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Cancun's climate change talks boost carbon capture and storage

CCS could be included in the UN CDM, in a move that would provide much needed financing for this nascent, some say vital, technology in the fight against climate change, writes Ian Lewis

DECEMBER's Cancun climate-change talks, as expected, were little more than a stepping-stone on the way to a global emissions reduction agreement at some point in the future. But they did make a breakthrough – after years of deadlock – over the inclusion of carbon capture and storage (CCS) in the UN-backed clean development mechanism (CDM).

The CDM aims to encourage companies or organisations in the developed world to invest in carbon emissions-saving projects in developing countries. In return for funding and technology transfer, investors receive carbon credits, which can then either be traded on carbon markets or used to reduce their own emissions tally if they are subject to a domestic cap.

Government delegates at Cancun decided CCS in geological formations should be "eligible as project activities under the CDM, provided issues, such as permanence, boundaries and safety, are addressed and resolved", according to a statement from the UN Framework Convention on Climate Change (UNFCCC). Establishing how storage will be monitored and safeguarded do still present potential stumbling blocks, but after protracted wrangling through much of the last decade, the move is significant.

Now governments, non-governmental organisations and experts must submit their opinions on including CCS in the CDM to the UNFCCC this month. These views would then inform the deliberations of a panel charged with producing a recommendation at COP17, the next UN climate conference, to be held in Durban at the end of the year.

The move is likely to have the greatest effect on coal-related CCS schemes in CDM-eligible countries, such as China. But if it is adopted, another group of winners could be the large hydrocarbons producing and processing economies of the Middle East and Asia that face the expense of building CCS projects as part of any emissions-reductions programme.

Plenty of detractors

The plan to include CCS in the CDM has plenty of detractors. Some countries, notably Brazil, and environmental groups, including Greenpeace, claim the promotion of CCS for fossil fuels will block the development of alternative clean-energy sources, that it is unproved technology and that it is too expensive.

But CCS also has influential backers. Nobuo Tanaka, executive director of the International Energy Agency (IEA), described progress on CCS at Cancun as a success. The IEA has suggested the world needs to build more than 3,000 CCS projects by 2050, at a cost of more than $2 trillion, if carbon emissions are to be halved from 2005 levels.

Norway, which is experienced in using CCS technology in the hydrocarbons sector, was the prime mover in pushing for its inclusion in the CDM, supported by the UK, Australia, Indonesia and Papua New Guinea. Saudi oil minister Ali al-Naimi provided another voice in favour.

Saudi Arabia and other Opec members are keen to ensure that what they refer to as "traditional" energy sources should be protected, arguing that CCS in the CDM would allow oil and gas to remain a vital part of the world energy mix, while stemming emissions releases. Some reports from Cancun suggest dissenters such as Brazil may have given way to Saudi pressure to include CCS, in order to avoid a Saudi veto on other measures they favoured in the final conference text.

One thorny issue is the potential inclusion in the CDM CCS package of enhanced oil recovery (EOR) – pumping carbon dioxide (CO2) into depleted oil reservoirs to boost output. While that does fit the bill in terms of carbon burial, the idea is unlikely to be a shoo-in. The rationale for the CDM scheme, established under the 1997 Kyoto Protocol, is that carbon credits should be earned only from emissions-saving schemes in the developing world that would not be viable without CDM support. On that basis, EOR's inclusion would seem to raise issues, as the UNFCCC panel would take convincing that projects principally designed to boost lucrative oil earnings require subsidising through the CDM.

Judging whether a project would be viable without CDM support can be a moot point, but the CDM panel has shown itself willing to tackle potential abusers. Last year, for example, some Chinese wind projects were rejected by the CDM panel, because the firms involved were believed to be claiming the price they would receive for electricity was lower than it really was: a ruse to justify CDM support.

Another uncertainty for CDM projects is that there is still no firm global deal on how the mechanism should function after 2012, when agreements governing it expire. Also, the EU has yet to agree on how CDM credits should be treated after 2010 in its Emissions Trading Scheme (ETS) – the world's biggest cap-and trade market. Other countries have suggested the CDM is ineffective and should be abolished.

So while moves to include CCS in the CDM will be welcomed by developers, they are unlikely to remove uncertainty over the sector's future. While some small-scale demonstration facilities are up and running, no commercial-sized CCS projects have been built – and technology developers are not promising those for several years.

Alstom, a pioneer in the field, hopes to have a commercial offering available in 2015. So does Alberta, the Canadian province that is home to the oil sands. But the world will be hard pushed to meet the IEA's suggested target of having 100 projects running by 2020. A more plausible aim is the G8's call for 20 large-scale CCS projects running by that date.

In practice, CCS development is being hampered by a lack of substantial incentives. The spread of carbon markets would help, but they have failed to take off with much success outside the EU ETS and there was little substantive progress made towards that goal in Cancun.

Australia, one of the world's top coal producers and largest per-capita carbon emitters, could be among the global leaders in developing full-scale CCS. But the sector is being held back by delays to the launch of a long-heralded Australian ETS. The failure to settle on a carbon price for the scheme – or on the level of a carbon tax that might precede it – means companies are reluctant to invest in CCS, or in new, cleaner coal-fired power stations.

"The reality is that industry will only spend billions on low-carbon technology, notably CCS, if it can recover costs in the market through carbon price and regulation," says Ann Pickard, chairman of Shell Australia.

Even in the Mideast Gulf, where governments are championing CCS, development has stalled. BP says a $2bn plan to build a hydrogen power plant and associated CCS project in Abu Dhabi is on hold, partly because it cannot reach agreement over a carbon offtake deal. The project, a venture with clean-energy company Masdar, would capture up to 90% of CO2 generated at the 400 megawatt plant – some 1.7m tonnes a year. This would then be injected into oilfields as part of an EOR scheme.

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