Meld. St. 33 (2019–2020)

Longship – Carbon capture and storage — Meld. St. 33 (2019–2020) Report to the Storting (white paper)

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1 Introduction

The Government will contribute to developing technology for carbon capture, transport and storage and facilitate a cost-effective solution for full-scale carbon capture and storage (CCS) in Norway, which will stimulate technological development in an international perspective.

The Government proposes to the Storting that funding be provided for the implementation of a Norwegian demonstration project for full-scale CCS that encompasses carbon capture, transport and storage.The project has been named ‘Longship’. The Government proposes implementing a carbon capture project at Norcem first, and then at Fortum Oslo Varme, conditional on sufficient own funding and funding from the EU or other sources. Fortum Oslo Varme must clarify whether it wants to implement the project on these conditions within three months of the funding decision from the second round of calls issued by the EU’s Innovation Fund, but no later than 31 December 2024. Northern Lights will realise a solution for transport and storage of CO2.

The Government proposes that Norcem and Northern Lights be awarded state aid in line with the negotiated agreements. The state aid allocated to Fortum Oslo Varme is also based on negotiated agreements, but the funding is limited to a maximum of NOK 2 billion in investments and NOK 1 billion in operating expenses. The total expected costs for the project are estimated at NOK 25.1 billion. The Government’s recommendation will have an overall expected cost for the state of NOK 16.8 billion. This means that the state expects to cover around two thirds of the project expenses.

Longship will demonstrate that CCS is safe and feasible, and will facilitate learning and cost reductions in subsequent projects. Infrastructure will be developed with additional capacity that other projects can utilise. Hence, the threshold for establishing new carbon capture projects will be lowered. Longship can also facilitate business development through harnessing, transforming and developing new industries in Norway.

Based on the knowledge currently available, CCS will be necessary to reduce global greenhouse gas emissions in line with climate targets at the lowest possible cost. Without using CCS to mitigate the source of CO2 emissions or by contributing to negative emissions, it may prove challenging to reduce greenhouse gas emissions quickly enough. In some sectors, such as cement production, it is not possible given our current knowledge and technology to avoid emissions without using CCS. For some sectors and some sources of CO2 emissions CCS may be the cheapest and best way to reduce emissions. CCS is one of many instruments that must be employed to reduce greenhouse gas emissions, and must work alongside other measures. The Government plans to return to this in a separate white paper on climate change to the Storting towards the end of 2020.

Norway is in pole position for contributing to the development of carbon capture and storage. The country has a strong technical community in the field of CCS, developed over 25 years of research and experience from planning and implementing projects in Norway, including from the planning of a full-scale CCS project in Mongstad. Furthermore, there is great potential for CO2 storage in geological formations beneath the seabed on the Norwegian continental shelf.

The current market situation does not provide sufficient incentives to implement and develop CCS. This is in part due to high investment costs, low income potential in the short term and high risk. In addition, the price of emitting greenhouse gases is lower than the cost of CCS, and the development of technology may have the characteristics of a public good. The current state of technology and the market make it necessary for countries to contribute to the development of CCS to achieve faster dissemination and deployment. The Norwegian project will further develop carbon capture and storage technology and thereby reduce the costs for subsequent facilities. This will be an important contribution to creating a market for CCS.

A solution for full-scale CCS has now matured that facilitates the further development of CCS in both Norway and Europe. The project has encompassed carbon capture from Norcem’s cement factory in Brevik and carbon capture from Fortum Oslo Varme’s waste incineration facility at Klemetsrud, Oslo. Northern Lights, which is a collaboration between Equinor, Shell and Total, has been responsible for the CO2 transport and storage part of the project. This part of the project comprises ships for transport of liquid CO2, a reception terminal in Øygarden municipality, and pipeline to a well where CO2 will be injected into a storage formation beneath the seabed.

The companies will own and develop the project. State aid agreements have been entered into, regulating cost and risk distribution between the state and the companies. These have been designed to provide good incentives for keeping costs low and keeping to the schedule.

Furthermore, the state aid agreement that applies to the transport and storage part of the project has been designed to give Northern Lights the incentive to incorporate new projects. All Northern Lights’ revenues will come from CO2 storage from new projects. Northern Lights therefore has a strong incentive to develop the market for CO2 storage.

Gassnova and external quality assurers Atkins and Oslo Economics have evaluated the project. Their evaluations indicate that the project has matured to the level required for an investment decision, and the results of the front-end engineering design (FEED) show that all parts of the project are feasible. Based on the set criteria for the project, the Ministry of Petroleum and Energy ranks Norcem significantly higher than Fortum Oslo Varme.

Today, there are relatively few carbon capture and storage facilities in the world in operation and none that capture CO2 from flue gas emitted by cement and waste-to-energy facilites. By developing more projects, the world as a whole will benefit from learning, technological development and economies of scale. This will provide the necessary cost reductions and efficiencies.

Longship is the first project of its kind. Risk is still associated with a number of factors, despite the fact that the technology in the individual parts of the project has been rigorously tested. The state bears a substantial share of this risk. There will be risk associated with the interfaces between the different parts of the project. There will also be risk related to cost development, project schedules and whether all parts of the project function as intended. It is a matter of striking a balance between reducing risk and keeping costs at a minimum. If the project is to have a good demonstration effect, the costs must be kept as low as possible. We must therefore expect, for example, to run into problems in connection with start-up of operations and to experience periods with low capture rates. The learning achieved from resolving such problems will form an important part of the project.

International cooperation on technological development and emissions reductions are a necessary part of Longship. If CCS is to become an efficient and competitive climate policy instrument, subsequent facilities must be established in Europe and globally.

By implementing Longship, Norway is taking the lead by demonstrating a complete value chain and investing in CO2 storage infrastructure that can be utilised by industry companies in other countries. The Government expects that Europe will now follow suit and that the remaining capacity in the storage facility will be utilised by third parties that are not directly financed by the Norwegian state. Future Norwegian carbon capture facilities will need to compete for grants/state aid from general funding schemes, including Enova and the EU’s Innovation Fund. The state will not engage in direct negotiations on state aid with individual stakeholders.

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