EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 25.6.2009 
SEC(2009) 815 
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 
  
SUMMARY OF THE IMPACT ASSESSMENT  
  
{COM(2009) 284 final} 
{SEC(2009) 814} 
 
EN 2   EN EXECUTIVE SUMMARY  
1. PROBLEM DEFINITION : WHAT IS PRECISELY THE PROBLEM , WHO IS MOST AFFECTED 
AND WHY IS PUBLIC INTERVENTION NECESSARY ? 
Both developed and developing co untries need to act to reduce their greenhouse gas emissions, to 
achieve the objective of limiting average global temp erature increase to less than 2°C compared 
to pre-industrial levels. European Commission analys is indicates th at under an emissions scenario 
compatible with the 2ºC target, around 18% of gl obal fossil fuel power generation would have to 
be fitted with CCS in 2030. 
As part of a range of low carbon technologie s, CCS deployment in fossil-fuel dependent 
emerging and developing countries could play a v ital role in helping achieve global sustainable 
development. However, in a business-as-usual scen ario (ie without additiona l assistance from the 
public sector and without intern ational agreement or national policies establis hing a carbon 
market price), CCS would not be demonstrated at  commercial scale outside of OECD countries 
and would therefore not be viab le for large scale global deploy ment on a timescale commensurate 
with the need to reduce global emissions by at  least 50% by 2050. Without global development, 
demonstration, diffusion and deploy ment of CCS, the fight agai nst climate change could be 
significantly more expensive. 
The different components of the CCS process are already operational, but  one challenge is in 
combining all these elements to enable the co mmercial deployment of CCS in the power sector. 
There are many barriers to the demonstration a nd subsequent deployment and diffusion of CCS 
technologies in developing countries. The provis ion of public funding can help overcome some 
of these barriers and lever private financi ng which would not otherwise be available. 
Demonstration can promote a better understandi ng of the technical, me thodological, political, 
legal, environmental, public acceptance and financ ial issues and therefor e facilitate a better 
estimation of the extent to which we could rely on CCS as one of the key future mitigation technologies. A positive demonstration experience will reduce perceived risk; facilitate further 
demonstration on the path to deployment a nd diffusion, and help drive down costs.  
2. A
NALYSIS OF SUBSIDIARITY : IS EU ACTION JUSTIFIED ON GROUNDS OF SUBSIDIARITY 
(NECESSITY AND EU VALUE ADDED )? 
Because of the scale of the problem and the cost s involved, action by individual MS is unlikely to 
have any impact. In 2005, the EU and China committed to develop and demonstrate in China and the EU advanced, near-zero emissions coal t echnology through carbon  capture and storage. The 
development and deployment of CCS in China and other emerging economies would be 
significantly delayed
 without assistance from develope d countries. The EU's commitment, 
coupled with technological and fi nancial assistance is a unique offer which can help to maximise 
the potential for CCS in emerging economies.  
Because of European leadership  in climate change policies a nd technologies and the massive 
potential for abatement in China due to the rate of  expansion of its coal-fired power plant fleet, 
 
EN 3   EN Europe and China have a unique opportunity to work together to develop and demonstrate CCS 
technologies for future deployment. These are am ong the aims of the EU-China Climate Change 
Partnership, established in 2005.  
China adopted a National Climate Change Progra mme (CNCCP) in June 2007, which specifically 
mentions the development of technologies fo r CCS. Specific CCS technology guidelines are 
planned for publication in 2009.  
3. OBJECTIVES OF THE EU INITIATIVE : WHAT ARE THE MAIN POLICY OBJECTIVES ? 
The EU's general policy objective is: 
• To limit the increase in global mean surface  temperature to be 2°C compared with 
pre-industrial levels, whic h in turn requires that global greenhouse gas (GHG) 
emissions peak by 2020 at the latest and be reduced by at least 50 % as compared with 1990 levels by 2050 and contin ue to decline thereafter.  
The specific objective of this polic y in contributing to this is: 
• To facilitate early deployment of CCS technology in emerging developing countries 
in order to maximise the public benefits  of these technologies (GHG emissions 
reductions, improved air quality), as they m ove from demonstration to deployment, 
and to increase experience and economies of scale and drive down costs, initially 
using China as a case study. 
Operational objectives are to: 
• Identify the additional financing needed fo r a large scale CCS demonstration plant in 
China in the absence of a global carbon price or other incentive, in order to enable 
demonstration quicker than might otherw ise be the case under normal market 
conditions. 
• Provide financing through a vi able financing model for CCS  demonstration in China, 
which brings together public  and private financing as  a concrete example of 
technology and financing cooperation between developed and developing countries in 
the context of the internationa l climate change negotiations.  
• Given limited resources from the Community budget, determine a split of 
public/private financing  to maximise the leverage of the public funding, to be 
explored further in the design of the above-mentioned vehicle. 
 
EN 4   EN 4. POLICY OPTIONS : WHICH OPTIONS HAVE BEEN CONSIDERED AND WHICH HAVE BEEN 
ASSESSED IN DETAIL ? 
Options considered for financing CCS demons tration in emerging economies were a) no 
involvement, b) relying on public grant funding and c) setting up public-private partnership. For a 
public-private partnershi p, three models were considered: joint undertaking, ITER-type ad-hoc 
international treaty and special purpose vehicle (SPV).  
5. ASSESSMENT OF IMPACTS : WHAT ARE THE MAIN ECONOMIC , ENVIRONMENTAL AND 
SOCIAL IMPACTS ? 
In order to assess the amount of investment requi red and the public/private financing necessary to 
ensure an appropriate return for pr ivate investors, existing literature  and estimations of the cost of 
a commercial-scale CCS demonstration plant were  reviewed (bearing in mind that globally, none 
has been built yet) and used as the basis for specific calculations. The additional capital and 
operational cost  over a lifetime of 25 years for this fi rst-of-a- kind 400 MW demonstration plant1 
is estimated at around €730 million for an IGCC  plant (€125m for capital cost and €340m for 
operational costs, €265m for tr ansport and storage costs2, approximately) and around €980 
million for a pulverised coal plant (€235m for cap ital cost and €445m for operational costs, €300 
for transport and storage costs3, approximately). Within this period a strengthening of the global 
carbon market and the emergence of a domestic  carbon price in all major economies can be 
expected. Assuming a carbon value of €10/tCO 2 in 2015 gradually increasing to €20, the 
financing gap is estimated at roughly €300 million for an IGCC plant and at €550 for a pulverised 
coal plant. Sensitivity analysis showed that the cost estimate may vary in the range of +/- 40% 
according to the specific technology and construction/storage sites chosen.  
It is not possible in the course of this Impact Assessment to assess the full range of impacts of 
CCS deployment  in China, and that is not our immediate policy objective. Rather, we attempt to 
assess the impacts, particularly the financial impacts, of using a combination of public and 
private financing to support our  policy objectives and extrap olate broader impacts where 
possible. This analysis focuses on one demonstration project, which in itself is not likely to lead 
to a major immediate reduction of emissions or to  immediate economic benefits. Also, the direct 
social and employment impacts ar e likely to be very limited due to the limited scale of the CCS 
demonstration projects. 
In generic terms and at large scale, environmen tal impacts of CCS relate to improved local air 
quality and global atmospheric concentrations of  greenhouse gases with resultant health and 
economic benefits from reduced exposure to air pollution and reduc ed climate change impacts. 
Physical problems of potential CO 2 leakage can be avoided by th e employment of appropriate 
site selection, modelling and monitoring techniques. 
                                                 
1 Expressed as net present value in 2010 over the 4 years of construction and 25 years of operation using a 
social discount rate of 2.5% (net of inflation).  
2 This includes capital and operational costs over 25 years of 7€/t CO 2 stored. 
3 This includes capital and operational costs over 25 years of 7€/t CO 2 stored. 
 
EN 5   EN The key impacts of China being in a possible first wave of CCS demonstrati on globally relate to 
the learning benefits and firs t-mover advantages in relation to achieving future emissions 
reductions and avoiding carbon lock-in.  
The CCS demonstration project and the supporting financial ve hicle are designed under the 
assumption that carbon will have a value in Ch ina and other emerging and developing countries 
in future that will take into acc ount the social price of carbon.  
6. COMPARISON OF OPTIONS : WHAT IS THE PREFERRED OPTION ON THE BASIS OF WHICH 
CRITERIA /JUSTIFICATION ? 
In order to bring together th e required sum of funding and mi nimise the strain on the public 
budget, a public-private partnership was identifie d as the most suitable option for financing a 
CCS demonstration project in China Three public-p rivate partnership mode ls were analysed: a 
Special Purpose Vehicle (SPV), a Joint Undert aking under Art. 171 of the EC Treaty, and the 
"Ad hoc international treaty" model used to es tablish the ITER collaboration on the design and 
construction of an experimental fusion reactor. The SPV (or a si milar investment vehicle) was 
identified as the most suitable model. Potential future revenues from the carbon market would be 
an incentive for the private sect or to invest in the SPV.  
7. MONITORING AND EVALUATION : WHAT ARE THE ARRANGEMENTS TO ESTABLISH THE 
ACTUAL COSTS AND BENEFITS IN THE ACHIEVEMENT OF THE DESIRED EFFECTS ? 
The performance of the SPV woul d be subject to monitoring; ri sk management and compliance 
procedures ensure compliance w ith appropriate laws and guidel ines. The SPV would be set up 
with a governance structure to ensure that the appropriate body (e.g. an Investment Committee or 
a Board of Directors) would supervise the moni toring and control of the correct implementation 
of the investment and divestment decisions. 
The Community Budget contribution to the i nvestment vehicle would come from the 
Environment and Natural resources Thematic Programme (ENRTP). Cooperation with China on 
CCS under the auspices of the ENRTP would be monitored in compliance with the standard 
provisions under the developmen t cooperation funding instrument.