Silviase/jgov_v1.4_full_ann huggingface dataset:
Figure 6. Sites where $ CO_{2} $ storage has been undertaken, is currently in progress or is planned, varying from small pilots to large-scale commercial applications.

Project name	Country	Injection start (year)	Approximate average daily injection rate (tCO2day-1)	Total (planned) storage (tCO2)	Storage reservoir type
Weyburn	Canada	2000	3,000-5,000	20,000,000	EOR
In Salah	Algeria	2004	3,000-4,000	17,000,000	Gas field
Sleipner	Norway	1996	3,000	20,000,000	Saline formation
K12B	Netherlands	2004	100 (1,000 planned for 2006+)	8,000,000	Enhanced gas recovery
Frio	U.S.A	2004	177	1600	Saline formation
Fenn Big Valley	Canada	1998	50	200	ECBM
Qinshui Basin	China	2003	30	150	ECBM
Yubari	Japan	2004	10	200	ECBM
Recopol	Poland	2003	1	10	ECBM
Gorgon (planned)	Australia	~2009	10,000	unknown	Saline formation
Snøhvit (planned)	Norway	2006	2,000	unknown	Saline formation

Source: IPCC (2005, p.201)

### 3. But there are huge challenges in scaling up from the current situation to meet the overall global challenge

Figure 7 provides an overview of the current CCS technologies in terms of where they are along the development curve. This figure is from a 2005 report and the landscape of CCS research is rapidly changing. Within the capture technology area, research and development is underway on both sides of the Atlantic which is likely somewhat influenced by the declaration of the EU to fund 10-12 demonstration plants in Europe.
Figure 7. Current maturity of CCS system components. The X’s indicate the highest level of maturity for each component. For most components, less mature technologies also exist.

CCS component	CCS technology	Research phase 13	Demonstration phase 7	Economically feasible under specific conditions 5	Mature market 6
Capture	Post-combustion	X
Pre-combustion	X
Oxyfuel combustion	X
Industrial separation (natural gas processing, ammonia production)	X
Transportation	Pipeline	X
Shipping	X
Geological storage	Enhanced Oil Recovery (EOR)	X a
Gas or oil fields	X
Saline formations	X
Enhanced Coal Bed Methane recovery (ECBM)	X
Ocean storage	Direct injection (dissolution type)	X
Direct injection (lake type)	X
Mineral carbonation	Natural silicate minerals	X
Waste materials	X
Industrial uses of CO2	X

### Source: IPCC (2005, p. 21)

When CCS technologies are applied to current power generation facilities the cost of capture reveals itself as the additional energy required to drive the capture process. The “energy penalty” of capture with a pulverized coal (PC) plant is highest at 24-40% while natural gas combined cycle (NGCC) and integrated gasification combined cycle (IGCC) penalties are still significant at 11-22 and 14-25% respectively. However, as shown in the figure above, when storage considerations are added into the cost equation, the decision of how the $ CO_{2} $ is handled once captured greatly affects the increase in the costs of producing electricity and also the mitigation costs across plant types.
Figure 8. Range of total costs for $ CO_{2} $ capture, transport and geological storage based on current technology for new power plants using bituminous coal or natural gas

Power plant performance and cost parametersa	Pulverized coal power plant	Natural gas combined cycle power plant	Integrated coal gasification combined cycle power plant
Reference plant without CCS
Cost of electricity (US$/kWh)	0.043-0.052	0.031-0.050	0.041-0.061
Power plant with capture
Increased fuel requirement (%)	24-40	11-22	14-25
CO2 captured (kg/kWh)	0.82-0.97	0.36-0.41	0.67-0.94
CO2 avoided (kg/kWh)	0.62-0.70	0.30-0.32	0.59-0.73
% CO2 avoided	81-88	83-88	81-91
Power plant with capture and geological storageb
Cost of electricity (US$/kWh)	0.063-0.099	0.043-0.077	0.055-0.091
Cost of CCS (US$/kWh)	0.019-0.047	0.012-0.029	0.010-0.032
% increase in cost of electricity	43-91	37-85	21-78
Mitigation cost (US$/tCO2 avoided)	30-71	38-91	14-53
(US$/tC avoided)	110-260	140-330	51-200
Power plant with capture and enhanced oil recoveryc
Cost of electricity (US$/kWh)	0.049-0.081	0.037-0.070	0.040-0.075
Cost of CCS (US$/kWh)	0.005-0.029	0.006-0.022	(-0.005)-0.019
% increase in cost of electricity	12-57	19-63	(-10)-46
Mitigation cost (US$/tCO2 avoided)	9-44	19-68	(-7)-31
(US$/tC avoided)	31-160	71-250	(-25)-120

All changes are relative to a similar (reference) plant without CCS. See Table TS.3 for details of assumptions underlying reported cost ranges.

Capture costs based on ranges from Table TS.3; transport costs range from 0-5 US$/tCO₂; geological storage cost ranges from 0.6-8.3 US$/tCO₂.

Same capture and transport costs as above; Net storage costs for EOR range from -10 to -16 US/tCO $ _{2} $ (based on pre-2003 oil prices of 15-20 US per barrel).

### Source: IPCC (2005, p. 43)

Figure 8 shows that using $ CO_{2} $ for enhanced oil recovery (EOR) greatly enhances the economic viability of the project and this can be seen through the current EOR operations currently underway in Canada. Only when the $ CO_{2} $ is used for EOR is there a possibility for financial gain in the absence of carbon pricing regulations. The lower end of the ranges for mitigation costs in US/t $ CO_{2} $ avoided for all technologies groupings are not unreasonable price levels for European Union Allowances (EUAs) in the medium to long term. Declining European harmonized emissions caps and increased auctioning in the power sector make these required EUA prices a strong possibility.

After storage of $ CO_{2} $ , leakage is one of the known unknowns regarding CCS. However despite the potential for leakage to reverse the process of storage and result in no net environmental benefits the economics of mild leakage is not likely to derail deployment. Van der Zwaan and Gerlagh (2008) study alternative mitigation strategies and find that CCS is a valuable option even with $ CO_{2} $ of a few % a year, well above the maximum seepage rates that are thought likely from a geo-scientific point of view. The real hurdle regarding storage and leakage concerns might be the public perception and political implications of potential leakage.
### 4. There are policy instruments available to the Europe to address these challenges, but they have constraints

Generally speaking, there are a variety of policy tools available to correct market failures related to environmental issues. While some are more traditional legal style, command and control regulations, other market-based instruments such as emissions trading, do not prescribe specific activities, but put incentives in place in order to achieve best possible outcomes. Below we discuss the major policy options for EU administration in aiding the successful deployment of CCS.

a) European Commission subsidy. While subsidies can promote socially desirable outcomes, especially in areas where market failures encourage sub-optimal levels of spending in research and development (Jaffe, Newell and Stavins, 2005), the viability of this option is somewhat limited by the financial constraints of the EU. The Union per se has a very small total budget, and therefore direct subvention of, and investment in, technologies at this level is not an option.

Table 3. EU Budget for 2009 $ ^{16} $ (in billion EUR)

Expenditure estimates for EU policies	Budget 2009	% of total
Competitiveness	11.8	9%
Cohesion	48.4	36%
Natural Resources	56.1	42%
Citizen, freedom, security and justice	1.5	1%
EU as a global player	8.1	6%
Administration	7.7	6%
Compensation to new EU countries	0.2	0%
Total	133.8	100%

The competitiveness and cohesion line items deal with spending on research, innovation, employment and regional development programmes, in light of the current economic crisis. The Natural Resources line item consists primarily of funds for agriculture, more than 40% of EU funding. Between farming and economic recovery, 87% of the budget is accounted for, leaving little space for supra-national investment in CCS programmes. Note however that this constraint is partially lifted from 2013 to 2015 by the decision to allocate the revenues from 300 million tonnes of CO $ _{2} $ allowances to support demonstration plants.

b) Command and control regulation. While it is theoretically possible for the European Commission to mandate and enforce CCS technologies for all heavy point source emitters, it is less than likely due to political considerations and unknown and likely high costs in the near term. However, it might be a future consideration that all fossil fuel based generation facilities are equipped with CCS technology in order to allow reasonable investment with reduced uncertainty about the regulatory environment.

The future technology mandate is one action explored in a paper on the impact assessment for the enabling legal framework for CCS; Groenenberg and de Coninck (2008) summarize the possible CCS
related policy options. They analyze the timing and effects of the EU ETS in both a weak version (high levels of grandfathering, low EUA prices) and a strong version (higher levels of auctioning and EUA prices), investment subsidies at the member state level, feed-in subsidies as employed with renewable energies, a $ CO_{2} $ price guarantee for CCS, low-carbon portfolio standard + certificates, and a CCS obligation for some time in the future (2020 in their study) in stimulating the deployment of CCS. They consider the following four criteria associated with environment, economics, policy embedding and public acceptance in making judgements about different CCS related policies will affect other policies:

1. Environmental Effectiveness. The extent to which options can be expected to achieve the objectives of the flanking policy.

2. Risk and Cost burden. The extent to which financial risk of CCS projects is borne by those who are informed best on the costs: the CCS operators.

3. Interaction with the EU-ETS. The extent to which options are likely to reduce the price of $ CO_{2} $ allowances.

4. Competition with renewable energy. The extent to which the option may divert public funds from renewable energy sources. The assessment of this criterion focuses on concerns of the NGO community.

Their results are summarized in Table 4 and it is evident that the main obstacle in CCS development as the lack of incentive resulting from current state of EU ETS design features. Table 4. Multi-criteria analysis of policy options to induce CCS deployment.

Options	Effectiveness	Cost burden	Interaction ETS	Competition w/ Renewables
CCS in ETS (weak incentive)	-	+	+	+
CCS in ETS (strong incentive)	+	+	+	+/-
Investment support	+	-	0	-
Feed-in subsidies	+	-	0	-
CO2 price guarantee	+	-	0	-
Low-carbon portfolio standard	+	+	0/-	+/-
CCS obligation	+/++	+	0/-	+

Source: Groenenberg and de Coninck (2008)

Where (+) implies a positive result on criterion, (-) implies a negative result on criterion, (0) is signifies and indifferent impact on criterion, and $ (+/0/-) $ result depends on the details of implementation.

With the move in EU ETS design more closely aligned with the “strong version” used in their analysis, the authors conclude that despite the crowding out of research resources for CCS from other forms of emerging energy technologies that may occur, EU wide structural policies score higher on identified criteria (Groenenberg and de Coninck, 2008).

One policy tool that has not been analysed in the above paper is the technology demonstration prize system that has been adopted where 10-12 demonstration plants will be built under the Zero Emission Technology Platform’s FLAGSHIP programme, funded at least in part by the revenues from sale of
300 million allowances. While this option might not be considered the most economically efficient in the static or dynamic sense, it seems a necessity to get the CCS industry jumpstarted. Also worth noting is the UK government’s CCS demonstration competition where CCS related expenses (not for full power plant) will be refunded by the state as long as all aspects of CCS are commercially demonstrated in a 300-400 MW plant by 2014. These are policy interventions are meant to cure the market failure existing with CCS technology where commercialization is the next major step in deployment that is economically infeasible in the current carbon pricing environment.

### 5. European Policy Response has been comprehensive in attempting to address these challenges

While the volume of Europe’s future energy related emissions as projected by the (IEA, 2008, p.16) are roughly a third of the emissions of China in 2030, CCS intervention is a required event in order to realize the deep emissions cut that are required. As of 2005, the EU derived approximately 28% of its electricity from coal fired generation as the amount of coal burned to produce energy is set to remain relatively flat until 2030, as other forms of energy production rise in relation (IEA, 2008, p. 520). However, as recent experience with Russian natural gas supply have shown, Europe might be more than willing to move to more coal based generation under the geopolitical circumstances, if it is feasible environmentally and commercially. There is currently approximately 200 GW of coal fired power generation capacity producing roughly 1Gt CO $ _{2} $ per year in the European Union. Natural gas is currently second to coal as an electricity feedstock, but will surpass it in approximately 2015 as the preferred fuel while total emissions from power generation should remain relatively flat at 1.5 Gt CO $ _{2} $ (IEA, 2008, p. 139). There is a very large potential for successful CCS deployment with proven storage capacity in the North Sea in saline aquifers.
Table 5. Emissions from Power Generation in the EU

1990	2006	2015	2020	2025	2030
Total emissions ( $ Mt\ CO_{2} $ )	1,492	1,435	1,539	1,512	1,469	1,429
Coal	1,171	1,022	1,059	1,023	958	867
Oil	195	98	62	41	40	38
Gas	127	315	418	447	471	523

Source: IEA (2008, p. 521)

The major challenges for EU CCS associated with capture are the costs and the newness of the technology. Transport of $ CO_{2} $ to storage sites is also an issue because no infrastructure has been devoted specifically to $ CO_{2} $ transport. However, given the fact that existing oil and gas pipelines may be used to $ CO_{2} $ transport, so long as the $ CO_{2} $ is appropriately dehydrated this constraint can be overcome.

Storage is possibly the aspect of CCS that is plagued by the most uncertainty. Capture is proven and the challenge is to achieve the cost reductions brought about by learning and the development of new technologies. Storage is relatively uncertain, the long term stability and integrity of storage options are the subject of much study and analysis. Table 6 outlines the IPCC’s estimated global storage capacities by type of geological formation.

Table 6. Global Storage by reservoir type

Reservoir type	Lower estimate of storage capacity (GtCO2)	Upper estimate of storage capacity (GtCO2)
Oil and gas fields	675	900
Unminable coal seams (ECBM)	3-15	200
Deep saline formations	1000	Uncertain, but possibly 104

Source: IPCC (2005, p. 221)

While much uncertainty exists about the physical characteristics of storage, the EU has recently cleared away legal uncertainties in reforming the London Protocol and the OSPAR (Oslo-Paris) Convention to allow for storage of $ CO_{2} $ in formations below the international waters that are covered by those treaties. The economic implications of $ CO_{2} $ leakage are explored by van der Zwaan and Gerlagh (2008). They find that marginal leakage rates do not disqualify the deployment of CCS by modelling different leakage rates and different future carbon prices.

## Recent EU ETS amendments

On January 23, 2009 the European Commission amended the original EU ETS directive and the changes strongly favour the deployment of CCS $ ^{17} $ .
Table 7. Potential CCS funding (1000 €'s)

Year	Mt CO2	% auctioned	EUA value (€/tCO2)	CCS funds (300m EUAs) (1000 €’s)	50% of auction revenues (1000 €’s)	Potential CCS funds (1000 €’s)
A	B	C	D	E	F
2013	1,974	50%	20	60,000	8,685,600	2,231,400
2014	1,937	53%	22	66,000	9,843,834	2,526,959
2015	1,901	55%	24	72,000	11,041,008	2,832,252
2016	1,865	58%	26	-	12,267,970	3,066,993
2017	1,829	60%	28	-	13,519,968	3,379,992
2018	1,792	63%	30	-	14,784,000	3,696,000
2019	1,756	65%	32	-	16,070,912	4,017,728
2020	1,720	68%	34	-	17,368,560	4,342,140

Source: EC website $ ^{18} $ , own calculations

### 6. Key issues as to whether CCS deployment will succeed

A key priority to get CCS over the current hurdle and into a realm of a proven mitigation technology is “demonstration now” and a clear strong regulatory environment. The EU seems to have taken the appropriate steps in amending the EU ETS directive and introducing increased power sector permit auctioning, a declining cap and funds from auction revenues earmarked to fund CCS demonstration programs. Other important steps taken in Europe are the formation of non-governmental knowledge sharing platforms such as the European Technology Platform for Zero Emissions Fossil Fuels Power Plants whose mission statement is to coordinate the establishment and implementation of a strategic research agenda to meet the needs of European Citizens and industry by 2020 $ ^{19} $ . The IEA (2008) advocates for CCS to become part of the Clean Development Mechanism in order to facilitate technology transfer even in the absence of a global carbon pricing system. It appears the potential necessary conditions for CCS deployment are in place, or are being addressed in Europe. Aside from the hurdle of low EUA prices and the need to inject money into the demonstration part of the development cycle, the legal, regulatory and physical infrastructure must be put in place to allow for successful transport and storage of captured $ CO_{2} $ .

If we set aside the morality of the western world being responsible for the current levels of atmospheric concentration and therefore the obligation to right the proverbial ship, then Europe is potentially positioning itself as a knowledge leader in a technology area that is necessary all over the world. It is a large experiment in line with the porter hypothesis (Porter and van der Linde, 1995) where environmental regulation is enforced and innovation is required for compliance. However, the “free lunch” in Porter’s view is the likelihood that firms will be better off in competitive terms after having gone through the environmental innovation cycle than their competitors. If this is the case then Europe
is making a strong and concerted effort to be the front-runner not only in environmental policy, but also a key medium term emissions reduction technology.

Assuming that Europe successfully demonstrates CCS and as the rest of the world plays catch up to the EU carbon reduction policies, then technology transfer may exist and economic rents will be gained by European industry in line with their valuable experience and intangibles gained through learning by doing. The relevant question of course might be whether BRIC $ ^{20} $ countries will offer to purchase any type of technology or simply demand free transfer based on the grounds that the developed world fouled up the atmosphere and thus have the responsibility to fix things.

### 7. Issues for the Japan policy process

The key opportunity lies in the fact that the EU is creating a local market in Europe which will be open to all technologies – under the provisions of EU ETS, mandating of ‘best available technology’ or other requirements is specifically disallowed.

The wider issue is the interface with policy in the US, China and India, and how Japanese business might benefit from globalisation of the CCS market. Many intangibles in terms of learning by doing, and networking effects will be gained in Europe. It might make sense for Japan companies to try and participate in the pilot phase projects. After all, Alstom, a US company has a pilot plant currently in Germany. It seems that as Japan forms its climate policy and designs a domestic emissions trading scheme, then design features that will enable linkage to other trading systems are likely of utmost importance. There may also be an opportunity to integrate CCS with a wider global sectoral policy embracing China, India et al, and this is an arena where Japan has been leading.

## References

Groenenberg, H. and H. de Coninck (2008). "Effective EU and Member State policies for stimulating CCS." International Journal of Greenhouse Gas Control 2(4): 653-664.

IEA (2008). World Energy Outlook 2008. Paris, International Energy Agency.

IPCC (2005) IPCC Special Report on Carbon Dioxide Capture and Storage. Prepared by Working Group III of the Intergovernmental Panel on Climate Change [Metz, B., O. Davidson, H. C. de Coninck, M. Loos, and L. A. Meyer (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 442 pp.

Jaffe, A. B., R. G. Newell, et al. (2005). "A tale of two market failures: Technology and environmental policy." Ecological Economics 54(2-3): 164-174.

Kessels, J. (2008). Economic instruments and clean coal technologies. London, International Energy Agency Clean Coal Centre.

Van der Zwaan, B. and R. Gerlagh (2008). The Economics of Geological CO $ _{2} $ Storage and Leakage, SSRN.
# TRANSACTION COSTS OF FIRMS IN THE EU ETS - IRISH CASE STUDY

## Abstract

This paper is a first attempt to measure transaction costs incurred by firms in the European Union’s $ CO_{2} $ Emissions Trading Scheme (EU ETS) during its trial phase (2005-2007). This analysis provides some evidence that such costs were mainly of an administrative nature. We emphasize the existence of remarkable economies of scale, as the costs per tonne of $ CO_{2} $ were lower for participants with larger allocations. Trading costs were not significant and, hence, not trade prohibitive. Thus, other factors – self-sufficiency in compliance and low allowance prices – played a major role in the decision whether to trade or not during this trading period.

Keywords Climate policy, European Union Emissions Trading Scheme, Transaction costs