BAKU, Azerbaijan, April 10. Price volatility, lengthy permitting process that CCS projects typically undergo (averaging 6-7 years) may continue to dissuade operators and private investors from embracing the technology as a viable decarbonization solution, Trend reports via the Oxford Institute of Energy Studies (OIES).
OIES notes that the historical trends in allowance prices and their volatility have hindered the full financing of CCS (Carbon Capture and Storage) projects solely through ETS (Emission Trading Systems) business models.
Despite the EU ETS reaching a milestone carbon price of €100/tCO2 in February 2023, the costs associated with CCS in most applications remain higher. Given the capital-intensive nature of CCS projects, scaling up the technology necessitates attracting private capital, which in turn requires offering attractive returns over the projects’ long lifetimes (typically 20 years or more) to compensate investors for the inherent risks involved. Thus, allowance prices must provide a substantial return premium over abatement costs to achieve desirable levels of internal rate of return (IRR).
To incentivize widespread adoption of CCS in Europe, the authors estimate that allowance prices need to fall within the range of €150-160/t, representing a significant increase compared to the record price of €100/t and more than double the current levels (€63/t as of April 8, 2024).
Ensuring price stability is crucial for fostering the deployment of CCS. However, the combination of price volatility and the lengthy permitting process that CCS projects typically undergo (averaging 6-7 years) may continue to dissuade operators and private investors from embracing the technology as a viable decarbonization solution, at least in the near term.
Another pertinent issue regarding carbon pricing in the context of CCS is that current mechanisms often concentrate revenues within one part of the supply chain (typically the entity responsible for capturing CO2 and reducing emissions), posing risks to other segments such as transportation and storage. One strategy to mitigate these risks is to disaggregate the incentives for capture, transport, and storage components of the CCS technology chain. This approach enables various market actors with diverse strengths and risk appetites to collaborate on CCS projects and allocate risks more evenly across the entire chain.
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