Research Economics and Costs

Project: The Role of CCS as a Mitigation Technology and Challenges to its Commercialization

Research Team: Sadia Raveendran and Howard Herzog

Sponsor: Carbon Sequestration Initiative

Year: 2013

Abstract:
Greenhouse gases are being emitted at an increasing rate, which may cause irreversible damage to the earth’s climate. Considering the magnitude of CO2 emissions from industrial facilities and power plants, carbon capture and storage (CCS) is expected to play an important role in mitigating climate change. The estimated contribution of CCS to a given emissions reduction target depends on assumptions made about various factors such as the availability of the technology, the availability of substitutes such as nuclear technology, and the stringency of emissions reduction targets. Given that the global energy economy has largely been operating in “business as usual” mode, the effective implementation of a carbon policy is likely to be delayed. In addition, other trends in the energy sector such as the availability of inexpensive gas-based generation and the uncertainty related to nuclear capacity expansion may also have an impact on the role of CCS. Part A of this thesis analyzes the importance of CCS as a mitigation technology under different future policy responses and incorporating these current trends.

Using the Emissions Prediction & Policy Analysis (EPPA) model developed by the Joint Program on the Science & Policy of Global Change at the Massachusetts Institute of Technology (MIT), the study finds that the more stringent the emission caps, the more important the role of CCS becomes. In addition, the role of natural gas based generation is found to be transitional in its contribution to emissions reduction. Consequently, the availability of inexpensive gas-based generation does not eliminate the need for CCS towards the end of the century. Furthermore, advanced nuclear technology and CCS are found to be close substitutes for technologies that serve the needs of a low-carbon economy in the latter half of the century. The role of one technology, therefore, is in part determined by how technological development and cost reduction occurs in the other.

Part B of this thesis focuses on challenges experienced in the current demonstration phase of CCS technology development.  Most demonstration projects are typically supported by a combination of policy incentives such as grants, investment tax credits, production tax credits, loan guarantees, or additional sources of revenue. Regardless, many of these demonstration projects have been cancelled in the recent past primarily due to poor project economics. A financial model was developed and used to analyze the impact of each of these policy incentives on project economics. In addition, case studies have been conducted on two major demonstration projects: ZeroGen (Australia) and the Kemper Country (USA).

The study finds that even with the combined impact of all incentives, first-of-a-kind CCS plants are not economical when compared to supercritical pulverized coal plants. CCS and similar low carbon technologies are also facing increasing economic pressure from cheaper natural gas-based electricity. These factors, in addition to endogenous risks associated with first-of-a-kind plants, are likely to deter potential developers.  Therefore, CCS demonstration plants may require other policy mechanisms such as a rate-based pay that allow costs to be passed on to consumers. Policymakers may need to consider the distributional impacts of such a mechanism because costs are borne by consumers within a particular jurisdiction whereas the benefits of commercializing CCS accrue to a larger group of consumers. Regardless, incurring costs in the short-term may be inevitable to ensure the availability of CCS as a competitive, longer-term low carbon technology option.

Publications:
Raveendran, S.P., "The Role of CCS as a Mitigation Technology and Challenges to its Commercialization," M.I.T. Masters Thesis, May (2013). <PDF>