The Economics of CCS
CCS is expensive. No disagreements here. Exactly how expensive, however, is hard to say.
Recent desktop estimates suggest:
- €60-90/ton CO2 reduced for demonstration projects
- €30-45/ton CO2 reduced for full-scale projects (in 2030).
A comprehensive calculation based on a projected CCS plant in Mongstad in Norway, however, indicates a price around €230-240 per ton CO2 reduced.
For comparison, allowances in the EU Emission Trading System, ETS, have traded below €15 per ton CO2 in most of 2009. Quota prices fluctuate, it is a fact though that they would have to reach historically unprecedented heights to make CCS viable on market conditions.
One of the most conspicuous weaknesses of CCS in any case is cost. CCS is not a single technology but rather a complex of large technical devices like capture facilities, transport infrastructure, injection facilities and monitoring equipment. Each of these requires large investments.
In an economic sense the technological scope of the CCS system in itself is a built-in handicap, in as much as both the construction and the operational phases involve large costs, energy and CO2 emissions. This built-in contradiction makes it virtually impossible to see how CCS in the long term could become competitive from an economic point of view.
What exactly is meant by the economic efficiency of a particular technology?
CCS ' economic efficiency
The economic efficiency of a certain mitigation technology can be expressed in costs per ton of CO2 reduced. All costs of a given technology must be included and these must be compared to the net CO2 reductions the technology can deliver. The lower the costs the stronger the technology is from an economic standpoint. In this sense CCS is a rather weak technology since CO2 reduction by CCS presupposes excessive funding for investment as well as operation.
The exact amount of costs is at this stage uncertifiable. For two reasons:
1) no market prices for full-scale plants exist
2) CCS systems are a mix of a large number of heterogeneous components like (type of) technology, fuel, scale, transport form and -distance which all according to their composition lead to different patterns of costs.
The closest we can get to a reliable impression of CO2 reductions by CCS at full scale is to take a look at the projected natural gas power plant with CCS in Mongstad, Norway. See below.
The chain of costs of a coal-fired CCS plant involve:
· Extraction and transport of approx. 40% more coal,
· Construction of CCS plant
· Capture of CO2
· Construction of transport infrastructure
· Transport of captured CO2 (boosting, maintenance)
· Injection and storage of captured CO2
· Safeguarding storage,
· Monitoring and control of storage facilities
The cost per ton CO2 depends on the size of the facility, the chosen technology (pre combustion, post combustion, oxyfuel), fuels (coal, gas, oil, biomass and mixtures), requirements of purity, transport form, distance between source and storage - combinations are virtually unlimited.
Determining the economic efficiency of CCS demands all these costs to be distributed over the total net reduction of CO2.
Net reductions are calculated as the sum of CO2 emissions that occur in all stages of the CCS chain (including leaks and seepage during transportation and storage) plus CO2 emissions related to the additional consumption of energy (approx. 40%) minus the amount of CO2 captured at the CCS plant and subsequently stored underground. (See these official assessments.) Emissions related to production and transport of extra energy are inevitable with CCS. They must of course be accounted for on the debit side of the system's overall economic efficiency. The exact cost of reducing one ton of CO2 with CCS is hard to assess whereas it is obvious that CO2 emissions from all stages in the CCS chain must be counted and subtracted from the amount of CO2 that is finally stored.
A number of sources have attempted to assess the cost level of CCS: IPCC, IEA, MIT, WRI and McKinsey. (Links refer to the specific CCS reports.) All sources stress that uncertainties are substantial and they all indicate wide ranges of costs. The definitions of CCS differ from source to source and their results are not always comparable. Assumptions and preconditions for calculations are generally intransparent - McKinsey being a clear exception.
IPCC (2005) indicates a range of USD 20-270/tCO2. The assessment is from 2005. It includes the following statement: "Most modelling as assessed in this report suggests that CCS systems begin to deploy at a significant level when CO2 prices begin to reach approximately USD 25-30/tCO2."
IEA (2004) speaks of "likely costs" in the vicinity of USD 5-50/tCO2 "in the capture process, USD 2-20/tCO2 for transporting the captured CO2 and USD 2-50/tCO2 for injection and storage.” All in all a range of USD 9-120 /tCO2.
MIT (2006) arrives at USD 48-71,4/tCO2 for a variety of plant types.
WRI (2008) mentions no exact figures on CO2 costs, but emphasizes the likelihood of rising costs for CCS in the future and accentuates the companies' interest in announcing low prices: "Engineering, procurement, and construction costs for all power plants are currently on the rise. Increasing input costs of materials (eg metals, steel, and cement), as well as labor costs, are pushing construction costs for all power plants higher. Cost estimates vary greatly throughout the industry, much depends on Whether capitalized interest and soft costs are included. Many power companies will cite the "overnight cost" of a plant rather than total cost in order to minimize the figure, which is misleading. "
McKinsey (2008) is the author of a report, based on background knowledge and data supplied by 50 large enterprises in the power sector, oil and gas industry, manufacturers of energy equipment and other CCS stakeholders.
Three types of CCS projects are dealt with: 1) demonstration projects with a "typical cost differential" of €60-90/tCO2, 2) early commercial CCS projects: €35-50/tCO2 and 3) full-scale projects in 2030 €30-45/tCO2 which happens to correspond neatly with some observers´ estimate of the price of allowances in the EU ETS at that time!
Lately (April 2009) a working paper entitled Economic Optimality of CCS Use: A Resource-Economic Model from Kiel Institute for the World Economy emphasizes the importance of observing increasing storage costs in accordance with the progressive exploitation and replenishment of stocks globally. This working paper is rather theoretical and does not provide specific cost figures. The above mentioned estimates CCS costs are miles below the magnitude an example from the real world seems to suggest. Much indicates that the cost estimates in these reports are significantly undervalued.
An example of a full scale CCS plant: Mongstad, Norway
Norwegian power corporation Statoil´s project in Mongstad aims at CO2 reduction through CCS from a natural gas-fired power plant and a refinery. This project is as close as it gets to a facility projected at full scale with comprehensive and thorough estimates of investment and operating costs. It should be noted that the project costs are not readily comparable to CO2 capture from coal-fired plants. The investment and operating costs mentioned below pertain only to the capture stage. A number of other costs including construction of transport infrastructure, transport, injection, storage and monitoring of the captured CO2 should be added for an accurate picture.
The projected CCS installations are designed to capture approx. two million tons of CO2 per year of which approx. 1.2 million tons of CO2 from the power plant and about. 0.8 million tons from the refinery. The project is described in detail in this Masterplan.
We are talking about a mega project: "The capture plants studied in this report demand an area of approx. 150 000 m2, corresponding to approx. 20 football pitches. The plants will require 55 MW of electricity, the equivalent of some 17 000 housing units." The plant will be equipped with some of the largest devices and mechanical components ever built. Cost and risk assessments for the investments point to a very high degree of uncertainty: "For projects in this phase the degree of uncertainty usually ranges in a -30% / +40% interval at an 80% confidence interval (the likelihood of occurring within the indicated interval). Risks in this project, however, are probably even higher since the project involves extensive use of new technology, a type of project that neither SH or the industry have relevant experiences with and because the project entails voluminous construction activities within an existing complex industrial plant already in operation. " This may in practice mean that the investment costs might be up to 1.5 times higher than those provided below.
The investment requirements of CCS installations for the power plant and the refinery together is estimated at 25 billion current Norwegian kroner or €2,96 billion. 50% of these go to capture at the power plant, 20% go to capture at the refinery and 30% are common utility systems for both capture plants.
The annual operating costs (power, steam, chemicals, salaries, maintenance, service etc.) is estimated at between 1.0 and 1.7 billion. Norwegian kroner or between €120 and 200 million in 2020. Energy costs represent 50-70% of the operating costs that will consequently vary in accordance with future energy prices.
Based on the estimated investment and operating costs Statoil estimates that total costs per captured ton of CO2 would be around 1300 to 1800 Norwegian kroner or 154 to 213 euros (2008 price level at 7% discount rate). Costs of transporting captured CO2, injection, storage and building of transportation infrastructure should be added to these numbers for a full cost estimate. If these are stipulated to be just 20% of the capture costs the CO2 reduction costs in this case will land somewhere between 1560 and 2160 Norwegian kroner or €185 and 255 per ton. With the above-mentioned uncertainty (-30 / +40%) the range expands to 1100 and 3000 Norwegian kroner per ton of CO2 or €130-355/tCO2 or a mean value of some €240 per tonne of CO2.
The calculations above do not account for the CO2 emitted in producing and transporting the inevitable extra energy needed to capture CO2. Mongstad indicates a significantly higher order of magnitude per ton of CO2 reduced through CCS than the desktop reports suggest. In the long term the price could be even higher. Generally technological advances over time lead to a reduction of costs. In this case, however, the effects will be quite limited compared to the price increases that lie in the cards for key cost components of CCS: coal, gas, oil, steel, nickel, aluminium, cement etc. Furthermore it should be kept in mind that mega-projects (projects with investments of more than USD 1 billion) dependent on public funding have a tradition of budgetary underestimation compared to actual costs, as among others Danish researcher Bent Flyvbjerg has documented in several papers.
With a cost outlook for CCS like this it is no surprise that the economic stakeholders of the technology are doing what they can to make the public pay for development and dissemination of the technology.
How high must the political CO2 price be for CCS to become profitable at full scale from a private economic point of view ?