CCS plays a vital role in mitigating the effects of climate change, and its application to process and manufacturing industries requires bold first-mover partnerships with a sensible allocation of risk – like with any investment decision. Certain considerations can help ease the transition to ICCS.
1. Consider the capture technology issues but do not view technology as a barrier
Separation and capture of CO2 is intrinsic to a range of existing industrial process such as ammonia manufacture and sour gas processing. The technology to do this is very well proven all over the world – by GrowHow on Teesside and SAGE in Aberdeenshire to name but two. For other industrial applications such as manufacture of hydrogen, steel or plastics, the decarbonisation opportunity is around the supply of heat and/or power, where the usual “power” solutions of (e.g.) amine separation or use of decarbonised fuel apply.
The recent Summary Report for the Teesside Collective ICCS Project sponsored by both BIS and DECC considered four different industrial processes ranging in scale from 50 – 3000kT/year. CO2 capture is feasible at all these sites as is its onward transportation. Further details are available via the Teesside Collective website.
2. Beware of over-reliance on proximity to power plants
The Electricity Market Reform helped introduce the concept of a Contract for Difference for the generation of clean electricity – the “power CfD”. Some commentators advocate that industrial projects should ally and align with power CCS projects, because it “must be” easier to use or adapt an existing mechanism than to create a new one. Clearly this is a valid assertion from one perspective but cannot stand too much scrutiny. Not all industrial plants are close to power plant and solving a multi-site project is far more complex and risky than a single site, before one even considers the additional and cross-sector risk that industrial partners would be required to accept.
Few Generators are building new thermal power plants or retrofitting existing assets with CCS in the UK at the present time. Insisting that Industrial CCS projects align with Power CCS adds risk and reduces the likelihood of any projects actually proceeding. The Business Case for ICCS report highlights two alternative mechanisms that could work for ICCS-only projects (as well as power CCS projects) – a storage-focused arrangement and a CO2 CfD style arrangement.
3. Accept that costs estimates are uncertain but are only part of the complex political picture
The costs associated with the capture, transport and storage of CO2 are clearly important. However, these are all relatively well known albeit with some level of uncertainty attached. What is less well known and of far greater impact is industrial policy and thinking on how the decarbonisation costs can be met. In the first instance, the additional cost associated with decarbonising industrial (or power) processes must be borne ultimately by the consumer, probably through higher taxes as part of a Government-led scheme.
The global market for industrial products creates a high degree of price competition. Customers do not (yet) see any additional value arising from purchasing a low carbon product and thus are unwilling to pay the extra cost associated with their manufacture. However, a 2011 Guardian article on Carbon Trust research shows that low carbon products are in demand with consumers becoming increasingly aware of the carbon footprint implications associated with what they are buying leading to potential implications for brand loyalty.
4. Incorporate political risk into decision making
CCS projects have a long gestation period, like many infrastructure projects, and this means that the impact of a shift in political priorities (regional, national or European) must be incorporated into any rational decision to embark on an ICCS project as must the support of a regional or national government falling foul of the European Union State Aid rules. A key issue to consider is the likely importance of the sector and, CCS particularly to policy makers and their ability to do what is required within the time frame of an industrial endeavour.
5. Do not bank on joining a cluster or a hub
Clusters and hubs of CO2 emitters and/or stores provide a great opportunity to achieve potentially significant economies of scale and are frequently touted as an essential route to cost reduction.
In reality, someone, somewhere needs to be first. Other organisations may join later if and, crucially, when the economic conditions are right for them. Initially Tees Valley Unlimited and then latterly Teesside Collective built huge momentum for an ICCS project in the region with very strong support from four local emitters. However, the recent steel industry events on Teesside and South Wales illustrate clearly both the opportunities and the risks of a cluster-based approach. Multiple sources of CO2 provide resilience from a portfolio perspective, but bias in the relative importance of the various sources can also introduce systemic risk.
There are technical challenges and complexities associated with all large industrial projects, CCS or otherwise. CCS has the added demands generated by projects which are commercially complex in an uncertain political and market environment. To get the industry going some players, such as the Teesside Collective, will need to be “first movers” within this uncertainty. The good news is that there is a wealth of experience in the UK and overseas in delivering industrial projects of the scale and risk profile associated with CCS. Perhaps the only real barrier now is confidence.