Price fluctuations in the EU emissions trading system (ETS) make it difficult for carbon capture and storage (CCS) projects to attract finance, delegates at a UN Cop 29 climate conference side event in Baku, Azerbaijan, heard today.
Fluctuations in the EU ETS price make it more difficult to model the support provided to CCS projects through avoided compliance costs, law firm Latham & Watkins partner Jean-Philippe Brisson said.
These ups and downs are "very difficult for corporates", Japanese bank MUFG director Yukimi Shimura said. The benchmark front-year EU ETS contract has closed at an average of €66.20/t ($69.82/t) of CO2 equivalent (CO2e) so far this year in Argus assessments, compared with €85.30/t CO2e last year.
While carbon pricing is an "absolute must" for CCS, if ETS cost avoidance is your only revenue stream it is very difficult to convince financials or board members to support projects, Swiss cement major Holcim vice president Pavan Chilukuri said, as the long-term viability of projects is not guaranteed.
Additional funding is therefore needed to accelerate project implementation, Chilukuri said. This could be in the form of revenues from carbon dioxide removal credits — generated when plants run on biogenic energy and the carbon captured — or carbon contracts for difference.
The CCS hub concept — where a number of sites capturing CO2 are located near each other to make use of the same transportation and storage infrastructure — can also help to limit costs, he said.
But hubs come with their own cross-chain risks, Shimura said, including uncertainty surrounding liability for issues such as delays.
The UK government — which is developing two CCS clusters — is doing an "excellent job" to minimise such risks, Shimura said. But more needs to be done in the US and Asia, with a role to be played by governments, she said.
Most CCS activity remains concentrated in the US because incentives there are very strong and fixed for 12 years, Brisson said, referring to the $85/t tax credit for CCS offered under the country's Inflation Reduction Act.
But even this is now "not good enough", Shimura said, as inflation has pushed costs up since the figure was set.
