Carbon Capture and Storage

Carbon Capture and Storage (CCS) overview

Carbon Capture and Storage (CCS) is considered as one of the pivotal solutions to decarbonize hard-to-abate industries as well as to achieve negative emissions through its application in bioenergy production. Since the 1970s, some elements of CCS technologies have been used in the oil & gas and chemical industries. However, to achieve the required scale, CCS should develop into a comprehensive commercial solution for various emitters underpinned by massive infrastructure. Full-scale commercial CCS clusters are actively developing in Europe and the US, with the first 1.5 Mtpa CO2 storage project launching in Norway in 2024. Meanwhile, European governments are actively introducing various regulations to grow the storage capacity by a factor of 100 by 2030.

Investability of CCS projects

While the first CCS projects receive significant government subsidies, scaling up the solution will require private-sector investments, primarily from banks and large infrastructure funds. However, for CCS to become ‘bankable’, key investment hurdles should be addressed. Firstly, CCS should be economically attractive for emitters, and secondly, various technical and commercial risks for both emitters and CO2 transport and storage providers should be mitigated. CCS commercial frameworks are still under development across Europe and the US, with current focus mainly on making CCS economically acceptable for emitters. The analysis indicates that only the UK has implemented an investable CCS business model. This was achieved through a structured approach to clusters development and adopting the regulated asset base approach, which determines the allowable revenue.

Key actions to overcome investment hurdles in Europe

Although emitters in the UK, the Netherlands and Denmark can receive local subsides to cover a gap between CO2 capture costs and the EU ETS price, similar contracts for difference-like subsidies should be introduced across Europe to make CCS business case viable for emitters. Moreover, to make CCS investable and open the market for various developers, a guarantee-type of risk protection should be established to support in case of low probability high impact events (e.g., CO2 leakage) until the insurance instruments for CCS are developed. Lastly, cross-border CO2 transport and storage (i.e., London Protocol) should be enabled to allow emitters to access ideal storage locations, as well as to promote competition among developers and mitigate storage underutilisation risks through access to a wider pool of emitters.

Authors: Stefano Ferri, Kirill Kalinkin