As anyone who ever opens a newspaper will be aware, the ongoing debate about climate change — its extent, its impact and what can and should be done about it — continues, while the world’s seemingly insatiable desire for energy accelerates. The fact is that we are still a long way away from the deployment of large-scale, sustainable power generation technologies that emit zero carbon. As a result, the energy needs of both the western world and the developing world (in particular India and China) will continue to be met by fossil fuels, and particularly coal, for the foreseeable future. At the same time, governments and international bodies are setting targets to reduce the amount of CO2 being produced in an attempt to combat climate change. Balancing the world’s need for energy against the perils of climate change means that all available mitigation technologies are being considered. One of these is carbon capture and storage.
Carbon Capture and Storage — A Description
Carbon capture and storage (CCS) is the process of capturing the CO2 produced during combustion of fossil fuels such as gas, oil and coal and storing it on a permanent basis, usually by putting it into geological formations such as depleted oil and gas fields, salt caverns or aquifers. The Stern Review, a landmark report on climate change, identified the strategic role that CCS could play in reducing CO2 emissions, and suggested that it could contribute up to 28 percent of global carbon mitigation by 2050. The Intergovernmental Panel on Climate Change (IPCC) estimates that CCS could reduce emissions from fossil fuel power generation by as much as 90 percent.
The technology to capture CO2 is available at the moment; however, industrial application so far has been on a relatively small scale. A large-scale carbon capture system has yet to be built at a power station. There are three ways to capture CO2:
(i) post-combustion — the fuel is burned in the normal way and CO2 is removed from the flue gas, usually by dissolving the gas in an industrial solvent such as amine, separating the CO2 and recycling the solvent;
(ii) pre-combustion — the fuel is converted into CO2 and hydrogen by a process called gasification and the CO2 is removed before combustion; and
(iii) oxyfuel combustion — the fuel is burned in pure oxygen, producing CO2 and steam. When the steam condenses, a pure stream of CO2 is produced.
As for the storage of CO2, the current favored option is geological storage. CO2 is already used in the oil industry in a process known as enhanced oil recovery. The process involves injecting CO2 into oil and gas fields so as to push trapped hydrocarbons out of the formation. The geology that kept the oil and gas in place then acts in exactly the same way for the CO2, trapping it underground. As CO2 emissions have become more of an issue, the value of being able to keep CO2 in such formations has been recognized. There are currently two large projects on the Snøhvit and Sleipner fields in the Norwegian North Sea and another under development in Algeria which are designed to act as carbon stores once all the oil and gas have been extracted. Large underground salt caverns and aquifers act in a similar way. CO2 also has numerous industrial uses and can be used as a chemical reagent to produce carbonates such as limestone and other chemicals. While this is a useful application for small quantities of CO2, it is expensive and is unlikely to be suitable for the large volumes of gas that are produced by a commercial power station.
The UK and EU Approach
The UK government made its position on CCS clear in the Energy White Paper of May 2007. It believes that CCS can play an important part in carbon abatement, particularly in developing countries. The White Paper identifies two key areas to be addressed in order to develop CCS, both in the UK and internationally:
(i) the removal of existing legal and regulatory barriers and the establishment of a suitable enabling regime; and
(ii) the commissioning of a demonstration project in the UK.
Concurrently the EU is also working on CCS. The European Council has stated that Europe should aim for all new fossil fuel power stations built after 2020 to be fitted with CCS and that there should be at least 12 demonstration CCS projects in Europe by 2015.
Current Legal Regime in the UK
There are three stages involved in CCS: capture, transport and storage. Both capture and transport are not novel activities and while there may be legislative amendments necessary to permit these activities (health and safety and pipeline legislation will need to be reviewed, for example), it is unlikely that primary legislation will be needed to enable the development of these aspects of CCS. Permanent storage of CO2 is a different matter, however. A great deal of debate has taken place about whether permanent storage of CO2 constitutes waste disposal, and there is something of a consensus, certainly at the EU level, that onshore storage would contravene existing waste legislation. The Directive of the European Commission seeks to address these issues, but the timetable for enacting the Directive, namely entry into force by April 2009 and transposition into national law during 2010, means that there is still a period of time before onshore disposal will be possible. The UK government believes that it is important to progress CCS, and therefore has elected to put in place its own legislative arrangements before the Directive comes into force. Because of legislative restrictions on waste and planning, the UK government has decided to put in place a legal and regulatory regime that covers offshore storage only.
At present, CO2 storage in offshore geological formations is not permitted. The UK is party to numerous international agreements relating to maritime matters, including two agreements that deal with the deposition of material in the sea and onto the sea bed. These are the London Protocol to the London Dumping Convention (“London Protocol”) and the Convention for the Protection of the Maritime Environment of the North-East Atlantic (“OSPAR Convention”). Until recently, both these agreements would have prevented the storage of CO2 in the seabed (other than in the case of enhanced oil recovery). However, following discussion by the relevant bodies, both agreements have been amended to permit CO2 storage in specified circumstances. In particular the OSPAR Convention, as amended, will permit CO2 storage only where the disposal is into a geological formation, the gas being stored is made up almost entirely of CO2, and the CO2 is to be stored permanently. The amendment to the London Protocol came into force in early 2007; the amendment to the OSPAR Convention will come into force when at least seven contracting parties have ratified it. At press time, the requisite number of ratifications has not been achieved, but the contracting parties are actively working to obtain a solution.
UK Legislative Proposals
The UK government recently published its Energy Bill, setting out, in Part 1, Chapter 3, the proposed regime for CCS. Under the United Nations Convention on the Law of the Sea (UNCLOS) coastal states may assert rights within an area (known as the exclusive economic zone) extending from the edge of the 12-nautical-mile limit of the territorial sea for a further distance of 188 nautical miles (a total of 200 nautical miles). These rights include sovereign rights over all natural resources including any storage space under the sea bed. The UK has not previously asserted rights in relation to permanent carbon storage. The Energy Bill asserts these rights and vests them in the Crown.
Persons wishing to undertake CCS will need to comply with the proposed dual leasing and licensing arrangements. The regulatory regime for CO2 storage is based on a system of administratively granted exceptions to a general prohibition against the carrying on of CCS activities within UK waters. The model is therefore very similar to that already used to regulate the electricity and onshore gas industries in the UK. The activities for which a license will be required are:
(i) use of a controlled place for the storage of CO2 (either with a view to permanent disposal or as an interim measure prior to permanent disposal);
(ii) the conversion of a natural feature in any controlled place for the purpose of storing CO2 (either with a view to permanent disposal or as an interim measure prior to permanent disposal);
(iii) the exploration of a controlled place for any of the above purposes; and
(iv) the establishment and maintenance of an installation in a controlled place for the purposes of the above activities.
The Energy Bill defines a “controlled place” as being any place within the limits of the territorial sea adjacent to the UK or within the exclusive economic zone as defined by UNCLOS. The UK Secretary of State is permitted to make regulations concerning potential applicants for a license, the information to be contained in license applications, the fees to be charged for applications, the financial security to be provided by applicants for future obligations (such as decommissioning) and the content of licenses. These powers will be similar in scope to the current petroleum licensing regime, although it is interesting to note that there is no provision allowing the promulgation of model clauses by the Secretary of State.
The lease referred to in the Energy Bill is a lease from the Crown Estate. The Crown Estate owns the sea bed within the territorial sea (i.e., the 12 nautical miles from the shore) and therefore clearly has an interest in CCS projects that take place within the territorial sea. It is less clear what rights it enjoys in relation to Her Majesty’s rights to storage within the exclusive economic zone. As a result, the precise nature of what the “lease” referred to in the Energy Bill may entail is yet to be determined.
The Energy Bill is very broadly drafted and there is little by way of detail. Clearly the Crown Estate will be involved as lessee and the Department for Business Enterprise and Regulatory Reform (BERR) will be responsible for issuing CCS licenses in UK territorial waters and the economic exclusive zone. How the license and the lease will interact is not explicitly set out in the Energy Bill, although there are references to such matters as the period of the license and its commencement being determined by reference to the lease.
Unlike in an offshore oil project, CCS projects are intended to have a perpetual duration. The Energy Bill applies the current oil and gas decommissioning regime to offshore CCS projects, and envisions similar financial security arrangements to ensure that licensees do not shirk their decommissioning responsibilities. Once a storage facility is full (or the power station to which it is connected is itself decommissioned) the licensee will be expected to cap the wells and return the seabed to an acceptable condition. The Crown will then retain liability for the storage facility in perpetuity. The Energy Bill allows the Secretary of State to appoint inspectors to carry out his functions under the CCS sections of the Energy Bill. These functions would include ongoing monitoring and, if necessary, maintenance.
The UK Demonstration Program
In November 2007 the UK government formally launched a CCS demonstration competition as part of its carbon abatement strategy. In the current market it is simply not economical to build a coal-fired power station that includes a CCS system. The UK government hopes that by launching its demonstration project and providing capital subsidies, it will be able to show the world that it is possible to construct such a facility on a commercial scale. The technical specification for the demonstration is fairly prescriptive, and in particular requires that post-combustion technology is used for the carbon capture element of the project. Post-combustion was chosen because it can most easily be retrofitted onto an existing plant. The demonstration project must cover the full chain of CCS technology on a 300-MW coal-fired station and must demonstrate the full CCS chain by 2014 — although BERR has indicated that it would accept a phased approach. The government hopes that the demonstration will encourage the wider deployment of CCS not just in Europe but across the rest of the world, particularly in India and China. Nine projects were initially under consideration to take part in the demonstration, but only two — Germany’s E.ON’s Kingsnorth project and RWE’s Tilbury project — are known to have been submitted for prequalification. According to the original BERR timetable, prequalified bidders should have been announced in April 2008 but at press time there has been no announcement. It is not clear at the moment how much further the timetable will slip.
CCS is not without its critics. One of the biggest issues is that CCS is not economically viable at the moment. There are many factors that will impact the future success of CCS, many of which are difficult to predict with any degree of accuracy. The price of coal, gas, electricity and carbon all play a significant role in the pricing of CCS and its future viability. The processes involved in CCS are themselves relatively energy intensive, which reduces the efficiency of the stations to which the equipment is fitted. Although the technology for capture, transport and storage is largely well established, a single large-scale CCS project has never been built on a power project. CCS does not get rid of CO2; it dumps the by-product as waste in a hole in the ground, and of course CCS does nothing to interrupt mankind’s continuing addiction to fossil fuel.
That said, it seems likely that CCS will be one of the mitigation tools that is used to reduce CO2 levels in the near- to mid-term. The UK demonstration project is clearly an important milestone if it can be successfully completed. The EU has also signaled that it wants more demonstration plants to be built. The existing uncertainties around CCS need to be dealt with as soon as possible. One key decision will be how CCS is treated in the third round of the EU Emissions Trading Scheme. The issue is currently being debated and it seems likely that credits will be made available to CCS schemes. This should help to relieve some of the uncertainty facing would-be CCS developers and bring economic viability for CCS a little closer.