DRAFT
Carbon Capture and Storage Activities and their Recognition within the
EU ETS post 2012: Report by the UK Emissions Trading Group, February
2007
Introduction
Carbon capture and storage (CCS) activities are currently not recognised by
the EU Emissions Trading Directive. This report considers the issues that
would need to be addressed in the review of the Directive post 2012 to enable
CCS activities to benefit from the value of carbon abatement under the EU
ETS.
An ETG group has met twice to discuss the issues around inclusion of carbon
capture and storage in the ETS. Meetings have also included representatives
from the Carbon Capture and Storage Association. This report is a summary
of the discussions and comments received and has been presented to ETG’s
Work Group 8 (post 2012/Phase III issues).
Inclusion of CCS activities in the current scope of the Directive
Following the revisions to the monitoring, reporting and verification (MRV)
guidelines (in 2006) CCS activities can only be recognised under Phase II of
the Directive is for storage activities by inclusion under Article 24 which allows
for Member States to apply emissions trading to activities and installations
which are not currently listed in Annex I of the Directive. Whilst this is being
pursued as an option for potential projects that will start under Phase II of the
Directive, the ETG does not consider this is an appropriate mechanism for
recognition of CCS projects post-2012 and recommends that the Directive
should explicitly recognise such projects in Phase III. Although another option
is for a Member State to exclude a CCS installation from EU ETS, by use of
Annex I 1, this should be a temporary solution for Phase II only.
Recognition of CCS activities will necessitate a number of changes to the
Directive and monitoring and reporting guidelines to reflect any revised
approach to CCS projects following the Directive review. In addition, allocation
rules may need to take account of installations where carbon capture takes
place, but it is expected that the details of these allocation methodologies will
be addressed at a later stage as part of setting future National Allocation
Plans.
The Directive currently defines an installation as
'A stationary technical unit where one or more activities listed in Annex
I are carried out and any other directly associated activities which have
1 EUETS Annex I: CATEGORIES OF ACTIVITIES REFERRED TO IN ARTICLES 2(1), 3, 4, 14(1), 28 AND 30
Paragraph 1. Installations or parts of installations used for research, development and testing of new products and processes are
not covered by this Directive.
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a technical connection with the activities carried out at that site and
which could have an effect on emissions and pollution.'
Inclusion of CCS projects within the scope of the Directive is likely to require
changes to either this definition, the list of activities in Annex I or specific
treatment in a new Article in the revised EU ETS Directive.
The carbon capture and storage chain
The individual elements of the CCS chain can be represented as shown in the
diagram (taken from IPCC Guidelines for National Greenhouse Inventories)
below. Treatment of emissions within the EU ETS would need to recognise
that emissions that would currently occur at the plant which currently holds the
permit under the Directive, could occur at other points along the chain
including during the capture process, transport to the storage location and
during injection into the geological storage site. Whilst emissions from long
term storage are possible2, these may occur, if at all, in period outside of the
EUETS compliance period and potentially after the storage site has been
closed and liabilities transferred to the Member State.
Any treatment of CCS installations within the EUETS will need to recognise
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Different parts of the CCS chain are likely to be owned/operated by
different companies
There may be multiple installations feeding into open access pipeline
network servicing multiple storage locations
The potential for use of pipelines/storage for CO2 emissions from non-EU
ETS sources
International boundary issues where capture and storage may occur in
different Member States
Alternative transport options (eg transport could be by ship)
“With regard to global risks, based on observations and analysis of current CO 2 storage sites, natural
systems, engineering systems and models, the fraction retained in appropriately selected and managed
reservoirs is very likely10 to exceed 99% over 100 years, and is likely to exceed 99% over 1000 years”
– IPCC Special report on Carbon Dioxide capture and storage http://www.ipcc.ch/activity/ccsspm.pdf
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Options for treatment of CCS projects
A report by ERM and DNV on the development of MRV guidelines for CO 2
capture and storage under the EU ETS was published by DTI in January
2005. These interim guidelines were developed as part of the proposed (but
never officially made) submission to the European Commission for an interim
methodology as required under Phase I MRV Decision 4.2.2.1.3 CO2
capture and storage. The report recommended the following approach:
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The installation operator should be required to report and surrender
allowances for emissions from the plant less the amount of CO 2 injected
into the storage site.
Fugitive emissions from transport of CO2 to the site should be reported
and reconciled against the original installation(s).
Fugitive emissions during injection should be reconciled against the
original installation(s).
Fugitive emissions post injection need not be reconciled against the
original installation, but would need to be accounted for in National
Greenhouse Inventories and would require some mechanism potentially
related to purchase and retirement of EUAs to maintain integrity of the
scheme.
The report recognises that pipeline operators would be required (through
regulation of capture and storage activities) to monitor and report the amount
of CO2 transported and ensure the data was externally verified.
Similarly a storage site operator would need to be responsible for measuring
and reporting the amount of CO2 injected into the storage site and would be
responsible for having these data externally verified.
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A number of approaches for inclusion of CCS projects within the EUETS were
debated by the ETG group; the following represents a summary of the views
expressed together with further comments made on the draft report.
General points
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The mechanism needs to account for any loss of CO2 between
combustion installation and storage
Since it would be possible for combustion installations / pipelines /
storage sites to be under several different ownerships, it would make
sense to break the link between the pipeline and the store
Arrangements need to be flexible to deal with any changes of
circumstances, e.g. new installations connecting to storage sites
There may be a complication in measuring what goes into the storage
location if the methodology was based on a calculation as opposed to a
measuring device; however, metering of bulk CO2 is a relatively
accepted process and could be addressed in the MRV guidelines.
Any option considered for CCS in Phase III must be compatible with
the long term development of the EUETS
The CCS programme has significant implications for energy supplies
over many years ahead and it is essential to have a workable solution;
if no such solution is forthcoming, the Commission’s proposals as set
out in its official communication to the Council and the European
Parliament entitled “sustainable power generation from fossil fuels:
aiming for near-zero emissions from coal after 2020” will not be
realisable
Whilst it is important not to shoehorn CCS into rules that were not
written with CCS in mind, it should be recognised that the IPCC
guidelines had been written with CCS in mind; it was therefore
necessary to consider an option for a regime of credibility within IPCC
guidelines.
There needs to be some mechanism to account for any emissions from
long term storage both during the operational stage and following
closure of the site.
The second meeting of the Government's CCS Regulatory Taskforce
considered three options for treatment of CCS in the EUETS post-2012.
Option 1 – single permit covering all CCS activities
The Commission has tentatively suggested that, for Phase II, any CCS project
opting in to the ETS should be considered as a single installation covering all
activities including carbon capture, transport and storage. The following views
were expressed on this as an option for continuation into Phase III:
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There are likely to be a number of complications applying this if each
stage in the process is not owned and operated by the same operator
The Phase III regime should recognise that one pipeline could serve
multiple storage and emissions source locations (eg specifically
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mentioned by the Progressive Energy (Teeside) IGCC coal-fired
project – it was hard to see how option 1 could do this.
There could be issues around treatment of new entry and closure of
part of the overall installation.
Care should be taken in considering the store as part of the installation
since there could be leaks from the store within a year of – or after the
year that - the CO2 was injected; as part of the licensing process the
operator of the store would be obliged to measure any leaks and
buy/retire allowances from whatever regime applied at the time.
In summary there was no support within the ETG for this being taken
forward as a workable option for Phase III.
Option 2 – separate permits for activities along the chain
The proposal in the ERM/DNV report considers separate responsibilities for
monitoring and reporting along the CCS chain in the event that pipelines and
storage sites are not separately permitted under the EUETS.
Pros and cons of this option:
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This has been the basis of the work done to date on the MRV
guidelines, although this may need to be extended to consider which
stages should be covered within each permit.
As each stage would require monitoring, reporting and verification it
may simplify responsibilities if these requirements are formalised
through the EU ETS permitting system. If the separate elements are
not covered by individual permits, it may lead to issues concerning who
has responsibility if verification is not completed (including
responsibility for fines etc).
It sets a precedent for EUETS coverage of fugitive emissions from the
transport of GHGs.
One option would be for the initial installation to be the emitting unit
and a second installation linked to final injection or storage – i.e.
amalgamate two elements in the chain with transport and storage
managed together.
There may be no need to include the process of transport specifically
within a separate permit since the key issue is the amount of CO2 going
into store.
The injection point would need to be included in the annual ETS
reporting, but the store itself could be kept out of ETS reckoning as it is
impossible to know whether the emissions from the store were that
year’s emissions. Separate permits for injection and storage could
address this. Storage may not specifically need to be included within a
permit, however if there is any requirement to buy and surrender
allowances to account for potential fugitive emissions it may be simpler
to include it within the requirements (including penalties for nonsurrender) of a permit. Following cessation of injection and any handover of the storage site it would be possible to account for any
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emissions through National Inventory reporting rather than through the
ETS (or its successor).
Option 3 – use of credits to simplify monitoring and reporting requirements
An alternative to options 1 and 2 has been suggested where emissions from
the combustion plant are reported as if capture has not taken place (and
allowances surrendered in line with this). Some form of credits (either in the
form of an EU ETS allowance or other form of credit) would then issued for
every tonne of CO2 that is put into storage. Any emissions from the storage
site would need to be covered by monitoring and reporting and set against the
amount of credit for CO2 that is put into the storage site.
Pros and cons of this option:
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This method would solve multiple ownership problems arising if a
separate operators are responsible for the capture, transport and
storage of CO2.
Although the benefit of reductions in CO2 emissions can be managed
by contractual arrangements, it may be more appropriate for the
benefits of carbon capture to accrue to the capture operator as they are
better placed to manage carbon risks. Rewarding the storage site may
act as a disincentive to investment in the capture technology.
The value of abatement should be credited directly to the abating
installation, in order to incentivise maximum abatement. In particular as
CO2 capture increases the amount of CO2 generated, a credit system
could potentially result in credits being issued for more CO2 than would
otherwise have been emitted. Operators may be unwilling to invest in
capture technology if (in addition to costs of capture) there are further
costs from increased CO2 emissions that would be reported.
The option could raise issues with the Commission around ex-post
adjustment specifically if EUETS allowances were issued under the
EUETS cap although the method would not impact on the allocation
process. The alternative would require a CCS ring-fenced reserve or to
be issued as fungible credits from a national inventory as the balancing
item to an emission reduction (by CO2 storage).
An important additional benefit is the avoidance of the need to monitor
transport as part of the EU ETS although there would need to be some
mechanism, perhaps in pipeline regulation to ensure the environmental
integrity of transport.
The option avoids setting a precedent for the Commission covering
transport of gases in other situations, e.g. in relation to methane
pipeline networks, if that were to be included in the Directive, and the
source/sink approach.
There would need to be a need for completely new rules for creating
credits.
Although this removes the need for transport to be included in the
permitting system, there is still likely to be a need for regulation and
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reporting of emissions from pipelines including apportioning of
responsibility for fugitive emissions under an HSE regulatory regime.
There is the possibility that in the instance of transportation by ship
there could be a time delay between capture and storage with the
potential for storage to occur in a different year (or phase) of the ETS
from emission.
Issuing credits to CCS projects could open up the way for other
potential projects seeking credits - the Commission are not likely to be
keen on this approach particularly as it raises questions about other
types of sink such as forestry. As to how the credit would work, an
enabling credit could be considered – fungible with the EU ETS –
rather than pre-allocated allowances taken out of the NAP, which
creates additional issues around ring-fencing as currently for JI
projects. However it could potentially be linked to other ways of giving
credit such as the project review in the Directive.
The UNFCCC was trying to encourage the idea of temporary
credits/transitional credits – NGOs might then want this in other
contexts.
Summary and conclusions
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It is essential that CCS should be explicitly recognised in the Directive
for Phase III, irrespective of the issue of how adequately and sensibly
to report and monitor in that context. However, the Annex I exemption
option should be kept open – i.e. exemption if an installation was
considered to be a prototype/research facility for Phase III.
Using a definition of the CCS chain which includes all components from
the current Annex I activity to injection in the storage site as a single
installation is considered to be unworkable for Phase III, regardless of
whether this is used for Phase II.
Two alternative options for treatment of CCS plants should be
considered further; both are likely to require changes to the Directive
that will need to be considered in the review process
o Using separate permits to cover individual parts of the CCS
chain would require changes to the current definitions of
installations and inclusion of further activities (which would need
to be defined) in Annex I of the Directive
o A system that allocates credits for the amount of CO2 captured
would need a fundamentally different approach from that
currently adopted in the Directive.
Alternative to be considered
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Two alternative options for treatment of CCS have been considered as
potential options; separate permits for each stage (or combined stages) of
the capture and storage chain or a system that allocates credits for the
amount of CO2 captured.
 Whilst a system of credits has some merits in simplification of the
requirements of reporting and verification and is supported by some
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members of the ETG, the alternative of separate permitting is seen as
more attractive to a number of companies potentially investing in
capture technology as it better rewards the risks taken in this
investment.
Further work needs to be done to review the definition of installations
and activities covered by Annex I to incorporate CCS projects.
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