EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 25.6.2009 
SEC(2009) 814 
COMMISSION STAFF WORKING DOCUMENT 
 
accompanying the  
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 
 
Demonstrating Carbon Capture and Geological Storage (CCS)  
in emerging developing countries:  
 
financing the EU-China Near Zero  Emissions Coal Plant project 
  
IMPACT ASSESSMENT  
  
{COM(2009) 284 final} 
{SEC(2009) 815} 
 
EN 2   EN TABLE OF CONTENTS 
COMMISSION STAFF WO RKING DOCUMENT Accompanying document ........................ 1 
1. Procedural issues and consulta tion of interested parties.............................................. 5 
1.1. Introduction.............................................................................................................. .... 5 
1.2. Organisation and timing............................................................................................... 6 1.3. Consultation and expertise ........................................................................................... 6 1.4. Response to the Opinion of the Impact Assessment Board ......................................... 6 2. Problem definition........................................................................................................ 7 2.1. Power generation from coal and emission reductions from CCS ................................ 7 2.2. Barriers to demonstration and deploy ment of CCS technologies in emerging 
developing countries .................................................................................................. 11 
2.2.1. Market failure for developing CCS............................................................................ 11 2.2.2. Institutional and governance issues............................................................................ 12 2.3. The case of China....................................................................................................... 13  
2.4. Conclusion ................................................................................................................ . 14 
3. Objectives.................................................................................................................. . 15 
3.1. General policy objective ............................................................................................ 15 3.2. Specific objective....................................................................................................... 1 5 
3.3. Operational objectives................................................................................................ 15 4. Policy options............................................................................................................. 1 5 
4.1. Option 0: No involvement of the EU in  financing CCS demonstration in emerging 
economies................................................................................................................... 16 
4.2. Option 1: Public grant funding................................................................................... 17 4.3. Option 2: Public-private partnerships ........................................................................ 17 5. Comparing the public-priva te partnership options..................................................... 17 
5.1. Option 2a: Joint Undertaking..................................................................................... 17 5.2. Option 2b: ITER (International Ther monuclear Experimental Reactor) ................... 18 
5.3. Option 2c: Special Purpose Vehicle (SPV)................................................................ 18 5.4. Summary and conclusion ........................................................................................... 19 6. Special Purpose Vehicle (SPV).................................................................................. 20 
 
EN 3   EN 6.1. Financing with revenue from the carbon market ....................................................... 20 
6.2. Financing with revenue from enhanced oil recovery................................................. 22 6.3. Financial flows........................................................................................................... 23 
7. Economic, social and environmental imp acts of CCS demonstration in China ........ 24 
7.1. Environmental Impacts .............................................................................................. 25 7.1.1. Risk of physical leakage............................................................................................. 25 7.1.2. Air Pollution........................................................................................................... .... 25 
7.1.3. Greenhouse Gas Emissions........................................................................................ 26 7.1.4. Availability of sufficient storage capacity ................................................................. 26 7.2. Social Impacts ............................................................................................................ 26 
7.3. Economic and health benefits .................................................................................... 26 7.3.1. Economic Impacts...................................................................................................... 26  
7.3.2. Health benefits ......................................................................................................... .. 27 
7.4. Risks..................................................................................................................... ...... 28 
8. Monitoring and evaluation ......................................................................................... 28 9. Next Steps .................................................................................................................. 30 
ANNEX I: Detailed information on consultation and expertise .............................................. 31 
ANNEX II — EU and China Partnership on Climate Change ................................................ 34 
ANNEX III — Draft ENRTP Project Action Fiche................................................................. 36 ANNEX IV — General Context .............................................................................................. 42 ANNEX V: Problem analysis: further background.................................................................. 46 ANNEX VI — Phase 1 of NZEC............................................................................................. 50 ANNEX VII — List of EU CC S research projects.................................................................. 52 
ANNEX VIII — Preliminary Cost Estimates, S ources of Funding and a Possible Financial 
Vehicle for a Demonstration Plant in China ............................................................................ 53 
 
EN 4   EN LIST OF ACRONYMS  
APS: European Commission Annual Policy Strategy 
CCS: Carbon capture and geological storage COACH: COperation Action within CCS CHina-EU 
CCS: Carbon Capture and (Geological) Storage CDM: Kyoto Protocol’s Cl ean Development Mechanism 
CCT: clean(er) coal technologies CERs: Certified Emissions Reductions (under the CDM) COM: European Commission EIB: European Investment Bank EIF: European Investment Fund ENRTP: Environment and Natural Resource s Thematic Programme of the European 
Commission EOR: enhanced oil recovery  EP: European Parliament  (ETP) ZEP: European Technology Platform for Zero Emission Fossil Fuel Power Plants  
GALILEO: The European satellite navigation project 
GHG: greenhouse gas(es)  
IEA: International Energy Agency IGCC: Integrated Gasification Combined Cycle IPCC: Intergovernmental Panel on Climate Change  IPR: Intellectual Property Rights ITER: International Thermonuclear Experimental Reactor JU: Joint Undertaking MOST: Chinese Ministry of Science and Technology MS: Member States NZEC: Near Zero Emission Coal  PC: pulverised coal SET-Plan: European Strategic Energy Technology Plan SICAV: société d’investissement à capital variable  
SIF: Specialised Investment Fund SPV: Special Purpose Vehicle STRACO2: Support to regulatory activi ties for carbon capture and storage 
UNFCCC: United Nation Framework Convention on Climate Change 
 
EN 5   EN 1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  
1.1. Introduction 
This document summarises the impact a ssessment for the Comm ission Communication on 
‘Demonstrating Carbon Capture and Geological  Storage (CCS) in emerging developing 
countries: the EU-China Near Zero Emissions Coal Plant project’ (i tem 2009/ENV/010 of the 
Commission’s Legislative Work Programme). This Communication will provide input to the 
international climate negotiation process l eading to the Copenhagen Climate Change 
Conference at the end of 2009, therefore timel y adoption is important. It supplements a 
forthcoming Communication on fi nancing low carbon technologies1 by covering in greater 
detail carbon capture and st orage technologies and focusing on China as a case study for 
cooperation with emerging developing countries.  
The expected contribution from the Community B udget to the policy analys ed in this Impact 
Assessment comes from the Environment a nd Natural Resources Thematic Programme 
(ENRTP). As such, the procedures associated  with this programme are in line with the 
Financial Regulation.2  
Time is of the essence. Unde r the EU-China Climate Change Partnership established at the 
EU-China Summit in 2005, both sides committed ‘to develop and demonstrate, in China and 
the EU, advanced ‘zero-emissions’ coal tec hnology’ by 2020 and have begun negotiations to 
bring this date forward to 2015. Phase I of th is ‘Near Zero Emissions  Coal’ (NZEC) project 
ends in 2009. The aim is to have a financing vehi cle in place as soon as possible after Phase II 
commences in 2010 (see Annex II).  
In 2008, the G8 supported a recommendation by the IEA that ‘20 large-scale CCS 
demonstration projects need to be launched globally by 2010, taking into account varying national circumstances w ith a view to supporting technolog y development and cost reduction 
for the beginning of broad deployment of CCS by 2020.’
3 (For more information on the 
general context to this polic y initiative, see Annex IV). 
This Communication specifically concerns implem entation of the Near Zero Emissions Coal 
(NZEC) project with China, which is a conc rete example of technological and financial 
cooperation between developed and developing countries in the context of the international 
climate change negotiations. 
The work with China set out in the Communication is complemented by capacity building and 
feasibility studies in cooperation with a numb er of emerging developi ng countries under the 
2009 Annual Action Plan of the Environment a nd Natural Resources Thematic Programme 
(ENRTP, see Annex III). 
                                                 
1 Item 2008/TREN+/050 in Commission Legislative Work Programme will build on the Commission 
Communication ‘A European Strategic Energy Technology Plan’ (SET-Plan) (COM(2007)723’, covering a wider spectrum of technologies and focusing mainly on financing in Europe. 
2 Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002. 
3 Joint Statement by G8 Energy Ministers, Aomori, Japan, 8 June 2008. 
 
EN 6   EN 1.2. Organisation and timing  
The consultation was conducted in a manner pr oportionate to the type and scope of the 
Communication. Minimum standards of consul tation have been met. The Commission has 
consulted and informed other services via the existing Inter-Servi ce Group on International 
Climate Change and via an informal inter-s ervice working group (principally AIDCO-ENV-
RTD-TREN) on NZEC.  Meetings took place on 2 September 2008 and 16 February 2009. 
The attendance and the main issues discussed are set out in Annex I.  
1.3. Consultation and expertise  
When compiling this document and conducti ng the analysis, the Commission drew on 
expertise from the European Investment Fund (EIF) and the European Investment Bank (EIB) regarding a possible financial vehicle and on the work of the COACH, UK-NZEC and 
STRACO2 projects (see Annex V I) for other input specific to CCS in China. Cost data on 
CCS was sourced from the PRIMES model database, which was used for the impact assessment of the Directive on the Ge ological Storage of Carbon Dioxide,
4 and available 
literature such as McKinsey&Company, Climate Change Capital and the International Energy 
Agency and work by the Joint Research  Centre of the European Commission.5 Stakeholders 
were consulted on cooperation with emerging economies and developing countries on clean 
carbon technologies and CCS and options for comb ining public and private financing (further 
details in Annex I). The Commission conducted an  internet public consultation on ‘Capturing 
and storing CO 2 underground — should we be concerne d?’ in February 2007, which covered 
issues such as level of information, public perception, acceptability as a CO 2 mitigating 
solution, acceptable increase in the cost of electricity generation a nd in the price of electricity. 
A specific consultation of the general public on  financing CCS demonstration in emerging 
developing countries was not hel d, due to the limited nature of a single demonstration project. 
However, interested NGOs and industry were consulted on an ad-hoc basis. 
Stakeholders were most concer ned about the potential of fundi ng being diverted away from 
energy efficiency and renewables. Regarding the potential for attracting private investors to 
finance CCS demonstration plants in China, the main concern was the lack of a reliable 
revenue stream, given that CCS is currently not eligible under the Kyoto Protocol’s Clean 
Development Mechanism (CDM) and that the poten tial to secure revenue from enhanced oil 
recovery (EOR) is uncertain and depends on the se lected site. Member State representatives at 
the Zero Emissions Technology Platform’s (ZEP ) government group were interested to learn 
of the plan to develop an investment fund or  special purpose vehicle (SPV) and thought this 
could make the project more attractive to the pr ivate-sector. The need to build the first CCS 
demonstration plant in China was questioned. It  was perceived by some as undermining future 
European competitiveness in building CCS plants. Nevertheless, most stakeholders — including industry members of the ZEP and the Berlin Fossil Fuels Forum — recognised that it is important to address the issue, especially consideri ng the increasing amount of GHG 
emissions from coal-based energy in emerging developing countries. 
1.4. Response to the Opinion of the Impact Assessment Board  
The Impact Assessment Board requested the following changes to the impact assessment: 
                                                
 
4 SEC(2008) 55. 
5 JRC-IE, The cost of carbon capture and storage (CCS) demonstration projects in Europe, 2009. 
 
EN 7   EN • Clarification of the objectives of the financ ial mechanism: the extent to which the model 
proposed was meant for a single demonstration or  for more extensive deployment. This is 
addressed in Chapter 3. The relevance of this  model to the international climate change 
negotiations is addresse d in Section 1.1;  
• Detail of the sources of financing and of the financing mechanism. This is addressed in 
Section 1.1, Chapter 6 and Annex VIII; 
• Analysis of the potential impact on Chinese loca l conditions. This is addressed in Sections 
2.3 and 7.4. The issue of new/retrofitted CCS  plants is addressed in Annex VIII; 
• Clarification of the stage of developmen t of the CCS technology and its overall 
significance to reduce greenhouse gas emissions . This is addressed in Section 2.1 and 
Annexes IV and V;  
• Specification of procedures regarding stakehol der consultation, the ro le of the EU-China 
partnership on climate change and next steps. These issues are addressed in Sections 1.3, 
2.3 and Chapter 9 respectively.  
The detailed comments from the Board were ta ken into account when this impact assessment 
was re-drafted. 
2. PROBLEM DEFINITION  
CCS deployment in fossil-fuel dependent emer ging developing countries has the potential to 
significantly help achieve global sustainable de velopment. However, in a business-as-usual 
scenario (i.e. without additional assistance from the public sector and without an international 
agreement or national policies establishing a carbon market price), CCS would not be 
demonstrated at commercial scale outside of OECD countries and would therefore — even if 
it were proven as a viable technology — not be  economically viable for global deployment on 
a timescale commensurate with the need for GHG emission reductions. Without global 
development, demonstration, dissemination and deployment of CCS, the fight against climate 
change could be significantly more expensive.6 
2.1. Power generation from coal and emission reductions from CCS  
Coal is an important fuel for the generation of  electricity worldwide, in particular in the 
emerging economies of China, I ndia and South Africa, which have  significant coal reserves. 
Figure 1 illustrates power generation by fuel t ype in developed and developing countries. It 
shows that power generation is going to signifi cantly increase in developing countries and 
that coal will be the predominant type of fuel  in a business-as-usual scenario, contributing to 
over half the power generate d in 2030, compared to 34  % for developed countries. According 
to a reduction scenario following the path to stay within the 2ºC objective, developing 
countries will still use coal for 38  % of power generation in 2020 and for 27  % in 2030.  
                                                 
6 Further background on the Problem Analysis is contained in Annex V. 
 
EN 8   EN Figure 1: Power Generation by  fuel type in developed and developing countries  
Source: JRC, IPTS, POLES (from Co penhagen Communication IA modelling) 
EU action alone will not be sufficient to limit the global temperature in crease to 2ºC above 
pre-industrial levels. By 2020, developing co untry emissions will exceed those of the 
industrialised world.7 A wide portfolio of mitigation options will be required to achieve the 
emission reductions needed. The analysis conducted for the Communication ‘Towards a 
comprehensive climate change agreement in Copenhagen’8 indicates that CCS is expected to 
make a significant contribution to emissions reductions and that very fast deployment of this 
technology would be necessary. Fi gure 2 illustrates the contribu tion of different measures to 
reducing CO 2 emissions, where CCS is expected to deliver about 3  % of necessary emission 
reductions in 2020 and more than 10  % in 2030. This translates to 1935 Mt of emission 
reductions due to CCS in 2030. While energy effi ciency and renewable energies are in the 
long term the most sustainable solutions both fo r security of supply and for the climate, EU 
and global CO 2 emissions cannot be reduced by 50  % by 2050 if other opti ons such as carbon 
capture and storage are not used. CCS can  be considered a bridge technology. 
                                                 
7 See Annex V, Figure 10 for more information. 
8 SEC(2009) 101. DE VE LOPING Power Generation by Fuel
050001 00001 5000200002500030000
1990 2000 201 0
Base201 0
Red.2020
Base2020
Red.2030
Base2030
Red.
Natural gas  (TW h) Oil (TW h) Coal (TWh) Nuclear (TWh) Renewables(TWh)DE VE LOPE D Power Generation by Fuel
050001 00001 5000200002500030000
1 990 2000 2010
Base201 0
Red.2020
Base2020
Red.2030
Base2030
Red.
Natural gas  (T W h) Oil (TW h) Coal (TWh) Nuclear (TWh) Renewables(TWh)
 
EN 9   EN  
Figure 2: Contribution of differen t technologies to reducing CO 2 emissions 
Contribution of different measures to CO2 emission reductions 
between baseline and reduction scenarios* - WORLD
050001000015000200002500030000350004000045000
2005 2010 2020 2030Energy savings in transport
Energy savings in other sectors
Fossil fuel switch 
Carbon sequestration
Nuclear energy
Renewable energies
GHG reduction scenario
avoided
emissions
 
Source: DG JRC, IPTS, POLES (from Cope nhagen Communication IA modelling)  
According to the business-as-usual scenario, th e penetration of CCS with respect to fossil 
fuelled power plants by 2030 is virtua lly zero, while th e reduction scenario9 shows a 
significant share (around 18  %) of fossil fuel power genera tion with CCS in 2030, rising to 
around 85  % of fossil fuelled power plan ts to be equipped with CCS  in developing countries 
by 2050 (see Figure 3). This shows the importance of this technology to achieve a sustainable 
carbon emission path at global level and emphasises the need  to start large-scale CCS 
demonstration without delay.10 In addition, a recent IEA report found that achieving a 50  % 
reduction in CO 2 emissions by 2050 without using CCS would increase the cost by 71  %.11  
                                                 
9 According to this scenario, GHG emissions in developed countries will decrease by 20  % in 2020 
compared to 1990. GHG emissions from developing co untries will continue to rise in the ‘appropriate 
global action scenario’ up to 2020, then peak between 2020 and 2030. 
10 SEC(2009) 101. 
11 ‘CO 2 Capture and Storage — A key carbon abatement option’, IEA 2008. 
 
EN 10   EN Figure 3: Share of power sect or emissions captured through Carbon Capture and Storage 
Source: DG JRC, IPTS, POLES (modelling for the Copenhagen communication)12 
Both the International Energy Agency and the IPCC conclude that the various components of 
the CCS process are already operatio nal, but the challenge is to combine all these elements to 
enable commercial deployment of CCS in the pow er sector. There are currently only four 
large-scale CCS demonstration pr ojects in the world: none based on a coal-fired power plant, 
and none in coal-dependent em erging economies. (See Annex IV for further information on 
the state of the art of CCS). 
Several international initiatives either specifically support CCS or have it as one aspect of 
broader technology support. These include th e Carbon Sequestration Leadership Forum, 
International Energy Agency implementing ag reements; the World Bank Clean Technology 
Fund and the Asia-Pacific Partnership on Clean Development and Climate (see Annex IV for 
more details). However, none of these initia tives has yet succeeded in pooling sufficient 
resources to finance large-scale CCS demonstrat ion projects, let alone in emerging developing 
countries, where no benefits can yet be  monetised through carbon markets.  
To gauge the true global mitigation potenti al of CCS and to save significant time in 
demonstrating, deploying and disseminating CCS  technologies worldwide, coal-dependent 
emerging economies and developing countries also n eed to play their part. Therefore, a viable 
financing model must be found for large-s cale CCS demonstration projects and an 
international agreement made to reinforce the market-based incentives that create a carbon 
price.13 Given the EU’s leadership role in the international climate change negotiations, a 
number of domestic companies with releva nt knowledge and technologies and bilateral 
                                                 
12 SEC(2009) 101. 
13 European Commission proposed a minimum size of 250 MW for CCS demonstration plants eligible 
under the European Economic Recovery Plan support. For the purpose of this document, the cost 
analysis undertaken in Annex VIII is ba sed on a 400 MW plant (net capacity).  
Share of power sector emissions captured
0102030405060708090100
2000 2010 2020 2030 2040 2050%
Developed countries Developing countries EU 27
 
EN 11   EN partnerships on which specific technology cooperati on can be built, the EU is in an excellent 
position to facilitate the initial demonstration of CCS technologies in key emerging developing partner countries. 
2.2. Barriers to demonstrating and deploying CCS technologies in emerging developing 
countries 
Both the International Energy Agency and the IPCC conclude that the various components of 
the CCS process are already operatio nal, but the challenge is to combine all these elements to 
commercially deploy CCS in the power sector. This chapter analyses the barriers to CCS demonstration and deployment  in developing countries. 
2.2.1.  Market failure for developing CCS 
The increased cost of electricity generation due  to the additional capital and operating costs of 
the capture, transportation and storage installati ons compared to conventional power plants is 
one of the major barriers for CCS uptake, bot h in Europe and internationally. The CCS 
process itself requires additional energy use, resulting in a so-called energy penalty, which 
either takes the form of additional fuel requi red to maintain a power plant’s output or less 
output for the same fuel input.  
The underlying root of the problem is the failure of the market to refl ect the real cost to 
society of externalities caused by using fossil fu els to generate electricity. The use of coal-
fired power stations, while providing the en ergy needed to develop an economy, causes 
significantly greater GHG and classi cal air pollutant emissions th an alternative fuel sources. 
In addition, coal mining itself has negative envi ronmental and social impacts. In countries 
with abundant coal reserves, in the absence of a price for such extern alities and without an 
economic incentive to cover incremental CCS cost s (by fiscal or other market measures like 
emissions trading), coal will c ontinue to be used to generate  electricity. CCS represents an 
opportunity to continue to use coal (which is often attractiv e due to cost/location factors) 
while mitigating the negative environmental impacts.  
Even if policy frameworks become increasingl y conducive to CCS, it cannot be assumed that 
the private sector will finan ce CCS investment. The problem s underlying the financing gap 
are complex but mainly concern risk capital.
14 This financing gap is common for technologies 
that move into the pre-commercialisation stage,  when they are ‘weaned off’ grant support and 
face high-cost activities such as initial and s econdary prototype development and testing, site 
development, supply chain formulation, construction and grid interconnection.  
Mobilising private-sector finance is essential to channel sufficient finance into sustainable 
energy investments. Private-sector return s do not take account of public benefits.  Investments 
in CCS demonstration are typical public goods  that produce substantial local and global 
benefits, such as zero or low greenhouse gas emissions and low pollutant emissions. They 
also promote local employment and generate income, including through the provision of 
energy for productive use. These positive externalit ies are not reflected when private investors 
calculate the additional costs of  CCS demonstration plants.  
                                                 
14 For a summary and more details on the nature of the financing gap: UNEP-SEFI. 2005. Public Finance 
Mechanisms to Catalyze Sustainable Energy Growth. 
 
EN 12   EN Experience from previous tec hnology development shows that costs substantially fall with 
increased deployment. Learning benefits and potential first-mover advantages could be 
positive factors attracting private investors. The l earning curve at Figure 4 illustrates that new 
clean energy technologies need public financial support in the ea rly stages of development to 
drive down the marginal costs of electricity production. However, for some technologies like 
CCS, some form of support (e.g. over and above the CO 2 price, if existing) may also be 
needed at the initial development stage, depending on prevailing market conditions. In 
emerging and developing countries, the CDM (pe nding the inclusion of CCS as a permissible 
methodology) or some other carbon market  mechanism could provide limited carbon 
financing, but there will still be a gap to fill in  terms of incentivising CCS demonstration over 
and above the use of established (dirtier) tec hnologies. In the longer term, a price on carbon 
will help incentivise broader CCS deployment.  
Figure 4: Illustrative learning curve for CCS development  
 
Source: Stern Review, 2006, p 350, as presente d in EU Technology Think Tank meeting 16-
17 April 2007  
Up-front public funding can pr ovide this incentive and enable progress  along the learning 
curve, which should drive down costs and explo it economies of scale ove r time, particularly 
in an economy such as China, where labour co sts are significantly lower and power sector 
investment is increasing rapidly. These can lead  to global benefits in addition to the 
knowledge spill-over benefits rela ted to testing CCS as a viable  large-scale mitigation option 
and the individual technological and geological options in combination. 
2.2.2.  Institutional and governance issues 
The absence of national regulati ons or interna tional agreements that put a price on greenhouse 
gas emissions is a disincentive for the private sector to cover increm ental CCS costs. In 
addition to increased costs, there are other ba rriers to CCS development and deployment in New technology 
Established technology Established technology with 
CO2 price 
Cumulative 
installation Marginal 
cost of 
producing 
electricity 
Carbon price effec t
A B Learning 
realised through 
deployment 
support 
 
EN 13   EN emerging developing countries. Th ey mainly relate to the lack  of appropriate regulatory, 
planning and permitting frameworks to create the conditions conducive to such investment. 
There is a need to develop a legislative framework for planning and permitting CCS plants, safe transport and storage of CO
2 and greater protection of the intellectual property of foreign 
technology companies. Offering financial supp ort for a CCS demonstration project can 
incentivise the recipient country to draft th e regulatory, planning and permitting frameworks 
needed for large-scale deployment, and could ev en be attached as a condition to the provision 
of such finance, as could an appropriate IPR framework.  
2.2.3.  China 
In 2007, China overtook the United States as the world’s largest emitter of energy-related CO 2 
accounting for around 20  % of global energy-related CO 2 emissions. This is due to the high 
carbon intensity of the fuel mix in China, where coal constituted around 90  % of power 
generation in 2006.15 China built the equivalent of one 500MW coal-fired power plant every 
two and a half days in 2007.16 Without the application of CCS, this represents an increase of 
around 4 megatons of CO 2 a week in Chinese emissions from coal-fired power generation 
alone.17 With plant lifetimes of around 30 years or  more, the potential for carbon lock-in is 
enormous.  
China adopted a National Climate Change Progr amme (CNCCP) in June 2007, which aims to 
optimise the energy mix by developing low-ca rbon and renewable energy. It specifically 
mentions the development of technologies for CCS. If fully implemented, the full range of 
measures in the CNCCP could lead to a reduction of up to 950Mt of CO 2. Specific CCS 
technology guidelines are plan ned for publication in 2009.  
The development and deployment of CCS in emerging economies would be significantly 
delayed  without assistance from developed countr ies. The EU’s commitment, coupled with 
technological and financial assistance, woul d help maximise the potential for CCS in 
emerging economies. 
Among emerging developing countries, EU cooperation on CCS technologies is most 
advanced with China, notably through the Near  Zero Emissions Coal project (see Annex VI) 
under the EU-China Climate Change Partnershi p (see Annex II for more details), where the 
EU has committed to developing and demons trating advanced ‘zero-emissions’ coal 
technology using CCS technologies in China an d the EU. In addition, under the Partnership 
agreement, the EU and China have committed to significantly reducing the cost of key energy technologies and promoting their deploymen t and dissemination. Given the volume of 
Chinese greenhouse gas emissions due to its coal -intensive power gene ration sector (global 
CO
2 emissions from coal combustion increased by 4.5  % in 2006. China contributed most to 
this increase with a 9  % increase in 2006, whereas in the re st of the world coal combustion 
emissions increased by 2  %18), the political commitment between the EU and China and the 
                                                 
15 IEA World Energy Outlook 2008. 
16 IEA, Cleaner Coal  in China, 2009. 
17 Dr Nick Riley from the British Geological Survey, or al evidence to the UK House of Commons Science 
and Technology Select Committee 
(http://www.publications.parliament.uk/pa/cm2005 06/cmselect/cmsctech/578 /57805.htm#note18). 
18 Netherlands Environmental A ssessment Agency, 2007. See: 
http://www.pbl.nl/en/dossiers/Climatechange/mor einfo/Chinanowno1inCO2emissionsUSAinsecondpos
ition.html. 
 
EN 14   EN advanced stage of existing cooperation on CCS, Ch ina was chosen as the location for the first 
CCS demonstration plant supported financially by the EU.19  
Several European companies are already presen t in Chinese clean tec hnology markets. Many 
of these are members of the European Techno logy Platform for Zero Emissions Fossil Fuel 
Power Plants20 and are key stakeholders for EU-China  cooperation. Furthermore, cooperation 
between European and Chinese industry stak eholders will be supported by the EU-China 
Clean Energy Centre, agreed at  the 2007 EU-China Summit and due to be established in 
Beijing.21  
At the 3rd Meeting of the EU-China N ZEC Steering Committee on 1 April, Chinese 
government representatives expressed their sa tisfaction with the EU-China cooperation on 
CCS, and identified useful expected outcomes of the Phase I projects and some lessons to be 
learned for future cooperation wo rk. They also briefed the Eur opean side on the increasing 
prominence of CCS in Chinese technology, ener gy and climate change policies, noting its 
mention in the 2007 National Climate Cha nge Programme and the Outline for National 
Medium and Long-term Science and Technology  Development Plan towards 2020. They also 
indicated that a Guide for CCS Technology Development would be published in mid 2009. 
2.3. Conclusion 
The Commission Communication, ‘Towards a comp rehensive climate change agreement in 
Copenhagen,’22 acknowledges the need for developing countries to receive financial and 
technological support to limit the increase in their emissions. Si gnificantly increased financial 
resources will be needed to support the action ne eded in developing countries. Contributions 
from developed countries and the global carbon market will be require d to implement action 
resulting in incremental costs that cannot be sustained by the country itself. Many of these 
investments will have both short-  and long-term benefits in terms of climate change and 
economic recovery. In any case they  will cost less than inaction.  
In conclusion, EU public financing can help overcome some of the barriers outlined above 
and trigger private financing, which would not otherwise be available for large-scale CCS 
demonstration projects. Demonstration projects  improve our understanding of the technical, 
methodological, political, legal and financial issu es involved and therefore help us estimate 
the extent to which it will be possible to re ly on CCS as one of the key future mitigation 
technologies. A successful demonstration project will reduce perceived ris k, facilitate further 
demonstration on the path to de ployment and dissemination and he lp lower the cost of this 
technology. 
For these reasons, this impact assessment examines the options for a financial vehicle to 
support the construction and operation of a CCS demonstra tion plant in one emerging 
economy, China. 
                                                 
19 Whereas the cost figures associated with this Imp act Assessment (Annex VIII) are estimated for China, 
the financial vehicle described could potentially be applied to a demonstration plant in any emerging 
economy. 
20 See: http://www.zero-emissionplatform.eu. 
21 See: http://www.eu-in-china.com/download/EC2.pdf. 
22 COM/2009/0039 final . 
 
EN 15   EN 3. OBJECTIVES  
3.1. General policy objective 
• To limit the increase in global mean surface  temperature to 2  °C compared with 
pre-industrial levels, whic h in turn requires that global greenhouse gas (GHG) 
emissions peak by 2020 at the latest, fall by at least 50  % compared with 1990 
levels by 2050 and continue  to fall thereafter.  
3.2. Specific objective 
• To facilitate early demonstration of  CCS technology in emerging developing 
countries to maximise  the public benefits of th ese technologies (GHG 
emissions reductions, improved air quality)  as they move from demonstration 
to deployment, to increase experience and economies of scale and drive down 
costs , initially using China as a case study. 
3.3. Operational objectives 
• Identify the additional fina ncing needed for a large-scale CCS demonstration plant 
in China, in the absence of a global car bon price or other incen tive, to complete 
the demonstration project sooner than mi ght otherwise be the case under normal 
market conditions. 
• Provide financing using a viable financing model for CCS demonstration in 
China, which brings together public and private financing as a concrete example 
of technology and financing cooperati on between developed and developing 
countries in the context of the intern ational climate change negotiations.  
• Given limited resources from the Community budget,23 calculate how to split 
public/private financing  to maximise the leverage  of public funding, to be 
explored further when designi ng the above-mentioned vehicle. 
This project is in line with the European Commission’s Sustainable Development Strategy, 
the objectives of the 2008 Clim ate Change and Energy package and the Lisbon Strategy. In 
combination with the EU’s own Demonstration Pr ogramme, this initiative can help develop a 
competitive advantage and new markets for Europ ean companies active in relevant sectors. 
4. POLICY OPTIONS  
According to IEA estimates, $22 trillion of i nvestment will be needed for global energy 
supply infrastructure. Around $3.7 tr illion of this is required in China alone. The way this 
                                                 
23 The European Commission has earmarked €60m for cooperation on cleaner coal technologies and 
carbon capture and storage with emerging economies. Most of this finance is earmarked for the design 
and construction of a CCS demonstration plant in China. The first tranche of €10m (2009-2010) is 
earmarked to build capacity for CCS and other clean coal technologies in other emerging economies 
(about €3m) and for the second phase of the EU-China NZEC project (about €7m). Provided there is continued political support from China and satisfactory progress with the NZEC project, a second 
tranche of up to €50m could be made available for Phase III of NZEC, i.e. the construction and 
operation of a CCS demo plant in China. 
 
EN 16   EN investment is deployed will determine Chin ese and global energy use patterns and CO 2 
emissions for decades to come. The latest av ailable figures are for 2006, when, according to 
the IEA, China increased capacity  at coal-fired power  stations by 100 GW over the course of 
the year.24 Even this scale of power facility expa nsion is not sufficient to meet soaring 
demand, and estimates suggest that 1  260 GW of new power stati ons will come on line in 
China by 2030, 70  % of which will be coal fired.25 Over the same period, Europe is expected 
to build 850 GW of new power st ations to replace ageing stock. 
4.1. Option 0: No EU involvement in fina ncing CCS demonstration in emerging 
economies  
Unless existing and new technologies are devel oped and deployed, the potential for carbon 
lock-in is significant. Therefore, Europe and China have a unique opportunity to work 
together to develop and demons trate CCS technologies for future deployment in both regions 
to avoid the bulk of ca rbon lock-in and find inno vative solutions to coal  dependency. The EU 
already cooperates with China on various substa ntive aspects of climate change policies and 
research (see Annex II).  
The aim should be to develop, demonstrat e, disseminate and deploy CCS technologies 
globally to move along the lear ning curve and down the cost cu rve as quickly as possible. 
Without EU technological and financial assistance, deploymen t of CCS in China and other 
emerging economies could be significantly delayed. This would represent a missed 
opportunity for emissions abatement and for f acilitating the progress of international 
negotiations on climate change. If large-scal e deployment of CCS is delayed, combating 
climate change could be significantly more e xpensive. China builds capacity comparable to 
the entire UK power grid each year.26 Without the application of CCS, this represents around 
4 megatons of CO 2 a week increase in Chinese emissions  from coal-fired power generation 
alone,27 and with plant lifetimes of  around 30 years or more, cons iderable potential for carbon 
lock-in. Developing CCS technologies in Europe and then exporting them at a later date to 
developing countries does not fit with the EU’s  policy aim of limiting global climate change 
to 2ºC. Furthermore, developing countries reje ct this form of technology dissemination. CCS 
technologies must be developed in partnership with developi ng countries to determine and 
then maximise the true potential of CCS.  
The funding gap for CCS demonstration is well documented. Unde r the EU Emissions 
Trading System (emissions stored are not emitted ), the New Entrants Reserve of the EU ETS 
(300 million allowances have been set aside to support EU CCS demonstration plants and 
renewable energy projects) a nd the European Economic Rec overy Plan (€1.05bn is planned 
for selected demonstration projects), the EU  incentivises demonstration within Europe. 
However, as explained above, action in the EU  alone will not bring CCS to market in the 
timescale commensurate with the problem. For this reason, additional public financing is required for cooperation with de veloping and emerging economi es. The Commission plans to 
promote information exchange between the NZEC project and European demonstration 
                                                
 
24 Fred Pearce in New Scie ntist, 23 April 2008. 
25 Chatham House/E3G report: Chan ging Climates, November 2007. 
26 ‘The Future of Coal’, Massachuse tts Institute of Technology, 2007. 
27 Dr Nick Riley from the British Geological Survey, or al evidence to the UK House of Commons Science 
and Technology Select Committee 
(http://www.publications.parliament.uk/pa/cm2005 06/cmselect/cmsctech/578 /57805.htm#note18). 
 
EN 17   EN projects through the CCS proj ect network, which is cu rrently being established.28 
Furthermore, many members of the European Technology Platform for Zero Emissions Fossil 
Fuel Power Plants29 are key stakeholders in EU-China cooperation. 
The EU has a commitment to China and has indicated its intention to expand CCS 
cooperation to other partners. A lack of EU action could delay eventual dissemination of CCS 
technologies globally and lead to  further carbon lock-in. This op tion is not commensurate to 
the problem and would be a missed opportunity  for the EU’s Climate Change and Energy 
policy. Therefore, this option is discarded. 
4.2. Option 1: Public grant funding 
This option would mean fully financing the addi tional cost of CCS by public grant funding. In 
the current economic climate, it would be diffi cult to mobilise the level of funding required 
for a commercial-scale demonstration plant. Fu rthermore, if financi ng a CCS demonstration 
plant relies solely on public  grant financing, the donor/recip ient dynamic might prevent the 
establishment of the structures and relationships  required to position the first demonstration in 
a broader strategy for large-scale CCS deployment.  For these reasons this option is discarded. 
4.3. Option 2: Public-pri vate partnerships 
To share ownership and risk, pool sufficient f unds and deploy them effectively, it will be 
necessary to develop a public-private partnership (PPP) . The partnership must be designed 
to inform and garner support from EU and EEA Member States, China, International 
Financial Institutions and private investors. The EU has experience with the following three basic models, which are analys ed in further depth here: 
Option 2a) Joint Undertaking  Option 2b) Ad-hoc International Treaty Option 2c) A Special Purpose Vehicle  It should be noted that, as further experience is gained during NZEC phase II, other options 
may be considered. These three options are not exclusive, but represent what are considered to be the most likely options at present. 
5. C
OMPARING THE PUBLIC -PRIVATE PARTNERSHIP OPTIONS  
5.1. Option 2a: Joint Undertaking 
The legal basis for establishing a Joint Undertaking (JU) is the EC Treaty, Title XVIII 
‘Research and Technological Development’, Ar ticle 171: ‘The Commun ity may set up joint 
undertakings or any other structure necessary  for the efficient ex ecution of Community 
research, technological development and demonstration programmes’.  
                                                 
28 See: 
http://europa.eu/rapid/pressReleasesAction.do?ref erence=IP/08/1315&forma t=HTML&aged=0&langua
ge=EN&guiLanguage=fr. 
29 See: http://www.zero-emissionplatform.eu. 
 
EN 18   EN Article 171 of the EC Treaty does not define joint undertakings in more detail nor does it 
define fields of application in terms of research areas. The only  clear condition set for a JU is 
that it has to be necessary for the efficient execution of Community programmes for research, 
technological development and demonstration. 
It has previously been applied to projects w ith a significant budget line including a large share 
of Community financin g, such as GALILEO,30 which also involves non-EU countries, and 
SESAR.31 The GALILEO Joint Undertaking (GJU) oversees the establishment of a public-
private partnership to manage the Galileo Pr ogramme and mobilise the required funds. A 
competitive tendering process is used to select the private consortium that will be awarded the 
Galileo concession. While it is highly flexible w ith regards to particip ation, as it allows for 
funding from both private and public sources, one  of the potential downsides is the time 
involved in establishing such a mechanism. At present, JUs have been set up through the 
adoption of a Council Regulation, which would take  a minimum of two years. In addition, the 
GALILEO model is not sufficiently flexible to  bring in financing from the carbon market, 
which will be crucial in the future to ensure dissemination and deployment of clean energy technologies such as CCS.  
5.2. Option 2b: ITER (International Ther monuclear Experimental Reactor) 
The bespoke model for ITER was used in the absence of an off-the-shelf model for the 
purpose of bringing together various intern ational partners (E U and non-EU country 
governments) to collaborate on th e design and construction of an experimental fusion reactor. 
In effect, new international law was creat ed to fit the purpose. This underpins the 
organisational structure of a ‘Joint Implemen tation Agreement’, which covers issues as 
diverse and potentially politically sensitive as in formation and intellectual property, privileges 
and immunities, public health, safety, licen sing and environmental protection, liability, 
decommissioning, and peaceful uses and non-pro liferation. This structure was lengthy to 
establish (taking over 5 years), and does not allow the private se ctor to be directly involved. 
The private sector contributes via contracts awarded by the member governments. This model 
does not pool public and private interests in the way envisaged for this project and is over-
complex for the purposes of funding a CCS dem onstration plant in China. There are existing 
structures where the Commission has experience a nd competence, therefore it is not necessary 
or appropriate to create new international legal structures in this case. 
5.3. Option 2c: Special Purpose Vehicle (SPV ) or other investment vehicle 
A Special Purpose Vehicle (SPV) is a legal entity  created to achieve (a) specific objective(s). 
SPVs have no purpose other than the transactions for which they were created, and they can 
make no substantive decisions; the rules gove rning them are set down in advance and 
carefully circumscribe their activit ies. This mechanism limits the financial risk to the investor. 
SPVs are suited to transferring as sets to finance a large project achieving a narrow set of goals 
while limiting the risk to the investing entity. He nce an SPV or other similar vehicle can offer 
several advantages and can be tailored to suit the needs of the CCS demonstration project. 
                                                
 
30 See: http://ec.europa.eu/transport/galileo/index_en.htm. 
31 SESAR (Single European Sky ATM Research) is the technological wing  of the Single European Sky. 
The aim of the SESAR Joint Undertaking is to mode rnise the European air traffic management system 
by coordinating and concentrating all relevant re search and development efforts in the Community. 
 
EN 19   EN Potential to build on existing structures 
The Commission and the EIB have experience  in channelling support via public-private 
partnerships in general, includi ng SPVs. SPVs are highly  flexible in that they can be designed 
for a one-off project and have a relatively light  legal and managerial structure, which means 
that they can be established qui ckly and with minimal overheads. 
Involving the private sector 
The advantage of a PPP — either a Fund or an  SPV — is that public-sector donors can set out 
investment policies to ensure full coherenc e with public policy objectives. A specified 
investment policy provides an investment plat form combining public and private finance. 
Being set up as a private investment fund or SPV  with a public objec tive, the vehicle would 
be managed in an efficient and financially viab le way with a view to attracting funding from 
private capital markets. 
Achieving policy objectives 
A further advantage of the governance structure of  an SPV is the opportunity to attach policy 
objectives to the investment decisions, such as the deployment of a new technology.  
5.4. Summary and conclusion 
Table 1 compares the three public-private partne rship options according to a set of criteria.  
Table 1: Assessment of the proposed public-private partnership options 
Issue a) Joint 
Undertaking  
(e.g. GALILEO) b) Ad-hoc 
international treaty 
(e.g. ITER) c) Special Purpose 
Vehicle (SPV) or 
other investment 
instrument 
 
Decision-making 
procedure Council Regulation 
agreed with the opinion of EP COM receives a 
negotiating mandate from Council The EC indicates its 
intention to act, e.g. via a Commission 
Communication. 
Commission Financing Decision to commit EC 
funding 
Timeframe Experience shows that a 
minimum of 2 years is realistic ITER took 5 years to 
negotiate (2 of these spent on location issue) 6-12 months is ambitious 
but feasible 
Contribution of non-
EU parties No particular type of 
participation provided for: 
flexibility of Article 171 
allows for various 
possibilities. Third countries participate in 
GALILEO. For ITER, all parties 
(governments only) are 
equal, although France 
has a key role due to 
location, and Japan has some advantages due to 
location trade-off (but ad-
hoc nature means this can be decided) Non-EU parties — both 
public and private — 
could contribute to the 
vehicle  
 
EN 20   EN Role of private 
sector No particular role is 
specified: flexibility of 
Article 171 allows for various possibilities. 
Allows for public-private 
cooperation. ITER is entirely inter-
governmental — private 
sector involvement is arranged through 
contracts with 
governmental parties Allows for public-private 
cooperation with direct 
private investment. 
Split of 
public/private-sector funding Nothing is specified: 
flexibility of Article 171 
allows for various 
possibilities. ITER is entirely publicly 
funded at present. Both private and public 
investors could 
participate by lending or 
taking equity in an SPV or by buying shares of an 
investment fund. 
Given the absence of a functi oning commercial-scale CCS demons tration plant globally, there 
is no specific experience to draw on to ascerta in the best financial vehicle to achieve the 
second operational objective. Howe ver, the EU has experience in  bringing public and private 
bodies together in large research/demonstrat ion projects through the above three types of 
public-private partnerships. Therefore, while all three options woul d build on previous 
experience, neither option 2a) nor  2b) seem feasible regarding the timescale as both options 
would entail lengthy inter-institutional legal pro cedures. If the assumption is made that the 
contribution from the Community budget is fixed regardless of the chos en cooperation model, 
the cost to the Community rema ins constant. A key issue is th at option (b) does not involve 
the private sector financially. Options (a) and (b) are therefor e discarded. Option (c) and its 
resulting impacts are assessed in more detail below. 
6. SPECIAL PURPOSE VEHICLE (SPV)  OR OTHER INVESTMENT VEHICLE  
As the technologies are at the demonstration st age and not yet commercially viable, private 
investment in CCS is only attractive if there are prospects for a revenue stream either from the 
carbon market or from enhanced oil recovery. This chapter analyses different financing 
options and gives examples of rates of return  on investment in a CCS project on an IGCC and 
pulverised coal plant.  
The figures used in this example derive from initial cost estimates presented in Annex VIII. 
Specific costs depend on the location (country and site) and the technology selected. Cost 
estimates for CCS demonstration projects at the pre-feasibility stage are generally considered 
to have an uncertainty range of +/- 40  %. For the EU-China NZEC Project, during the second 
feasibility and design phase (see Annex III), more accurate cost analyses will be conducted 
based on choices (technology, s ite, storage type and location)  to be made by the Chinese 
government. The most accurate co st estimates will be made du ring the pre-construction Front 
End Engineering Design (FEED) study. 
6.1. Financing with revenue from the carbon market 
The future eligibility of CCS for CDM or another carbon market mechanism (such as sectoral 
crediting) would generate a re venue stream that could make investment in the technology 
attractive to private investors. Particularly intere sting in this regard is the sectoral crediting 
mechanism currently being discussed in the context of negotiations  on a post-2012 global 
climate change agreement. In the Chinese power sector, for example, this approach could 
allow emissions reductions to be credited beyon d a certain baseline. Thus, only action which 
 
EN 21   EN is additional to business as usual is credited and companies would have an incentive to take 
more costly mitigation action in return for fi nancing through the carbon market. This could 
facilitate the uptake of more  expensive technologies such as CCS, over and above other 
cleaner coal and efficiency technologies, which are cost neutral or even negative over time.  
Figure 5 shows the public financing needed for the Integrated Gasification Combined Cycle 
(IGCC) plant, depending on the car bon price and required rates of  return by private investors 
for a base plant. (D=debt; EQ=equity). 
Figure 6 does the same for the Pulverised Coal (PC) plant. The amount of public financing 
needed is estimated with the assumption that it is  in the form of subsidy (no revenue). Public 
financing for capital investment is set at a rate that leaves private investors indifferent as to 
whether to invest in plants w ith or without CCS. Public financ ing for operational costs covers 
additional CCS costs that are not covered by re venue from carbon credits. The carbon value is 
set at different levels and a ssumed to be constant throughout  the plant operation (2015-2039), 
the last scenario assumes the value of carbon will gradually in crease from € 10/tCO2 in 2015 
to € 20/tCO2 in 2040. It is important to not e that assumptions on the carbon value are 
hypothetical, without pre-judging th e policy instrument used to achieve this value (such as a 
sectoral crediting mechanism, carbon tax or dome stic emission trading system). As shown in 
Figures 6 and 7, the financing gap depends to a large extent on the assumed carbon value.  
Figure 5: Public financing for IGCC plant  
Public financing depending on carbon price and required rate of return
0100200300400500600700800
5 1 01 52 02 53 0 1 0  i n
2015 20
in 2040
carbon price, €/tCO2Public financing, M€rate of return D=5%, EQ=10%
rate of return D=5%, EQ=15%
rate of return D=5%, EQ=20%
 
( D = debt; EQ = equity) 
 
EN 22   EN  
Figure 6: public financing for PC plant  
Public financing depending on carbon price and required rate of return
01002003004005006007008009001000
5 1 01 52 02 53 0 1 0  i n
2015 20
in 2040
carbon price, €/tCO2Public financing, M€rate of return D=5%, EQ=10%
rate of return D=5%, EQ=15%
rate of return D=5%, EQ=10%
 
( D = debt; EQ = equity) 
It is uncertain whether and at what time CCS in emerging developing countries will be 
eligible for carbon market revenue. Theref ore, public funding — with no or very low 
expectations for a return on investment — will be required to reduce the risk for private 
investors and to allow for a suffi ciently high rate of return.  
If the value of carbon increases gradually fr om € 10/tCO2 in 2015 to € 20/tCO2 in 2040, the 
amount of public financing needed to cover th e additional CCS cost is estimated at around 
€ 550 million for the PC plant and around € 300 m illion for IGCC plant. It is important to 
note that these cost estimates are based on the assumptions made in Annex VIII. A full 
sensitivity analysis on other parameters is summarised in Annex VIII.  
6.2. Financing with revenue from enhanced oil recovery  
It may be possible to source revenue from en hanced hydrocarbon recovery (oil or coalbed 
methane), in addition to revenue from the carbon market.  
Enhanced oil recovery (EOR) denotes a variety of processes to increase the amount of oil 
removed from a reservoir, typically by injecting a liquid (e.g., water, surfactant) or gas (e.g. 
nitrogen, carbon dioxide). The income from applying EOR to the storage site can be 
significant. The CO 2 value is estimated by the US Depart ment of Energy at $ 25-35 per ton 
for EOR.32 A price of around € 15/tCO 2 in EOR would cover up to half of the additional cost 
of CCS at the IGCC plant above. However, the economic benefit of enhanced oil recovery 
                                                 
32 McKinsey&Company: Carbon Capture and Storage: Assessing the Economics, 2008. 
 
EN 23   EN depends very much on oil prices. IPCC suggests th at, for example, oil at US$ 50/barrel could 
justify a credit of US$ 30/tCO 2.33  
Such estimates should be treated with caution as, firstly, the applicab ility of EOR is highly 
dependent on the profile of the specific site, its age and level of depletion and, secondly, on 
the oil price and on the ability to  ensure a constant supply of CO 2. However, in the absence of 
a carbon price or eligibility of CCS for CDM,  EOR would be the only potential additional 
stream of revenue from equi pping a power plant with CCS.  
In practice, CO 2-EOR use will be limited to power plants  close to oil and gas fields to keep 
transport costs down. Although the potential for EO R in China is limited to the relatively low 
number of oil fiel ds, developing CO 2-EOR could jump-start the transport infrastructure 
required for full CCS deployment in some regions. 
An assessment of the EOR potential in some regions of China is made by NZEC Phase I 
projects, which are investiga ting the scope for applying CO 2-EOR for CCS projects in China. 
COACH is looking at the Bohai basin (Shandong Province), which contains the Dagang and 
Shengli oilfields. This site was selected by the Chinese partners, indicating a potential interest 
in EOR. Results will be availa ble in the second half  of 2009. If EOR is an  option, this would 
considerably ease the financ ing of a CCS commercial sc ale demonstration plant. 
6.3. Financial flows 
Figure 7 illustrates th e flows of finance in the investment scheme described above. 
Figure 7: Illustration of Special Pu rpose Vehicle inve stment and returns 
Base Power
Plant
=Commercial 
powergeneration 
and revenue
(Chinese power entity)NZEC: 
CCS 
Incremental
costsSpecial Purpose 
Vehicle 
(SPV)
Incl. public funding from 
MS and non-EU countries
and private investment
Possible revenue stream:
-CERS/other carbon credits
-EORPublic grants
(receive no 
revenue)Private 
investment
(investors 
receive return)
 
                                                 
33 Herzog et al. (2005): Chapter 8: Costs and economic potential. In IPCC Special Report on Carbon 
Dioxide Capture and Storage. 
 
EN 24   EN A likely scenario is that private investment will come from two sets of investors: International 
Financial Institutions or public banks, such as  the EIB, essentially providing advantageous 
loans and seeking a low return (e.g. 5  %) and private investors seek ing a higher return (e.g. 
10-20  %). One way to reduce the si ze of the initial invest ment required is through a 
competitive bidding process for the construction and operation of the plant, where partner companies in the consortium may bid at cost or reduced rates to gain fi rst-mover and learning 
advantages from being in the first commercia l scale CCS demonstrat ion plant in China. 
To make the proposal attractive to  private investors, public inve stors need to be willing to 
underwrite some of the risk.  
Several issues remain for negotiation with Ch inese partners. The assumption is that the 
Chinese will at least invest in the construction of the base power plant. Chinese investment in the incremental costs of CCS could reduce the ri sk for private investors and increase Chinese 
buy-in to the project and devel opment of the technology. This co uld ensure a greater chance 
of Chinese ownership and familiarity with the technology and increase the likelihood of 
further deployment.  
Figure 5 shows that the target amount of public  funding under the Special Purpose Vehicle or 
other investment vehicle would be around €300  million for an IGCC plant or €550 million for 
a pulverised coal plant.
34 This is subject to slight change s, depending on the rate of return 
required by private investors for th e base plant and, to a larger extent, on the carbon price and 
possible revenue streams from enhanced oil rec overy. In addition, the target amount of public 
funding under the Special Purpose Vehicle or other investment vehicle depends on the 
number of years of operati on during which the CCS plant w ould receive public financial 
support.  
If public contributions from the EU Member St ates provide advantages to certain companies 
operating in the EU and more generally qualify as  State aid, they may need to be notified to 
the Commission under the State aid rules. 
7. ECONOMIC , SOCIAL AND ENVIRONMENTAL IMPACTS OF CCS  DEMONSTRATION IN 
CHINA  
This analysis focuses on the impact of policy options on the process of CCS demonstration on 
an industrial scale in emerging developing countri es, particularly in China. The construction 
of one CCS demonstration plant is not likely to  lead to a major immediate improvement in the 
climate or to immediate economic benefits. Al so, direct social and employment impacts are 
likely to be limited due to the sc ale of CCS demonstration projects. 
However, the individual policy options differ in their impact on the extent and timing of 
demonstration projects and their likely results. This in turn can  be decisive in bringing CCS 
swiftly to market and will have much more subs tantial implications for the global climate and 
for the local environmental, economic, so cial and employment situation in emerging 
developing countries.  
                                                 
34 This figure is based on the assumptions in Annex VIII, which also summarises the results of the 
sensitivity analysis on the main parameters. 
 
EN 25   EN 7.1. Environmental Impacts  
A full Environmental Impact Assessment for a sp ecific CCS project site will be conducted as 
part of the ENRTP project referred to in Anne x III. Furthermore, environmental and technical 
guidelines will be drafted for the design, cons truction, operation and monitoring of CCS 
demonstration plants. The more general environm ental impacts of CCS can be classified as: 
7.1.1.  Risk of physical leakage 
The IPCC Special Report on CCS estim ated that the fraction of CO 2 retained in appropriately 
selected and managed geological reservoirs is very likely (i.e . with probabil ity of 90-99  %) to 
exceed 99  % over 100 years and likely (i.e . with probability of 66-90  %) to exceed 99  % over 
1000 years.35 
The storage site selection stage is key to ensuri ng zero or near-zero seepage. With suitable site 
profiling, selection and management, this prac tical experience supports the notion that the 
long-term risk of seepage is low. These levels  of confidence and the assurance of permanence 
to be confirmed by ongoing projects, s upport the presumption of long-term CO 2 retention in 
well-selected and managed sites (i .e. a permanent emission reduction). 
7.1.2.  Air Pollution 
As set out in the impact assessment for th e Communication on Sustainable Power Generation 
from Fossil Fuels,36 the penetration of sustainable coal t echnologies including CCS is likely to 
reinforce the positive impact of recent improve ments in coal-fired power generation through 
the application of cleaner coal technologies. Thes e have so far led to significant reductions in 
the most critical air pollution agen ts, notably sulphur dioxide (SO 2) and nitrogen oxides 
(NOx). These pollutants are major contributor s to ocean acidificati on, eutrophication and 
ground-level ozone. In general, SO 2 emissions plummet (by more than 90  %) regardless of the 
technology, whereas depending on the CCS tec hnology used, NOx emissions may increase 
slightly (up to 20  % for Natural Gas Combined Cycle (NGCC) or Pulverised Coal (PC) 
technologies, or fall by 81  % for Integrated Gasification Combined Cycle (IGCC) plants. 
Aerosols and particulate matter have serious ad verse impacts on human health and have been 
estimated to be res ponsible for up to 800  000 deaths worldwide per year.37 They are also 
believed to be a significant forcing agent for major local and global climate effects which are 
still being investigated. Although some aerosol s occur naturally, sulphur dioxide from the 
combustion of coal is the precursor of sulp hate aerosol, especially  in urban areas, and 
although legislation has succeeded in controlling emissions in the US and Europe, they are 
increasing in Asia.38 Therefore, a reduction in SO 2 emissions as described above can also 
have a positive impact on anthropogenic aeroso l production. Black carbon (soot) is the result 
of incomplete combustion of fossil fuels or biological matter and global emissions increased 
threefold between 1950-2000, largely driven by economic growth in China and India.39 
                                                 
35 IPCC Special Report on Carbon Dioxide Capture and Storage (2005) , 5.7.3.5 (p.246).  
36 SEC (2006) 1722. 
37 International Risk Governance Council paper ‘the linkages between air quality and climate policies’ 
(2008) quoting WHO figures. 
38 IPCC WGII, 2007: From 1980-2000, sulphur dioxide emissions reduced from 18 to 4 mega tonnes p.a. 
in Europe and from 12 to 8 Mt in the US. In Asia, emissions increased to approx. 17 Mt p.a. 
39 IRGC, 2008. 
 
EN 26   EN Nitrate aerosol can also derive from foss il fuel combustion. Accumulated organic and 
anthropogenic aerosols can travel thousands of  kilometres, across national borders and can 
remain in the atmosphere for long periods. They also contribute to large-scale hazes, such as 
that seen in the Indo-A sian region. The application of larg e-scale CCS in this region would 
have a positive impact on seve ral aspects of  air quality. 
7.1.3.  Greenhouse Gas Emissions 
CCS technologies applied to a modern conven tional power plant provide scope for reducing 
CO 2 emissions to the atmosphere by approximately 80-90  % compared to a plant without 
CCS.40  
There is a wide range of estimates for the globa l potential of CCS, but some sources place it 
as high as 600-700 GW (half of which with coal), at more than 1/3 of the Chinese market and 
10 % of the market in Europe.41 
In terms of achieving the 2 degrees obj ective, CCS could contribute around 10  % of global 
reductions required (as desc ribed in Section 2.1).  
7.1.4.  Availability of sufficient storage capacity 
Work is currently being undertaken as part of Phase I of NZEC to ma p storage capacity in 
China. The final selection of a storage location and site will be made by the Chinese 
government. Further site-specific work will be undertaken as part of Phase II, supported by 
the ENRTP.  
7.2. Social Impacts 
The social impact of a single demonstrat ion plant is obviously limited, but if the 
demonstration leads to large-scale de ployment, this may create new jobs. 
7.3. Economic and health benefits 
7.3.1.  Economic Impacts 
In countries with abundant coal re serves, coal will continue to be  used to genera te electricity. 
Capturing and storing CO 2 has economic benefits, which are not captured in the cost analysis 
presented in Annex VIII. A carbon price, set by the level of emissions reduction to be 
achieved, indicates the value of reducing CO 2 emissions for society. However, in the absence 
of a carbon price in emerging market s, the failure of the market to reflect the real cost to 
society of external costs caused by the use of fossil fuels to generate electricity means that 
CCS technologies are not economically viable in  the pre-demonstration phase. Therefore, the 
CCS demonstration project and corresponding SPV or other investment vehicle are designed 
with the assumption that there will be a carbon  price in China and ot her emerging developing 
countries in future that will reflect the social  price of carbon. Figure 9 depicts the assumptions 
about carbon price developments in the globa l carbon market. Energy intensive sectors in 
developing countries would be exposed to a low carbon price in 2012, simulating the limited 
                                                 
40 IPCC SR on CCS, 2007. 
41 From the impact assessment produced for the CCS Directive, paragraph 223 based on the result of the 
POLES model, IPTS (DG JRC), for the 2 degrees Communication (COM/2007/0002 final). 
 
EN 27   EN penetration or visibility of a carbon price for all individual firms through policy instruments 
such as the CDM. However, the differences in  carbon price decrease over time as a result of 
improvements to the regulatory framework a nd the state of development of the economy. 
Between 2025 and 2030, these differences in car bon prices decreased for all groups of 
countries, apart from low-income countries. Acco rding to these assumptions, China will have 
a carbon price of € 20/tCO2 in 2020. This woul d imply that deploying CCS in China would 
become more attractive over time as the carb on price would be take n into account when 
making investment decisions.  
Figure 9: Carbon price developments  in the global carbon market  
05101520253035404550
2012 2014 2016 2018 2020EU
Developed
countries
Economies intransition
High IncomeDCs
Low Income DCs
Poor Developing
 
Source: DG JRC, IPTS, POLES (from Cope nhagen Communication IA modelling) 
7.3.2.  Health benefits 
The air quality impacts outlined above could ha ve local health benefits, although these must 
be seen in the context of various factors, su ch as the range of lo cal pollution sources and 
pollution control mechanisms. 
As noted above, a single CCS demonstration pl ant will lead to lim ited local air quality 
benefits, but it could lead to la rge-scale deployment of CCS in th is region. This could in turn 
have significant co-benefits, particularly in te rms of health and reduced abatement costs. The 
impact assessment for the Communication ‘Lim iting Global Climate Change to 2 degrees 
Celsius: The way ahead for 2020 and beyond,’42 estimated that reducing CO 2 emissions just 
by 10% compared to baseline emissions results in a decrease in hea lth costs between €12bn 
per year to about €2.5bn per year by 2020 due to the reduction in abatement costs for 
traditional air pollutants.  
Similar or greater co-benefits are anticipated from ambitious  climate change policies in 
developing countries, where urban areas experience particularly high local air pollution levels. 
A study in Shanghai (China)43 indicates that implementing an energy scenario with CO 2 tax 
could prevent more than 10  000 PM10-related avoidable deaths in 2020 and could also slash 
                                                 
42 SEC(2007) 8. 
43 As cited in SEC(2007) 8. 
 
EN 28   EN the number of cases of other relevant diseases. A case study for the Beijing area44 showed the 
huge potential for active energy polic ies to reduce pollutants. They  estimate that an ambitious 
energy policy, to more than halve business-as-usual emissions of SO 2, NOx and PM10 by 
2030 in the Beijing area, would also decrease business-as-usual CO 2 emissions by a third. 
Therefore large-scale CCS deployment could form  an integral part of the overall climate 
change mitigation and air quality improvement strategy. 
The impact assessment for Europe’s  ‘Thematic Strate gy on air pollution’45 estimated that the 
health benefits alone of this strategy are valued at between €42 a nd 135 billion per year 
depending on the evaluation method used.46 Premature deaths due to  particulate matter would 
be reduced by 63  000 in 2020 compared with the status q uo. This is equivalent to saving 
560  000 life years per year. Lower income groups ar e expected to benefit more as they are 
generally exposed to higher levels of air po llution than those in higher income groups.  
7.4. Risks 
This impact assessment and the Communication wh ich it supports were de veloped as input to 
the ongoing negotiations between the EU and thir d country partners, in particular China, on 
CCS and CCT cooperation. It will be important to ensure buy-in  from European and Chinese 
partners and for them to play an equal role in  the project, but it cannot be excluded that the 
parties fail to agree on th e terms of this project. 
It will be necessary to work closely with Eu ropean companies and the Chinese government to 
ensure that all appropriate measures are ta ken to safeguard the in tellectual property of 
European enterprises involved in these projects.  This is one of the issues, along with other 
regulatory matters, relating to Foreign Direct Investment in China, and technical issues 
concerning the site, technology and storage type selection that wi ll be addressed during Phase 
II of the NZEC Project (see Annex III for detail s of Phase II). As regards regulatory matters, it 
will be important for the Chinese government , building on the results of the STRACO2 
project, to develop a regulat ory regime for CCS demonstration. The EU has significant 
experience to offer here, including on matters such as Environmental Impact Assessment, 
liability and monitoring issues. 
In addition, the success of the project will depend on its ability to mobilise additional 
financing, the extent to which possible revenue from the carbon market and/or enhanced oil 
recovery can be secured, and technological risks.  
8. MONITORING AND EVALUATION  
The performance of the financial vehicle woul d be subject to monitoring, risk management 
and compliance procedures to ensure it complie s with the relevant laws and guidelines. 
                                                 
44 Integrated Environmental Strategies, Energy Options  and Health Benefit Beijing Case Study; Prepared 
by National Renewable Energy Laboratory; Department of Environmental Science, Singhua University; 
School of Public Health, Peking University; School of Public Health, Yale Un iversity; November 2005. 
45 ‘Thematic Strategy on air pollution’ COM(2005) 446 final was aimed at achieving ‘levels of air quality 
that do not give rise to significant negative impacts on, and risks to human health and the environment’. 
To reach these objectives, SO 2 emissions needed to decrease by 82  %, NOx emissions by 60  %, VOCs 
by 51  %, ammonia by 27  % and primary PM2.5 by 59  % relative to emissions in 2000 by 2020. 
46 The lower figure is based on the median value of  a life year lost (VOLY) while the higher figure is 
based on the mean value of a statistical life (VSL). 
 
EN 29   EN Financial reporting will be in accordance with th e requirement of the International Financial 
Reporting Standards that apply to financial in termediaries and the EC Financial Regulation. 
This could include quarterly un-audited financia l statements, six-monthly financial statements 
and an annual report audited by certified pub lic accountants qualified to audit financial 
institutions.  
In addition to financial reporti ng, several other indicators will n eed to be monitored to follow 
the implementation of the demonstration project, such as: 
• catalytic financing effects in terms of  money leveraged from co-financiers; 
• technical parameters of the CCS  demonstration project, such as plant capacity, net energy 
efficiency, capture rate and capacity utilisation; 
• construction time and sequence;  
• investment and operating cost of car bon capture, transport and storage; 
• volume of CO 2 avoided and stored by the CCS demonstration projects; 
• amount and type of air pollutants avoided; 
• creation of an enabling le gal and regulatory framewor k in the country CCS is 
demonstrated; 
• acceptance by the public of CCS technologies, part icularly related to the geological storage 
of CO 2 and associated risks.  
At the deployment stage, a list of indicator s should be extended to include selected 
environmental, social and economic objectives, such as:  
• number and type of CCS projects;  
• amount of clean energy generated (MWh); 
• extent of health benefits from avoided air pollution; 
• number of jobs created.  
In addition to regular monitoring as outlined abov e, an in-depth evaluation of the functioning 
of the financing vehicle for CCS demonstration should be carried out no later than after five 
years of operation. The evaluation should be carried out by an independent body, to be 
contracted and appointed by the European Comm ission in consultation with other donors and 
investors. 
The scheme would have a governan ce structure that ensures that  an appropriate body (either 
an Investment Committee or a Board of Directors) supervises the monitoring and 
implementation of the investment and investment decisions. 
Cooperation with China on CCS under the ausp ices of the ENRTP will be monitored in 
compliance with the standard provisions under the development cooperation funding 
instrument. Performance monitoring will be deta iled in the guidelines for ENRTP (see Annex 
 
EN 30   EN III). Furthermore, the action will be subject  to EuropeAid’s annual  external monitoring 
exercise.  
9. NEXT STEPS  
This Impact Assessment supports th e proposed Commissi on Communication on 
‘Demonstrating Carbon Capture and Geological  Storage (CCS) in emerging developing 
countries: the EU-China Near Zero Emissions Coal Plant project.’ Based on the analysis 
conducted for and presented in this impact a ssessment, working closely with European and 
Chinese stakeholders, th e Commission proposes to: 
i) determine with international financial inst itutions such as the European Investment 
Bank, World Bank and Asian Development Ba nk the setting up of an appropriate 
financial structure, such as an SPV, to s upport Phase III of the NZEC project in close 
cooperation with interested Member States, States of the European Economic Area 
and Chinese partners; 
ii) invite Member States to pledge fina ncial support. The target amount for public 
financing would be around €300 million fo r an IGCC plant or €550 million for a 
pulverised coal plant; 
iii) secure further political support from the Chinese and ensure maximum value for 
European public money in negotia ting the cost-sharing arrangements; 
iv) engage in international negotiations on a post-2012 global climate change agreement 
in support of carbon financing for CCS  technologies both during the first 
commitment period of the Kyoto Protocol  (up to 2012) and under the new regime 
thereafter. 
Several Member States and companies have e xpressed an interest in this project. The 
Commission also invites Member States, and inte rested EEA States to pledge financial and 
political support to this new initiative and invites the European Parliament to provide political support. Given that this is a new approach, th e European Commission will continue to work 
on the details to implement the arrangement, together with entities expressing a formal interest in co-financing this initiative. Memb er States, EEA States and China will be kept 
fully informed of developments of this initiative.  
In parallel, the Commission will take forward its plans on Phase II of NZEC and capacity 
building activities in other emerging economies, as outlined in the Project Outline attached in 
Annex III.  
 
EN 31   EN ANNEX I: Detailed information on  consultation and expertise  
The following groupings were consulted: 
• Industry 
• Berlin Fossil Fuels Forum, 7 October 2008 
• World Coal Institute Conference, 4 November 2008  
• 2nd Joint Meeting of COACH, NZEC, STRACO2 (EU-China NZEC phase I 
projects), 4 November 2008  
• Ad-hoc discussions with industry contacts from Oc tober 2008 — February 2009. 
• Member States:  
• ZEP government group, 30 September 2008 
• broader meeting on NZEC progress pl us the Communication and Impact 
Assessment (21 November 2008);  
• MS consultation meeting, 17 February 2009 
• China:  
• At a meeting on 2 June 2008 in Bonn to discuss the transition to subsequent 
phases of the EU-China Near Zero Emissi ons Coal (NZEC) project, the COM, the 
UK and representatives of the Chines e Ministry of Science and Technology 
(MOST) agreed to prepare Joint EU-Chi na papers on the following issues (lead 
author in brackets): 
– Costs of demonstration (UK) 
– IPR framework (UK) 
– Finance mechanisms (COM) 
– Potential projects and timeframes for demonstration (China) 
– Legislation and Regula tion experience (COM). 
• At a follow-up meeting on 28 August, th e European side had produced their 
papers, but the Chinese had not. To main tain the pace of discussions, the COM 
and UK agreed to condense the content of the COM/UK papers into one document to be discussed at the next meeting. 
• At bilateral meetings (in December 2008, April and June 2009), the Commission 
briefed Chinese representatives (chiefly  from the Ministry of Science and 
Technology) on plans for a communication on financing the next  stages of CCS 
cooperation with China. The Chinese co lleague was enthusiastic about the 
 
EN 32   EN subsequent stages of the NZEC project and underlined the importance of learning 
lessons from Phase I. Furthermore, it was agreed that the Chinese side would 
consult experts on a model to examine IP R, set up a costs taskforce and examine 
regulatory issues and issues  concerning plant selection. 
The consultation was conducted in a manner pr oportionate to the type and scope of the 
Communication. The minimum standards of consultation were been met, namely: 
• Consultation materials were cl ear and extensive use was made  of PowerPoint slides to 
deliver messages in a comprehensible fashion; 
• Relevant target groups (EU MS, European in dustry and the Chinese government) were 
consulted; 
• Sufficient publicity was secured by making use of networks of officials and stakeholders to 
spread the word about the Commission’s plans; 
• The consultation spanned a period of eight months; 
• Written contributions were not received from external stakeholders and therefore were not 
published on the internet. 
Through the Berlin Fossil Fuel Forum and th e Zero Emissions Technology Platform, the 
European Commission has established reliabl e consultation fora with energy industry 
stakeholders on issues of security of supply fo r oil, natural gas (ups tream) and coal and the 
options for improving the environmen tal sustainability of activiti es in these sectors. Member 
States representatives also take  part in both groups. DG ENV pres ented an outline of the issue 
and the options set out in this impact assessmen t and discussed it at the Berlin Fossil Fuels 
Forum on 7 October 2008 and presented an update on 27 May. Some Member State 
representatives and stakeholders had also th e opportunity to present their views on how to 
support the demonstration of CCS technologies . Strong support for th e proposed policy was 
expressed by a number of  industry stakeholders. 
DG ENV presented an outline of the issue and the options set out in this impact assessment on 
30 September 2008 to the Zero Emission Power (ZEP) government group, which represents 
energy companies, power plant operators, pow er plant equipments suppliers, research 
institutes and non-governmental environmental organisations.  
Interservice consultation 
Other Commission services were informed and consulted via the Inter-Service Group on 
International Climate Change. In  addition, informal discussions were held with colleagues in 
other DGs, including in the informal in ter-service working group (ENV-RTD-TREN) on 
NZEC.  Meetings took place on 2 September 2008 and 16 February 2009. DG ENV received 
valuable support from JRC colleagues in the fi nancial analysis presen ted in this impact 
assessment and from the EIB concerning the investment vehicle. 
DGs AIDCO, ECFIN, ENTR, ENV, RTD, RELEX, SEC GEN and TREN attended the 
Informal Interservice Meeting of 16 February  2009. DG ENV presented the main findings of 
the Impact Assessment process and sought co mments. The main comments related to: 
 
EN 33   EN – the need to ensure the figures for costs give n in this Communication were consistent with 
those in ‘Financing Low Carbon Technologies ’ being prepared by DGs TREN, RTD and 
ECFIN; 
– the decision to focus in the Communication and impact assessment on cooperation with 
China and to take forward cooperation on CCT and CCS with other emerging and developing countries in the context of the parallel ENRTP project, and 
– the need to ensure sufficient MS and Chinese engagement.  
 
EN 34   EN ANNEX II – EU and China Part nership on Climate Change  
2 September 2005
EU and China Partnership on Climate Change 
The EU and China toda y agreed a Partnership on Climate Chan ge as one o f the ma jor outcomes o f the 2005 
China-EU Summit in Beijing. The Partnership will strengthen cooperation and dialo gue on climate chan ge and 
energy between the EU and China. One ma jor ob jective o f this Partnership is the development and demonstration 
of advanced, “zero emissions” coal technology ba sed on carbon dioxide capture and geological storage . It will also 
promote other clean energy sources, as well as energy  efficiency, energy conservation, and renewable energy.  
The focus of the Partnership is on concrete action: the development and deployment of clean energy technology. It 
demonstrates the EU’s determination to tackle climate change at the highest level and in concrete ways, as recently also announced at the G8 Summit in Gleneagles. It underlines our commitment to the implementation of the UN Framework Convention on Climate Change and its Kyoto Protocol. It also helps to strengthen the momentum for discussions of a multilateral climate change regime ‘post 2012’, which the Commission intends to kick-start later this 
year in Montréal. 
The Partnership contains two concrete co-operation goals, to 
be achieved by 2020. The first is to develop and 
demonstrate, in China and the EU, advanced “zero-emissions” coal technology. This technology will allow for the capture of CO
2 emissions from coal-fired power plants and its subsequent storage underground, for example in 
exploited oil or gas fields or in sealed geological strata, thereby avoiding CO 2emissions into the atmosphere. The 
second cooperation goal is to significantly reduce the cost of key energy technologies and promote their deployment 
and dissemination.  
The Partnership will also support EU and Chinese efforts to  reduce the energy intensity of their economies. China has 
set the goal of halving the energy intensity of the Chinese economy by 2020. In the recently adopted Green Paper on energy efficiency, the Commission has proposed to reduce the EU’s energy consumption by 20% over the same period 
by increasing energy efficiency. These efforts will be strengthened through the involvement of the private sector, 
bilateral and multilateral financing instruments and export credit agencies, and the promotion of joint ventures and public-private partnerships. 
The Partnership will also reinforce EU-China cooperation on the Kyoto Protocol’s Clean Development Mechanism 
(CDM). It foresees a dialogue on the further development of this mechanism ‘post 2012’ in combination with an 
exchange of information and experience on the use of market-
based mechanisms such as the EU emissions trading 
scheme. It furthermore foresees a number of joint research activities on the impacts of climate change. 
Background  
The EU and China have a history of close cooperation on environment and energy issues, including climate change. 
The EU-China Partnership on Climate Change provides a high-level political framework that will further strengthen this cooperation and which sets out concrete new actions. The Partnership covers the China-EU Action Plan on Clean 
Coal and the China-EU Action Plan on Energy Efficiency and Renewable Energies, both of which were agreed in March this year. The Partnership provides for a robust follow-up process, which will include a regular review of progress in the context of the annual EU-China Summits. The full  text of the Partnership is set out in the Annex to this 
Press Release. 
Both China and the European Union are parties to the United Nations Framework Convention on Climate Change 
(UNFCCC) and the Kyoto Protocol. The Parties to the UNFC CC and the Parties to the Kyoto Protocol will meet from 
28 November to 9 December 2005 in Montreal, Canada, to discuss the implementation of existing obligations and develop further steps to address the global challenge that climate change represents. 
Joint Declaration on Climate Change between China and the European Union  
1 We underline our commitment to the objectives and principles of the UN Framework Convention on Climate Change 
and the Kyoto Protocol and in this context agree to set up a Partnership on Climate Change. This Partnership will strengthen cooperation and dialogue on climate change including clean energy, and promote sustainable development. Follow-up of the Partnership will be carried out regularly at a suitably high level through a bilateral consultation mechanism, including in the context of the China - EU Summits. 
2 We will strengthen our dialogue on climate change policies and exchange views on key issues in the climate change 
 
EN 35   EN negotiations. 
3 We will co-operate to realise our respective goals of signi ficantly improving the energy intensity of our economies. 
4 We will strengthen our practical co-operation on the development, deployment and transfer of low carbon 
technology, to enhance energy efficiency and promote the low carbon economy. 
5 We agree on the following key areas for technical co-operation: 
Energy efficiency, energy conservation, and new and renewable energy;  
Clean coal;  
Methane recovery and use;  Carbon capture and storage;  Hydrogen and fuel cells;  Power generation and transmission. 
6 We will take strong measures to encourage low carbon technology development, deployment and dissemination and 
will work jointly to ensure that the technologies become affordable energy options. We will explore financing issues including the role of the private sector, joint ventures, public private partnerships, and the potential role of carbon finance and export credits. We will co-operate to address barriers to the development, deployment and transfer of 
technology. 
7 We will aim to achieve the following co-operation goals by 2020:  
To develop and demonstrate in China and the EU advanced, near-zero emissions coal technology through carbon 
capture and storage;  
To reduce significantly the cost of key energy technologies and promote their deployment and dissemination. 
8 We will enhance our existing co-operation and we welcome the following recent initiatives: The China-EU Action Plan on Clean Coal to promote collaboration in the development of clean coal technologies in 
China;  
The China-EU Action Plan on Industrial Co-operation on Energy Efficiency and Renewable Energies. 
9 We will co-operate to strengthen the implementation of the Clean Development Mechanism (CDM), exchange 
information on CDM projects and encourage our companies to engage in CDM projects co-operation. We will engage in dialogue on improving and further developing the CDM. We will facilitate the exchange of information and experience on the design and practical implementation of other market-
based instruments such as emissions trading 
and on assessing the costs and benefits of their use. 
10 We will strengthen co-operation on adaptation to the impacts of climate change through: 
Research and analysis on adverse effects of and vulnerabilities to climate change;  
Research and analysis on assessing the socio-ec onomic impacts and costs of climate change;  
Enhancing the scientific, technical and institutional capacity to predict climate change and its impacts;  Research and development on technologies and measures to adapt to climate change;  Raising awareness of integrating vulnerability reduction and adaptation needs into sustainable development strategies 
and their implementation. 
11 We will enhance our co-operation in capacity building and strengthening institutions, including through raising 
public awareness, exchange of personnel and training. 
 
 
 
EN 36   EN ANNEX III – Draft ENRTP Project Action Fiche  
ACTION SHEET H 
 Title/Number Under Priority 2 and 5 of the ENRTP: Cooperation on clean 
coal technology (CCT) and carbon capture and storage (CCS) with coal-dependent developing and emerging country partners 
(ref. 20539 + 20634) 
 Total cost Maximum EC Contribution EUR 10 000 000   
 
 Aid method / 
Method of implementation Project approach – centralised management 
 DAC-code 32182 Sector Technological 
research and development
 
 
DRAFT – NOT FOR QUOTATION 
1. R ATIONALE  
1.1. Sector context 
The EU demonstrates leadership domestically  and internationally on climate change, 
but the sole action of the EU will not suffi ce to achieve our objective of limiting global 
climate change to less than 2°C.  By 2020, developing country emissions will exceed those 
of the developed world, driven by the combustion of fossil fuels to meet soaring demand for 
electricity in emerging economies. Further greenhouse gas emission reductions are needed 
globally and the EU must actively help fo ssil-fuel dependent emerging economies and 
developing countries achieve their mitigation pote ntial as well, in particular considering their 
increasing energy demand. Mitigating climate ch ange will directly benefit all developing 
countries and especially the poores t that are likely to suffer most from climate change. This is 
important both politically and practically. 
In a business-as-usual scenar io, carbon capture and storage  (CCS) would not be ready 
for global deployment on a ti mescale commensurate with th e problems outlined above. 
CCS technologies and storage t ypes and locations are not yet demonstrated in the power 
sector, even in developed countries, so de veloping countries are unable or unwilling to 
demonstrate/deploy without addi tional assistance. The lack of  experience means additional 
uncertainty and risks associated with technologies and financing compared to other alternatives, particularly in the absence of a global carbon price/other incentive to encourage 
demonstration and deployment in emerging/de veloping countries. In some cases, the 
developing country enabling environment ma y not be considered suitable, and public 
acceptance and knowledge may be limited. However,  given the potential for economies of 
scale and large-scale deployment following dem onstration in certain key coal-dependent 
 
EN 37   EN emerging economies, and the urgency of the clim ate change challenge, it is essential to 
demonstrate in those countries in parallel to demonstration in developed countries. 
The EC committed itself in both climate ch ange and energy packages (2007 and 2008) to 
stepping up existing cooperation on CCS with China  and extending it to other key partners, 
such as India and South Africa (see COM(2006)843, paragraph 5.4) . According to recent 
bilateral exchanges, other countri es which might also have an in terest in capacity building for 
CCT and CCS are Russia  and Ukraine .  
1.2. Lessons learnt We have learned from bilateral discussions un der the various climate change dialogues that 
one size will not fit all. We have learned fr om preparatory studies and research (COACH and 
NZEC projects) and the EU-China Climate Cha nge Partnership the importance of ownership 
by the partner country and the im portance of involvement of e xperts and stakeholders on an 
equal footing with the European partners. For these reasons, we plan to implement a 
differentiated approach, using a combination of a call for proposals and a tender to implement 
a number of activities at an appropriate level for the countries concerned.  
1.3. Complementary actions EC membership of the Carbon Sequestration Leadership Forum (CSLF) and increasing 
contact with the Australians in  the context of thei r proposed CCS Centre of Excellence will 
enable us to exchange information and coordi nate with the key partners and donors in this 
field. This activity is also directly complementary to DG RTD and DG TREN led activities with these partner countries. The potential fo r cooperation with the partners in the Asia-
Pacific Partnership will be examined, as th e Commission is aware of on-going work between 
Japan and China and Australia and China, and has been approached by i.a. Australia to exploit 
synergies between the different activities. 
47  
This activity is complementary to EU activities, which concentrate on other energy 
technologies, eg the Global Energy Efficiency  and Renewable Energy Fund (GEEREF). It is 
also complementary to the EU-China Energy and Environment Programme, which is looking 
at different aspects of energy policy with a focus on energy efficiency and renewable 
energies.48 
1.4. Donor coordination The full strategy and plans for extending th e cooperation beyond the limited activities 
outlined below will be set out in a Commission Communication, due for adoption in Spring 
2009. In the course of the stakeholder consu ltation for this Communication, outlines of 
planned activities were presented to Member St ates (MS), Norway, indu stry and the partners 
in the current EU-China work. Of the MS, th e most interested are: UK, DE, NL, FR, IT. 
                                                
 
47 http://www.asiapacificpartnership.org/CleanerfossilenergyProjects.htm. 
48 http://www3.eep.org.cn/. 
 
EN 38   EN 2. D ESCRIPTION  
"Cooperation on clean coal technology (CCT ) and carbon capture and storage (CCS) 
with coal-dependent developing and emerging country partners" 
2.1. Objectives 
The objective is to build  capacity and test feas ibility for CCT and CCS technologies in coal-
dependent emerging economies and developi ng countries, taking a partner-driven, 
differentiated approach.  
2.2. Expected results and main activities We propose to support two types of activities as follows.  
a) capacity building and studies on clean coal technologies and CCS in developing 
countries and emerging economies targeting in  particular coal dependent countries 
(eg. China, India, South Africa, Russia, Uk raine and other countri es, as appropriate). 
Activities to be supported and selected via a call for proposals may include for 
instance: 
• Support for national CCT and CCS capacity bui lding and technology development centres;  
• Capacity building in the form of internsh ips on CCT and CCS for engineers and power 
sector managers from a limited number of heavily coal dependent emerging economies and 
developing countries to European companies.; 
• Cooperation activities between interested gr oups in emerging economies and developing 
countries and those working on CCS de monstration plants in Europe, and 
• Studies on preparatory activities for the possi ble demonstration, diffu sion and deployment 
of clean coal and CCS technologies. 
b) Global Expertise development:  this component will include  i) the support to the site-
specific feasibility and design phase of th e Near Zero Emission Coal (NZEC) project 
in China, including the transition to Phases  II and III of NZEC; and ii) actions aimed 
at disseminating worldwide key inform ation on roles and opportunities for CCS. 
i) support to the site-specific feasibi lity and design phase of the Near Zero 
Emission Coal (NZEC) project in China , and the transition to Phases II and 
III of NZEC. Phase I of the NZEC consis ts of three research projects (UK-
NZEC, and EC financed COACH and ST RACO2 projects) that will set out a 
series of options in their final repor ts relating to i.a. capture technology 
options, storage potential, re gulatory options and site selection, for assessment 
and implementation by the Chinese government.  
This component includes the following three elements: 
• A detailed feasibility study  will be launched in Sept 2009. It  will be the concrete follow 
up of the Phase I research work (to be comp leted in autumn 2009) and the adoption of the 
planned Commission Communication on CCS to be  issued in spring 2009. The feasibility 
study will include th e following activities: 
 
EN 39   EN – Support to and analysis of the decision on which capture technology, storage site 
and plant type/size to use  
– An EIA of both the demonstration power  plant, and the carbon storage site 
(transport included) 
– An assessment of the issues to be considered in the detailed design study for the 
construction of the demonstration plan t (including transport), based on plant 
location and type 
– An assessment of the costs – construction and O&M 
– The identification of options for fully fi nancing CCS demonstration plant in China 
– An assessment of the regulatory framework in China 
• The preparation of the tender documents base d on results of above mentioned feasibility 
study for the Phase III of NZEC – the construc tion phase of the pilot plant – (including 
assistance to the evaluation of  participating bidders).  
• Activities to facilitate the transition to Phase III of the NZEC project, including 
coordination with ongoing efforts, existing st eering groups, with the Chinese government, 
the European Commission and Member States. 
This kind of cooperation has the potential to under line the EU's credibility  in the international 
climate negotiations and provide a model fo r technology cooperation and financing between 
developed and developing countries. In adva nce of the December 2009 Copenhagen climate 
negotiations, it will be politically important to start moving from the research to the 
implementation phase in relation to the commitments made by the EU at the Summit with China in 2005.  
ii) Global Visibility Actions  will aim at widely disseminating best practices, raising 
awareness on the role and potentiali ties of CCT/CCS in partner countries, 
eliciting support for the EU policies on CCT, and drawing together experts and 
exchange innovation on the subject. Activi ties will therefore include seminars, 
workshops and conferences; the public ations of leaflets and booklets on 
specific subjects; participation in conf erences; the set up and maintenance of a 
website where both project and wider CCT/CCS issues and research findings will be disseminated. 
2.3. Risks and assumptions  
The on-going climate negotiations for a post-2012 framework may affect the project(s) in a 
positive or negative way, as will the current negotiations on the Climate and Energy package, including on the modalities of the ETS review  and the EU's CCS Demonstration programme. 
We are working on the assumption that a flexib le approach will enable recipient country 
ownership of the activities implemented. 
CCS in the power sector is at the demonstration stage. We need to demonstrate it globally in 
order to better assess the poten tial and risks of the technol ogical and storage options in 
combination in the power sector. By working in partnership with developing countries, 
building on the research conducted under Phase I of the NZEC project, working with local 
 
EN 40   EN institutions and bringing in international e xpertise to conduct a thorough feasibility study, we 
can minimise the risks and maximise the potential benefits of global deployment. 
2.4. Crosscutting Issues The objective of the project is environmental sust ainability. By ensuring that all activities are 
done through cooperation lessons le arnt in the EU on suitable forms of governance will be 
transferred.  
2.5. Stakeholders The key stakeholders are European and third country governments, re search institutes and 
organisations and industry (primarily the engi neering and power genera tion sectors). Initial 
consultations with industry (i.a. via the Ze ro Emissions Technology Platform (ZEP)) and MS 
have shown a positive response to our plans to cooperate on this issue with a range of 
developing countries, including China. 
Local project partners will be ab le to participate in and implem ent projects as long as they are 
targeted at the appropriate level in line with the current state of the debate and the technology 
in any given country. This underlines the need for a differentiated approach. We have been 
consulting stakeholders in emerging and deve loping countries through the existing bilateral 
arrangements (eg. EU-China Climate Change  Partnership, EU-India S&T cooperation, EU-
S.Africa Working Group on coal, CCT and CCS). The South African Minister for 
Environment, Marthinus van Schalkwyk has re cently written to Commissioner Dimas with 
details of S. Africa's CCS plans and requesti ng cooperation with the EC on this issue.  
The cooperation with China stems from commit ments made between the EU (represented by 
President Barroso for the Commission and Mr Blai r as President of the European Council), at 
the EU China Summit in 2005.
49  
Consultations of the relevant EC delegations have taken place and consultation with partner 
governments is ongoing. 
3. I MPLEMENTATION ISSUES  
3.1. Method of implementation 
i) Capacity building and studies on clean coal  technologies and CCS in developing countries 
and emerging economies 
Centralised management of contracts awarde d via a call for proposals, which is open to 
participants from a limited number of heav ily coal dependent emerging economies and 
developing countries incl uding South Africa, India,  Russia and Ukraine. 
ii) Global Expertise development: 
                                                 
49 http://ec.europa.eu/environment/climat/pdf/china/joint_declaration_ch_eu.pdf. 
 
EN 41   EN Direct  centralised management of contracts awarded via a call for tenders. To that effect, a 
tender dossier for the feasibility study and de tailed design of the CCS demonstration plant 
will be prepared. An international te nder will be launched in September 2009. 
3.2. Procurement and grant award pr ocedures/programme estimates 
1) Contracts All contracts implementing the action must be awarded and implemented in accordance with 
the procedures and standard documents laid  down and published by the Commission for the 
implementation of external operations, in force at the time of the launc h of the procedure in 
question. 
Participation in the award of contracts for the present action shall be open to all natural and 
legal persons covered by the DCI Regulation. Furthe r extensions of this participation to other 
natural or legal persons by the concerned authoris ing officer shall be subject to the conditions 
provided for in articles 31(7) and (8) DCI.  
2) Budget and calendar The total budget is €10m, to be divided betw een results i and ii.. An indicative breakdown 
would be €3m for the CCT / CCS call for proposa ls and €7m for the work on global expertise 
development including an NZEC feasibility study in China. 
The call for proposals should be launched after the adoption of the AAP, in May 2009. The 
tender procedure should be launche d in the second half of 2009. 
3.3. Performance monitoring  Proposals under the call will be required to include suitable perf ormance monitoring 
arrangements following the detailed guidelines fo r the call. The detailed tender documents for 
the feasibility study specify mon itoring and reporting arrangements.  
Proposals under the call will be required to incl ude performance indicators. Evaluation criteria 
for the tender for the feasibility study will be  drawn up as part of the work under the 
framework contract. 
Furthermore, the action will be subject to EuropeAid's annual external monitoring exercise. 3.4. Evaluation and audit Details of evaluation and audit will be included in the call for proposals .  
3.5. Communication and visibility The contractor awarded the tender will conduct outreach, dissemination and awareness raising 
activities.  
Standard clauses on visibility will form part of the call for proposals.  
 
EN 42   EN  ANNEX IV — General Context  
Engaging emerging economies and developing  countries in the fight against climate 
change 
The European Commission published a Communicat ion in February 2005 entitled ‘Winning 
the Battle against Climate Change’50, which outlined key issues for the EU’s post-2012 
strategy. In their discussions of  this Communication, EU Heads of State and Government at 
the European Spring Council in Ma rch reiterated the need to coope rate strategica lly with third 
countries, in particular with major ener gy-consuming countries , including emerging 
economies and developing countries. The Eur opean Parliament, in Resolution 2005/2161 
(INI) on the need to encourage sustainable develo pment, e.g. in China, ‘recognises that rapid 
economic growth in China presents a huge cha llenge to global effort s to tackle climate 
change, with CO 2 emissions from coal-fired power  stations set to double by 2030.’  
The Commission has taken this mandate forw ard via a variety of strategic bilateral 
arrangements with a number of developed a nd developing country part ners. Climate change 
partnerships or dialogues have been devel oped with emerging economies such as Brazil, 
India, China, S. Korea and South Africa.  
On 10 January 2007, the Europ ean Commission set out propos als and options for keeping 
climate change to manageable levels in its  Communication ‘Limiting Global Climate Change 
to 2° Celsius: The way ahead for 2020 and beyond’.51 The Communication, part of a 
comprehensive package of measures to establish a new climate change and energy policy for Europe, is a major contribution to the discus sion on a global agreement to combat climate 
change after 2012, when the Kyoto Protocol’s emissions targets expi re. The Communication 
proposed a set of action by developed and devel oping countries to enable the world to limit 
global warming to no more than 2
 °C above pre-industrial temp eratures. This Communication 
was strongly endorsed by the 2007 European Counc il. Measures to implement the targets that 
the EU set itself were agreed by the European  Parliament and Member States in December 
2008. In January 2009, the Commission adopted  a Communication entitled ‘Towards a 
comprehensive climate change agreement in C openhagen’, which sets out the Commission’s 
view on the elements needed to secure a globa l climate change agreement in Copenhagen in 
December 2009. 
It is clear that even the most willing devel oping countries will need significant financial and 
technological assistance from developed countries to be able  to contribute to a post-2012 
regime, in line with the commitments under the UNFCCC.52 At the meeting of the Parties to 
the Kyoto Protocol third session in Poznan December 2008, emerging economies such as China and India made this point absolutely clear.  
                                                
 
50 COM(2005) 35 final. 
51 COM(2007) 2 final. 
52 e.g. UNFCCC Article 4.5 and Article 11.5. 
 
EN 43   EN Box 1: Carbon capture and storage: essentials 
What is carbon capture and storage? 
CCS is a suite of technological processes which involve capturing carbon dioxide (CO 2) from 
the gases discarded by industry a nd transporting and injecting it into geological formations. 
The major application for carbon capture and stor age (CCS) in terms of GHG abatement is to 
reduce CO 2 emissions from power generation from foss il fuels, principally coal and gas, but 
CCS can also be applied to CO 2-intensive industries such as cem ent, refineries, iron and steel, 
petrochemicals and oil and gas processing. After capture, the CO 2 is transported to a suitable 
geological formation where it is injected, with th e aim of isolating it from the atmosphere for 
the long term. 
There are storage options other than geological st orage, such as storage in a water column and 
mineral storage. Storage in a water column is considered to present a high environmental risk 
and the Commission’s proposed directive on CO 2 geological storage bans  it within the Union. 
Mineral storage is currently the subject of research. Any developments will be reviewed. 
How does geological storage work? 
There are four main mechanisms which trap CO 2 in well-chosen geological formations. The 
first is structural trapping, in the presence of an impermeable cap-rock which prevents CO 2 
escape from the outset. The second is residual CO 2 trapping, where CO 2 is trapped by 
capillary forces in the interstices of the rock formation, which develops about 10 years after 
injection. The third is solubility trapping, where the CO 2 dissolves in the water found in the 
geological formation and sinks because CO 2 dissolved in water is heavier than normal water. 
This develops 10-100 years after injection. Fina lly, mineral trapping happens when dissolved 
CO 2 chemically reacts with the form ation rock to produce minerals. 
Why the need for CCS? 
While energy efficiency and renewables are, in  the long term, the most sustainable solutions 
both for security of supply and for the climate, EU and global CO 2 emissions cannot be 
reduced by 50  % by 2050 unless we also use other options such as carbon capture and storage. 
Timing is crucial. About a third of existing coal-fired power capacit y in Europe will be 
replaced within the next 10 ye ars. Internationally, China, I ndia, Brazil, South Africa and 
Mexico’s energy consumption will lead to a major increase in global demand, which is likely 
to be met mostly by fossil fuels. The capacity to  deal with these very substantial potential 
emissions must be developed as a matter of urgency. 
Current CCS initiatives in the EU and the world 
The European Commission and the Member Stat es already support a ra nge of programmes 
and measures on energy technology research, development, dissemination and deployment. 
Regarding research and development, the EU research framework programmes support 
projects on regulatory and techni cal aspects of carbon capture a nd storage (proje cts are listed 
in Annex VII).  
 
EN 44   EN EU leaders have committed to establishing a ne twork of up to 12 demonstration plants by 
2015, to maximise knowledge sharing and the range of technology and storage options 
demonstrated. The European Commission is cons idering the contribution that projects outside 
of the EU can make to the EU’s demonstration network. The European Council and Parliament have agreed to a Directive setting out a legal framework for CCS
53 to enable the 
safe operation of CCS in Europe and to incenti vise CCS demonstration i.e. through the EU 
Emissions Trading Scheme (CO 2 safely stored will not count as emitted) and through the EU 
ETS New Entrants Reserve (providing funding  which can be used to co-finance CCS 
demonstration plants) as well  as revised State aid rules.  Several EU companies have 
announced demonstration plants to be complete d in the EU over the next 5-10 years.  
The Carbon Sequestration Leadership Forum (CSL F) was founded in 2003 at the ini tiative of 
the US. It has brought together policymakers in  the 22 member countries, including several 
emerging economies, such as China, and aims  to share knowledge and coordination on CCS. 
While the CSLF has provided some useful guida nce on technical issues, it has fallen short of 
involving a wide range of stakeholders and, mo re importantly, it has not resulted in large-
scale CCS demonstration projects.  
The Internationally Energy Agency covers CCS in two of its Implementing Agreements: the 
Clean Coal Centre and the Greenhouse Gas R& D Centre, which is an important source of 
information on the capture and storage of CO 2. These agreements aim to pool resources and 
share costs, harmonise standards and hedge techni cal risks, but they ha ve not resulted in CCS 
demonstration. 
In 2005, Australia, Canada, China, India, Japan, Korea, and the United States launched the 
Asia-Pacific Partnership on Clean Developm ent and Climate (APP) with the aim of 
promoting and creating an enabling enviro nment for the development, dissemination, 
deployment and transfer of existing and emer ging cost-effective, cleaner technologies and 
practices. It has eight task forces, including cleaner fossil energy with CCS as one of its 
priorities. It has carried out so me research and capacity building initiatives, but no large-scale 
CCS demonstration projects. 
There are currently only four larg e-scale CCS demonstration projec ts in the world: none based 
on a coal-fired power plant, and none in co al-dependent emerging ec onomies. The projects 
are located in Norway (2), USA/Canada and Algeria. The Intergovernmental Panel on Climate Change (IPCC) estimates that CCS fo r gas, biomass and coal-fired electricity 
generating facilities will become a key mitigation technology to commercialise before 2030, with deployment generally starting around 2015.  
The World Bank has established the Clean Tec hnology Fund (CTF) with the aim of financing 
transformational action by providing positive in centives for accelerating and scaling-up the 
deployment, dissemination and transfer of lo w-carbon technologies, embedded in nationally 
appropriate mitigation actions by eligible countries. Financing w ill target investment that can 
achieve significant greenhouse gas reductions, which may include best available coal 
technologies ready to implement carbon capture and storage and th erefore there may be future 
synergies in rolling out th e technology once CCS gets be yond the demonstration phase.
54  
                                                 
53 Directive 2009/31/EC of 5.6.09 
54 See:http://digital.library.unt.edu/govdoc s/crs/permalink/meta-crs-10826:1 - 
http://siteresources.worldbank.org/INTCC/Resources /Clean_Technology_Fund_paper_June_9_final.pdf 
 
EN 45   EN Existing cooperation with developing countries on CCS 
The European Commission has committed itself in  both climate change and energy packages 
(2007 and 2008) to stepping up CCS cooperation with China a nd extending it to other key 
partners, such as India and South Africa.55 Cooperation with China is  the most advanced. The 
2005 China-EU Summit agreed an EU-China C limate Change Partnership, a key element of 
which was cooperation on Near Zero Emissions Co al (NZEC), i.e. to research, develop and 
deploy clean coal and CCS technology in  China and Europe. A Memorandum of 
Understanding was agreed between the European Commission and China on Phase I of the project.
56 
Phase I covers initial re search to explore options for demo nstrating CCS for coal-fired power 
generation in China and is nearing completi on. Two complementary pr ojects (one, COACH, 
funded by the Sixth Framework Programme (F P6) and the other, UK-NZEC, funded by the 
UK – in total approx. € 7m), managed by a Jo int Steering Committee, are conducting the 
work under Phase I and are due for completion in early 2009. In addition, the EC-funded STRACO2 project is looking a re gulatory issues on CCS in the EU and China (see Annex 
VI). Phase II (2010-2012) will examine site-s pecific requirements and Phase III will see the 
construction and operation of a commercial-s cale demonstration plant in China.  
The EP Report on Trade and Economic Relations  with China (2008/21 71 (INI)) calls on the 
European Commission specifically to speed up  implementation of the EU-China Climate 
Change Partnership. At the 2007 Spring Council , the EU Heads of State and Government 
called for the ‘strengthening [of the] partners hip and cooperation building on the bilateral 
energy dialogues with the USA as well as with  China, India, Braz il and other emerging 
economies, focusing on the reduction of GHG, energy efficiency, renewables and low-
emission energy technologies, notably CCS.’ 
The UK and other Member States  (e.g. Italy, France) as well as Norway are involved in 
cooperation with China in the fossil fuel power generation s ector. This cooperation includes 
work with companies or agencies based in t hose Member States, and is often under a broader 
umbrella of climate ch ange/energy cooperation.  
                                                
 
55 See COM(2006)843, paragraph 5.4, ‘While making efforts to accelerate the ongoing European 
collaboration with China in the demonstration of CCS (bringing the operation date from 2020 significantly forward), the Commission will look for opportunities to ex tend cooperation on 
demonstration projects to other key emerging economie s (such as India, South Africa) and will seek to 
stimulate the creation of enabling policy and regulato ry framework in those co untries. The Commission 
will examine options for co-financing such projects and for close coordination of demonstration 
projects in the EU and in third countries.’ Also CO M(2008) 13 final, Section 4: ‘Given the importance 
of CCS on the global scale, it will be important to include an international dimension, by developing and accelerating the ongoing Europ ean collaboration with China on CCS demonstration and expanding 
to other key emerging economies. Of equal importa nce will be a systematic cooperation with other 
advanced economies developing CCS technologies for use in power generation.’ 
56 Summit Declaration. During the m eeting, a Joint Declaration on C limate Change between China and 
the EU was issued, which confirmed the establishm ent of a China-EU partnership on climate change. 
The two sides were determined to tackle the serious challenges of climate change through practical and 
results-oriented cooperation. This partnership will fully complement the UN Framework Convention on 
Climate Change and the Kyoto Protocol. It will strengthen cooperation and dialogue on climate change including clean energy, and will promote sustainable development. It will include cooperation on 
developing, deploying and transferring low carbon technology, including advanced near-zero-emissions 
coal technology through carbon capture and storage. (See Annex II). 
 
EN 46   EN  
ANNEX V: Problem analys is: further background  
Unless a way is found to tackle  the projected emissions from  coal-dependent emerging 
economies, the EU will not meet its headline ob jective of limiting global climate change to 
2ºC above pre-indu strial levels. 
The fundamental problem is to reconcile the ne ed for urgent global action on climate change 
with security of supply and economic growth/c ompetitiveness concerns. The EU has set itself 
the target of limiting global climate change to 2ºC, which is commensurate with the urgency 
and scale of the challenge and is necessary to  limit the expected impacts. Global emissions 
will need to peak within the next 10 to 15 years, followed by substantial global emission 
reductions of up to 50  % by 2050 compared to 1990, to ensure  that global average temperature 
increases do not exceed pre-indu strial levels by more than 2  °C.  
Action by the EU alone will not solve the prob lem. By 2020, developing country emissions 
will exceed those of the industria lised world (see Figure 10 below). 
Figure 10: Projected greenhouse gas emissions 
 
Source: COM(2007) 2 final  
The IEA World Energy Outlook 2007 projected that, instead of decreasing by 2030, global 
CO 2 emissions from energy use are currently set to increase by 55  %. China and India alone 
account for 45  % of this increase. 84  % of the additional energy demand will be met from Graph 2: Projected greenhouse gas emissions 
(indus try and energy, bus ines s  as  us ual s cenario)
0510152025
1990 2005 2020Gt CO2-eq
Developed countries Developing countries
 
EN 47   EN fossil fuels, leading to a 73  % increase in global coal use. The world is not only using more 
energy, but generating it in a less climate-friendly way.57  
Coal is the most abundant fossil fuel in terms of known reserves and is an important fuel for 
the generation of electricity worldwide, in pa rticular in the emerging economies of China, 
India and South Africa, which have significan t coal reserves. But traditional technologies 
used to generate electricity from coal give ri se to serious environmen tal concerns, such as 
emissions of NO x and SO 2, which have implications for human health and the public 
healthcare budget, and CO 2, a major greenhouse gas.  
The Environment Council of 20 October 2008 noted that ‘on the basis of information 
provided by the IPCC, keeping the 2  °C objective within reach implies that developing 
countries in many regions will ne ed to make a substantial devi ation of their emissions from 
baseline by 2020, and notes that recent scientif ic research indicates th at developing countries 
as a group, in particular the most advanced among them, would have to reduce their emissions 
by 15 to 30  % below business as usual, respecting th e principle of common but differentiated 
responsibilities and respec tive capabilities, in or der to be consistent with the global emission 
reduction goal.’58 
Figure 11: Global CO2 emissions fr om fossil fuel use by region 
 
Source: MNP59 
Given the high reliance of emerging economies on coal to meet their increasing energy 
demand, it will be essential to ensure that they begin to shift to lower levels of CO 2 emissions 
from fossil-fuel based power generation and ul timately zero-emissions power plants, as we 
are doing in the EU. Developing and depl oying technologies for zero-emission power 
generation from coal using CCS technology is the ultimate objective, but given the 
heterogeneous (and often low) levels of efficien cy in coal-fired power plants in developing 
countries, it will be necessary to take a differe ntiated approach, with some countries first 
                                                 
57 Raupach, M. et al (200&) Global and regional dr ivers of accelerating CO2 emissions. Proceedings of 
the National Academy of  Science, NAS-USA. 
58 Conclusions of the 2898th ENVIRONMENT Council meeting, Luxembourg, 20 October 2008 
(paragraph 15). 
59 Source: MNP . 
 
EN 48   EN increasing the efficiency of their power plants  by deploying advanced clean coal technologies 
before moving to more advanced technologies such as CCS.  
The Stern Review60 estimates that, even with robust action on renewables and other low-
carbon technologies, fossil fuels ma y still account for half of the world’s energy supply by 
2050. Failure to develop viable CCS technology,  Stern argues, risks locking in a high 
emissions trajectory. Stern estimates that CCS could contribute some 20  % of all reductions 
needed by 2050, and that the technology, if pr oved effective, may a llow many economies to 
maintain the role of fossil fuels in providing secure and reliable energy, whilst addressing rising CO
2 emissions.  
The IPCC projected in its Working Group III Repor t ‘Mitigation of Climate Change’ that, in 
the absence of any additional policies, CO 2 emissions from energy us e are expected to rise 
between 2000 and 2030 by 45 to 110  %. Two thirds to three quarters of that growth will come 
from non-Annex I regions. But the IPCC also c onfirmed that their low emissions scenarios 
can be achieved by deploying a portfolio of technol ogies that are currently  available and that 
are expected to be commercialised in coming de cades. While energy efficiency is expected to 
be the largest potential source of greenhouse gas reductions, the use of low-carbon energy 
sources, including the global deploy ment of CCS technologies, will  need to be substantially 
increased.  
In the context of the international climate ch ange negotiations in the UNFCCC, the EU has 
endorsed the view that demonstration needs to take place in both deve loped and developing 
countries if we are to achieve the ultimate obj ective of the UNFCCC, which is to stabilise 
greenhouse gas concentrations in the atmosphere  at a level that would prevent dangerous 
anthropogenic interference with the climate system. 
At the Toyako G8 Summit in July 2008, lead ers strongly supported ‘the launching of 20 
large-scale CCS demonstration projects globally by 2010, taking into account various national 
circumstances, with a view to begi nning broad deployment of CCS by 2020.’ 
In the context of the UNFCCC, developed coun tries have committed to assisting developing 
countries in achieving sustai nable development. Of partic ular relevance here are the 
obligations in the Convention on te chnology transfer and financing: 
Article 4.1.(c) Promote and cooperate in the development, application and diffusion, 
including transfer, of technologi es, practices and processes that  control, reduce or prevent 
anthropogenic emissions of greenhouse gases not cont rolled by the Montreal Protocol in all 
relevant sectors, including th e energy, transport, i ndustry, agriculture, forestry and waste 
management sectors.  
Article 4.5. The developed country Parties and ot her developed Parties included in Annex II 
shall take all practicable steps to promote, facilitate and finance, as appropriate, the transfer of, or access to, environmentally sound tech nologies and know-how to other Parties, 
particularly developing country Parties, to enab le them to implement the provisions of the 
Convention. In this process, the developed country Parties shall support the development and 
enhancement of endogenous capacities and technologi es of developing country Parties. Other 
                                                 
60 Stern Review on the Economics of Climate Change, in particular Chapter 16, page 368. 
 
EN 49   EN Parties and organisations in a positi on to do so may also assist in  facilitating the transfer of 
such technologies.  
Article 11.5. The developed country Parties ma y also provide and developing country Parties 
avail themselves of, financial resources related to the implementation of the Convention through bilateral, regional and other multilateral channels. 
Furthermore, stronger commitments and mate rial evidence of technology transfer and 
financing will be essential to encourage emerging economies and de veloping countries to 
engage in the international ne gotiations on the post-2012 climate change regime. In the recent 
UN Climate Change conference in Bali, emergi ng economies such as China and India made 
absolutely clear that acceptance of their own ne ed to contribute to the solution was dependant 
upon increased flows of finance and technology from devel oped countries.  
 
EN 50   EN ANNEX VI — Phase 1 of NZEC  
COACH 
Full partner list at: http://c.martin.atanor.free.fr/en/partners/  
Includes (private sector) Shell, Greengen, Statolhydro, BP, Alst om and Air Liquide. 
The emphasis in this project is to prepare for large-scale use of coal for poly-generation with 
CCS. Work Package 1 aims to enhance knowledge  sharing and capacity building in China, 
organise workshops, CCS summer schools, create a public website and implement mobility schemes. WP2 will deliver concept studies of co al power plants, an i nventory of different 
technical capture options such as gasification, poly-generation and IGCC and will benchmark post-combustion options in China and CO
2 transfer conditions. WP3 is analysing storage 
capacity within the Bohai basin (selected by the Chinese) and mapping geology and point 
emission sources plus improved methodologies for capacity asse ssment and site selection. 
WP4 will identify specific poly-generation/IGCC demonstration options for further development. There are common partners with UK NZEC. In COACH, all WPs are co-led by 
Chinese and EU partners. In WP6, COACH will interface with other EU  projects such as 
MOVECBM, STRACO2 and EUGEOCAPACITY to  share non-confidential information on 
CCS in China. 
UK NZEC 
NZEC is funded by the UK’s Department of Energy and Climate Change (DECC ), and is 
being taken forward in partnership with the Pe ople’s Republic of China Ministry of Science 
and Technology  (MOST ). The NZEC project has 9 UK partne rs and 20 Chinese partners from 
industry and academia. The cont ract was signed in February 2008 and will end in autumn 
2009 to align completion with the COACH project. 
WP1 consists of Capacity Building, a webs ite set up in both lang uages and technical 
exchanges for Chinese participants to be tr ained in the EU. WP2 will work on the future 
energy technology perspectiv e role of CCS in China in the future energy scenarios. WP3 is 
looking at capture scenarios, a nd case studies will be done on  pre-combustion, oxy-fuel, post 
combustion and a study on transport. In WP4, CO 2 storage studies will be undertaken on 3 
basins on aquifers, EOR and ECBM. WP5 is a cross-cutting package and will include a consultation on stakeholder perception, a st udy on socioeconomic impact assessment and 
sustainability assessments. These will be brought together with the technologies in a report. 
Within the UK and Europe, the following are project partners:  
• AEA (Project Managers, WP1, WP2 & WP5 Leaders)  
• Alstom Power  
• British Geological Survey (WP4 Leaders)  
• BP   
• Doosan Babcock  
• Heriot Watt University  
• Imperial College (WP3 Leaders)  
• Shell  
• The following are the Chinese partners: 
 
EN 51   EN • ACCA21 (the Administrative Centre for Chin a’s Agenda 21, Project Managers and WP1 
& WP5 Leaders)  
• Chinese Academy of Sciences (Insti tute of Geology and Geophysics)  
• Centre for Energy and Environmental Policy (CEEP)  
• China University of Petroleum Beijing (WP4 Leaders)  
• China University of Petroleum Huadong  
• Department of Environmental Sciences and Engineering at Tsinghua  University (DESE 
TU)  
• Department of Chemical Engineerin g at Tsinghua Univ ersity (DCE TU) 
• Department of Thermal Engineerin g at Tsinghua University (DTE TU) 
• Energy Research Institute (ERI) 
• Greengen (WP3 Leaders)  
• Institute of Engineering Thermophysics , Chinese Academy of Sciences (IET) 
• North China Electric Power University (NCEPU)  
• BP Tsinghua University Clean Energy Research and Education Centre  
• Thermal Power Research Institute (TPRI)  
• 3E Institute Tsinghua University (WP2 Leader) 
• Wuhan University (WHU)  
• Zhejiang University (ZJU)  
• PetroChina  
• Jilin Oilfield 
STRACO2  
The Support to Regulatory Activities for Car bon Capture and Storage (STRACO2) — Project 
is designed to support the development of a regulatory framework for CCS in the European 
Union. By supporting a CCS re gulatory framework inside the EU, STRACO2 will be 
instrumental in establishing best  practice standards globally. 
By incorporating the Administrative Centre fo r China’s Agenda 21 (ACCA21), the Project is 
part of the EU-China Part nership on Climate Change  and aims to ensure that the solutions 
developed are applicable to rapidly devel oping economies outside Europe, which will be 
crucial in fighting CO 2 emissions and climate change. The programme started in January 2008 
and will run for 18 months.  
Members:  
» Bureau de Recherches Géol ogiques et Mini ères (BRGM)  
» DEVELOPMENT Solutions Europe Ltd. (DS)  » Netherlands Organisation for App lied Scientific Research TNO  
» Mälardalen University (MU)  » The Royal Institute of Technology (Kungliga Tekniska Högskolan) (KTH)  
» The World Business Council for Su stainable Development (WBCSD)  
» The Administrative Centre fo r China’s Agenda 21 (ACCA21)  
» The Institute of Engineering Thermo-physics,  of the Chinese Academ y of Science (IET)  
» The Institute of Policy and Management of  the Chinese Academy of Sciences (IPM)  
 
EN 52   EN ANNEX VII — List of EU CCS research projects  
Carbon dioxide thematic networ k (CO2NET2) (2002-2005) NORWAY  
Carbon dioxide capture and sequestration in geological storag e technology network 
development programme ( 2000-2002) UNITED  KINGDOM 
Promotion of an Integrated European a nd National R&D Initiative for Fossil Energy 
Technologies towards Zero Emission Po wer Plant (FENCO) (2003-2004) GERMANY 
Initiative for Fossil Energy Technologies towa rds Zero Emission Power Plant (FENCO-ERA) 
(2005-2009) GERMANY  
Network of Excellence on Ge ological Sequestration of CO 2 (CO2GEONET) (2004-2009) 
UNITED KINGDOM  
International Cooperation actions on CO 2 capture and storag e (2004-2007) FRANCE  
Towards Hydrogen and Electricity Production with Carbon Dioxide Capture and Storage 
(DYNAMIS) (2006-2009) NORWAY  
Carbon Dioxide Capture and Hydrogen Production from Gase ous Fuels (CACHET) (2006-
2009) UNITED KINGDOM  
CO 2 capture and storage networking extensio n to new member states (CO2NET EAST) 
52006-2009) CZECH REPUBLIC  
Cooperation Action within CCS Chin a-EU (COACH) (2006-2009) FRANCE  
CALCIUM CYCLE FOR EFFICIENT AND LOW COST CO 2 CAPTURE IN FLUIDISED 
BED SYSTEMS (C3-CAPTUR E) (2005-2008) GERMANY  
Advanced separation and storag e of carbon dioxide: Design, S ynthesis and Applications of 
Novel Nanoporous Sorbents (DESANNS) (2006-2008) FRANCE  
Assessing European capacity for geological st orage of carbon dioxide EU (GEOCAPACITY) 
(2006-2008) DENMARK  
CO 2 capture using amine processes: Internat ional cooperation and exchange (CAPRICE) 
(2007-2008) NETHERLANDS  
Support to regulatory activities for carbon ca pture and storage (STRACO2) (2008-2009) 
FRANCE  
Enabling advanced pre-combustion capture te chniques and plants (DECARBIT) (2008-2011) 
NORWAY  
 
EN 53   EN ANNEX VIII — Preliminary Cost Estimate s, Sources of Funding and a Possible 
Financial Vehicle for a Demo nstration Plant in China  
Preliminary cost estimates 
Modelling work61 conducted for the impact assessment for the Directive on the geological 
storage of carbon dioxide62 provides reference values for ca pital and operat ional costs for 
different technology vintages. For this impact assessment, the technology vintage for 2010 is 
used, which results in additional specific capital investment costs of € 545/kW for CCS in integrated gasification combined cycle coal (IGCC) plants  and € 1025/kW for pulverised coal 
(PC) plants. The reference values for capital inve stment costs are broadl y consistent with the 
figures given in other sources (s ee Table 2), however they are on the conservative side and 
very close to the reference values suggested  in the Second Strategi c Energy Review, which 
results in additional specific capital investme nt costs of € 550/kW for CCS in IGCC plants 
and € 985/kW for PC plants. Since these figu res are for the EU, a region-specific cost 
multiplier of 0.6 for China is used in this Impact Assessment. 
Table 2: Specific capital investment for co al power plants with and without CCS  
Source  Reported values  Converted 
values  
(€2005/kW)63 
Second Strategic Energy Review64 
IGCC 1400-1650 €/kW  
IGCC CCS 1700-2400 €/kW  
Additional CCS capital costs 300-750 €/kW  
Pulverised Coal Combustion 1000-1440 €/kW  
Pulverised Coal Combusti on with CCS 1700-2700 €/kW  
Additional CCS capital costs 700-1260 €/kW  
CC Capital 
IGCC 1079-1483 €/kW  
                                                 
61 PRIMES model database. 
62 SEC(2008)55. 
63 Converted values indicated where values were  reported in other units than 2005 Euros. 
64 SEC(2008) 2872 ‘Energy Sources, Production Costs and Performance of Technologies for Power 
Generation, Heating and Transport’ provides the specific capital investment costs for the state-of-the-art 
power generation technologies based on available literatu re: E. Rubin et al: Use of experience curves to 
estimate the future cost of power plants with CO 2 capture. International Journal of GHG control, 1 
(2007) 188-197, 2007; IPCC: Special report on carbon capture and storage, 2005; IEA GHG: Potential 
for improvement in gasification combined cycle power generation with CO2 capture. Report 4/19, 
2003. 
 
EN 54   EN IGCC CCS 1361-2001 €/kW  
Additional CCS capital costs 282-518 €/kW  
Pulverised Coal Combustion 1056-1400 €/kW  
Pulverised Coal Combusti on with CCS 1484-2330 €/kW  
Additional CCS capital costs 428-930 €/kW  
IEA 
Coal, steam cycle 1500-2200 $/kW 1176-1725 
Coal, steam cycle with CCS 2250-3200 $/kW 1764-2509 
Additional CCS capital costs  588-785 
Coal, IGCC, Selexol 1600-2300 $/kW 1255-1804 
Coal, IGCC, Selexol with CCS 2300-2800 $/kW 1804-2196 
Additional CCS capital costs  392-549 
MIT 
Pulverised Coal Comb ustion 1280-1360 $/kW 1029-1093 
Pulverised Coal Combusti on with CCS 2090-2270 $/kW 1680-1825 
Additional CCS capital costs  651-732 
Source: SEC(2008)2872; Climate Change Capital: ZEP Analysis of funding options for CCS demonstration 
plants, 2007; IEA: CO2 Capture and Storage — A key carbon abatement option, 2008; MIT: The Future of Coal, 
2007; McKinsey&Company: Carbon Capture and Storage: Assessing the Economics, 2008. 
In addition to extra capital investment costs, there are additional fixe d and variable operating 
and maintenance costs associated with CCS that include the cost of fu el, other materials, 
personnel, etc. Additional annualised operational and management costs for CCS plants are taken from the PRIMES model databa se for the 2010 technology vintage
65 and are 
summarised in Box 2.  
There is a high degree of uncerta inty in estimating the costs for CCS demonstration plants due 
to the novelty of the technologies in combina tion. Even though some CCS components, such 
as CO 2 transport via pipelines, are tested in different applications, there is currently no large-
scale CCS coal power plant in operation. This means that all the figures above are estimates, 
based on scaling up smaller components or ex pert judgment on experience with near-proven 
technologies.  
                                                 
65 Energy Systems Analysis of CCS technology: PRIMES MODEL SCENARIOS 
(http://ec.europa.eu/environment/climat/ccs/pdf/primes.pdf). 
 
EN 55   EN The cost of a CCS demonstration plant depends on the particular type of technology used, fuel 
type and composition, plant size and lifetime,  capture rate, process efficiency and the 
construction site. Plant efficiency also affects capital costs: since CCS plants will be less 
efficient than conventional plants, they need to be designed and constructed with a larger fuel 
input than conventional power plan ts to achieve the same net elec tricity output. Therefore, the 
size, and hence the cost, of components for a CCS  plant will depend on pl ant efficiency for a 
predefined net power output. Finally, capital costs will vary depending on the terrain and location of the plant, which mainly affect transport and storage costs.
66  
Transport costs depend on the length of the pi peline required betwee n capture and storage 
sites, the local terrain, and the volume of CO 2 to be transported, as well as whether the 
infrastructure is already available. Storag e costs depend on the type and shape of the 
geological formation, the depth and the storage process, whic h will affect the type and 
number of wells that will be drilled and monito ring techniques. The size of the storage site 
can play an important role in reduc ing the storage cost per tonne of CO 2. Storage costs for a 
large field that can service two commercial-sca le plants simultaneousl y could be roughly one 
third lower than for a one-to-one situation.67 
As shown above, transport and storage costs are si te-specific. Other cost s, such as materials 
and labour, will also greatly depend on where th e CCS demonstration plant is built. These are 
issues to address during Pha ses I and II of the N ZEC project in China.  More precise site-
specific cost figures will be obt ained using detailed conceptual designs of CCS power plants 
under the ENRTP project outlined in Annex III. It is also uncertain as to how costs will 
develop with time, given both the wide possible range of learning rates and scale benefits, and 
the variability of input costs, such as steel , engineering and fuel development. Capital 
expenses per unit are expected to decrease w ith increasing installed capacity, due to potential 
economies of scale on some components.  
The calculations given in this impact assessmen t were made for a newly built CCS plant. For 
the NZEC demonstration, the decision on retrofitting vs. new build will be made together with the Chinese government on the basis of output fr om Phase I. Given the rate at which China 
constructs new coal-fired power plants, new bu ild is a safe assumpti on. Literature suggests 
that retrofitting existing power plants w ould bear considerably higher costs (up 30
 % higher 
than for newly built CCS plants). This is due to several reasons. Firs tly, a retrofitted power 
plant will have a shorter economic life than a ne wly built one; therefore the investment would 
be spread out over fewer years, maki ng it more expensive per ton of CO 2 abated. Secondly, 
reconstructing existing plants c ould be more difficult than bu ilding a new CCS plant due to 
space and other inherited constraints. Thirdly,  retrofitting existing pl ants may result in a 
higher efficiency penalty leading to higher fuel  costs. And fourthly, one has to take into 
account the opportunity cost from closing do wn the plant for retrofitting as opposed to 
continued operation. 
Figure 1 depicts China’s emissi on reduction cost curve for the power sector, wh ich indicates 
that the lowest cost option is coal-based new CCS with enhanced oil recovery, next is new 
coal-based CCS, followed by coal-based CCS re trofit, gas-based new CCS and finally gas-
based CCS retrofit is the most costly CCS option for the power sector.  
                                                 
66 JRC-IE, The cost of carbon capture and storage (CCS) demonstration projects in Europe, 2009. 
67 McKinsey&Company: Carbon Capture and Storage: Assessing the Economics, 2008. 
 
EN 56   EN Figure 12: abatement cost curv e for power sector in China 
 
Source: McKinsey analysis68 
Based on the assumptions in Box 2 below, the costs were calculated for the CCS 
demonstration plant and a conventional coal pl ant with the same elect ricity output for two 
types of technologies: Integrat ed Gasification Combined Cycle and Pulverised Coal.  
Box 2: Assumptions used in the CCS plant cost calculations 
Plant size (net): 400 MW  
Economic lifetime: 25 years 
Construction time: 4 years 
Construction sequence: 16  % of total amount invested 1st year, 28  % in each of remaining 3 
years  
Capture rate of CCS plant: 87.7  % for PC plant and 88.7  % for IGCC plant (approximately 2.6 
mt CO 2 captured and 1.8 mt CO 2 avoided per year) 
Capacity utilisation: 80  % 
Fuel costs for coal (€/GJ): 2.1 in 2015; 2.3 in 2020; 2.5 in 2025; 2.7 in 2030; 2.8 in 2035; 3.0 
in 2040  
Plant efficiency without CCS: 44.8  % for PC plant and 46  % for IGCC plant  
Plant efficiency with CCS: 33  % for PC and 37.8  % for IGCC 
Specific investment cost without CCS : 1320€/kW for PC, 1655 €/kW for IGCC 
                                                 
68 McKinsey&Company ‘China’s green revolution: Prioritising technologies to achieve energy and 
environment sustainability’. 

 
EN 57   EN Specific investment cost with CCS : 2344€/kW for PC, 2200€/kW for IGCC  
Fixed costs without CCS: 40€/ kW for PC, 45€/kW for IGCC 
Additional fixed costs for CCS plan t: 8€/kW for PC, 11€/kW for IGCC 
Non-fuel variable cost s without CCS: 2.5€/MWh for PC, 4.9€/MWh for IGCC 
Additional non-fuel variable costs for CCS plant: 0.5 €/MWh for PC and IGCC  
Transport and storage co sts: 7€ per ton of CO 2 stored 
Region-specific cost multiplier: 0.6 for capital investment and Operation&Management 
costs69  
Coal emission factor: 98.3t/TJ  
Interest rates (net of inflation and taxes): 
Private Lending Interest Rate: 5.5  % 
Equity Rate of Return on Capital: 12  % 
Public support rate of  return on capital: 0  % 
Public sector borrowing interest rate: 2.5  % 
WACC70: 7.5  % for conventional plant 9  % for CCS plant  
Carbon value for scenario with gradual increase of carbon reve nue (e.g. from CDM, sectoral 
crediting or avoided costs in case of carbon tax):  
10€/tCO 2 in 2015 gradually raising to 20€/tCO 2 in 2040  
The required additional financia l need for the CCS demonstration plant is split between a 
subsidy for capital investment a nd a subsidy to cover operating co sts. Public financing for the 
capital investment costs are assumed at 100  % of the additional CCS costs (i.e. the private 
entity is indifferent as to whether to build  a conventional plant or  a plant with CCS).  
The operating financial gap is calc ulated to cover additional operat ing costs so that the cost to 
the operator of produc ing electricity would be the same for a CCS as fo r a conventional plant. 
Both subsidies are discounted according to public sector borrowing interest rate (2.5  %) to 
obtain the total amount of subsidy in 2010. This is the value that could be paid from public 
sources to the special purpose vehicle if they  are to cover all addi tional CCS costs in the 
absence of a carbon price. A separate scenario  calculates the financial gap assuming that 
operator receives a compensation for CO 2 avoided due to CCS according to the CO 2 price 
schedule in Box 2. Moreover, the amount of pu blic financing will depend on the number of 
years during which CCS operation will be supported.  
An estimate of the additional financial need to cover additional costs of a CCS plant 
compared to the equivalent plant without CCS is  given in Table 3. The costs are expressed in 
present value in 2010 over the f our-year period of constructi on and 25 years of operation 
based on social discount rate. The additional costs ar e estimated assuming that at a certain 
point of time, there is a choice  between building a c onventional coal  plant or an equivalent 
coal plant equipped with CCS. These estimates would differ from the costs of installing CCS to an existing plant, which would be potentially  higher (see above text on retrofitting). Table 4 
                                                
 
69 According to World Bank analysis, regional cost factor for conventional power plant is 0.6 for India 
(Study of Equipment Prices in the Power Sector, The International Bank for Reconstruction and Development/The World Bank Group, 2008) and a similar value is assumed to apply for China. This is 
consistent with the judgement of energy experts working on China. 
70 Weighted Average Cost of Capital is an overall return that must be achieved to meet the requirements 
of all its investors. Assuming a lending rate is 5.5  % (real) and the rate of return on capital is 12  % 
(real), the risk free WACC is 7.5  % with weight of 0.3 for equity and 0.7 for debt. In the case of CCS 
demonstration plant, additional risk factors exist (t echnical, infrastructure, political), so WACC includes 
a risk premium of 1.5  % (differential from standard sector’s risk factor) which adds to the weighted sum 
of rate of return on capital and a lending rate. So the total WACC for CCS becomes 9  %. 
 
EN 58   EN summarises the financing need assuming a carbon value and the option to support operation 
of CCS.  
A recent McKinsey study posted si gnificantly higher cost estimates of an additional € 60-90 
per ton of CO 2 avoided for a CCS demonstration plant.  The background data presented in the 
report is not sufficiently detailed to carry ou t a full assessment of the differences in costs. 
Nevertheless, due to the uncertainty, the McKins ey figures could be co nsidered as the upper 
boundary of costs. Therefore, in the sensi tivity analysis below, two upper cases are 
considered, of 50  % higher capital investment costs and 50  % higher operational and 
investment costs.  
Table 3: Estimated incremental costs of CC S compared to an equivalent coal plant 
without CCS for 25 and 10 years of operation, respectively  
Pulverised coal IGCC  
€ M 
(25 years of 
operation)  € M 
(10 years of 
operation)  € M 
(25 years of 
operation)  € M 
(10 years of 
operation)  
Capital costs 232 232 124 124 
Transport and storage 
costs71 300 284 264 251 
Operating costs 445 192 342 147 
TOTAL 97772 708 730 522 
 
Table 4: Additional financial resources need ed to cover incremental costs of a CCS plant 
compared to an equivalent plant without CC S, with a carbon va lue (for 25 years of 
operation) 
 Pulverised coal IGCC 
Capital financing need 232 124 
Operating financing need (including 
transport and storage) 317 175 
TOTAL 54973 299 
Conclusion: based on these a ssumptions, the total financia l need in 2010 to cover the 
additional CCS costs is on average about € 730 – 980 million over a plant lifetime of 25 years, 
depending on the technology used. This results in about € 30-40/tCO 2 avoided. Assuming a 
carbon value of € 10/tCO 2 in 2015, gradually raising to € 20/tCO 2 in 2040, the need for 
additional financing from the other sources is reduced to € 550 million for a pulverised coal 
plant and € 300 million for an Integrated Gasi fication Combined Cycle (IGCC) plant. Should 
support only run for 10 years of CCS operation,  the financing gap is estimated at € 520 
million for a IGCC plant and € 710 million for a pulverised coal plant.  
Sensitivity analysis  
                                                 
71 It is assumed that transport and storage costs are broken down in 90% capital costs and 10% operational 
costs. Therefore, total transp ort and storage cost is lower for the 10 year scenario..  
72 To express the financing gap in €/tCO2, public sup port is set to zero and the ‘goal seek’ function can 
calculate the constant compensation that operators need for every ton of CO 2 avoided by CCS, which 
results in € 41/tCO2 for PC and € 29/tCO2 for IGCC. 
73 The carbon price is € 10/tCO2 in 2015, gradually raising to € 20/tCO2 in 2040. 
 
EN 59   EN As explained above, the assumptions used fo r estimating the costs of CCS have a major 
impact on the figures. The range of cost esti mates will narrow once the CCS technologies are 
demonstrated, but until then the estimates remain uncertain. Therefore the following sensitivity levels of the key va riables determining the additional  CCS costs were evaluated to 
assess their impact on the results:  
(1)
 High fuel costs for coal: € 4.16 /GJ from 2015 to 204074  
(2) Low fuel costs for coal: € 0.97 /GJ from 2015 to 204075  
(3) 50 % higher capital costs for CCS 
(4) 50 % higher capital, fixed ope rational and management, and non-fuel variable 
operational and management costs for CCS 
(5) High transport and storage costs of € 15/tCO 276  
(6) 15 % lower capital costs for CCS 
(7) 15 % lower capital, fixed operational and management, and non-fuel variable 
operational and management costs for CCS 
(8) No cost multiplier for China 
The results of the sensitivity analysis are displayed in Table 5 and Figure 13:  
Table 5: Sensitivity analysis: impact of key variables on the additional CCS costs for pulverised coal plant 
and IGCC plant expressed as NPV 
  additional CCS 
costs €/tCO 2 avoided % change in 
additional costs compared to the base case 
  PC IGCC PC IGCC PC IGCC 
0 base 977 731 41 29 0  % 0  %
1 high fuel 1193 858 48 33 22  % 18  %
2 low fuel 775 611 34 25 -21  % -16  %
3 high capex  1246 978 59 46 28  % 34  %
4 high capex+ 
O&M 1268 1006 60 47 30  % 38  %
5 high T&S 1320 1033 53 39 35  % 41  %
6 low capex  1065 655 36 24 9  % -10  %
7 low capex+ 
O&M 898 647 35 23 -9  % -11  %
8 no cost 
multiplier 1208 911 54 38 24  % 25  %
 
                                                 
74 Corresponds to $ 1 50/t, IPTS scenario. 
75 Corresponds to $ 35/t, IPTS scenario. 
76 As assumed in the PRIMES. 
 
EN 60   EN This shows the relative importance of capital costs, transport and storage costs on the 
additional CCS cost estimate s. In this analysis, a 50  % increase in the capital costs of the CCS 
power plant results in a 28  % increase in the NPV of additional CCS costs for PC plants and 
34 % for IGCC plants. This is due to the fact th at a large proportion of the additional costs are 
operational costs and a carbon value of zero is assumed. Another important factor is transport 
and storage costs: increasing these costs from € 7 to 15 per ton of CO 2 stored creates a 35  % 
increase in NPV differential for PC and 41  % for IGCC plants. Operational and management 
costs have a moderate influe nce on additional CCS costs. The costs described above are 
purely incremental CCS costs.  
Figure 13: Sensitivity analysis: impact of key variables on the NPV of additional CCS costs expressed for 
IGCC and PV plants 
Sensitivity analysis
22%34%41%
-21%28%30%35%-8%-9%24%
-16%
18%38%-10%-11%25%
-50% -30% -10% 10% 30% 50%high fuellow fuelhigh capex high capex+ O&Mhigh T&Slow capex low capex+ O&Mno cost multiplier
IGCC
PC
 
In conclusion, the main assumptions of the economic lifetime of the plant, carbon value, 
transport and storage costs as well as capital investment costs signifi cantly influence cost 
estimates. Using different scenarios, the differe nce between the net curr ent value of the CCS 
demonstration plant compared to the correspo nding conventional coal pow er plant widens to 
€ 300 – 1320 million over a plant lifetime of 25 years, depending on the technology used, and 
€ 25-60 /tCO 2 avoided.  
Potential sources of funding  
At current cost estimates, possible revenue streams would not cover the total incremental 
costs of CCS; hence the perceived need for p ublic grant funding – at least for the capital 
expenditure. 
At present, the Commission has earmarke d € 60m for cooperation on cleaner coal 
technologies and carbon captur e and storage in em erging developing countries under the 
 
EN 61   EN Environment and Natural Resources Thema tic Programme (ENRTP) over the period 2009-
2013. Further Community funding is currently not planned, as support agreed under the 2008 
EU Climate and Energy package on ly applies to demonstration w ithin the EU. Some MS have 
expressed an interest in supporting NZEC’s work , but need evidence of a firm Commission 
commitment (in the form of the Communicatio n) to begin inter-min isterial discussions. 
The CDM offers an opportunity for developing country companie s and governments to invest 
in clean development projects in developi ng countries and use th e resultant Certified 
Emissions Reductions (CERs) fo r their own compliance purposes. At present, CCS is not 
permissible in the CDM. If CCS were covere d by a carbon price in the future, e.g. carbon 
credits in the light of an amb itious post-2012 agreement, these c ould serve to offset some of 
the additional costs and/or cr eate a revenue stream. A furthe r potential revenue stream is 
enhanced hydrocarbon recove ry (using the captured CO 2 to force additional hydrocarbons, i.e. 
oil or gas, from the field in which the CO 2 will then be stored), depending on circumstances.  
Chinese investment in the incremental costs of  CCS will be essential to increase China's buy-
in to the project and the development of the technology ensuring a greate r Chinese ownership, 
familiarity with the technol ogy and an increased likelihood of further deployment. 
Box 3: Potential financing sources 
Private sector 
Private-sector involvement falls into two ca tegories: active equity investors (operators, 
contractors, equipment suppliers ) and passive equity investors (investment funds, institutional 
investors). The base plant may be funded through private-sector  investment (e.g. on a project 
finance or corporate finance ba sis). Private-sector investors ma y also take on some of the 
additional CCS costs or provide  in-kind support if they can see potential incentives.  
Several European companies are already present in Chinese cl ean technology markets. Many 
of these are members of the ZEP and are ke y stakeholders in EU-China cooperation. 
Cooperation between European and Chinese indust ry stakeholders will also be supported by 
the EU-China Clean Energy Centre, agreed at the 2007 EU-China Summit and due to be 
established in Beijing.77 
Carbon finance 
Currently, CCS is not eligible  for carbon finance (e.g. through the Clean Development 
Mechanism, CDM, which is a project-based ap proach offsetting developed country emissions 
through clean development projects in developing countries). It may, however, be eligible for 
post-2012 carbon financing, e.g. through a sectoral crediting m echanism (i.e. a mechanism to 
credit emissions reductions at sector leve l) or through a specific CDM scheme for CCS 
demonstration plants in em erging/developing countries.  
Enhanced Fossil Fuel Recovery  
Depending on the nature of the plant, a reve nue stream could come from enhanced oil 
recovery (EOR). 
                                                 
77 See: http://www.eu-in-china.com/download/EC2.pdf. 
 
EN 62   EN Public financing 
Contributions from the public budget would be required to co-finance additional CCS costs. A 
number of potential sources could be leveraged: 
• EC budget 
• EU or EEA Member States national budgets78 
• concessional loans from public investment banks 
Public finance could be us ed in the following ways: 
– subsidies  
– loan guarantees 
– guarantee for private-sector return (to guarantee price or regulatory risk) 
– investment (with limited expected return) 
 
                                                 
78 If these public contributions qualify as State aid, they may need to be notified to the Commission under 
the State aid rules.