Credibility of incentives (a function of policy and politics) is a key, researchers say
From: University of California San Diego
March 22, 2021 -- There are 12 essential
attributes that explain why commercial carbon capture and sequestration
projects succeed or fail in the U.S., University of California San Diego
researchers say in a recent study published in Environmental
Research Letters.
Carbon capture and sequestration (CCS)
has become increasingly important in addressing climate change. The
Intergovernmental Panel on Climate Change (IPCC) relies greatly on the
technology to reach zero carbon at low cost. Additionally, it is
among the few low-carbon technologies in President Joseph R. Biden’s proposed $400
billion clean energy plan that earns bipartisan support.
In the last two decades, private
industry and government have invested tens of billions of dollars to capture
CO2 from dozens of industrial and power plant sources. Despite the extensive
support, these projects have largely failed. In fact, 80 percent of projects
that seek to commercialize carbon capture and sequestration technology have
ended in failure.
“Instead of relying on case studies, we
decided that we needed to develop new methods to systematically explain the
variation in project outcome of why do so many projects fail,” said lead
author Ahmed Y. Abdulla, research fellow with UC San Diego’s Deep Decarbonization Initiative and
assistant professor of mechanical and aerospace engineering at Carleton
University. “Knowing which features of CCS projects have been most responsible
for past successes and failures allows developers to not only avoid past
mistakes, but also identify clusters of existing, near-term CCS projects that
are more likely to succeed.”
He added, “By considering the largest
sample of U.S. CCS projects ever studied, and with extensive support from
people who managed these projects in the past, we essentially created a
checklist of attributes that matter and gauged the extent to which each does.”
Credibility of incentives and revenues
is key
The researchers found that the
credibility of revenues and incentives—functions of policy and politics—are
among the most important attributes, along with capital cost and technological
readiness, which have been studied extensively in the past.
“Policy design is essential to help
commercialize the industry because CCS projects require a huge amount of
capital up front,” the authors, comprised of an international team of
researchers, note.
The authors point to existing credible
policies that act as incentives, such as the 2018 expansion of the 45Q tax credit.
It provides companies with a guaranteed revenue stream if they sequester CO2 in
deep geologic repositories.
The only major incentive companies have
had thus far to recoup their investments in carbon capture is by selling the
CO2 to oil and gas companies, who then inject it into oil fields to enhance the
rate of extraction—a process referred to as enhanced oil recovery.
The 45Q tax credit also incentivizes
enhanced oil recovery, but at a lower price per CO2 unit, compared to dedicated
geologic CO2 storage.
Beyond selling to oil and gas companies,
CO2 is not exactly a valuable commodity, so few viable business cases exist to
sustain a CCS industry on the scale that is necessary or envisioned to
stabilize the climate.
“If designed explicitly to address credibility,
public policy could have a huge impact on the success of projects,” said David
Victor, co-lead of the Deep Decarbonization Initiative and professor of
industrial innovation at UC San Diego’s School of Global Policy and Strategy.
Results with expert advice from project
managers with real-world experience
While technological readiness has been
studied extensively and is essential to reducing the cost and risk of CCS, the
researchers looked beyond the engineering and engineering economics to determine
why CCS continues to be such a risky investment. Over the course of two years,
the researchers analyzed publicly available records of 39 U.S. projects and
sought expertise from CCS project managers with extensive, real-world
experience.
They identified 12 possible determinants
of project outcomes, which are technological readiness, credibility of
incentives, financial credibility, cost, regulatory challenges, burden of CO2
removal, industrial stakeholder opposition, public opposition, population proximity,
employment impact, plant location, and the host state’s appetite for fossil
infrastructure development.
To evaluate the relative influence of
the 12 factors in explaining project outcomes, the researchers built two
statistical models and complemented their empirical analysis with a model
derived through expert assessment.
The experts only underscored the
importance of credibility of revenues and incentives; the vast majority of
successful projects arranged in advance to sell their captured CO2 for enhanced
oil recovery. They secured unconditional incentives upfront, boosting
perceptions that they were resting on secure financial footing.
The authors conclude models in the
study—especially when augmented with the structured elicitation of expert
judgment—can likely improve representations of CCS deployment across energy
systems.
“Assessments like ours empower both
developers and policymakers,” the authors write. “With data to identify
near-term CCS projects that are more likely to succeed, these projects will
become the seeds from which a new CCS industry sprouts.”
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