Carbon Capture and Storage: A Realistic Solution? –
Executive Summary
Limiting global warming to a 2 degree scenario (2DS) will require
investment in new technologies. Carbon Capture and Storage (CCS) is
currently prohibitively expensive, but could it become part of the solution?
Morgan Stanley’s Sustainable and Responsible Equity Research team
assesses the viability of this technology in a recent report.
Global energy demand is predicted to increase by 56% from 2010 to 2040 (US Energy Information Administration, 2013) and
thus, the challenge is to meet this demand sustainably. Overall, renewables are expected to grow by nearly 2,500 GW between
2011 and 2035, which will take the total capacity to 3,944 GW in 2035 (IEA, 2013). As result, by 2035 renewables are expected
to account for 40% of total electricity capacity worldwide (IEA, 2013).
In order to achieve this growth in renewables, $6.5 trillion of investment in renewable energy is required in the period 2013- 2035,
according to the IEA (2013). However, this alone is still not sufficient to meet the 2 degree scenario (2DS). This begs the
question: are even more renewables actually possible given investment needs, economics and the impacts on energy systems? Or
should CCS be a bigger part of the debate?
When renewables are put into the context of the total global energy demand (i.e. power generation plus transport, industry,
buildings, agriculture, etc.), renewable energy is expected to be only around 18% by 2035, compared to around 13% in 2011 (IEA,
2013). This highlights the fact that whilst there are high growth projections for renewable energy, this growth starts from a small
base and will take some time to achieve the majority share. Even adopting a more bullish outlook for investment in renewables
they only account for 26% of global energy demand (IEA, 2013). Thus, fossil fuels are therefore likely to remain a material part of
the Global Energy solution.
In the IEA’s 2DS scenario, fossil fuels continue to account for the majority of primary energy demand (approximately 64%),
with nuclear making up the remaining 10% share (IEA, 2013). Fossil fuels are naturally polluting and produce large volumes of
CO2 and therefore with such a large proportion of fossil fuels the risk of missing the 2DS appears high. However, there are
technologies available to reduce the carbon impact of generating energy via fossil fuels; energy efficiency, fossil fuel switching
and CCS.
What is CCS? CCS works by capturing carbon dioxide emissions pre- or post- combustion, thus preventing CO2 from entering the
atmosphere. Once captured the carbon dioxide is transported through pipelines to geological reserves where it is then stored deep
underground, preventing carbon dioxide from entering the atmosphere, which would otherwise contribute towards global warming.
The pros and cons of CCS. The technology required for CCS is proven, but no large-scale projects in power generation are
currently in operation. The IEA includes CCS in its scenario for reducing carbon emissions to achieve the 2DS. Indeed, CCS could
have the third largest impact on emissions reduction (14% of required emission reductions), after end use efficiency improvements
(38%) and renewables (30%). CCS offers several benefits: (i) functionality for a number of industries (power, cement, iron and
steel); (ii) net negative emissions when combined with biofuels; (iii) ability to use fossil fuels without GHG emissions; and
(iv) ability to vary the load factor. However, there are also barriers to its successful commercialisation, principally the significant
capital investment and operating costs. It is estimated that $3.6 trillion needs to be invested in the CCS industry in order for over
2,000 to 3,000 projects to be operational by 2050 (source: IEA). Ongoing subsidies would also be required to make this type of
energy production cost competitive.
In reality CCS remains in the early stages of development. Globally there are a total of 56 large scale integrated projects at
various stages of development, with 12 projects in operation, but this has declined from a total of 75 projects in 2012 (Global CCS
Institute, 2014). Under the IEA’s 2DS two- thirds of all coal capacity, 20% of gas and 20- 40% of steel, cement and chemical
plants are to be equipped with CCS globally by 2050 (IEA, 2013). This is optimistic considering the 12 projects that are currently
in operation represent the first early phase of CCS development. These projects are separating carbon dioxide as part of their
“business-as-usual” procedures, e.g. natural gas processing and fertiliser production. As such, they have much lower capital costs
than could be required for the integration of CCS into large-scale power generation and the industrial sector. It is this second phase
of development that is vital for CCS commercialisation.
A supportive regulatory environment is required. Investment in Carbon Capture and Storage has been constrained by lack of
incentive due to policy uncertainty around climate change and the high costs involved. CCS is a significant initial investment
whilst ongoing subsidies, or a much higher carbon price, are also essential. In an environment where there is increasing pressure to
keep electricity prices low and much uncertainty about the carbon price, these costs remain unattractive. As a result, full
commercialisation of CCS is dependent on supportive regulation and commitment to investment in this technology.
CRC 1058252 01/15
This article is based on research published for Morgan Stanley Research on August 28th, 2014. It is not an offer to buy or sell any security/instruments or to participate in a trading
strategy.The full version of this research note is available on our Matrix website. Please contact your Morgan Stanley representative for access if needed. Please note that all important
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