Carbon capture serves national interest: Ferguson

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| Sourced From The Australian |

AUSTRALIA has joined the list of nations that view carbon capture and storage as the silver bullet for rising global emissions. Australia is lobbying hard to secure at least two of the 20 large-scale commercial carbon capture and storage demonstration projects the Group of Eight leading nations want operating globally by 2020.

The new drive for CCS development in Australia, the world’s biggest emitter of greenhouse gases per head of population, comes despite the costs involved and the time needed to perfect the technology.

Tackling climate change has been a key policy aim of Kevin Rudd since he won office on November 24 last year.

One of the Prime Minister’s first acts was to add Australia to the signatories of the Kyoto Protocol, isolating the US as the only major developed economy not bound by mandatory caps on reducing emissions.

But the Rudd administration’s enthusiasm for using policy more widely to combat global warming has angered many in Australia’s powerful resources sector, who say it will drive up costs at a time when the country is feeling the pinch from slowing global demand for commodities.

Energy Minister Martin Ferguson says carbon capture and storage - or CCS, the process of trapping greenhouse gases and injecting them into underground reservoirs, where they cannot leak out - is Australia’s “biggest challenge” and serves its national interest best.

While sequestration technology is not entirely new, it’s widely seen to be prohibitively expensive right now, unless supported with government subsidies, or linked to projects that provide measurable economic returns such as recovering more oil from depleted fields.

Norway’s state oil company, StatoilHydro, has stored more than 10 million tons of carbon dioxide at its Sleipner gasfield. Such volumes are equivalent to more than the emissions of all vehicles in Norway for two years.

Making CCS projects available for credits in Australia’s proposed emissions trading scheme, to begin in 2010, would help offset high costs. Canberra seems likely to allocate some free permits to coal-fired power firms, which will likely be used to subsidise the addition of CCS to conventional power plants.

However, with prices of benchmark light, sweet crude on the New York Mercantile Exchange down more than $US80 from their July peak, and companies seeking to preserve cash as credit dries up, investment in enhanced oil recovery may be among the first to be cut.

G8 governments, in particular, may find it difficult to justify spending on CCS when they are borrowing more to pay for financial stimulus plans, or industry bailouts.

Australia’s Minister Ferguson said: “Capturing and storing carbon is obviously, in the initial stages, going to be expensive, but it’s like anything else.

“If you actually get the technology right, over time it becomes cheaper because of the economies of scale and progress.

“For industry and like-minded countries, it is just something that has to be done. Australia, as a major coal exporter, has got to be part of that leadership.”

In 2006, Australia’s net greenhouse gas emissions using the Kyoto accounting provisions were 576.0 million tons of carbon dioxide equivalent, and growing, with the energy sector accounting for 70 per cent of emissions.

Based on levels in 2000, the Government wants to reduce Australia’s emissions by 60 per cent by 2050.

Australia has more than 10 CCS projects under way.

Mr Ferguson wants at least two to be part of the G8 project. Ralph Hillman, executive director of the Australian Coal Association, thinks there could be up to four industrial-scale demonstration projects in Australia by 2020.

One project is the Otway project, by the Co-operative Research Centre for Greenhouse Gas Technologies, in Victoria.

It was launched in April with state and federal funding, as well as an investment by US Department of Energy.

Otway plans to capture and store 100,000 tons of carbon dioxide in a depleted natural gas reservoir. It had sequestered around 10,000 tons by July.

Federal lawmakers last week passed legislation to regulate the capture and burial of carbon emissions under Australian seabeds. It establishes access and property rights in Australia’s offshore waters for burial of carbon emissions.

However, a large-scale CCS project is still years away. Experts say more tests are needed before it can be proved that carbon dioxide can be permanently and affordably stored underground.

The ACA’s Mr Hillman says: “You couldn’t invest in a commercial carbon capture and storage plant now. The technology is not there, the carbon price is not there.”

CCS has the potential to become a major global industry. The International Energy Agency estimates it could generate up to $US1.8 trillion ($2.92 trillion) in revenue by 2050, depending on targets for reducing global emissions, as well as carbon prices.

But the technology has limitations. The number of depleted reservoirs suitable for sequestration is finite.

Many analysts also believe that unless China embraces the technology on a mass scale, efforts to cut costs and rein in emissions through CCS will have limited impact.

Australia’s commitment to creating a carbon capture and sequestration industry will need to be long-term.

Mr Hillman believes Canberra’s existing commitments - including a $500 million clean coal fund, to be matched by a $1 billion commitment from the coal industry - won’t be enough.

An “additional pull” will be needed even after the first commercial-scale demonstration projects are up and running toward 2020, and matching investment, or tax incentives, might be part of the way forward.

“They may be commercial in scale initially, but they’re not going to be in any way commercially viable. There’s enormous risk,” Mr Hillman said.

Santos vice-president John Anderson, who is overseeing the development of the $700 million-plus Moomba carbon storage project in Australia’s Cooper Basin, said the commercial argument for the project is not as easy to justify without the “financial enabler” of enhanced hydrocarbon recovery.

Longer term, there is the question of taking on third-party emissions, and the price that firms are willing to pay.

Mr Anderson said a price of $50 to $70 a ton may be viable, but it’s “so dependent on economies of scale”.

Modelling by Australia’s Treasury department on the economics of carbon capture and storage assumes a price of $45 to $80 per ton.

Minister Ferguson is conscious of the pitfalls.

“From Australia’s point of view, we’ve got to remain competitive in a pretty tough global community - because we like jobs just as much as China and India,” he said.

By Rachel Pannett