Communication from the Commission 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}
Date: 2009-06-25
Institutions: European Commission
Subjects: EU environmental policy, energy policy, energy storage, environmental impact, greenhouse gas, innovation, new technology, reduction of gas emissions

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 25.6.2009 
SEC(2009) 814 

COMMISSION STAFF WORKING DOCUMENT 

accompanying the 

COMMUNICATION FROM THE COMMISSION 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} 

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TABLE OF CONTENTS 

COMMISSION STAFF WORKING DOCUMENT Accompanying document ........................ 1 

1. 

1.1. 

1.2. 

1.3. 

1.4. 

2. 

2.1. 

2.2. 

Procedural issues and consultation of interested parties .............................................. 5 

Introduction.................................................................................................................. 5 

Organisation and timing............................................................................................... 6 

Consultation and expertise ........................................................................................... 6 

Response to the Opinion of the Impact Assessment Board ......................................... 6 

Problem definition........................................................................................................ 7 

Power generation from coal and emission reductions from CCS ................................ 7 

Barriers to demonstration and deployment 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. 

2.4. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

4.3. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

6. 

The case of China....................................................................................................... 13 

Conclusion ................................................................................................................. 14 

Objectives................................................................................................................... 15 

General policy objective ............................................................................................ 15 

Specific objective ....................................................................................................... 15 

Operational objectives................................................................................................ 15 

Policy options............................................................................................................. 15 

Option 0: No involvement of the EU in financing CCS demonstration in emerging 
economies................................................................................................................... 16 

Option 1: Public grant funding................................................................................... 17 

Option 2: Public-private partnerships ........................................................................ 17 

Comparing the public-private partnership options..................................................... 17 

Option 2a: Joint Undertaking ..................................................................................... 17 

Option 2b: ITER (International Thermonuclear Experimental Reactor) ................... 18 

Option 2c: Special Purpose Vehicle (SPV)................................................................ 18 

Summary and conclusion ........................................................................................... 19 

Special Purpose Vehicle (SPV).................................................................................. 20 

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6.1. 

6.2. 

6.3. 

7. 

Financing with revenue from the carbon market ....................................................... 20 

Financing with revenue from enhanced oil recovery................................................. 22 

Financial flows ........................................................................................................... 23 

Economic, social and environmental impacts 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. 

7.3. 

Social Impacts ............................................................................................................ 26 

Economic and health benefits .................................................................................... 26 

7.3.1.  Economic Impacts...................................................................................................... 26 

7.3.2.  Health benefits ........................................................................................................... 27 

7.4. 

Risks........................................................................................................................... 28 

8. 

9. 

Monitoring and evaluation ......................................................................................... 28 

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 CCS research projects.................................................................. 52 

ANNEX VIII — Preliminary Cost Estimates, Sources of Funding and a Possible Financial 
Vehicle for a Demonstration Plant in China ............................................................................ 53 

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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 Clean 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  Resources  Thematic  Programme  of  the  European 
Commission 
EOR:  enhanced oil recovery  
European Parliament  
EP: 
(ETP) ZEP:  European Technology Platform for Zero Emission Fossil Fuel Power Plants  
GALILEO:  The European satellite navigation project 
GHG:  greenhouse gas(es)  
IEA: 
IGCC: Integrated Gasification Combined Cycle 
IPCC:  Intergovernmental Panel on Climate Change  
IPR: 
ITER:  International Thermonuclear Experimental Reactor 
JU: 
MOST: Chinese Ministry of Science and Technology 
MS:  Member States 
NZEC: Near Zero Emission Coal  
PC: 
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 activities for carbon capture and storage 
UNFCCC:  United Nation Framework Convention on Climate Change 

International Energy Agency 

Intellectual Property Rights 

Joint Undertaking 

pulverised coal 

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1. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  

1.1. 

Introduction 

This  document  summarises  the  impact  assessment  for  the  Commission  Communication  on 
‘Demonstrating  Carbon  Capture  and  Geological  Storage  (CCS)  in  emerging  developing 
countries: the EU-China Near Zero Emissions Coal Plant project’ (item 2009/ENV/010 of the 
Commission’s Legislative Work Programme). This Communication will provide input to the 
international  climate  negotiation  process  leading  to  the  Copenhagen  Climate  Change 
Conference  at  the  end  of  2009,  therefore  timely  adoption  is  important.  It  supplements  a 
forthcoming  Communication  on  financing  low  carbon  technologies1  by  covering  in  greater 
detail  carbon  capture  and  storage  technologies  and  focusing  on  China  as  a  case  study  for 
cooperation with emerging developing countries.  

The expected contribution from the Community Budget to the policy analysed in this Impact 
Assessment  comes  from  the  Environment  and  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.  Under  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 technology’ by 2020 and have begun negotiations to 
bring this date forward to 2015. Phase I of this ‘Near Zero Emissions Coal’ (NZEC) project 
ends in 2009. The aim is to have a financing vehicle 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 with a view to supporting technology development and cost reduction 
for  the  beginning  of  broad  deployment  of  CCS  by  2020.’3  (For  more  information  on  the 
general context to this policy initiative, see Annex IV). 

This Communication specifically concerns implementation of the Near Zero Emissions Coal 
(NZEC)  project  with  China,  which  is  a  concrete  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 number of emerging developing countries under the 
2009  Annual  Action  Plan  of  the  Environment  and  Natural  Resources  Thematic  Programme 
(ENRTP, see Annex III). 

1 

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3 

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. 
Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002. 
Joint Statement by G8 Energy Ministers, Aomori, Japan, 8 June 2008. 

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1.2. 

Organisation and timing  

The  consultation  was  conducted  in  a  manner  proportionate  to  the  type  and  scope  of  the 
Communication.  Minimum  standards  of  consultation  have  been  met.  The  Commission  has 
consulted  and  informed  other  services  via  the  existing  Inter-Service  Group  on  International 
Climate Change and via an informal inter-service 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  conducting  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  VI)  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  Geological  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 combining public and private financing (further 
details in Annex I). The Commission conducted an internet public consultation on ‘Capturing 
and storing CO2 underground — should we be concerned?’ in February 2007, which covered 
issues  such  as  level  of  information,  public  perception,  acceptability  as  a  CO2  mitigating 
solution, acceptable increase in the cost of electricity generation and in the price of electricity. 
A  specific  consultation  of  the  general  public  on  financing  CCS  demonstration  in  emerging 
developing countries was not held, 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  concerned about the potential of funding 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 potential to secure revenue from enhanced oil 
recovery (EOR) is uncertain and depends on the selected 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 private-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  considering  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 
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SEC(2008) 55. 
JRC-IE, The cost of carbon capture and storage (CCS) demonstration projects in Europe, 2009. 

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•  Clarification of the objectives of the financial 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 addressed 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 local 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  development  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  stakeholder  consultation,  the  role  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 taken into account when this impact assessment 
was re-drafted. 

2. 

PROBLEM DEFINITION 

CCS deployment in fossil-fuel dependent emerging developing countries has the potential to 
significantly  help  achieve  global  sustainable  development.  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, India and South Africa, which have significant coal reserves. 
Figure 1 illustrates power generation by fuel type in developed and developing countries. It 
shows  that  power  generation  is  going  to  significantly  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 generated 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. 

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Figure 1: Power Generation by fuel type in developed and developing countries  

DEVELOPING Pow er Generation by Fuel

DEVELOPED Pow er Generation by Fuel

30000

25000

20000

15000

10000

5000

0

30000

25000

20000

15000

10000

5000

0

1990

2000

2010

Base

2010

Red.

2020

Base

2020

Red.

2030

Base

2030

Red.

1990

2000

2010

Base

2010

Red.

2020

Base

2020

Red.

2030

Base

2030

Red.

Nat ural gas (TWh)

Oil (TWh)

Coal (TWh)

Nuclear (TWh)

Renewables(TWh)

Nat ural gas (TWh)

Oil (TWh)

Coal (TWh)

Nuclear (TWh)

Renewables(TWh)

Source: JRC, IPTS, POLES (from Copenhagen Communication IA modelling) 

EU action alone will not be sufficient  to  limit the global temperature increase  to  2ºC  above 
pre-industrial  levels.  By  2020,  developing  country  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. Figure 2 illustrates the contribution of different measures to 
reducing CO2 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  efficiency  and  renewable  energies  are  in  the 
long term the most sustainable solutions both for security of supply and for the climate, EU 
and global CO2 emissions cannot be reduced by 50 % by 2050 if other options such as carbon 
capture and storage are not used. CCS can be considered a bridge technology. 

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8 

See Annex V, Figure 10 for more information. 
SEC(2009) 101. 

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Figure 2: Contribution of different technologies to reducing CO2 emissions 

Contribution of different measures to CO2 emission reductions 
between baseline and reduction scenarios* - WORLD

45000

40000

35000

30000

25000

20000

15000

Energy savings in transport

Energy savings in other sectors

Fossil fuel switch 

Carbon sequestration

Nuclear energy

i

d
e
d
o
v
a

s
n
o
i
s
s
i
m
e

10000

Renewable energies

GHG reduction scenario

5000

0
2005

2010

2020

2030

Source: DG JRC, IPTS, POLES (from Copenhagen Communication IA modelling)  

According  to  the  business-as-usual  scenario,  the  penetration  of  CCS  with  respect  to  fossil 
fuelled  power  plants  by  2030  is  virtually  zero,  while  the  reduction  scenario9  shows  a 
significant  share  (around  18 %)  of  fossil  fuel  power  generation  with  CCS  in  2030,  rising  to 
around 85 % of fossil fuelled power plants 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 CO2 emissions by 2050 without using CCS would increase the cost by 71 %.11  

9 

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11 

According  to  this  scenario,  GHG  emissions  in  developed  countries  will  decrease  by  20 %  in  2020 
compared to 1990. GHG emissions from developing countries will continue to rise in the ‘appropriate 
global action scenario’ up to 2020, then peak between 2020 and 2030. 
SEC(2009) 101. 
‘CO2 Capture and Storage — A key carbon abatement option’, IEA 2008. 

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Figure 3: Share of power sector emissions captured through Carbon Capture and Storage 

Share of power sector emissions captured

%

100

90

80

70

60

50

40

30

20

10

0

2000

2010

2020

2030

2040

2050

Developed countries

Developing countries

EU 27

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 operational, but the challenge is to combine all these elements to 
enable  commercial  deployment  of  CCS  in  the  power  sector.  There  are  currently  only  four 
large-scale CCS demonstration projects in the world: none based on a coal-fired power plant, 
and none in coal-dependent emerging 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  the  Carbon  Sequestration  Leadership  Forum, 
International  Energy  Agency  implementing  agreements;  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  initiatives  has  yet  succeeded  in  pooling  sufficient 
resources to finance large-scale CCS demonstration projects, let alone in emerging developing 
countries, where no benefits can yet be monetised through carbon markets.  

To  gauge  the  true  global  mitigation  potential  of  CCS  and  to  save  significant  time  in 
demonstrating,  deploying  and  disseminating  CCS  technologies  worldwide,  coal-dependent 
emerging economies and developing countries also need to play their part. Therefore, a viable 
financing  model  must  be  found  for  large-scale  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  relevant  knowledge  and  technologies  and  bilateral 

12 
13 

SEC(2009) 101. 
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 based on a 400 MW plant (net capacity). 

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partnerships on which specific technology cooperation 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 operational, 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 installations compared to conventional power plants is 
one  of  the  major  barriers  for  CCS  uptake,  both  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  required  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  reflect  the  real  cost  to 
society  of  externalities  caused  by  using  fossil  fuels  to  generate  electricity.  The  use  of  coal-
fired  power  stations,  while  providing  the  energy  needed  to  develop  an  economy,  causes 
significantly greater GHG and classical air pollutant emissions than alternative fuel sources. 
In  addition,  coal  mining  itself  has  negative  environmental  and  social  impacts.  In  countries 
with  abundant  coal  reserves,  in  the  absence  of  a  price  for  such  externalities  and  without  an 
economic incentive to cover incremental CCS costs (by fiscal or other market measures like 
emissions  trading),  coal  will  continue  to  be  used  to  generate  electricity.  CCS  represents  an 
opportunity  to  continue  to  use  coal  (which  is  often  attractive  due  to  cost/location  factors) 
while mitigating the negative environmental impacts.  

Even if policy frameworks become increasingly conducive to CCS, it cannot be assumed that 
the  private  sector  will  finance  CCS  investment.  The  problems  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 secondary 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 returns 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 externalities 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. 

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Experience  from  previous  technology  development  shows  that  costs  substantially  fall  with 
increased  deployment.  Learning  benefits  and  potential  first-mover  advantages  could  be 
positive factors attracting private investors. The learning curve at Figure 4 illustrates that new 
clean energy technologies need public financial support in the early 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  CO2  price,  if  existing)  may  also  be 
needed  at  the  initial  development  stage,  depending  on  prevailing  market  conditions.  In 
emerging and developing countries, the CDM (pending 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) technologies. In the longer term, a price on carbon 
will help incentivise broader CCS deployment.  

Figure 4: Illustrative learning curve for CCS development  

Marginal 
cost 
producing 
electricity 

of 

Learning 
realised  through 
deployment 
support 

New technology 

Established technology 

Established  technology  with 
CO2 price 

Carbon price effect

B 

A

Cumulative 
installation 

Source: Stern Review, 2006, p 350, as presented in EU Technology Think Tank meeting 16-
17 April 2007  

Up-front  public  funding  can  provide  this  incentive  and  enable  progress  along  the  learning 
curve, which should drive down costs and exploit economies of scale over time, particularly 
in  an  economy  such  as  China,  where  labour  costs  are  significantly  lower  and  power  sector 
investment  is  increasing  rapidly.  These  can  lead  to  global  benefits  in  addition  to  the 
knowledge spill-over benefits related 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 regulations or international agreements that put a price on greenhouse 
gas  emissions  is  a  disincentive  for  the  private  sector  to  cover  incremental  CCS  costs.  In 
addition  to  increased  costs,  there  are  other  barriers  to  CCS  development  and  deployment  in 

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emerging  developing  countries.  They  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 CO2 and greater protection of the intellectual property of foreign 
technology  companies.  Offering  financial  support  for  a  CCS  demonstration  project  can 
incentivise the recipient country to draft the regulatory, planning and permitting frameworks 
needed for large-scale deployment, and could even 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 CO2 
accounting for around 20 % of global energy-related CO2 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  CO2  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 Programme (CNCCP) in June 2007, which aims to 
optimise  the  energy  mix  by  developing  low-carbon  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  CO2.  Specific  CCS 
technology guidelines are planned for publication in 2009.  

The  development  and  deployment  of  CCS  in  emerging  economies  would  be  significantly 
delayed  without  assistance  from  developed  countries.  The  EU’s  commitment,  coupled  with 
technological  and  financial  assistance,  would  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 Partnership (see Annex II for more details), where the 
EU  has  committed  to  developing  and  demonstrating  advanced  ‘zero-emissions’  coal 
technology using CCS technologies in China and 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  deployment  and  dissemination.  Given  the  volume  of 
Chinese  greenhouse  gas  emissions  due  to  its  coal-intensive  power  generation  sector  (global 
CO2 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  rest  of  the  world  coal  combustion 
emissions increased by 2 %18), the political commitment between the EU and China and the 

15 
16 
17 

18 

IEA World Energy Outlook 2008. 
IEA, Cleaner Coal in China, 2009. 
Dr Nick Riley from the British Geological Survey, oral evidence to the UK House of Commons Science 
and Technology Select Committee 
(http://www.publications.parliament.uk/pa/cm200506/cmselect/cmsctech/578/57805.htm#note18). 
Netherlands Environmental Assessment Agency, 2007. See: 
http://www.pbl.nl/en/dossiers/Climatechange/moreinfo/Chinanowno1inCO2emissionsUSAinsecondpos
ition.html. 

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advanced stage of existing cooperation on CCS, China was chosen as the location for the first 
CCS demonstration plant supported financially by the EU.19  

Several European companies are already present in Chinese clean technology markets. Many 
of  these are members of the European  Technology  Platform for Zero Emissions Fossil Fuel 
Power Plants20 and are key stakeholders for EU-China cooperation. Furthermore, cooperation 
between  European  and  Chinese  industry  stakeholders  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  NZEC  Steering  Committee  on  1  April,  Chinese 
government  representatives  expressed  their  satisfaction  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  work.  They  also  briefed  the  European  side  on  the  increasing 
prominence  of  CCS  in  Chinese  technology,  energy  and  climate  change  policies,  noting  its 
mention  in  the  2007  National  Climate  Change  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  comprehensive  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. Significantly increased financial 
resources will be needed to support the action needed in developing countries. Contributions 
from developed countries and the global carbon market will be required 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  issues  involved  and  therefore  help  us  estimate 
the  extent  to  which  it  will  be  possible  to  rely  on  CCS  as  one  of  the  key  future  mitigation 
technologies. A successful demonstration project will reduce perceived risk, facilitate further 
demonstration  on  the  path  to  deployment  and  dissemination  and  help  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  demonstration  plant  in  one  emerging 
economy, China. 

19 

20 
21 
22 

Whereas the cost figures associated with this Impact Assessment (Annex VIII) are estimated for China, 
the  financial  vehicle  described  could  potentially  be applied  to  a  demonstration  plant  in  any  emerging 
economy. 
See: http://www.zero-emissionplatform.eu. 
See: http://www.eu-in-china.com/download/EC2.pdf. 
COM/2009/0039 final. 

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3. 

OBJECTIVES  

3.1. 

General policy objective 

•  To  limit  the  increase  in  global  mean  surface  temperature  to  2 °C  compared  with 
pre-industrial  levels,  which  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  these  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 financing needed for a large-scale CCS demonstration plant 
in China, in the absence of a global carbon price or other incentive, to complete 
the demonstration project sooner than might 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  cooperation  between  developed  and  developing 
countries in the context of the international 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 designing the above-mentioned vehicle. 

This  project  is  in  line  with  the  European  Commission’s  Sustainable  Development  Strategy, 
the objectives of the 2008 Climate Change and Energy package and the Lisbon Strategy. In 
combination with the EU’s own Demonstration Programme, this initiative can help develop a 
competitive advantage and new markets for European companies active in relevant sectors. 

4. 

POLICY OPTIONS  

According  to  IEA  estimates,  $22  trillion  of  investment  will  be  needed  for  global  energy 
supply  infrastructure.  Around  $3.7  trillion  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. 

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15 

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investment  is  deployed  will  determine  Chinese  and  global  energy  use  patterns  and  CO2 
emissions for decades to come. The latest available 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  expansion  is  not  sufficient  to  meet  soaring 
demand,  and  estimates  suggest  that  1 260  GW  of  new  power  stations  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 stations to replace ageing stock. 

4.1. 

Option  0:  No  EU  involvement  in  financing  CCS  demonstration  in  emerging 
economies  

Unless  existing  and  new  technologies  are  developed  and  deployed,  the  potential  for  carbon 
lock-in  is  significant.  Therefore,  Europe  and  China  have  a  unique  opportunity  to  work 
together to develop and demonstrate CCS technologies for future deployment in both regions 
to avoid the bulk of carbon lock-in and find innovative solutions to coal dependency. The EU 
already cooperates with China on various substantive aspects of climate change policies and 
research (see Annex II).  

The  aim  should  be  to  develop,  demonstrate,  disseminate  and  deploy  CCS  technologies 
globally  to  move  along  the  learning  curve  and  down  the  cost  curve  as  quickly  as  possible. 
Without  EU  technological  and  financial  assistance,  deployment  of  CCS  in  China  and  other 
emerging  economies  could  be  significantly  delayed.  This  would  represent  a  missed 
opportunity  for  emissions  abatement  and  for  facilitating  the  progress  of  international 
negotiations  on  climate  change.  If  large-scale  deployment  of  CCS  is  delayed,  combating 
climate  change  could  be  significantly  more  expensive.  China  builds  capacity  comparable  to 
the entire UK power grid each year.26 Without the application of CCS, this represents around 
4  megatons  of  CO2  a  week  increase  in  Chinese  emissions  from  coal-fired  power  generation 
alone,27 and with plant lifetimes of around 30 years or more, considerable 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 reject this form of technology dissemination. CCS 
technologies  must  be  developed  in  partnership  with  developing  countries  to  determine  and 
then maximise the true potential of CCS.  

The  funding  gap  for  CCS  demonstration  is  well  documented.  Under  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)  and  the  European  Economic  Recovery  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 developing and emerging economies. The Commission plans to 
promote  information  exchange  between  the  NZEC  project  and  European  demonstration 

24 
25 
26 
27 

Fred Pearce in New Scientist, 23 April 2008. 
Chatham House/E3G report: Changing Climates, November 2007. 
‘The Future of Coal’, Massachusetts Institute of Technology, 2007. 
Dr Nick Riley from the British Geological Survey, oral evidence to the UK House of Commons Science 
and Technology Select Committee 
(http://www.publications.parliament.uk/pa/cm200506/cmselect/cmsctech/578/57805.htm#note18). 

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16 

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projects  through  the  CCS  project  network,  which  is  currently  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 option 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 additional cost of CCS by public grant funding. In 
the current economic climate, it would be difficult to mobilise the level of funding required 
for a commercial-scale demonstration plant. Furthermore, if financing a CCS demonstration 
plant  relies  solely  on  public  grant  financing,  the  donor/recipient  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-private partnerships 

To  share  ownership  and  risk,  pool  sufficient  funds  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 analysed 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. 

COMPARING 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’, Article 171: ‘The Community may set up joint 
undertakings  or  any  other  structure  necessary  for  the  efficient  execution  of  Community 
research, technological development and demonstration programmes’.  

28 

29 

See: 
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1315&format=HTML&aged=0&langua
ge=EN&guiLanguage=fr. 
See: http://www.zero-emissionplatform.eu. 

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17 

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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 with a significant budget line including a large share 
of  Community  financing,  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  Programme  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  with  regards  to  participation,  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 Thermonuclear 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  international  partners  (EU  and  non-EU  country 
governments) to collaborate on the design and construction of an experimental fusion reactor. 
In  effect,  new  international  law  was  created  to  fit  the  purpose.  This  underpins  the 
organisational  structure  of  a  ‘Joint  Implementation  Agreement’,  which  covers  issues  as 
diverse and potentially politically sensitive as information and intellectual property, privileges 
and  immunities,  public  health,  safety,  licensing  and  environmental  protection,  liability, 
decommissioning,  and  peaceful  uses  and  non-proliferation.  This  structure  was  lengthy  to 
establish (taking over 5 years), and does not allow the private sector 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 demonstration plant in China. There are existing 
structures where the Commission has experience and 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  governing  them  are  set  down  in  advance  and 
carefully circumscribe their activities. This mechanism limits the financial risk to the investor. 
SPVs are suited to transferring assets to finance a large project achieving a narrow set of goals 
while limiting the risk to the investing entity. Hence an SPV or other similar vehicle can offer 
several advantages and can be tailored to suit the needs of the CCS demonstration project. 

30 
31 

See: http://ec.europa.eu/transport/galileo/index_en.htm. 
SESAR (Single European Sky ATM Research) is the technological wing of the Single European Sky. 
The aim of the SESAR Joint Undertaking is to modernise the European air traffic management system 
by coordinating and concentrating all relevant research and development efforts in the Community. 

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Potential to build on existing structures 

The  Commission  and  the  EIB  have  experience  in  channelling  support  via  public-private 
partnerships in general, including 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 quickly 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  coherence  with  public  policy  objectives.  A  specified 
investment  policy  provides  an  investment  platform  combining  public  and  private  finance. 
Being set up as a private investment fund or SPV with a public objective, the vehicle would 
be managed in an efficient and financially viable 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 partnership 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 

receives 

COM 
a 
negotiating mandate from 
Council 

Timeframe 

Experience  shows  that  a 
minimum  of  2  years  is 
realistic 

ITER  took  5  years  to 
negotiate 
these 
spent on location issue) 

(2  of 

Contribution of non-
EU parties 

No  particular 
type  of 
participation provided for: 
flexibility  of  Article  171 
various 
allows 
for 
Third 
possibilities. 
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) 

indicates 

The  EC 
its 
intention to act, e.g. via a 
Commission 
Communication. 
Commission  Financing 
Decision  to  commit  EC 
funding 

6-12 months is ambitious 
but feasible 

Non-EU  parties  —  both 
public  and  private  — 
could  contribute  to  the 
vehicle  

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Role of private 
sector 

No  particular 
is 
role 
flexibility  of 
specified: 
Article  171  allows  for 
various possibilities. 

Allows  for  public-private 
cooperation. 

ITER  is  entirely  inter-
governmental  —  private 
sector 
is 
through 
arranged 
contracts 
with 
governmental parties 

involvement 

Allows for public-private 
cooperation  with  direct 
private investment. 

Split of 
public/private-sector 
funding 

Nothing 
specified: 
is 
flexibility  of  Article  171 
allows 
various 
for 
possibilities. 

ITER  is  entirely  publicly 
funded at present. 

Both  private  and  public 
could 
investors 
participate  by  lending  or 
taking  equity  in  an  SPV 
or by buying shares of an 
investment fund. 

Given the absence of a functioning commercial-scale CCS demonstration plant globally, there 
is  no  specific  experience  to  draw  on  to  ascertain  the  best  financial  vehicle  to  achieve  the 
second operational objective. However, the EU has experience in bringing public and private 
bodies  together  in  large  research/demonstration  projects  through  the  above  three  types  of 
public-private  partnerships.  Therefore,  while  all  three  options  would  build  on  previous 
experience, neither option 2a) nor 2b) seem feasible regarding the timescale as both options 
would  entail  lengthy  inter-institutional  legal  procedures.  If  the  assumption  is  made  that  the 
contribution from the Community budget is fixed regardless of the chosen cooperation model, 
the cost to the Community remains constant. A key issue is that option (b) does not involve 
the private sector financially. Options (a) and (b) are therefore 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 stage 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,  site,  storage  type  and  location)  to  be  made  by  the  Chinese 
government. The most accurate cost estimates will be made during 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  revenue  stream  that  could  make  investment  in  the  technology 
attractive  to  private  investors.  Particularly  interesting  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 beyond a certain baseline. Thus, only action which 

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is additional to business as usual is credited and companies would have an incentive to take 
more  costly  mitigation  action  in  return  for  financing  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 carbon 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 with or without CCS. Public financing for operational costs covers 
additional CCS costs that are not covered by revenue from carbon credits. The carbon value is 
set at different levels and assumed to be constant throughout the plant operation (2015-2039), 
the last scenario assumes the value of carbon will gradually increase 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 the policy instrument used to achieve this value (such as a 
sectoral crediting mechanism, carbon tax or domestic 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

800

700

600

500

400

300

200

100

0

M€

,

g
n
i
c
n
a
n
i
f
c
i
l

b
u
P

5

10

15

20

25

30

10 in
2015 20
in 2040

carbon price, €/tCO2

( D = debt; EQ = equity) 

rate of return D=5%, EQ=10%

rate of return D=5%, EQ=15%

rate of return D=5%, EQ=20%

EN 

21 

   EN 

 
 
 
 
Figure 6: public financing for PC plant  

Public financing depending on carbon price and required rate of return

1000

900

800

700

600

500

400

300

200

100

0

M€

,

g
n
i
c
n
a
n
i
f
c
i
l

b
u
P

rate of return D=5%, EQ=10%

rate of return D=5%, EQ=15%

rate of return D=5%, EQ=10%

5

10

15

20

25

30

10 in
2015 20
in 2040

carbon price, €/tCO2

( D = debt; EQ = equity) 

It  is  uncertain  whether  and  at  what  time  CCS  in  emerging  developing  countries  will  be 
eligible  for  carbon  market  revenue.  Therefore,  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 sufficiently high rate of return.  

If the value of carbon increases gradually from € 10/tCO2 in 2015 to € 20/tCO2 in 2040, the 
amount  of  public  financing  needed  to  cover  the  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  enhanced  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 CO2 value is estimated by the US Department 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. 

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22 

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depends very much on oil prices. IPCC suggests that, for example, oil at US$ 50/barrel could 
justify a credit of US$ 30/tCO2.33  

Such  estimates  should  be  treated  with  caution  as,  firstly,  the  applicability  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 CO2. 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 equipping a power plant with CCS.  

In practice, CO2-EOR use will be limited to power plants close to oil and gas fields to keep 
transport costs down. Although the potential for EOR in China is limited to the relatively low 
number  of  oil  fields,  developing  CO2-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 investigating the scope for applying CO2-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 available in the second half of 2009. If EOR is an option, this would 
considerably ease the financing of a CCS commercial scale demonstration plant. 

6.3. 

Financial flows 

Figure 7 illustrates the flows of finance in the investment scheme described above. 

Figure 7: Illustration of Special Purpose Vehicle investment and returns 

Special Purpose 
Vehicle 
(SPV)
Incl. public funding from 
MS and non-EU countries
and private investment

Public grants

(receive no 
revenue)

Private 
investment

(investors 
receive return)

Possible revenue stream:

-CERS/other carbon credits

-EOR

Base Power
Plant
=Commercial 
power
generation 
and revenue
(Chinese 
power entity)

NZEC: 
CCS 
Incremental
costs

33 

Herzog  et  al.  (2005):  Chapter  8:  Costs  and  economic  potential.  In  IPCC  Special  Report  on  Carbon 
Dioxide Capture and Storage. 

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23 

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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 seeking a higher return (e.g. 
10-20 %).  One  way  to  reduce  the  size  of  the  initial  investment  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 first-mover and learning 
advantages from being in the first commercial scale CCS demonstration plant in China. 

To  make  the  proposal  attractive  to  private  investors,  public  investors  need  to  be  willing  to 
underwrite some of the risk.  

Several  issues  remain  for  negotiation  with  Chinese  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 risk for private investors and increase Chinese 
buy-in to the project and development of the technology. This could 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  changes,  depending  on  the  rate  of  return 
required by private investors for the base plant and, to a larger extent, on the carbon price and 
possible revenue streams from enhanced oil recovery. In addition, the target amount of public 
funding  under  the  Special  Purpose  Vehicle  or  other  investment  vehicle  depends  on  the 
number  of  years  of  operation  during  which  the  CCS  plant  would  receive  public  financial 
support.  

If public contributions from the EU Member States 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 countries, 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. Also, direct social and employment impacts are 
likely to be limited due to the scale 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 substantial implications for the global climate and 
for  the  local  environmental,  economic,  social  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. 

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7.1. 

Environmental Impacts  

A full Environmental Impact Assessment for a specific CCS project site will be conducted as 
part of the ENRTP project referred to in Annex III. Furthermore, environmental and technical 
guidelines  will  be  drafted  for  the  design,  construction,  operation  and  monitoring  of  CCS 
demonstration plants. The more general environmental impacts of CCS can be classified as: 

7.1.1.  Risk of physical leakage 

The IPCC Special Report on CCS estimated that the fraction of CO2 retained in appropriately 
selected and managed geological reservoirs is very likely (i.e. with probability 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 ensuring zero or near-zero seepage. With suitable site 
profiling,  selection  and  management,  this  practical  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, support the presumption of long-term CO2 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 the Communication on Sustainable Power Generation 
from Fossil Fuels,36 the penetration of sustainable coal technologies including CCS is likely to 
reinforce the positive impact of recent improvements in coal-fired power generation through 
the application of cleaner coal technologies. These have so far led to significant reductions in 
the  most  critical  air  pollution  agents,  notably  sulphur  dioxide  (SO2)  and  nitrogen  oxides 
(NOx).  These  pollutants  are  major  contributors  to  ocean  acidification,  eutrophication  and 
ground-level ozone. In general, SO2 emissions plummet (by more than 90 %) regardless of the 
technology,  whereas  depending  on  the  CCS  technology  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 adverse impacts on human health and have been 
estimated  to  be  responsible  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  aerosols  occur  naturally,  sulphur  dioxide  from  the 
combustion  of  coal  is  the  precursor  of  sulphate  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  SO2  emissions  as  described  above  can  also 
have a positive impact on anthropogenic aerosol 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 
36 
37 

38 

39 

IPCC Special Report on Carbon Dioxide Capture and Storage (2005), 5.7.3.5 (p.246). 
SEC (2006) 1722. 
International  Risk  Governance  Council  paper  ‘the  linkages  between  air  quality  and  climate  policies’ 
(2008) quoting WHO figures. 
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. 
IRGC, 2008. 

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Nitrate  aerosol  can  also  derive  from  fossil  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-Asian region. The application of large-scale CCS in this region  would 
have a positive impact on several aspects of air quality. 

7.1.3.  Greenhouse Gas Emissions 

CCS technologies applied to a modern conventional power plant provide scope for reducing 
CO2  emissions  to  the  atmosphere  by  approximately  80-90 %  compared  to  a  plant  without 
CCS.40  

There is a wide range of estimates for the global 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  objective,  CCS  could  contribute  around  10 %  of  global 
reductions required (as described 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  map  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  demonstration  plant  is  obviously  limited,  but  if  the 
demonstration leads to large-scale deployment, this may create new jobs. 

7.3. 

Economic and health benefits 

7.3.1.  Economic Impacts 

In countries with abundant coal reserves, coal will continue to be used to generate electricity. 
Capturing and storing CO2 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 CO2 emissions for society. However, in the absence 
of  a  carbon  price  in  emerging  markets,  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 other emerging developing 
countries in future that will reflect the social price of carbon. Figure 9 depicts the assumptions 
about  carbon  price  developments  in  the  global  carbon  market.  Energy  intensive  sectors  in 
developing countries would be exposed to a low carbon price in 2012, simulating the limited 

40 
41 

IPCC SR on CCS, 2007. 
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). 

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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  and  the  state  of  development  of  the  economy. 
Between  2025  and  2030,  these  differences  in  carbon  prices  decreased  for  all  groups  of 
countries, apart from low-income countries. According 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  carbon  price  would  be  taken  into  account  when 
making investment decisions.  

Figure 9: Carbon price developments in the global carbon market  

50

45

40

35

30

25

20

15

10

5

EU

Developed
countries

Economies in
transition

High Income
DCs

Low Income DCs

Poor Developing

0
2012

2014

2016

2018

2020

Source: DG JRC, IPTS, POLES (from Copenhagen Communication IA modelling) 

7.3.2.  Health benefits 

The air quality impacts outlined above could have local health benefits, although these must 
be  seen  in  the  context  of  various  factors,  such  as  the  range  of  local  pollution  sources  and 
pollution control mechanisms. 

As  noted  above,  a  single  CCS  demonstration  plant  will  lead  to  limited  local  air  quality 
benefits, but it could lead to large-scale deployment of CCS in this region. This could in turn 
have significant co-benefits, particularly in terms of health and reduced abatement costs. The 
impact  assessment  for  the  Communication  ‘Limiting  Global  Climate  Change  to  2  degrees 
Celsius: The way ahead for 2020 and beyond,’42 estimated that reducing CO2 emissions just 
by 10% compared to baseline emissions results in a decrease in health 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 CO2 tax 
could prevent more than 10 000 PM10-related avoidable deaths in 2020 and could also slash 

42 
43 

SEC(2007) 8. 
As cited in SEC(2007) 8. 

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the number of cases of other relevant diseases. A case study for the Beijing area44 showed the 
huge potential for active energy policies to reduce pollutants. They estimate that an ambitious 
energy  policy,  to  more  than  halve  business-as-usual  emissions  of  SO2,  NOx  and  PM10  by 
2030  in  the  Beijing  area,  would  also  decrease  business-as-usual  CO2  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 Strategy 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  quo.  This  is  equivalent  to  saving 
560 000  life  years  per  year.  Lower  income  groups  are  expected  to  benefit  more  as  they  are 
generally exposed to higher levels of air pollution than those in higher income groups.  

7.4. 

Risks 

This impact assessment and the Communication which it supports were developed as input to 
the ongoing negotiations between the EU and third 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 the terms of this project. 

It will be necessary to work closely with European companies and the Chinese government to 
ensure  that  all  appropriate  measures  are  taken  to  safeguard  the  intellectual  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 will be addressed during Phase 
II of the NZEC Project (see Annex III for details 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  regulatory  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  would  be  subject  to  monitoring,  risk  management 
and  compliance  procedures  to  ensure  it  complies  with  the  relevant  laws  and  guidelines. 

44 

45 

46 

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 University; November 2005. 
‘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, SO2 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. 
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). 

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Financial reporting will be in accordance with the requirement of the International Financial 
Reporting Standards that apply  to  financial  intermediaries and the  EC  Financial Regulation. 
This could include quarterly un-audited financial statements, six-monthly financial statements 
and  an  annual  report  audited  by  certified  public  accountants  qualified  to  audit  financial 
institutions.  

In addition to financial reporting, several other indicators will need 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 carbon capture, transport and storage; 

•  volume of CO2 avoided and stored by the CCS demonstration projects; 

•  amount and type of air pollutants avoided; 

•  creation  of  an  enabling  legal  and  regulatory  framework  in  the  country  CCS  is 

demonstrated; 

•  acceptance by the public of CCS technologies, particularly related to the geological storage 

of CO2 and associated risks.  

At  the  deployment  stage,  a  list  of  indicators  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 above, 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 Commission in consultation with other donors and 
investors. 

The scheme would have a governance 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  auspices  of  the  ENRTP  will  be  monitored  in 
compliance  with  the  standard  provisions  under  the  development  cooperation  funding 
instrument. Performance monitoring will be detailed in the guidelines for ENRTP (see Annex 

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29 

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III).  Furthermore,  the  action  will  be  subject  to  EuropeAid’s  annual  external  monitoring 
exercise.  

9. 

NEXT STEPS 

Impact  Assessment  supports 

This 
the  proposed  Commission  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  assessment,  working  closely  with  European  and 
Chinese stakeholders, the Commission proposes to: 

i) 

ii) 

iii) 

iv) 

determine  with  international  financial  institutions  such  as  the  European  Investment 
Bank,  World  Bank  and  Asian  Development  Bank  the  setting  up  of  an  appropriate 
financial structure, such as an SPV, to support Phase III of the NZEC project in close 
cooperation  with  interested  Member  States,  States  of  the  European  Economic  Area 
and Chinese partners; 

invite  Member  States  to  pledge  financial  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; 

secure  further  political  support  from  the  Chinese  and  ensure  maximum  value  for 
European public money in negotiating the cost-sharing arrangements; 

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  expressed  an  interest  in  this  project.  The 
Commission  also  invites  Member  States,  and  interested  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, the 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.  Member  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.  

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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 October 2008 — February 2009. 

•  Member States:  

•  ZEP government group, 30 September 2008 

•  broader  meeting  on  NZEC  progress  plus  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 Emissions Coal (NZEC) project, the COM, the 
UK  and  representatives  of  the  Chinese  Ministry  of  Science  and  Technology 
(MOST)  agreed  to  prepare  Joint  EU-China  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 Regulation experience (COM). 

•  At  a  follow-up  meeting  on  28  August,  the  European  side  had  produced  their 
papers,  but  the  Chinese  had  not.  To  maintain  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  colleague  was  enthusiastic  about  the 

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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 IPR, set up a costs taskforce and examine 
regulatory issues and issues concerning plant selection. 

The  consultation  was  conducted  in  a  manner  proportionate  to  the  type  and  scope  of  the 
Communication. The minimum standards of consultation were been met, namely: 

•  Consultation  materials  were  clear  and  extensive  use  was  made  of  PowerPoint  slides  to 

deliver messages in a comprehensible fashion; 

•  Relevant  target  groups  (EU  MS,  European  industry  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  the  Zero  Emissions  Technology  Platform,  the 
European  Commission  has  established  reliable  consultation  fora  with  energy  industry 
stakeholders on  issues of security  of supply  for oil, natural gas (upstream)  and coal  and  the 
options for improving the environmental sustainability of activities in these sectors. Member 
States representatives also take part in both groups. DG ENV presented an outline of the issue 
and the options set out in this impact assessment 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  the  opportunity  to  present  their  views  on  how  to 
support the demonstration of CCS technologies. Strong support for the 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, power 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 inter-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 financial analysis presented 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 comments. The main comments related to: 

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–  the need to ensure the figures for costs given 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.  

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ANNEX II – EU and China Partnership on Climate Change 

2 September 2005

EU and China Partnership on Climate Change 

The  EU  and  China  today  agreed  a  Partnership  on  Climate  Change  as  one  of  the  major  outcomes  of  the  2005 
China-EU  Summit  in  Beijing.  The  Partnership  will  strengthen  cooperation  and  dialogue  on  climate  change  and 
energy between the EU and China. One major objective of this Partnership is the development and demonstration 
of advanced, “zero emissions” coal technology based 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  CO2  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  CO2 emissions  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 UNFCCC 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 

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negotiations. 

3 We will co-operate to realise our respective goals of significantly 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-economic 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. 

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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. 

RATIONALE 

1.1. 

Sector context 

The  EU  demonstrates  leadership  domestically  and  internationally  on  climate  change, 
but the sole action of the EU will not suffice 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  fossil-fuel  dependent  emerging  economies  and 
developing countries achieve their mitigation potential as well, in particular considering their 
increasing  energy  demand.  Mitigating  climate  change  will  directly  benefit  all  developing 
countries and especially the poorest that are likely to suffer most from climate change. This is 
important both politically and practically. 

In a business-as-usual scenario, carbon capture and storage (CCS) would not be ready 
for global deployment on a timescale commensurate with the problems outlined above. 
CCS  technologies  and  storage  types  and  locations  are  not  yet  demonstrated  in  the  power 
sector,  even  in  developed  countries,  so  developing  countries  are  unable  or  unwilling  to 
demonstrate/deploy  without  additional  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/developing  countries.  In  some  cases,  the 
developing  country  enabling  environment  may  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  demonstration  in  certain  key  coal-dependent 

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emerging  economies,  and  the  urgency  of  the  climate  change  challenge,  it  is  essential  to 
demonstrate in those countries in parallel to demonstration in developed countries. 

The  EC  committed  itself  in  both  climate  change  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 countries which might also have an interest in capacity building for 
CCT and CCS are Russia and Ukraine.  

1.2. 

Lessons learnt 

We  have  learned  from  bilateral  discussions  under  the  various  climate  change  dialogues  that 
one size will not fit all. We have learned from preparatory studies and research (COACH and 
NZEC projects) and the EU-China Climate Change Partnership the importance of ownership 
by the partner country and the importance of involvement of experts 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 their proposed CCS Centre of Excellence will 
enable  us  to  exchange  information  and  coordinate  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  for  cooperation  with  the  partners  in  the  Asia-
Pacific Partnership will be examined, as the 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  the  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  consultation  for  this  Communication,  outlines  of 
planned activities were presented to Member States (MS), Norway, industry and the partners 
in the current EU-China work. Of the MS, the most interested are: UK, DE, NL, FR, IT. 

47 
48 

http://www.asiapacificpartnership.org/CleanerfossilenergyProjects.htm. 
http://www3.eep.org.cn/. 

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2. 

DESCRIPTION 

"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 feasibility for CCT and CCS technologies in coal-
taking  a  partner-driven, 
dependent  emerging  economies  and  developing  countries, 
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, Ukraine and other countries, as appropriate). 
Activities  to  be  supported  and  selected  via  a  call  for  proposals  may  include  for 
instance: 

•  Support for national CCT and CCS capacity building and technology development centres;  

•  Capacity  building  in  the  form  of  internships  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  groups  in  emerging  economies  and  developing 

countries and those working on CCS demonstration plants in Europe, and 

•  Studies on preparatory activities for the possible demonstration, diffusion 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 the 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 information on roles and opportunities for CCS. 

i) 

support  to  the  site-specific  feasibility  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  consists  of  three  research  projects  (UK-
NZEC, and EC financed COACH and STRACO2 projects) that will set out a 
series  of  options  in  their  final  reports  relating  to  i.a.  capture  technology 
options, storage potential, regulatory 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 completed in autumn 2009) and the adoption of the 
planned Commission Communication on CCS to be issued in spring 2009. The feasibility 
study will include the following activities: 

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–  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  plant  (including  transport),  based  on  plant 
location and type 

–  An assessment of the costs – construction and O&M 

–  The identification of options for fully financing CCS demonstration plant in China 

–  An assessment of the regulatory framework in China 

•  The  preparation  of  the  tender  documents  based  on  results  of  above  mentioned  feasibility 
study  for  the  Phase  III  of  NZEC  –  the  construction  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 steering groups, with the Chinese government, 
the European Commission and Member States. 

This kind of cooperation has the potential to underline the EU's credibility in the international 
climate negotiations and provide a model for technology cooperation and financing between 
developed and developing countries. In advance 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  potentialities  of  CCT/CCS  in  partner  countries, 
eliciting support for the EU policies on CCT, and drawing together experts and 
exchange innovation on the subject. Activities will therefore include seminars, 
workshops  and  conferences;  the  publications  of  leaflets  and  booklets  on 
specific subjects; participation in conferences; 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  flexible  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  potential  and  risks  of  the  technological  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 

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institutions and bringing in international expertise 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 sustainability. By ensuring that all activities are 
done  through  cooperation  lessons  learnt  in  the  EU  on  suitable  forms  of  governance  will  be 
transferred.  

2.5. 

Stakeholders 

The  key  stakeholders  are  European  and  third  country  governments,  research  institutes  and 
organisations  and  industry  (primarily  the  engineering  and  power  generation  sectors).  Initial 
consultations with industry (i.a. via the Zero 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 able to participate in and implement 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  developing  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  recently  written  to  Commissioner  Dimas  with 
details of S. Africa's CCS plans and requesting cooperation with the EC on this issue.  

The cooperation with China stems from commitments made between the EU (represented by 
President Barroso for the Commission and Mr Blair 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. 

IMPLEMENTATION 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  awarded  via  a  call  for  proposals,  which  is  open  to 
participants  from  a  limited  number  of  heavily  coal  dependent  emerging  economies  and 
developing countries including South Africa, India, Russia and Ukraine. 

ii) Global Expertise development: 

49 

http://ec.europa.eu/environment/climat/pdf/china/joint_declaration_ch_eu.pdf. 

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Direct  centralised  management  of  contracts  awarded  via  a  call  for  tenders.  To  that  effect,  a 
tender  dossier  for  the  feasibility  study  and  detailed  design  of  the  CCS  demonstration  plant 
will be prepared. An international tender will be launched in September 2009. 

3.2. 

Procurement and grant award procedures/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 launch 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. Further extensions of this participation to other 
natural or legal persons by the concerned authorising 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 launched in the second half of 2009. 

3.3. 

Performance monitoring  

Proposals  under  the  call  will  be  required  to  include  suitable  performance  monitoring 
arrangements following the detailed guidelines for the call. The detailed tender documents for 
the feasibility study specify monitoring and reporting arrangements. 

Proposals under the call will be required to include 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.  

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 ANNEX IV — General Context 

Engaging  emerging  economies  and  developing  countries  in  the  fight  against  climate 
change 

The European Commission published a Communication 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 March reiterated the need to cooperate strategically with third 
countries,  in  particular  with  major  energy-consuming  countries,  including  emerging 
economies  and  developing  countries.  The  European  Parliament,  in  Resolution  2005/2161 
(INI) on the need to encourage sustainable development, e.g. in China, ‘recognises that rapid 
economic  growth  in  China  presents  a  huge  challenge  to  global  efforts  to  tackle  climate 
change, with CO2 emissions from coal-fired power stations set to double by 2030.’  

The  Commission  has  taken  this  mandate  forward  via  a  variety  of  strategic  bilateral 
arrangements with a number of developed and developing country partners. Climate change 
partnerships  or  dialogues  have  been  developed  with  emerging  economies  such  as  Brazil, 
India, China, S. Korea and South Africa.  

On  10  January  2007,  the  European  Commission  set  out  proposals  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  discussion  on  a  global  agreement  to  combat  climate 
change after 2012, when the Kyoto Protocol’s emissions targets expire. The Communication 
proposed a set of action by developed and developing countries to enable the world to limit 
global warming to no more than 2 °C above pre-industrial temperatures. This Communication 
was strongly endorsed by the 2007 European Council. 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 Copenhagen’, which sets out the Commission’s 
view on the elements needed to secure a global climate change agreement in Copenhagen in 
December 2009. 

It is clear that even the most willing developing 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 
51 
52 

COM(2005) 35 final. 
COM(2007) 2 final. 
e.g. UNFCCC Article 4.5 and Article 11.5. 

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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 (CO2) from 
the gases discarded by industry and transporting and injecting it into geological formations. 

The major application for carbon capture and storage (CCS) in terms of GHG abatement is to 
reduce CO2 emissions from power generation from fossil fuels, principally coal and gas, but 
CCS can also be applied to CO2-intensive industries such as cement, refineries, iron and steel, 
petrochemicals and oil and gas processing. After capture, the CO2 is transported to a suitable 
geological formation where it is injected, with the aim of isolating it from the atmosphere for 
the long term. 

There are storage options other than geological storage, 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 CO2 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 CO2 in well-chosen geological formations. The 
first  is  structural  trapping,  in  the  presence  of  an  impermeable  cap-rock  which  prevents  CO2 
escape  from  the  outset.  The  second  is  residual  CO2  trapping,  where  CO2  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 CO2 dissolves in the water found in the 
geological formation and sinks because CO2 dissolved in water is heavier than normal water. 
This develops 10-100 years after injection. Finally, mineral trapping happens when dissolved 
CO2 chemically reacts with the formation 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  CO2  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  capacity  in  Europe  will  be 
replaced  within  the  next  10  years.  Internationally,  China,  India,  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  States  already  support  a  range  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 technical aspects of carbon capture and storage (projects are listed 
in Annex VII).  

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EU  leaders  have  committed  to  establishing  a  network  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 considering 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 CCS53 to enable the 
safe  operation  of  CCS  in  Europe  and  to  incentivise  CCS  demonstration  i.e.  through  the  EU 
Emissions Trading Scheme (CO2 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 completed in the EU over the next 5-10 years.  

The Carbon Sequestration Leadership Forum (CSLF) was founded in 2003 at the initiative 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 guidance on technical issues, it has fallen short of 
involving  a  wide  range  of  stakeholders  and,  more  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 CO2. These agreements aim to pool resources and 
share costs, harmonise standards and hedge technical risks, but they have not resulted in CCS 
demonstration. 

In  2005,  Australia,  Canada,  China,  India,  Japan,  Korea,  and  the  United  States  launched  the 
Asia-Pacific  Partnership  on  Clean  Development  and  Climate  (APP)  with  the  aim  of 
promoting  and  creating  an  enabling  environment  for  the  development,  dissemination, 
deployment  and  transfer  of  existing  and  emerging  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 some research and capacity building initiatives, but no large-scale 
CCS demonstration projects. 

There are currently only four large-scale CCS demonstration projects in the world: none based 
on  a  coal-fired  power  plant,  and  none  in  coal-dependent  emerging  economies.  The  projects 
are  located  in  Norway  (2),  USA/Canada  and  Algeria.  The  Intergovernmental  Panel  on 
Climate  Change  (IPCC)  estimates  that  CCS  for  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 Technology Fund (CTF) with the aim of financing 
transformational  action  by  providing  positive  incentives  for  accelerating  and  scaling-up  the 
deployment,  dissemination  and  transfer  of  low-carbon  technologies,  embedded  in  nationally 
appropriate mitigation actions by eligible countries. Financing will target investment that can 
achieve  significant  greenhouse  gas  reductions,  which  may  include  best  available  coal 
technologies ready to implement carbon capture and storage and therefore there may be future 
synergies in rolling out the technology once CCS gets beyond the demonstration phase.54  

53 
54 

Directive 2009/31/EC of 5.6.09 
See:http://digital.library.unt.edu/govdocs/crs/permalink/meta-crs-10826:1 
- 
http://siteresources.worldbank.org/INTCC/Resources/Clean_Technology_Fund_paper_June_9_final.pdf 

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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  and  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 Climate Change Partnership, a key element of 
which was cooperation on Near Zero Emissions Coal (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 research to explore options for demonstrating CCS for coal-fired power 
generation in China and is nearing completion. Two complementary projects (one, COACH, 
funded by the  Sixth Framework Programme (FP6) 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  regulatory  issues  on  CCS  in  the  EU  and  China  (see  Annex 
VI). Phase II (2010-2012) will examine site-specific requirements and Phase III will see the 
construction and operation of a commercial-scale demonstration plant in China.  

The EP Report on Trade and Economic Relations with China (2008/2171 (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]  partnership  and  cooperation  building  on  the  bilateral 
energy  dialogues  with  the  USA  as  well  as  with  China,  India,  Brazil  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 sector. This cooperation includes 
work with companies or agencies based in those Member States, and is often under a broader 
umbrella of climate change/energy cooperation.  

55 

56 

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  extend  cooperation  on 
demonstration projects to other key emerging economies (such as India, South Africa) and will seek to 
stimulate the creation of enabling policy and regulatory framework in those countries. 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 COM(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 European collaboration with China on CCS demonstration and expanding 
to  other  key  emerging  economies.  Of  equal  importance  will  be  a  systematic  cooperation  with  other 
advanced economies developing CCS technologies for use in power generation.’ 
Summit  Declaration.  During  the  meeting,  a  Joint  Declaration  on  Climate  Change  between  China  and 
the EU was issued, which confirmed the establishment 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). 

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ANNEX V: Problem analysis: further background 

Unless  a  way  is  found  to  tackle  the  projected  emissions  from  coal-dependent  emerging 
economies, the  EU  will not  meet  its  headline objective of limiting  global climate change to 
2ºC above pre-industrial levels. 

The fundamental problem is to reconcile the need for urgent global action on climate change 
with security of supply and economic growth/competitiveness 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-industrial levels by more than 2 °C.  

Action by the EU alone will not solve the problem. By 2020, developing country emissions 
will exceed those of the industrialised world (see Figure 10 below). 

Figure 10: Projected greenhouse gas emissions 

Graph 2: Projected greenhouse gas emissions 
(industry and energy, business as usual scenario)

q
e
-
2
O
C

t

G

25

20

15

10

5

0

1990

2005

2020

Developed countries Developing countries

Source: COM(2007) 2 final  

The  IEA  World  Energy  Outlook  2007  projected  that,  instead  of  decreasing  by  2030,  global 
CO2 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 

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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  particular  in  the  emerging  economies  of  China, 
India  and  South  Africa,  which  have  significant  coal  reserves.  But  traditional  technologies 
used  to  generate  electricity  from  coal  give  rise  to  serious  environmental  concerns,  such  as 
emissions  of  NOx  and  SO2,  which  have  implications  for  human  health  and  the  public 
healthcare budget, and CO2, 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 need to make a substantial deviation of their emissions from 
baseline by 2020, and notes that recent scientific research indicates that 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 the principle of common but differentiated 
responsibilities and respective capabilities, in order to be consistent with the global emission 
reduction goal.’58 

Figure 11: Global CO2 emissions from 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 CO2 emissions 
from  fossil-fuel  based  power  generation  and  ultimately  zero-emissions  power  plants,  as  we 
are  doing  in  the  EU.  Developing  and  deploying  technologies  for  zero-emission  power 
generation  from  coal  using  CCS  technology  is  the  ultimate  objective,  but  given  the 
heterogeneous  (and  often  low)  levels  of  efficiency  in  coal-fired  power  plants  in  developing 
countries,  it  will  be  necessary  to  take  a  differentiated  approach,  with  some  countries  first 

57 

58 

59 

Raupach, M. et al (200&) Global and regional drivers of accelerating CO2 emissions. Proceedings of 
the National Academy of Science, NAS-USA. 
Conclusions  of  the  2898th  ENVIRONMENT  Council  meeting,  Luxembourg,  20  October  2008 
(paragraph 15). 
Source: MNP. 

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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  may  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 proved effective, may allow many economies to 
maintain  the  role  of  fossil  fuels  in  providing  secure  and  reliable  energy,  whilst  addressing 
rising CO2 emissions.  

The IPCC projected in its Working Group III Report ‘Mitigation of Climate Change’ that, in 
the  absence  of  any  additional  policies,  CO2  emissions  from  energy  use  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  confirmed  that  their  low  emissions  scenarios 
can be achieved by deploying a portfolio of technologies that are currently available and that 
are expected to be commercialised in coming decades. 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 deployment of CCS technologies, will need to be substantially 
increased.  

In the context of the international climate change negotiations in the UNFCCC, the EU has 
endorsed the view that demonstration needs to take place in both developed and developing 
countries  if  we  are  to  achieve  the  ultimate  objective  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,  leaders  strongly  supported  ‘the  launching  of  20 
large-scale CCS demonstration projects globally by 2010, taking into account various national 
circumstances, with a view to beginning broad deployment of CCS by 2020.’ 

In the context of the UNFCCC, developed countries have committed to assisting developing 
countries  in  achieving  sustainable  development.  Of  particular  relevance  here  are  the 
obligations in the Convention on technology transfer and financing: 

Article  4.1.(c)  Promote  and  cooperate  in  the  development,  application  and  diffusion, 
including  transfer,  of  technologies,  practices  and  processes  that  control,  reduce  or  prevent 
anthropogenic emissions of greenhouse gases not controlled by the Montreal Protocol in all 
relevant  sectors,  including  the  energy,  transport,  industry,  agriculture,  forestry  and  waste 
management sectors.  

Article 4.5. The developed country Parties and other 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  technologies  and  know-how  to  other  Parties, 
particularly  developing  country  Parties,  to  enable  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 technologies of developing country Parties. Other 

60 

Stern Review on the Economics of Climate Change, in particular Chapter 16, page 368. 

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Parties and organisations in a position to do so may also assist in facilitating the transfer of 
such technologies.  

Article 11.5. The developed country Parties may 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  material  evidence  of  technology  transfer  and 
financing  will  be  essential  to  encourage  emerging  economies  and  developing  countries  to 
engage in the international negotiations on the post-2012 climate change regime. In the recent 
UN Climate Change conference in Bali, emerging economies such as China and India made 
absolutely clear that acceptance of their own need to contribute to the solution was dependant 
upon increased flows of finance and technology from developed countries.  

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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, Alstom 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  coal  power  plants,  an  inventory  of  different 
technical capture options such as gasification, poly-generation and IGCC and will benchmark 
post-combustion  options  in  China  and  CO2  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  assessment  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 People’s Republic of China Ministry of Science 
and Technology (MOST). The NZEC project has 9 UK partners and 20 Chinese partners from 
industry  and  academia.  The  contract  was  signed  in  February  2008  and  will  end  in  autumn 
2009 to align completion with the COACH project. 

WP1  consists  of  Capacity  Building,  a  website  set  up  in  both  languages  and  technical 
exchanges  for  Chinese  participants  to  be  trained  in  the  EU.  WP2  will  work  on  the  future 
energy technology perspective role of CCS in China in the future energy scenarios. WP3 is 
looking at capture scenarios, and case studies will be done on pre-combustion, oxy-fuel, post 
combustion  and  a  study  on  transport.  In  WP4,  CO2  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  study  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: 

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•  ACCA21 (the Administrative Centre for China’s Agenda 21, Project Managers and WP1 

& WP5 Leaders)  

•  Chinese Academy of Sciences (Institute 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 Engineering at Tsinghua University (DCE TU) 
•  Department of Thermal Engineering 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 Carbon 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  regulatory  framework  inside  the  EU,  STRACO2  will  be 
instrumental in establishing best practice standards globally. 
By incorporating the Administrative Centre for China’s Agenda 21 (ACCA21), the Project is 
part  of  the  EU-China  Partnership  on  Climate  Change  and  aims  to  ensure  that  the  solutions 
developed  are  applicable  to  rapidly  developing  economies  outside  Europe,  which  will  be 
crucial in fighting CO2 emissions and climate change. The programme started in January 2008 
and will run for 18 months.  

Members: 

» Bureau de Recherches Géologiques et Minières (BRGM)  
» DEVELOPMENT Solutions Europe Ltd. (DS)  
» Netherlands Organisation for Applied Scientific Research TNO  
» Mälardalen University (MU)  
» The Royal Institute of Technology (Kungliga Tekniska Högskolan) (KTH)  
» The World Business Council for Sustainable Development (WBCSD)  
» The Administrative Centre for China’s Agenda 21 (ACCA21)  
» The Institute of Engineering Thermo-physics, of the Chinese Academy of Science (IET)  
» The Institute of Policy and Management of the Chinese Academy of Sciences (IPM)  

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ANNEX VII — List of EU CCS research projects 

Carbon dioxide thematic network (CO2NET2) (2002-2005) NORWAY  

Carbon  dioxide  capture  and  sequestration  in  geological  storage  technology  network 
development programme (2000-2002) UNITED KINGDOM 

Promotion  of  an  Integrated  European  and  National  R&D  Initiative  for  Fossil  Energy 
Technologies towards Zero Emission Power Plant (FENCO) (2003-2004) GERMANY 

Initiative for Fossil Energy Technologies towards Zero Emission Power Plant (FENCO-ERA) 
(2005-2009) GERMANY  

Network  of  Excellence  on  Geological  Sequestration  of  CO2  (CO2GEONET)  (2004-2009) 
UNITED KINGDOM  

International Cooperation actions on CO2 capture and storage (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  Gaseous  Fuels  (CACHET)  (2006-
2009) UNITED KINGDOM  

CO2  capture  and  storage  networking  extension  to  new  member  states  (CO2NET  EAST) 
52006-2009) CZECH REPUBLIC  

Cooperation Action within CCS China-EU (COACH) (2006-2009) FRANCE  

CALCIUM CYCLE FOR EFFICIENT AND LOW COST CO2 CAPTURE IN FLUIDISED 
BED SYSTEMS (C3-CAPTURE) (2005-2008) GERMANY  

Advanced  separation  and  storage  of  carbon  dioxide:  Design,  Synthesis  and  Applications  of 
Novel Nanoporous Sorbents (DESANNS) (2006-2008) FRANCE  

Assessing European capacity for geological storage of carbon dioxide EU (GEOCAPACITY) 
(2006-2008) DENMARK  

CO2  capture  using  amine  processes:  International  cooperation  and  exchange  (CAPRICE) 
(2007-2008) NETHERLANDS  

Support  to  regulatory  activities  for  carbon  capture  and  storage  (STRACO2)  (2008-2009) 
FRANCE  

Enabling advanced pre-combustion capture techniques and plants (DECARBIT) (2008-2011) 
NORWAY  

EN 

52 

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ANNEX VIII — Preliminary Cost Estimates, Sources of Funding and a Possible 
Financial Vehicle for a Demonstration 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  capital  and  operational  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 investment costs are broadly consistent with the 
figures  given  in  other  sources  (see  Table  2),  however  they  are on  the  conservative  side  and 
very  close  to  the  reference  values  suggested  in  the  Second  Strategic  Energy  Review,  which 
results  in  additional  specific  capital  investment  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 coal power plants with and without CCS  

Source  

Reported values  

Converted 
values  

(€ 2005/kW)63 

Second Strategic Energy Review64 

IGCC 

IGCC CCS 

1400-1650 €/kW 

1700-2400 €/kW 

Additional CCS capital costs 

300-750 €/kW 

Pulverised Coal Combustion 

1000-1440 €/kW 

Pulverised Coal Combustion with CCS 

1700-2700 €/kW 

Additional CCS capital costs 

700-1260 €/kW 

CC Capital 

IGCC 

1079-1483 €/kW 

61 
62 
63 
64 

PRIMES model database. 
SEC(2008)55. 
Converted values indicated where values were reported in other units than 2005 Euros. 
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 literature: E. Rubin et al: Use of experience curves to 
estimate  the  future  cost  of  power  plants  with  CO2  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 

53 

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IGCC CCS 

1361-2001 €/kW 

Additional CCS capital costs 

282-518 €/kW 

Pulverised Coal Combustion 

1056-1400 €/kW 

Pulverised Coal Combustion 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 Combustion 

1280-1360 $/kW 

1029-1093 

Pulverised Coal Combustion 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 fixed and variable operating 
and  maintenance  costs  associated  with  CCS  that  include  the  cost  of  fuel,  other  materials, 
personnel,  etc.  Additional  annualised  operational  and  management  costs  for  CCS  plants  are 
taken  from  the  PRIMES  model  database  for  the  2010  technology  vintage65  and  are 
summarised in Box 2.  

There is a high degree of uncertainty in estimating the costs for CCS demonstration plants due 
to the novelty of the technologies in combination. Even though some CCS components, such 
as CO2 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 expert judgment on experience with near-proven 
technologies.  

65 

EN 

Energy 
technology: 
(http://ec.europa.eu/environment/climat/ccs/pdf/primes.pdf). 

Systems  Analysis 

of  CCS 

PRIMES  MODEL 

SCENARIOS 

54 

   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 plants to achieve the same net electricity output. Therefore, the 
size, and hence the cost, of components for a CCS plant will depend on plant 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  pipeline  required  between  capture  and  storage 
sites,  the  local  terrain,  and  the  volume  of  CO2  to  be  transported,  as  well  as  whether  the 
infrastructure  is  already  available.  Storage  costs  depend  on  the  type  and  shape  of  the 
geological  formation,  the  depth  and  the  storage  process,  which  will  affect  the  type  and 
number  of  wells  that  will  be  drilled  and  monitoring  techniques.  The  size  of  the  storage  site 
can play an important role in reducing the storage cost per tonne of CO2. Storage costs for a 
large field that can service two commercial-scale plants simultaneously could be roughly one 
third lower than for a one-to-one situation.67 

As shown above, transport and storage costs are site-specific. Other costs, such as materials 
and labour, will also greatly depend on where the CCS demonstration plant is built. These are 
issues  to  address  during  Phases  I  and  II  of  the  NZEC  project  in  China.  More  precise  site-
specific cost figures will be obtained 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 with increasing installed capacity, due to potential 
economies of scale on some components.  

The calculations given in this impact assessment 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 from Phase I. Given the rate at which China 
constructs  new  coal-fired  power  plants,  new  build  is  a  safe  assumption.  Literature  suggests 
that retrofitting existing power plants would bear considerably higher costs (up 30 % higher 
than for newly built CCS plants). This is due to several reasons. Firstly, a retrofitted power 
plant will have a shorter economic life than a newly built one; therefore the investment would 
be spread out over fewer years, making it more expensive per ton of CO2 abated. Secondly, 
reconstructing existing plants could be more difficult than building a new CCS plant due to 
space  and  other  inherited  constraints.  Thirdly,  retrofitting  existing  plants  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  down  the  plant  for  retrofitting  as  opposed  to 
continued operation. 

Figure 1 depicts China’s emission reduction cost curve for the power sector, which 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  retrofit,  gas-based  new  CCS  and  finally  gas-
based CCS retrofit is the most costly CCS option for the power sector.  

66 
67 

JRC-IE, The cost of carbon capture and storage (CCS) demonstration projects in Europe, 2009. 
McKinsey&Company: Carbon Capture and Storage: Assessing the Economics, 2008. 

EN 

55 

   EN 

 
                                                 
Figure 12: abatement cost curve 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  plant  with  the  same  electricity  output  for  two 
types of technologies: Integrated Gasification Combined Cycle and Pulverised Coal.  

Box 2: Assumptions used in the CCS plant cost calculations 

400 MW  

Plant size (net): 
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 CO2 captured and 1.8 mt CO2 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 

56 

   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 plant: 8€/kW for PC, 11€/kW for IGCC 
Non-fuel variable costs 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 costs: 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 revenue (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  financial  need  for  the  CCS  demonstration  plant  is  split  between  a 
subsidy for capital investment and a subsidy to cover operating costs. 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 calculated to cover additional operating costs so that the cost to 
the operator of producing electricity would be the same for a CCS as for 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  additional  CCS  costs  in  the 
absence  of  a  carbon  price.  A  separate  scenario  calculates  the  financial  gap  assuming  that 
operator  receives  a  compensation  for  CO2  avoided  due  to  CCS  according  to  the  CO2  price 
schedule in Box 2. Moreover, the amount of public 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  four-year  period  of  construction  and  25  years  of  operation 
based  on  social  discount  rate.  The  additional  costs  are  estimated  assuming  that  at  a  certain 
point  of  time,  there  is  a  choice  between  building  a  conventional  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 

70 

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. 
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 (technical, 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 

57 

   EN 

 
 
 
                                                 
summarises the financing need assuming a carbon value and the option to support operation 
of CCS.  

A recent McKinsey study posted significantly higher cost estimates of an additional € 60-90 
per ton of CO2 avoided for a CCS demonstration plant. The background data presented in the 
report  is  not  sufficiently  detailed  to  carry  out  a  full  assessment  of  the  differences  in  costs. 
Nevertheless, due to the uncertainty, the McKinsey figures could be considered as the upper 
boundary  of  costs.  Therefore,  in  the  sensitivity  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  CCS  compared  to  an  equivalent  coal  plant 
without CCS for 25 and 10 years of operation, respectively  

Pulverised coal 
€ M 
(10 years of 
operation) 
232 

€ M 
(25 years of 
operation) 
232 

IGCC 

€ M 
(25 years of 
operation) 
124 

€ M 
(10 years of 
operation) 
124 

Capital costs 

Transport 
costs71 

and 

storage 

300 

Operating costs 
TOTAL 

445 
97772 

284 

192 
708 

264 

342 
730 

251 

147 
522 

Table 4: Additional financial resources needed to cover incremental costs of a CCS plant 
compared  to  an  equivalent  plant  without  CCS,  with  a  carbon  value  (for  25  years  of 
operation) 

Capital financing need 
Operating financing need (including 
transport and storage) 
TOTAL 

Pulverised coal 
232 
317 

54973 

IGCC 
124 
175 

299 

Conclusion:  based  on  these  assumptions,  the  total  financial  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 

72 

73 

It is assumed that transport and storage costs are broken down in 90% capital costs and 10% operational 
costs. Therefore, total transport and storage cost is lower for the 10 year scenario..  
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 CO2 avoided by CCS, which 
results in € 41/tCO2 for PC and € 29/tCO2 for IGCC. 
The carbon price is € 10/tCO2 in 2015, gradually raising to € 20/tCO2 in 2040. 

EN 

58 

   EN 

 
 
 
 
                                                 
As  explained  above,  the  assumptions  used  for  estimating  the  costs  of  CCS  have  a  major 
impact on the figures. The range of cost estimates will narrow once the CCS technologies are 
demonstrated,  but  until  then  the  estimates  remain  uncertain.  Therefore  the  following 
sensitivity levels of the key variables determining the additional CCS costs were evaluated to 
assess their impact on the results:  

(1) 

(2) 

High fuel costs for coal: € 4.16 /GJ from 2015 to 2040 74  

Low fuel costs for coal: € 0.97 /GJ from 2015 to 2040 75  

(3) 

50 % higher capital costs for CCS 

(4) 

50 %  higher  capital,  fixed  operational  and  management,  and  non-fuel  variable 
operational and management costs for CCS 

(5) 

High transport and storage costs of € 15/tCO 2

76  

(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 

  PC 

IGCC 

PC 

IGCC 

977
1193
775
1246
1268

1320
1065
898

731
858
611
978
1006

1033
655
647

1208

911

41
48
34
59
60

53
36
35

54

29
33
25
46
47

39
24
23

38

% change in 
additional costs 
compared to the 
base case 
PC 

IGCC 

0 % 
22 % 
-21 % 
28 % 
30 % 

35 % 
9 % 
-9 % 

0 %
18 %
-16 %
34 %
38 %

41 %
-10 %
-11 %

24 % 

25 %

0  base 
1  high fuel 
2 
low fuel 
3  high capex  
4  high capex+ 

O&M 
5  high T&S 
low capex  
6 
low capex+ 
7 
O&M 
8  no cost 

multiplier 

74 
75 
76 

Corresponds to $ 150/t, IPTS scenario. 
Corresponds to $ 35/t, IPTS scenario. 
As assumed in the PRIMES. 

EN 

59 

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This  shows  the  relative  importance  of  capital  costs,  transport  and  storage  costs  on  the 
additional CCS cost estimates. 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 that 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  influence  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

no cost multiplier

-11%
low capex+ O&M

-9%

-10%

low capex 
-8%

high T&S

high capex+ O&M

-16%

-21%

high capex 

low fuel

high fuel

25%

24%

41%

35%

38%

IGCC

PC

30%

34%

28%

18%

22%

-50%

-30%

-10%

10%

30%

50%

In  conclusion,  the  main  assumptions  of  the  economic  lifetime  of  the  plant,  carbon  value, 
transport  and  storage  costs  as  well  as  capital  investment  costs  significantly  influence  cost 
estimates. Using different scenarios, the difference between the net current value of the CCS 
demonstration plant compared to the corresponding conventional coal power 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  public  grant  funding  –  at  least  for  the  capital 
expenditure. 

At  present,  the  Commission  has  earmarked  € 60m  for  cooperation  on  cleaner  coal 
technologies  and  carbon  capture  and  storage  in  emerging  developing  countries  under  the 

EN 

60 

   EN 

 
 
Environment  and  Natural  Resources  Thematic  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 only applies to demonstration within 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 Communication) to begin inter-ministerial discussions. 

The CDM offers an opportunity for developing country companies and governments to invest 
in  clean  development  projects  in  developing  countries  and  use  the  resultant  Certified 
Emissions  Reductions  (CERs)  for  their  own  compliance  purposes.  At  present,  CCS  is  not 
permissible  in  the  CDM.  If  CCS  were  covered  by  a  carbon  price  in  the  future,  e.g.  carbon 
credits in the light of an ambitious post-2012 agreement, these could serve to offset some of 
the  additional  costs  and/or  create  a  revenue  stream.  A  further  potential  revenue  stream  is 
enhanced hydrocarbon recovery (using the captured CO2 to force additional hydrocarbons, i.e. 
oil or gas, from the field in which the CO2 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 greater Chinese ownership, 
familiarity with the technology and an increased likelihood of further deployment. 

Box 3: Potential financing sources 

Private sector 

Private-sector  involvement  falls  into  two  categories:  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  basis).  Private-sector  investors  may  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 clean technology markets. Many 
of  these  are  members  of  the  ZEP  and  are  key  stakeholders  in  EU-China  cooperation. 
Cooperation between European and Chinese industry 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 approach 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 mechanism (i.e. a mechanism to 
credit  emissions  reductions  at  sector  level)  or  through  a  specific  CDM  scheme  for  CCS 
demonstration plants in emerging/developing countries.  

Enhanced Fossil Fuel Recovery  

Depending  on  the  nature  of  the  plant,  a  revenue  stream  could  come  from  enhanced  oil 
recovery (EOR). 

77 

See: http://www.eu-in-china.com/download/EC2.pdf. 

EN 

61 

   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 used 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. 

EN 

62 

   EN