CCS Environmental Analysis, October
On a monthly basis, Gassnova prepares an analysis of important CCS international market trends, and what drives innovation in our focus areas. Here is the analysis for October.
G20 still agrees that the Paris Agreement’s climate goals will be met
At the end of October - before the climate talks in Glasgow (COP26) - the world’s most powerful states (G20) gathered in Rome. The global economy, climate issues and sustainability were on the agenda. In a closing statement, the G20 states that, among other things, it stands by the Paris Agreement and its goal that global warming should be limited to ‘well below 2°C and to pursue efforts to limit it to 1.5°C above pre-industrial level’, and that this must entail ‘meaningful and targeted measures’ in all countries, taking into consideration each country’s capabilities and limitations. The statement allows for continued investment in coal-fired power plants, but does not allow for the financing of such facilities outside of one’s own country. This closing statement does not mention other fossil energy sources, but emphasises the importance of energy security, open energy markets and market stability on the way to achieving climate goals. Among some commentators and the media, there is a general consensus that the G20’s statement is characterised by compromise, and that it isn’t binding.
UN report: A large gulf between climate talk and action
Ahead of the annual climate negotiations, the UNEP published its annual Emission Gap Report, which shows how countries are faring with the implementation of policies to achieve climate goals. This year’s climate negotiations are significant because this is the first time since the Paris Agreement was signed in 2015 that all countries will submit more ambitious Nationally Determined Contributions (NDCs). This year’s report from UNEP notes that the new, updated NDCs, along with already announced plans, will make real positive contributions to the climate. Nevertheless, the updated NDCs are not nearly enough to meet climate goals; This year’s calculations show that emissions in 2030 will only be 7.5% lower than similar calculations made last year, while they need to be 30% lower by 2030 in order to meet the 2°C goal, and 55% lower for the 1.5°C goal. In concrete figures: Under current policy, global emissions in 2030 will be 55Gt of CO2, which is on par with current emissions, while the 1.5°C target requires that emissions in 2030 are brought down to 25Gt. UNEP also states that although all stated national ambitions (such as net-zero emissions by 2050) will be fully implemented by those countries who have agreed to them, the global temperature rise in 2100 could be 2.2°C.
Europe’s energy crisis: A story of a difficult reopening and a difficult transition
The IEA, the World Economic Forum, and many others, have helped to shed light on the causes of the recent energy crisis. There seems to be a consensus that the main reasons are related to increased energy demand in connection with the post-pandemic reopening of the economy, as well as the failure of energy companies to increase supply quickly enough due to low investments over time. The fact that the crisis has hit Europe harder may be linked to its considerable dependence on imported natural gas, less gas storage than usual and less wind than normal, to name a few reasons. As the reopening happens across the world, it puts pressure on all suppliers of coal and gas. This has increased energy prices, which in turn will drive inflation in society, which can lead to social unrest over time. At its highest in October, gas prices in Europe were 7x what they were a year ago.
Even if the IEA believes that the energy crisis cannot be attributed to the growing dependence on variable renewable power, opinion on this is divided. Nevertheless, it is difficult to estimate how the energy crisis will impact Europe’s energy strategies, and thus its climate efforts. The EU president’s perspective is that the EU is currently too dependent on natural gas, especially from Russia, and that focusing on renewables, batteries and energy security will become more important in the future. Others believe that the EU’s energy transition has not been sufficiently thought out, should have a longer timeline, and should invest more in natural gas to faster phase out coal. Nuclear power and CCS will certainly become more relevant in public debate going forwards.
UK appoints two CCS clusters in its first announcement
In October, the UK government announced that it will enter into negotiations with two industrial clusters to develop CCS infrastructure, to be operational around 2025. The chosen clusters are HyNet North West (Merseyside and nearby areas) and East Coast Cluster (Teesside/Humber). By 2030, the Government plans to have established four such CCS clusters, with a combined capacity to capture and store 20-30 MT CO2. Infrastructure development will receive funding from the government’s CCS Infrastructure Fund, which has set aside £1 billion. HyNet will develop a hydrogen net, so that local industry is able to change from fossil fuel-based energy to hydrogen. 24 companies have signed a memorandum of understanding with HyNet, which is led by gas distribution company Cadent and project development company Progressive Energy. East Coast Cluster is led by Northern Endurance Partnership, which consists of the energy companies BP, Eni, Equinor, National Grid, Shell and Total Energies. The purpose is to capture CO2 from various types of local industry and store it in the UK’s side of the North Sea. A final agreement will be signed by the Minister once necessary socioeconomic assessments have been made. If a deal cannot be made with one of these clusters, the Scottish Cluster is listed as a reserve candidate.
GCCSI: Significant increase in CCS projects in development
In GCCSI’s annual status update of CCS projects globally shows that, since 2017, there has been a growing number of CCS projects in development, with a planned capacity of over 140 tonnes of CO2 per year. In total, 102 projects are currently in development, while projects that are operational or under construction have remained mostly unchanged since 2013 - 32 projects - with a total capacity of around 40 million tonnes of CO2. In Europe, the UK (18) and the Netherlands/Belgium (10) dominate the synopsis of projects in development. When sorted by emission source, hydrogen production (13) and power generation (10) dominate.
IEA WEO: Advising politicians on increased efforts for climate improvements
This year’s edition of World Energy Outlook (WEO) from the IEA is designed to help COP26 delegates make efficient choices that can drive the energy sector towards net zero emissions. The IEA does not paint a very positive picture with regard to the policy implementation of the participating countries in relation to registered ambitions, and it points out that efforts must be considerably strengthened if targets are to be achieved. On the other hand, the IEA highlights the fat that an increasing degree of electrification is contributing to the rise of a new energy economy driven by political priorities, technological innovation, and a broad desire to tackle climate change. The IEA estimates that these changes could drive a market that, by 2050, could be larger than today’s oil industry. Four recommended priorities will be presented for 2030; 1) Increased pressure on electrification, almost doubling power generation using renewables and nuclear power, etc, 2) A sustained strong focus on energy efficiency, including altered consumer behaviour, which can overall contribute to a fall in energy use of one third measured against GDP, 3) Almost 80% reduction in methane emissions, especially in oil and gas production and 4) Almost tripling investments in advanced, clean technologies, including CCUS, batterers, biofuels, DACCS and synthetic fuels.
Article 6 of the Paris Agreement: A source of international climate cooperation and lower initiative costs
One important topic at this year’s climate negotiations is the formation of procedures for international trade in climate quotas, ensuring, among other things, that double counting is avoided. Today, the EU restricts the use of such carbon credits bought outside the EU. If climate negotiations succeed, this will increase confidence in various ‘voluntary carbon markets’ and increase demand for international projects which cut greenhouse gas emissions. In 2021, it is expected that the turnover of such voluntary credits (i.e CO2 credits that are not directly regulated by national authorities) is expected to reach $1 billion, with a price of well below $10/tonne. The volume in voluntary markets is limited when compared with regulated quota markets, but this volume is increasing and may allow for more technology transfer to emerging economies and access to more affordable climate initiatives for countries and industries with fewer alternatives.
The Environmental Analysis is prepared by Gassnova's analysis team.