Carbon prices and CCS Investment

Carbon prices and CCS Investment: A Comparative Study between the European Union and China / Marie Renner. Chaire Economie du Climat, Université Paris Dauphine, janvier 2014, 26 p. (cahier de recherche ; n°2014-02)

Author’s abstract :

As policy makers assess strategies to reduce greenhouse gas emissions (GHG), they need to know the available technical options and the conditions under which these options become economically attractive. Carbon Capture and Storage (CCS) techniques are widely considered as a key option for
climate change mitigation. But integrating CCS techniques in a commercial scale power plant adds significant costs to the capital expenditure at the start of the project and to the operating expenditure throughout its lifetime. Its additional costs can be offset by a sufficient CO2 price but most markets have failed to put a high enough price on CO2 emissions: currently, the weak Emission Unit Allowances price threatens CCS demonstration and deployment in the European Union (EU). A different dynamic is rising in China: a carbon regulation seems to appear and CCS techniques seem to encounter a rising interest as suggest their inclusion in the 12th Five-Year Plan and the rising number of CCS projects identifies/planned. However, there are very few in-depth techno-economic studies on CCS costs. This study investigates two related questions: how much is the extra-cost of a CCS plant in the EU in comparison with China? And then, what is the CO2 price beyond which CCS power plants become more profitable/economically attractive than classic power plants, in the EU and in China? To answer these questions, I first review, analyze and compare public studies on CCS techniques in order to draw an objective techno-economic panorama in the EU and China. Then, I develop a net present value (NPV) model for coal and gas plants, with and without CCS, in order to assess the CO2 price beyond which CCS plants become the most profitable power plant type. This CO2 value is called CO2 switching price. I also run some sensitivity analyses to assess the impact of different parameter variations on this CO2 switching price. I show that CCS power plants become the most profitable baseload power plant type with a CO2 price higher than 70 €/t in the EU against 30 €/t in China, without transport and storage costs. When the CO2 price is high enough, CCS gas plants are the most profitable power plant type in the EU whereas these are CCS coal plants in China. Through this study, I advise investors on the optimal power plant type choice depending on the CO2 market price, and suggest an optimal timing for CCS investment in the EU and China.

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