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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7 How do we make CCS successful?

7.1 Phases of market development

A wide range of factors will impact the development rate of carbon capture and storage (CCS) in Europe and the rest of the world. The different phases of CCS will entail different needs for financial support and political frameworks.

The first CCS projects in Europe will require the EU and individual states to make substantial contributions. The EU’s state aid guidelines1 allow states to cover up to 100 per cent of the costs.Agreements have been negotiated in the project where the state covers around 80 per cent of the costs. It is unlikely that states will want to cover costs that enable the operator of a CO2 storage facility to make a significant return in this less mature phase. There will be relatively few carbon capture projects, little CO2 available for storage, and investment and operating costs will be relatively high given the small volumes these costs must be distributed between.

DNV GL has prepared an analysis of how CCS costs may develop when the infrastructure is utilised and more carbon capture facilities are built; see section 3. The analysis shows that subsequent projects will still require state aid, but that these projects will be able to increasingly compete for funding from more general funding schemes. Enova, for example, administers general funding schemes where future CCS projects can compete with other climate technologies for funding. The EU’s Innovation Fund may also make significant contributions to projects. The demand for CO2 storage will increase during this phase, while the learning from subsequent facilities may reduce costs. CCS may require some state facilitation and knowledge-sharing even after it becomes more widespread. The Government recommends that any additional Norwegian carbon capture facilities must compete for investment and operational funding from general funding schemes. The state will not engage in direct negotiations on state aid with individual actors.

In a mature phase, costs will be sufficiently reduced to enable CCS projects to become commercial and receive sufficient incentives through general policy instruments, such as CO2 prices and higher prices for climate-friendly products. The demand for CO2 storage will increase during this type of phase, and operators of storage facilities will be able to expect a commercial return on investment. The level of return is uncertain, however, and will depend, inter alia, on the number of CO2 storage operators, developments in the price of CO2 emissions and the actual cost reductions for CCS. It is during the mature phase that the commercial impact discussed in section 6.1 will be independent of state subsidies.

Sections 3.2 and 6.1 illustrate how Longship will contribute to cost reductions for subsequent projects. The project will thus also contribute to developing CCS as a climate measure. The success of the development of CCS depends on other projects following the Norwegian project’s lead. If CCS is to become an efficient and competitive climate policy instrument, new projects must be initiated in Europe and worldwide.

7.2 Other countries must support CCS

Concrete policy instruments and measures must be implemented for the world to achieve international and national climate ambitions and climate targets. It must also be possible to implement these policy instruments and measures in an effective manner. As illustrated in section 7.1, more countries and the EU must support CCS projects to enable CCS to become an effective climate measure internationally and in Europe in particular. Other projects are under development in Europe, but they will require additional funding [25, 56].

The European Green Deal and the EU’s climate targets represent ambitious goals for reducing emissions at the EU level. However, the EU must follow up these policies with concrete policy instruments and measures. Thema and Carbon Limits indicate that tightening the allowance market may contribute to more CCS, particularly if new measures are introduced to combat what is known as carbon leakage [25]. In their view, the current funding schemes are not enough to trigger a large-scale rollout of CCS projects, unless they are supplemented by measures specifically targeting carbon capture and storage.

International cooperation is also imperative. Cooperation between Norway and other parties in Europe is key to the continuation of Longship and further developing various technologies that are relevant to carbon capture, transport and storage.

Textbox 7.1 Development of Sweden’s CCS policy

Sweden’s long-term emissions target is to reduce net greenhouse gas emissions to zero by 2045 and to subsequently achieve negative emissions. Sweden’s national energy and climate plan highlights CCS as a means of achieving negative emissions. An official study was conducted in conjunction with the development of the Swedish policy on ‘The road to a climate-positive future’ [61] in which bio-CCS is highlighted as an important measure. The Swedish authorities have introduced funding mechanisms for projects relating to CCS through the Swedish Energy Agency. Sweden has also recently decided to ratify the 2009 amendment to the London Protocol that allows CO2 export to other states for storage purposes.

The CO2 Storage Regulations regulate the relationship between the state and the operator performing the activity; cf. section 4.3. Sources outside Norway can only utilise a CO2 storage facility on the Norwegian continental shelf if the country that wishes to export CO2 to Norway enters into a bilateral agreement with the Norwegian authorities. The London Protocol also requires the involved countries to have a bilateral agreement in place. Such bilateral agreements must regulate responsibility for CO2 and technical elements such as when this responsibility is transferred from the emission source country to Norway and how potential disagreements can be resolved.

The Climate Convention and the Paris Agreement assume that each country is responsible in international law for CO2 emissions within their territory. The storage of CO2 from emission sources outside Norway is recognised as an emission reduction in the country in which the emission sources are located. The same volumes must be reported and recognised as ‘non-emitted CO2’ by Norway. Any leakage from a CO2 storage facility on the Norwegian continental shelf will be recognised under Norway’s air emissions account, and Norway will be liable in international law for costs associated with the emissions, including improving and securing the facility, and Norway must make corresponding emission cuts. This means that Norway faces a disadvantage when storing CO2 from sources outside Norway. This liability will lie with the storage facility operator during the funding period and post-operational phase, while Norway will assume liability once the storage facility is returned to the state. The more CO2 Norway imports, the greater the liability. Pursuant to the CO2 Storage Regulations, the operator is liable for the costs and risks involved in CO2 storage activities during the operational phase and until the storage facility is returned to the state.

7.3 The road ahead for the Government’s work on CCS

The Government will contribute to developing technology for carbon capture, transport and storage. Longship will make a significant contribution to this development, but also underlines the need for and value of international cooperation on developing technology and reducing emissions.

7.3.1 Research, development, demonstration and international work

The implementation of Longship is not enough alone to make CCS a cost-effective climate measure. The project must be followed up with research, development and international work to enable more projects to be implemented and thus CCS to be developed as a climate measure. The academic literature shows that technology and measures are developed most expediently by repeating processes involving a combination of research, development and demonstration [62].2 This is conducive to reducing costs and will make the measure more effective.

The Government already supports a comprehensive portfolio of measures in research, development and demonstration, Technology Centre Mongstad (TCM) and international work, and it will continue to do so. The CLIMIT programme and the Norwegian CCS Research Centre (NCCS) are the national cornerstones of research, development and demonstration. The CLIMIT programme plays an important role in supporting actors that develop new and more effective carbon capture technology and the early planning phase of CCS projects. Participating in international and European CCS research programmes and activities is also important and the Government will continue these initiatives.

A decision has been made to continue TCM until the end of 2023. TCM still plays a key role in the Government’s CCS work. The centre and the knowledge base that has been built up around it will facilitate the further development of various carbon capture technologies. The state on its part wishes to increase industry participation and funding of TCM.

International cooperation is key to making CCS an effective climate measure. The Ministry is following up several international CCS initiatives (see section 4.1.3) and the Government will continue this work. The work on research, development and demonstration, TCM and international cooperation are important means of deriving the greatest possible benefits from the project.

7.3.2 Further work on industrial-scale CCS

Section 6.3 discusses the concrete project follow-up. To ensure society derives the greatest possible benefits from the project, it is important that the state facilitates active benefit realisation work in close cooperation with the industry actors and their suppliers. The benefit realisation plan in the project is discussed in section 4.2.5.

The learning, development and improvements generated by the project must be shared with subsequent projects. Established instruments such as CLIMIT, TCM and international work will be key to this part of the benefit realisation work, together with technology diffusion through e.g. patents. Gassnova will coordinate the work on benefit realisation, and an important responsibility rests with the industry actors and their suppliers. Experience from the implementation of the project and use of regulations must be included in further work on the framework for CCS, both in Norway and in Europe.

Knowledge diffusion and value creation will also be generated through Norwegian actors’ and suppliers’ participation in future CCSprojects internationally. The policy instruments for advancing business interests internationally, including Norwegian Energy Partners, can play an important role in facilitating international business development, including for CCS technology markets.

Although the Government is not participating in Northern Lights, it is in society’s interest that the storage facility is realised and utilised. Many of the projects Northern Lights are in contact with are outside Norway. Norway will continue to facilitate the development of CCS projects in Europe through knowledge diffusion and by facilitating the utilisation of Northern Lights’ CO2 storage facility.

As indicated in section 7.1, the success of the development of CCS depends on other projects following the Norwegian project’s lead. If CCS is to become a cost-effective and competitive climate policy instrument, new projects must be initiated in Europe and globally. A number of projects, as shown in section 2.5, are under development in Europe, several of which are dependent on third-party funding. CCS has to be able to compete with other measures if it is to become an effective climate measure. Actors that plan to use CCS as a means of reducing their emissions in Norway must apply for funding from general funding schemes in Norway and abroad, including CLIMIT, ENOVA and the EU’s Innovation Fund.

7.3.3 The Government will contribute to developing technology for carbon capture, transport and storage

The Government will also work to further develop established policy instruments and schemes and will:

  • Participate in designing policy and instruments at the European level to facilitate CCS in Europe.

  • Continue CLIMIT and Technology Centre Mongstad as key instruments for the CCS efforts.

  • Follow up the benefit realisation work in Longship in close cooperation with the industrial companies and take steps to ensure that knowledge, learning and efficiencies from the project make positive contributions to the development of CCS in Europe and the rest of the world.

  • Contribute to the possibility of using the CO2 storage infrastructure in other projects through enhanced cooperation with relevant European countries.

  • Require that any future CCS projects in Norway will have to compete for investments and operational funding from general funding schemes, such as Enova and the EU’s Innovation Fund. The state will not engage in direct negotiations on state aid with individual stakeholders.

Footnotes

1.

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52014XC0628%2801%29&from=EN

2.

Almost all technology development theory is built on Schumpeter’s ideas. He divided the technological process into three parts: Invention, innovation and diffusion.

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