Summary
There are three key requirements of CCS (Carbon Capture & Storage): 1) Legislation that addresses rights, liabilities and requirements of sequestration; 2) Economics and process; and 3) Geological locations for success.
Analysis
The Aussie’s have taken a good step towards CCS, but the fact remains they are a long ways away from CCS on a commercial scale.
1) The Legislation:
Albeit the legislation addresses the most important issue to attracting risk capital to CCS projects because it transfers the long term liability from the project developer to the Government, it fails to provide the further incentive to see CCS become commercial, a requirement clause. This may exist in other legislation like a cap and trade program, but without clear legal prodding companies will not enter into CCS programs.
2) The Economics & Process:
CCS is not inexpensive, look at the process. Capturing the CO2 and separating it from flue gasses of industry whether it be coal fired plants or cement plants. This requires a large Cap-Ex component and ongoing costs. Then the CO2 will require transporting to a suitable geological formation. This process requires compression and a pipeline suitable for CO2 transport; again Cap-Ex component and ongoing costs. Finally, an injection well with the possibility of more compression required; more Cap-Ex and ongoing costs. Add this all up amortize the Cap-Ex over 20 years the life of 75% of the equipment and you get a cost of $40 - $50 per tonne at today’s prices.
3) Geological Locations:
The Aussie’s are setting up a task force to map out the geological formations suitable for CCS which is targeted to be completed by the end of 2009. This is an important step provided the legislation is strong enough and the economics are viable.
Conclusion:
The legislation needs some work, but it is clearly a step in the right direction. The economics is where CCS will struggle for some time to come. $40 to $50 per tonne is just not economical or in other words there are many more cost effective ways to reduce GHG’s that cost considerably less than $40 per tonne. Carbon sequestration costs can be reduced or offset through Enhanced Oil Recovery (EOR), the same results are achieved but costs are far more economical. There may be a time in the future that $40 - $50 per tonne is economical, but it doesn’t need to be now.
