Most of the
scenarios that have been mooted for how Canada could achieve its climate change commitments stipulate a very significant role for carbon capture and storage (CCS) technologies. As participants at a recentSustainable Prosperity event (co-hosted with the
Royal Embassy of Norway) on “The Economics of Carbon Capture and Storage” (held at the National Arts Centre on October 12th) heard, while there is considerable activity being undertaken on the development and deployment of this technology in the energy sector, there remain considerable challenges to its widespread adoption. Moreover, questions persist – given the sizable capital required – on the overall contribution CCS can make realistically make to our national greenhouse gas (GHG) reduction objectives.
The event brought together four experts – two from Canada and two from Norway – as a way of comparing and contrasting each country’s experience and approach to CCS. The panellists were: Andrew Leach of the University of Alberta’s School of Business; Len Heckel of Shell Canada; and, Anne Blaker and Staale Aakenes of GassNova.
Canada and Norway have a lot in common, insofar as they are both Northern countries with sizable oil and gas reserves, from which they derive considerable export earnings and wealth. Both countries also have existing commitments to reduce their GHG emissions, and therefore have an interest in the large-scale implementation of CCS in their energy sectors.
From the technological perspective, Norway is a leader in demonstrating that CCS is a viable technology. It has created a CCS technology centre at Monstad, and its Sleipner project is the longest running CCS project in the world. It has established a public agency for CCS, GassNova, with the mandate to develop CCS technology and promote its adoption in Norway (and internationally). Given that the country aims to be “carbon neutral” by 2030, with 50-65% of that target to be met through emission reductions (the rest by offsets), CCS will have to deliver significant emission reductions. Indeed, for Norway this is a national project, characterized by one of the GassNova representatives as comparable to the United States’ program to put a man on the moon in the 1960s.
In Canada, private companies are taking the lead in developing CCS, with sizable government support. There has been historic federal support for CCS technology development, through National Resources Canada (NRCan) and National Research Council (NRC) laboratories. But the biggest support has come in the form of direct financial and policy support. For the Quest project (a project in which Shell Canada has a majority share in a joint venture with Marathon Oil and Chevron) total expected project funding of $1.4 billion will be offset by an $865million grant from the federal and provincial governments. As a condition of that grant, the project will operate on a “zero NPV” basis, meaning that it will effectively not make a profit. It will also make public all learning from the project, which is significant given its use of a saline aquifer substrate as the medium of “capture” (saline aquifers being seen as one of the largest potential repositories of CO2).
Some of the key messages to come out of the presentations and subsequent discussions are as follows:
The high cost and limited economies of scale for CCS make it a very expensive way to reduce GHGs. At the same time, CCS is, especially for the energy sector, a very real opportunity for reducing the overall carbon “footprint” of oil production, particularly in high carbon-intensity sub-sectors like the oil sands. Those two realities point to the need for a clear distinction in the need for both a GHG reduction policy (in which CCS plays a role) and a CCS policy (in which GHG reductions play a role).
The economics of CCS are shaped to some degree by the potential revenue streams that the technology enables. Although there are a few options, they are currently not sufficient to cover the cost of CCS. The best understood is the use of the CO2 stream in Enhanced Oil Recovery (EOR), which is a well-established practice in the industry. But, an increase in the supply of CO2 credits through more CCS projects would likely depress CO2 credit prices, and negatively impact the economics of that revenue stream. Finally, as a number of participants pointed out, there is a broader picture for CCS than that represented by those large-scale projects represented in the Sleipner or Quest project. This broader picture brings in technologies that capture CO2 and “mineralize” them into chemical compounds and substances that have economic value.
Government and corporate interests in CCS are not necessarily limited by the difficult economics of the technology. As Shell Canada explained, its decision to proceed with the Quest project had more to do with strategic interests it has in (1) testing out saline aquifer injection and sequestration technologies; and (2) seeking to address global concerns (and potential market access issues) around the carbon intensity of oil sands operations.
Neither the existing carbon tax in Norway (soon to be doubled from approx. $35/t to $70/t) or Shell’s use of a “shadow carbon price” of $40/t in its project planning and capital allocation decisions were seen as “make or break” elements in the decision to proceed with CCS projects. At the same time, while none of the experts saw carbon pricing as the most significant policy driver for CCS, they did see it as one of the necessary conditions to inform CCS development. The high operating costs associated with CCS will necessitate an ongoing incentive to reduce carbon emissions to ensure the technology is continuously used once installed. All pointed to the need to understand the multiplicity of policy objectives and drivers when considering the economics of CCS.
