Policy, Economics and Finance

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Regardless of the technological advances, CCS cannot be viable without a policy framework to support the technology, which would allow the technology to be economically competitive and attractive to investors. By increasing the capital and operating costs of unabated fossil-fired electricity generating plant, CCS inevitably will need some form of support or regulation, not just for the first plant(s) but thereafter. That support could take the form of: (i) a technology mandate, such as an emissions performance standard or requiring that any new coal or natural gas be fitted with CCS, or (ii) a subsidy to cover the additional costs of building and operating a plant equipped with CCS or (iii) a carbon tax/emissions trading scheme that would improve the economics of CCS (and other low-carbon technologies) relative to unabated fossil generation. Different approaches carry different implications in terms of the incidence of costs and benefits and legal liabilities for the governments supporting such schemes, taxpayers or ratepayers and CO2 emitters such as the electric utility industry.

There are many uncertainties that impinge on CCS economics ranging from technical configurations to institutional design and energy market policies, which could potentially undermine full-scale commercial deployment of the CCS technology. Such analysis can also assist in making decisions about the RD&D portfolio, such as which carbon capture technologies should be researched further and supported taking into account various uncertainties in the performance of a power plant and associated cost of electricity generation. To help promote both fundamental research and pilot-scale capture projects with an aim of lowering costs, DECC, Energy Technologies Institute (ETI), Technology Strategy Board (TSB) and Research Councils UK (RCUK) recently launched a £20 million (DECC 2012) innovation fund through 2015.

Research at UKCCSRC has a role to play in informing policy choices. A shifting UK energy policy in general and uncertainties posed by reforms, such as the Electricity Market Reform (EMR) in particular (DECC 2011), might substantially change the risk profile for investors and coal power plant owners to invest in CCS RD&D or other pre-commercial investments (DECC SAG 2012). Various techniques can be used to address these challenges. For example, real options valuation offers a rational basis for investment decisions, which differs from standard investment valuation by taking into account managerial flexibility in investment decisions and various uncertainties associated with such decisions (Liang et al 2010). As recently observed by the National Audit Office, there are important lessons to be learned from the first UK CCS Competition (NAO 2012). Auction design can play a role in considering how a CCS Competition can be designed most effectively at the UK or EU level (Newbery et al 2009).

Another technique, widely used within the energy economics field, is mathematical modelling, which can simulate real world electricity markets. This approach can assist in answering macro level questions such as where one might expect, from economic and financial perspective, to have a power plant with CO2 capture and associated CO2 pipelines taking into account spatial characteristics of electricity markets and inherent market uncertainties.

Employing these techniques in combination with technical and engineering studies of CCS as well as intuition from social science and public perception analysis of CCS technology can significantly improve our understanding of pathways for CCS deployment, its total cost to the society and its competitiveness vis-à-vis other schemes for decarbonisation of the UK economy.

Public Perception

Public perception is one of the key barriers to deployment of CCS. Local opposition has derailed experiments and some of the first projects aimed at storing C02 in the ocean (Hawaii and Norway, see de Figuerido 2002) and onshore in underground storage (Barendrecht in the Netherlands, Schwarze Pumpe and Beeskow in Germany; Greenville, Ohio in the United States).