Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


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October 26, 2009 - In the News

China needs carbon capture and storage technology to decrease its emissions from coal power, but the transition will be costly and difficult. In this report, Gang He surveys an energy dilemma.

Outlook and obstacles for CCS

Appeared in China Dialogue, October 23, 2009

By Gang He

Carbon capture and storage (CCS), a technology that stops carbon dioxide produced by coal plants being released into the atmosphere, is essential in order to cut carbon emissions and thus mitigate the impacts of climate change. Accordingly, China's ministry of science and technology already has a range of CCS technology projects underway. CCS has also featured prominently in the government's National Outlines for Medium and Long-term Planning for Scientific and Technological Development (2006-2020), the National Climate Change Programme and other national plans on basic and high-technology research and development.

Existing demonstration projects include: the GreenGen project, which is a joint initiative by Huaneng and major state-owned energy giants, combining integrated gasification combined cycle (IGCC) technology with CSS; Shenhua's coal-to-liquids and CSS project in Ordos; Huaneng's post-combustion capture project in Gaobeidian in Beijing; and a new project in Shidongkou, in Shanghai.

China is also engaged in international partnerships, such as the UK-China NEZC initiative and Cooperation Action with CSS China EU (COACH). China also participates in the United States-led Carbon Sequestration Leadership Forum and is a part of the FutureGen Alliance. Cooperation agreements are also underway with Japan and Australia.

China is carrying out research, development and demonstration of CCS technology, but it is still at an early stage. According to predictions by the International Energy Agency, by 2050 CCS will provide 14% of the emission reduction required to stabilise the climate, 20% to 25% of which will come from China, with 60% of those cuts coming from the installation of CCS technology in power plants.

Given China's circumstances and strategic needs, our most pressing task is to make preparations for CCS technology and policy.

The importance of CCS

China is a coal-rich country, but lacks oil and gas. According to BP, the country has 114.5 billion tonnes in its coal reserves, about 13.5% of the global total, compared to 2.1 billion tonnes of oil and 66.54 billion cubic metres of natural gas, accounting 1.3% and 1.1% of the world total respectively.

In 2008, China imported 179 million tonnes of crude oil, meaning it relies on imports for 49.8% of its oil consumption. This reliance is increasing. Rocketing oil prices in 2008 gave coal-to-liquids technology a boost, with experts predicting that by 2020, China will be able to produce the equivalent of 35 million tonnes of oil with this method: enough to replace about 25% of oil imports.

However, coal-to-liquids technology is also a significant producer of greenhouse gases, and it will be necessary to reduce those emissions. Therefore, the combination of CCS with coal-to-liquids will be important.

IGCC technology currently achieves 40% to 43% efficiency, and can achieve as high as 50% efficiency. Although the costs are higher than that of super-critical or ultra-super-critical turbines, taking CCS costs into account gives IGCC a clear advantage. Also, IGCC reduces pollutants such as nitrogen oxides and sulphur. IGCC is expected to contribute significantly to energy security, though still with some risks due to high costs and technological uncertainty.

These advanced technologies are integral to future energy strategy. This is important not only for China, but also for other nations who can gain valuable lessons from the country's experiences.

If China uses its late-starter advantage and quickly masters proprietary manufacturing and innovations, it will find advantages in manufacturing costs, personnel and capital, potentially becoming a new centre of manufacturing and exporting.

CCS is a wide-ranging area, covering chemical, power-generating and geological fields. The research, development and demonstration of the technology will lead to rapid progress and technological innovation in these fields.

Obstacles

The costs of capturing carbon are huge. Research from Energy Technology Innovation Policy, at Harvard University in the United States, found that carbon capture alone (not taking into account transportation or storage, for instance) in a first of a kind power plant would cost US$100 to $150 per tonne of carbon that is abated, increasing the cost of power by US$0.10 per kilowatt-hour in comparison to a super-critical pulverised coal plant. Using mature technology, the costs would be approximately US$30 to $50 per tonne of carbon abated. The Special Report on Carbon Dioxide Capture and Storage from the Intergovernmental Panel on Climate Change (IPCC) shows that the addition of CCS technology increases electricity generation costs by 40% to 80%. So, although combining IGCC and CCS can reduce the costs of CCS, the overall costs of electricity generation will still increase 40% to 60%.

China's potential for geological carbon sequestration is huge - but not currently quantified. Joint research by the Pacific Northwest National Laboratory in the United States and the Wuhan Institute of Rock and Soil Mechanics at the Chinese Academy of Sciences calculated a theoretical capacity to store 2,300 billion tonnes of carbon. By calculating distances between potential storage sites and 1,620 major emissions sources, the cost of transportation and storage (not including capture) was estimated to be below US$10 per tonne of carbon.

Due to China's complex geology, there is uncertainly over carbon sequestration. Of the storage methods currently being investigated, CO2 enhanced oil recovery (EOR) and enhanced coal bed methane recovery (ECBM) have the greatest potential, due to the potential for profits.

Public acceptance of CCS also impacts on the feasibility and risks of its adoption. Vattenfall's first CCS demonstration project at Schwarze Pumpe in north Germany had to be abandoned due to public opposition, with the carbon captured pumped straight back into the atmosphere.

Furthermore, the IPCC special report on CCS shows that the addition of CCS reduces the efficiency of coal-burning power generation by 20% to 30% due to energy penalties: a plant operating at 40% efficiency would be reduced to between 25% and 30% efficiency.

In China, the cost of post-combustion capture in power plants would be US$130 per tonne of carbon abated, increasing generating costs by 20% to 30% and reducing efficiency by 8 to 10 percentage points. Therefore, the addition of CCS will require the burning of roughly 25% more coal in order to generate the same quantity of electricity. In 2008, China burned 2.72 billion tonnes of coal, 1.18 billion tonnes of which was used in power generation. If CCS was added to all of China's power plants, an extra 290 million tonnes of coal would be required to generate the same amount of electricity.

The cost of that extra coal consumption will be passed on through the entire coal industrial chain: to personnel, capital, road, rail and water transport, as well as in coal mining, transportation and storage. Factoring these expenses into the overall cost, it is clear that even greater pressure will be exerted on a coal industry already stretched to the limit. And costs would be even higher if "externalities" such as environmental impacts and safety were considered. So, calculating the costs of CCS cannot be restricted to the costs of installing and running the technology: the extra costs the energy system will incur as a result of CCS must be considered.

The price of coal itself accounts for 80% of the costs of generating electricity, hence power plants are very sensitive to changes in the cost of coal. Low margins in the power sector mean it cannot absorb the costs of CSS. Although China's coal sector is gradually starting to operate on market principles, the power industry is still very much under central control. The state has introduced some changes in pricing, but electricity prices are still managed in order to ensure economic growth and social stability.

According to the China Electricity Council, increases and fluctuations in the price of coal last year caused losses for power generators of 70 billion yuan (US$10.3 billion), 40 billion yuan (US$5.9 billion) of which was lost by the five major power firms alone. Therefore, power companies are unable to pass the increase in coal costs on to consumers, much less the costs of CCS.

This is a crucial time for energy saving and emissions reduction, as well as a stage of rapid development in hydro, solar, nuclear and other new energy sources. In 2008, wind power generation capacity increased from 0.76 gigawatts to 13.24 gigawatts. Increasing that to the target of 30 gigawatts will require over 1 trillion yuan (US$146 billion) in investment. For solar power to reach its target of 10 gigawatts, there will need to be around 300 billion yuan (US$44 billion) in investment. Furthermore, the country needs 750 billion yuan (US$110 billion) to achieve its aim of having 5% of all electricity generated by nuclear power by 2020.

The National Energy Administration predicts that China needs 2.5 trillion yuan in investment to meet the target of drawing 16% of all power from renewable sources by 2020. CCS will have to compete with these new energy sources for funding. New energy fits in with China's future overall energy strategy; it will have knock-on effects in terms of upgrading industrial capacity and increasing employment. Therefore, it should be the focus of investment. Currently, there are huge opportunity costs associated with widespread implementation of CCS.

The implementation of CCS in China faces the same obstacles it does globally: issues that arise from the costs, the storage, the risks and the uncertainties. But the coal-and-electricity relationship in China means that the costs of CCS cannot be passed on to end-users with higher prices; the extra expenses will have to be absorbed by the entire energy system.

Therefore, if CCS is to be implemented on a large scale in China, international climate-change mechanisms will need to take financing into account. Without stable external sources of funding, CCS is unlikely to be a priority for development in the short term. The more closely international climate policy is aligned with China's own incentives and the unique context of its coal and power markets, the better chance it will have of realising the optimal role for CCS in global climate efforts.

Considering China's circumstances and strategic requirements on the energy front, discussed in the previous section of this article, there are three aspects of the situation that need attention if the country is to make the technical and policy preparations for CCS.

First, China needs more more capacity building:

  • CCS technology is not yet mature. China needs to focus on research-and-development, particularly with attention to the country's energy security; hold demonstrations of coal-to-liquids, IGCC and CCS technology; explore the economic sustainability of enhanced oil recovery and enhanced coal-bed methane; and analyse and evaluate future CCS technological pathways.
  • China's geology is complex; the country needs to conduct more more surveys of on-shore and off-shore coal, oil, gas basin and salt formations that have the potential for carbon sequestration. Comprehensive surveys of geological structure, storage potential, the risk of leakages and the feasibility of monitoring are necessary.
  • There needs to be risk evaluation and management for all stages of CCS: capture, transportation and storage.
  • China must establish CCS management structures, laws and regulations.
  • China needs to increase public awareness of CCS, which means increasing public knowledge of the value and the risks of the technology.

Second, sources of funding should be expanded. Currently, fund transfers mainly take place via the international carbon market. As the funds available for CCS in China are very limited, international financial investment and support are very important.

The Clean Development Mechanism (CDM) is one of the Kyoto Protocol's three mechanisms, and is a key part of encouraging developing nations to participate in global emission reductions. Currently, its executive board has raised the possibility of allowing CCS projects under the CDM. This is still highly controversial; opponents hold that CCS emissions reductions will weaken the effectiveness of the CDM's market in Certified Emission Reductions (CERs).

In the current market, carbon dioxide (CO2) costs between 8 and 23 Euros (US$12 to $34) per tonne: much less than the cost of CCS (from 50 to 100 Euros, or US$75 to $150, per tonne of CO2). Even if CCS were included as a CDM project, there would be a significant price gap, which means CCS would have to be funded through other channels.

The fluctuating price of CERs also means that CCS will struggle to attract stable investment through this channel. Sectoral emissions reduction mechanisms may bring the power sector as a whole into emissions reduction arrangements, but this is still at an exploratory stage. Therefore, an international climate-change agreement must find new financial mechanisms to meet the needs of CCS implementation.

Third, we must strengthen international cooperation. International probes into CCS are still underway. The United Kingdom has legislated that new power plants must be "carbon-capture ready" if they are to connect to the power grid. The United States has announced an investment of US$1 billion to restart the FutureGen project, and is to build an IGCC+CSS demonstration plant in the mid-western state of Illinois. The European Union's economic stimulus plan includes 1.05 billion Euros (around US$1.6 billion) in investment for CCS technology at seven power plants, with a "CCS Alliance" of 12 demonstration plants to be formed by 2012. In July 2009, China and the US announced plans to develop the "US-China Clean Energy Research Center".

As cooperation between China and the US, Canada, the EU, Japan, Australia and other countries continues in the CCS field, China will form global links to the CCS industry, remain up-to-speed with technical advances and exchange know-how. This will lay the foundations for China to master the technology - and participate in the global effort to address climate change.






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