fuel switching mayoffer incremental opportunities for CO 2 emission reductions, carbon dioxide capture,transport and storage (CCS) technologies offer the potential for step-change reductions inCO 2 emissions from large emitters. Within the UK, the Tees Valley is well placed toimplement CCS as: Deploying CCS in the Tees Valley could provide ca. 8% of the UK‟s required CO 2reduction by 2030. The Tees Valley has access to diverse storage options beneath the North Sea. CO 2 emitters are close to the North Sea coast and are densely clustered within afew kilometres of each other, making an onshore pipeline network low in cost andcomparatively easy to deliver. The costs of implementing CCS in the Tees Valley are expected to be comparableto forecast CO 2 prices in the period 2020-2030. Businesses in the Tees Valley are familiar with CCS technologies and are used tohandling complex infrastructure development projects.This report examines a number of options for transporting CO 2 from a number of candidatesources in the Tees Valley to storage sites beneath the North Sea. An integrated CO 2pipeline network of between 14-22 MtCO 2 /year capacity – including a common hub andoffshore pipeline – could offer a more cost-effective and convenient long-term option thanone where each emitter builds their own dedicated pipelines in a piecemeal fashion. Thelikely net cost of service for CO 2 transport would generally be cheaper, although this viewis sensitive to numerous assumptions, most notably the distance offshore, cost offinancing and rate at which the pipeline achieves full utilisation.The UK and European CCS demonstration programme provides an early window ofopportunity to develop a CO 2 pipeline network in the period 2015 to 2020. However,additional funding would be needed to cover the incremental cost of the “future-proofed”integrated network. Public funding, policy and regulatory clarity, and equity investmentfrom well capitalised businesses will likely be required to de-risk the project and unlockadditional finance, particularly if private sources of project finance are sought.Whilst a range of options exist for structuring an investment – including government andsingle-entity led developments – a Joint Venture special purpose vehicle established byregional operators appears to be the most viable near-term approach. Tees Valleybusinesses already have considerable experience of joint infrastructure development andmanagement, and could therefore rapidly mobilise the necessary arrangements absent ofa public regulator that could oversee the developments of a CO 2 transportation “market”.3