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

The case for a Tees CCS networkFinal Reportlenders. At the current time therefore, the EU carbon market should only be viewedas a support mechanism for CCS acting in conjunction with other supplementarymeasures.In this context, two sources funds currently exist to support CCS demonstration onTeesside - the EU New Entrant Reserve (NER) of 300 million EU Allowances set aside forsupport of CCS and novel renewable technologies, and the UK CCS demonstrationfunding an additional three projects. Notwithstanding the emergence of these varioussupport mechanisms, they are principally geared up to cover only the incremental cost ofCCS and/or feasibility assessments - significant amounts of private capital will still berequired to bring any underlying green-field projects forward. However, the economics andcommercial viability of the underlying projects will also be affected by the CCS part of theproject, potentially making these projects more difficult to fund e.g. the effect of CCS onpower price, especially where the plant competes with unabated coal- or gas-fired powergeneration.The modalities for the disbursement of funds are also subject to uncertainty, and issuessuch as ex post adjustment of the amount of finance allocated add to the present mix ofpolicy uncertainty. Despite the attention accorded to CCS at both the EU and UK level, it isbecoming apparent that the level of public financial support - both currently provided, andexpected from future support schemes - means that private finance will be required to helpdeploy CCS at scale in the UK, a view supported by UK Ministers at the current time (seeBox 1).Other specific regulatory and policy risks include the following:Uncertain CCS policy and support 81 . Expected UK Government support for CCSdoes not emerge (CCS Levy, carbon price floors, Green Investment Bank, EmissionsPerformance Standards finance). Also uncertainty regarding the exact modalities,timing and disbursement of funding.Uncertain regulatory framework. The required EU and UK regulatory framework forCCS doesn‟t emerge (nature of the EU CCS Directive‟s transposition into UK law; lackof storage permitting process/competent authority, uncertainty over storage porespace „rental‟ costs etc.).Insufficient EOR incentives. The UK policy framework and support governingoffshore oil and gas production in the North Sea does not sufficiently incentivisetertiary production using CO 2 -EOR. Long-term liability arrangements. The liability regime for offshore storage of CO 2remains largely unresolved and represents a key risk for storage site operators andinvestors.Alternative abatement options. Emerging EU and/or UK policy or Tees Valleyemitters may directly or indirectly favour investment in abatement technologies otherthan CCS (once the project has begun construction or operation). There is thereforean opportunity cost associated with investing large amounts of capital in onetechnology i.e. CCS.Planning process. Planning requirements and barriers may derail the project(insufficient consents and permits to construct the key components of the network).81 Just prior to this report being published, DECC announced consultation on fundamental reforms to theelectricity market to ensure the UK can meet its climate goals and have a secure, affordable supply of electricity –see http://www.decc.gov.uk/en/content/cms/consultations/emr/emr.aspx40