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Suitability of climate finance for CCS in developing countries

Suitability of climate finance for CCS in developing countries. Paul Zakkour , Carbon Counts. CCS: Perspectives for the Southern African Region Johannesburg, 31 st May 2011. CCS in developing countries: context. CCS demonstration has focused on developed (Annex I) countries

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Suitability of climate finance for CCS in developing countries

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  1. Suitability of climate finance for CCSin developing countries Paul Zakkour, Carbon Counts CCS: Perspectives for the Southern African Region Johannesburg, 31st May 2011

  2. CCS in developing countries: context • CCS demonstration has focused on developed (Annex I) countries • Demonstration stage, high up-front costs and project risks, large CO2 abatement potential • Policy and regulatory frameworks emerging in Europe, US, Canada, Japan, NZ and Australia • However, significant and growing potential for CCS in developing regions • Emerging economies e.g. China, India, S Africa increasingly reliant on fossil-fuels (power, industry) • High potential for low-cost “early opportunity” deployment e.g. high-CO2 gas fields + in situ storage • IEA CCS Technology Roadmap (BLUE Map scenario) - non-OECD deployment dominates after 2020 • Will be essential in longer-term due to rapid increases in coal-fired power generation development, including in Southern Africa

  3. Challenges for CCS demonstration • Demonstration phase essential to test approaches to all of the challenges

  4. COP15/CMP5: “New” list for SBSTA to work on and advise CMP what todo More submissions from Parties COP16/CMP6 Decides CCS eligible provided a number of issues resolved. New M&Ps for CCS to be developed by COP17 COP12/CMP2 more proposals; capacity bldg, Parties submit more views. COP14/CMP4 to decide COP14/CMP4: EB to recommend COP/MOP what to do. Use Experts COP11/CMP1 request for workshop. Parties submit views SBSTA31: Draft text with bracketed for/against inclusion SBSTA32: Continued discussion of draft text. SBSTA27: request 2 x synthesis reports, plus more submissions from Parties Two NM & PDDs submitted EB22: boundaries, leakage, permanence. Need COP guidance SBSTA24: 2 x CCS workshops CCS in post-2012 mechanisms? EB26: Legal/tech issues EB50 recommend Positives & Negatives for CCS 2 x synthesis reports produced Expert Report produced for EB 2011 2013 2005 Climate finance for CCS so far • CCS so far received < 0.001% of available climate finance flows • GEF - historically limited; $3m grant recently provided for bio-ethanol capture pilot, Brazil) • CDM - protracted discussions since 2005; CCS inclusion subject to range of pre-conditions • Multi- and bilateral support – Some bilateral initiatives. Not currently eligible under CTF (although “capture ready” is) • Mobilising climate finance will be critical to support technology demonstration phase

  5. Current CCS activities in developing regions

  6. CCS deployment in 2020 Limited deployment of CCS envisaged in Africa in next 10 years – likely more “In Salah’s” plus a pilot/demo coal-fired plant in Southern Africa Region

  7. CCS deployment in 2030 Scale-up in Africa envisaged after 2020. Number of sectors, especially cement, biomass power plant (BECCS) and coal power plant

  8. CCS (additional) investment needs Africa: >US$ 7bn total 2020-30 US$25 bn total to 2020 US$300 bn total to 2030 Africa: US$ 1.4 bn total to 2020

  9. Marginal abatement cost curve in 2020 Wide variety of costs: Low cost opportunities (“In Salah’s”, CtL) 2. More expensive pilot/demo plant (coal power and cement)

  10. Framework for climate finance to 2020

  11. Market mechanisms for early opps Market-based support only @ < $50/tCO2 2020: 80 MtCO2 per year Early technology demonstration in Africa using market-based approaches (c. 5-6 MtCO2 /yr @ US$10-15/tCO2 ). • MACC => up to 70% of IEA Roadmap deployment in developing countries could be delivered via market mechanisms • Technology in the low cost sectors more mature (integrated capture, in situ storage) • Project-based instruments (CDM/JI) could be well suited to these CCS applications at the lower end of the cost curve (e.g. natural gas processing like In Salah, Sleipner, Snohvit, Gorgon projects) • How feasible are carbon prices of up to $50/tCO2 by 2020? • Upper end of literature ranges; primary CER prices currently in range $6-10/tCO2

  12. Market mechanisms for early opps • Would demand for offsets support 50 large-scale CCS projects by 2020? • Choice of baseline could effect the estimated levels of offsets presented: • Maybe as low as 40-60% of estimated supply shown above because of different assumptions about the level of emissions “avoided” • Market mechanisms will also be need to combine with non-market based sources ofclimate finance to support higher costs projects

  13. Combining sources of climate finance • At high carbon price ($50/tCO2) • Carbon markets provide around 80% of CCS cost (2010-2020) • Non-market finance leverages in additional market-based finance at rate of 1:2 • Annual costs broadly split 35:65 for financing (debt repayment) and variable costs (fuel, O&M ) • Suggests upfront support would be sufficient for high cost opportunities, with market covering variable costs But for other projects, market-based approaches will not be sufficient to support deployment Africa has projects at this end of the cost curve that can be incentivised solely through market-based approaches (e.g. CDM)

  14. Combining sources of climate finance Additional support needed > $50/tCO2 2020: 34 MtCO2 per year Other sources of finance (e.g. grants, soft loans, funds, domestic PAMs under a NAMA) + carbon market revenues needed in higher cost sectors, especially power plant (c. 3-4 MtCO2/yr @ US$60-100+/tCO2) • MACC => 30-74% of IEA Roadmap deployment in developing countries (34-84 MtCO2 per year in 2020) will need market + additionalmechanisms. • Less mature (higher risk) capture technology, harder to raise capital through debt or equity • Project-based instruments (CDM/JI) not generally well suited to projects at demonstration stage with high up-front investment costs • Combination of mechs to support upfront investment and ongoing costs

  15. Non-market mechanisms for costlier opps • Types of non-market based support that could emerge include: • Green Climate Fund (GCF) • A large portion of the Cancun Agreement pledge of US$100 bn/yr in 2020 could flow through GCF • Present scope and priorities unclear, and may flow through other channels • Technology Mechanism • Potential provision of soft support (e.g. R&D finance, technical studies, loan guarantees, carbon floor prices etc.) to help demonstrate low-carbon technologies such as CCS in some sectors • Could also support in infrastructure development (e..g incremental finance for pipeline oversizing) • NAMAs • Offer the scope for “layered” support: combination of (1) domestic PAMs (e.g. Capture-ready mandates, taxes) (2) Grant and/or concessional finance, and (3) carbon market support. • Public fund to support upfront investment needs, coupled to carbon market support will be needed for CCS demonstration • Fund could be in the range US$4-20 billion over next 8-10 years, depending on how successful carbon market is in leveraging private investment

  16. Near-term issues to resolve for CCS • Issues relating to the “permanence” of emissions avoided by CCS • Risk of carbon reversal as a result of seepage in future - lack of national GHG limits in developing countries means no mechanism for recourse • Proper site characterisation and selection, coupled to appropriate operational practice, MRV and good closure all essential elements to ensure permanence in the first instance • Liability needs to be allocated to maintain environmental integrity of CCS • (i) Couple liability to any offsets created (“buyer liability”) e.g. tCERs or lCERs; or • (ii) De-couple liability to any offsets created (“host liability). Creates fungible offsets but places greater requirements on host country • National laws and regulations may be needed to accommodate CCS • Set standards (e.g. for site selection, operation etc.) and determine modalities (e.g. license regime) • Handle longer-term liability, potentially including liability transfer from operator to host govt. • Unclear on the scope and extent of national legal and regulatory requirements due to uncertainties in international framework • Negotiations on CCS in CDM in Durban could/should provide guidance

  17. Conclusions • CCS deployment likely to require only modest share of all climate finance • CCS deployment pathway - low-cost “early opportunities” in near-term • Spill-over learning effects relating to sub-surface aspects (site selection, MRV, project approvals) • Combined approaches needed to demonstrate CCS across other sectors • Combination of market and non-market based support critical to wider deployment of CCS • Dedicated funds for CCS in range US$4-20 billion could be sufficient to meet CCS Roadmap deployment profile in conjunction with carbon markets • Key learningsinclude: technology demonstration; cost reduction; testing legal and regulatory frameworks; project finance models; public acceptability etc. • Timing is critical! • Need near-term demo needed to support wider deployment >2020 in key GHG emitting sectors. Need positive signals towards the end of this decade that the technology works, and significant finance can be mobilised for CCS beyond 2020

  18. Ways forward • Need to build a consensus around eligibility of CCS and provide clarity around levels of, and modalities for, provision of climate finance for CCS • Generate and share good-practice for carbon assets creation in relation to e.g. baselines, monitoring and reporting, permanence • Need greater discussion on risk management options such as risk pooling in order to lower entry barriers to demonstration and deployment • Need to consider piloting risk management options and develop lessons-learned in order to fast-track a workable scheme

  19. Thank you Paul Zakkour Email: paul.zakkour@carbon-counts.com Web: www.carbon-counts.com

  20. SPARES Paul Zakkour Email: paul.zakkour@carbon-counts.com Web: www.carbon-counts.com

  21. Combining sources of climate finance Market-based support only? < $50/tCO2 2020: 80 MtCO2 per year Early technology demonstration in Africa using market-based approaches (c. 5-6 MtCO2 /yr @ US$10-15/tCO2 ). Other sources of finance (e.g. grants, soft loans, funds, domestic PAMs under a NAMA) + carbon market revenues needed in higher cost sectors, especially power plant (c. 3-4 MtCO2/yr @ US$60-100+/tCO2) Additional support needed > $50/tCO2 2020: 34 MtCO2 per year

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