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Who Pays for Carbon Dioxide Capture and Storage (CCS) Demonstrations in Developing Countries?

On April 7th, a group of 24 Energy Ministers met in Abu Dhabi for the 2nd Clean Energy Ministerial (CEM). The group represented the governments of countries collectively responsible for over 80% of global energy consumption, and together they agreed to increase efforts to deploy carbon dioxide capture and storage (CCS) on a commercial scale worldwide.

In addition to this general agreement, the governments of Australia, Canada, France, Germany, Japan, Mexico, Norway, Republic of Korea, South Africa, the United Arab Emirates, the United States and the United Kingdom agreed to initiate one or more concrete actions on CCS before the next Clean Energy Ministerial, which will be hosted next year in London. This announcement may provide a major boost to CCS technology, if countries can find a way to finance such projects.

The agreement came in the wake of recommendations set forth by the Carbon Capture Use and Storage (CCUS) Action Group—led by the United Kingdom and Australia and composed of 13 governments and 14 international institutions, including WRI—which included the need to identify and advance appropriate funding mechanisms to support the demonstration of large-scale CCS projects in developing economies.

Cost Barriers in Developing Countries

In its 2009 CCS Roadmap, the International Energy Agency estimated that that 3,400 CCS projects will be needed by 2050 to meet the global climate change mitigation challenge and two-thirds of them will need to be implemented in developing countries. However, CCS development in a non-OECD context has been slow to start, especially when it comes to large-scale (greater than1 million tons of CO2 per year) demonstration projects.

One of the main barriers to CCS demonstrations in developing countries is their significant cost— developing countries often do not have enough resources at their disposal to fund a robust CCS demonstration program by themselves. WRI sees the need to develop effective financing strategies to enable the implementation of CCS demonstration projects worldwide. CCS demonstration projects are one of the key ways to assess if the technology works and its potential to be part of the solutions portfolio against global climate change going forward.

Financing Options

The decision in the Clean Energy Ministerial is a step in the right direction, although more significant action needs to occur. The lack of funding for CCS development in developing countries is part of a broader challenge to finance CCS demonstrations and provide incentives for early deployments worldwide. The challenge is to deliver on this commitment made at the Ministerial, and structure one or more financing mechanisms that will be able to support CCS demonstration projects by providing seed capital and leveraging co-financing from other public and private sources.

WRI work on CCS is not designed to endorse the technology, but rather to explore whether and how society might safely move forward with CCS projects as part of a broad climate mitigation strategy. While WRI does not advocate or oppose the development of CCS, it does proactively engage with governments, international institutions, and businesses on this emerging technology. In this spirit, WRI joined the CCUS Action Group to ensure health, safety, and environmental integrity principles were upheld in the Group’s recommendations to the Clean Energy Ministerial.

In October 2010, WRI led a workshop with CCUS Action Group members to discuss financing options for CCS in developing countries. Representatives from the governments of Australia, Canada, Norway, Scotland, the United Kingdom, and the United States, as well as participants from the Asian Development Bank, the Clinton Foundation, the Global CCS Institute, and the World Bank attended. Drawing from these discussions, WRI just released a working paper highlighting priorities for funding CCS demonstration projects in developing countries. The paper supports and details the rationale behind the CCUS Action Group’s recommendation to provide additional support from developed countries to implement CCS demonstrations in developing countries.

The CCUS Action Group recommendations included the following specific actions relevant to financing CCS:

  • Funding mechanism: Request an international CCS body such as the Carbon Sequestration Leadership Forum (CSLF) or Global CCS Institute to recommend a preferred funding mechanism for projects in developing countries. Work to establish a preferred funding mechanism and a process for project solicitation and support in developing countries.

  • Carbon credits and finance: Support and encourage the UNFCCC work program in 2011 on CCS in the Clean Development Mechanism (CDM) to seek agreement on its inclusion in the December 2011 COP-17 talks in Durban. Support and encourage CCS in other UNFCCC processes, including but not limited to the Global Climate Fund.

  • Support from multilateral development banks: Urge multilateral development banks to support CCS as an effective low emission technology in developing countries and to introduce mechanisms to address institutional and financial barriers.

Progress on all three fronts will be needed for effective implementation of CCS projects in developing countries in order to move forward on answering the key questions in CCS development and deployment. It is unlikely that any of these three channels will on their own have the necessary scale and delivery conditions to fund CCS demonstrations; however, by complementing each other, there is a good chance that enough momentum can be generated to get CCS demonstrations up and running globally. In turn, the learning generated from these demonstrations will enable non-OECD countries to better gauge the potential of the technology for their local context.

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