juho lipponen - ccs incentive policies: lessons and strategies - presentation at the global ccs...
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Incentive policies for Incentive policies for
Carbon Capture and Storage:Carbon Capture and Storage:Lessons and StrategiesLessons and Strategies
© OECD/IEA 2010
Lessons and StrategiesLessons and Strategies
5 October 20115 October 2011
Juho LipponenJuho Lipponen
Head of Unit, Carbon Capture and StorageHead of Unit, Carbon Capture and Storage
International Energy AgencyInternational Energy Agency
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International Energy Agency
IEA countries
OECD countries, but not IEA members
© OECD/IEA 2010
� Inter-governmental body founded in 1973, currently 28 Member Countries
� Policy advice and energy security coordination
� Whole energy policy spectrum and all energy technologies
� Key publications: World Energy Outlook and Energy Technology Perspectives
� Host to more than 40 technology-specific networks (“Implementing
Agreements”)
� Operated independently with their own membership and financing
� Includes IEAGHG, IEA Clean Coal Centre etc.
� Active in CCS since 2000; dedicated CCS unit created in 2010
� Provides policy advice
� Supports broader IEA cross-technology analysis
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CCS @ IEA:
WORK PROGRAMME
CCS Strategy & Policy Technical & Economic
© OECD/IEA 2010
Legal & RegulatoryCapacity-Building &
Collaboration
Global Policy Fora
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CCS in Industrial Applications:� 4Gt of reductions potential in 2050
© IEA/UNIDO 2011
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POLICY IS CRITICAL FOR CCS
1. Enabling CCS as part of energy portfolio
2. Making CCS a legal activity & clarifying
responsibilities
3. Ensuring safety and environmental
© OECD/IEA 2010
3. Ensuring safety and environmental
viability of operations
4. Providing incentives for demonstration
and deployment
� Business models & financing of projects
5. Contributing to public acceptance
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INCENTIVES?
FINANCING?
INCENTIVE
Policy push or market pull mechanism
that provides an earning logic for CCS
© OECD/IEA 2010
that provides an earning logic for CCS
projects (”ensures bankability”)
FINANCING
Becomes possible when the earning
logic or bankability is established
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Business
© OECD/IEA 2010
Government
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WHY DO WE TALK ABOUT INCENTIVES?
1. LEVEL OF ECONOMY / SOCIETY:
To meet the IEA CCS Roadmap ambitions, almost USD 5 trillion will need to be invested in CCS installations.
0
500
1,000
1,500
2,000
2,500
$b
n
© OECD/IEA 2010
02010-2020 2020-2030 2030-2040 2040-2050
Other OECD USA China India Other Non-OECD
Fuel Coal
(similar for all capture routes;
relative to a pulverized coal
baseline)
Natural gas (post-
combustion)
Efficiency
penalty 10 %-points 8 %-points
Capital
costs
3 800 USD/kW
(74% increase)
1 700 USD/kW
(82% increase)
Cost of CO2
avoided55 USD/tCO2 80 USD/tCO2
2. PROJECT / COMPANY LEVEL:
Investment in early CCS facilities represents prohibitive capital cost and decreases efficiency leading to increased operating cost.
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WHY DO WE TALK ABOUT INCENTIVES? (2)
© OECD/IEA 2010
Source: EU
Zero-Emissions
Platform
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ECONOMIC CHARACTERISTICS OF CCS
TECHNOLOGY WILL EVOLVE
CCS Costs/
carbon
price
The cost of most applications of CCS is currently significantly above carbon prices/penalties (where they exist); by 2050 it is expected that this will reverse.
© OECD/IEA 2010
Carbon price or
tax
CCS unit costs
Early stageMiddle stage Late stage
Time
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ARE POLICY OBJECTIVES CLEAR?
� Reducing emissions
� Ensuring technology learning
Ensuring access to capital markets
© OECD/IEA 2010
� Ensuring access to capital markets
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CCS POLICY OBJECTIVES WILL EVOLVE
Policy objective Example policies Importance over time
� Short to mid term focus on learning and access to
capital
� Long term focus shifts towards emissions cuts
� Different objectives – different policy tools
© OECD/IEA 2010
Emissions reductionCarbon tax, emissions trading
Technology learning Feed-in tariff
Access to capital market
Provision of debt, equity, insurance
Optimised Infrastructure
Regulation
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POLICIES TO ADDRESS DIFFERENT
OBJECTIVES
Reducing emissions
Technology learning
Access to capital markets
Cap and trade Capital grant Co-investment
equity
Carbon tax Production
subsidy
Provision of debt
Baseline and Investment tax Credit guarantees
© OECD/IEA 2010
Baseline and
credit
Investment tax
credit
Credit guarantees
Feebate Production tax
credit
Insurance
products
Emissions
performance
Standard
Feed-in tariff
CO2 purchase
contract
Premium feed-in
tariff
Portfolio standard
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TOWARDS A POLICY STRATEGY
INCENTIVE POLICY ARCHITECTURE
Long-term framework of how different
policies are employed
POLICY TOOLS
© OECD/IEA 2010
POLICY TOOLS
Individual policy tools responding to
relevant objectives
POLICY GATEWAYS
Breakpoints in time/development when
policy moves from one stage to next
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� CCS a challenging area for policy-makers
� Ability to adapt and modify policy as technology changes
or new information comes to light...
� ...but the (perception of) changing policy may damage
investment
� “Policy gateways” might help overcome this
challenge:
POLICY “GATEWAYS”
© OECD/IEA 2010
challenge:
� policies employed in each stage
� Criteria defining when or if policy will move to next stage
� an outline of the reaction if gateways are missed
� Can lower government risk from imposing
poor value for money
� Can lower policy risk for investors
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POLICY ARCHITECTURE AND GATEWAYS
Carbon
price
CCS Cost/
carbon price
Technical
demonstrationSector-specific deployment Wide-scale deployment
Long-term policy architecture can enhance credibility and effectiveness
© OECD/IEA 2010
‒ Quantity support
mechanism
price
CCS unit
costs
‒ Carbon price
Time
‒ Capital grants
‒ Operating
subsidies
‒ Loan
guarantees
First Gateway Second Gateway
‒ Technical feasibility
‒ First cost threshold
‒ Availability of firm
storage capacity
‒ Further cost reductions
‒ Infrastructure development
‒ Availability of firm storage
capacity
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EXAMPLES OF CURRENT INCENTIVE POLICIES
US: Demo funding
EU: NER300, EEPR
AUS: Flagship pr.
UK: CCS competition
NO: Mongstad
Etc..
UK: 2011
Electricity
Market Reform
NO: Carbon tax
US: EOR projects
© OECD/IEA 2010
‒ Quantity support
mechanism
Carbon
price
CCS unit
costs
CCS Cost/
carbon price
‒ Carbon price
Time
‒ Capital grants
‒ Operating
subsidies
‒ Loan
guarantees
Technical
demonstrationSector-specific deployment Wide-scale deployment
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FURTHER ANALYSIS
� Incentives suited for industry-CCS
� Quantifying the value of
transferring long-term liability
� Extra incentives for biomass-CCS
© OECD/IEA 2010
� Extra incentives for biomass-CCS
(”valuing a ton removed vs.
reduced”)
� Innovative solutions esp. for
developing countries
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CONCLUSION:
”Generic policy advice”
1. Be clear about policy objectives
2. Suit incentive policy to technical
maturity
© OECD/IEA 2010
maturity
3. Plan incentive strategy long-term
4. Plan for a coherent mix of
incentives, not just one
5. Create certainty!