JAPAN CCS Forum 2022

Financing
CCUS projects

1 December, 2022
MUFG Financial GroupGrowing needs for CCUS
 According to the IEA’s “World Energy Outlook 2022”, the world needs over 1,200 Mt of CO2
capacity for CCUS by 2030, if to follow its NZE scenario.
 Yet the world has only approx. 45 Mt of capacity or 20% of what is planned by 2030.
Global CO2 capture by operating and planned source relative to the NZE Scenario, 2030
DAC
Direct air capture
Fuel supply
Other fuel supply
Hydrogen production
Biofuels production
Industry
Industry

45 Mt of CCUS
capacity today

Electricity sector
Bioenergy
Natural gas
Coal
IEA. CC BY 4.0.

(Source) International Energy Agency (2022)

Need a business model to make a project bankable
Needs and Purposes
CCUS for zero CO2 emissions
from oil/gas fields
CCUS for blue ammonia/
methanol/hydrogen production
CCUS for CO2 from utilities/
industries/waste management

Points for consideration prior to financing
Compulsoriness
Any regulatory
requirements orstrong motivation to
reduce CO2
emissions fromrelevant sources?

Businessmodel
Anyestablishedbusinessmodels to
duplicate orrefer to?

FinancialsupportAny incentive
schemes orfinancialassistance fromgovernments?

CCUS for EOR/EGR
BECCS
CCS + DAC

Any alternative
businessmodel forsuggestion?

CCS Hub
Importance of “predictability” and “reliability” of cashflows for the bankability=>Financial institutions can assist in developing a business model
Note: EOR: enhanced oil recovery; EGR: enhanced gas recovery; BECCS: bioenergy with CCS; DAC: direct air capture2

Financing CCUS projects: Step 1 Identification of risks
Step 1
Identification ofrisks(Source) GCCSI（2022)

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Main risks involved with CCUS projects
 Risk profile varies with different factors.
 However, for the case of CCUS, it is important to understand not only about the proposed
project but also about other projects within a value chain (capturing, transporting,utilizing/storing) for possible negative impacts.
< Examples >Risks for storing business

Points for consideration

Cashflow risk
Technology risk

 Assurance for stable sources of revenues and their credibility Commercialized technologies with a track record of applying in asimilar environment/conditions
 With reasonable guarantees
 Risk-hedging for possible CO2 not supplied from sources Measures in case for change in regulations
 Measures for a possible delay in completion or cost-overruns
 Measures for possible low-performance, temporary halt of
operation, cost-overruns
 Change in a carbon crediting system or rules, if compulsory
 Measures for a fluctuation of the prices
 Clarity in liability issues and counter-measures

CO2 supply risk
Regulatory risk
Construction risk
Operation risk
Carbon credit-related risk
Site-closing risk…. and more

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Financing CCUS projects: Step 2 Identification of responsible parties
Step 1
Identificationof risks

Step 2Financiers and insurers needto know who is responsible forwhat risk(Source) GCCSI（2022)

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Identification of responsible parties
 Regulatory frameworks clarify costs borne by and specific liabilities related to CCUS
projects
 For liabilities, financiers and insurers have a range of ways to de-risk “conventional” risks
related to projects
 What is missing is de-risking measures for “unconventional” project risks (i.e. CCUSspecific risks), especially with:• A temporal operation halt due to unexpected technical problems even withcommercialized technologies• Liability issue related to CO2 leakage prior to and post-site closure• Monitoring requirements• Treatment of carbon credits in case of CO2 leakage

Financing CCUS projects: Step 3 Support measures
Step 1
Identificationof risks

Step 3
Step 2Financiers and insurers need Financiers and insurers needto know who is responsible
to know public support
for what risk
measures(Source) GCCSI（2022)

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Examples of public support measures to secure a revenue stream (1)Countries
US

UK

Examples of the sources of
Examples of public support measures
the revenue streams
 CO2 capture, transportation,  Tax credits with direct payment andstorage service fee ortransferability provisions (“45Q” andpayment using public“Inflation Reduction Act”)
support schemes from Subsidies for covering CAPEX for a selected
emitters (e.g. industries
number of CCUS projects
from hard-to-abate sectors,  Loan guarantees for anthropogenic GHGs
waste incinerators,
hydrogen/ammonia/metha  “Industrial Decarbonisation and Hydrogen
Revenue Support” scheme (under
nol and other basic
consideration)
chemical producers, etc.)
 Subsidies for utilities (e.g. Contract for Sale of carbon credits
Difference) (CCS-EOR/EGR only: Sale of Financial support to develop offshore storage
additional oil/gas
and onshore infrastructure for selected
recovered)projects
 Possible support measures under the UK
Emission Trading Scheme
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Examples of public support measures to secure a revenue stream (2)Countries

Examples of the sources of therevenue streams

Examples of public support measures

Canada CO2 capture,transportation, storage
service fee or payment
using public support
schemes from emitters (e.g.
industries from hard-toabate sectors, waste
incinerators,
hydrogen/ammonia/metha
nol and other basic
chemical producers, etc.)
 Sale of carbon credits (CCS-EOR/EGR only: Sale ofadditional oil/gas
recovered) Investment tax credits for CCUS (excl. CO2EOR) up to 2040

Japan
Netherlands

Malaysia

 Subsidies for covering CAPEX for aselected number of CCUS projects
 Subsidies for covering CAPEX for aselected number of CCUS projects
 Subsidy for price differences for CO2
against EU-ETS for a list of project type,including hydrogen and CCS for max. 15
years (SDE++ Subsidy Fund) Tax incentives for 10 years
 Carbon pricing under consideration

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Financing CCUS projects: challenges to overcome for the bright future
 CCUS is critical for countries to achieve carbon neutrality.
 Financiers and insurers need regulator frameworks or something of equivalent to clarify
the liability issues.
 “Predictability” and “reliability” are important for bankability.
1. What are core elements that need to be predictable and reliable and for how long?
2. What are the most important piece(s) in the regulatory frameworks for CCUS?
What are expectations for policymakers?
 Different incentive schemes are available today, and many are still newly introduced orunder consideration.
1. Where the public supports are most needed?
2. What may work for Asia?

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