Benefit-Cost Analysis about the introduction and use of Carbon Capture and Storage (CCS) technology in the production process of coal-fired power plant.

Benefit-Cost Analysis about the introduction and use of

Carbon Capture and Storage (CCS) technology in the production

process of coal-fired power plant

Università degli Studi di SienaFacoltà di Economica

“Richard M. Goodwin”

National Agency for New Technologies, Energy

andSustanaible Economic

DevelopmentResearch Center of Casaccia

(Rome)

Sebastiano CupertinoPhD Student in Business Governance and Administration

Which are possible strategies?

• Forcing the CO2 absortion by the ecosystem

The introduction and use of Carbon Capture and Storage (CCS).

IEA, 2009

Fonte: IEA, 2010

Should be CCS an importantchoice to stabilize Climate Change?

CCS technologies Benefits

• It is possible to put them on biggest Greenhouse gases emission sourses;

• This technology is characterized by simple mechanisms (some of these are technically mature because they are used in the production process of fossil fuels).

Storage potential and costs in relation to use different kind of CCS

Fonte: IPCC (2005)

• IPCC (2005) has noted that storage world capacity should be up to 2,000 Gt/CO2 (545 GtC).

• This ammount it is less than 5,000-6,000 Gt/CO2 of fossil resources available on the global level (IPPC, 2005).

CCS is a “bridge” technology.

Main problems about the introduction and the diffusion of CCS technology

Benefit-Cost Analysis (BCA) to choice the best investment solution

between Three alternative projects,considering Two Mitigation Regimes

of Climate Change.

Should be the use of CCS an efficient choice to stabilize Climate Change?

High investment costs;

High operating costs.

The policy maker have to operate an investment choice in power sector continuing to exploite fossil fuel althought there is the Climate Change problem.

Three different investment projects.

Two mitigation regimes of Climate Change.

Tecnlical-engeneering datas and the information about costs are offered thanks to:

– the National Agency for New Technology, Energy and Economic Sustainable Development (ENEA) and – the Zero Emission Fossil Fuel Power Plants (ZEFFPP).

Analysis Focus

 •Project 1 Coal-fired power plant without any riduction options of CO2 emissions;

•Project 2 Coal-fired power plant with CCS oxycombustion;

•Project 3 Coal-fired power plant with CCS post-combustion by the use of ammines. 

Three investment projects

• Carbon tax Fixing a tax aroud to 24.06€/tCO2 per year (IEA, 2010). This tax hits a production activity and likewise a power plant that doesn’t use CCS.

• Emission Trading Scheme System that allocates emission rights to power plants that in theory they relase CO2.

Than thanks to the grandfathering system: power plants that use CCS can exchange their emission rights in the market for a price (around to 15,31 €/tCO2, average value of EUA on may 2010).

Two Mitigation Regimes of Climate Change

FONTE: Calabrò A., 2008. Analisi parametrica dei costi delle tecnologie CCS. ENEA.

   Progetto 1

Progetto 2

Progetto 3

SPECIFICHE DI IMPIANTOPotenza Lorda Mwe 445,00 445,00 445,00Energia Termica Annua Prodotta

GJ 24.920.627 24.170.844 28.353.731

En. Elettrica annua GWh 3.038 2.463 2.599

BILANCIO SULLA CO2

Emissione Specifica g/kWh 781,00 91,02 135,21CO2 Evitata g/kWh 0,00 690,41 646,21CO2 Catturata g/kWh 0,00 857,40 898,42

DATI DI COSTO Investimento Totale €/kWe 1.167,25 1.408,75 1.495,00Costo Personale annuo €/kWe 17,00 20,00 20,00Manutenzione annuo €/kWe 16,00 21,90 22,00Costi variabili senza combustione

€/Mwhe 1,00 1,10 1,10

Costo del Combustibile €/GJ 2,89 2,89 2,89Costo di Cattura della CO2

€/t CO2 0,00 34,3 36,7

Costo di Trasporto della CO2

€/t CO2 0,00 2,58 2,58

Costo di Stoccaggio della CO2

€/t CO2 0,00 6,45 6,45

Assumptions (1)

• Area of costruction nearest to:– the raw materials, – a station transmission power,– a water basin;

• Land: low price compared to the real market price (around 25% lower);

• Cost of fuel: hard coal 2,89 €/GJ (IEA, 2010);

• Price of production of electricity exploiting hard coal (Cost of Electricity): 6,22c €/kWh (ENEA, 2007);

• Kind of transport of CO2: 100 km long pipeline offshore;

Assumptions (2)

• Cost of trasport of CO2 : 2,58 €/tCO2 each 100 km/year;

• Tecnique of CO2 storing: the injection in Saline Aquifers;

• Cost of CO2 storing: 6,45 €/tCO2;

• Discount rate: ρ=5%;

• Costruction time: 3 years;

• Life Cicle Time: 40 years.

BCA: Financial AnalysisValuating the financial sustainability

Carbon tax

Emission Trading Scheme

The Economic Analysis of three investment projects was divided in:

•Phase 1 Corrections through the integration of the esternalities.

… In this analysis benefits thanks to CO2 capturated were considered only.

•Phase 2 From market prices to account values. This thanks to the use of Conversion Factors including social benefits and costs.

BCA: Economic Analysis

Summary of Economic Analysis Carbon tax

Emission Trading Scheme

The parameters of analysis were evaluated changing them more or less of 1%.

The main parameters, which are most important for the global ammount of investment project, have to:

– change the FIRR (or EIRR) around of the 1%; – or change the FNPV (or ENPV) around of the 5%.

BCA: Sensitivity Analisys(1)

BCA: Sensitivity Analysis (2)

Regime di Carbon TaxRegime di

Emission Trading Scheme

Valore della Produzione

(prezzo al kWh elettricità prodotta

annua)

Valore della Produzione

(prezzo al kWh elettricità prodotta

annua)

Costo del Combustibile

(costo annuo al GJ di carbone

impiegato)

Costo del Combustibile

(costo annuo al GJ di carbone

impiegato)

Carbon Tax

(livello di fissazione della tassa)

Costo/Provento Quote di Emissione

CO2

(prezzo applicato al permesso di

emissione)

CBA Conclusions

•The results of CBA support that the project 2 (coal-fired power plant with CCS oxycombustion) is the best choice because there is a optimal balance between the financial and economic side in carbon tax and Emission Trading Scheme mitigation regimes.

•The introduction of CCS (Carbon Capture and Storage) should be right thanks to a political decision that supports economically the use of this technology in order to producing the learning-by-doing effect.

Introducing CCSPolitical Economic assumpitions and implications:

a simulation by the DICE model (2007)

Dynamic Integrated model on Climate and Economy (DICE) 2007 version (Nordhaus, 1994; Nordhaus and Boyer, 2000). This is a model used to make an integrated evaluation of Climate Change damages and the stabilization strategies.

It was analyzed the optimal scenarios to introduce CCS in a time frame thanks to different political and economic strategies.

For example in the same time different levels of a carbon tax were compared with the temporal trends of investment/operating costs of altenative energies and the costs of the use of CCS with the consuption of fossil resources.

Resoults by DICE (2007) simulationsModified Version

STANDARD SCENARIO Fixing a livel of Carbon Tax at the cost of the use CCS (about $25/t CO2) CCS should be globally usual in the power sectors since the half of XX century.

Others resoults thanks particular fixed assumptionsin the DICE model (2007)

For Example: fixing the discount rate equal to zero, as Stern theory ; or assuming the economic value of future damages of Climate Chage tripled (this compared to the actual calculated value). The choice to introduce CCS in short period it will be economically right.

These latest assumptions are actually under hard discussions between the economists. It is not exluted that in the future these analysis should be result right.

Trought to the “Transaction age” and the “Backstop Technology”

Few months ago European Commission has decided to finace (4 BILLION euro) proposals of projects that include the diffusion of reneweble energies and the use of CCS.

Thanks for your attention

« Sono le azioni che contano. I nostri pensieri, per quanto buoni possano essere, sono perle false fintanto che non vengono trasformati in azioni. Sii tu stesso il cambiamento che vuoi vedere avvenire nel mondo ».

M. Gandhi